WORLD TRADE  
ORGANIZATION  WT/DS316/R 
30 June 2010 
 (10-3375) 
 Original:   English 
  
 
     
EUROPEAN COMMUNITIES AND CERTAIN MEMBER 
STATES –MEASURES AFFECTING TRADE IN  
LARGE CIVIL AIRCRAFT  
 
  
Report of the Panel 
 
 
 
  
 
 
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  WT/DS316/R 
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  TABLE OF CONTENTS 
Page  
LIST OF ANNEXES ................................................................................................................ .......................XIV  
TABLE OF CASES CITED IN THIS REPORT ........................................................................................... X V 
I. INTRODUCTION ................................................................................................................... ....................1  
A. COMPLAINT OF THE UNITED STATES ..........................................................................................................1  
B. ESTABLISHMENT AND COMPOSITION OF THE PANEL ..................................................................................1  
C. INFORMATION GATHERING PROCEDURE UNDER ANNEX  V OF THE SCM A GREEMENT ..............................2  
D. PANEL PROCEEDINGS ............................................................................................................................... ..2 
II. FACTUAL ASPECTS................................................................................................................ .............3  
A. PRODUCT AT ISSUE ............................................................................................................................... ......3 
B. MEASURES AT ISSUE ............................................................................................................................... ...4 
III. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS .......................................7  
A. UNITED STATES ............................................................................................................................... ...........7  
B. EUROPEAN COMMUNITIES ..........................................................................................................................7  
IV. ARGUMENTS OF THE PART IES....................................................................................................... 8 
A. PRELIMINARY ISSUES RAISED BY THE EUROPEAN COMMUNITIES ..............................................................8  
1. Arguments of the Eu ropean Communities.......................................................................................... ...8 
(a) Relevance of Other Internationa l Aircraft Rela ted Agreements................................................................... .8 
(b) Extinction and Extrac tion of Subsidies ......................................................................................... ..............10  
(c) Temporal Scope of the SCM Agreement ............................................................................................ ........15  
2. Arguments of th e United States ................................................................................................. ..........16  
(a) Relevance of Other International Aircraft Related Agreements..................................................................1 6 
(b) Extinction and Extrac tion of Subsidies ......................................................................................... ..............17  
(c) Temporal Scope of the SCM Agreement ............................................................................................ ........20  
B. WHETHER LAUNCH AID IS A SUBSIDY WITHIN THE MEANING OF ARTICLE  1 OF THE SCM A GREEMENT .21 
1. Arguments of th e United States ................................................................................................. ..........21  
(a) Launch Aid as  a Program........................................................................................................ ....................21  
(b) Launch Aid Constitutes a Financ ial Contributi on to Ai rbus ...................................................................... .23 
(c) Launch Aid Confers a Benefit on  Airbus......................................................................................... ...........23  
(d) Launch Aid is  Specific......................................................................................................... .......................25  
(e) Other issues................................................................................................................... ..............................25  
2. Arguments of the Eu ropean Communities.......................................................................................... .26 
(a) Member State Financing as a Programme.......................................................................................... .........27  
(b) US Failure to Prove that A member State Financi ng "Programme" Constitutes a Financial Contribution to 
Airbus 28  
(c) US Failure to Prove that A member State Financ ing "Programme" Confers a Benefit on Airbus ..............28  
C. WHETHER EACH GRANT OF LAUNCH AID TO AIRBUS IS A SPECIFIC SUBSIDY TO AIRBUS WITHIN THE 
MEANING OF ARTICLES  1 AND 2 OF THE SCM A GREEMENT ............................................................................29  
1. Arguments of the United States ................................................................................................. ..........29  
(a) Benefit ........................................................................................................................ ................................29  
(b) A350 ........................................................................................................................... ................................34  
2. Arguments of the Eu ropean Communities.......................................................................................... .35 
(a) 1992 Agreem ent................................................................................................................. .........................35  
(b) Reasonableness of forecasts.................................................................................................... ....................35  
(c) EC risk-sharing supplier benchmark and critique of US  benchmark ..........................................................36  
(d) Rates of return................................................................................................................ .............................39  
(e) A350 ........................................................................................................................... ................................40  
D. WHETHER THE LAUNCH AID THAT AIRBUS HAS RECEIVED FOR THE A380,  THE A340-500/600,  AND THE 
A330-200  ARE PROHIBITED EXPORT SUBSIDIES .................................................................................................40  
1. Arguments of the United States ................................................................................................. ..........40  
(a) A380 ........................................................................................................................... ................................40  
(b) A340-500/600 a nd A330- 200 ...................................................................................................... ...............41  WT/DS316/R 
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  (c) Export con tingency............................................................................................................. ........................41  
2. Arguments of the Eu ropean Communities.......................................................................................... .45 
(a) Preliminary Observations....................................................................................................... .....................46  
(b) No subsidies contingent in  law upon expor t perform ance ......................................................................... .50 
(c) No subsidies contingent in fact upon expor t perform ance ........................................................................ ..50 
E. WHETHER CERTAIN LOANS FROM THE EUROPEAN INVESTMENT BANK SUBSIDIZED THE DEVELOPMENT 
OF AIRBUS LARGE CIVIL AIRCRAFT ..................................................................................................................53  
1. Arguments of the United States ................................................................................................. ..........53  
2. Arguments of the Eu ropean Communities.......................................................................................... .57 
F. WHETHER THE GERMAN , FRENCH , UK,  AND SPANISH GOVERNMENTS HAVE SUBSIDIZED AIRBUS 
THROUGH THE PROVISION OF INFRASTRUCTURE AND INFRASTRUCTURE -RELATED GRANTS ............................60  
1. Arguments of the United States ................................................................................................. ..........60  
(a) Alleged infrastruc ture subsidies............................................................................................... ...................60  
(i) Hamburg ........................................................................................................................ .............................60  
(ii) Bremen......................................................................................................................... ..........................63  
(iii) Toulouse ....................................................................................................................... .........................63  
(b) Regional Aid................................................................................................................... ............................64  
(i) Nordenham ...................................................................................................................... ...........................64  
(ii) Brought on ...................................................................................................................... ........................64  
(iii) La Rinconada ................................................................................................................... ......................64  
(iv) Illescas ....................................................................................................................... ............................65  
(v) La Rinconada ................................................................................................................... ......................65  
(vi) Puerto de Sa nta Maria.......................................................................................................... ..................65  
(vii) Puerto Real.................................................................................................................... .........................65  
(viii) Puerto de Sa nta Maria.......................................................................................................... ..................65  
(ix) Sevilla ........................................................................................................................ ............................66  
(x) Puerto Real.................................................................................................................... .........................66  
(xi) Illescas ....................................................................................................................... ............................66  
(xii) La Rinconada ................................................................................................................... ......................66  
(c) General infr astructure ......................................................................................................... ........................66  
(d) Specificity of regional aid.................................................................................................... .......................68  
2. Arguments of the Eu ropean Communities.......................................................................................... .69 
(a) General Infra structure......................................................................................................... ........................69  
(b) The challenged measures do not confer a benefit ................................................................................ .......71  
(i) Hamburg ........................................................................................................................ .............................71  
(ii) Bremen......................................................................................................................... ..........................73  
(iii) Toulouse ....................................................................................................................... .........................73  
(iv) Regional infrastruc ture measures............................................................................................... ............73  
(c) Specificity of regional aid.................................................................................................... .......................74  
G. WHETHER THE GERMAN GOVERNMENT HAS SUBSIDIZED AIRBUS BY ITS DECISION IN 1998  FORGIVING AT 
LEAST DM  7.7 BILLION OF DEUTSCHE AIRBUS ' GOVERNMENT DEBT................................................................74  
1. Arguments of the United States ................................................................................................. ..........74  
2. Arguments of the Eu ropean Communities.......................................................................................... .75 
H. WHETHER THE GERMAN GOVERNMENT 'S 1989  INVESTMENT IN DEUTSCHE AIRBUS OR THE SUBSEQUENT 
1992  TRANSFER OF ITS OWNERSHIP SHARE IN DEUTSCHE AIRBUS TO THE DAIMLER GROUP IS A SPECIFIC 
SUBSIDY TO AIRBUS ............................................................................................................................... ...........77  
1. Arguments of the United States ................................................................................................. ..........77  
2. Arguments of the Eu ropean Communities.......................................................................................... .78 
I. WHETHER CERTAIN CAPITAL CONTRIBUTIONS AND 1998  TRANSFER OF DASSAULT SHARES TO 
AÉROSPATIALE ARE SPECIFIC SUBSIDIES TO AIRBUS  SAS................................................................................80  
1. Arguments of the United States ................................................................................................. ..........80  
2. Arguments of the Eu ropean Communities.......................................................................................... .81 
J. WHETHER RESEARCH AND DEVELOPMENT FUNDING THAT THE EUROPEAN COMMISSION AND THE 
MEMBER STATES PROVIDE TO AIRBUS ARE SPECIFIC SUBSIDIES .......................................................................83  
1. Arguments of the United States ................................................................................................. ..........83  
(a) EC Framewor k Progr ams.......................................................................................................... ..................83  
(b) German fundi ng................................................................................................................. .........................84  
(c) French fundi ng................................................................................................................. ...........................84  
(d) UK fundi ng..................................................................................................................... ............................85  
(e) Spanish fundi ng ................................................................................................................ ..........................85   WT/DS316/R 
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  (f) Relevant amounts a nd specificity ............................................................................................... .....................86  
2. Arguments of the Eu ropean Communities.......................................................................................... .87 
K. WHETHER THE SUBSIDIES HAVE CAUSED ADVERSE EFFECTS TO THE INTERESTS OF THE UNITED STATES 89 
1. Arguments of the United States ................................................................................................. ..........89  
(a) Conditions of Competitio n in the LC A Market.................................................................................... .......90  
(b) Subsidized and like product.................................................................................................... ....................92  
(c) Reference period............................................................................................................... ..........................94  
(d) Injury Within the Mean ing of Artic le 5(a)...................................................................................... ............95  
(e) Serious Prejudice to th e Interests of the US................................................................................... .............97  
(i) Subsidized Airbus LCA Have Displaced or Impeded Imports of US-Produced LCA in the EC Market....97  
(ii) Subsidized Airbus LCA Have Displaced or Impede d Exports of US-Produced LCA in Third-Country 
Markets ....................................................................................................................... ........................................98  
(iii) Subsidized Airbus LCA Have Undercut Pr ices and Taken Sales of Boeing  LCA .................................98  
(iv) Boeing Has Experienced Price Suppression and Pri ce Depression for Its LCA Sales in the World 
Market ........................................................................................................................ .....................................100  
(v) Subsidies Cause These Adve rse Market Effects ..................................................................................1 00 
(vi) Conclu sions.................................................................................................................... ......................106  
2. Arguments of the Eur opean Communities......................................................................................... 1 07 
(a) 1992 Agreement – " Volenti non fit Injuria "..............................................................................................108  
(b) Reference Period............................................................................................................... ........................109  
(c) Subsidized and like product.................................................................................................... ..................114  
(d) Material Injury................................................................................................................ ..........................116  
(e) Causation ...................................................................................................................... ............................120  
(i) Magnitude of the Subsidy ....................................................................................................... ..................120  
(ii) US Causati on Theo ries.......................................................................................................... ...............122  
US historical product la unch causati on theory.................................................................................. .............123  
US cash-flow price ef fects causation theory.................................................................................... ..............126  
Cumulative US cau sation arguments.............................................................................................. ...............128  
(iii) Serious Pr ejudice .............................................................................................................. ...................128  
Intervening Events and N on-Attributi on Factors................................................................................. ..........128  
EC Responses to US Allegati ons of Price Undercu tting........................................................................... .....131  
EC Arguments Responding to US  Lost Sales Allegations........................................................................... ..133 
EC Responses to US Allegations of  Displacement or  Impedance .................................................................136  
EC Responses to US Allegations Regard ing Price Suppression and Depre ssion ...........................................141  
(f) Conclu sions .................................................................................................................... ...............................144  
V. ARGUMENTS OF THE THIRD PARTIES ......................................................................................... 146  
A. AUSTRALIA ............................................................................................................................... ............. 147  
1. The 1979 and 1 992 Agreements................................................................................................... ..... 147  
(a) The 1979 and 1992 Agreements  as appli cable law ................................................................................. ..147 
(b) The 1979 and 1992 Agreements as aids to interpretation of th e SCM Agr eement ...................................147  
2. Applicability of the SCM Agreemen t to Pre-1995 subsidies ............................................................. 148  
3. In Fact Export  Contingency ..................................................................................................... ......... 149  
4. Adverse E ffects................................................................................................................ .................. 151  
(a) Temporal issues regarding the US claim of adverse effects...................................................................... 151 
(b) Causation ...................................................................................................................... ............................152  
(c) Magnitude of the subs idy and me thodology ....................................................................................... ......152  
(d) Relevance of the concepts of 'subs idized product' a nd 'like pr oduct' ........................................................152  
(e) US' characterization of the 'subsidized  product' and the 'like produ ct'......................................................15 3 
(f) Legal considerations in determining the 's ubsidized product' and the 'like product' ......................................153  
5. General Infr astructure ......................................................................................................... ............. 154  
6. Regional Sp ecific ity........................................................................................................... ................ 155  
7. Extinguishment of Subsidies.................................................................................................... .......... 155  
8. Withdrawal of the subsidy...................................................................................................... ........... 156  
B. BRAZIL ............................................................................................................................... .................... 156  
1. Introduc tion................................................................................................................... .................... 156  
2. The SCM Agreement applies in all re spects to the airc raft sector.................................................... 156  
3. Subsidies provided before 1 January 1995 should be excluded from the scope of this proceeding.. 157  
4. The EC failure to cooperate in the Annex V process threatens to undermine the WTO dispute 
settlement process and should result in the application of inferences, including adverse inferences, where 
appropriate .................................................................................................................... ............................ 158  WT/DS316/R 
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  5. "Launch aid" severely distorts the markets for aircraft and constitutes a specific subsidy .............. 158  
6. The Panel should avoid a narrow interpreta tion of de facto expor t continge ncy ............................. 160  
7. The US has made a prima facie case that the subsidies to Airbus cause adverse effects or the threat 
thereof........................................................................................................................ ................................ 161  
C. CANADA ............................................................................................................................... .................. 164  
1. Introduc tion................................................................................................................... .................... 164  
2. De facto Export Contingency .................................................................................................... ........ 164  
3. Infrastructure ................................................................................................................. ................... 166  
4. Serious Pr ejudi ce .............................................................................................................. ................ 169  
(a) Like Pr oduct ................................................................................................................... ..........................169  
(b) Causation and the US Aggregated Analysis ....................................................................................... ......171  
(i) Aggregation of  Subsidies....................................................................................................... ...................171  
(ii) Aggregation of Subsidies Regardless of When Granted and Expe nded...............................................172  
(iii) Aggregation of Research and Development (R&D ) Program s ............................................................172  
(iv) The US fails to demonstrate the causa l link required unde r Article 6.3 ...............................................173  
5. Conclusion ..................................................................................................................... ................... 174  
D. CHINA ............................................................................................................................... ..................... 174  
1. Introduc tion................................................................................................................... .................... 174  
2. In fact export contingency under Article  3.1(a) of the SCM Agreement ........................................... 174  
3. Non attribution analysis in th e context of joint claims unde r Article 5 (a) and (c)........................... 175  
4. Conclusion ..................................................................................................................... ................... 176  
E. JAPAN ............................................................................................................................... ...................... 177  
1. Subsidy measures that came into existence pr ior to January 1, 1995 are subject to the 
SCM Agreement if they provided a be nefit on or afte r that date ............................................................... 17 7 
2. The Panel is authorized to take into account evidence of any continuing adverse effects after the date 
of establishment of the Panel .................................................................................................. ................... 179  
3. Demonstrating causation requires detailed analys is of relevant facts and economic data............... 180  
4. The Panel is authorized to examine alleged subsid ies whose adverse effects have ceased to exist .. 181  
5. Arm's-length, fair market value transac tions extinguish alle ged subsidies....................................... 182  
6. Mere anticipation of exports is not proof of de facto export  contingency......................................... 183  
F. KOREA ............................................................................................................................... .................... 185  
1. Introduc tion................................................................................................................... .................... 185  
2. The standard of proof required to establish a prima facie case in a subsidy dispute ....................... 185  
(a) The legal standard to establish a prima facie  case ....................................................................................185  
(i) "Evidence sufficient to demonstrate"........................................................................................... .............185  
(ii) Prima facie evidence sets a higher sta ndard than Article 6.2 of th e DSU ............................................186  
(b) Other factors relevant to prima facie  evidence .........................................................................................186  
(i) Difficulty of collecting info rmation to pr ove a case ........................................................................... ......186  
(ii) The Panel's obligation to invest igate under Article 13 of the DSU does not override the party's 
obligation to establish prima facie evidence................................................................................... ....................186  
(iii) Summary........................................................................................................................ ......................186  
(c) Standard of Review by the Pane l under Article 11 of the DSU ................................................................187  
3. The meaning of general infrastructure under Ar ticle 1.1(a)(1)(iii) of the SCM Agreement ............. 187  
4. The interpretation of "Benefit" within the meaning  of Article 1.1(b) of the SCM Agreement........... 187  
5. De facto contingency of export subsidies under  Article 3.1(a) of the SCM Agreement .................... 188  
VI. INTERIM REVIEW ................................................................................................................. .......... 189  
A. INTRODUCTION ............................................................................................................................... ........ 189  
B. GENERAL COMMENTS ............................................................................................................................ 189  
1. Use of the term "EC"........................................................................................................... .............. 189  
2. Specific references to  BCI/HSBI  exhibits....................................................................................... ... 190  
3. Consistency and accu racy in names.............................................................................................. .... 190  
4. Text in French  or Spanish ...................................................................................................... ........... 191  
C. PRELIMINARY RULING ........................................................................................................................... 192  
1. Paragraph 7.46 ................................................................................................................. ................ 192  
2. Paragraph 7.92 and footnote 1613 ............................................................................................... .... 193  
D. IDENTITY OF THE ALLEGED SUBSIDY RECIPIENT AND PASS -THROUGH , EXTINCTION AND EXTRACTION OF 
SUBSIDIES ............................................................................................................................... ......................... 193   WT/DS316/R 
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  1. Paragraph 7.248 ................................................................................................................ ............... 193  
2. Paragraph 7.275 and  Footnot e 1925.............................................................................................. .. 194 
3. Section VII.E.1 Attachment:  Corporate History of Airbus, paragraph 2......................................... 195  
4. Section VII.E.1 Attachment:  Corporate History of Airbus, paragraph 3......................................... 195  
5. Section VII.E.1 Attachment:  Corporate History of Airbus, paragraph 6......................................... 196  
E. THE ALLEGED LA/MSF  MEASURE FOR THE A350 ................................................................................. 196  
1. Paragraph 7.300 ................................................................................................................ ............... 196  
2. Paragraph 7.307 ................................................................................................................ ............... 197  
F. WHETHER EACH OF THE INDIVIDUAL GRANTS OF LA/MSF  FOR THE A300,  A310,  A320,  A330/A340,  
A330-200,  A340-500/600  AND A380  MODELS OF LCA  CONSTITUTES A SUBSIDY WITHIN THE MEANING OF 
ARTICLE  1 OF THE SCM A GREEMENT ............................................................................................................ 198  
1. Paragraph 7.374 and  footnote 2155 .............................................................................................. ... 198  
2. Paragraph 7.375 ................................................................................................................ ............... 199  
3. Table 1 (following paragraph 7. 380) and footnote 2172 .................................................................. 199  
4. Paragraph 7.407 ................................................................................................................ ............... 200  
5. Paragraph 7.409 ................................................................................................................ ............... 200  
6. Paragraph 7.416 ................................................................................................................ ............... 201  
7. Paragraph 7.426 ................................................................................................................ ............... 203  
8. Paragraph 7.429 ................................................................................................................ ............... 203  
9. Paragraphs 7.430 – 7.464....................................................................................................... .......... 204  
10. Paragraph 7.476................................................................................................................ ........... 204  
11. Paragraph 7.483................................................................................................................ ........... 205  
G. WHETHER LA/MSF  AS A PROGRAMME IS A SUBSIDY WITHIN THE MEANING OF ARTICLE  1 OF THE 
SCM A GREEMENT ............................................................................................................................... ........... 205  
1. Paragraphs 7.49 5 and 7.508 ..................................................................................................... ........ 205  
2. Footnote  2469 .................................................................................................................. ................. 206  
3. Footnote  2473 .................................................................................................................. ................. 207  
4. Footnote  2478 .................................................................................................................. ................. 207  
H. WHETHER LA/MSF  FOR THE A380,  A340-500/600  AND THE A330-200,  CONSTITUTES , IN EACH CASE , A 
PROHIBITED EXPORT SUBSIDY WITHIN THE MEANING OF ARTICLE  3 OF THE SCM A GREEMENT ..................... 208  
1. Paragraph 7.583, second sentence............................................................................................... ..... 208  
2. Paragraph 7.625, third, fourth, fifth and fina l sentences; paragraph 7.626 first sentence; 
paragraph 7.627; and paragraph 7.62 8, fourth and fifth  sentences.......................................................... 210  
3. Paragraph 7.633 ................................................................................................................ ............... 213  
4. Paragraph 7.645, second bullet point and paragraph 7.655, seven th bullet point ........................... 213  
5. Paragraph 7.655, fourth bullet point, items (h) and (i)..................................................................... 214  
6. Paragraphs 7.674 - 7.682 ....................................................................................................... .......... 214  
7. Paragraph 7.677 ................................................................................................................ ............... 216  
8. Paragraph 7.679 ................................................................................................................ ............... 216  
9. Paragraphs 7. 690-7. 710 ......................................................................................................... .......... 217  
I. WHETHER CERTAIN EUROPEAN INVESTMENT BANK LOANS TO AIRBUS ARE SPECIFIC SUBSIDIES WITHIN 
THE MEANING OF ARTICLES  1 AND 2 OF THE SCM A GREEMENT ..................................................................... 218  
1. Paragraphs 7.744, 7.747, 7.781, 7.795, 7.814, 7.854, 7.856, 7.857, 7.862 and 7.875 ..................... 218  
2. Paragraph 7.753 and  footnote 3041 .............................................................................................. ... 219  
3. Paragraphs 7.76 0 and 7.779 ..................................................................................................... ........ 219  
4. Paragraphs 7.783, 7.791 and 7.793.............................................................................................. .... 220  
5. Paragraphs 7. 733-7. 833 ......................................................................................................... .......... 221  
6. Paragraph 7.966 ................................................................................................................ ............... 222  
7. Paragraphs 7.983-7.984  and 7.987-7.989 ........................................................................................ 2 22 
8. Paragraphs 7.983, 7.987 and 7.998.............................................................................................. .... 222  
9. Paragraph 7.996 ................................................................................................................ ............... 223  
J. WHETHER THE GERMAN , FRENCH , UK,  AND SPANISH GOVERNMENTS HAVE SUBSIDIZED AIRBUS 
THROUGH THE PROVISION OF INFRASTRUCTURE AND INFRASTRUCTURE -RELATED GRANTS ......................... 223  
1. Paragraphs 7.1012 and 7.1035................................................................................................... ...... 223  
2. Paragraph 7.1036 ............................................................................................................... .............. 224  
3. Paragraph 7.1044, footnote  3547 ................................................................................................ ..... 224  
4. Paragraph 7.1059 ............................................................................................................... .............. 225  WT/DS316/R 
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  5. Paragraph 7.1061 ............................................................................................................... .............. 225  
6. Paragraph 7.1080 ............................................................................................................... .............. 226  
7. Paragraph 7.1087 ............................................................................................................... .............. 226  
8. Paragraph 7.1086, footnote  3652 ................................................................................................ ..... 227  
9. Paragraph 7.1087, footnote  3655 ................................................................................................ ..... 227  
10. Paragraph 7.1120............................................................................................................... .......... 227  
11. Paragraph 7.1124............................................................................................................... .......... 228  
12. Paragraph 7.1131............................................................................................................... .......... 229  
13. Paragraph 7.1167, footnote  3840................................................................................................ .23 0 
14. Paragraph 7.1171............................................................................................................... .......... 230  
15. Paragraph 7.1193............................................................................................................... .......... 231  
16. Paragraph 7.1227 an d footnote 3920........................................................................................... 23 1 
K. WHETHER THE GERMAN GOVERNMENT 'S TRANSFER OF ITS OWNERSHIP SHARE IN DEUTSCHE AIRBUS TO 
THE DAIMLER GROUP IS A SPECIFIC SUBSIDY TO AIRBUS .................................................................................. 234  
1. Paragraph 7.1235 ............................................................................................................... .............. 234  
L. WHETHER THE GERMAN GOVERNMENT HAS SUBSIDIZED AIRBUS BY FORGIVING AT LEAST DM  7.7 BILLION 
OF DEUTSCHE AIRBUS ' GOVERNMENT DEBT ..................................................................................................... 235  
1. Paragraph 7.1302 and footnot e 4060 ............................................................................................. .. 235 
2. Paragraph 7.1304 ............................................................................................................... .............. 235  
3. Footnote  4074 .................................................................................................................. ................. 236  
M. WHETHER THE EQUITY INFUSIONS THAT THE FRENCH GOVERNMENT PROVIDED TO AEROSPATIALE ARE 
SPECIFIC SUBSIDIES ............................................................................................................................... .......... 237  
1. Paragraph 7.1315 ............................................................................................................... .............. 237  
2. Paragraph 7.1332 and footnot e 4125 ............................................................................................. .. 238 
3. Paragraph 7.1336 ............................................................................................................... .............. 239  
4. Paragraph 7.1364 ............................................................................................................... .............. 239  
N. WHETHER RESEARCH AND TECHNOLOGICAL DEVELOPMENT FUNDING THAT THE EUROPEAN COMMISSION 
AND THE MEMBER STATES PROVIDE TO AIRBUS ARE SPECIFIC SUBSIDIES ....................................................... 240  
1. Paragraph 7.1410 ............................................................................................................... .............. 240  
2. Paragraph 7.1413, third sent ence and footnote 4292....................................................................... 240  
3. Paragraphs 7.1419, 7.1425, 7. 1431, 7.1437 an d 7.1443 .................................................................. 240  
4. Paragraphs 7.1416-7.1445 ....................................................................................................... ........ 241  
5. Paragraphs 7.1425, 7.1427, 7.1430, 7.1431, 7.1433, 7.1442, 7.14 43 and 7.1445 ........................... 242  
6. Paragraphs 7.1436, 7. 1437 and 7.1439........................................................................................... .24 3 
7. Paragraph 7.1461 ............................................................................................................... .............. 243  
8. Paragraph 7.1481 ............................................................................................................... .............. 244  
9. Paragraphs 7.1502, 1551 and 1552............................................................................................... ... 245  
O. ADVERSE EFFECTS ............................................................................................................................... .. 245 
1. Paragraph 7.1610 ............................................................................................................... .............. 245  
2. Paragraph 7.1664 ............................................................................................................... .............. 245  
3. Paragraph 7.1693, footnote  4785 ................................................................................................ ..... 246  
4. Paragraphs 7.1741-1747 ......................................................................................................... ......... 246  
5. Paragraphs 7.1762-7.1781 ....................................................................................................... ........ 247  
6. Paragraph 7.1773 ............................................................................................................... .............. 251  
7. Paragraph 7.1790 ............................................................................................................... .............. 251  
8. Paragraph 7.1856 ............................................................................................................... .............. 252  
9. Paragraph 7.1861 ............................................................................................................... .............. 254  
10. Paragraph 7.1863............................................................................................................... .......... 254  
11. Paragraph 7.1891............................................................................................................... .......... 255  
12. Paragraph 7.1893............................................................................................................... .......... 256  
13. Paragraphs 7.1917-7.1918, 7.1919-7.192 0, 7.1926-7.1927,  and 7.192 8..................................... 256  
14. Paragraph 7.1952............................................................................................................... .......... 257  
15. Paragraph 7.1954............................................................................................................... .......... 258  
16. Paragraph 7.1958............................................................................................................... .......... 258  
17. Paragraph 7.1961............................................................................................................... .......... 259  
P. CONCLUSIONS AND RECOMMENDATION ................................................................................................. 260  
1. Paragraph 8.6 .................................................................................................................. ................. 260   WT/DS316/R 
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  Q. BCI/HSBI  DESIGNATIONS ...................................................................................................................... 260  
1. Footnote 2158 and paragraph 7.410 .............................................................................................. .. 260 
2. Paragraphs 7.426 and 7.483  (tables 5 and 7)................................................................................... 2 60 
3. Paragraph 7.1916 ............................................................................................................... .............. 261  
4. Paragraph 7.1960 ............................................................................................................... .............. 261  
VII. FINDINGS ....................................................................................................................... .................... 262  
A. GENERAL INTRODUCTION ...................................................................................................................... 262  
B. RELEVANT PRINCIPLES REGARDING STANDARD OF REVIEW , TREATY INTERPRETATION , AND BURDEN OF 
PROOF ............................................................................................................................... .............................. 262  
1. Standard of  Review ............................................................................................................. .............. 262  
2. Relevant Principles of Treaty Inte rpretation................................................................................... .. 263 
3. Burden of Proof................................................................................................................ ................. 263  
C. PRELIMINARY RULING ........................................................................................................................... 264  
1. Introduc tion................................................................................................................... .................... 264  
2. Issues relating to the tempor al scope of th is dispute......................................................................... 2 65 
(a) Backgr ound..................................................................................................................... ..........................265  
(b) Article 5 of the SCM Agreement ................................................................................................. .............267  
(i) Arguments of the Eu ropean Communities.......................................................................................... ......267  
(ii) Arguments of the United States ................................................................................................. ..........269  
(iii) Arguments of Th ird Part ies..................................................................................................... .............270  
(iv) Responses of the Parties to the Arguments of Th ird Part ies.................................................................272  
(v) Evaluation by  the Panel....................................................................................................... ................273  
(c) Relevance of the 1992 Agreement Between the European Communities and the United States to the 
Temporal Scope of These Proceedings............................................................................................ ........................280  
(i) Introduc tion ................................................................................................................... ...........................280  
(ii) Arguments of the Eu ropean Communities .......................................................................................... .282 
The 1992 Agreement as  'applicab le law'......................................................................................... ...............282  
The 1992 Agreement as a "relevant rule of internatio nal law" applicable to the interpretation of the 
SCM Agreement.................................................................................................................. ..........................282  
The 1992 Agreement as giving rise to an  estoppel against th e United St ates ................................................283  
(iii) Arguments of the United States ................................................................................................. ..........285  
The 1992 Agreement as  'applicab le law'......................................................................................... ...............285  
The 1992 Agreement as a "relevant rule of internatio nal law" applicable to the interpretation of the 
SCM Agreement.................................................................................................................. ..........................286  
The 1992 Agreement as giving rise to an  estoppel against th e United St ates ................................................286  
(iv) Arguments  of Third Parties.................................................................................................... .............287  
(v) Evaluation by the Panel........................................................................................................ ................288  
The 'application' of the 1992 Ag reement ........................................................................................ ...............288  
The 1992 Agreement as a relevant rule of interna tional law applicable to the interpretation of the 
SCM Agreement.................................................................................................................. ..........................291  
The 1992 Agreement gives rise to an estoppel preventing consideration of measures of support provided prior 
to the effective date of the 1992 Agreement .................................................................................... ..............292  
3. Non-Temporal Scope Issues...................................................................................................... ........ 293  
(a) Backgr ound..................................................................................................................... ..........................293  
(b) Support for the Airbus A350.................................................................................................... .................294  
(i) Arguments of the Eu ropean Communities.......................................................................................... ......294  
(ii) Arguments of the United States ................................................................................................. ..........294  
(iii) Evaluation by the Panel........................................................................................................ ................295  
(c) Measures Allegedly Not Previous ly Subject to Consulta tions..................................................................296  
(i) Arguments of the Eu ropean Communities.......................................................................................... ......296  
(ii) Arguments of the United States ................................................................................................. ..........297  
(iii) Evaluation by the Panel........................................................................................................ ................298  
Launch aid for the Airbus A350 (Sec tion (1) of the panel request) .............................................................. .299 
EIB financing to Aérospatiale for the Super Tran sporteurs (Section (2)(e) of  the panel request)..................300  
Funding from the French government for civil aeronautics -related R&D projects in wh ich Airbus participated 
(Section (6)(e) of th e panel re quest). ......................................................................................... ....................301  
Provision by certain enumerated German, French and UK research institutions of civil aeronautics R&D-
related goods and services to Airbus (Section (6 )(f) of the United Stat es' panel request)..............................302  
(d) Measures Allegedly not Adequately Identified in the Panel Re quest .......................................................302  
(i) Arguments of the Eu ropean Communities.......................................................................................... ......302  WT/DS316/R 
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  (ii) Arguments of the United States ................................................................................................. ..........303  
(iii) Evaluation by the Panel........................................................................................................ ................304  
Funding from the French government for civil aeronautics -related R&D projects in wh ich Airbus participated 
(Section (6)(e) of the United  States' pane l request)........................................................................... .............304  
Financial contributions to develop, expand, and upgr ade facilities and other infrastructure for the Airbus 
companies in certain locations in German, France, Sp ain and the United Kingdom (Section (3) of the United 
States' panel request). ........................................................................................................ ............................306  
The assumption of debt by the Spanish government on behalf of the Spanish Airbus company CASA (Section 
(4) of the United Stat es' panel request). ...................................................................................... ...................307  
The provision by certain enumerated German, French , and UK research institutions of civil aeronautics 
R&D-related goods or services to Airbus (Sec tion (6)(f) of the United St ates' panel request). .....................307  
D. OTHER PRELIMINARY MATTERS ............................................................................................................. 315  
1. Requests for Enhanced Third Part y Rights ....................................................................................... 315 
(a) Arguments of the Partie s and Third Parties ..................................................................................... .........315  
(b) Evaluation by the Panel ........................................................................................................ ....................317  
2. Decision on Proper Respondent.................................................................................................. ...... 319  
E. WHETHER THE CHALLENGED MEASURES ARE SPECIFIC SUBSIDIES WITHIN THE MEANING OF ARTICLES  1 
AND 2 OF THE SCM A GREEMENT .................................................................................................................... 323  
1. Identity of the Alleged Subsidy Recipient and pass- through, extinction and extraction of Subsidies323  
(a) Introduc tion ................................................................................................................... ...........................323  
(b) "Pass-th rough" ................................................................................................................. .........................326  
(i) Arguments of the Parties....................................................................................................... ....................326  
European Co mmunities ........................................................................................................... ......................326  
United States.................................................................................................................. ................................328  
(ii) Evaluation by the Panel........................................................................................................ ................328  
(c) Extinction of  benefit .......................................................................................................... .......................332  
(i) Arguments of the parties....................................................................................................... ....................332  
European Co mmunities ........................................................................................................... ......................332  
United States.................................................................................................................. ................................334  
(ii) Arguments of Th ird Part ies..................................................................................................... .............335  
Australia ...................................................................................................................... ..................................335  
Brazil ......................................................................................................................... ....................................335  
Japan.......................................................................................................................... ....................................336  
(iii) Evaluation by the Panel........................................................................................................ ................336  
(d) Alternative findi ngs ........................................................................................................... .......................340  
(e) Extraction of benefit and w ithdrawal of subsidies .............................................................................. ......351  
(i) Introduc tion ................................................................................................................... ...........................351  
(ii) Arguments of the Parties....................................................................................................... ...............352  
European Co mmunities ........................................................................................................... ......................352  
United States.................................................................................................................. ................................353  
(iii) Evaluation by the Panel........................................................................................................ ................354  
Cash "extractions" and the extinction of benefits  conferred by prior fi nancial cont ributions ........................354  
Alternative finding on cash "extractions" ...................................................................................... ................354  
Cash "extractions" and the "withdrawal" of subsidies within the meaning of Articles 4.7 and 7.8 of the 
SCM Agreement.................................................................................................................. ..........................357  
(f) Conclu sion..................................................................................................................... ................................359  
2. Launch Aid / member State Financing............................................................................................ .. 365 
(a) Introduc tion ................................................................................................................... ...........................365  
(b) The alleged LA/MSF M easure for the A350 ........................................................................................ ....369  
(c) Consistency of LA/MSF with the 1979 Tokyo Round S ubsidies and Countervailing Measures Code.....377  
(i) Arguments of the Parties....................................................................................................... ....................377  
European Co mmunities ........................................................................................................... ......................377  
United States.................................................................................................................. ................................378  
(ii) Evaluation by the Panel........................................................................................................ ................379  
(d) Whether each of the individual grants of LA/M SF for the A300, A310, A320, A330/A340, A330-200, 
A340-500/600 and A380 models of LCA constitutes a subsidy within th e meaning of Article 1 of the 
SCM Agreement.................................................................................................................. ....................................381  
(i) Arguments of the Parties....................................................................................................... ....................381  
United States.................................................................................................................. ................................381  
European Co mmunities ........................................................................................................... ......................384  
(ii) Arguments of Th ird Part ies..................................................................................................... .............388  
Australia ...................................................................................................................... ..................................388   WT/DS316/R 
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  Brazil ......................................................................................................................... ....................................388  
Canada......................................................................................................................... ..................................391  
Korea .......................................................................................................................... ...................................392  
(iii) Evaluation by the Panel........................................................................................................ ................392  
Overview of LCA Development a nd Key Features of LA/M SF....................................................................393  
Do the Challenged Measures involv e a "Financial C ontributi on"?................................................................3 97 
Do the Challenged Measur es confer a "benefit"? ................................................................................. .........401  
Whether the LA/MSF subsidies are specific within the meaning of Article 2 of the SCM Agreement .........442  
3. Whether LA/MSF as a Programme is a Subsidy Within the Meaning of Article 1 of the 
SCM Agreement .................................................................................................................. ....................... 443  
(a) Arguments of the United States ................................................................................................. ...............443  
(b) Arguments of the Eu ropean Communities.......................................................................................... ......445  
(c) Evaluation by the Panel ........................................................................................................ ....................447  
(i) Does the alleged LA/M SF Programme exist?....................................................................................... ....447  
The LA/MSF c ontracts ........................................................................................................... .......................451  
Inter-governmental Ins titutional St ructures .................................................................................... ...............455  
National Bure aucracies......................................................................................................... .........................466  
Statements by EC, EC member State and Airbus official s and employees....................................................467  
Perceptions of Cred it Rating Agencies .......................................................................................... ................470  
(ii) Conclu sion ..................................................................................................................... ......................473  
4. Whether LA/MSF for the A380, A340-500/600 and the A330-200, constitutes, in each case, a 
prohibited export subsidy within the meanin g of Article 3 of th e SCM Agreement ................................... 474  
(a) Arguments of the United States ................................................................................................. ...............474  
(b) Arguments of the Eu ropean Communities.......................................................................................... ......476  
(c) Arguments of Th ird Part ies..................................................................................................... ..................479  
(i) Australia...................................................................................................................... ..............................479  
(ii) Brazil......................................................................................................................... ...........................480  
(iii) Canada ......................................................................................................................... ........................480  
(iv) China.......................................................................................................................... ..........................481  
(v) Japan .......................................................................................................................... ..........................482  
(vi) Korea.......................................................................................................................... ..........................482  
(d) Evaluation by the Panel ........................................................................................................ ....................483  
(i) The European Communities' Request to Dismiss Certain Allegedly New Claims made in the United States' 
Second Written Submis sion...................................................................................................... ..........................483  
New claims allegedly not identified in the re quest for consultations and the pane l request ..........................483  
United States' alleged failure to identify in its panel re quest the precise facts relied upon to make out its in 
fact export cont ingency claims ................................................................................................. .....................485  
New facts and arguments allegedly introduced in  contravention of the Working Pro cedures .......................485  
(ii) Whether the LA/MSF Measures Amount  to Subsidies that are In F act Contingent upon Anticipated 
Export Perfo rmance............................................................................................................. ...............................487  
"Granting of a subsidy" ........................................................................................................ .........................496  
Whether the EC member State governments "ant icipated exportation or  export ear nings" ...........................496  
Whether the granting of the LA/MSF was "tied to" anticipated exportation or  export earnings....................503  
Whether the sales-dependent repa yment provisions of the challenged LA/MSF measures amount to 
exchanges of commitments that evidence contingency in  fact upon anticipated exportation or export earnings
............................................................................................................................... ........................................513  
Other "additiona l" evidence.................................................................................................... .......................519  
Conclu sion..................................................................................................................... ................................522  
(iii) Whether the LA/MSF Measures Amount  to Subsidies that are Conti ngent In Law upon Anticipated 
Export Perfo rmance............................................................................................................. ...............................523  
Contingency in law upon anti cipated export performance......................................................................... ....524  
Evidence the United States asserts demonstrates th at the LA/MSF subsidies were granted contingent in law  
upon anticipated e xport perfo rmance............................................................................................ .................526  
Whether the evidence the United States relies upon demonstrates that the LA/MSF subsidies were granted 
contingent in law  upon anticipated e xport perform ance ................................................................................531  
5. Whether certain European Investment Bank loans to Airbus are specific subsidies within the meaning 
of Articles 1 and 2 of  the SCM Agreement....................................................................................... .......... 532  
(a) Introduc tion ................................................................................................................... ...........................532  
(i) Loans Already Repaid ........................................................................................................... ...................534  
(ii) 1991 Loan to Britis h Aerosp ace................................................................................................. ..........536  
(b) Whether Each of the Challenged EIB Loans Amounts to a Subsidy within the Meaning of Article 1 of the 
SCM Agreement.................................................................................................................. ....................................537  WT/DS316/R 
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  (i) Are the Loans "Financi al Contri butions"? ....................................................................................... .........537  
(ii) Do the Challenged EIB Loans C onfer a "Benefit"  on Air bus?.............................................................540  
Arguments of the United States................................................................................................. ....................540  
Arguments of the Eu ropean Communities.......................................................................................... ...........541  
Evaluation by the Panel ........................................................................................................ .........................542  
(c) Whether the EIB loan subsidies are specific within the meaning of Article 2 of the SCM Agreement ....591  
(i) Introduc tion ................................................................................................................... ...........................591  
(ii) Whether the Loans to Airbus were  Specific under Ar ticle 2.1(a).........................................................591  
Arguments of the United States................................................................................................. ....................591  
Arguments of the Eu ropean Communities.......................................................................................... ...........592  
Evaluation by the Panel ........................................................................................................ .........................593  
(iii) Whether the Airbus loans were specific under Ar ticle 2.1(c)...............................................................607  
Arguments of the United States................................................................................................. ....................607  
Arguments of the Eu ropean Communities.......................................................................................... ...........610  
Evaluation by the Panel ........................................................................................................ .........................613  
(d) Overall co nclusion ............................................................................................................. .......................629  
6. Whether the German, French, UK, and Spanish Go vernments Have Subsidized Airbus Through the 
Provision of Infrastructure and Infrastructure-Rel ated Grants................................................................. 6 29 
(a) Introduc tion ................................................................................................................... ...........................629  
(b) When does the provision of goods or services in the form of infrastructure constitute the provision of 
infrastructure which is "other than general infrastruc ture" within the meaning of  Article 1.(1)(a)(1)(iii)? .............630  
(i) Arguments of the Parties....................................................................................................... ....................630  
(ii) Arguments of Th ird Part ies..................................................................................................... .............633  
Australia ...................................................................................................................... ..................................633  
Brazil ......................................................................................................................... ....................................634  
Canada......................................................................................................................... ..................................634  
Japan.......................................................................................................................... ....................................636  
(iii) Evaluation by the Panel........................................................................................................ ................636  
(c) Mühlenberg er Loch.............................................................................................................. .....................642  
(i) Factual ba ckgro und............................................................................................................. ......................643  
(ii) Arguments of the parties....................................................................................................... ...............644  
United States.................................................................................................................. ................................644  
European Co mmunities ........................................................................................................... ......................647  
(iii) Evaluation by the Panel........................................................................................................ ................651  
General infr astructure ......................................................................................................... ...........................651  
Benefit ........................................................................................................................ ...................................655  
(d) Bremen Air port R unway.......................................................................................................... .................659  
(i) Factual Ba ckgro und ............................................................................................................. .....................660  
(ii) Arguments of the Parties....................................................................................................... ...............660  
(iii) Evaluation by the Panel........................................................................................................ ................665  
General infr astructure ......................................................................................................... ...........................665  
Benefit ........................................................................................................................ ...................................667  
(e) ZAC Aérocons tellation.......................................................................................................... ...................671  
(i) Factual Ba ckgro und ............................................................................................................. .....................672  
(ii) Arguments of the Parties....................................................................................................... ...............673  
Provision of the ZAC Aéroconstella tion site and EI G facilities ................................................................. ...673 
Provision of  roads............................................................................................................. .............................681  
(iii) Evaluation  by  the Panel....................................................................................................... ................684  
Provision of the ZAC Aéroconstella tion site and EI G facilities ................................................................. ...684 
Provision of  Roads............................................................................................................. ............................690  
(f) Regional grants................................................................................................................ ..............................691  
(i) Arguments of the Parties....................................................................................................... ....................691  
(ii) Arguments of Th ird Part ies..................................................................................................... .............693  
Australia ...................................................................................................................... ..................................693  
Japan.......................................................................................................................... ....................................693  
(iii) Evaluation by the Panel........................................................................................................ ................694  
Factual ba ckgro und............................................................................................................. ...........................694  
Evaluation by the Panel ........................................................................................................ .........................695  
(g) Conclu sion..................................................................................................................... ...........................705  
7. Whether the German government's transfer of its ownership share in Deutsche Airbus to the Daimler 
Group is a specific subsidy to  Airbus.......................................................................................... ............... 706  
(a) Background to the Capital Restruct uring of Deutsc he Air bus ..................................................................706  
(b) Arguments of the parties....................................................................................................... ....................708   WT/DS316/R 
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  (i) United States.................................................................................................................. ...........................708  
The purchase by KfW of 20 percent of the shares of De utsche Ai rbus .........................................................708  
The 1992 sale of KfW's 20 percent intere st in Deutsche Ai rbus to MBB......................................................709  
(ii) European Co mmunities........................................................................................................... .............710  
The purchase by KfW of 20 percent of the shares of De utsche Ai rbus .........................................................710  
The 1992 transfer of KfW's 20 percent in terest in Deutsche Airbus to  MBB................................................711  
(c) Evaluation by the Panel ........................................................................................................ ....................712  
(i) Additional factual background to KfW' s acquisition and subsequent sale of  the 20 percent equity interest 
in Deutsche  Airbus ............................................................................................................. ................................712  
(ii) Was the 1992 transfer of KfW's 20 percent equity interest in Deutsche Airbus to MBB "free of 
charge"? 713  
(iii) KfW's acquisition of a 20 percent equity in terest in Deutsche  Airbus in 1989 ....................................714  
(iv) KfW's transfer of its 20 percent equity inte rest in Deutsche Air bus to MBB in 1992 ..........................721  
(d) Conclu sion..................................................................................................................... ...........................724  
8. Whether the German government has subsidized Airbus by forgiving at least DM 7.7 billion of 
Deutsche Airbus' government debt ............................................................................................... ............. 724  
(a) Background to the 1998 debt settlement......................................................................................... ..........724  
(b) Arguments of the parties....................................................................................................... ....................726  
(i) United States.................................................................................................................. ...........................726  
(ii) European Co mmunities........................................................................................................... .............726  
(c) Evaluation by the Panel ........................................................................................................ ....................728  
(d) Conclu sion..................................................................................................................... ...........................731  
9. Whether the equity infusions that the French gov ernment provided to Aérospatiale are specific 
subsidies...................................................................................................................... ............................... 731  
(a) The French government's capital investments in Aérospatiale betw een 1987 an d 1994...........................731  
(i) Factual ba ckgro und............................................................................................................. ......................731  
(ii) Arguments of the parties....................................................................................................... ...............733  
United States.................................................................................................................. ................................733  
European Co mmunities ........................................................................................................... ......................737  
(iii) Evaluation by the Panel........................................................................................................ ................741  
Pass-th rough ................................................................................................................... ...............................741  
Determining the existence of a benefit conferred by a financial contribution in the form of an equity infusion
............................................................................................................................... ........................................741  
The capital contributions to Aérosp atiale made betw een 1987 an d 1994 ......................................................742  
The relevance of the absence of contemporaneous, obj ective assessments of an enterprise's financial 
condition and prosp ects ........................................................................................................ .........................748  
Conclu sion..................................................................................................................... ................................750  
(b) The 1998 transfer of the French government's 45.76 pe rcent interest in Dassault Aviation to Aérospatiale
 750  
(i) Background to the French government's transfer of its 45 .76 percent equity interest in Dassault Aviation to 
Aérospatiale................................................................................................................... .....................................750  
(ii) Arguments of the parties....................................................................................................... ...............751  
United States.................................................................................................................. ................................751  
European Co mmunities ........................................................................................................... ......................753  
(iii) Evaluation by the Panel........................................................................................................ ................756  
Financial c ontribu tion......................................................................................................... ...........................756  
Benefit ........................................................................................................................ ...................................758  
Specificity.................................................................................................................... ..................................761  
(iv) Conclu sion ..................................................................................................................... ......................761  
10. Whether research and technological development funding that the European Commission and the 
member States provide to Ai rbus are specific  subsidies ......................................................................... ... 762  
(a) Introduc tion ................................................................................................................... ...........................762  
(b) Terms of Re ference............................................................................................................. ......................764  
(c) The Measures At Issue.......................................................................................................... ....................766  
(i) Backgr ound..................................................................................................................... ..........................766  
(ii) Grants under the Second Framework Pr ogramme................................................................................766  
(iii) Grants under the Third Framework Pr ogramme...................................................................................76 9 
(iv) Grants under the Fourth Framework Pr ogramme.................................................................................771  
(v) Grants under the Fifth Framework Pr ogramme....................................................................................7 74 
(vi) Grants under the Sixth Framework Pr ogramme...................................................................................77 6 
(vii) German Federal gove rnment grants ............................................................................................... ......779  
(viii) German sub-federal government grants ........................................................................................... ....779  WT/DS316/R 
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  Bavaria........................................................................................................................ ...................................779  
Bremen ......................................................................................................................... .................................780  
Hamburg........................................................................................................................ ................................781  
(ix) French governme nt grants....................................................................................................... .............782  
(x) Spanish governme nt loans....................................................................................................... .............784  
Plan Tecnológic o Aeronáutico................................................................................................... ....................784  
Programa de Fomento de  Innovación Técnica...................................................................................... .........784  
(xi) UK government  gran ts........................................................................................................... ..............787  
Civil Aircraft Research and Demonstration Pr ogramme / Aeronautics Research Programme ......................787  
Technology Programme........................................................................................................... ......................788  
(d) Whether each of the challenged R&TD measures indivi dually constitutes a subsidy within the meaning of 
Article 1 of the SCM Agreement................................................................................................. ............................789  
(i) Arguments of the Parties....................................................................................................... ....................789  
United States.................................................................................................................. ................................789  
European Co mmunities ........................................................................................................... ......................789  
(ii) Evaluation by the Panel........................................................................................................ ................790  
Do the Challenged Measures invo lve a "Financial contribu tion"?................................................................. 790 
Do the challenged Measures c onfer a "Benefit"  on Airbus?....................................................................... ...791 
(e) Whether the R&TD subsidies are specific within the meaning of Article 2 of the SCM Agreement........793  
(i) Introduc tion ................................................................................................................... ...........................793  
(ii) Grants under the EC Fr amework Progr ammes.....................................................................................79 3 
Arguments of the United States................................................................................................. ....................793  
Arguments of the Eu ropean Communities.......................................................................................... ...........794  
Evaluation by the Panel ........................................................................................................ .........................796  
(iii) Loans under the Spanish PROFIT pr ogramme ....................................................................................810  
Arguments of the United States................................................................................................. ....................810  
Arguments of the Eu ropean Communities.......................................................................................... ...........811  
Evaluation by the Panel ........................................................................................................ .........................811  
(iv) Grants under the UK Te chnology Pr ogramme.....................................................................................81 5 
Arguments of the United States................................................................................................. ....................815  
Arguments of the Eu ropean Communities.......................................................................................... ...........815  
Evaluation by the Panel ........................................................................................................ .........................816  
(v) Other R&TD measures............................................................................................................ .............818  
French governme nt grants ....................................................................................................... ......................818  
German Federal gove rnment grants............................................................................................... ................819  
German sub-Federal gove rnment R&TD  grants ...................................................................................... ......819  
Loans under the Span ish PTA pr ogramme .......................................................................................... ..........821  
UK Government gran ts under CARAD............................................................................................... ..........822  
(vi) Conclu sion ..................................................................................................................... ......................822  
F. ADVERSE EFFECTS ............................................................................................................................... .. 833 
1. General Overview of the Parties' Arguments.................................................................................... 8 33 
2. Background ..................................................................................................................... .................. 835  
3. Order of Analysis .............................................................................................................. ................ 836  
4. Subsidized Product and "Like Product".......................................................................................... .. 836 
(a) Arguments of the Parties....................................................................................................... ....................836  
(i) United States.................................................................................................................. ...........................836  
(ii) European Co mmunities........................................................................................................... .............838  
(b) Arguments of Th ird Part ies..................................................................................................... ..................841  
(i) Australia...................................................................................................................... ..............................841  
(ii) Brazil......................................................................................................................... ...........................841  
(iii) Canada ......................................................................................................................... ........................843  
(c) Evaluation by the Panel ........................................................................................................ ....................844  
(i) Subsidized product............................................................................................................. .......................845  
(ii) Like pr oduct................................................................................................................... ......................854  
5. Reference Period............................................................................................................... ................ 858  
(a) Arguments of the Parties....................................................................................................... ....................858  
(i) United States.................................................................................................................. ...........................858  
(ii) European Co mmunities........................................................................................................... .............859  
(b) Arguments of Th ird Part ies..................................................................................................... ..................861  
(i) Brazil ......................................................................................................................... ...............................861  
(ii) Canada ......................................................................................................................... ........................861  
(c) Evaluation by Panel ............................................................................................................ ......................861   WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  6. Conditions of Compe tition ...................................................................................................... .......... 869  
7. Whether the Subsidies Have Caused Serious Prejudi ce to the Interests of the United States........... 875  
(a) Introduc tion ................................................................................................................... ...........................875  
(b) Alleged displacement or impedance of imports into the EC market .........................................................879  
(c) Alleged displacement or impedance of exports from a third country ma rket............................................887  
(i) Market Share Information in Indi vidual Third Count ry Markets..............................................................893  
Australia ...................................................................................................................... ..................................895  
China .......................................................................................................................... ...................................897  
India.......................................................................................................................... .....................................899  
Other Individual Thir d Country Markets......................................................................................... ..............902  
(ii) Market Share information in Third Count ry Markets Consider ed as a Whole .....................................906  
(iii) Conclu sion ..................................................................................................................... ......................906  
(d) Alleged pric e effects .......................................................................................................... .......................906  
(i) Significant Price Undercut ting and Lost Sales.................................................................................. ........908  
The Sales Campaigns............................................................................................................ .........................909  
Overall Assessment of the sales campaigns evidence............................................................................. .......918  
(ii) Significant price suppressi on and price depre ssion............................................................................. .923 
(e) Whether Subsidies Are the Cause of the Observed Mark et Effects ..........................................................929  
(i) Arguments of the United States ................................................................................................. ...............929  
(ii) Arguments of the Eu ropean Communities .......................................................................................... .930 
(iii) Evaluation by the Panel........................................................................................................ ................933  
The United States' "Product"  Theory of Causation............................................................................... .........934  
The United States' "Price " Theory of Causation ................................................................................. ...........979  
(iv) Conclu sion ..................................................................................................................... ......................988  
8. Alleged injury to the United Stat es' industry produ cing LCA ........................................................... 989  
(a) Overview of Par ties' Arguments ................................................................................................. ..............989  
(i) United States.................................................................................................................. ...........................989  
(ii) European Co mmunities........................................................................................................... .............990  
(b) Evaluation by the Panel ........................................................................................................ ....................993  
(i) Preliminary issues............................................................................................................. ........................993  
Domestic industry.............................................................................................................. ............................993  
Reference period............................................................................................................... .............................994  
Method of analysis............................................................................................................. ............................997  
Injury caused by subsidized imports, or injury as the effect s of the s ubsidy ...............................................1000  
Evidence ....................................................................................................................... ...............................1005  
(ii) Material injury ................................................................................................................ ...................1007  
Condition of the United States' LCA industry ................................................................................... ..........1007  
Volume of subs idized imports ................................................................................................... ..................1023  
Price Effects of S ubsidized Imports............................................................................................ .................1026  
Causal link.................................................................................................................... ...............................1033  
(iii) Threat of Mate rial In jury...................................................................................................... ..............1036  
Nature and effects of the subsidies ............................................................................................ ..................1040  
Rate of increase of  subsidized  imports ......................................................................................... ...............1041  
Additional capacity............................................................................................................ ..........................1044  
Continued price depre ssion and s uppressi on ..................................................................................... ..........1045  
Inventor ies .................................................................................................................... ...............................1045  
(iv) Conclu sion ..................................................................................................................... ....................1045  
VIII. CONCLUSIONS AND RE COMMENDATIO N ........................................................................ 1046  
A. CONCLUSIONS ............................................................................................................................... ....... 1046  
B. RECOMMENDATIONS ............................................................................................................................ 104 9 
 WT/DS316/R 
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LIST OF ANNEXES 
 
Contents Page 
Annex A European Communities and Certain Member States – Measures 
Affecting Trade in Large Civil Aircraft , Request for Consultations 
by the United States, WT/DS316/1-G/L/697-G/SCM/D62/1 (12 October 2004) 
 A-2 
Annex B European Communities and Certain Member States – Measures 
Affecting Trade in Large Civil Aircraft , Request for the 
Establishment of a Panel by the United States, WT/DS316/2 (3 June 2005) 
 B-2 
Annex C European Communities and Certain Member States – Measures 
Affecting Trade in Large Civil Aircraft ,  (WT/DS316), Procedure 
under Annex V of the Agreement on Subsidies and Countervailing 
Measures, Report to the Panel from the Facilitator (24 February 2006), including Attachments 1 and 2 (Working Procedures for Developing Information under Annex V of the Agreement on 
Subsidies and Countervailing Measures; and Procedures for the 
Protection of Business Confidential Information and Highly Sensitive Business Information) 
 C-2 
Annex D European Communities and Certain Member States – Measures 
Affecting Trade in Large Civil Aircraft , (WT/DS316), Working 
Procedures of the Panel, 30 March 2007 
 D-2 
Annex E European Communities and Certain Member States – Measures 
Affecting Trade in Large Civil Aircraft , (WT/DS316), Additional 
Working Procedures for DS316– Procedures for the Protection of Business Confidential Information and Highly Sensitive Business Information, 9 November 2007 ("BCI/HSBI procedures") 
 E-2 
Annex F Selected Rulings of the Pa nel concerning BCI/HSBI procedures 
and their application F-2 
 
  WT/DS316/R 
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TABLE OF CASES CITED IN THIS REPORT 
 
Short Title Full Case Title and Citation 
Argentina – Footwear (EC)  Appellate Body Report, Argentina – Safeguard Me asures on Imports of 
Footwear , WT/DS121/AB/R, adopted 12  January 2000, DSR 2000:I, 515 
Argentina – Poultry Anti-
Dumping Duties Panel Report, Argentina – Definitive Anti-Dumping Duties on Poultry 
from Brazil , WT/DS241/R, adopted 19 May 2003, DSR 2003:V, 1727 
Australia – Automotive 
Leather II  Panel Report, Australia – Subsidies Provided to Producers and Exporters 
of Automotive Leather , WT/DS126/R, adopted 16 June 1999, 
DSR 1999:III, 951 
Australia – Automotive Leather II (Article 21.5 – US)
  Panel Report, Australia – Subsidies Provided to Producers and Exporters 
of Automotive Leather – Recourse to  Article 21.5 of the DSU by the 
United States , WT/DS126/RW and Corr.1, adopted 11 February 2000, 
DSR 2000:III, 1189 
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  
(Article 21.5 – Canada)  Appellate Body Report, Brazil – Export Financing Programme for 
Aircraft – Recourse by Canada to Article 21.5 of the DSU , 
WT/DS46/AB/RW, adopted 4 A ugust 2000, DSR 2000:VIII, 4067 
Brazil – Desiccated 
Coconut  Appellate Body Report, Brazil – Measures Affec ting Desiccated Coconut , 
WT/DS22/AB/R, adopted 20 March 1997, DSR 1997:I, 167 
Brazil – Desiccated 
Coconut  Panel Report, Brazil – Measures Affe cting Desiccated Coconut , 
WT/DS22/R, adopted 20 March 1997, as upheld by Appellate Body 
Report WT/DS22/AB/R, DSR 1997:I, 189 
Canada – Aircraft  Appellate Body Report, Canada – Measures Affec ting the Export of 
Civilian Aircraft , WT/DS70/AB/R, adopted 20 August 1999, 
DSR 1999:III, 1377 
Canada – Aircraft  Panel Report, Canada – Measures Affecting the Export of Civilian 
Aircraft , WT/DS70/R, adopted 20 August 1999, as upheld by Appellate 
Body Report WT/DS70/AB/R, DSR 1999:IV, 1443 
Canada – Aircraft  (Article 21.5 – Brazil)
  Appellate Body Report, Canada – Measures Affec ting the Export of 
Civilian Aircraft – Recourse by Brazil to Article 21.5 of the DSU , 
WT/DS70/AB/RW, adopted 4 August 2000, DSR 2000:IX, 4299 
Canada – Aircraft Credits 
and Guarantees  
(Article 22.6 – Canada)  Decision by the Arbitrator, Canada – Export Credits and Loan 
Guarantees for Regional Aircraft – Recourse to Arbitration by C anada 
under Article 22.6 of the DSU and Article 4.11 of the SCM Agreement, 
WT/DS222/ARB, 17 February 2003, DSR 2003:III, 1187 
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 WT/DS316/R 
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  Short Title Full Case Title and Citation 
Canada – Autos  Panel Report, Canada – Certain Measures Affecting the Automotive 
Industry , WT/DS139/R, WT/DS142/R, adopted 19 June 2000, as modified 
by Appellate Body Report WT /DS139/AB/R, WT/DS142/AB/R, 
DSR 2000:VII, 3043 
Canada – Patent Term  Appellate Body Report, Canada – Term of Patent Protection , 
WT/DS170/AB/R, adopted 12 October 2000, DSR 2000:X, 5093 
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 
Canada – Wheat Exports and Grain Imports Panel Report, Canada – Measures Relating to Exports of Wheat and 
Treatment of Imported Grain , WT/DS276/R, adopted 27 September 2004, 
as upheld by Appellate Body Re port WT/DS276/AB/R, DSR 2004:VI, 
2817 
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:VI II, 3045 (Corr.1, DSR 2006:XII, 
5473) 
Dominican Republic – Import and Sale of 
Cigarettes Appellate Body Report, Dominican Republic – Measures Affecting the 
Importation and Internal Sale of Cigarettes , WT/DS302/AB/R, a dopted 
19 May 2005, DSR 2005:XV, 7367 
EC – Approval and 
Marketing of Biotech 
Products Panel Report, European Communities – Measur es Affecting the Approval 
and Marketing of Biotech Products , WT/DS291/R, WT/DS292/R, 
WT/DS293/R, Add.1 to Add.9, and Corr.1, adopted 21 November 2006, 
DSR 2006:III-VIII 
EC – Asbestos  Appellate Body Report, European Communities – Measures Affecting 
Asbestos and Asbestos-Containing Products , WT/DS135/AB/R, adopted 
5 April 2001, DSR 2001:VII, 3243 
EC – Bananas III  Appellate Body Report, European Communities – Regime for the 
Importation, Sale and Distribution of Bananas , WT/DS27/AB/R, adopted 
25 September 1997, DSR 1997:II, 591 
EC – Bananas III (Ecuador)  Panel Report, European Communities – Regime for the Importation, Sale 
and Distribution of Bananas, Complaint by Ecuador , WT/DS27/R/ECU, 
adopted 25 September 1997, as modi fied by Appellate Body Report 
WT/DS27/AB/R, DSR 1997:III, 1085 
EC – Bananas III (Guatemala and Honduras)
  Panel Report, European Communities – Regime for the Importation, Sale 
and Distribution of Bananas, Comp laint by Guatemala and Honduras , 
WT/DS27/R/GTM, WT/DS27/R/HND, adopted 25 September 1997, as 
modified by Appellat e Body Report WT/DS27/AB/R, DSR 1997:II, 695 
EC – Bananas III (Mexico)  Panel Report, European Communities – Regime for the Importation, Sale 
and Distribution of Bananas, Complaint by Mexico , WT/DS27/R/MEX, 
adopted 25 September 1997, as modi fied by Appellate Body Report 
WT/DS27/AB/R, DSR 1997:II, 803  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  Short Title Full Case Title and Citation 
EC – Bananas III (US)  Panel Report, European Communities – Regime for the Importation, Sale 
and Distribution of Bananas, Complaint by the United States , 
WT/DS27/R/USA, adopted 25 Septembe r 1997, as modified by Appellate 
Body Report WT/DS27/AB/R, DSR 1997:II, 943 
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  Panel Report, European Communities – Anti- Dumping Duties on Imports 
of Cotton-Type Bed Linen from India , WT/DS141/R, adopted 
12 March 2001, as modified by Appe llate Body Repor t WT/DS141/AB/R, 
DSR 2001:VI, 2077 
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 – Bed Linen  
(Article 21.5 – India)  Panel Report, European Communities – Anti- Dumping Duties on Imports 
of Cotton-Type Bed Linen from India – Recourse to Article 21.5 of the 
DSU  by India , WT/DS141/RW, adopted 24 April 2003, as modified by 
Appellate Body Report WT/D S141/AB/RW, DSR 2003:IV, 1269  
EC – Chicken Cuts Appellate Body Report, European  Communities – Customs 
Classification of Frozen Boneless Chicken Cuts , WT/DS269/AB/R, 
WT/DS286/AB/R, adopted 27 September 2005, and Corr.1, DSR 2005:XIX, 9157 
EC – Computer Equipment  Appellate Body Report, European Communities – Customs Classification 
of Certain Computer Equipment , WT/DS62/AB/R, WT/DS67/AB/R, 
WT/DS68/AB/R, adopted 22 June 1998, DSR 1998:V, 1851 
EC – 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 – Export Subsidies on Sugar Appellate Body Report, European Communities – Export Subsidies on 
Sugar , WT/DS265/AB/R, WT/DS266/AB /R, WT/DS283/AB/R, adopted 
19 May 2005, DSR 2005:XIII, 6365 
EC – Export Subsidies on Sugar (Australia) Panel Report, European Communities – Export Subsidies on Sugar, 
Complaint by Australia , WT/DS265/R, adopted 19 May 2005, as modified 
by Appellate Body Report WT /DS265/AB/R, WT/DS266/AB/R, 
WT/DS283/AB/R, DSR 2005:XIII, 6499 
EC – Export Subsidies on 
Sugar (Brazil) Panel Report, European Communities – Export Subsidies on Sugar, 
Complaint by Brazil , WT/DS266/R, adopted 19 May 2005, as modified by 
Appellate Body Report WT/D S265/AB/R, WT/DS266/AB/R, 
WT/DS283/AB/R, DSR 2005:XIV, 6793 
EC – Export Subsidies on Sugar (Thailand) Panel Report, European Communities – Export Subsidies on Sugar, 
Complaint by Thailand , WT/DS283/R, adopted 19 May 2005, as modified 
by Appellate Body Report WT /DS265/AB/R, WT/DS266/AB/R, 
WT/DS283/AB/R, DSR 2005:XIV, 7071 WT/DS316/R 
Page xviii 
 
BCI deleted, as indicated [***] 
 
  Short Title Full Case Title and Citation 
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 – Hormones (Canada)  Panel Report, EC Measures Concerning Me at and Meat Products 
(Hormones), Complaint by Canada , WT/DS48/R/CAN, adopted 
13 February 1998, as modified  by Appellate Body Report 
WT/DS26/AB/R, WT/DS48/ AB/R, DSR 1998:II, 235 
EC – Salmon (Norway) Panel Report, European Communities – Anti-Dumping Measure on 
Farmed Salmon from Norway , WT/DS337/R, adopted 15 January 2008, 
and Corr.1 
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, adopted 11 December 2006, DSR 2006:IX, 
3791 
EC – Tariff Preferences Panel Report, European Communities – Conditions for the Granting of 
Tariff Preferences to Developing Countries , WT/DS246/R, adopted 
20 April 2004, as modified by Appellate Body Report 
WT/DS/246/AB/R, DSR 2004:III, 1009 
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 – Tube or Pipe Fittings Panel Report, European Communities – Anti-Dumping Duties on 
Malleable Cast Iron Tube or  Pipe Fittings from Brazil , WT/DS219/R, 
adopted 18 August 2003, as modified  by Appellate Body Report 
WT/DS219/AB/R, DSR 2003:VII, 2701 
Egypt – Steel Rebar  Panel Report, Egypt – Definitive Anti-Dumpi ng Measures on Steel Rebar 
from Turkey , WT/DS211/R, adopted 1 October 2002, DSR 2002:VII, 
2667 
Guatemala – Cement II  Panel Report, Guatemala – Definitive Anti-Dumping Measures on Grey 
Portland Cement from Mexico , WT/DS156/R, adopted 
17 November 2000, DSR 2000:XI, 5295 
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 
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 – 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   WT/DS316/R 
 Page xix 
 
BCI deleted, as indicated [***] 
 
  Short Title Full Case Title and Citation 
Japan – Apples  Panel Report, Japan – Measures Affecting the Importation of Apples , 
WT/DS245/R, adopted 10 December 20 03, as upheld by Appellate Body 
Report WT/DS245/AB/R, DSR 2003:IX, 4481  
Japan – Apples  
(Article 21.5 – US)  Panel Report, Japan – Measures Affecting th e Importation of Apples – 
Recourse to Article 21.5 of the DSU by the United States , 
WT/DS245/RW, adopted 20 July 2005, DSR 2005:XVI, 7911 
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 
Japan – DRAMs (Korea) Panel Report, Japan – Countervailing Duties on Dynamic Random 
Access Memories from Korea , WT/DS336/R, adopted 
17 December 2007, as modified by Appellate Body Report WT/DS336/AB/R 
Korea – Alcoholic Beverages
  Panel Report, Korea – Taxes on Alcoholic Beverages , WT/DS75/R, 
WT/DS84/R, adopted 17 February 1999, as modified by Appellate Body 
Report WT/DS75/AB/R, WT /DS84/AB/R, DSR 1999:I, 44 
Korea – Certain Paper Panel Report, Korea – Anti-Dumping Duties on Imports of Certain Paper 
from Indonesia , WT/DS312/R, adopted 28 November 2005, DSR 
2005:XXII, 10637 
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 
Mexico – Anti-Dumping Measures on Rice Appellate Body Report, Mexico – Definitive Anti-Dumping Measures on 
Beef and Rice, Complaint with Respect to Rice , WT/DS295/AB/R, 
adopted 20 December 2005, DSR 2005:XXII, 10853 
Mexico – Anti-Dumping Measures on Rice Panel Report, Mexico – Definitive Anti-Dumping Measures on Beef and 
Rice, Complaint with Respect to Rice , WT/DS295/R, adopted 
20 December 2005, as modified by Appellate Body Report WT/DS295/AB/R, DSR 2005:XXIII, 11007 
Mexico – Corn Syrup  Panel Report, Mexico – Anti-Dumping Inves tigation of High Fructose 
Corn Syrup (HFCS) from the United States , WT/DS132/R, adopted 
24 February 2000, and Corr.1, DSR 2000:III, 1345 
Mexico – Corn Syrup  (Article 21.5 – US)
  Appellate Body Report, Mexico – Anti-Dumping Investigation of High 
Fructose Corn Syrup (HFCS) from the United States – Recourse to 
Article 21.5 of the DSU  by the United States , WT/DS132/AB/RW, 
adopted 21 November 2001, DSR 2001:XIII, 6675 
Mexico – Corn Syrup  (Article 21.5 – US)
  Panel Report, Mexico – Anti-Dumping Inves tigation of High Fructose 
Corn Syrup (HFCS) from the United St ates – Recourse to Article 21.5 of 
the DSU  by the United States , WT/DS132/RW, adopted 
21 November 2001, as upheld by Appellate Body Report 
WT/DS132/AB/RW, DSR 2001:XIII, 6717 WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  Short Title Full Case Title and Citation 
Mexico – Olive Oil Panel Report, Mexico – Definitive Countervailing Measures on Olive Oil 
from the European Communities , WT/DS341/R, adopted 
21 October 2008 
Mexico – Steel Pipes and Tubes Panel Report, Mexico – Anti-Dumping Duties on Steel Pipes and Tubes 
from Guatemala , WT/DS331/R, adopted 24 July 2007 
Mexico – Taxes on Soft 
Drinks Appellate Body Report, Mexico – Tax Measures on Soft Drinks and 
Other Beverages , WT/DS308/AB/R, adopted 24 March 2006, DSR 
2006:I, 3 
Thailand – H-Beams  Appellate Body Report, Thailand – Anti-Dumping Duties on Angles, 
Shapes and Sections of Iron or Non- Alloy Steel and H-Beams from 
Poland , WT/DS122/AB/R, adopted 5 April 2001, DSR 2001:VII, 2701 
Thailand – H-Beams  Panel Report, Thailand – Anti-Dumping Duties on Angles, Shapes and 
Section of Iron or Non-Alloy Steel and H-Beams from Poland , 
WT/DS122/R, adopted 5 April 2001, as modified by Appellate Body 
Report WT/DS122/AB/R, DSR 2001:VII, 2741 
US – 1916 Act  Appellate Body Report, United States – Anti-Dumping Act of 1916 , 
WT/DS136/AB/R, WT/DS162/AB/R , adopted 26 September 2000, 
DSR 2000:X, 4793 
US – 1916 Act (EC)  Panel Report, United States – Anti-Dumping Act of 1916, Complaint by 
the European Communities , WT/DS136/R and Corr.1, adopted 
26 September 2000, as upheld by  Appellate Body Report 
WT/DS136/AB/R, WT/DS162/ AB/R, DSR 2000:X, 4593 
US – 1916 Act (Japan)  Panel Report, United States – Anti-Dumping Act of 1916, Complaint by 
Japan , WT/DS162/R and Add.1, adopted  26 September 2000, as upheld 
by Appellate Body Report WT /DS136/AB/R, WT/DS162/AB/R, 
DSR 2000:X, 4831 
US – Carbon Steel  Appellate Body Report, United States – Countervailing Duties on Certain 
Corrosion-Resistant Carbon Stee l Flat Products from Germany , 
WT/DS213/AB/R and Corr.1, adopte d 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 – Corrosion-Resistant Steel Sunset Review
  Appellate Body Report, United States – Sunset Review of Anti-Dumping 
Duties on Corrosion-Resistant Carbon Steel Flat Products from Japan , 
WT/DS244/AB/R, adopted 9 January 2004, DSR 2004:I, 3  
US – Countervailing Duty 
Investigation on DRAMS Appellate Body Report, United States – Countervailing Duty 
Investigation on Dynamic Random Access Memory Semiconductors 
(DRAMS) from Korea , WT/DS296/AB/R, adopted 20 July 2005, DSR 
2005:XVI, 8131  WT/DS316/R 
 Page xxi 
 
BCI deleted, as indicated [***] 
 
  Short Title Full Case Title and Citation 
US – Countervailing Duty 
Investigation on DRAMS Panel Report, United States – Countervailing Duty Investigation on 
Dynamic Random Access Memory Semiconductors (DRAMS) from 
Korea , WT/DS296/R, adopted 20 July 2005, as modified by Appellate 
Body Report WT/DS296/AB/R, DSR 2005:XVII, 8243 
US – Countervailing Measures on Certain EC 
Products  Appellate Body Report, United States – Count ervailing Measures 
Concerning Certain Products from the European Communities , 
WT/DS212/AB/R, adopted 8 January 2003, DSR 2003:I, 5 
US – Countervailing Measures on Certain EC 
Products
  Panel Report, United States – Countervai ling Measures Concerning 
Certain Products from the European Communities , WT/DS212/R, 
adopted 8 January 2003, as modifi ed by Appellate Body Report 
WT/DS212/AB/R, DSR 2003:I, 73 
US – Countervailing Measures on Certain EC Products (Article 21.5 – EC) Panel Report, United States – Countervai ling Measures Concerning 
Certain Products from the European Communities – Recourse to 
Article 21.5 of the DSU by the European Communities , WT/DS212/RW, 
adopted 27 September 2005, DSR 2005:XVIII, 8950 
US – 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 Marc h 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 Articl e 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 Articl e 21.5 of the DSU by the European 
Communities , WT/DS108/RW, adopted 29 Janua ry 2002, as modified by 
Appellate Body Report WT/D S108/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 the Arbitrator, United States – Tax Treatment for "Foreign 
Sales Corporations" – Recourse to Ar bitration 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 WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  Short Title Full Case Title and Citation 
US – Gambling Appellate Body Report, United States – Measures Affecting the Cross-
Border Supply of Gambling and Betting Services , WT/DS285/AB/R, 
adopted 20 April 2005, DSR 2005:XII, 5663 (Corr.1, DSR 2006:XII, 5475) 
US – Hot-Rolled Steel  Appellate Body Report, United States – Anti-Dumping Measures on 
Certain Hot-Rolled St eel Products from Japan , WT/DS184/AB/R, 
adopted 23 August 2001, DSR 2001:X, 4697 
US – Hot-Rolled Steel  Panel Report, United States – Anti-Dumpi ng Measures on Certain Hot-
Rolled Steel Products from Japan , WT/DS184/R, adopted 23 August 2001 
modified by Appellate Body Re port WT/DS184/AB/R, DSR 2001:X, 
4769 
US – Lamb  Panel Report, United States – Safeguard Measures on Imports of Fresh, 
Chilled or Frozen Lamb Meat from New Zealand and Australia , 
WT/DS177/R, WT/DS178/R, adopte d 16 May 2001, as modified by 
Appellate Body Report WT/D S177/AB/R, WT/DS178/AB/R, 
DSR 2001:IX, 4107 
US – Lead and Bismuth II  Appellate Body Report, United States – Impos ition of Countervailing 
Duties on Certain Hot-Rolled Lead and Bismuth Carbon Steel Products 
Originating in the United Kingdom , WT/DS138/AB/R, adopted 
7 June 2000, DSR 2000:V, 2595 
US – Lead and Bismuth II  Panel Report, United States – Imposition of Countervailing Duties on 
Certain Hot-Rolled Lead and Bismut h Carbon Steel Products Originating 
in the United Kingdom , WT/DS138/R and Corr.2, adopted 7 June 2000, as 
upheld by Appellate Body Repo rt WT/DS138/AB/R, DSR 2000:VI, 2623 
US – Line Pipe  Appellate Body Report, United States – Definitiv e Safeguard Measures on 
Imports of Circular Welded Car bon Quality Line Pipe from Korea , 
WT/DS202/AB/R, adopted 8 March 2002, DSR 2002:IV, 1403 
US – Offset Act  (Byrd Amendment
 ) Appellate Body Report, United States – Continued Dumping and Subsidy 
Offset Act of 2000 , WT/DS217/AB/R, WT/DS234/AB/R, adopted 
27 January 2003, DSR 2003:I, 375 
US – Oil Country Tubular Goods Sunset Reviews Appellate Body Report, United States – Sunset Re views of Anti-Dumping 
Measures on Oil Country Tubular Goods from Argentina , 
WT/DS268/AB/R, adopted 17 Decem ber 2004, DSR 2004:VII, 3257 
US – Shrimp (Ecuador) Panel Report, United States – Anti-Dumping Measure on Shrimp from 
Ecuador , WT/DS335/R, adopted on 20 February 2007 
US – Softwood Lumber IV  Appellate Body Report, United States – Final Countervailing Duty 
Determination with Respect to Certain Softwood Lumber from Canada , 
WT/DS257/AB/R, adopted 17 February 2004, DSR 2004:II, 571 
US – Softwood Lumber IV Panel Report, United States – Final Count ervailing Duty Determination 
with Respect to Certain Softwood Lumber from Canada , WT/DS257/R 
and Corr.1, adopted 17 February 2004, as modified by Appellate Body 
Report WT/DS257/AB/R, DSR 2004:II, 641   WT/DS316/R 
 Page xxiii 
 
BCI deleted, as indicated [***] 
 
  Short Title Full Case Title and Citation 
US – Softwood Lumber V  Appellate Body Report, United States – Final Dumping Determination on 
Softwood Lumber from Canada , WT/DS264/AB/R, adopted 
31 August 2004, DSR 2004:V, 1875 
US – Softwood Lumber V  Panel Report, United States – Final Dump ing Determination on Softwood 
Lumber from Canada , WT/DS264/R, adopted 31 August 2004, as 
modified by Appellate Body Re port WT/DS264/AB/R, DSR 2004:V, 
1937 
US – Softwood Lumber VI (Article 21.5 – Canada) Appellate Body Report, United States – Investigation of the International 
Trade Commission in Softwood Lumber from Canada – Recourse to 
Article 21.5 of the DSU by Canada , WT/DS277/AB/RW, adopted 9 May 
2006, and Corr.1, DSR 2006:XI, 4865 
US – Softwood Lumber VI (Article 21.5 – Canada) Panel 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/RW, adopted 9 May 2006, as 
modified by Appellat e Body Report WT/DS277/AB/RW, DSR 2006:XI, 
4935 
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 
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 
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 Appe llate Body Report WT/DS267/AB/RW 
US – Wool Shirts and 
Blouses Appellate Body Report, United States – Measure Affecting Imports of 
Woven Wool Shirts and Blouses from India , WT/DS33/AB/R, adopted 
23 May 1997, and Corr.1, DSR 1997:I, 323  
US – Zeroing (EC) Appellate Body Report, United States – Laws, Regulations and 
Methodology for Calculating Dumping Margins ("Zeroing") , 
WT/DS294/AB/R, adopted 9 May 2006, and Corr.1, DSR 2006:II, 417 
US – Zeroing (EC) Panel Report, United States – Laws, Regulations and Methodology for 
Calculating Dumping Margins ("Zeroing") , WT/DS294/R, adopted 
9 May 2006, as modified by Appe llate Body Report WT/DS294/AB/R, 
DSR 2006:II, 521 
 
CITED IN THIS REPORT:  
 GATT REPORTS  
 GATT Panel Report, German Exchange Rate Scheme for Deutsche Airbus  ("EEC – Airbus "), 
4 March 1992, unadopted, SCM/142. WT/DS316/R 
Page xxiv 
 
BCI deleted, as indicated [***] 
 
   
GATT Panel Report, United States – Countervailing Duties on Fresh, Chilled and Frozen Pork from 
Canada  ("US – Canadian Pork "), adopted 11 July 1991, BISD 38S/30. 
DISPUTES, IN WHICH MUTUALLY AGREED SOLUTIONS WERE NOTIFIED UNDER 
ARTICLE 3.6 OF THE DSU   
DS83 Denmark — Measures Affecting the Enforcement of Intellectual Property Rights 
 DS86 Sweden — Measures Affecting the Enforcement of Intellectual Property Rights 
 
DS124 European Communities  — Enforcement of Intellectual Property Rights for Motion Pictures 
and Television Programs 
 
DS125 Greece — Enforcement of Intellectual Property Rights for Motion Pictures and Television 
Programs 
 
DS210 Belgium — Administration of Measures Establishing Customs Duties for Rice  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
   
I. INTRODUCTION 
A. COMPLAINT OF THE UNITED STATES  
1.1 On 6 October 2004, the United States request ed consultations with the European 
Communities1 and certain EC member States (Germany, France, the United Kingdom, and Spain) 
pursuant to Articles 1 and 4 of the Understanding on Rules and Procedures Governing the Settlement 
of Disputes  ("DSU"), Article XXIII:1 of the General Agreement on Tariffs and Trade 1994  ("GATT 
1994") and Articles 4, 7 and 30 of the Agreement on Subsidies and Countervailing Measures  
("SCM Agreement")(to the extent that Article 30 incorporates Article XXIII of the GATT 1994), with 
regard to measures affecting trade in large civil aircraft.2  Consultations were held on 
4 November 2004, but the parties failed to resolve the dispute.   
1.2 On 31 May 2005, the United States requested the establishment of a panel pursuant to 
Article 6 of the DSU, Article XXIII:2 of th e GATT 1994, and Articles 4, 7 and 30 of the 
SCM Agreement (to the extent that Article 30 incorporates Article XXIII of the GATT 1994).3  In its 
request for establishment of a panel, the United Stat es requested that the Dispute Settlement Body (the 
"DSB") initiate the procedures provided in Annex V of the SCM Agreement pursuant to paragraph 2 
of that Annex.4   
B. ESTABLISHMENT AND COMPOSITION OF THE PANEL  
1.3 At its meeting on 20 July 2005, the DSB establis hed a Panel in accordance with Article 6 of 
the DSU to examine the matter referred to the DS B by the United States in document WT/DS316/2.  
At that meeting, the parties to the dispute agr eed that the Panel should have standard terms of 
reference.  The terms of reference are, therefore, the following: 
"To examine, in the light of the relevant provisions of the covered agreements cited 
by the United States in document WT/DS316/2,  the matter referred to the DSB by the 
United States in that document, and to ma ke such findings as will assist the DSB in 
making the recommendations or in giving the rulings provided for in those 
agreements." 
1.4 On 7 October 2005, the United States requested  the Director-General to determine the 
composition of the Panel, pursuant to paragraph 7 of Article 8 of the DSU, which provides: 
"If there is no agreement on the panelists within 20 days after the date of the 
establishment of a Panel, at the request of  either party, the Director-General, in 
consultation with the Chairman of the DSB and the Chairman of the relevant Council 
or Committee, shall determine the com position of the panel by appointing the 
panelists whom the Director-General consid ers most appropriate in accordance with 
any relevant special or additional rules or  procedures of the covered agreement or 
                                                      
1 On 1 December 2009, the Treaty of Lisbon amending the Treaty on European Union and the Treaty 
establishing the European Community  (done at Lisbon, 13 December 2 007) entered into force.  On 29 
November 2009, the WTO received a Verbal Note (WT/L/7 79) from the Council of th e European Union and the 
Commission of the European Communities stating that, by virtue of the Treaty of Lisbon, as of 1 December 
2009, the European Union replaces an d succeeds the European Community. 
2 WT/DS316/1, attached at Annex A. 
3 WT/DS316/2, attached at Annex B. 
4 The United States reiterated its request in this regard at the DSB meetings held on 20 July, on 3 and 
31 August and on 23 September 2005.  See, documents WT/DSB/M/194, 195, 196 and 197, respectively. WT/DS316/R 
Page 2 
 
BCI deleted, as indicated [***] 
 
  covered agreements which are at issue in th e dispute, after consulting with the parties 
to the dispute.  The Chairman of th e DSB shall inform the Members of the 
composition of the panel thus formed no later than 10 days after the date the 
Chairman receives such a request". 
1.5 On 17 October 2005, Deputy Director-General Al ejandro Jara, acting in place of the Director-
General, composed the Panel as follows: 
 Chairman: Mr. Carlos Pérez del Castillo 
 Members: Mr. John Adank    Mr. Thinus Jacobsz.
5 
 
1.6 Australia, Brazil, Canada, China, Japan and Kor ea reserved their rights to participate in the 
Panel proceedings as third parties.   
C. INFORMATION GATHERING PROCEDURE UNDER ANNEX  V OF THE SCM A GREEMENT  
1.7 At its meeting of 23 September 2005, the DSB ag reed to initiate the procedures provided for 
in Annex V of the SCM Agreement ("Annex V Procedures") and designated Mr. Mateo Diego-
Fernández as a representative fo r this purpose ("Designated Representative" or "Facilitator").  On 
30 September 2005, the Designated Representative adopted Working Procedures for the Annex V 
Procedures, after consultation with the Unite d States and the European Communities.  On 
10 October 2005, pursuant to para graph 17 of those Working Proce dures, the European Communities 
requested that the Facilitator adopt additional pr ocedures for the protection of business confidential 
information ("BCI") and highly sen sitive business information ("HS BI").  Following consultations 
with the parties, on 4 November 2005 the Facilitator adopted procedures for the protection of BCI and 
HSBI for the Annex V Procedures.     
1.8 On 24 February 2006, the Designated Representa tive submitted his report to the Panel.  The 
report of the Designated Representative, and the Working Procedures and additional procedures for 
the protection of BCI and HSBI adopted by the Designated Representative for the Annex V 
Procedures are attached at Annex C.   
D. PANEL PROCEEDINGS  
1.9 Following consultation with the parties, the Panel adopted Working Procedures on 
9 November 2005.6  On 1 March 2006, before the established da tes for submissions by the parties, at 
the request of both parties, the Panel set aside its timetable.7  At the request of the United States, made 
on 4 September 2006, the Panel recommenced its work.   
1.10 At the request of the parties, and followi ng consultations with them, the Panel adopted 
additional procedures for the protection of BCI and HSBI for the panel proceedings on 
19 October 2006 ("the BCI/HSBI procedures").8   The Panel issued several rulings over the course of 
the proceedings with respect to the interpreta tion and application of the BCI/HSBI procedures, 
                                                      
5 WT/DS/316/4. 
6 These procedures were modified on various occas ions, and are attached, in their final form, at 
Annex D.   
7 On 28 February 2006, the Panel had received an unsolicited communication from  an individual.  The 
communication addressed a question that is not an aspect of the matter within the Panel's terms of reference.  The Panel therefore foun d it inappropriate to consider that  communication and has rejected it. 
8 These procedures were modified on various occas ions, and are attached, in their final form, at 
Annex E.  WT/DS316/R 
 Page 3 
 
BCI deleted, as indicated [***] 
 
  including regarding the designation of specific in formation as BCI or HSBI pursuant to those 
procedures in the parties' submissions and exhibits.9   
1.11 On 26 October 2005, the European Communities su bmitted a request for preliminary rulings, 
which it subsequently updated on 7 N ovember 2006, in which it requested, inter alia , that the Panel 
find that certain of the measures challenged by the Un ited States are not within the temporal scope of 
this proceeding or are outside its terms of reference.  Having carefully considered the views of the parties and third parties, the Panel issued a pre liminary ruling concerning certain aspects of the EC 
request to the parties and third parties on 11 July 2007.   The ruling is set forth in  the Panel's findings at Section VII.C.  The Panel addresses the remaini ng issues raised by the EC request for preliminary 
rulings in its findings below.   
1.12 On 9 November 2005, Brazil submitted a request fo r enhanced third party rights in this panel 
proceeding; similar requests were received from Canada on 23 November 2005 and from Korea on 
13 October 2006.  After careful consideration of th is issue in light of all comments received from 
parties and third parties, the Panel on 23 October 2 006 informed the parties and third parties of its 
decision declining to grant enhanced third party right s to any third party.  The Panel's reasons are set 
out in its findings at Section VII.D.1. 
1.13 The Panel met with the parties on 20 and 21 Marc h 2007 and on 25 and 26 July 2007.  At the 
request of the parties, and following consultations, the Panel adopted procedures for public sessions of 
its meetings with the parties.  Pursuant to those procedures, the Panel held a portion of its meetings 
with the parties in public session, by means of a s ubsequent showing of video- recordings of the public 
sessions.  The parties were given an opportunity to re view the recordings to ensure no BCI or HSBI 
had been disclosed, and the recordings were s hown in public on 22 March and 27 July 2007, 
respectively.  The Panel met with the third parties on 24 July 2007. 
1.14 The Panel submitted its interim report to th e parties on 4 September 2009.  The Panel 
submitted its final report to the parties on 23 March 2010. 
II. FACTUAL ASPECTS 
A. P
RODUCT AT ISSUE  
2.1 The parties agree that the product at issue in this  dispute is large civil aircraft, as distinguished 
from smaller (regional) aircraft and military aircraft.  Large civil aircraft ("LCA") can generally be 
described as large (weighing over 15,000 kilograms) "t ube and wing" aircraft, with turbofan engines 
carried under low-set wings, designed for subsonic fl ight.  LCA are designed for transporting 100 or 
more passengers and/or a proportio nate amount of cargo across a range of distances serviced by 
airlines and air freight carriers.  LCA are covered by tariff classification heading 8802.40 of the Harmonized System ("Airplanes and other aircraft, of  an unladen weight exceeding 15,000 kg").      
2.2 The design, testing, certification, production, marketing and after-delivery support of LCA is 
an enormously complex and expe nsive undertaking.   LCA are presently produced only by Boeing 
and Airbus, which both sell a range of LCA models wo rld-wide, to serve the range of needs of their 
customers, principally airlines and airplane leasing companies.  Both companies engage in continued 
development of LCA, which requires significant up-front investments over a period of 3-5 years 
before any revenues are obtained from customers.  Sales of LCA are relatively infrequent, but 
generally very large in terms of the number of aircraft and dollar amounts involved (LCA sales are 
made in USD), although deliveries are generally made  over a period of years subsequent to the sale.  
                                                     
 
9 Selected rulings in this regard are attached, at Annex F. WT/DS316/R 
Page 4 
 
BCI deleted, as indicated [***] 
 
  Customers choose among the various LCA models available those they conclude are most suitable for 
their needs, generally considering a broad variet y of factors, including the physical and operating 
characteristics of the available models, operating costs, existing fleet, routes to be served by the aircraft, the structure of the existing fleet, and costs, with a view to minimizing costs and maximizing 
revenues.   
2.3 The parties disagree as to the scope of the subs idized product or products, and the scope of 
the like product or products, at issue in this dispute.   The United States contends that the subsidies at 
issue in this dispute benefit the production and ma rketing of the full range of LCA manufactured by 
Airbus, and that therefore the "subsidized product" is  the Airbus LCA family as a whole, and that the 
corresponding "like product" is the entire family of Boeing LCA.  The European Communities, on the 
other hand, contends there are four "families" of  Airbus LCA, each constituting a separate allegedly 
subsidized product, and that there are three Bo eing "like products" corresponding to three of the 
Airbus families of LCA, and no Boeing "like pr oduct" corresponding to the Airbus A380 family.   
2.4 These issues are addressed by the Panel in its findings at Section VII.F.4. 
B. M
EASURES AT ISSUE  
2.5 The United States, in its request for establishm ent, identified the measures at issue in this 
dispute as including the following: 
(a) The provision by certain member States of the European Communities (Germany, 
France, the United Kingdom, and Spain ("the member States")) of financing for large civil aircraft design and development to the Airbus companies
10 (referred to by the 
United States as "Launch Aid").11  This financing is alleged to provide benefits to the 
recipient companies including financing fo r projects that would otherwise not be 
commercially feasible.  The non-commercial terms of the financing may include no 
interest or interest at below-market rat es and a repayment obligation that is tied to 
sales.  If the aircraft is not successful, some or all of the financing need not be repaid.  
Specific examples of the financing at issue include: 
(i) French financing for the Airbus A 300, A310, A320, A330/340, A330-200, 
A340-500/600, A380, and A350; 
                                                      
10 The United States defined the "Airbus companies" to include Airbus SAS, its predecessor Airbus 
GIE and current and predecessor affiliated companies, including each person or entity that directly, or indirectly 
through one or more intermediaries or relationships, controls or controlled, is or was controlled by, or is or was 
under common control with Airbus SAS or Airbus GIE, such as parent companies, sibling companies and subsidiaries, including Airbus Deutschland GmbH, Airbus España SL, Airbus France S.A.S., Airbus UK 
Limited, European Aeronautic Defence and Space Comp any (hereinafter "EADS"), and BAE Systems.  The 
European Communities disputes that the "Airbus companies", as defined by the United States, are recipients of the alleged subsidies.  For purposes of this description of the measures at issue, the Panel has used the 
terminology of the United States' request for establishment.  This should not be taken to have any significance 
for the Panel's consideration of the substance of the dispute.   This question is addressed further in the Panel's findings at Section VII.E.1.   
11 The European Communities and the member States concerned use different terms to describe the 
type of financing at issue, such  as member State financing, launc h aid, launch investment, avances 
remboursables, Rückzahlbare Zuwendungen, Entwicklungsbeihilfen, Zuschüsse zur Entwicklung von zivilen 
Flugzeugen, anticipo reembolsable, and prestamo reembol sable.  The European Communities disputes that the 
term "Launch Aid", as used by the United States, is an appropriate designation of these alleged subsidies.  For purposes of this description of the measures at issue, the Panel has used the terminology of the United States' 
request for establishment.  This should not be taken to have any significance for the Panel's consideration of the 
substance of the dispute.  This question is addressed further in the Panel's findings at paragraph 7.291    WT/DS316/R 
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  (ii) German financing for the Airbus A300, A310, A320, A330/340, A380, and 
A350; 
(iii) United Kingdom financing for the Ai rbus A300, A310, A320, A330/340, 
A340-500/600, A380, and A350; and 
(iv) Spanish financing for the Airbus A300, A310, A320, A330/340, A340-
500/600, A380, and A350. 
(b) In addition to Launch Aid, the provision by the EC and the member States, through 
the European Investment Bank ("EIB"), to the Airbus companies, of financing for 
large civil aircraft design, development, and other purposes.  Specific examples of the 
financing at issue include:12 
(i) financing to British Aerospace fo r the A320 and the A330/A340; 
(ii) financing to Aérospatiale for the A330/340; 
(iii) financing to Construcciones Aeronauticas SA ("CASA") for the A320 and the 
A330/340; 
(iv) financing to Airbus Industrie for the A321; 
(v) financing to Aérospatiale Super Transporteurs; and 
(vi) financing to EADS for the A380. 
(c) The provision by the EC and the member States of financial contributions to develop, 
expand, and upgrade facilities and other infr astructure for the Airbus companies.  
Specific instances include public investments by German authorities in Hamburg, 
Nordenham, Bremen, and Varel, by French authorities in the Toulouse region, by UK 
authorities at Broughton, Wales and by Span ish authorities at numerous locations in 
Spain (such as Puerto Real, Illescas, Puerto de Santa Maria, and La Rinconada). 
(d) The assumption and forgiveness by the EC a nd the member States of debt resulting 
from Launch Aid and other financing for large civil aircraft development and 
production, including debt accumulated by Deutsche Airbus that was forgiven by the 
German government in 1997 a nd 1998 and debt assumed by the government of Spain 
on behalf of CASA and not repaid. 
(e) The provision by the EC and the member States of equity infusions and grants, 
including through government-owned and government-controlled banks.  Examples 
include equity investment by the Germ an government through Kreditanstalt für 
Wiederaufbau ("KfW") in Deutsche Airbus in 1989 and the return of the shares 
acquired through this transaction to Deut sche Airbus' parent, the Daimler group, 
without compensation, in 1992; equity infusions by the French Government into Aérospatiale in 1987 and 1988; an equity infusion by French state-owned Crédit 
Lyonnais into Aérospatiale in 1992; an e quity infusion by the French Government 
                                                     
 
12 EIB financing to airline customers for the purchase of new aircraft is not within the scope of the US 
panel request. WT/DS316/R 
Page 6 
 
BCI deleted, as indicated [***] 
 
  into Aérospatiale in 1994; and the gran t by the French Government of its 
45.76 per cent share of Dassault Aviation' s capital to Aérospatiale in 1998. 
(f) The provision by the EC and the member States of financial contributions for 
aeronautics-related research, development,  and demonstration ("R&D"), undertaken 
by Airbus, whether alone or with others, or in any other way to the benefit of Airbus, 
including: 
(i) EC funding for civil aeronautics-related R&D projects under the Second 
(1987-1991), Third (1990-1994), Fourth (1994-1998), Fifth (1998-2002) and Sixth (2002-2006) EC Framework Programs in which Airbus participated. 
(ii) Funding from the German federal gove rnment and sub-federal entities for 
civil aeronautics-related R&D projects in which Airbus participated, including: 
- federal government funding as set forth in the most updated version of 
the government's Förderkatalog da tabase, including funding under the 
federal aeronautics research programs Luftfahrtforschungsprogramm 1 
(1995-1998), Luftfahrtforschungs programm 2 (1998-2002), and 
Luftfahrtforschungsprogramm 3 (2003-2007); 
 - the regional Bremen Airbus Materials & System Technology Centre 
Bremen (AMST) (2000-2002) and th e Airbus Materials & System 
Technology Centre Bremen II (AMST) (2002-2006);  
 - the regional Bavaria "Hightechoffensive Bayern" program 
(1999-2003); and 
 
- the regional Hamburg Luftfa hrtforschungsprogramm (2001-2005). 
 
(iii) Funding from the government of the United Kingdom since 1992 for civil 
aeronautics-related R&D projects in which Airbus participated, including funding under the Civil Aircraft Research and Development Program (CARAD) and the Technology & Strategy Program. 
(iv) Funding from the Spanish government, including regional and local 
authorities, since 1993 for civil aeronau tics-related R&D projects in which 
Airbus participated, including loans and other financial support provided 
under the Plan Tecnológico Aeronáutico I and the Plan Tecnológico Aeronáutico II. 
(v) Funding from the French government, including regional and local 
authorities, since 1986 for civil aeronau tics-related R&D projects in which 
Airbus participated. 
(vi) The provision by government-controlled and financed research institutions of 
civil aeronautics R&D-related goods or services to Airbus and/or funding for civil aeronautics-related R&D projects in which Airbus participated, 
including by the German Deutsches  Zentrum für Luft- und Raumfahrt 
("DLR"), by the UK Defence Evaluation and Research Agency ("DERA") and its successor Qinetiq, and by the French Office National des Études et  WT/DS316/R 
 Page 7 
 
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  des Recherches Aérospatiales ("ONERA"), the Centre National de la 
Recherche Scientifique ("CNRS"), and the Centre National de la Recherche Technologique ("CNRT"). 
(g) Any amendments, revisions, implementing or related measures to the measures 
described above. 
(h) Any other measures that involve a financial contribution by the EC or any of the 
member States that benefit the Airbus companies. 
III. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS  
A. U
NITED STATES  
3.1 The United States requests that the Panel find that: 
(a) Launch Aid provided to Airbus for the A 380, the A340-500/600, and the A330-200 
aircraft are export subsidies inconsistent  with Articles 3.1(a) and 3.2 of the 
SCM Agreement; 
(b) The Launch Aid Program, individual prov isions of Launch Aid, and the other 
measures at issue in this dispute are specifi c subsidies that cause or threaten to cause 
adverse effects to the United States and, thus, are inconsistent with Articles 5(a), 5(c), 6.3(a), 6.3(b), and 6.3(c) of the SCM Agreement; 
(c) The Launch Aid Program, individual prov isions of Launch Aid, and the other 
measures at issue in this dispute are subsidi es that are inconsistent with Article XVI:1 
of the GATT 1994; and 
(d) the breaches of the SCM Agreement and the GATT 1994 set forth above nullify or 
impair benefits accruing to the United States. 
3.2 The United States further requests that the Pane l recommend, pursuant to Article 4.7 of the 
SCM Agreement, that the European Communities, France, Germany, Spain, and the United Kingdom 
withdraw their export subsidies without delay.  Th e United States respectfully requests that the Panel 
specify, pursuant to Article 4.7, that the time pe riod for withdrawal be 90 days after the DSB adopts 
its recommendations and rulings in this dispute. 
3.3 The United States further requests that the Pane l recommend, pursuant to Article 7.8 of the 
SCM Agreement, that the European Communities, France, Germany, Spain, and the United Kingdom 
take appropriate steps to remove the serious prejudi ce and the threat of serious prejudice or withdraw 
their subsidies. 
3.4 Finally, the United States asks the Panel to re ject all of the European Communities' requests 
for preliminary rulings. 
B. E
UROPEAN COMMUNITIES  
3.5 The European Communities requests that the Pane l reject all claims advanced by the United 
States in this dispute.  As noted above, the Eur opean Communities separately requested the Panel to 
find, as a preliminary matter, that certain of th e measures challenged by the United States are not 
within the temporal scope of this proceedi ng or are outside its terms of reference. WT/DS316/R 
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  IV. ARGUMENTS OF THE PARTIES 
4.1 The arguments of the parties are set out in their written and oral submissions to the Panel, in 
their answers to questions and in additional comme nts submitted pursuant to the Panel's request.  The 
parties' arguments, as summarised by them are presented in this section.13  The full non-confidential 
text of certain EC submissions can be downloaded from the EC web site.14  The full non-confidential 
text of certain US submissions can be do wnloaded from the Government's web site.15 
A. PRELIMINARY ISSUES RAISED BY THE EUROPEAN COMMUNITIES  
1. Arguments of the European Communities 
4.2 In its first written submission, the EC underlines:  (i) the importance in this dispute of other 
international aircraft related agreements, (ii) the f act that the EC is the proper respondent, (iii) the 
need to properly identify the alleged recipients of the alleged subsidies and (iv) the fact that the US 
has failed to make a prima facie  case in a number of issues re lating to subsidization and adverse 
effects.  The EC argues that the Panel should not ma ke the case of the US, but dismiss its claims on 
these grounds alone.  The EC notes that third parties that address this issue, agree.16  The EC also 
responds to the US position on the Article 6.2 DSU issue that the EC rais ed in its Request for 
Preliminary Rulings.17 
(a) Relevance of Other Internationa l Aircraft Related Agreements 
4.3 The EC asserts that despite the fact that it re lies on historic events, the US chooses to ignore 
entirely the agreements that it has entered into w ith the EC concerning Large Civil Aircraft ("LCA") 
during this period – notably the 1979  Agreement on Trade in Civil Aircraft ( "the 1979 Agreement" ) 
and the 1992 Agreement concerning the application of the GATT Agreement on Trade in Civil 
Aircraft on trade in large civil aircraft ( "the 1992 Agreement" ).18  The EC seeks to correct the main 
errors in the US story and in particular explains  the importance of the above agreements to this 
dispute.  The EC particularly objects to the fact  that the US seeks to impugn measures that it expressly 
agreed and to apply new agreements retroactively to historical facts.19  
4.4 The EC argues that the 1979 Agreement and the 199 2 Agreement are relevant for this dispute 
for the following reasons.20  First, these agreements provide essential factual background and 
                                                      
13 Pursuant to paragraph 13 of the panel's working procedures, the parties and third parties submitted 
non-confidential executive summaries of their written and oral submissions.  The Panel issued its draft 
descriptive part to the parties on 4 March 2008, informing them that it intended to attach the executive 
summaries of parties' and third parties' submissions to its report, as has been the practice of a number of panels.  Following comments received on 11 Ma rch 2008, the Panel drafted a revised descriptive part based on those 
executive summaries, which it provided to the parties and third parties for comment on 20 October 2008  The 
Panel received comments from the third parties on 27 Oct ober 2008 and from the parties, having granted the 
EC's request for extension of time, on 4 November 2008. 
14 See, http://trade.ec.europa.eu/wtodispute 
15 See, 
http://www.ustr.gov/Trade_Agreements/Monitoring_E nforcement/Dispute_Settleme nt/WTO/Section_Index.htm
l 
16 Executive Summary of the First Written Submission of the European Communities, (hereinafter "EC, 
FWS, Executive Summary"), para. 14 and Executive Summary of the Second Written Submission of the 
European Communities (hereinafter "EC, SWS, Executive Summary"), para. 3.   
17 EC, FWS, Executive Summary, para. 14. 
18 EC, FWS, Executive Summary, para. 2. 
19 EC, FWS, Executive Summary, para. 2. 
20 EC, SWS, Executive Summary, para. 5.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  demonstrate that aircraft production has been treated  as a special case in the GATT and the WTO ever 
since detailed rules on subsidies were first promul gated in 1979 during the Tokyo Round of trade 
negotiations.21  
4.5 Second, according to the EC, these Agreements contain applicable law.22  The EC explains 
that the 1979 Agreement  was confirmed and readopted as a plurila teral agreement as part of Annex IV 
to the WTO Agreement.23  Although it is not a covered agreement, it is an agreement specifically 
relating to aircraft and it incorporates the s ubsidy disciplines of the 1979 Agreement and the Tokyo 
Round Subsidies Agreement , which are relevant for assessing the legality of pre-1995 measures, rather 
than the SCM Agreement.24  Both the US and the EC are parties.  The 1992 Agreement is a bilateral 
agreement between the EC and the US, which expressly refers to and implements the 1979 
Agreement.25  Moreover, according to the EC, the 1992 Agre ement forms part of the applicable law in 
this dispute under Article 7.2 of the DSU  as it is not invoked by the EC to justify a countermeasure 
against the US in the context of a broader dispute, as was the case in Mexico – Soft Drinks .26  The EC 
points out that the MSF contracts for the A320 a nd A330/A340 programmes were concluded at the 
time of the Tokyo Round Subsidies Code , and if at all, should be judged according to the standards 
fixed in that agreement, i.e., the "cost to the government" benchmark.27  The EC further explains that 
the Tokyo Round Subsidies Code is still applicable law as referenced in the 1979 Agreement which is 
still in force.  Moreover, under ge neral international law, a juridical  fact must be assessed against the 
law contemporaneous to it.  Hence, in the EC view, these contracts can only be assessed against the 
standards of the Tokyo Round Subsidies Code, but not against the disciplines of the 
SCM Agreement.28  
4.6 Third, the EC submits that these Agreements provide essential context for the interpretation 
of other applicable law, and in  particular provisions of the SCM Agreement invoked by the US.29  The 
1992 Agreement can serve as an interpretative tool for the SCM Agreement according to 
Article 31(3)(c) of the Vienna Convention  since the Appellate Body has, in the past, also applied other 
non-covered Agreements to interpret notions containe d in covered agreements.30 
4.7 Last, the EC notes that the  1992 Agreement  was not only adopted to implement the 1979 
Agreement between the US and the EC, but also co nstituted a mutually agreed solution to a dispute 
between these parties.  A mutually agreed solutio n must at least give rise to estoppel preventing a 
party to such an agreement from reneging on it s terms.  Having negotiated, concluded, and 
implemented the 1992 Agreement, the US cannot now challenge as prohibited or actionable subsidies 
the very same elements of financing to which it acquiesced and, indeed, actively contributed to.31 
                                                      
21 EC, SWS, Executive Summary, para. 15. 
22 EC, FWS, Executive Summary, para. 15. 
23 EC, FWS, Executive Summary, para. 15. 
24 Executive Summary of the Second Non-Confidential Oral Statement of the European Communities 
(hereinafter "EC, SNCOS, Executive Summary"), para. 2. 
25 EC, FWS, Executive Summary, para. 15. 
26 EC, SWS, Executive Summary, para. 5. 
27 EC, FWS, Executive Summary, para. 35. 
28 EC, SWS, Executive Summary, para. 15. 
29 EC, FWS, Executive Summary, para. 15. 
30 EC, SWS, Executive Summary, para. 5. 
31 Executive Summary of the First Non-Confidential Oral Statement of the European Communities 
(hereinafter "EC, FNCOS, Executive Summary"), para. 2. WT/DS316/R 
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  (b) Extinction and Extraction of Subsidies 
Relevance of the identity of the recipient or the continuity of benefit under the 
SCM Agreement 
4.8 The EC argues that by failing to demonstrate how the alleged subsidies to other companies 
provide benefits to Airbus SAS, the US has failed to make a prima facie  case of violation of the 
SCM Agreement.32  The EC recalls the Appellate Body's observation that "a 'benefit' can be said to 
arise only if a person, natural or legal, or a gr oup of persons, has in fact received something."33  Put 
simply, subsidies paid to entities that no longer exis t, much less manufacture and sell LCA, cannot be 
assumed to benefit Airbus SAS, which has not , in the Appellate Body's words, "in fact received 
something".  Whether it has "in fact received something" is for the United States to prove.34  The EC 
explains that identity of recipient, extinction, extr action even 'pass through' are all different ways of 
expressing the same principle.  The US calls it the "con tinuity of benefit".  In reality, the EC explains, 
it is the requirement that the operator bene fiting from the subsidy must be identified.35  The EC adds 
that in accordance with the jurisp rudence, the US bears the burden of proving the "continuity of 
benefit" from alleged subsidies to entities other than Airbus SAS, the current manufacturer of European LCA, through to Airbus SAS.
36  The EC submits that the US – as the complaining party – 
bears the burden of proving its clai ms.  The fact that the EC adva nced certain facts about certain 
transactions, described below, that the US should have advanced, does not shift the burden of proof.37 
4.9 The EC notes that the main US argument seems to be that "{f}or a serious prejudice analysis, 
it is necessary to establish that the product at issue is subsidized but not that the recipient of the 
subsidy is one enterprise rather th an another."  In the EC view, the US logic omits a certain number of 
essential steps.  The EC explains that a product ma y be considered directly subsidised where an 
amount is paid on each item produced or sold.  Bu t where a subsidy is paid to a person before 
products are produced or sold, or independently of  production or sale, it is necessary to first establish 
a benefit to the producer or seller of the product in order to establish that goods produced or sold by 
that person are subsidised.  As the Appellate Body made clear in Canada– Aircraft , "{a} 'benefit' does 
not exist in the abstract, but must be received and enjoyed by a beneficiary or a recipient." 38   
4.10 Taking into account this standard, the EC argues that it is necessary in  analyzing the alleged 
subsidies in this case to id entify the precise recipients.39  And according to the EC, the US does not 
address this issue at all in its first written submissi on and attempts to disguise the issue by sometimes 
using the term "Airbus" to cover many different entities.40 
4.11 The EC considers that the Appellate Body re quirements discussed above are all the more 
important in this dispute, given the US approach to proving adverse effects.  The US argues that the 
principal harm of the challenged measures is that  they provide cash flow relief to Airbus SAS , 
allowing it to price down aircraft today.  Under ma ny of the measures challenged by the US, however, 
entities other than  Airbus SAS – entities that no longer exist, much less make or sell LCA – "in fact 
received" the cash.  Thus, while entities other than  Airbus SAS received the cash, the US 
                                                      
32 EC, FWS, Executive Summary, para. 16, 18. 
33 EC, SNCOS, para. 52, quoting  Appellate Body Report, Canada – Aircraft , para. 154. 
34 EC, SNCOS, para. 52. 
35 Executive Summary of the Closing statement, of the European Communities at the Second Meeting 
of the Panel, (hereinafter "EC, SCCS, Executive Summary"), para. 4. 
36 EC, SNCOS, Executive Summary, para. 3. 
37 EC, FNCOS, Executive Summary, para. 5. 
38 EC, SWS, Executive Summary, para. 11. 
39 EC, FWS, Executive Summary, para. 16 
40 EC, FNCOS, Executive Summary, para. 3.  WT/DS316/R 
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  characterises the harm as consequent cash flow relief  enabling subsidy-fuelled pricing behaviour by 
Airbus SAS .  Not only was much of the cash received by entities other than Airbus SAS, but it was 
received by those entities decades ago.41  
 Relevance of arm's length, fair market value transactions under the SCM Agreement  
4.12 The EC provides evidence regarding a series of  intervening transactions – identified at 
paragraph 311 of its response to Question 111 – th at it argues were conducted at arm's length and for 
fair market value.  The EC argu es that these transactions interrupted the flow to Airbus SAS of any 
monies received by entities other than Airbus SAS.42  The EC adds that this position, supported by 
Japan in its third party submission, is consistent with panel and Appellate Body jurisprudence holding 
that the existence of a subsidy must be determ ined by assessing the benefit that it confers on the 
relevant recipient and that a subsidy conferre d on a former owner of assets cannot be assumed to 
confer a benefit on a subsequent owner.43  In light of the transactions identified by the EC, the EC 
maintains that the US has not demonstrated a link between cash "in fact received" decades ago by entities other Airbus SAS, and current  pricing behaviour by Airbus SAS.
44 
4.13 The EC argues that the failure of the US to do  so has implications for US adverse effects 
claims:  the US considers that the Panel may simply presume  that cash provided decades ago to 
entities other than Airbus SAS automatically translat es into cash flow relief for Airbus SAS today.  
This presumption is not permitted by the SCM Agre ement.  A series of intervening transactions 
conducted at arm's length and for fair market value in terrupted the flow to Airbus SAS of any monies 
received decades ago by entities other than Airbus SAS.45 
4.14 The EC considers that the US is wrong to sugg est that the prior case law is only relevant to 
countervailing duty cases.  The EC explains that the rationale for these cases lies in the definition of 
what is a subsidy and the definition of subsid y in the SCM Agreement is common to the whole 
agreement.  The principles recognised in this case law are as relevant to adverse effects cases as they 
are to countervailing duty cases.46  
4.15 In regard to the US argument that the various transactions that have occurred in the European 
LCA industry over the last decade do not qualify as "full privatisations" or sufficient "changes of ownership" and its further assertion that they were not in any event at arm's length or fair market 
value
47, the EC argues that there is nothing in the SC M Agreement that provid es for special rules for 
privatisations and changes of control.48  The EC further points out that the Appellate Body has held 
that there was a rebuttable  presumption that an arm's-length, fair  market value privatisation precludes 
the pass-through of benefit from seller to buyer of a state-owned firm.  However, the EC notes, the 
Appellate Body also reasoned that th is presumption would appear to be irrebuttable  in private-to-
private sales.49   
4.16 The EC adds that WTO case law further recognizes  that subsidy benefits  are extinguished in 
cases of the sale of a portion of an enterprise.  The Article 21.5 panel in US – Countervailing 
                                                      
41 EC, SNCOS, para. 53. 
42 EC, SNCOS, para. 55. 
43 EC, SWS, Executive Summary, para. 7. 
44 EC, FNCOS, para. 55. 
45 EC, SNCOS, Executive Summary, para. 3. 
46 EC, SWS, Executive Summary, para. 8. 
47 Executive Summary of the Closing statement, of the European Communities at the First Meeting of 
the Panel, (hereinafter "EC, FCCS, Executive Summary"),  para. 2, citing US Oral Statement, paras. 115-125. 
48 EC, FCCS, Executive Summary, para. 2. 
49 EC, FWS, Executive Summary, para. 19. WT/DS316/R 
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  Measures on Certain EC Products  examined the US imposition of countervailing duties on a 
company that had been sold in tr anches, with all but a fraction of the sale admittedly having been at 
arm's length.  In that case, the US investigating aut hority had found that the sale of 5.16 percent of the 
company's shares to company employees at less than  fair market value "did not extinguish certain 
allocable, nonrecurring, pre-privatisation subsidies" with  regards to that portion of the company.  As a 
result, the US investigating authority found that "t he 5.16 percent of the allocated pre-privatisation 
benefit was not extinguished" while "{t}he remaining 94.84 percent of the allocated benefit was found 
to be extinguished.50  The panel reasoned that a portion or "segment"  of subsidies did pass through to 
the buyers of 5.16 per cent of the company. It also found, consistent with economic reality and 
common sense, that this approach precluded chargi ng the buyer of that segment with the entire 
amount of the subsidy.  Consequently , the panel concluded that failure to  consider the partial nature of 
a privatisation was untenable, as "benefit" would nec essarily be limited to that portion of the original 
subsidy left unextinguished by the sale.  The EC ar gues that there is no textual or economic basis for 
limiting this "segmented" approach to cases of partial privatisation, rather than extending it to private-
to-private sales.  Whether a sale is private-to-private  or public-to-private, the arm's-length fair market 
value sale of a portion of a company precludes the pass through from seller to buyer of a corresponding portion of any benefit the seller may have enjoyed.
51  (The EC notes, however, that 
while the Appellate Body held that there was a rebuttable presumption that an arm's-length, fair 
market value privatisation precludes the pass-through of benefit from seller to buyer of a state-owned 
firm, the presumption would appear irrebuttable  in private-to-private sales.52) 
4.17 The EC argues that the series of transactions  it has identified extinguish or extract any 
benefits that could be said to have accrued to Ai rbus SAS.  Under US and international accounting 
standards, the purchaser of a company is required to  adjust the balance of any loan carrying a below 
market rate to reflect a market interest rate, ther eby recognizing that the seller extracted the value of 
the below market rate loan in the price of the business.  In other words, US and international 
accounting standards recognize that the benefit of  a below market rate loan rests with the seller , and 
does not get passed on to the buyer .53   
4.18 The EC states that the result of the transacti ons identified in paragraph 311 of the EC 
response to Question 111 is that any prior subsid ies have already been "withdrawn", within the 
meaning of Articles 4.7 and 7.8 of the SCM Agreement.54  According to the EC, even if the US were 
able to establish violations of Parts II or III of th e SCM Agreement with respect to alleged subsidies, 
the EC would already, through these transactions, ha ve secured the "withdrawal" of such subsidies 
and thus provided any remedy due the US under Articles 4.7 and 7.8.55 
Specifics of transactions  identified by the EC 
 
4.19 The EC focuses on several significant transactions, listed in paragraph 311 of its response to 
Question 111.  The EC argues that as a result of these transactions, over the past eight years, the EC 
LCA industry has been consolidated through a series of privatisations, private sales, public offerings, 
and cash extractions.  Today 79.26 percent of EADS and therefore Airbus SAS is in private hands.  
The process of consolidating EC LCA production has o ccurred in a series of arm's-length fair market 
                                                      
50 EC, FWS, Executive Summary, para. 20. 
51 EC, FWS, paras. 217-219. 
52 EC, FWS, paras. 213-215. 
53 EC, SNCOS, para. 56. 
54 EC, SNCOS, Executive Summary, para. 3. 
55 EC, FWS, Executive Summary, para. 26.  WT/DS316/R 
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  value transactions that have ensured that no benef its could have been passed  through from sellers to 
new owners.56 
4.20 The EC explains that the creation of EADS n ecessarily served to extinguish, extract, or repay 
any "benefits" held by ASM, CASA, and DASA, as a result of alleged subsidies challenged by the US 
in this dispute.  In France, 50 percent of any subs idies that existed in Aéro spatiale were extinguished 
with the 1999 creation of ASM and the accompanyi ng sale of assets to Lagardère and the general 
public.  In Spain, CASA repaid the government  EUR 342.4 million in cash, reducing the company's 
value by 26 percent.  In Germany, at the time it spun-off the Airbus activities, DaimlerChrysler 
extracted EUR 3,133 million in cash from DASA in 2000 for use in non-LCA activities, an amount 
equal to 34.5 percent of the company's value.  The US has not specifically alleged, nor could it 
support a claim, that the net present value of the bene fit of any subsidies received by CASA or DASA 
before 2000 would have exceeded those amounts.  As such, the upper limit on any subsidies enjoyed 
by EADS at the time of its creation would have b een 50 percent of any subsidy benefits in ASM in 
2000.57 
4.21 The EC adds that since that time, additional alleged subsidy benefits  have been extracted 
through the sale of EADS shares in conjunction with the (i) July 2000 IPO (6.47 percent plus 
9.95 percent); (ii) January 2001 sale of additional shares by the French State (0.93 percent) and 
Lagardère (2.07 percent); and (iii) July 2004 sale of 2.75 percent by DaimlerChr ysler.  As Airbus SAS 
was created only in July 2001, and as EADS held 80 percent of Airbus SAS as of the July 2004 sale, this equates to the extraction of a further 21.62 per cent of any alleged subsidy benefits still enjoyed by 
Airbus SAS by June 2004.
58 
4.22 During 2006, founding shareholders Lagardère a nd DaimlerChrysler each sold 7.5 percent of 
EADS, and BAe Systems sold its 20 percent stake in  Airbus SAS.  As EADS held 80 percent of 
Airbus SAS at the time of the Lagardère and Da imlerChrysler sales, their transactions served to 
extinguish 12 percent of any alleged subsidy benefits  enjoyed by Airbus SAS.  Taken together, these 
three sales served to  extract an additional 32 percent of any a lleged subsidy benef its still enjoyed by 
Airbus SAS in 2006.59   
4.23 With respect to the transactions identified by the EC, the EC considers that the US 
misrepresents its argument as being that "transactions related to the establishment of Airbus SAS" extinguish or extract any past subsidies.  The EC explains that the establishment of Airbus SAS is 
important background but is not one of the transactio ns, identified at paragraph 311 of its response to 
Question 111, as extinguishing alleged subsidies.
60  
4.24 The EC also considers that the US incorrectly asser ts that two of the transactions analysed by 
the EC were not at arm's length and/or for fair market value.61  First, with respect to the exercise of a 
put option by BAe Systems, the US argues that it "amounted to the exact opposite of a privatization carried out at arm's-length and for fair market va lue."  The EC offers evidence from the transaction 
that it argues demonstrates that BAe Systems' exer cise of its put option, and the negotiation of the 
price at which that option was exercised, was en tirely at arm's length and for fair market value.
62  
Second, the US argues that the privatisation of Aé rospatiale was not at arm's length and for fair 
                                                      
56 EC, FWS, Executive Summary, para. 22. 
57 EC, FWS, Executive Summary, para. 23. 
58 EC, FWS, Executive Summary, para. 24. 
59 EC, FWS, Executive Summary, para. 25. 
60 EC, SWS, Executive Summary, para. 9. 
61 EC, SWS, Executive Summary, para. 10. 
62 Second Written Submission of the European Comm unities (hereinafter "EC, SWS"), para. 98.  See, 
also, EC, Answer to Panel Question 113, paras. 321-324. WT/DS316/R 
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  market value, based on a press Article appearing sev en years after the transaction was concluded, and 
comments by two French legislators that the EC argu es are taken out of context.  The EC considers 
that the US has ignored the contemporaneous assessme nts of Aérospatiale's value that were conducted 
by a variety of investment banks, and the fact that the transaction involved a public offering of 
Aérospatiale (or, rather, ASM) shares on the Pari s Bourse under the watchful eye of the world's most 
respected financial and accounting advisers.63 
4.25 The EC also responds to the US assertion that several of the transactions listed at 
paragraph 311 of the EC response to Question 111 ar e not "actual sales of shares".  The US arguments 
concern the July 2004 sale by DaimlerChrysler of a 2.75 percent holding in EADS, as well as 
the April 2006 sale by DaimlerChrysler and Lagardèr e of 7.5 percent each of their shareholdings in 
EADS.  With respect to the Lagardère transaction, the EC notes that Lagardère entered into a binding 
agreement in April 2006 to sell its shares.64  With respect to the Daimler transactions, the EC notes 
that US SEC filings characterize them as reducing the company's "legal ownership percentage" in 
EADS.65  
4.26 The EC also rejects the US argument that because  some of the transactions listed in paragraph 
311 of the EC response to Question 111 occurred afte r establishment of the Panel, they must be 
disregarded.  The EC notes that in EC – Selected Customs Matters , the Appellate Body rejected a 
similar US argument, explaining that "{e}vidence  in support of a claim challenging measures that are 
within a panel's terms of reference may pre-date or post-date  the establishment of the panel."  The EC 
considers that the failure to consider the impact of post-establishment facts regarding the transactions 
highlighted by the European Communities would be inconsistent with the requirement to conduct an 
objective assessment of the facts, under Article 11 of the DSU.66 
4.27 In regard to the US argument that under th e EC approach, subsidies to publicly-traded 
companies "would constantly be in the process of  being extinguished" by virtue of daily trading 
activity, the EC points out that it has not contende d in these proceedings that daily trading activity 
involving EADS' shares extinguishes prior subsidies.  Th e EC explains that it has, instead, faulted the 
US for its failure to address the significance of the disposition by large instit utional shareholders of 
specifically identified stakes identified in paragra ph 311 of the EC responses.  According to the EC, 
those transactions demonstrate that companies othe r than Airbus SAS enjoy the benefits of any 
subsidies, and in some cases, that any subs idy amount has been repaid to the government.67 
4.28 Two of the transactions listed in paragraph 311 of the EC's response to Question 111 are 
extractions of cash made by the Spanish State and Daimler in advance of th e contribution of the LCA 
assets of CASA and DASA, respectively, to EADS .  The EC argues that the WTO treatment of 
change of ownership is founded on economic common sense – that a company's value reflects the 
residual value of any subsidies it may have receive d.  Where the residual value of a subsidy is 
removed from a company, the value of that comp any is reduced commensurately.  Thus, the EC 
asserts, the cash extractions by the Spanish State and Daimler extracted the residual value of any 
remaining subsidies, ensuring that CASA's and DAS A's balance sheets were no longer enhanced by 
the alleged subsidisation.68 
                                                      
63 EC, SWS, paras. 99, 559-563.  See, also, EC, SNCOS, paras. 65-75. 
64 EC, Answer to Panel Question 197, para. 231. 
65 EC, Answer to Panel Question 197, para. 232. 
66 EC, SNCOS, paras. 61-63. 
67 EC, SCCS, Executive Summary, para. 5. 
68 EC, Answer to Panel Question 112, paras. 317-318.  WT/DS316/R 
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  4.29 The EC notes that the US argues that there is  no reason to believe that the amount of any 
subsidy extinguished by the extractions by the Span ish State and Daimler is equal to the full amount 
of the extractions and that according to the US, this "inexplicably assumes that every dollar moved 
from the books of a subsidized en tity … is a dollar of subsidy."69  According to the EC, that argument 
misses the point.  For instance, in the formation of EADS, Daimler transferred assets with sufficient 
value to acquire a 30 percent interest in the comp any.  As DASA had a value that was DM 3.1 billion 
more than was necessary to acquire  the agreed interest, Daimler ex tracted DM 3.1 billion in cash from 
the company.  If DASA benefited from any past subsid ies, the benefit of those subsidies will exist in 
the form of an enhancement of DASA's balance sheet.  By extracting cash from DASA's balance 
sheet, Daimler necessarily extracted a proportionate pa rt of the value that may have been present as 
the result of any past subsidies.  The US assertion that the EC cannot identify the source of the 
extraction is specious.70 
4.30 Simply put, "but for" the alleged subsidy, CA SA and DASA would have had a lesser value.  
But for the extractions, the value of those allege d subsidies would have remained with CASA and 
DASA, and been available for use and exploitation by the buyers to fuel the adverse effects alleged by 
the United States.  When cash was withdrawn from t hose entities by their sellers in advance of sale, 
those payments served necessarily to extract fro m the company any value it otherwise may have 
enjoyed, ensuring that any financial contribution at issue assuredly no longer conferred a benefit 
within the meaning of Article 1.1 of the SCM Agre ement, and/or that any subsidies up to the amount 
of those payments was no longer available to  produce the adverse effects alleged by the 
United States.71 
4.31 The EC argues that it is not required to prove a tie between, e.g., each euro of the Spanish 
State's cash extraction and each euro of value contribu ted to CASA by alleged prior subsidies, but that 
if it is so required, this requirement must also impact the burden placed on the US.  In that case, the 
US must similarly be required to prove (rather th an merely to assume) that every euro of alleged 
subsidy, no matter to whom and for what purpose it was provided, or how long ago it was received, 
presently enables Airbus SAS to price down every one of  the aircraft it offers for sale.  In that case, 
the US would indeed be under an obligation to prove a "continuity of benefit" from decades-old alleged subsidies provided to entities other than Ai rbus SAS, the current manufacturer of European 
LCA, through to Airbus SAS, as well as to prove  the continuity of those benefits through to 
Airbus SAS' current pricing behaviour.
72 
4.32 The EC also argues  that it not necessary to char acterise the cash extractions as repayments of 
subsidy in order for them to extinguish any prior subsidies.  While repayment of a subsidy to the 
granting government is one means of withdrawing the subsidy, it is not the only way of doing so.  The 
Appellate Body has interpreted the term "withdraw", within the meaning of Articles 4.7 and 7.8 of the 
SCM Agreement, to mean "remove" or "take away".  Drawing subsidized value away from CASA 
and DASA amounts to "removing" or "taking away" the incremental contribution of alleged prior 
subsidies to the value of the company.73 
(c) Temporal Scope of the SCM Agreement 
4.33 The EC argues that the MSF lo ans provided in support of the A300, A310, and A320, as well 
as most MSF loans for the A330/A340 programme, are not within the temporal scope of the 
                                                      
69 EC, FCCS, Executive Summary, para. 4, ci ting US Oral Statement, para. 124. 
70 EC, FCCS, Executive Summary, para. 5. 
71 EC, Answer to Panel Question 112, para. 315. 
72 EC, Answer to Panel Question 201, para. 254. 
73 EC, Answer to Panel Question 198, 200 and 201, paras. 235, 245-248, 251. WT/DS316/R 
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  SCM Agreement.74  The EC considers that in any even t, these contracts do not cause any present 
adverse effects.75  
4.34 Finally, the EC notes that the US also negl ects to point out that the SCM Agreement only 
entered into force on 1 January 1995 and does not explain how EC governments were expected to 
anticipate the existence of its provisions when providing finance during the 1980's.76   
4.35 According to the EC, pre-1995 measures fall  outside the temporal scope of the 
SCM Agreement  due to the prohibition of retroactiv e application under Article 28 of the Vienna 
Convention .  The EC adds that third Parties have confir med that there is no different intention arising 
from the SCM Agreement for individual subsidies.  Moreover, the measures that are challenged by the 
US are completed acts.  And even if they were not, the US has failed to demonstrate any post-1994 
benefits of pre-1995 measures.77  
2. Arguments of the United States 
(a) Relevance of Other Internationa l Aircraft Related Agreements 
4.36 The US argues that the EC mistakenly attempts  to have the Panel analyze the US claims 
regarding Launch Aid according to rules set out in non-covered agreements.78  The US notes that the 
EC refers to the SCM Agreement almost as an af ter-thought and asks instead the Panel to focus on 
agreements, such as the Tokyo Round Subsidy Code  and the 1992 Agreement, that are not covered 
agreements and that are outside the Panel's terms of reference.79  The US states that the EC theory that 
the Panel should review Launch Aid for the A320,  A330, and A340 under the Tokyo Round Subsidy 
Code is baseless because the Tokyo Round Subsidy Code is not a covered agreement.  The EC 
concedes the Airbus governments did not seek a commercial return on the Launch Aid for these 
aircraft, the relevant standard under the Uruguay Round SCM Agreement.80 
4.37 The US further points out that by arguing that  the Panel should review Launch Aid for the 
A330-200, the A340-500/600, and the A380 under th e 1992 Agreement, the EC is seeking the 
interpretation and enforcement of the 1992 Agreemen t, notwithstanding the Appellate Body's clear 
statement in Mexico-Soft Drink Taxes  that panels may not adjudicate non-WTO disputes.81  According 
to the US, the EC ignores that the covered agreem ents listed in Appendix 1 to the DSU provide not 
only the basis for entering the dispute settlement sy stem, but also the basis for resolving disputes 
under that system.82  
4.38 As to the argument of the EC that the 1992 Agre ement forms part of the applicable law in this 
dispute under Article 7.2 of the DSU , the US points out that Article 7.2 of the DSU provides no basis 
for this approach.  The US explains that Artic le 7.2 requires only that a panel address covered  
                                                      
74 EC, FWS, Executive Summary, para. 34. 
75 EC, SWS, Executive Summary, para. 14. 
76 EC, FWS, Executive Summary, para. 2. 
77 EC, SWS, Executive Summary, para. 4. 
78 Executive Summary of the Second Non-Confidential Oral Statement of the Un ited States (hereinafter 
US, SNCOS, Executive Summary), para. 7. 
79 Executive Summary of the Closing statement, of the United States at  the First Meeting of the Panel 
(hereinafter US, FCCS, Executive Summary), para. 2. 
80 Executive Summary of the First Non-Confidential Or al Statement of the United States (hereinafter 
US, FNCOS, Executive Summary), para. 3. 
81 US, FNCOS, Executive Summary, para. 4. 
82 Executive Summary of the Second Written Submissi on of the United States (hereinafter US, SWS, 
Executive Summary, para. 4.  WT/DS316/R 
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  agreements.83 The US also referred to its arguments on th ese issues made in the context of the EC's 
request for preliminary rulings.84 
4.39 In regard to the EC argument about estoppel,  the US argues that WTO Members have not 
consented to provide for the application of what the EC refers to as "estoppel" in WTO dispute 
settlement.  Not only do the panel and Appellate Bo dy reports on which the EC relies not support its 
position, they actually undermine that position, inas much as they decline to recognize the applicability 
of "estoppel" to WTO dispute settlement.  And, ev en by its own terms, the EC "estoppel" argument 
with respect to the 1992 Agreement must fail.  Among other facts demonstrating the absence of any 
basis for arguing "estoppel" is the fifth recital in  the 1992 Agreement, which expresses the parties' 
"intention to act without prejudice to their rights and obligations under the GATT and under other 
multilateral agreements negotiated under the auspices of the GATT".85   
4.40 The US explains that it has not engaged the EC argument regarding the merits of the 1992 
Agreement because that agreement is not relevant to this dispute.86 
(b) Extinction and Extraction of Subsidies 
4.41 The US notes that as a defense, the EC argues that certain transactions extinguished subsidies 
to Airbus.87  The US observes that the EC has called atte ntion to several transactions which, in its 
view, had the effect of eliminating subsidies to Airbus.  However, the US argues, none of these 
transactions involved a transfer of "all or substantially all" of the subsidized entity to private interests, 
and none involved relinquishment of a "controlling inter est in the privatized producer."  Therefore, the 
Panel need not and should not reach the question wh ether privatization could have extinguished the 
subsidies at issue here.  The US considers that th e EC arguments about "extinction" and "extraction" 
are baseless.88 
4.42 With regard to extinction, the US notes that the EC sought to rely on panel and Appellate 
Body reports from disputes in the countervailing duty ("CVD") context concerni ng the effects of a full 
privatization on pre-privatization subsidies.  Tho se reports stand for the proposition that, in the CVD 
context, a full privatization may result in the ex tinction of pre-privatization subsidies where the 
privatization involves the sale of a ll or substantially all of the subsid ized entity, at arm's length and for 
fair market value, and where the seller relinquishes c ontrol of the entity.  Since the transactions cited 
by the EC do not meet these criteria, the reports do not help the EC argument.89 
4.43 The US pointed out "while there may be a need for a 'pass-through' analysis in other contexts 
- such as the CVD context (where there is a need to quantify the subsidy attributable to particular 
entries of a good from a particular producer), or  the context of a claim involving a subsidy provided 
directly to a company that does not produce, and is not related to a producer of, the product at issue 
(where there is a need to establish that it is su bsidies benefiting the merchandise at issue that are 
causing adverse effects) - there is no such need in the context of determining whether subsidies 
                                                      
83 US, SNCOS, Executive Summary, para. 7. 
84 US, SWS, para 25 & n.31 (referencing US Response to Updated EC Preliminary Ruling Request 
(29 November 2006), paras. 29-51). 
85 US, SWS, Executive Summary, para. 5. 
86 Executive Summary of the Comments by the Unite d States on the Second Non-Confidential Oral 
Statement of the European Communities (hereinafter US, Comments on EC, SNCOS, Executive Summary), 
para. 1. 
87 US, SNCOS, Executive Summary, para. 15. 
88 US, FNCOS, Executive Summary, para. 17. 
89 US, SWS, Executive Summary, para. 73. WT/DS316/R 
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  provided directly to the producers of the merchandise at issue are causing adverse effects to the 
interest of other Members."90    
4.44 Moreover, according to the US, the EC ignores th e fact that when transactions have been 
found to extinguish subsidies in past disputes, tho se transactions were not only at arm's length and for 
fair market value, but also involved the transfer of all or substantially all of the assets of the 
subsidized entity and relinquishment of control by th e seller.  Relatedly, the EC fails to address the 
logical implications of its argument for subsidies to  publicly traded companie s.  Absent from the EC's 
second submission is any support fo r its "extraction" defense.91 
4.45 The US considers that the "extraction" argument is  an EC invention.  The US points out that 
the EC has not proven the validity of its concepts  of extinguishment or so-called extraction of 
subsidies, nor has it demonstrated facts that might support its theories.92  
4.46 The US first notes that while the EC makes va gue references to "{t}he WTO treatment of 
change of ownership," "the test for cash extraction," and "the established WTO rules," it never states where in the SCM Agreement this "t reatment," "test," or "rules" can be found.  In the US view, it does 
not do so because it cannot do so.  Second, the US notes that the EC asserts that "the test for cash 
extraction is a 'but for' test," even though the SC M Agreement contains no such test, and elsewhere 
the EC has insisted on interpreting and applying th e language actually used in the SCM Agreement.  
Third, the US points out that as there is no treaty text  to support its argument, the EC refers instead to 
what it calls "economic common sense," but  provi des no citation to a textbook or any other support 
for this "economic common sense."  In effect, the US explains, the EC invents a special accounting 
rule whereby, when a subsidized entity transfers cash to the account of its owner, the transferred 
money is first attributed to any subsidies provided to the entity and is attributed to non-subsidized 
investment only after the amount transferred equals the amount of pre-transfer subsidies.
93   
4.47 More fundamentally, the US argues, the EC  "extraction" theory relies on a supposed 
separation between a company and its shareholders – the very separation that the EC successfully 
opposed in US –Countervailing Measures on Certain EC Products .  If it is the case that money taken 
out of an owner's pocket amounts to money taken out of the company, potentially eliminating 
subsidies that reside in the comp any, then the converse must also be true:  money that is simply 
moved from the company to the owner's pocket has not  really left the company-shareholder unit.  
Indeed, following the EC logic, it would seem that a company "extracts" subsidies every time it buys back stock or pays dividends to its shareholders – both types of transactions that involve a transfer of 
cash from the company to its owners.  Yet, if this  were so, then opportunities to circumvent the 
SCM Agreement would abound.
94 
4.48 With regard to the EC "extinction" argument,  the US notes that it is based on four sets of 
transactions: (i) the 1999 corporate tie-up betw een Aérospatiale and Matra Hautes Technologies 
("Matra"); (ii) the 2000 creation of EADS; (iii) the ex ercise by BAe of its put option in 2006; and (iv) 
the offerings of small portions of EADS shares between 2000 and 2007.  By the EC Commission's 
own admission, the transactions resulting in the crea tion of EADS and Airbus SAS did not "affect the 
quality or nature of control of Airbus."  They represented nothing more than "a restructuring and 
rationalisation of the existing lega l partnership between the parties {that previously had coordinated 
their Airbus activities through Airbus GIE}."  More over, it is telling that when asked how it responds 
                                                      
90 US, Answer to Panel Question 122, para. 384. 
91 US, SNCOS, Executive Summary,  para. 15. 
92 US, FNCOS, Executive Summary, para. 18. 
93 US, SWS, Executive Summary, para. 76. 
94 US, SWS, Executive Summary, para. 77.  WT/DS316/R 
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  to the US statement that "{n}one of {the pertin ent} transactions involved a transfer of 'all or 
substantially all' of the subsidized entity to privat e interests," the EC simply ignored the phrase "all or 
substantially all."95  
4.49 The US asserts that in addition to the conceptu al flaws in the EC argument, certain of the 
transactions alleged to result in the extinction of subsidies occurred after  Panel establishment96 and 
therefore, have no bearing on the resolution of this dispute.97  The US points out that the Appellate 
Body report in EC – Selected Customs Matters  does not support the EC re liance on those transactions.  
In EC – Selected Customs Matters , the Appellate Body said that it is permissible to refer to facts post-
dating panel establishment as evidence to confirm the ex istence of facts alleged to exist at the time of 
panel establishment.  Here, the EC cites the transacti ons at issue not for their evidentiary value, but 
for the mistaken proposition that they  extinguished pre-existing subsidies.98 
4.50 Moreover, several of the transactions are not even  actual sales of shares.  The US also points 
out that all of the post-panel-establishment transactio ns and all but one of the remaining transactions 
that the EC argues "extinguished" parts of the subs idies to Airbus concern between 1 percent and at 
most 9.95 percent of the shares in the entities concer ned.  In other words, they involved significantly 
less than "all or substantially all" of the shares of those entities.  Furthermore, the US notes that  none 
of the transactions cited by the EC resulted in th e seller "no longer {having} any controlling interest" 
in the company at issue.  The US considers that  the EC has in no way demonstrated that the 
transactions it cites occurred at arm's length and for fair market value.99   
4.51 The US argues that, in the CVD context, the A ppellate Body has recognized the possibility of 
subsidy extinction through an arms-length, fair-marke t-value transaction involving a transfer of all or 
substantially all of the assets of the subsidized entit y and a relinquishment of control.  In the US view, 
the EC is asking the Panel to alter these principles – not, as the EC asserts, extend them – so that it 
would be irrelevant whether the transaction at issue i nvolves all or substantially all of the assets of the 
subsidized entity or a relinquishment of control.100   
4.52 The US also notes that the EC criticized the report of Ms Lauren D. Fox regarding the 
transaction involving the Aérospatiale-Matra tie-up and subsequent minority flotation.  The US 
explains that the Fox report shows that reports by  various investment banks do not demonstrate that 
the transaction occurred at arms-length and for fair market value.  In criticizing Fox, the EC (at 
paragraph 71 of its SNCOS) quotes misleadingly from he r report.  The full quote reads: "In situations 
where insider knowledge of detailed hi storical financials and access to  management for discussions of 
likely trends are available , the most reliable indicator of long-term underlying economic value to 
shareholders" is the discounted cash value method.  The EC left out the entire first part of the 
sentence.  This intentional omission reflects the EC  knowledge that the very reports it relies on were 
not based on "detailed historical financials and access to management for discussions of likely 
trends."  Thus, as Ms Fox concl uded, the reports the EC relies on do not confirm that the transaction 
was in accordance with the usual investment practice of private investors.101 
4.53 The US notes that the EC repeatedly accuses it of failing to show that subsidies given to 
Airbus predecessor companies passed through to Airbus SAS.  In the US view, this argument is just a 
                                                      
95 US, SWS, Executive Summary, para. 74. 
96 United States, Comments on EC, SNCOS, Execu tive Summary, (hereinafter US, Comments on EC, 
SNCOS, Executive Summary), para. 4. 
97 US, SWS, Executive Summary, para. 75. 
98 US, Comments on EC, SNCOS, Executive Summary, para. 4. 
99 US, SWS, Executive Summary, para. 75. 
100 US, Comments on EC, SNCOS, Executive Summary, para. 3. 
101 US, Comments on EC, SNCOS, Executive Summary, para. 5. WT/DS316/R 
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  re-packaging of the EC's faulty "extinguishment" argument.  According to the US, the EC pretends 
that by changing names and re-g rouping subsidized entities, the resulting entity – Airbus SAS – 
emerges subsidy-free.102  
4.54 In any event, the US argues,  the answer to the EC's false argument on pass-through was 
summed up by the European Commission  itself in 2000, in reviewing the creation of EADS.  It said: 
"Most of the parties' activities in commercial  aircraft are already integrated through 
Airbus.  .  .  .  There is no indication that the operation will affect the quality or nature of control of Airbus.  .  .  .  Accordingly,  there is no indication that the operation will 
affect the competition position of Airbus."
103  
In short, as the European Commission itself admitted, no economically significant transaction 
occurred in the regrouping that led to the creation of  EADS and, hence, the current-day Airbus SAS.  
It simply was a matter of bringing together four subsidized producers under "a single unified 
management."  This bringing together under a si ngle unified management did not cause the embedded 
subsidies to magically disappear, as th e EC would have the Panel believe.104 
 
4.55 The US further notes that the EC seems to argue  that the transfers of cash from CASA to the 
government of Spain and from DASA  to DaimlerChrysler were analogous  to repayments of subsidies 
and thus constituted withdrawals of  subsidies within the meaning of Articles 4.7 and 7.8 of the 
SCM Agreement.  However, according to the US, the EC ignores an important distinction between 
these transactions and actual repayments of subsidy.  The US explains that when withdrawal of a 
subsidy is effectuated by repayment, the governme nt that provided the subsidy in the first place 
receives cash from the subsidized entity and gives up not hing in return.  That is not what happened in 
the CASA and DASA transactions.  Both the gove rnment of Spain and DaimlerChrysler gave 
something up in the sense that they received smaller stakes in EADS than they would have received if 
the cash transfers had not occurred.105   
(c) Temporal Scope of the SCM Agreement 
4.56 Finally, in response to the EC arguments on th e temporal scope of the SCM Agreement, the 
US points out that while the EC argues that La unch Aid for the A300, the A310, and the A320 is 
outside the temporal scope of this dispute, it continues to withhold relevant evidence, such as the 
A300 and A310 Launch Aid contracts and the disb ursement and repayment information for those 
models.  Since the A300/A310 program was expected  to end in July 2007, it is likely that the 
outstanding balances  were  about to become  grants, which may explain the EC tactics.106 
4.57 The US considers that the EC pursues a deeply flawed position that a subsidy is not covered 
by the SCM Agreement if the subsidy first came into existence prior to January 1, 1995.  According to 
the US, the EC ignores entirely that the relevant question under the SCM Agreement is not when a subsidy first came into existence, but whether th e Member providing the subsidy is causing, through 
the use of the subsidy, adverse effect s to the interests of other Members.
107  
                                                      
102 US, FCCS, Executive Summary, para. 9. 
103 US, FCCS, Executive Summary, para. 10, citing European Commission, Decision of 11 May 2000, 
COMP/M.1745 - EADS at paras. 15-16; s ee also, European Commission, Press Re lease, Commission Clears the 
Creation of the Airbus Integrated Company (18 October 2000). 
104 US, FCCS, Executive Summary, para. 11. 
105 US, SWS, Executive Summary, para. 78. 
106 US, FNCOS, Executive Summary, para. 2. 
107 US, SWS, Executive Summary, para. 2.  WT/DS316/R 
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  B. WHETHER LAUNCH AID IS A SUBSIDY WITHIN THE MEANING OF ARTICLE  1 OF THE 
SCM A GREEMENT  
1. Arguments of the United States 
(a) Launch Aid as a Program 
4.58 The US challenges not only each individual grant of Launch Aid, but also the Launch Aid 
program as a whole.  The US argues that evidence of the Launch Aid program includes, inter alia , 
intergovernmental agreements, the Launch Aid cont racts, the intergovernmental institutions, and the 
dedicated bureaucracies.  Further evidence is the "legally binding" commitments of Launch Aid for 
the A350 XWB, as well as the value that market actors place on Launch Aid.  The perception of 
Launch Aid by rating agencies should leave no doubt that Launch Aid is a program.  It "creates 
expectations among the public and among private actor s," demonstrating that it has "normative value" 
and should be considered as a measure in its own right.108 
4.59 The US submits that the Airbus governments have provided between 33 and 100 percent of 
the financing that Airbus has needed to develop its LCA family.  Every time that Airbus asks for 
further grants of Launch Aid under the Launch Aid regime, the Airbus governments provide it.  As 
former French Prime Minister Lionel Jospin st ated in a March 2000 speech before the French 
Parliament, their purpose in providing the aid is to  "give Airbus the means to win the battle against 
Boeing."109 
4.60 The US explains that the roots of the Airbus  governments' Launch Aid program can be traced 
to 1969, when the governments of France and Germ any entered into an agreement to "reinforce 
European cooperation in the field of aeronautics. "  The 1969 agreement was only the first of a number 
of agreements in which the Airbus governments have  memorialized their program to support Airbus 
with Launch Aid.  In addition to the 1969 agreement,  there were at least four additional agreements 
relating to the A300 and A310 and their derivatives, an agreement relating to the A320, an agreement 
relating to the A330/340, and a joint decision by the Airbus governments to provide Launch Aid for 
the A380.  Most recently, the Airbus government s made legally binding commitments to provide 
Launch Aid for the A350.110 
4.61 The US asserts that the Airbus governments ha ve created and maintain a set of formal 
intergovernmental institutions that they use to oversee Airbus and to work with it to determine 
whether and when to launch new Airbus aircraft.  The US considers that th e core intergovernmental 
institutions are the Airbus Intergovernmental Co mmittee, the Airbus Executive Committee, and the 
Airbus Executive Agency, whic h the governments established in 1969 and which have been in 
continuous operation ever since.  Other institutions  include the Airbus Ministers Conference and the 
Permanent Working Group for Sales Financing.111 
4.62 The US notes that in addition to the intergove rnmental institutions, the Airbus governments 
also maintain dedicated bureaucracies at the national level.  These bureaucracies perform the 
administrative tasks involved in maintaining the Laun ch Aid system and coordinating the provision of 
Launch Aid to Airbus.112  In France,  a special unit in the Direction des Programmes Aéronautiques 
                                                      
108 US, FNCOS, Executive Summary, para. 1. 
109 Executive Summary of the First Written Submission of the United States (hereinafter US, FWS, 
Executive Summary), para. 7. 
110 US, FWS, Executive Summary, para. 8. 
111 US, FWS, Executive Summary, para. 9. 
112 US, FWS, Executive Summary, para. 10. WT/DS316/R 
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  Civils  oversees Airbus and the Launch Aid system.  The so-called "transport aircraft of more than 100 
seats" unit participates in the Airbus intergovernmental institutions and administers the provision of Launch Aid to Airbus for the company's new projects.  The UK
 Launch Aid system is administered 
by the "aerospace team" located within DTI's Aero space and Defence Unit, which is "responsible for 
relations with civil aerospace companies, and launch investment."  In Germany , the entity that is 
responsible for administering the Launch Aid syst em is the office of the Coordinator for the 
Aerospace Industry and for Aeronautics Research, an  office within the Federal Ministry of Economics 
and Technology.  In Spain , the Ministry of Science and Technology is responsible for administering 
the "system of reimbursable advances."  It also "p articipates in the Council of Ministers of the four 
countries, the {Airbus} Executive Committee and the other bodies that manage and coordinate the 
system."113  
4.63 The national Airbus bureaucracies work with th e intergovernmental institutions to "manage 
and coordinate" the Launch Aid system.  The Air bus governments also conclude agreements with 
Airbus to facilitate their coordination of the syst em.  The US discusses an agreement pertaining to the 
A380, which is quite revealing of the pattern.114 
4.64 The US points out that the European Commission and the Airbus governments have each 
confirmed the integrated nature of the Launch Aid pr ogram that they use to ensure the success of the 
Airbus enterprise.  For example, on the same da y that President Chirac described the A380 as a 
"success of European industrial policy," British Prim e Minister Blair described the aircraft as "the 
result of unprecedented co-operation between the four countries... ."  And on the day after the 
ceremony, the European Commission stated that "for the EU, the A380 represents the fruit of 
European state-level co-operation."  Indeed, the form er UK Secretary of Trade and Industry has stated 
that the provision of Launch Aid: 
"reflects our approach to industrial policy.   We are not standing to one side and 
leaving everything to the market...  ."115 
4.65 The US argues that it is also clear that the Air bus governments will continue to work together 
to provide Launch Aid to Airbus.  For example, a European Commission report on the future of the European aerospace industry stated in October 2003 that member States will retain the "crucial 
responsibility" of "providing support in term s of R&D programmes, repayable launch aid
 and 
contributions to ESA programmes...  ."  In May 2005, the European Commission defended the prospect of Launch Aid for the new Airbus A350  because Launch Aid is "part of the commercial 
landscape of aircraft development" in Europe.  That same month, the French Transport Minister stated 
that "{t}he French state has given its financial support to the A380 program me and we expect to 
continue in this vein ... ."
116 
4.66 Similarly, in June 2006, an EADS spokesman st ated that "{l}aunch aid is the only available 
system right now."  In July 2006, the Airbus mini sters "reaffirmed their agreement to support Airbus 
to continue to innovate and to develop programmes in the context of international competition."  And 
on November 14, 2006, the French Prime Minister Do minique de Villepin said the role of the State in 
EADS (and thus Airbus) is "to defend a strategic l ong term vision, which is guarantor of jobs and 
economic dynamism of the company.  I can ensure you that the State will fully play its part."  The financial market standing of Airbus' parent company EADS hinges on these plans.  The Moody's 
                                                     
 
113 US, FWS, Executive Summary, para. 11. 
114 US, FWS, Executive Summary, para. 12. 
115 US, FWS, Executive Summary, para. 13. 
116 US, FWS, Executive Summary, para. 14.  WT/DS316/R 
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  commercial rating service, for example, has explained that it takes the continued availability of 
Launch Aid into account in determining EADS' debt rating.117 
4.67 The US argues that in light of the Airbus govern ments' consistent and systematic approach to 
their support of Airbus for over three decades, the institutional structures and bureaucracies they have 
created to maintain and provide this support, and th eir statements and actions concerning this support, 
the specific content of their Launch Aid program and the future conduct it will entail is clear.  
According to the US, the Airbus governments will c ontinue to use Launch Aid to facilitate Airbus' 
commercial strategy, without regard to their WTO obligations or the effects of the subsidies on 
the US.118 
4.68 The US asserts that Launch Aid is a subsid y within the meaning of Article 1 of the 
SCM Agreement because it involves a financial contri bution within the meaning of Article 1.1(a)(1) 
of the SCM Agreement that confers a benefit that is specific to Airbus within the meaning of the 
SCM Agreement.119 
(b) Launch Aid Constitutes a Financ ial Contribution to Airbus 
4.69 The US notes that Article 1.1(a)(1)(i) of the SC M Agreement states that "there is a financial 
contribution" by a government where "a government practice involves a direct transfer of funds ( e.g., 
grants, loans, and equity infusion)" or "potential direct transfers of funds or liabilities ( e.g., loan 
guarantees)."  According to the US, the Airbus governments' Launch Aid program is a government practice that involves the direct transfer of funds or  potential direct transfer of funds in the sense of 
Article 1.1(a)(1)(i) – namely, success-dependent loans.   Therefore, in the US view, "there is a 
financial contribution" within the meaning of  Article 1.1(a)(1)(i) of the SCM Agreement.
120 
(c) Launch Aid Confers a Benefit on Airbus 
4.70 The US argues that the Airbus governments have  designed the Launch Ai d system to benefit 
Airbus by providing the funds it needs to develop new models of LCA, carefully tailored to address 
the extremely high costs and risks of LCA development,  at interest rates that are substantially below 
what the market would demand for financing with sim ilar characteristics.  The US describes the ways 
in which the Airbus governments have designed Launc h Aid to insulate Airbus from those risks and 
the reasons why the financing confers a benef it within the meaning of the SCM Agreement.121 
4.71 First, the US points out that developing new models of LCA is both extremely risky and 
extraordinarily expensive.  The development progr ams require huge up-front investments to fund the 
development work that must be completed before de liveries can begin.  Once th is investment has been 
made, very little can be recovered in the event the program fails.  There are many uncertainties at the 
time of commitment to launch an LCA program, and it is difficult to predict the prices that various customers will pay for the aircraft over the life of the program.  Since the initial development 
investment is essentially a sunk cost and is incurre d well before revenues are received, the size of 
these non-recurring costs is a key element affecting an aircraft program's risk and expected 
profitability.  If a program is successful, the up-front investment is eventually recovered with margins 
earned on each aircraft delivery.  Given the ty pical magnitude of program non-recurring costs, 
however, hundreds of sales are usually required befo re a program reaches its break-even point.  If a 
                                                     
 
117 US, FWS, Executive Summary, para. 15. 
118 US, FWS, Executive Summary, para. 16. 
119 US, FWS, Executive Summary, para. 17. 
120 US, FWS, Executive Summary, para. 18. 
121 US, FWS, Executive Summary, para. 19.  See, also, US, FWS, Executive Summary, para. 5. WT/DS316/R 
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  program fails to reach break-even sales, the rema inder of the non-recurring costs must instead be 
written off as a loss.122 
4.72 Second, the US notes that  repayment of Launch Aid is success-dependent.  The US explains 
that one of the principal ways in which the Airbus  governments assume Airbus' risks in developing 
new models of LCA is by allowing Airbus to repay the aid through "levies" on each delivery of the 
financed product.  The Launch Aid is unsecured,  and the government has no recourse to obtain 
repayment if the expected sales fail to materialize.   Repayment is therefore "success dependent."  A 
company that receives financing on a "success-de pendent" basis enjoys the obvious benefit of no 
down-side risk.  As one UK scholar has observed, "the distinctive risk-sharing feature of Launch Aid 
confers Airbus with an advantage over a rival who is constrained to debt and equity instruments 
alone."123 
4.73 Third, the US points out that repayment of Launc h Aid is back-loaded.  The US explains that 
the Airbus governments further assume Airbus' risk s by back-loading the repayment obligations.  
First, levy-based repayment terms are inherently back -loaded.  One inevitable consequence of tying 
repayment to deliveries is that repayments only be gin once deliveries begin.  For the ordinary LCA 
program, this normally means there will be at least a five-year lag between disbursement of the aid to Airbus and the first repayments (in the case of the A 380, the lag will be closer to ten years).  Second
, 
the Airbus governments further back-load the re payment schedules by allowing Airbus to make 
relatively small levy payments on early deliveri es and progressively larger payments only on later 
deliveries.  Third , in some cases, the Airbus governments a llow Airbus to forego levies entirely on an 
initial tranche of deliveries.124 
4.74 In addition, the US asserts that Launch Aid carries below-market interest rates .  The US 
explains that the Airbus governments do not require Ai rbus to pay a commercial rate of interest that 
reflects the substantial risks that the governments a ssume on its behalf.  In some cases, the Airbus 
governments have provided Launch Aid to Airbus inte rest-free.  The US further notes that even the 
Launch Aid contracts that purport to include an interest component do not actually require  Airbus to 
pay interest.  Since the financing is success-depe ndent, the Airbus governments actually provide the 
aid without requiring any  return, even of principal.  The "Ellis  Report," included as an exhibit to the 
US submission, compares the "potential returns" on Launch Aid with the actual returns that the 
commercial market would demand for financing with  similarly advantageous characteristics.  It 
concludes that Launch Aid borrowing rates are substa ntially below the rates that commercial investors 
would demand for comparable project-specific and success-dependent loans.125 
4.75 The US also points out that the WTO has already found that Launch Aid-type financing 
confers a benefit.  In the Canada – Aircraft  subsidy dispute, the panel examined financing that was 
virtually identical to Launch Aid a nd concluded that the financing conf erred a benefit on the recipient, 
and thus constituted a subsidy within the meaning of  the SCM Agreement.  In the US view, for the 
same reasons that the Canada – Aircraft  panel found that the financing at issue conferred a benefit on 
the recipient, the Launch Aid that the Airbus gove rnments provide to Airbus confers a benefit on 
Airbus.126 
                                                      
122 US, FWS, Executive Summary, para. 20. 
123 US, FWS, Executive Summary, para. 21.  See, also, US, FWS, Executive Summary, para. 6. 
124 US, FWS, Executive Summary, para. 22. 
125 US, FWS, Executive Summary, para. 23. 
126 US, FWS, Executive Summary, para. 24.  WT/DS316/R 
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  (d) Launch Aid is Specific 
4.76 Lastly, the US submits that the Launch Aid program is specific to Airbus.  According to the 
US, the Airbus governments conceived and mainta in their Launch Aid program for the specific 
benefit of Airbus.  The US argues that they have  used the program in a systematic and methodical 
way since its very inception to provide Airbus the means to develop a full family of LCA to compete 
against US producers in the LCA market.  Accordingl y, in the US view, the Launch Aid subsidies that 
Airbus has received have always been, and remain, sp ecific to Airbus within the meaning of Article 2 
of the SCM Agreement.127 
(e) Other issues 
4.77 The US notes that the EC asserted in its submission that the US had not challenged Launch 
Aid "as a subsidy programme," and therefore declined to engage on that US claim at all.  However, 
the US argues that as it demonstrated in its statemen t at the first Panel meeting and in its responses to 
the Panel's questions, that assertion is incorrect.128 
4.78 The US notes that the EC argues against the u se of the term "launch aid," which it called a 
"loaded term"129 and accuses it of using "terminological devices" to advance its argument.130  
However, the US contends that it is the EC that is using "terminological de vices" by inventing a new 
label – "MSF" – to distract from the unmis takably systemic nature of Launch Aid.131 
4.79 The US also notes that in responding to the US showing that the Launch Aid Program is a 
distinct measure breaching the EC obligations un der Article 5 of the SCM Agreement, the EC 
conflates two distinct concepts:  the concept of "m easure" and the concept of an "'as such' claim."  
The US points out that rather than discuss the que stion of whether the Launch Aid Program is a 
measure, the EC argues that the US has not substantiated an "as such" claim.  The US has shown that the Launch Aid Program is a measure, even according to  the factors the EC says must be shown.  The 
precise content of the Launch Aid Program is the consistent provision of Launch Aid based on the 
same core terms since 1969.  The US  argues that the EC attempt to di smiss this fact based on different 
interest rates and different repayment amounts in different Launch Aid contracts simply goes to the 
amount of benefit conferred.  The EC assertion th at "market-based instruments" display the same 
attributes as the Launch Aid Program is belied by ke y distinctions between the examples the EC gives 
and the Launch Aid Program.  In addition, the US notes that the EC also ignores the substantial 
institutional apparatus that supports the Launch Ai d Program, and it misconstrues evidence showing 
rating agencies' understanding that the Program exists.
132 
4.80 Finally, the US argues that the EC fails to re but the US showing that the Launch Aid Program 
has general and prospective applicability.  That Ai rbus has not sought or has not accepted offers of 
Launch Aid in particular instances does not affect that showing.  Indeed, the Airbus governments 
confirmed the general and prospec tive nature of the Launch Aid Program when they fulfilled market 
expectations and made "legally binding" commitme nts to provide Launch Aid for the A350.  The US 
considers that the EC provides no evidence to show  that these commitments are not legally binding.133  
                                                      
127 US, FWS, Executive Summary, para. 25. 
128 US, SWS, Executive Summary, para. 9. 
129 citing, EC First Oral Statement, para. 40. 
130 citing, EC First Oral Statement, para. 114. 
131 US, FCCS, Executive Summary, para. 8. 
132 US, SNCOS, Executive Summary, para. 4. 
133 US, SNCOS, Executive Summary, para. 5. WT/DS316/R 
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  4.81 In any event, "the standard for determining whether the Launch Aid Program is a measure is 
not the EC's asserted test, but a standard based on the ordinary meaning of the term 'measure' in 
context and in light of the object and purpose of the WTO Agreement, which standard must be applied based on the facts. Following this standard, ev en if the Panel disagreed with the US that the 
Launch Aid Program has general and prospective a pplication, it still should find that the Program 
constitutes a challengeable measure, based on the totality of the evidence.
134   
2. Arguments of the European Communities 
4.82 The EC submits that the US has brought be fore the Panel a misconceived and grossly 
exaggerated case that ignores relevant international ag reements and that is backed-up by limited and 
often incorrect facts.135  The EC begins its defense by recalling the history of the EC LCA industry 
and distinguishing its participants over time.136  By the mid-to-late 1960s, it became apparent that 
individual EC LCA manufacturers, in large pa rt because of successful US industrial policy to 
undermine their separate product offerings, could no t succeed on their own.  These companies had 
difficulty recovering the high development costs ass ociated with their separate LCA programmes, in 
part also because, even if they  could successfully build one aircra ft product, as many did, none of 
them could expand their business to build the requ ired separate complementary product offerings that 
would become the key to success in the LCA bus iness.  Unless these companies pooled their 
resources, they recognized that they stood no chan ce of competing in the global LCA market.  The 
creation of Airbus GIE allowed the EC LCA industr y to transcend these limitations.  Airbus GIE was 
established in 1970 as a consortium of two aeros pace companies — Aérospatiale and Deutsche 
Airbus.  Two other aerospace companies, CASA and BAe, joined Airbus GIE in 1971 and 1979, 
respectively.  Each of these "Associated Manufacturer s" held an ownership interest in Airbus GIE, 
which was formed as a groupement d'intéret économique , or "GIE," under French law.  The loose 
collaboration permitted by the GIE structure ha d several advantages.  The development and 
production of aircraft was allocated between the A ssociated Manufacturers, enabling Airbus GIE to 
harness each company's unique engineering talents and resources.  This arrangement prevailed from 
Airbus GIE's inception in 1970 until 2001.  During this period, Airbus GIE launched most of its 
aircraft families, including the A300, A3 10, A320, A330 and A340 families of LCA.137 
4.83 Two events led to the creation of Airbus SA S, which heralded a fundamental change in 
Airbus GIE's corporate structure.  First , the French State privatized Aéro spatiale in 1999.  The French 
defence contractor Matra Haute Technologies (" MHT") merged with Aérospatiale to form 
Aérospatiale  Matra ("ASM").  An initial public of fering ("IPO") of shares in the merged entity was 
conducted simultaneously with the merger transaction.  Second , the European Aeronautic Defence 
and Space Company ("EADS") was created shortly thereafter.  Through a complex series of transactions, ASM, DaimlerChrysler Aerospace AG ("DASA"), and Construcciones Aeronauticas SA ("CASA") merged to form EADS with effect from July 2000, when shares in the company were sold 
in an IPO.  The merger yielded a company with a broad portfolio of civil aeronautic, military, and 
space activities.  In several steps between 2001 an d 2004, the LCA activities of each of the four 
partners were placed into subsidiaries under the contro l of a single, integrated company, Airbus SAS.  
The existing Associated Manufacturers (ASM, DASA,  CASA, and BAe) were succeeded by wholly-
owned subsidiaries of Airbus SAS (Airbus France, Airbus Germany, Airbus Spain, and Airbus UK) 
which are sometimes referred to collectively as the Airbus National Companies ("NatCos").  At the 
                                                     
 
134 US, Answer to Panel Question 136, para 8. 
135 EC, FWS, Executive Summary, para. 92. 
136 EC, FWS, Executive Summary, para. 10. 
137 EC, FWS, Executive Summary, para. 11.  WT/DS316/R 
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  time of its creation, 80 percent of Airbus SAS sh ares were owned by EADS, and 20 percent by BAe 
Systems.138 
4.84 Airbus SAS is an entirely different company fro m the Airbus GIE consortium.  In particular 
Airbus SAS wields broader powers than its pred ecessor, the GIE, which had no power to bind its 
members and was a loose association of fully independe ntly cost-centred companies.  Airbus SAS is 
now responsible for managing the Airbus LCA bus iness; conducting sales, marketing, and certain 
customer support functions; buying aircraft engines and nacelles; coordinatin g the transportation of 
aircraft parts and components among its subsidiaries, the NatCos ; conducting flight tests; and 
developing a production plan for Airbus programmes.  Airbus SAS also takes or approves most of the 
company's procurement decisions.139   
(a) Member State Financing as a Programme  
4.85 The EC does not accept the US descriptions of "launch aid programme" as a generic system 
denoting "long-term unsecured loans at zero or be low-market rates of interest, with back-loaded 
repayment schedules".  The EC points out that "rat her than using the suggestive and oversimplifying 
term "launch aid", the EC will refer to each of th e member States' measures separately.  In the EC 
view, if a generic term is suitable to cover measures from all the four member States together the EC 
will denote them as "member State Financing" ("MSF").140  
4.86 The EC refutes the US portrayal of MSF loan s as a cross-country "programme" or "system" 
and explains that the US has not asserte d "as such" claims against these loans."141  In this respect, the 
EC notes that the US has clarified in its oral stat ement that it does not, after all, assert an "as such" 
challenge to the so-called "Launch Aid progra mme."  The EC welcomes this clarification.142 
4.87 In addition, the EC does not agree that the term "launch aid" is in "general usage".  The EC 
notes that this term is used neither in the UK, nor in any of the other three member States (which use 
terms such as avances remboursables, anticipos reembolsables and Rückzahlbare Zuwendungen).  The 
Article on UK "launch aid" by Mr. Kim Kaivanto a nd included as Exhibit US-2 to the US first written 
submission records that the UK House of Commons  Trade Committee considered that the term may 
have been appropriate before the 1992 Agreement but  was misleading thereafter and that a preferable 
term would be "reimbursable launc h investment".  Since both parti es to this dispute accept that 
footnote 16 of the SCM Agreement describes and applies to what the US terms "launch aid", an appropriately neutral term could be that used in footnote 16, i.e., "royalty based financing".  The EC 
also points out that both parties also accept that Article 4 of the 1992 Agreement describes and applies 
to what the US calls "launch aid" and the term  used in that provision is "development support".
143  
4.88 The EC asserts that each instance of financing is memorialized in an MSF contract.  The 
terms on which MSF is provided are negotiated on a deal -by-deal basis; as a consequence, they vary 
considerably depending on the Airbus LCA progra mme at issue, both within and as between member 
States.  In its condensed factual description of MSF, the EC describes some common attributes of 
MSF.  Those common attributes speak solely to the similarity of the type or form of financing 
provided by the four member States.  Each MSF contract is, however, a se parate and independent 
                                                      
138 EC, FWS, Executive Summary, para. 12. 
139 EC, FWS, Executive Summary, para. 13. 
140 EC, FWS, Executive Summary, para. 28. 
141 EC, FWS, Executive Summary, para. 32. 
142 EC closing statement, second mee ting, Executive Summary, para. 6. 
143 EC, FCCS, Executive Summary, para. 1. WT/DS316/R 
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  measure.144  In its submissions, the EC describes the basic elements of MSF loans as financial 
instruments, and their role in the developmen t of the A320, the A330/A340 (including the A330/340 
basic, the A330-200, and the A340-500/600), and the A380 aircraft programmes.145  
4.89 According to the EC, the US challenge of a "la unch aid programme" is without merit.  In the 
EC view, the US has failed to point to the precise content of the alleged measure.  It has also not 
shown that there is a norm of "general and pros pective" or "systematic" application.  The EC 
underlines that MSF is not always sought to finance development of Airbus LCA; that when MSF is 
sought, it is not always provided; that when developm ent financing is sought, it is not always sought 
in the form of MSF; and that when MSF is provided, it is provided on terms that vary widely, both as between member States, and as between Airbus aircraft programmes.
146 
4.90 The EC asserts that it corrects certain factual e rrors that the US mak es with respect to the 
relevance of the existence of "intergovernment al institutions" and "ded icated bureaucracies". 147  
Concerning the "intergovernmental institutions," th e EC notes that these do not set the terms of MSF, 
nor play any role in administering individual MSF loans.148  Concerning the "dedicated bureaucracies" 
specifically, the EC clarifies that these entities do not provide MSF loans, nor are they dealing 
exclusively with "Airbus".  Rather, it is the re levant ministry that provides MSF loans to the 
respective national company.  Those ministries ad opt procedures that vary from member State to 
member State and over time.  Moreover, MSF loan s are available to companies other than the 
recipients at issue in this dispute.149  The EC submits that, whatever the relevance of these institutions, 
they cannot overcome the failure of the US to dem onstrate the "precise content" and the "general and 
prospective application" of the alleged MSF programme.150 
(b) US Failure to Prove that A member State Financing "Programme" Constitutes a Financial 
Contribution to Airbus 
4.91 The EC argues that the US failure to establish the existence of a MSF programme also means 
that this alleged programme cannot constitute a financial contribution.  In any event, the US failed to 
establish any financial contributions independent  of individual applications of MSF loans.151 
(c) US Failure to Prove that A member State Financing "Programme" Confers a Benefit on 
Airbus 
4.92 The EC argues that the US failure to establish the existence of a MSF programme also means 
that this alleged programme  cannot confer a benefit.152   
4.93 Nonetheless, the EC also addresses the assertions on which the US bases its benefit arguments 
in relation to the alleged MSF programme.  In par ticular, the EC submits that the US erroneously 
relies on a number of characteristics shared by certain of the MSF loans at issue – i.e., the long-term, 
unsecured nature of MSF loans and their success-de pendent and back-loaded repayment terms – to 
assert that the alleged measure confers a benefit.  According to the EC, none of these characteristics, 
either individually or collectively, are indicative of benefit. 
                                                      
144 EC, FWS, Executive Summary, para. 29. 
145 EC, FWS, Executive Summary, para. 31. 
146 EC, SWS, Executive Summary, para. 12.   
147 EC, Answer to Panel Question 172, paras. 19-43. 
148 EC, Answer to Panel Question 172, paras. 21-26. 
149 EC, Answer to Panel Question 172, paras. 27-33. 
150 EC, Answer to Panel Question 172, para. 18. 
151 EC, Comments on US Answer to Panel Question 139, paras. 35-43 
152 EC, Comments on US Answer to Panel Question 139, paras. 35-36, 44-53.  WT/DS316/R 
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  4.94 First, the tenor of MSF loans is consistent with the tenors of other long-term financing 
instruments available at market.153  Second, unsecured financing instruments are common in the 
market and do not, for that reason alone confer a benefit.154  Third, financing with success-dependent 
repayment terms is available to both Airbus a nd Boeing from commercial actors, including private 
banks and risk-sharing suppliers.155  While the success-dependent nature of the repayment does, 
indeed, transfer risk from the borro wer to the creditor, this is a f eature shared by most financing 
instruments.  The degree of risk-sharing will be reflected in the price – i.e., the interest rate – charged 
by the creditor for the financing instrument.  Succ ess-dependent repayment terms are, therefore, not 
indicative of benefit either.156  Fourth, back-loaded repayments are common for many financing 
instruments.  Commercial bonds for example are repaid in total at the end of their tenor, i.e., their 
repayment is entirely back-loaded.157   
4.95 Thus, according to the EC, the only measure ag ainst which it can be determined whether 
individual instances of MSF loans confer a benefit is the interest rate charged for that loan, compared 
to what a market creditor would have charged.158  The EC addresses this issue in the context of its 
"benefit" arguments with respect to individual instances of MSF loans. 
C. WHETHER EACH GRANT OF LAUNCH AID TO AIRBUS IS A SPECIFIC SUBSIDY TO AIRBUS 
WITHIN THE MEANING OF ARTICLES  1 AND 2 OF THE SCM A GREEMENT  
1. Arguments of the United States 
4.96 The US argues that the Airbus governments ha ve provided or committe d to provide Launch 
Aid for every major model of the Airbus LCA family – the A300, A310, A320, A330, A340, A380, 
and A350 – and for the three major derivative mode ls of its family, the A330-200, A340-500, and 
A340-600.  In its submissions, the US argues that  each grant of Launch Aid constitutes a specific 
subsidy within the meaning of Articles 1 and 2 of  the SCM Agreement because it involves a financial 
contribution that confers a benefit on the recipient and is specific.159 
(a) Benefit 
4.97 The US notes that the EC concedes that Launch Aid is a subsidy.160  The US points out that 
the EC does not dispute that Launch Aid grants  confer a benefit; it disputes only the amount.161  
4.98 The US notes that the EC openly admits that for the A320 and A330/A340, Launch Aid was 
provided either interest-free (Germany and Spain), at the rate of inflation (France), or at the government's cost of borrowing (UK).  The US points out that the panel in the Canada – Aircraft  
dispute treated a similar admission by Canada with  respect to the Technology Partnerships Canada 
(TPC) program as dispositive with respect to the exis tence of a benefit and thus a subsidy.  The US 
also notes that the EC does not dispute that Launc h Aid for the A300 and A310 was provided interest-
free and thus confers a benefit.
162   
                                                      
153 EC, FCOS, para. 15. 
154 EC, Answer to Panel Question 65, paras. 72-76.   
155 EC, Answer to Panel Question 64, paras. 58-66. 
156 EC, FCOS, para. 18. 
157 EC, FCOS, para. 16. 
158 EC, FCOS, para. 19. 
159 US, FWS, Executive Summary, para. 26. 
160 US, FNCOS, Executive Summary, para. 7. 
161 US, SNCOS, Executive Summary, para. 6. 
162 US, SWS, Executive Summary, para. 11. WT/DS316/R 
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  4.99 This then leaves the A330-200, the A340-500/600,  and the A380.  For all of these models as 
well – whether one uses the benchmark rates calcula ted by the US or those calculated by the EC – 
Launch Aid confers a benefit on Airbus.  In fact , the US notes that in responding the Panel's 
questions, the EC acknowledged that Airbus soug ht Launch Aid for the A380 to "maximize{} the 
programme's profitability."163 
4.100  The US explains that the question in a benefit analysis under Article 1.1(b) of the 
SCM Agreement is "whether the recipient has r eceived a 'financial contribution' on terms more 
favorable than those available to  the recipient in the market."164 The US argues that the EC attempted 
to show that in demonstrating that Launch Aid c onfers a benefit on Airbus the US had overstated the 
relevant market benchmark and unde rstated the expected return assoc iated with Launch Aid.  The US 
argues that the EC is wrong on both counts.165 
4.101  The US argues that the EC mischaracterizes its benchmark methodology by pretending that it 
conceives Launch Aid as a pure debt instrument.  In fact, the US asserts that its methodology 
recognizes that Launch Aid is a hybrid instrument that has characteristics of both debt and equity.166  
In regard to the EC assertion that it underestimates the potential returns on Launch Aid contracts, the 
US argues that it took the figures directly from th e Launch Aid contracts themselves, which clearly 
state the relevant interest rates.  In the US view, the EC's own submission confirms that the rates in the US submission are correct.
167 
4.102  The US points out that the EC wrongly conte nds that Launch Aid should be treated as pure 
debt, ignoring its equity-like qualities, including th e governments' lack of entitlement to repayment 
with interest over a specified period of time and lack of recourse in the event of non-repayment.168  
The US argues that investment bank reports the EC cites are irrelevant, as they do not purport to evaluate the risk associated with Launch Aid.  In  the US view, the EC also misleadingly tries to 
downplay the riskiness of an LCA launch.  It makes the irrelevant observation that Airbus has "never 
failed to certify a launched aircraft," and it ignor es substantial delays in the repayment of Launch 
Aid.
169    
4.103  The US argues that the EC also mischaracterize s its benchmark, which relies not on returns to 
individual  venture capital projects, but on the much lowe r returns to well-diversified portfolios that 
contain venture capital investments.  In addition, th e US argues that the EC fails to substantiate its 
assertion that Launch Aid may entail costs not associated with market-based financing.170   
4.104  The US notes that the EC consultant attempts to  suggest that the US experts, Dr. Dorman and 
Dr. Ellis, were performing comparable analyses, but us ing different benchmarks.  In the US view, that 
is simply false.  The US explains that the Dorm an model examined the changes in profitability of a 
generic LCA program resulting from variations in pr ices, costs and airplanes sold, and examined the 
effect on profitability of Launch Aid.  The discount ra te was ancillary to this analysis, independent of 
the identity of the manufacturer and how the project was financed, and did not vary between the base 
case and the various Launch Aid scenarios.  In contra st, the Ellis analysis was specifically intended to 
                                                      
163 US, SWS, Executive Summary, para. 12. 
164 US, SWS, Executive Summary, para. 11. 
165 US, SWS, Executive Summary, para. 10. 
166 US, FNCOS, Executive Summary, para. 6. 
167 US, FNCOS, Executive Summary, para. 6. 
168 US, SWS, Executive Summary, para. 13. 
169 US, SNCOS, Executive Summary, para. 6.  See, also, US comments on EC, SNCOS, Executive     
Summary, para. 12. 
170 US, SNCOS, Executive Summary, para. 6.  WT/DS316/R 
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  determine the interest rate that appropriately refl ected the risks borne by a supplier of capital with 
Launch Aid terms.171   
4.105  The US also notes that the EC consultant asserts  that Dorman and Ellis were looking at the 
same data.  That too is false.  In fact, the basis for the weighted average cost of capital used by Dr. 
Dorman was data for six US aerospace companies ( not Airbus), while Dr. Ellis specifically examined 
the loans granted to Airbus.  Moreover, the EC c onsultant asserts that Dr. Dorman upwardly adjusts 
his discount rate, which he claims will be higher than  the company's average cost  of capital, to reflect 
individual project risk.  In the US view, that statement is factually accurate, but inapposite.  It in no way undermines the validity of Dr. Ellis' benchmark.   It was Dr. Ellis – not Dr. Dorman – who 
examined the return that a supplier of capital w ith Launch Aid terms would expect in return for 
providing such capital.
172 
4.106  The US notes that the EC asserts that it is inappropriate to add what it calls "a project-specific 
risk premium derived from equity returns" to Airbus' cost of debt.  The US notes that the EC suggests that an equity risk premium should be added only to  the corporate cost of eq uity.  However, the US 
explains that adding the risk premium that Ellis identified to Airbus' corporate cost of debt was done 
precisely to reflect the hybrid nature of Launch Aid.
173  In addition, the US notes that the EC alleges 
that "use of an equity measure {for the risk premiu m} is at odds with the ri sk profile and terms of 
MSF loans."  In the US view, that statement ignores Launch Aid's equity-like qualities and assumes incorrectly that the risk premium identified by E llis is "an equity measure" rather than a hybrid 
measure.
174    
4.107  The US points out that in addition to erring in  its criticism of the market benchmark in the 
Ellis report, the EC errs in criticizing the repor t's reference to the returns on Launch Aid actually 
identified in the Launch Aid contracts as the basis for comparison to the benchmarks.  The US first 
notes that the EC calculation of an "internal rate  of return" for the governments is based on the 
governments eventually receiving royalties – a possib ility Ellis considered so remote that it "would 
play a marginal role, at most, in a commercial lende r's financing decision."  Second, the US notes that 
although the EC criticizes Ellis for not taking account of tax effects, it fails to provide any evidence to 
substantiate its assertion of tax effects, and, in any event, tax effects have no bearing on whether a 
financial contribution confers a be nefit under the SCM Agreement.  Ma rket-based lenders set interest 
rates without regard to taxes that the recipients may subsequently pa y and, indeed, neither the US nor 
the EC allows a party to adjust for tax effects when calculating the amount of the benefit under its 
domestic countervailing duty regime.175  In the US view, the EC criticism of the market benchmark 
established in the Ellis Report (Exhibit US-80) is not well founded.176  
4.108  The US asserts that the benchmark established in the Ellis report is confirmed by several 
alternative cross-checks.  Although the EC criticizes each  of them, it fails to discredit any of them.  In 
the US view, its criticisms are flawed for reasons in cluding their disregard of Launch Aid's equity-like 
qualities and their reliance on studies about risk th at were unknown at the time that Launch Aid 
financing was provided and do not  represent a consensus view.177  Nor do the EC's own cross-checks 
undermine the Ellis benchmark.  The first cross-check  – a comparison to a contract between an Airbus 
company and a group of banks for financing develo pment of an aircraft model – ignores important 
                                                      
171 US comments on EC, SNCOS, Executive Summary, para. 12. 
172 US comments on EC, SNCOS, Executive Summary, para. 13. 
173 US, SWS, Executive Summary, para. 13. 
174 US, SWS, Executive Summary, para. 13. 
175 US, SWS, Executive Summary, para. 17. 
176 US, SWS, Executive Summary, para. 13. 
177 US, SWS, Executive Summary, para. 14. WT/DS316/R 
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  differences between that contract and gove rnment-provided Launch Aid, including, inter alia , the 
relatively small amount pledged by the banks and the fact that the bank contract provided for full 
repayment over a relatively small number of sales.  The second EC cross-check – a comparison between the Launch Aid risk premium established in th e Ellis report and a supposed "equity ceiling" – 
wrongly assumes that the risk of a single project cannot exceed the risk of a company's equity; 
wrongly relies on a sample of companies whose sensitiv ity to economy-wide risk factors is likely to 
be lower than that of LCA projects; and is b ased largely on very recent research that does not 
represent a consensus approach to measuring equity risk.
178  
4.109  The US considers that the EC's proposed "alte rnative benchmark rates" for Launch Aid are 
seriously flawed.  And even under the EC's "altern ative" approach, there is a substantial spread 
between the borrowing rates in the Launch Aid contr acts and the EC's proposed "commercial" rates.  
Similarly, the Unites States notes that the EC critic izes it for allegedly not accounting for the effects 
of taxation.  But even if the EC's alternative intere st rate calculations were valid, they are still below 
the commercial benchmarks proposed by the US and  the EC.179  The US maintains that even under the 
EC's own flawed analysis, Launch Aid confers a benefit, and the EC does not dispute this.180   
4.110  The US considers that the EC alternative to  the US benchmark – based on project-specific 
returns for certain Airbus "risk-sharing suppliers" is inapposite, because the situation of risk-sharing 
suppliers is far different from that of an or dinary, market-based provider of Launch Aid-type 
financing to Airbus.  The US explains that invest ment capital provided by banks and other financial 
entities is highly mobile, whereas a supplier's cap ital is relatively immobile in the short and 
intermediate terms.  Further, the return that a risk -sharing supplier demands is likely to be influenced 
by a variety of factors that would have no relevan ce to an investor, including anticipated revenue from 
future business, sales of replacement parts, and servicing of goods supplied.  And, a supplier may 
provide more than one component to Airbus and may adjust the rate it demands under one supply 
contract according to the rate it demands unde r a different supply contract.  Finally, some 
suppliers may be shielded from risk by Airbus ' commitment to purchase a minimum quantity of 
supplies regardless of actual aircraft deliveries.181 
4.111  The US notes that mistakenly relying on footnot e 16 of the SCM Agreement, the EC asserts 
that "the relevant test for determining whether a {Launch Aid} contract in the large civil aircraft 
sector constitutes a subsidy is the reasonableness of the forecasts {of aircraft sales}."  In that regard, 
the US argues that whether forecasts are reasonable or  not is irrelevant if the return the government 
demands is lower than what a market creditor would demand.182  But, even if sales forecasts are 
reasonable, the US explains, if the interest rates demanded are below the rates that a market player 
would demand for the same shifting of risk, the Launch Aid would still be a subsidy.183   
4.112  The US points out that while the EC acknowledges that "{f}ootnote 16 does not .  .  .  discuss 
under which conditions royalty-based financing cons titutes a subsidy," it nevertheless insists that 
footnote 16 is relevant to that inquiry.  In effect, the EC seeks to take footnote 16 out of context and 
elevate its status to that of a general rule a pplicable to all inquiries under the SCM Agreement, 
contrary to customary rules of in terpretation of international law.184  Footnote 16 does not even say 
what the EC says it says.  It does not say that "for ecast sales" are "the decisive factor of royalty-based 
                                                      
178 US, SWS, Executive Summary, para. 15. 
179 US, FNCOS, Executive Summary, para. 7. 
180 US, SWS, Executive Summary, para. 18. 
181 US, SWS, Executive Summary, para. 16. 
182 US, SWS, Executive Summary, para. 6. 
183 US, FCCS, Executive Summary, para. 13. 
184 US, SWS, Executive Summary, para. 7.  WT/DS316/R 
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  financing."185  It says just the opposite.  That is, it says that actual sales falling below forecast sales 
"does not in itself constitute serious prejudice for the purposes of this paragraph."186 
4.113  The US argues that if anything, the existen ce of footnote 16 is persuasive evidence that 
Launch Aid does  constitute a subsidy.  The very fact that  the drafters of the SCM Agreement saw a 
need to clarify that a particular circumstance involving the implementation of Launch Aid contracts 
"does not in itself" constitute deemed serious prej udice suggests that the drafters presumed that the 
provision of Launch Aid confers a benefit and thus c onstitutes a subsidy.  Additionally, footnote 16 is 
evidence that the SCM Agreement app lies to the Launch Aid that Airbus received prior to January 1, 
1995.  At the time the agreement was being negotiate d, Airbus was "not fully repaying" the Launch 
Aid it had received for the A300 and the A310 programs.187  
4.114  In the US view, footnote 16 does not set the test fo r what constitutes a subsidy.  It is attached 
to Article 6 of the SCM Agreement, not Article 1, which is where the definition of "subsidy" is set 
forth.  If anything, the US contends, footnote 16 corroborates the understanding that Launch Aid is 
indeed a type of subsidy covered by the SCM Agreement.188 The EC theory that footnote 16 of the 
SCM Agreement establishes a special  rule for evaluating whether Launch Aid confers a benefit is 
baseless.  The US explains that repaying Launch Aid does not "exclude" a finding of serious prejudice.  Sales forecasts are not relevant to de termining the existence of a "benefit."  The US 
maintains that if the drafters of the SCM Agreem ent had wanted to make sales forecasts a relevant 
factor under Article 1.1(b), they  would have said so explicitly.
189  
4.115  The US considers that the question of which be nchmark rate is used for determining whether 
Launch Aid is a subsidy is not central to the ques tion of the existence of a subsidy, because both the 
Ellis benchmark and the Whitelaw benchmark show a substantial subsidy to Airbus.190  
4.116  The US argues that contrary to Professor White law's claim, Launch Aid differs from typical 
corporate debt in at least two crucial respects.  First, the Airbus governments have no recourse if the repayments Airbus promises to make are never received because the corresponding sales are never 
made.  By contrast, corporate debt-holders do ha ve a claim on the debtor's assets in such a case.  
Second, Launch Aid is dependent on the success of a single project.  By contrast, typical corporate 
debt is dependent on the success of  the company in the aggregate.
191 
4.117  In the US view, Professor Whitelaw's assessment assumes incorrectly that Launch Aid is 
clearly less risky than equity in  Airbus.  The US asserts that one can readily identify scenarios in 
which the Airbus governments will receive little or no repayment, while the equity shareholders get 
returns from profits on other aircraft sales or other lines of business.192 
4.118  Another problem with Professor Whitelaw's assess ment alleged by the US is that supplier 
financing is not comparable to Launch Aid for reas ons it described in its statement.  Curiously, if 
financing with Launch Aid features is as typical in  the market as Professor Whitelaw asserts, one 
wonders why he chose to base his analysis on fina ncing provided to Airbus by certain suppliers, 
whose relationship with Airbus necessarily is influe nced by factors other than the straightforward 
                                                      
185 EC First Oral Statement, para. 58. 
186 US, FCCS, Executive Summary, para. 13. 
187 US, SWS, Executive Summary, para. 8. 
188 US, FCCS, Executive Summary, para. 12. 
189 US, FNCOS, Executive Summary, para. 5. 
190 US, FCCS, Executive Summary, para. 14. 
191 US, FCCS, Executive Summary, para. 15. 
192 US, FCCS, Executive Summary, para. 16. WT/DS316/R 
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  lending aspect of the transactions at issue.193  In any event, repayment to the suppliers examined by 
Professor Whitelaw is generally co ntingent on fewer deliveries than repayment to the government 
providers of Launch Aid.  The amounts of financi ng provided by these suppliers are significantly less 
than the amounts provided by the Airbus government s.  A number of these suppliers receive their own 
support from the Airbus governments.  And, the suppliers must take account of business 
considerations other than the straightforward c oncern about return on financing they provide to 
Airbus.  And, according to the US, very little of the Whitelaw analysis of supplier financing is backed 
up by any evidence the EC has supplied.194 
4.119  In its comments on the EC statement at the sec ond Panel meeting, the US notes that one new 
concept introduced in the EC statement is its so-called "adequate return" theory for assessing the 
benefit conferred by Launch Aid.  Under this theo ry, it is a government's "own view" regarding risk 
that determines whether the Launch Aid rate of retu rn is "adequate" and, th erefore, whether Launch 
Aid confers a benefit.  This "adequate return " theory finds no support in the SCM Agreement.195 
4.120  Alternatively, the US notes that the EC conti nues its attempt to defe nd a benchmark based on 
Airbus' contracts with risk-sharing suppliers.  It st ates that this "benchmark  is based on returns from 
the same project undertaken by the same company (Airbus) in the same market (LCA)."  The US 
argues that in addition to numerous other flaws, the latter statement ignores that precisely because 
Airbus receives Launch Aid, the financing that risk -sharing suppliers provide to Airbus is unreliable 
as a benchmark.  The US explains that Launch Aid makes Airbus less risky, which means that risk-
sharing suppliers will demand a lower return on financ ing to Airbus than they would in the absence of 
Launch Aid.196  
(b) A350 
4.121  In its first written submission, the US argues th at in 2006, the Airbus Governments reaffirmed 
their agreement to support Airbus in the development of new models of LCA.  The US asserts that in 
spite of Airbus' leading global position, the Air bus governments refuse to end their practice of 
supporting Airbus with grants of Launch Aid.  To the contrary, they have already agreed to provide at 
least $1,700,000,000 in Launch Aid fo r Airbus' newest aircraft, the A350.  The US notes that recent 
events suggest that the final amount of the aid will  be double or even triple that amount.  Publicly 
available information indicates that the aid is in fact Launch Aid, i.e., back-loaded, success-
dependent, preferential financing, just as has been provided since Airbus' inception.197 
4.122  The US notes that Airbus has been quite explicit in stating that it has launched the A350 to 
take orders that would otherwise go to the 787.  Th e US also notes that Airbus has also made clear 
that the A350 is intended to target the Boeing 777 as well as the 787.  On May 23, 2005, for example, 
the project manager for the A350 boasted that "{w}e are positioning our program to be a 777-200ER killer."  As one industry analyst has observed, the A350 "will threaten the entire Boeing 777 product 
line, placing Boeing in the awkward predicament of ha ving to figure out what to do at a time when the 
787 program is entering production and plans are being made to design a successor to the 737."
198 
                                                      
193 US, FCCS, Executive Summary, para. 17. 
194 US, FCCS, Executive Summary, para. 18. 
195 US comments on EC, SNCOS, Executive Summary, para. 10. 
196 US comments on EC, SNCOS, Executive Summary, para. 11. 
197 US, FWS, Executive Summary, para. 27. 
198 US, FWS, Executive Summary, para. 28.  WT/DS316/R 
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  2. Arguments of the European Communities 
4.123  The EC argues that no subsidies have been provided by member States under MSF contracts, 
and even if such financing were c onsidered to constitute a subsidy ( quod non ), any benefits are very 
small.199 
(a) 1992 Agreement 
4.124  According to the EC, there is no benefit for Airbus within th e meaning of Article 1 of the 
SCM Agreement as the four member  States complied with the obligations of the EC under Article 4 
of the 1992 Agreement.200 The EC points out that the US has not made any serious attempt to show 
non-compliance of the EC with Article 4.201 The EC contends that it has explicitly demonstrated such 
compliance in its first written submission.202 
4.125  The EC contends that the US has adopted an inappropriate benchmark for determining 
whether individual MSF financing agreements confer a "benefit" within the meaning of Article 1.1 of 
the SCM Agreement.203  In the EC view, the market benchm ark asserted by the US lacks merit.204  
The EC considers that the benchmark proposed by the US ignores the terms of the 1992 Agreement 
between the EC and the US.  This bilateral accord fixes the agreed benchmark between the parties for 
determining whether government support for LCA pr ogrammes confers a benefit.  The EC maintains 
that all MSF granted since 1992 complied with th e terms of the agreement – terms which the US 
explicitly agreed to.205  The EC notes that the A330-200, A340-500/600 and A380 contracts were 
concluded under terms and conditions which complied w ith its international obligations at the time of 
granting i.e., the 1992 Agreement . The EC indicates that   is well accepted that the existence of a 
subsidy has to be established on the information re asonably available to the granting government at 
the time it took the measure. The EC considers that th e US now attempts to revisit this matter many 
years later and to construct an ex-post benchmark;  it is effectively seeking a retrospective remedy.206 
(b) Reasonableness of forecasts 
4.126  The EC submits that even if the 1992 Agreement  and its practical impact on the action of the 
two parties to this dispute were to be ignored, th e benefit analysis of MSF must take account of the 
reasonableness of forecasts under the SCM Agreement , and that in view of this there is no benefit 
under the SCM Agreement.207  
4.127  The EC explains that any decision to finan ce a new aircraft model inevitably involves a 
calculation of the project risk and the relevant ec onomic environment for the LCA industry.  Drawing 
from footnote 16 to the SCM Agreement, the relevant test for determining whether a MSF contract in 
the large civil aircraft sector constitutes a subsid y is the reasonableness of the forecasts.  The EC 
contends that it has complied with this SCM sta ndard.  The EC argues that European Governments 
lent money in the public interest, subject to clo se scrutiny and sought to secure an adequate return.  
Accordingly, they used conservative assumptions for their forecasts, sometimes being even more 
cautious than the relevant business case from the co mpany itself (which, in turn, has a responsibility 
                                                      
199 EC, FWS, Executive Summary, para. 40. 
200 EC, FNCOS, Executive Summary, para. 8. 
201 EC, SWS, Executive Summary, para. 16. 
202 EC, FWS, para. 405. 
203 EC, FWS, Executive Summary, para. 36. 
204 EC closing statement, second mee ting, Executive Summary, para. 7. 
205 EC, FWS, Executive Summary, para. 36. 
206 EC, FWS, paras. 401-404. 
207 EC, FWS, Executive Summary, para. 37.  See, also, EC, SWS, Executive Summary, para. 17. WT/DS316/R 
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  vis-à-vis its shareholders).208 The EC contends that it has dem onstrated this in its first written 
submission.209 
4.128  The EC considers that member State govern ments have adopted conservative repayment 
provisions based on reasonable forecasts.  These re sult in a high probability of principal repayment 
and a minimum return for the government at a point in the delivery stream that is lower  than the 
consensus number of deliveries forecast by various  sources to occur over the life of the particular 
Airbus LCA programme, including in the Airbus business case.  That has allowed the governments to agree to a structure of levies and repayment schedul es that removes a great deal of risk and ensures 
adequate recoupment of its contributions over a reas onable period of time plus a real return at rates 
that would not be rejected by the market.
210   
4.129  In the EC view, the US misinterprets the SCM Agreement.  First, although footnote 16 has 
nothing to say about whether an individual MSF loan as an instrument is a subsidy, it does demonstrate the key importance of the sales forecast for repayment purposes, a point confirmed by the US' own DDA rules submission.  If the repayment targ et is set for a sufficiently low number of sales, 
thus removing most of the risk of non-repaymen t, the government, as a responsible investor, is 
entitled to take its own view of the remaining risk a nd to set the interest rate accordingly in order to 
ensure an adequate return.
211 In this regard, EC governments are not, as the US claims, required by the 
SCM Agreement to behave like "mobile investors", putting their money where it will fetch the highest 
return. Governments are not required to "play the ma rkets" ; they are not required to act as market 
speculators.212 
4.130  Second, member States have a proven track record  in conservative forecasting.  Actual sales 
of Airbus aircraft are well ahead of those forecast in MSF contracts and member States have consistently secured the returns they have sought ove r a lower number of deliver ies than that forecast 
for the life of the LCA programme at issue.   
(c) EC risk-sharing supplier benchmark and critique of US benchmark 
4.131  The EC points out that the US proposed benchmark for MSF contracts is fundamentally 
flawed.
213   
4.132  First, the EC argues that the US overlooks the fact that government financing may impose 
costs on the recipient that market instruments do not.  This distinction, in the view of the EC, should 
be taken into account when comparing MSF loans with a market benchmark.214   
4.133  Second , the EC argues that the US mischaracterizes both the nature of MSF loans and the US 
"Ellis" model.  The EC explains that through the US ' consultant, Ellis, the US  constructs a market 
benchmark based on a study of high-risk venture capital returns.  Venture capital returns relate to high 
risk start-ups, but have no nexus to LCA markets, much less Airbus LCA programmes.215  Moreover, 
as the EC's expert, Professor Whitelaw, points out, the Ellis benchmark suffers from severe 
methodological errors that render it useless.216  Among others, the EC submits that Professor 
                                                      
208 EC, FNCOS, Executive Summary, para. 9. 
209 EC, FWS, paras. 470-477. 
210 EC, SWS, Executive Summary, para. 18.   
211 EC, SNCOS, Executive Summary, para. 4. 
212 EC, SNCOS, para. 86. 
213 EC, SWS, Executive Summary, para. 19. 
214 EC, SWS, Executive Summary, para. 19. 
215 EC, SNCOS, paras. 94-98. 
216 EC, SNCOS, paras. 102-105.  WT/DS316/R 
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  Whitelaw's analysis shows that the US overstates the project-specific risk premium and generates 
correspondingly inflated benchmark rates,217 which are contradicted by another US expert, Dr. 
Dorman.218  In addition, none of the alternative methodologies relied on by the US supports the 
flawed Ellis model.219   
4.134  The EC submits that it shows that attempts by the US to infer an exaggerated benchmark 
from, e.g., an EC state aid decision, are wide of the mark.220  First, the state aid decision cited by the 
US applies a legal standard from th e standard in the SCM Agreement.221  Second, the state aid 
decision relates to a different time period than is  at issue in the present dispute, and involves a 
different product market – regional aircraft – that displays different conditions  of competition than are 
at play in the LCA market.222  Specifically, the decision notes that the regional aircraft manufacturer 
market in the EC was characterised as particularly "high risk" because of "overcapacity", "low market 
demand", and the "obvious presen ce of excess production capacity".223  These characteristics are not 
found in the LCA market, where Airbus SAS stands as one of only two established global competitors, with little suggestion of overcapacity  burdening the market s in which the firm 
operates.
224  The EC's expert, Professor Whitelaw, obser ves that the combination of low market 
demand and severe overcapacity significantly increases both general corporate and product risk, such that market lenders will demand a heightened risk premium.
225 
4.135  The EC submits that the benchmark proposed by  the US fails to reflect financing terms 
available at market.226  By contrast, when one looks to the retu rns obtained by market participants in 
the LCA industry – Airbus risk-sharing suppliers investing in the same project – the benchmark 
returns are far lower.  These return s provide an ideal market benchm ark, as both risk-sharing suppliers 
and MSF lenders bear risk associated with the same  market (LCA), same company (Airbus), and the 
same project.227   
4.136  Third, the EC submits that the US criticisms of the EC benchmark also fail.  The EC 
considers that the US belated atte mpt to construe these instruments as a kind of hybrid between debt 
and equity is groundless.  Nor does the Ellis model,  which is predicated on venture capital returns, 
offer a benchmark for a hybrid instrument.228  Regardless of whether one characterizes MSF loans as 
debt, equity, or hybrid securities, the risk profile of these instruments closely mirrors that of Airbus 
risk-sharing supplier contracts.  The US criticisms of the EC benchmark refl ect a misunderstanding of 
both the nature of Airbus risk-sharing supp lier agreements and the procurement process.229 
4.137  For example, the EC notes that the US asserts that the amount of money involved in the risk-
sharing supplier (RSS) contracts somehow renders th e returns obtained by these suppliers inapposite.  
But a rate of return is calculated on a per-dollar basis;  the rate of return is decidedly not a function of 
                                                      
217 EC, FNCOS, Executive Summary, para. 10. 
218 EC, SNCOS, paras. 106-110. 
219 EC, SWS, Executive Summary, para. 20. 
220 EC, FWS, Executive Summary, para. 38. 
221 EC, SWS, paras. 191-193. 
222 EC, SWS, paras. 194-195. 
223 EC, SWS, paras. 195-196. 
224 EC, SWS, para. 199. 
225 EC, SWS, para. 198. 
226 EC, FWS, Executive Summary, para. 38. 
227 EC closing statement, second mee ting, Executive Summary, para. 7. 
228 EC, SWS, Executive Summary, para. 20. 
229 EC, SWS, Executive Summary, para. 21. WT/DS316/R 
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  the size of the contract at issue.  Moreover, the amounts at stake were substantial, as the confidential 
record shows.230 
4.138  The EC also notes that the US asserts – without support, it argues – that certain RSS received 
government funding.  But even if these suppliers r eceived government financing, and even if that 
financing conferred a benefit, there is no reason to be lieve that this benefit would affect the terms that 
these RSS agreed to with Airbus.  Why would these suppliers pass on the allege d benefit to Airbus?  
The US offers nothing but speculation.231  The EC offers evidence whic h it asserts shows that even if 
these suppliers were to pass on 100per cent of any be nefit from MSF to Airbus, the change to the EC's 
benchmark rates would be negligible, and the prem ium would still be well below that asserted by the 
US' Ellis.232  The EC considers that the US also speculat es, without a shred of evidence, that the terms 
of these supply agreements were affected by the pros pect of obtaining additional future contracts with 
Airbus.  Yet, the bargaining power could well lie w ith the suppliers – not Airbus.  Many of these 
suppliers possess unique technology that makes them  the only viable source for certain contracts.233   
4.139  The EC also addresses a new argument asserted (without reasoning or evidentiary support) by 
the US and Brazil at the second Panel meeting.  The EC notes that the US appears to argue that MSF 
granted to Airbus reduces the risk asso ciated with Airbus itself, and thus distorts the RSS benchmark.  
In that regard, the EC points out that RSS are expo sed to two types of risk – development risk and 
market risk.  There is no reason why MSF provided to  Airbus would in any way affect the amount or 
nature of those risks.  More fundamentally, RSS do not know whether or on what terms Airbus will 
receive MSF loans.  On what basi s are we asked to conclude that RSS would take lower returns based 
on the  possibility  that Airbus would receive MSF, and on terms and even amounts of which they are 
not aware?  The EC considers that there is no ev idence to support such a speculative hypothesis, and it 
should be rejected.234 
4.140  Contrary to the US assertions, the EC presente d documents associated with a commercial loan 
to one of the Airbus Associated Manufacturers as ev idence that financing similar to MSF is available 
on the commercial market.  Thus, the member States are not the only providers of project financing 
like MSF.  The EC considers that the US is also not  correct in arguing that there were sufficient orders 
on the date of signing of the financing agreement to fully repay the bank.  The EC contends that it 
shows that the commercial lender did incur delivery ri sk.  In addition, the EC does not claim that the 
risk incurred by the bank offering this commercial loan is comparable to the risk incurred by the 
member States for the A380.  Moreover, the project specific risk premium measured by the EU is 2.5 
times higher than the risk premium in the commercial loan agreement.  The US would have the Panel 
believe that it is approximately 6 times the amount.235      
4.141  The EC welcomes the US' belated admission th at the government-related issuer ("GRI") 
enhancement applied by Moody's does not reflect the impact of MSF loans.  The 2007 Moody's reports, which the EC considers have been cite d by the US in a misleading manner, discuss this 
enhancement, but, in the US' words, are "not directly relevant to this dispute."
236   
4.142  However, the EC notes that the US continues to attempt to distract the Panel's attention from 
this concession by rehashing its failed argument th at EADS receives an enhanced baseline credit 
                                                      
230 EC, FCCS, Executive Summary, para. 6. 
231 EC, FCCS, Executive Summary, para. 7. 
232 EC, SCOS, para. 91.   
233 EC, FCCS, Executive Summary, para. 8. 
234 EC closing statement, second mee ting, Executive Summary, para. 8.  See, also, EC, SCCS, para. 14. 
235 EC, FCCS, Executive Summary, para. 9. 
236 EC, Answer to Panel Question 228, para. 3, quoting US, Answer to Panel Question 228, para. 22.  WT/DS316/R 
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  rating as an additional benefit or "indirect effect " of MSF loans.  First, the EC notes Professor 
Whitelaw's statement that an improved credit rati ng would not be an "additional benefit" from MSF 
loans; rather, the benchmark fully captures any bene fit from these alleged subsidies.  The US does not 
dispute that benchmark return represents the market pr ice of risk transfer associ ated with these loans, 
and all associated benefits, direct a nd indirect, are "bought and paid for."237   
4.143  Second, the EC rejects the US attempt to re -characterize this rating enhancement as an 
"indirect effect" of MSF loans.238  Moody's confirms that EADS' improved baseline credit rating 
flows from the risk-sharing aspect of MSF loans, wh ich is equally present under market alternatives 
such as risk-sharing supplier financing.239   
4.144  Third, even assuming that (a) EADS experien ced a credit rating enhancement because of any 
under-compensated risk-sharing element of MSF loans,  and (b) this higher rating reduced EADS' cost 
of capital, the EC notes that the US has fa iled to provide any evidence establishing the amount  of this 
reduction.240   
4.145  Finally, the EC notes that the US credit rati ng argument does not enhance its ability to show 
adverse effects from MSF.  A statement provided by the US argues that tied "launch subsidies" are 
more likely to generate adverse effects than untie d subsidies that simply generate additional cash 
flow.  But any cash allegedly generated by a reduction in EADS' cost of capital would not be tied to 
any particular LCA programme, and would th us be unlikely to cause adverse effects.241 
(d) Rates of return 
4.146  The EC argues that the US understates the inte rnal rates of return demanded by European 
Governments,242 and thus underestimates the expected returns associated with individual MSF 
loans.243  First, US expert Ellis ignores the market an alysis and forecasts contained in the Airbus GIE 
or Airbus SAS business case, which inform th e terms of individual MSF loan agreements.  
Consequently, Ellis omits a large number of de liveries that would trigger payments to the 
Governments and enhance their returns.244   
4.147  Second, the US fails to take into account th e effect of taxation on expected returns.245  
Specifically, the EC notes that MSF receipts are subject  to taxation, like any other form of corporate 
income; when repaid, principal and interest  are deducted in computing taxable income.246  The result 
is that EC member States loaned funds with one  hand and took back a portion with the other.247  Since 
the member States continued to assess interest on the gross amount  of MSF provided, the effective 
interest cost of the MSF that was actually left for use by Airbus was significantly higher than the 
contract interest rate.248 
                                                      
237 EC, Comments on US Answer to Panel Question 228, para. 5.   
238 EC, Comments on US Answer to Panel Question 228, para. 6.   
239 EC, Comments on US Answer to Panel Question 228, para. 6.   
240 EC, Comments on US Answer to Panel Question 228, para. 12.   
241 EC, Comments on US Answer to Panel Question 228, para. 13. 
242 EC, FNCOS, Executive Summary, para. 10. 
243 EC, FWS, Executive Summary, para. 39. 
244 EC, FWS, paras. 536-541. 
245 EC, FWS, paras. 542-547. 
246 EC, FWS, para. 543. 
247 EC, FWS, para. 545. 
248 EC, FWS, para. 545. WT/DS316/R 
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  (e) A350 
4.148  Finally, the EC rebuts the US allegation that th ere is an existing measure for the A350.  In a 
nutshell, there was nothing more than a commitment to negotiate:  never has an agreement to finance, 
nor an MSF contract, nor any disbursement of money,  ever existed or occurred for the A350.  Indeed, 
there is no A350 project; Airbus SAS has abandoned it in favour of the A350 XWB.249  T h e  E C  
explains that member States have not provide d any MSF loans in connection with the A350 
programme.  US claims with respect to such loan s thus pertain to non-existent measures, and fall 
outside the Panel's terms of reference.250 
D. WHETHER THE LAUNCH AID THAT AIRBUS HAS RECEIVED FOR THE A380,  THE A340-500/600,  
AND THE A330-200  ARE PROHIBITED EXPORT SUBSIDIES  
1. Arguments of the United States 
4.149  The US argues that the Launch Aid that Airbus  has received for the A380, the A340-500/600, 
and the A330-200 are prohibited export subsidies.251  The US observes that a finding of export 
contingency involves three elements: (1) the "granting" of a subsidy; (2) that is "tied to" (3) "actual or 
anticipated exportation or export earnings."252 
(a) A380 
4.150  The US turns first to its claim that the A380 subsidies are prohibited export subsidies.  The 
US explains that the UK, French, German, and Spanish governments have each granted Launch Aid 
to their respective Airbus companies to support th e development of the Airbus A380.  In each case, 
the Launch Aid is a subsidy within the meaning of Ar ticle 1.1 of the SCM Agreement.  Therefore, for 
each provision of A380 Launch Aid, the first elemen t for demonstrating export contingency is met.253 
4.151  According to the US, the second element fo r demonstrating export contingency is the 
existence of actual or anticipated exportation or export earnings.  The US argues that the evidence 
surrounding the Airbus governments' decision to provide Launch Aid for the A380 demonstrates not 
only that the governments anticipated or expected that exportation or export earnings would result 
from the project, but also that the governments knew Airbus was developing the A380 primarily  for 
the export market, and that export sales woul d be critical to the project's success.254 
4.152  First, in 1999-2000, at the time that the Airbus governments were discussing Launch Aid for 
the A380 with Airbus, Airbus was stating that it  was developing the A380 primarily for the export 
market.  Second , the four Launch Aid agreements between  the Airbus governments and Airbus each 
anticipate a level of A380 sales that substantially  exceeds the 247 aircraft with more than 400 seats 
that Airbus was predicting it would sell in Eur ope, thus demonstrating that the governments 
anticipated exports.  Third , the four governments have specifically referenced the global nature of the 
A380 project and Airbus' export sales.  Fourth , when Airbus was seeking the Launch Aid, it pointed 
to potential export earnings, and it stressed the impo rtance of export sales to the project's success.  
                                                      
249 EC, SWS, Executive Summary, para. 13. 
250 EC, FWS, Executive Summary, para. 33. 
251 US, FWS, Executive Summary, para. 29.   
252 US, FWS, Executive Summary, para. 30. 
253 US, FWS, Executive Summary, para. 31. 
254 US, FWS, Executive Summary, para. 32.  WT/DS316/R 
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  Fifth , in addition to the fact that the A380 is an export-oriented project, Airbus itself is a highly 
export-oriented company.255 
4.153  The third and final element for demonstrati ng that a subsidy is contingent on export 
performance is that the subsidy must have been "tie d to" anticipated or expected exportation or export 
earnings.  The terms of the Launch Aid contract s themselves, as well as the evidence surrounding the 
grant of the Launch Aid, demonstrates such a tie.  First , a key feature of Launch Aid is that the Airbus 
governments tie repayment of the aid to sales of the particular aircraft mode l that the Launch Aid is 
funding.  If sales of the aircraft fail to meet expe ctations, repayment of the aid is forgiven or 
indefinitely postponed.  However,  Airbus has stated that total  European demand for aircraft with more 
than 400 seats is only 247 aircraft.  This necessar ily implies that the Airbus governments tied the 
grant of the Launch Aid to Airbus ma king substantial numbers of export sales.256 
4.154  The US notes that the facts surrounding the grant of the A380 Launch Aid are quite similar to 
the facts surrounding the grant contract that the Australia – Leather  panel found contingent "in fact" 
upon export performance.  On the other hand, the facts that led the Australia – Leather  panel to 
conclude that the loan contract at issue in that dispute was not  contingent "in fact" upon export 
performance are entirely absent  from the A380 contracts.257 
(b) A340-500/600 and A330-200 
4.155  The US next turns to its claims that the A 340-500/600 and A330-200 subsidies are prohibited 
export subsidies.  In its submission, the US asserts th at the same types of facts that demonstrate export 
contingency for the A380 Launch Aid also demons trate that the Launch Aid that the French and 
Spanish governments provided for the A340-500/60 0 and the Launch Aid the French government 
provided for the A330-200 is conti ngent upon export, and thus is pr ohibited under Articles 3.1(a) and 
3.2 of the SCM Agreement.258 
(c) Export contingency 
4.156  In its opening statement at the first Panel meeting the US argues that the EC has failed to 
rebut its prima facie  case that the Launch Aid for the A380,  A340-500/600, and A330-200 is 
contingent upon export performance.259  The US contends that the EC misstates the legal standard for 
"contingency" and fails to apply the evidence to that standard.260  The US notes that the EC says the 
UK took Airbus' sales forecasts into account in d eciding to provide the Launch Aid, and that the 
government's decision to tie repayment of the Launc h Aid to sales served to allocate risk between the 
company and the UK.  But according to the US, th is only proves its point:  the Airbus governments 
provided unsecured, subsidized loans on the condition that Airbus repay the funds through levies on 
sales.  In the US view, the facts demonstrate that, due  to the nature of the product and the nature of the 
market for that product, the governments knew Airbus could only meet that condition by exporting.  
Therefore, the US argues, the subsidies are tied  to export performance.261 
4.157  The US notes that the EC concedes that the La unch Aid is a subsidy even under its flawed, 
alternative benchmarks,262 and that the Airbus governments exp ected Airbus to repay Launch Aid and 
                                                      
255 US, FWS, Executive Summary, para. 33. 
256 US, FWS, Executive Summary, para. 34. 
257 US, FWS, Executive Summary, para. 35. 
258 US, FWS, Executive Summary, para. 36. 
259 US, FNCOS, Executive Summary, para. 8. 
260 US, FNCOS, Executive Summary, para. 8. 
261 US, FNCOS, Executive Summary, para. 9. 
262 US, FNCOS, Executive Summary, para. 8. WT/DS316/R 
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  therefore anticipated the fulfilment of the conditional payment.263  In addition, the US notes that the 
EC apparently concedes that the Airbus govern ments anticipated exportation or export earnings.264  
4.158  The US asserts that the EC portrays it as arguing that the grant of Launch Aid is tied to 
anticipated exportation or export earnings merely b ecause the Airbus governments expected that there 
would be exports of the LC A models developed as a resu lt of Launch Aid.  But th e US explains that it 
does not argue that the governments' expectations  of exportation or export earnings alone make the 
provision of Launch Aid contingent upon expor t performance.  The US submits that those 
expectations unquestionably are an important part of th e picture.  But an equally important part of the 
picture is the fact that the governments' decision to provide Launch Aid was made in reliance on and 
in return for a commitment by Airbus to unde rtake a course of action that necessarily involves 
exports.  The governments' expectations – informed by Airbus' Business Cases, Global Market Forecasts, and Launch Aid applications and by the go vernments' own critical project appraisals – were 
an essential precondition to the governments' decisions to provide Launch Aid.
265 
4.159  The US clarifies that contrary to the EC sugg estion, it has never argued that any one of the 
provisions in the Launch Aid contracts on its own makes the granting of Launch Aid export 
contingent.  The US explains that it has looked at  all of the facts collectively and has shown that 
together they demonstrate that the provision of Launch Aid is contingent upon export performance.  
Relatedly, the EC notably omits any discussion of representations and warranties in certain of those 
contracts making the tie to anticipated exportation unmistakable.266 
4.160  The US argues that in responding to its showing that certain provisions of Launch Aid are 
prohibited export subsidies, the EC makes several crit ical errors.  According to the US, the EC adopts 
the mistaken view that the relationship between export performance and provision of a subsidy must 
be a condition-consequence or "if-the n" relationship in order for the subsidy to be prohibited within 
the meaning of Article 3 of the SCM Agreement.  However, the US argues that, not only is the term 
"consequence" not used in Article 3.1(a) or f ootnote 4 of the SCM Agreement, but the express 
reference to "anticipated exportation or export earnings" in footnote 4 means that a subsidy is 
contingent upon export performance even if it is gr anted prior to – rather th an as a "consequence" of – 
"the future factual fulfilment" of exportation.  The US adds that th is understanding is  supported by the 
findings of the panels in Canada – Aircraft  and Australia – Leather .267  In this regard, the US argues 
that the EC misstates the findings in Canada – Aircraft , Australia – Leather  and Canada – Autos .268 
4.161  In the US view, the EC compounds its error by making a series of arguments seeking to show 
the lack of a tie between the provision of Launch Aid and export performance.  Its efforts ultimately 
fail, as they rely on a combination of mischaracter ization of the US argument (for example, falsely 
accusing the US of confusing anticipation of expo rt performance with a tie to export performance) 
and insistence on various irrelevant points (such as th e possibility of Airbus electing to prepay Launch 
Aid amounts and the consistency of the governments'  forecasts of LCA sales with prudent business 
practices).269   
4.162  The US asserts that its contention that it do es not confuse anticipation of export performance 
with a tie to export performance is demonstrated by the wealth of ev idence the US has brought to bear 
                                                      
263 US, SNCOS, Executive Summary, para. 1. 
264 US, FNCOS, Executive Summary, para. 8. 
265 US, SWS, Executive Summary, para. 19. 
266 US comments on EC, SNCOS, Executive Summary, para. 9. 
267 US, SWS, Executive Summary, para. 20. 
268 US, SNCOS Executive Summary, para. 3. 
269 US, SWS, Executive Summary, para. 21.  WT/DS316/R 
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  establishing the existence of such a tie in each of the Launch Aid contracts at issue.  According to the 
US,  the contracts consist of a commitment by the government to disburse Launch Aid according to a 
set schedule, which is undertaken in exchange fo r a commitment of perform ance by the company to 
repay the Launch Aid amounts on the basis of a specified levy per sale over an agreed-to number of 
sales.  The number of sales over which Launch Aid is to  be repaid is so large relative to demand in the 
EC for the LCA model at issue as to necessarily in volve exportation in order to be achieved.  The 
repayment provisions of the Launch Aid contr acts establish that an essential condition for the 
provision of Launch Aid is a commitment to expor t.  Other provisions of the Launch Aid contracts 
reinforce this point.270 
4.163  The US notes that the EC concedes that the Ai rbus governments expected Airbus to repay 
Launch Aid.  Because of the levy-based nature of Launch Aid repayments and the repayment 
schedules agreed to under the Launch Aid contracts, this would be possible for the A380, A340-500/600, and A330-200 only with s ubstantial exports.  Other evid ence, including other Launch Aid 
contract provisions, also support a fi nding of export contingency.  In r esponse, the EC first argues that 
exportation is anticipated only if it "will occur," t hus collapsing the concepts of "actual" exportation 
and "anticipated" exportation.  However, the US argues that as the Appellate Body explained in 
Canada – Aircraft , "anticipated" means "expected."
271   
4.164  According to the US, the EC compounds its error by reading new text into the 
SCM Agreement, contending, for example, that a subsidy is contingent upon export performance only 
if "the terms of the measure vary, in law or in f act, depending on whether sales performance is in the 
domestic or export markets."  And, it responds to  arguments the US does not make, such as the 
argument that the mere expectation that a recipien t of a subsidy will export renders the provision of 
that subsidy export contingent.272  
4.165  The US contends that the EC attempt to dismiss evidence demonstrating de facto  export 
contingency turns on its flawed premise that the te rms of an export contingent subsidy must vary 
expressly according to the destin ation of a particular sale.273  The US argues that in an effort to show 
that it has somehow confused "export performance" with mere "performance," the EC misconstrues 
the evidence.  The US notes that th e EC repeatedly asserts that the repayment terms of the Launch Aid 
contracts are "origin neutral" and that the eviden ce does not show that these terms "vary at all by 
reference to the EC and the rest of the world."  But these observations are beside the point.  Indeed, they suggest a test that has abso lutely no basis in the SCM Agreem ent.  The SCM Agreement does not 
provide that a subsidy is contingent upon expor t performance, and thus prohibited, only if the 
instrument tying the subsidy to actual or anticipat ed exportation or export earnings makes an express 
demarcation between domestic sales and export sales.  Further, the Launch Aid contract repayment 
terms are "origin-neutral" only if considered in a vacuum, without any reference to the realities of the 
market in which the LCA models at issue are sold.
274  
4.166  The US argues that, related to the EC mischa racterization of the US export contingency 
argument is the EC assertion of an inconsistenc y between the US demonstration that Launch Aid 
confers a benefit on Airbus and the US demonstration that the provision of Launch Aid is contingent 
upon export performance.  However, the fact  that the Airbus governments anticipate  a return on 
Launch Aid does not contradict the demonstration th at Launch Aid confers a benefit.  And the fact 
                                                      
270 US, SWS, Executive Summary, para. 22. 
271 US, SNCOS, Executive Summary, para. 1. 
272 US, SNCOS, Executive Summary, para. 2. 
273 US, SNCOS, Executive Summary, para. 3. 
274 US, SWS, Executive Summary, para. 27. WT/DS316/R 
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  that the governments are not guaranteed  a return does not contradict the demonstration that the 
provision of Launch Aid is tied to anticipated exports.275   
4.167  The US also argues that, also related to the EC mischaracterization of the US export 
contingency argument is the assertion that following that argument "financial contributions that 
foresee a return (such as loans) are more suscep tible to be found to contain a prohibited export 
contingent subsidy than financial contributions in th e form of outright grants."  However, it is not the 
foreseeing of a return that makes Launch Aid export contingent but the conditioning of the provision 
of Launch Aid on a commitment by Airbus to repay Launc h Aid over levels of sales that necessarily 
involve exportation.  An actual refutation of  the EC argument is the panel report in Australia – 
Leather , finding a grant contract to be export contingent, but not a loan contract to the same 
recipient.276 
4.168  The US considers that an additional aspect of th e EC's futile attempt to show the absence of a 
tie between the provision of Launch Aid and anticipat ed exportation is its reference to Airbus' option 
to prepay Launch Aid amounts.  This point is irrelevant because, inter alia , unlike repayment over the 
number of deliveries specified in the Launch Aid cont ract, prepayment is not an obligation.   With 
respect to the EC contention that Launch Aid is  not contingent upon export performance, because 
Airbus in theory could voluntarily accelerate its repa yments of Launch Aid, the US explains that the 
mere fact that Airbus is allowed to repay Launch Aid at any time does not mean that repayment upon 
delivery is not an obligation.277  Likewise, the EC reference to the "guarantee" provided by entities 
related to the company in certain Launch Aid cont racts does not help the EC argument, because these 
guarantees are not guarantees of repayment of Launch Ai d.  They merely provide that in the event the 
company fails to make timely payment to the go vernment following delivery of an aircraft, the 
government may turn to the company's parent for payment.278  
4.169  In addition, the US notes that the EC offe rs certain "countervailing explanations" for the 
Airbus governments' decision to condition the pr ovision of Launch Aid on Airbus' commitment to 
repay Launch Aid over levels of sales that necessarily  involve exports.  However, the US argues that 
these explanations do not address the existence  of a contractual tie be tween Launch Aid and export 
performance but, rather, governments'  motivations for establishing a tie.279   
4.170  The US considers that the EC misrepresents its arguments.  For example, on the issue of the 
relevance of a government's motiva tion to the determination of expor t contingency, the EC discussion 
at paragraph 129 takes excerpts from the US second wr itten submission completely out of context.  In 
the passage at issue, the US was responding to the EC's so-called "countervailing explanations" 
argument.  The US considers that, even if th e governments had non-export-related motivations for 
providing Launch Aid, that would not sever th e tie between the provision of Launch Aid and 
anticipated exportation.  That do es not mean that the existence of  a government motivation to support 
exports would be irrelevant to a finding that th e provision of Launch Aid is export contingent.280   
4.171  The US notes that at paragraph 144 of its second oral statement, the EC professes confusion 
over its use of the words "precondition" and "pre dicate" in its second written submission; it does 
likewise, at paragraph 151 of its statement, with respect to the word "commitment."  The US notes 
that the EC states that these words do not appear  in Article 3.1(a) or footnote 4 of the 
                                                      
275 US, SWS, Executive Summary, para. 23. 
276 US, SWS, Executive Summary, para. 24. 
277 US, SNCOS, Executive Summary, para. 3. 
278 US, SWS, Executive Summary, para. 25. 
279 US, SWS, Executive Summary, para. 26. 
280 US comments on EC, SNCOS, Executive Summary, para. 6.  WT/DS316/R 
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  SCM Agreement.  According to the US, the EC is  rebutting an argument the US has not made.  The 
US points out that the key word that does  appear in footnote 4 is the word "tied."  The provision of a 
subsidy must be "tied to" actual or anticipated exportation or export earnings.  There may be any 
number of ways in which that "tied to" relationshi p can be established.  One would be, for example, 
where anticipated exportation is a precondition or predicate to the provision of a subsidy.281  The US 
considers that in discussing the issue of export c ontingency, the EC would have the Panel ignore the 
text of footnote 4 of the SCM Agreement and, in particular, the key terms "tied to" and "anticipated 
exports."282 
4.172  A further demonstration of the EC attempt to c onfuse the relevant issues and arguments is its 
accusation at paragraph 148 of its second oral statement that the US has asserted "new claims" 
regarding export contingency.  What the EC calls "n ew claims" are nothing more than elaborations on 
how certain evidence introduced in connection with  the US first written submission establishes the tie 
between the provision of Launch Aid and anticipated exportation.283 
4.173  The US considers that the EC arguments are also   tainted by its misreading of the panel report 
in Australia – Leather .  Contrary to the EC characterization, th e fact that the recipient of the subsidy 
at issue there was the sole exporter of automotive leather was relevant but not dispositive (as was the 
recipient's status as a participant in a prior progr am).  And in any event, Airbus is the only EC 
exporter of LCA.  The EC also ignores key facts, including that one of the grant disbursements at issue in Australia – Leather  was made before any of the anticipated exportation had occurred.  The 
EC ignores the sale-based repayment obligations in  the Launch Aid contracts, which make them 
distinguishable from the loan contract in Australia – Leather .  And it ignores that the guarantee of 
repayment referred to by the Australia – Leather  panel is entirely unlike the "guarantees" provided in 
certain Launch Aid contracts.
284 
4.174  Finally, the US argues that the EC recourse to portions of the preparatory work for the 
SCM Agreement is misplaced.  The US considers th at the EC assertion that the US approach to 
Article 3.1(a) would lead to manifestly absurd or  unreasonable results is based on arguments the US 
has not made.285  The US  argues that contrary to the EC  statement, it is not the case that, following 
the US view, every loan in a globalized sector would be an export-contingent subsidy.  Typical loans 
are paid out of the debtor's general cash flow, not out  of a particular revenue stream that necessarily is 
tied to exports.  The US argues that it is the fact  that Launch Aid, under the terms of the Launch Aid 
contract, is tied to levels of sales which can be met only through export that makes Launch Aid export 
contingent.286 
2. Arguments of the European Communities 
4.175  The EC notes that the US claims that seven me asures at issue contain subsidies contingent, in 
law or in fact, upon export performance, within the meaning of Article 3.1(a) and footnote 4 of the 
SCM Agreement.  The EC disagrees both with the US presentation of the legal framework and with 
the inferences that the US attempts to draw from the facts it asserts and the evidence it adduces.287 
                                                      
281 US comments on EC, SNCOS, Executive Summary, para. 7. 
282 US closing statement, first mee ting,  Executive Summary, para. 20. 
283 US comments on EC, SNCOS, Executive Summary, para. 8. 
284 US, SWS, Executive Summary, para. 28. 
285 US, SWS, Executive Summary, para. 29. 
286 US, FCCS, Executive Summary, para. 19. 
287 EC, FWS, Executive Summary, para. 42. WT/DS316/R 
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  4.176  The EC rejects the US assertions that each of the seven measures constitutes an export 
contingent subsidy.  The EC maintains that it sets out the correct legal standard and demonstrates that 
the US has not produced a single piece of evidence whic h could lead to the conclusion that any of the 
seven measures contains an export contingent subsidy.288   
(a) Preliminary Observations 
4.177  According to the EC, in its prohibited subs idies claims, the US has neither asserted nor 
demonstrated the existence and precise content of a single or general measure in the nature of a subsidy programme, "as such" or otherwise, whether labelled "Launch Aid" or otherwise,
289 and even 
if the relevant measures at issue would be found to  contain subsidies to current EC producers of LCA 
(quod non), they would not be export contingent subsidies.290  Rather, according to the EC, the US 
frames its claims by reference to each of the seven  distinct and different measures identified by the 
US,291 which the EC refers to by reference to the title of the particular measure.292  The EC contends 
that this is a consequence of the US decision to frame its claims by reference to alleged facts and 
evidence particular to each of the seven measures.293  According to the EC, the Panel must assess each 
of the US claims individually,294 by reference to the specific eviden ce adduced by the US with respect 
to that claim and measure, and weighing the evid ence by reference to the specific US assertion the 
evidence was adduced to support.295 
4.178  The EC submits that the US repeatedly confir ms and emphasises that it makes its claims on 
the basis of alleged subsidies allegedly contingent upon "anticipated" exports and makes no claims on 
the basis of alleged subsidies contingent upon "act ual" exports. The EC argues that the Panel must 
address only the claims made by the US and is  not entitled to address any supposed subsidy 
contingent upon "actual" exports.296 
4.179  According to the EC, the US claims against the seven measures are both "in law" and "in 
fact".297  The EC invites the Panel to approach the US claims (which the EC finds ambiguous and 
unclear)298 and the legal interpretation of Article 3.1(a)  and footnote 4 in a systematic and coherent 
manner and having regard to the interpre tative rules in the Vienna Convention,299 which takes into 
account the overall design and architecture of the provi sion, giving meaning to all its terms, both in 
the case of ad hoc  subsidies and subsidy programmes.300 The EC argues that, because there is a single 
                                                      
288 EC, FWS, paras. 556 to 558. 
289 EC, SWS, para. 218. 
290 EC, FWS, paras. 557 to 558. 
291 EC, FWS, para. 555. 
292 EC, FWS, footnotes 478, 485,  487, 489, 490, 492 and 493. 
293 EC, SWS, para. 219. 
294 EC, FWS, para. 561. 
295 EC, FWS, paras. 613, 614, 674 and 678. . NC EC, Answer to Panel Question 79 from the Panel 
following the first hearing, paras. 132 and 142; EC, SNCOS, para. 133. 
296 EC, FWS, para. 564. 
297 EC, FWS, para. 562. 
298 EC, FWS, para. 560; EC, FNCOS, paras. 69 and 79; EC, SNCOS, para. 115. 
299 EC, FWS, para. 561; EC, FNCOS, paras. 70 and 73; EC, SNCOS, para. 114 and 116 
300 EC, SWS, para. 244. EC, SNCOS, paras. 117 to 126; EC, Answer to Panel Question 216, paras. 520 
to 527.  WT/DS316/R 
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  standard,301 it is imperative to understand what the "in law"  standard is before proceeding to consider 
any "in fact" claim.302 
4.180  The EC argues that, with respect to both the "in law" claims and the "in fact" claims, the US 
has not demonstrated for any one of the seven me asures any one of the three elements cumulatively 
required for there to be a subsidy contingent upo n export: subsidy; continge ncy; export performance. 
Thus, if the Panel finds in favour of the EC with respect to any one of these three requirements, it may 
exercise judicial economy with respect to the other two.303 
4.181  With respect to subsidy , the EC does not accept that the US has demonstrated that any of the 
seven measures are subsidies.304  Further, the EC argues that the c ontingency referred to in Article 3.1 
relates to the subsidy, not to the financial contribution alone.  The EC argues that given  that the US 
confirms that it attempts to demonstrate contingenc y with respect to the financial contribution alone, 
its claims must therefore be dismissed.305  
4.182  With respect to contingency , the EC recalls that the terms "c ontingent upon" and "tied-to" are 
synonyms,306 and that these terms refer to an "if-then" c oncept, not a concept based on anticipation or 
consideration or motivation.307  The EC cites Black's Law Dictionary  in support of its arguments 
regarding the proper interpretation of the term "contingent" or "condition".308  
4.183  The EC contends that the US is interpreting the term "actual" as if it means "real" – that is, 
"actually" has taken place in the past or "actually" ta kes place in the future; and the term "anticipated" 
(in juxtaposition to the term "actual") as if it m eans "potential", so that, according to the US, and 
specifically in the case of an ad hoc  subsidy, whether or not the "anticipated" export ever "actually" 
takes place is irrelevant to the question of whethe r or not there is a subsidy contingent upon export 
performance.  Thus, for the US, the required condition is not export, but "the anticipating of" export; 
this necessarily involves an enquiry into the hypotheti cal "state of mind" or "intent" of a natural 
person whose thoughts are imputable to the de fending Member, with mere anticipation or 
consideration or motivation being sufficient to dem onstrate contingency – an approach that the EC 
considers inherently flaw ed and legally erroneous.309 The EC contends that the US bases its arguments 
on terms such as "precondition" and "predicate"  that are not found in the text of the 
SCM Agreement.310 
4.184  According to the EC, in order to properly a ppreciate the correct interpretation of the term 
"actual or anticipated" it is appropriate to make a systematic analysis, distinguishing between the case 
of an ad hoc  subsidy and the case of a subsidy programme. For the EC, the term "actual or 
anticipated" makes it clear that th e prohibition in Article 3.1(a) a nd footnote 4 captures all exports 
occurring before or after the measure establishing th e contingency is enacted, if the fact of export 
completes or would complete the right to a subs idy. The timing of any export or payment makes no 
substantive difference.311  Thus, specifically in the case of an ad hoc  subsidy, the EC argues that the 
                                                      
301 EC, FWS, para. 606. 
302 EC, FNCOS, para. 71. and 74; EC, SNCOS, para. 117; EC, Answer to Panel Question 216, 
paras. 520 to 527. 
303 EC, FWS, paras. 557 to 558; EC, FNCOS, para. 74. 
304 EC, FWS, para. 554. 
305 EC, SWS, Executive SummaryNCFWS, para. 23. 
306 EC, FWS, para. 581. 
307 EC, FNCOS, para. 76. 
308 EC, SNCOS, para. 119 and footnote 89. 
309 EC, SWS, para 233; EC, Answer to Panel Question 217, paras. 528 to 530 and 533 to 535. 
310 EC, SNCOS, para. 145. 
311 EC, SNCOS, paras. 117 to 126 and 142. WT/DS316/R 
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  correct interpretation is that the term "actual" mean s an export that exists (that is, has already taken 
place) at the moment when the subsidy is deemed to exist within the meaning of Article 1 of the 
SCM Agreement, whilst the term "anticipated" (also juxtaposed to the meaning of the term "actual") 
means an export that has not yet taken place at the moment when the subsidy is deemed to exist, but 
will take place in the future.312 The EC argues that its position is supported by the context and object 
and purpose, and confirmed by the preparatory work.313 
4.185  The EC submits that if the US interpretation was accepted, then findings of export contingent 
subsidies would be more likely in the case of sma ll or export dependent economies, or in the case of 
global markets314 because export would appear to loom larger  in the set of potential considerations.315  
It is precisely the concept of contingency that guards  against such an outcome.  The EC considers that 
the US pays lip service to this principle; but in practice ignores it for the purpose of its submissions to the Panel.
316  
4.186  The EC emphasises with particular reference to  this issue that the US ignores the overall 
design and architecture of Article 3.1(a) and footnote 4.  The term "actual or anticipated" in footnote 4 
confirms that the provision captures the whole range of possibilities, i.e., exports that currently exist at 
the time of the initial grant (actual exports) as well  as those that occur in the future (anticipated 
exports); and the whole range of evidence.  Foot note 4 does change the basic legal standard of 
contingency from "if-then" to "because".  "Becau seness" might (or might not) be evidence of 
contingency, but it is not itself to be confused with  contingency, just as "the anticipating of" export is 
not to be confused with contingency.317  In the EC view, the US makes no effort to demonstrate why 
and how the evidence it adduces about alleged "b ecauseness" demonstrates th e existence and precise 
content of a subsidy contingent upon export, not ably as regards any supposed subsidy programme.  
By its own terms, therefore, the US makes no prima facie  case, because it is based on this false 
premise.  The systemic implications of the US in terpretation, if accepted, would effectively empty the 
requirement of contingency of meaning, converti ng a prohibition based on contingency into one based 
on some sort of "motivation" or "effects" based test.318  This is not what the Members agreed.  The EC 
adds that its interpretation of Article 3.1(a) of th e SCM Agreement and footnote 4 is confirmed by the 
preparatory work.319 
4.187  The EC considers that the US, confounding different  factual and legal issues, refers to certain 
documents that may speak to the issue of anticipation  or consideration or motivation and asserts that 
it has thereby demonstrated the existence of export co ntingent subsidies.  However, the EC submits, it 
is impossible to discern in the US first written submission how the asserted facts and adduced 
evidence actually support the alleged legal conclusi on, particularly with respect to the required 
contingency .  Indeed, what the US case boils down to is  the assertion that anticipation of sales plus 
export orientation in a global market demonstrates an export contingent subsidy, an assertion that has 
been rejected by panels and the Appella te Body repeatedly in previous cases.320 
4.188  The EC argues that mere anticipation, or even consideration or motivation, does not constitute 
contingency.  The EC contends that the provisions identified by the US in each of the seven measures 
                                                      
312 EC, SWS, paras. 232 to 250; EC, SNCOS, paras. 117 to 131 and para. 142; EC, Answer to Panel 
Question  175, paras. 70 to 73. 
313 EC, SWS, paras. 248-249. 
314 EC, SWS, para. 229. 
315 EC, SNCOS, para. 129. 
316 EC, SWS, para. 230. 
317 EC, FWS, paras. 630 to 633; EC, Answer to Panel Question 175, paras. 70 to 73. 
318 EC, SWS, para. 245. 
319 EC, FWS, paras. 559 . 
320 EC, FWS, Executive Summary, para. 46.  WT/DS316/R 
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  do not provide for a subsidy upon export, but a repayment  upon sale, which is the reverse of a 
subsidy. The EC explains that the repayment provisi on contains a contingency in the sense of a legally 
described condition (sale) the future factual fulf ilment of which will entail a legal consequence 
(agreement by the company to make a repayment to  the government).  However, the EC maintains 
that this is not the contingency required by Article 3. 1(a) and footnote 4 of the SCM Agreement.  It is 
not by combining export orientation (or anticip ation in a global market) with an irrelevant 
contingency that the US is going to generate export contingency.321  The EC considers that the US 
position is inconsistent with Australia – Automotive Leather II  and Canada – Aircraft .322 
4.189  In any event, however Article 3.1(a) and footno te 4 of the SCM Agreement are construed, the 
EC contends that the facts asserted and evidence adduced by the US do not demonstrate that any one 
of the seven measure is a subsidy contingent upon export. 
4.190   With respect to export performance , according to the EC, the US is effectively arguing that a 
subsidy contingent upon mere performance woul d be prohibited; whereas it is only subsidies 
contingent upon export  performance that are prohibited. The EC e xplains that the text of Article 3.1(a) 
and footnote 4 refers repeatedly to export pe rformance, whereas the US argues that there is a 
condition of performance. The EC finds support for its argument in the context of the Illustrative List 
of Export Subsidies in Annex I of the SCM Agreement,  which refers repeatedly  to exports and/or the 
"favouring" thereof; in Articles XVI:1 and XVI:II of the GATT 1994 (which refer respectively to the 
effects of neutral subsidies and subsidies on exports ); and in Article 3.1(b) of the SCM Agreement, 
which refers to subsidies contingent upon the use of domestic over imported goods. The EC finds 
further support for its argument in the object an d purpose expressed in the preamble of the GATT 
1994 and in the overall design and architecture of the SCM Agreement. According to the EC, export contingent subsidies are prohibited because such measures are a particularly effective method for 
partitioning markets, allowing Members to creat e an incentive for companies to export, whilst 
avoiding that domestic prices are driven down, thus frustrating the basic objective of the WTO 
Agreements to promote fair international trade.  However, as the preparatory work also confirms, it 
was not the intention of WTO Members that all subsidies to firms with both domestic and export sales should be prohibited, as the final sentence of footnote 4 confirms.  Any effects of neutral subsidies to 
exporting companies remain subject to Parts III and V of the SCM Agreement.
323 
4.191  More generally, the EC also argues that the existence and operation of the 1992 Agreement 
are facts surrounding the adoption of the measures.  In the present case, as the US would have it, the 
US maintained with the EC for almost a decade an agreement permitting measures that the US knew 
to be prohibited subsidies.  Further, the US view would appear to be that, whilst the support agreed for 
Boeing has not caused adverse effects to the interests of the EC, the support agreed for Airbus (that is, 
the essential quid pro quo  in the 1992 Agreement) is prohibite d.  The EC submits that these are facts  
that the Panel must  take into consideration when assessing the credibility  and plausibility  of the 
interpretation of Article 3.1(a) and footnote 4, and the assessment of the facts now advanced by the 
US.324 
4.192  For these reasons, the EC concludes that the US  has failed to demonstrate any of the three 
requirements of Article 3.1(a) and footnote 4 of the SCM Agreement.  The EC emphasises that the 
Panel should first consider the claims "in law", and th en the claims "in fact".  The EC also emphasises 
that the Panel should exercise particular rigour with respect to the existence and precise content of the 
                                                      
321 EC, FWS, Executive Summary, para. 47. 
322 EC, FNCOS, Executive Summary, para. 12. 
323 EC, FWS, paras. 570 to 577; EC, FNCOS, paras. 82 to 83; EC NC RPQ 79, paras. 138 to 140; EC, 
SNCOS, paras. 121 and 155. 
324 EC, SWS, paras. 251 to 257; EC, SNCOS, paras. 136 and 151. WT/DS316/R 
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  measures, especially with respect to the "in fact" claims, and should assess each of the seven measures 
individually.325 
(b) No subsidies contingent in law upon export performance  
4.193  The EC comments on five issues of legal interpre tation: the existence of a subsidy within the 
meaning of Article 1.1 of the SCM Agreement,  the condition (export performance), consequence 
(grant of a subsidy) and conti ngent relationship (or contingency)  required by Article 3.1(a) and 
footnote 4, and the fact that the burden of proof is on the US to demonstrate its claims.326  The EC 
considers that the US has not demonstrated that an y of the seven measures at issue contain a subsidy 
contingent in law upon export performance.  In this respect, the EC contends that the provisions cited 
by the US do not even have the content asserted by  the US, but merely contain an agreed schedule.327 
In any event, according to the EC, the US has failed to demonstrate the required condition (export 
performance), the required consequenc e (grant of a subsidy), particularly since the consequence of 
achieving certain LCA sales is to pay the member State, and not to receive a grant, or the required 
contingency.  Because these requirements are cumula tive, for any one of these reasons considered in 
isolation the US claims must be rejected. 328 
4.194  In the EC view, the US has also failed to dem onstrate that an export contingent subsidy can 
be "necessarily implied from the measure". In Canada – Autos  the grant of a subsidy in the form of an 
import duty exemption was contingent upon a Cana dian vehicle manufacturer respecting a "ratio" 
between the value of its production and the value of its domestic sales.  For example, the ratio could 
be fixed at 100:100, which could be respected by selling all production in Ca nada, without import or 
export; or by exporting and importing equal value (f or example, 100 produced, of which 80 sold in 
Canada and 20 exported; 20 importe d and sold).  Thus, a ratio of  95:100 permitted import value to 
exceed export value without loss of subsidy, but only up  to the 5 percent limit fixed by the ratio.  The 
panel and the Appellate Body correctly reasoned th at, at the limit of the ratio, the only way for a 
manufacturer to import (and thus obtain the subsidy) would be to export, thus  maintaining the ratio.  
The measure therefore provided for the grant of a su bsidy contingent in law upon export performance.  
This could be deduced through elementary reas oning from the provisions of the measure itself.329 The 
EC points out that in the present case, the US re lies upon documents such as the contract, the GMF 
and the project appraisal.  According to the EC, th ese do not demonstrate a subsidy contingent in law 
in the manner of the Canada – Autos  case or otherwise.330 According to the EC, the US has 
acknowledged that the seven measures are "origin ne utral", and that the US arguments depend upon 
the supposed "market context", thus confirming th at the US "in law" claims are without merit.331 
(c) No subsidies contingent in fact upon export performance  
4.195  The EC argues that, however Article 3.1(a) and footnote 4 of the SCM Agreement are 
construed, the US has failed to demonstrate a subs idy contingent in fact upon export performance.  
The EC first explains that the legal standard is the same (only the relevant evidence is different), that 
anticipation of (or consideration of or motivation by) (sales, including exports) does not, in itself, 
demonstrate contingency, and that export-orienta tion is insufficient (all points with which the US 
agrees).332  The EC then shows that a simple review of  the facts and evidence re veals that the US has 
                                                      
325 EC, FWS, para. 584. 
326 EC, FWS, Executive Summary, para. 43. 
327 EC, FWS, paras. 584. 
328 EC, FWS, paras. 557. 
329 EC, SWS, Executive Summary, para. 28. 
330 EC, SWS, paras. 258 to 295. 
331 EC, SNCOS, para. 137. 
332 EC, FWS, paras. 605 to 612.  WT/DS316/R 
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  failed to demonstrate the require d condition (export performance), since the documents cited by the 
US in support of its claim merely demonstrate a co ncern with profit, wherever it may be earned in a 
global market, the required consequenc e (grant of a subsidy), or the required contingency. Indeed, not 
only are the US claims not supported by the documents, they flatly contradict them, because under the 
terms of the contracts the funds are advanced and re main with the recipient even if no export or for 
that matter sale or delivery ever occurs.333  The EC argues that once again, because these requirements 
are cumulative, for any one of these reasons considered  in isolation the US claims must be rejected.334 
4.196  The EC contends that a review of the document s adduced and cited to by the US, measure-by-
measure, and addressing the document by reference to  the asserted fact in support of which it is 
adduced, reveals that the US has failed to make a prima facie  case. The EC begins with the UK 
measure relating to the A380 and the thirteen documents adduced by the US to demonstrate 
"anticipation", explaining that: the repayment provisi on of the contract is origin neutral; as are the 
1999 and 2000 Global Market Forecasts, a 1999 Airbus briefing that re-iterates the 1999 forecast, the 
project appraisal and the business case. The EC provi des similar explanations with respect to a UK 
government press release, and press reports from AF X News Limited press report, AviationNow and 
the Economist, and with respect to a "position pape r" entitled Aeronautics for Europe submitted to the 
European Commission by the External Advisory Group for Aeronautics.335 The EC provides a similar 
analysis with respect to the three documents adduced  by the US in support of its assertion that there is 
contingency.336 The EC provides a comparable analysis, w ith the same result, for each of the seven 
measures.337     
4.197  The EC argues that reduced to its essence, the US case is that any royalty based financing 
(allegedly on terms below a market benchmark) in a global market will always be a subsidy 
contingent upon export performance, for two reasons .  First, because, in the long term, a company 
doing business in a truly global market is likely to have  to sell into that global market (and not just its 
home market) in order to survive.  Second, becau se achieving a market-based return on royalty based 
project finance is likely to include global sales, or in other words sales in both domestic and export 
markets.  Thus, the smaller or more export-depende nt an economy, or the more global a subsidised 
product market, the more likely that there will be , according to the US, a subsidy contingent upon 
exports.  The EC submits that this approach  is incorrect, and not supported by the facts.338 
4.198  The EC explains that the repayment provisions  cannot create contingency in the sense of 
Article 3.1(a) and footnote 4.  The prohibition in Article 3.1(a) is neutral  as to the type of the subsidy, 
meaning that it applies equally to all types of fi nancial contributions.  The EC notes that the US 
interpretation would create an incentive for Members to make outright subsidy grants, rather than 
financial contributions that foresee a return.339  The repayment provision in the contract does not 
somehow magically convert the loan into an export contingent subsidy, by "necessary implication" or 
by means of any other obscure assertion, not least in the light of the obvious countervailing 
explanations as to the commercial rationale for the existence of such a repayment provision.  In the 
EC view, the US attempt to dismiss these explanati ons with the puff that "the EC is only proving our 
point" is at once wholly inadequate and incomprehe nsible.  In demonstrating that the reason for the 
existence of the repayment provision has nothing to do with export markets  – the neutrality point that 
                                                      
333 EC, FWS, para. 609. 
334 EC, FWS, para. 557. . 
335 EC, FWS, paras. 615 to 629. 
336 EC, FWS, paras. 637 to 656. 
337 EC, FWS, paras. 614 and 674 to 681. 
338 EC, SWS, Executive Summary, para. 30. 
339 EC, SNCOS, Executive Summary, para. 5. WT/DS316/R 
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  the US actually admits – the EC considers that it demonstrates that export contingency is not the 
"necessary implication" of the repayment provision, as the US asserts.340  
4.199  For example, with regard to the United Kingdom measure relating to the A380, the US asserts 
that it has demonstrated the existence of a subs idy contingent in fact upon export performance 
because "the evidence demonstrates that, from th e outset, the A380 was conceived primarily as a 
product for export markets in Asia".  According to the EC, this assertion is entirely without merit.  
The United Kingdom did not influence Airbus' produc t design.  Rather, demand, as reported in the 
Airbus Global Market Forecasts  is what influences Airbus' product design.341 
4.200  The EC argues that there are perfectly rational countervailing explanations that justify the 
existence of the repayment provision in each of  the contracts, which have nothing to do with 
exports.342 The EC contends that, in attempting to refu te these countervailing explanations with the 
repeated affirmation that motivations are irrelevant to contingency, the US expressly confirms that its 
case is entirely without merit.343 
4.201  According to the EC, the US arguments are in consistent with, and th e EC's arguments are 
consistent with, the panel report in Australia - Automotive Leather II . Contrary to what the US asserts, 
the facts of the present case are diametrically op posed to those surrounding the grant contract in  
Australia - Automotive Leather II ; and the panel's reasoning regarding the loan contract in that case 
supports the EC position and disproves the US position.344 The same is true with respect to the panel 
and Appellate Body reports in the Canada – Aircraft  case, in which almost all of the panel's 
considerations related to a subs idy programme (the US makes no cl aim regarding a prohibited subsidy 
programme in the present case345), which exhibited both the required condition (export performance) 
and the required contingency, and which thus ta inted the subsidy measures at issue, which were 
instances of the application of the programme, irrespective of their form.346 
4.202  The EC argues that, faced with the EC rebuttal,  the US attempts to impermissibly alter and 
enlarge the scope of its case with the late introduc tion of new arguments and new citations to evidence 
regarding supposed "reciprocal commitments", and that these new arguments should be dismissed for 
substantially the same reasons. None of the provi sions to which the US refers contains any 
"commitment" to export, nor conditions the right to retain funds on export.347 
4.203  In concluding, the EC invites the Panel to appr oach the US claims in a systematic manner, 
based on the ordinary meaning, context and object  and purpose of the relevant provisions, measure-
by-measure.  The EC argues that by simply review ing the facts asserted and evidence adduced by the 
US, it becomes immediately apparent that the US has failed to even make a prima facie  case, and that 
all its claims must be rejected.348 
4.204  The EC concludes that one-by-one the various el ements of the US case have been challenged, 
and the US has been forced to concede. 349 It is not the global market.350 It is not the fact that Airbus 
                                                      
340 EC, SWS, Executive Summary, para. 31. 
341 EC, SWS, Executive Summary, para. 32. 
342 EC, FWS, paras. 657 to 666; EC, FNCOS, para. 80; EC, SNCOS, para. 158; EC, Answer to Panel 
Question 217, paras. 531 to 533. 
343 EC, SNCOS, paras. 130 to 131. 
344 EC, FWS, paras. 667 to 673. 
345 EC, SNCOS, para. 124. 
346 EC, FNCOS, para. 79. 
347 EC, SNCOS, paras. 149 to 154, 159 and 163 to 169. 
348 EC, FWS, para. 561. 
349 EC, SNCOS, para. 170.  WT/DS316/R 
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  exports (or is an "export-oriented" company).351 It is not the alleged "anticipating (or consideration) 
of" exports.352 It is not the alleged "motivation".353 It is not performance that includes export 
performance.354 It is not the fact that the measure foresees a return.355 And it is not the repayment 
provision.356 In the EC's view, it is just because the alle ged recipient is Airbus. That, the EC contends, 
is the only reason why the US insists that some how "altogether" its assertions demonstrate the 
existence and precise content of a subsidy continge nt upon export performance, when manifestly they 
do not. 
E. WHETHER CERTAIN LOANS FROM THE EUROPEAN INVESTMENT BANK SUBSIDIZED THE 
DEVELOPMENT OF AIRBUS LARGE CIVIL AIRCRAFT  
1. Arguments of the United States 
4.205  The US argues that the European Investment Bank ("EIB") has repeatedly subsidized the 
development of Airbus large civil aircraft.  The US notes that the EIB has provided significant financial support to Airbus for the development of its new models of large civil aircraft.  The US 
explains that the financial support has taken the form  of loans – at least 11 to date – with a total 
principal value of approximately EUR 1,600,000,000.  The EIB provides the loans for the 
development of specific models of Airbus LCA, usually as a supplement to the Launch Aid that the 
various Airbus governments provide for the same mode ls.  The US submits that each of the EIB loans 
is a subsidy within the meaning of Article 1.1 of  the SCM Agreement that is specific within the 
meaning of Article 2 of the SCM Agreement.
357 
4.206  The US sets out the factual background of the Eur opean Investment Bank.  It explains that the 
EIB, "the financing institution of the European Union, was created by the Treaty of Rome.  The 
members of the EIB are the member States of the Eu ropean Union, who have all subscribed to the 
Bank's capital."  According to the US, the EIB descri bes itself as "the EU's policy-driven Bank."  It 
has "close working relations with the other EU institu tions, in particular the European Parliament, the 
European Council and the European Commission."  It provides financing in support of EU policy 
priorities.  The projects it funds must "help achie ve EU objectives such as making European industries 
and small businesses more competitive."  For all of  these reasons, the EIB is, according to the US, a 
"public body" within the meaning of Ar ticle 1.1(a)(1) of the SCM Agreement.358 
4.207  The US contends that the loan that the EIB provided to EADS in 2002 is a specific subsidy 
under Articles 1 and 2 SCM Agreement.  The US states that in 2002, the EIB agreed to provide a EUR 700,000,000 "individual loan" to EADS for R&D related to the Airbus A380.  The loan is a 
subsidy within the meaning of Article 1.1 of the SCM Agreement that is specific within the meaning 
of Article 2 of the SCM Agreement.
359 
4.208  First, according to the US, the EIB is a pub lic body, and the EUR 700,000,000 that it agreed 
to provide to EADS for the A380 – like all of the other EIB measures that the US is challenging in 
                                                                                                                                                                     
350 US, SWS, para. 253. 
351 US, SWS, para. 253. 
352 US, SWS, para. 135 and 220. 
353 US, SWS, paras. 231 and 234. 
354 US, SWS, para. 244. 
355 US, SWS, para. 220. 
356 US, SWS, para. 134. 
357 US, FWS, Executive Summary, para. 37. 
358 US, FWS, Executive Summary, para. 38. 
359 US, FWS, Executive Summary para. 39. WT/DS316/R 
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  this dispute – is in the form of a loan.  Accordi ngly, it is a financial contribution within the meaning 
of Article 1.1(a)(i) of the SCM Agreement.360 
4.209  Second, according to the US, the loan confers a benefit because it is on terms that are more 
favourable than those available in the market.  The US argues that the EIB readily admits that its 
entire purpose is to support the EU's public policy objectives by providing loans on better terms than 
the recipients could otherwise obtain, if they could obtain the loans at all.  According to the US, the EIB effectuates this benefit by passing on the inte rest rate it pays on its own (AAA-rated) capital 
market borrowings to its non-AAA rated borrowers, a nd by lending the funds at cost.  Thus, like the 
Technology Partnerships Canada ("TPC") program at issue in the Canada – Aircraft  dispute, the EIB 
"neither seeks nor earns a commercial rate of return" on the loans it provides.  The Canada – Aircraft 
panel treated this factor as dispositiv e in determining the existence of a subsidy in that dispute.  It is 
equally dispositive with respect to the EIB.
361 
4.210  Furthermore, the information that the EC pr ovided during the Annex V process confirms, in 
the US view, that the EIB loan for the A380 confers a benefit because the interest rate on the loan is 
below the risk-adjusted commercial borrowing rate that the market would have charged EADS in 
2002 on an equivalent long-term loan.  The loan is al so specific within the meaning of Article 2 of the 
SCM Agreement.  It is disproportionately large both in  percentage and in absolute terms.  Also, every 
"individual loan" that the EIB provides is entirely discretionary.362 
4.211  Finally, the US submits that the loans that the EIB provided to Airbus between 1988 and 1993 
are specific subsidies.  The EUR 700,000,000 that th e EIB agreed to provide for the A380 was not its 
first loan to an Airbus project.  Since 1988, the ba nk has provided at least eleven additional loans for 
the development of specific Airbus models.  The US contends that, like the EUR 700 million loan for 
the A380, each of these additional loans is a specif ic subsidy to Airbus within the meaning of 
Articles 1 and 2 of the SCM Agreement.363 
4.212  In its second written submission, the US points out that the EC responded principally by 
contesting that the EIB loans are specific and that they confer a benefit.  First, with regard to 
specificity, the US considers that among other flaw s, the EC argument relies heavily on an approach 
to disproportionality for purposes of determining whether a subsidy is de facto  specific that would 
measure each loan provided by the EIB against the totality of EIB lending over its entire five-decade-
long history.364  The US argues that the EC argument that  the Panel should judge the specificity of 
EIB loans by examining all loans it has provided to all sectors since its founding would, if accepted, 
enable massive circumvention of the SCM Agreement.365 
4.213  The US considers that the EC is mistaken in its view that the EIB loans at issue are not 
specific within the meaning of Article 2 of the SCM Agreement.366  With almost no discussion, the 
EC asserts that "{t}he challenged EIB loans... cannot be specific under Article 2.1(a) SCM Agreement," apparently based on the absence of  explicit limitations on eligibility for EIB loans.  
However, the US asserts, if the unique terms an d conditions of a given subsidy contract are 
sufficiently different from the terms and conditions of other contracts granted under the same subsidy 
program, this can cause the subsidy at issue to fall outside the parameters of the broader program of 
                                                     
 
360 US, FWS, Executive Summary, para. 40. 
361 US, FWS, Executive Summary, para. 41. 
362 US, FWS, Executive Summary, para. 42. 
363 US, FWS, Executive Summary, para. 43. 
364 US, SWS, Executive Summary para. 30. 
365 US, FNCOS, Executive Summary, para. 14.  See, also, US, SWS, Executive Summary para. 30 
366 US, FNCOS, Executive Summary, para. 14.  WT/DS316/R 
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  which it is a part.  In that case, the US explains, the subsidy ought to be c onsidered separately from 
the larger program for purposes of a de jure specificity analysis under Article 2.1(a) of the 
SCM Agreement.367 
4.214  The US argues that despite repeated assertions that eligibility for EIB lending is "objective" 
and "automatic" (and therefore, in the EC view, non-specific as a matter of law), the EC position is 
belied by its own explanation.  In particular, th e US notes that the EC describes multiple layers of 
review that must be completed in order for the EIB to approve a loan application, showing that 
obtaining an EIB loan is anything but "automatic."   Also, the factors considered during that process 
show that the criteria or conditio ns governing eligibility – such as "improvement of the efficiency 
and/or quality of the infrastructure" and "alleviation of social problems or exclusion" – are subjective 
rather than objective.  The US argues that while the EC calls the EIB Eligibility Guidelines "a very 
good example of criteria which are economic in nature  and horizontal in application, and which are 
not favouring enterprises of any sector (or even any size)," it provides absolutely no demonstration of why this characterization is accurate.  And, indeed, it is not.
368 
4.215  The US considers that in each case, the loans are discretionary, "individual" loans that are 
disproportionately large.369  The US points out that  the EC has refused to provide the information that 
the Panel would need to evaluate the unique terms a nd conditions of most of the EIB loans at issue.  
Moreover, the EC refused to provide information about other EIB lending that might allow for an analysis of the manner in which the EIB exercised its  discretion in providing loans to Airbus as 
compared with other borrowers.
370  The US explains that the EC provides no evidence to show that 
the EIB loans to Airbus are suffici ently similar to other loans granted by the EIB that they cannot be 
considered subsidies that are specific within the meaning of Article 2.1(a).371  
4.216  The US submits that the EC has failed to de monstrate that the EIB loans are non-specific 
within the meaning of Article 2.1(b) of the SCM Agreement.  According to the US, the EC's own 
description of the EIB's loan approval process makes clear that its loans are discretionary, and the 
facts further demonstrate that the challenged loans were specific to Airbus.372  The US considers that 
the EC argues without basis that the EIB loans to Airbus must be analyzed in comparison to all  the 
lending activity of the EIB over its entire  50-year history.  In contrast, the US looks at de facto  
specificity based on how the EIB itself describes its  lending activity, comparing the 2002 loan to 
EADS, for example, to the EIB's i2i program, wh ich involved a "dedicated" amount of money loaned 
over a period of time with starting and ending points prescribed by the EIB.373  
4.217  With regard to whether the EIB loans confer a benefit, the US considers that the EC is wrong 
to suggest that EIB loans do not confer a benefit on Airbus because of supposed (but completely unsubstantiated) "obligations imposed by the EI B" that, according to the EC, a commercial lender 
does not impose on its borrowers.
374  The US has presented evidence showing that the EIB's very 
purpose is to provide financing on terms more favourab le than those available in the market.  The EC 
misleadingly attempts to downplay the unmistakable import of statements about the EIB's mission.  
For example, the EC asserts that the requirements th at EIB interest rates "be set at a level enabling 
EIB ' to meet its obligations, to cover it s expenses and to build up a reserve fund '" and that the EIB 
                                                      
367 US, SWS, Executive Summary para. 36. 
368 US, SWS, Executive Summary para. 35. 
369 US, FNCOS, Executive Summary, para. 14. 
370 US, SWS, Executive Summary para. 36. 
371 US, FNCOS, Executive Summary, para. 14. 
372 US, FNCOS, Executive Summary, para. 14.   
373 US, SNCOS, Executive Summary, para. 14. 
374 US, SWS, Executive Summary para. 30. WT/DS316/R 
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  "not grant any reduction in interest rates" mean that "the bank's Statute expressly prohibits the bank 
from subsidising any borrower."  But that is not wh at these provisions mean.  All banks – regardless 
of whether they are for-profit or (as the EIB) not -for-profit – are required "to meet ... obligations, to 
cover ... expenses and to build up a reserve fund."   What distinguishes a market lender from the EIB 
is that a market lender, in addition to meeti ng obligations, covering e xpenses, and building up a 
reserve fund, seeks a profit.375  
4.218  Further, the US notes that the EC openly admits that the interest on EIB loans provided to 
Airbus from 1988 to 1993 did not include a risk premium, making them preferential to those available in the market by definition.  Ev en with respect to the 2002 EIB loan to EADS for A380 development, 
the EC is less than clear as to whether the interest  rate actually included a risk premium.  The US 
argues its contention that EIB loans confer a bene fit on the recipient is further confirmed by a 
comparison between the EIB loans to Airbus and ma rket benchmarks established on the basis of the 
only two EIB loans for which the EC identified the precise terms and conditions.
376   
4.219  In addition to lower-than-market interest rat es, the US argues that the EIB loans confer a 
benefit by excluding a commitment fee.  The EC asserti on that uncertainty about date of disbursement 
and the final interest rate on an EIB loan explain the absence of a commitment fee ignores the purpose of a commitment fee as compensating for providing a borrower the valuable option of drawing on funding at a later date.
377  The US considers that the EC's pr oposed market benchmark for measuring 
the benefit conferred by EIB loans is flawed for several reasons, including, inter alia , its reliance on 
bonds issued in the US, notwithstanding known yi eld differences between such bonds and dollar-
denominated bonds issued by persons outside the US.378 
4.220  At the second Panel meeting the US also asserted  th at in trying to show that EIB loans do not 
confer a benefit, the EC mistakenly focuses on the activities of international lending institutions in 
general (rather than the EIB in particular), inappr opriately discounts the fact that the EIB does not 
seek to maximize profits, and alludes vaguely to hypothetical "other lending conditions" that "can  ...  
outweigh{}" "{a}n advantageous interest rate " while providing no evidence of such conditions.379  
4.221   In the US view, the EC's own words speak fo r themselves.  According to the US, the EC 
acknowledged that the EIB's decisions are "policy driv en," that they are "not determined by purely 
commercial considerations," and that the EIB has no need to "maximize profits."380  For the US, this 
acknowledgment confirms that the financing provided by the EIB provides a benefit to Airbus as 
compared to financing provided by commercial le nders – that is, lenders who do have a need to 
"maximize profits."  Accordingly, th is financing constitutes a subsidy.381 
4.222  Finally, the US asserts that the EC belief that loans for which the face amount has been repaid 
cease to confer benefits and cause adverse effects ignores that those loans were below market, and so 
the subsidy element has not been repaid.382 
                                                      
375 US, SWS, Executive Summary para. 31. 
376 US, SWS, Executive Summary para. 32. 
377 US, SWS, Executive Summary para. 33. 
378 US, SWS, Executive Summary para. 34. 
379 US, SNCOS, Executive Summary, para 13. 
380 citing, EC First Oral Statement, paras. 12 and 98. 
381 US, FCCS, Executive Summary para. 24. 
382 US, SNCOS, Executive Summary para. 13.  WT/DS316/R 
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  2. Arguments of the European Communities 
4.223  The EC rebuts the US assertions that the EIB repeatedly subsidised the development of 
Airbus LCA through loans provided to EADS and other companies.383   
4.224  First, the EC asserts that it corrects a number of factual misinterpretations put forward by the 
US, and provides a corrected description of the EIB's status and functioning.384 The EIB is a sui 
generis  multilateral financial institution established in  1957, by the Treaty establishing the European 
Community (Treaty of Rome of 1957, hereinafter "EC Treaty") and created by sovereign governments, sharing many similarities with the Wo rld Bank and other fina ncial institutions that 
operate at a regional or internationa l level.  The task of the bank is set forth in Article 267 of the EC 
Treaty.
385  To achieve the objectives set out in Article 267 of the EC Treaty, the EIB formulates a 
number of more specific priorities and objectives.386  The US attempts to imply that EIB is controlled 
by member State governments through the Board of Governors and the Board of Directors are simplistic and misleading. The EIB enjoys legal personality and financial autonomy and is endowed 
with its own decision-making bodies. The EIB funds its operations by borrowing on the capital 
markets rather than by drawing on the budget of either the European Co mmunities or the member 
States, in accordance with its Statute. Interest rates on loans provided by the bank are adjusted to 
conditions prevailing on capital markets. The EIB is not allowed by its Statute to grant subsidies.
387 
The EIB enjoys full independence in the conduct of  financial operations pursued to further its 
objectives, as confirmed by the European Court of Justice.388  The EC also explains that the EIB does 
not promote only "European industries" as the nationa lity of the borrower is not a relevant criterion 
when granting a loan.389  Examples of large loans to "non-EC" companies can be found at Exhibit EC-
157 (Non-BCI) of the EC's first written submission in which the EC provides a complete list of all 
EIB loans for the period 1957-2006.390 
4.225  The EC explains that the EIB is, together with the World Bank, the European Bank for 
Reconstruction and Developm ent and others, in a category of inte rnational financial institutions which 
all have the same common feature that they do not  seek to maximise profit but rather pursue, through 
their lending, wider developmental and socio-economic policy objectives.  The EC submits that the 
US argument that the EIB provid es subsidies just because it does not  focus on profit maximization 
would mean, if followed by the Panel, that any of these international lending institutions provides 
subsidies.  This would not only be legally inco rrect, it would also constitute a major obstacle to 
developmental policies around the globe.391 
4.226  The EC argues that the US failed to make a prima facie  case with respect to those EIB loans 
that already were repaid392 (ten out of thirteen loans challenged by the US have been fully repaid).393 
The US has not explained how loans that have long been repaid constitute existing measures that the 
                                                      
383 EC, FWS, Executive Summary para. 52. 
384 EC, FWS, Executive Summary para. 53. 
385 EC, FWS, para. 1005. 
386 EC, FWS, para. 1006. 
387 EC, FWS, para. 1008. 
388 EC, FWS, para. 1007. 
389 EC, FWS, para. 1009. 
390 EC, FWS, footnote 817. 
391 EC, SWS, Executive Summary para. 38. 
392 EC, FWS, Executive Summary para. 53. 
393 EC, FNCOS, Executive Summary, para. 16. WT/DS316/R 
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  Panel should examine and determine how they cause present adverse effects to US interests.394 
Further, at least one of the challenged loans is not properly before the Panel.395    
4.227  Next, the EC asserts that EIB financing is not sp ecific and that the Panel can therefore reject 
the US claims on that ground alone.396 In the EC view, the US entirely ignores that there are 
international financial institutions which, although operating on a basis th at is actually very similar to 
that of commercial banks, pursue broader public  policy objectives and – by their very founding 
charters – promote projects of all sizes in all sectors and without any discrimination. Financing by 
such institutions is, by definition, non-specific a nd – also under the terms of the US domestic law – 
does not constitute a subsidy.397  
4.228  Furthermore, the EC argues that the US co mmits a legal error when it argues that EIB 
financing is specific.  As regards specificity de jure ,398 the EC explains that under its founding statute 
and the EC Treaty, the EIB provides financing across all economic sectors and promotes projects in all areas of human activity. The facts also do not su pport the US allegation that EIB financing can be 
misused to promote the interests of Airbus.
399  In accordance with Article 267 of the EC Treaty, the 
EIB is legally required to extend fi nancing to projects for companies of all sizes and across all sectors 
of the economy.  All the terms of EIB contracts wh ich have any relevance for the finding of subsidy 
(interest rate, maturity, repayment profile, etc) ar e set on the grounds of the same underlying criteria 
and methodology that apply across the board to all projects (and borrowers).400  These criteria are 
neutral and economic in nature.401  The eligibility determination made  on the basis of these criteria is 
automatic within the sense of Article 2.1(b) SCM Agreement.402 The EC has provided copies of all the 
contracts at issue as well as the template of a standard EIB contract.403  
4.229  The EC indicates that the US attempts to ove rcome these EC arguments by arguing that the 
challenged loans are specific de facto .  The EC argues that in doing so, the US commits both legal and 
factual errors.  On law, the US ignores the text of Article 2.1(c) SCM Agreement and tries to artificially narrow the period of time of considerati on or the area of EIB lending as much as possible, 
in order to succeed with its misconceived "dispr oportionality" analysis.  However, neither the 
existence of the EIB's Innovation 2010 Initiative (i 2i) as an individual policy objective, nor the EIB 
reporting of its activities on a sectoral or on an an nual basis can be validly taken as evidence of a 
separate programme allowing a separate and distin ct "disproportionality" analysis.  Since the 
eligibility criteria apply across sectors, and since a single loan may, and routinely does, satisfy a 
number of policy objectives, any "disproportionality" analysis will always be artificial, unless one 
would consider the entire portfolio of EIB le nding, across all EIB objectives and criteria, as a 
"programme" in the sense of Article 2.1(c) of the SCM Agreement.
404 The EC provides ample 
evidence showing that the US factual assertions in  this respect – apart from being based on an 
erroneous legal theory – are also contrary to the facts.405    
                                                      
394 EC, FWS, para. 1001. 
395 EC, FWS, para. 1003. 
396 EC, FWS, Executive Summary para. 53. 
397 EC, FCCS, Executive Summary para. 10 
398 EC, SWS, Executive Summary para. 40. 
399 EC, FNCOS, Executive Summary, para. 16. 
400 EC, SWS, Executive Summary para. 40. 
401 EC, FWS, para. 1024. 
402 EC, FWS, para 1031. 
403 EC, SWS, paras. 418-419 and, in particular para. 420. 
404 EC, FWS, para. 1039. 
405 EC, SWS, Executive Summary para. 40.  WT/DS316/R 
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  4.230  The EC is of the view that the specificity of th e challenged EIB loans is to be examined at the 
level of the EIB financing as a whole.  The individu al loans "reflect the normal operation" of the EIB 
and, further, the substantive terms of these loans, such as interest rate  or security and risk pricing, are 
set on the basis of horizontally applied criteria and methodologies which are not tailored to any 
individual loans.  The EC explains that it would be against the object and purpose of the 
SCM Agreement, which is to encourage Members pr oviding financing to employ market disciplines, 
including risk pricing or requiring external security , to renounce on such elem ents.  An interpretation 
of Article 2 that requires a Member to confer a subsidy to ensure that that subsidy is not specific must be rejected.  To determine whether a loan provided under a programme is de facto  specific, funding 
offered through the programme has to be consid ered, not an arbitrarily selected part of it.
406    
4.231  The EC argues that in any event, the cha llenged EIB loans do not and did not confer 
"benefits", and are therefore not "subsidies" , within the meaning of Article 1 of the 
SCM Agreement.407 The EC considers that the "market" benchmarks proposed by the US are grossly 
inaccurate and based on simplified assumptions.408  The EC provides a detailed calculation of 
properly-identified benchmarks with regard to all of the remaining lo ans.  The benchmarks show that 
the rates for the challenged loans are either at or above market terms409 and demonstrate that none of 
these loans actually conferred any benefit.  In any event, the EC also highlights that when making a 
comparison with the market, the US only takes into account one element of the loan – the interest rate 
– and ignores other tangible as well as less tangible as pects of the EIB lending which are of additional 
cost to the borrower.410  Borrowers would not incur such  additional costs in the market,411 in particular 
with respect to market benchmarks based on bonds, as bonds have distinct characteristics from 
loans.412  Thus, the additional obligations placed on th e EIB borrower have to be taken into account.413 
4.232  The EC also explains that the US assertion that EIB provides subsidies merely because the 
EIB does not seek to maximize profits is not releva nt for the determination whether a subsidy exists 
under Article 1 of the SCM Agreement.414 The EC maintains that the US approach contradicts the 
well established WTO jurisprudence that a subsidy ex ists only if it confers a benefit on the recipient 
(irrespective of whether the granting authority seeks profit or not). Hence, to determine the existence 
of benefit, one has to compare each of the loan s challenged by the US with a market benchmark.415  
4.233  The EC also explains that every one of the ch allenged EIB loans has been collateralised or, in 
case of the EADS loan for the A380 project, subject to a risk premium.416 
4.234  The EC further argues that the fact that th e EIB does not charge a commitment fee is a 
reflection of the fact that the EIB does not undert ake a commitment comparable to the one available 
usually on the market.417 
4.235  In addition, the EC asserts that the US argum ents that EIB loans "supplement" MSF or other 
alleged subsides are fundamentally mistaken and expl ains at length that the EIB is an independent 
                                                      
406 EC, SNCOS, Executive Summary, para. 6. 
407 EC, FWS, para. 1108. 
408 EC, FNCOS, Executive Summary, para. 16. 
409 EC, SNCOS, Executive Summary, para. 6. 
410 EC, SWS, Executive Summary para. 39. 
411 EC, FWS, paras. 1056 and 1084. 
412 EC, SWS, paras. 494-499. 
413 EC, SNCOS, Executive Summary, para. 6. 
414 EC, SWS, para. 490. 
415 EC, SWS, Executive Summary para. 39. 
416 EC, SNCOS, para.368 
417 EC, SNCOS, para. 192. WT/DS316/R 
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  institution and the decision of the Board of Director s approving a loan is based solely on business 
consideration and the EIB Statute.418 
4.236  The EIB financing cannot be said to "shift comme rcial risk of launch", as the United States 
asserts, without any justification. Thus, the EC is of  the view that the effects of the challenged EIB 
loans can not be aggregated with other financing mechanisms concerned and that even if the EIB 
loans were found to be a specific subsidy, they are,  as such, not likely to create any adverse effects 
within the meaning of the SCM Agreement.419 
4.237  Finally, the EC submits that the US failed to make a prima facie  case as it ignored the fact 
that the challenged loans had been provided, to  a large extent, to companies which no longer 
manufacture LCA that is alleged to cause adverse eff ects to US interests and that, in any event, the 
challenged EIB loans do not provide a benefit in  the sense of Article 1.1(b) SCM Agreement.420  
F. WHETHER THE GERMAN , FRENCH , UK,  AND SPANISH GOVERNMENTS HAVE SUBSIDIZED 
AIRBUS THROUGH THE PROVISION OF INFRASTRUCTURE AND INFRASTRUCTURE -RELATED 
GRANTS .   
1. Arguments of the United States 
4.238  The US argues that the German, French, UK, and Spanish Governments have subsidized 
Airbus through the provision of infrastructure and infrastructure-related grants 
4.239  The US submits that in addition to Launch Aid and EIB loans, the Airbus governments have 
provided massive subsidies to Airbus to develo p, expand, and upgrade infrastructure and other 
facilities.  These subsidies increased markedly in recent years in conn ection with the development of 
the Airbus A380.  The subsidies at issue were  granted by German authorities in Hamburg, 
Nordenham, and Bremen; by French authorities in Toulouse; by UK authorities in Broughton; and by Spanish authorities in numerous locations in Spain.  The US contends that each of the measures is a 
specific subsidy to Airbus within the meaning of the SCM Agreement.
421 
(a) Alleged infrastructure subsidies 
(i) Hamburg 
4.240  The US contends that when Airbus launched th e A380, it decided to establish one of its A380 
assembly facilities at its Hamburg-Finkenwerder site.  At the time that Airbus made this decision, 
however, its existing facilities in Hamburg were lo cated on a peninsula, with the river Elbe and 
wetlands on three sides, leaving no space on which to build the A380 facility.  The US explains that 
Hamburg authorities solved this issue by transf orming one of the wetlands – the internationally-
protected "Mühlenberger Loch" – into an industrial site, at a cost of approximately EUR 751,000,000.  
The development of the Hamburg-Finkenwerder site a nd its provision to Airbus is a specific subsidy 
to Airbus because the Hamburg authorities created a site that the market would not have created, and 
because they have provided the site to Airbus for less than adequate remuneration.  Hamburg also 
subsidized Airbus by sharing the costs to construct the A380 assembly facilities.422 
                                                      
418 EC, SNCOS, para.370 
419 Ibid. 
420 EC, FWS, Executive Summary para. 53. 
421 US, FWS, Executive Summary, para. 44.   
422 US, FWS, Executive Summary, para. 45.  The United States later withdrew this latter claim, US, 
Answer to Panel Question 24, para 167.  WT/DS316/R 
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  4.241   The US notes that the EC concedes that Ham burg spent at least EUR 695 million to create an 
industrial site for Airbus at Mühlenberger Loch.423 The US also notes that there is no dispute between 
the EC and the US that the City of Hamburg created  the artificial land at the Mühlenberger Loch free 
of charge and free of risk for Airbus – and thereb y allowed Airbus to expand its existing facilities to 
accommodate A380 production.  The US points out that  the EC approach to addressing the undisputed 
facts is to treat the creation of the site, the building of flood protection measures, and the building of special-purpose facilities on the site as three separat e transactions, each distinct from one another, as 
well as being distinct from and unc onnected to the lease of the newly created land and special purpose 
facilities to Airbus.   
4.242  The US notes that the EC argues that the creation of the site, in and of itself, did not constitute 
a financial contribution to Airbus but, rather, the provision of general infrastructure.  The EC then 
treats the lease to Airbus no differently from an ordinary commercial lease in which it was not 
necessary to first create the artificial land.  The US c onsiders that this approach ignores the reality that 
the City of Hamburg invested EUR 750 million into cr eating a site to the specifications of Airbus, an 
amount that Airbus otherwise would have had to spend itself on the expansion of its existing site.
424 
4.243  The US considers that the EC argument th at the creation of the land was "general 
infrastructure" is based on a misinterpretation of  the SCM Agreement and the false premise that 
Hamburg's "law on the development of the port" required the City to reclaim the land from Mühlenberger Loch.  Hamburg spent EUR 751 million to transform a protected wetland area into an 
industrial site for Airbus, knowing that the project would result in a several hundred million Euro loss.  
A private investor would not have made such an investment.
425  
4.244  The US explains that the EC assertion that creation of the Airbus site at the Mühlenberger 
Loch amounted to the provision of general infrastruct ure is wrong for the following reasons.  First, the 
EC theory that land for industrial and residen tial use in Hamburg is limited because Hamburg is 
"surrounded by water" is factually incorrect.  Hambur g is located on the river Elbe, but it is certainly 
not surrounded by water, and Hamburg's own Mi nister for the Economy has touted the "abundant 
supply of office space and commerc ial real estate" in Hamburg.426   
4.245  Second, the EC assertion that the creation of the new, artificial land in the Mühlenberger Loch 
was motivated by the need for additional land for the ha rbor and thus undertaken to  fulfil a public task 
– the development of the harbor – is both legally irrelevant and factually wrong.  It is legally 
irrelevant because the test for whet her infrastructure is general is not whether it serves some "public 
policy objective."  As for the facts, a closer examina tion shows that the creation of the site for Airbus 
does not serve the development of the Port of Hamburg, but was undertaken exclusively for Airbus.  As the EC grudgingly admitted in responding to th e Panel's questions, the entire site created from 
wetland and river areas in the Mühlenberger  Loch and Rüschkanal is located outside
 the Harbor Area 
as defined by Hamburg's Port Development Act.  The EC also errs in describing plans for expansion 
of the Harbor Area.427 
                                                      
423 US, FNCOS, Executive Summary, para. 10. 
424 US, SWS, Executive Summary, para. 39. 
425 US, FNCOS, Executive Summary, para. 10. 
426 US, SWS, Executive Summary, para. 40. 
427 US, SWS, Executive Summary, para. 41. WT/DS316/R 
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  4.246  Third, the EC ignores that the Mühlenberger Lo ch and the Rüschkanal were transformed into 
artificial land exclusively for Airbus .  This fact is confirmed by contemporaneous statements by the 
European Commission, the Hamburg government, and the Hamburg Court of Appeals.428  
4.247  The US considers that equally erroneous is the EC theory that the Airbus site amounts to 
general infrastructure due to the remote possibility that  one day the site might be used by another user, 
as long as the City of Hamburg retains formal owne rship of the site.  It would be very easy to 
circumvent the SCM Agreement if the provision of infrastructure by a WTO Member to specific companies or industries – even on a decades-long b asis – were excluded from the agreement by virtue 
of being "general infrastructure" simply due to th e Member's retaining title to the infrastructure.  
Moreover, the EC portrayal of the relevant facts is  incorrect.  German planning law prohibits any use 
of the site other than for aircraft manufacturing a nd aviation purposes.  And with respect to the dyke 
lane that surrounds the site, the EC ultimately must admit that during the period of Airbus' lease, it is open to use only by "Airbus employees and offici als of Hamburg with a responsibility for dyke 
maintenance and security."  Even assuming hypothe tically that the restrictions under German 
planning law did not exist and that Airbus terminat ed its use of the newly created land, the site still 
would not be suitable for users other than Ai rbus given the land's physical and geographical 
situation.
429   
4.248  The US considers that the dykes around the Air bus site – built at a cost of EUR 29.3 million 
(about four percent of the total cost of creating th e artificial land) – are not general infrastructure, 
because it would not have been necessar y to build them absent the creation of that land for Airbus in 
the first place.430  
4.249  Given that the site created for Airbus at the Mü hlenberger Loch is not general infrastructure, 
its lease to Airbus on terms that do not include the in vestment in creating the site confers a benefit on 
Airbus.  And, in addition to ignoring the cost of  creating the site, Hamburg assumed the entire risk 
that the artificial land may subside, conferring an  additional benefit on Airbus in the form of a 
reduced lease price until 2019.431  
4.250  The US notes that the EC argu es that the cost of turning th e wetland and water areas in the 
Mühlenberger Loch and the Rüschkanal into a site fo r Airbus are irrelevant as a benchmark.  In the 
EC view, these costs do not reflect the benefit to Air bus, but the cost to Hamburg.  However, in the  
US view, the EC ignores that Hamburg's actions repr esent a substantial cost savings to Airbus.  The 
US explains that had it not been for the government's  creation of the land, Ai rbus would have had to 
make that investment itself.432    
4.251  The US points out that even assuming, for the sak e of argument, that the value of pre-existing 
land is the right basis for determining a market pr ice for Airbus' lease, the actual lease price still falls 
below a market benchmark, as demonstrated by an analysis provided by local real estate experts Dr. Ing. Keunecke and Dipl.-Ing. Stoehr.
433 The opinion to the contrary by the Hamburg Committee 
of Experts for Property Values is flawed in part b ecause it accepts the proposition that the risk that the 
land will settle should be accounted fo r through a rent reduction, and in part because it uses the wrong 
basis under German law for calculating a market inte rest rate.  Finally, even assuming that the land 
leased by the City of Hamburg had already existed (and that a market-based lease price would not, 
                                                      
428 US, SWS, Executive Summary, para. 42. 
429 US, SWS, Executive Summary, para. 43. 
430 US, SWS, Executive Summary, para. 44. 
431 US, SWS, Executive Summary, para. 45. 
432 US, SWS, Executive Summary, para. 46. 
433 E.g., US, FWS, paras. 432-433, Exhibit US-189.  WT/DS316/R 
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  therefore, have reflected the cost of creating the land in the first place), a private landowner certainly 
would have demanded a premium from Airbus over the lease price it would have charged any other 
lessee, given that this site is adjacent to Airbus' ex isting facilities and is the only site that Airbus could 
use to locate its A380 production in Germany.434 
(ii) Bremen 
4.252  The US argues that Germany provided DM 50 million in infrastructure subsidies to Airbus in 
Bremen by agreeing to extend the main runway at Bremen airport to accommodate transport flights for Airbus wings manufactured in Bremen.  Th e governing SPD in the Bremen Parliament has 
explicitly described the runway as a "Werksbahn" (o r "company runway") for Airbus.  Airbus paid 
nothing for this benefit.
435 
4.253  The US notes that the EC argues that Airbus does not receive a benefit "because it is landing 
heavier aircraft, and is in turn paying a highe r user fee."  The US considers that the EC 
misunderstands the fee regulation adopted by the City  of Bremen.  The US explains that under that 
regulation, fees are based on maximum  take-off weight, not actual  take-off weight.  And in any event, 
regardless of the maximum take-off weight, users other than Airbus are not allowed to use the 
extended runway.  Absent an arrangement that ensures that the City of Bremen is compensated for the 
runway infrastructure created specifically for Airbus  and open for use only by Airbus, Airbus receives 
a benefit from having been provided with this infrastructure.436 
(iii) Toulouse 
4.254  The US notes that Airbus decided to establish its second A380 assembly facility at its 
Toulouse site.  The US contends that French authorities expended EUR 200,000,000 to transform 
agricultural land next to Airbus' Toulouse headquarters and the Blagnac airport into the "AéroConstellation" site – an aeronau tics industrial park that French authorities described as a "tailor-
made solution for the A380."  The development of the AéroConstellation site and its provision to 
Airbus is a subsidy within the meaning of Article 1.1 of the SCM Agreement that is specific within 
the meaning of Article 2 of the SCM Agreement.  First, the French authorities sold a portion of the 
site to Airbus for less than adequate remunera tion.  Second, the authorities are leasing the general 
facilities on the site (the EIG facilities) to Airbus for less than adequate remuneration.
437 
4.255  The US asserts that the Fren ch authorities spent at least EUR 78 million to develop the 
AéroConstellation site, plus a nother EUR 80 million to develop facilities on the site.  Airbus 
purchased at least 51 hectares of the site, and the price Airbus supposedly paid is well below the 
amount the French authorities spent to develop the site .  In this way, the French authorities conferred 
a subsidy on Airbus.438 
4.256  The US notes that the EC's principal response is  to argue that the goods the French authorities 
provided to Airbus constitute general infrastructur e and therefore are excluded from the definition of 
"subsidy."  This is another example of the EC's flawed understanding of what constitutes "general 
infrastructure."  Moreover, as with the Hamburg site , the EC contention that the US has taken a cost-
to-the-government approach to showing the exis tence of a subsidy ignores the fact that by 
                                                      
434 US, SWS, Executive Summary, para. 47. 
435 US, FWS, Executive Summary, para. 46. 
436 US, SWS, Executive Summary, para. 54. 
437 US, FWS, Executive Summary, para. 47. 
438 US, FNCOS, Executive Summary, para. 11. WT/DS316/R 
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  transforming agricultural land into an industrial site and then providing it to Airbus at a below-market 
price, the French authorities have conferred a be nefit on Airbus in the form of a cost savings.439  
4.257  Also, Airbus does not pay a lease price reflecting market conditions for the so-called EIG 
facilities (taxiways, parking, etc.) at the T oulouse site.  The average annual lease price of 
EUR 3.1 million demanded by Grand Toulouse for Ai rbus' use of the EIG facilities is substantially 
below a market price of between EUR 9.9 million and EUR 12.1 million for the facilities and the land.  Other non-commercial aspects of the lease include the fact that Grand Toulouse allows for a deferral 
of the lease payments.
440  
(b) Regional Aid 
(i) Nordenham 
4.258  The US argues that in June 2002, the par liament of the German land of Lower Saxony 
approved a EUR 6,000,000 grant to Airbus to help underwrite a EUR 49,000,000 expansion of 
Airbus' production facility in Nordenham.  The purpose of the expansion was to accommodate the production of components for the A380.  As a gr ant, the EUR 6,000,000 necessarily constitutes a 
subsidy within the meaning of Article 1.1 of the SC M Agreement.  The US considers that the grant is 
also specific since it is an ad hoc grant exclusively to Airbus for the specific purpose of expanding its 
A380 component production facility.
441 
(ii) Broughton   
4.259  The US asserts that on September 24, 2000, the Welsh Assembly announced that it had 
agreed to provide a GBP 19,500,000 grant package to BAe Systems in support of its A380 wing 
production work in Broughton.  The package included GBP 15,000,000 from the Welsh Development 
Agency for the "general infrastructure of a big site" and GBP 4,900,000 for the "development of 
people."  As a grant, the GBP 19,500,000 is a subsidy within the meaning of Article 1.1 of the SCM Agreement.  The grant is also specific because, inter alia , it was an ad hoc  grant to Airbus.
442 
4.260  The US notes that with respect to its claim concerning a GBP 19.5 million grant the Welsh 
Assembly provided to BAe Systems in September 2000, the EC argues that the grant is not specific 
within the meaning of Article 2 of the SCM Agreemen t.  However, in the US view, the EC fails to 
address the circumstances under which the grants we re provided.  In particular, it ignores entirely 
BAe Systems' application for a grant under the Welsh government's RSA scheme and the reaction provoked by the rejection of that application, lead ing to the grant actually provided.  Examining the 
circumstances surrounding the Welsh grant in their totality reveals th at the grant indeed is specific 
within the meaning of Article 2 of the SCM Agreement.
443 
(iii) La Rinconada 
4.261  The US argues that in April 2001, the Spanish Ministry of Economics issued an order 
approving regional grants of EU R 2,200,000 to EADS-CASA at Sevilla and EUR 814,000 to EADS-
CASA at La Rinconada, Sevilla.  As grants, the EUR 2,200,000 and EUR 814,000 are subsidies 
within the meaning of Article 1.1 of the SCM Ag reement.  The grants are also specific under 
                                                      
439 US, SWS, Executive Summary, para. 52. 
440 US, SWS, Executive Summary, para. 53. 
441 US, FWS, Executive Summary, para. 48. 
442 US, FWS, Executive Summary, para. 49. 
443 US, SWS, Executive Summary, para. 56.  WT/DS316/R 
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  Article 2.2 of the SCM Agreement because eligibility for the subsidies is explicitly limited to certain 
designated geographical regions within the jurisd iction of the authority granting the subsidies 
(Spain).444 
(iv) Illescas 
4.262  The US asserts that in March 2003, the Spanish Ministry of Economics approved a 
EUR 37,900,000 grant to Airbus España.  The grant covered 15 percent of the total investment costs 
of an expansion of Airbus' parts and components production site in Illescas, in Toledo, Spain.  The US 
asserts that as a grant, the EUR 37,900,000 is a su bsidy within the meaning of Article 1.1 of the 
SCM Agreement.  The US contends that the gran t is specific for the same reasons that the La 
Rinconada grants are specific.445 
(v) La Rinconada  
4.263  The US submits that in July 2003, the Spanish Ministry of Economics issued an order 
approving another regional grant, this time in the amount of EUR 43,100,000, to EADS-CASA at La Rinconada, in Sevilla.  As a grant,  the EUR 43,100,000 is a subsidy w ithin the meaning of Article 1.1 
of the SCM Agreement.  The grant is specific fo r the same reasons that the earlier La Rinconada 
grants were specific.
446 
(vi) Puerto de Santa Maria  
4.264  The US asserts that in July 2003, the Spanish Ministry of Economics issued an order 
approving a EUR 5,900,000 grant to EADS-CASA at Puerto de Santa Maria, in Cadiz.  As a grant, the EUR 5,900,000 is a subsidy within the meaning of Ar ticle 1.1 of the SCM Agreement.  The grant is 
specific for the same reasons that th e La Rinconada grants were specific.
447 
(vii) Puerto Real 
4.265  The US asserts that in July 2003, the Spanish Ministry of Economics issued an order 
approving a EUR 13,100,000 grant to EADS/Airbus España's facility at Puerto Real, in Cadiz.  As a 
grant, the EUR 13,100,000 is a subsidy within the meaning of Article 1.1 of the SCM Agreement.  
The grant is specific for the same reas ons that the earlier grants are specific.448 
(viii) Puerto de Santa Maria 
4.266  The US submits that in July 2001, the government of the Spanish region of Andalusia 
provided a EUR 8,600,000 grant to CASA for a new pr oduction and maintenance facility in El Puerto 
de Santa Maria, in Cadiz.  As a grant, the EUR 8,600,000 is a subsidy within the meaning of Article 1.1 of the SCM Agreement.  In addition, th e grant is specific because it was provided as part 
of an Andalusian government development plan for the Bahía de Cadiz, and thus was limited to a 
designated geographical region of the authority granting the subsidies.
449 
                                                      
444 US, FWS, Executive Summary, para. 50. 
445 US, FWS, Executive Summary, para. 51. 
446 US, FWS, Executive Summary, para. 52. 
447 US, FWS, Executive Summary, para. 53. 
448 US, FWS, Executive Summary, para. 54. 
449 US, FWS, Executive Summary, para. 55. WT/DS316/R 
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  (ix) Sevilla 
4.267  The US asserts that in July 2002, the government of Andalusia authorized a grant of 
EUR 35,700,000 for an investment by EADS-CASA in Sevilla.  The US explains that the grant was 
75 percent financed by the European Regional De velopment Fund and 25 percent financed by the 
Andalusian government.  As a grant, the EUR 35,700,000 is a subsidy within the meaning of 
Article 1.1 of the SCM Agreement.  The grant is also specific within the meaning of Article 2 of the SCM Agreement.  Subsidies under the European Regional Development fund are necessarily limited 
to "certain enterprises located within a designated geographical region within the jurisdiction of the 
granting authority," and thus are specific within the meaning of Article 2.2 of the SCM Agreement.
450 
(x) Puerto Real 
4.268  The US submits that in July 2003, the government  of Andalusia authorized a further grant of 
EUR 17,500,000 for the expansion and modernization of  Airbus' facilities in Puerto Real, in Cadiz.  
The European Regional Development Fund co-financed the grant.  As a grant, the EUR 17,500,000 is 
a subsidy within the meaning of Article 1.1 of the SCM Agreement.  Additionally, the grant is 
specific within the meaning of Article 2 of the SCM Agreement because it was provided under a 
program that is limited to "certain enterprises lo cated within a designated geographical region within 
the jurisdiction of the granting authority."451 
(xi) Illescas 
4.269  The US argues that in March 2004, the gove rnment of Castilla-La Mancha approved a 
EUR 7,600,000 grant to Airbus España for the ex pansion and modernization of Airbus' parts and 
components production site in Illescas, in Toledo .  The European Regional Development Fund co-
financed the grant.  As a grant, the EUR 7,600,000 is a subsidy within the meaning of Article 1.1 of 
the SCM Agreement.  The US considers that the grant is also specific within the meaning of Article 2 
of the SCM Agreement because it was provided under a pr ogram that is limited to "certain enterprises 
located within a designated geographical region within the jurisdiction of the granting authority."452  
(xii) La Rinconada 
4.270  Finally, the US submits that in October 2004, the government of Andalusia authorized a grant 
of EUR 61,900,000 for an investment project by EADS-CASA in the municipalities of Sevilla and La Rinconada, Sevilla.  As a grant, the EUR 61,900,000 is  a subsidy within the meaning of Article 1.1 of 
the SCM Agreement.  The grant is also speci fic within the meaning of Article 2 of the 
SCM Agreement because it was provided under a pr ogram that was explicitly limited to "certain 
enterprises" within the meaning of Article 2.1 of  the SCM Agreement.  The US notes that the EC 
asserts that the grant is not being used for large civ il aircraft activities.  However, the US argues, the 
evidence it provides fails to substantiate this assertion.
453  
(c) General infrastructure 
4.271  In its second written submission the US notes th at the EC argument concerning US claims 
relating to provisions of infrastructure rests largely on the position that much of what the US has 
challenged constitutes "general infrastructure" with in the meaning of Article 1.1(a)(1)(iii) of the 
                                                      
450 US, FWS, Executive Summary, para. 56. 
451 US, FWS, Executive Summary, para. 57. 
452 US, FWS, Executive Summary, para. 58. 
453 US, SWS, Executive Summary, para. 55.  WT/DS316/R 
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  SCM Agreement and, therefore, is excluded from the definition of "subsidy."  The US considers that 
to make that argument, the EC asserts a broad de finition of "general infrastructure" that finds no 
support in the SCM Agreement or, indeed, in the EC's own practice under its state aids regime.454 
4.272  The US asserts that based on its ordinary mean ing, the term "general infrastructure" must 
include, involve, or affect all or nearly all the parts of a whole territory or community; must be 
completely or nearly universal, as opposed to partial,  particular, or local.  The US considers that the 
EC has proffered a very different definition th at focuses on the fulfilment of broad public policy 
goals, such as " enabl{ing}  members of the public at large, thereb y fulfilling a public policy objective."  
Governments routinely act with the intention of "f ulfilling a public policy objective."  If any grant of 
infrastructure that met that test were deemed to  be general infrastructure then virtually every  grant of 
infrastructure would be excluded from the SCM Agreem ent's definition of "subsidy."  But that result 
would deprive the word "general" in the phrase "gener al infrastructure" of any meaning.  Nor do the 
travaux préparatoires  for the SCM Agreement help the EC pos ition.  And, indeed, that position is 
contradicted by the EC's own practice under its state aids regime.455 
4.273  The US points out that the EC relies on the errone ous view that any infrastructure is "general" 
as long as it is created for reasons of "public policy, " and that all infrastructure is presumed to be 
general and becomes non-general only when limitations on its use are "clearly specified" and "restricted by regulation."  Even under this flawed theory, however, the infrastructure provided to Airbus in Hamburg, Toulouse, and Bremen would not be "general infrastructure."  Further, the government's investment in creating the infrastructure reflects the savings to the recipient – that is, the 
benefit – from receiving the infrastructure at a pri ce that ignores that investment.  Focusing on this 
fact does not represent, as the EC asserts, a cost-t o-government approach to analyzing a subsidy.
456 
4.274  The US notes that the EC accuses it of inventing a legal test for determining whether 
infrastructure is general.  However, what the EC re fers to as the US "test" is nothing more than an 
application of the ordinary meaning of the term "g eneral."  The EC also repeats its argument that 
"knowledge about the first user does not render an  infrastructure project non-general."  But, once 
again, the EC observation is entirely beside the po int.  In the case of Hamburg and Toulouse, the 
government authorities did not simply undertake infr astructure projects with knowledge that Airbus 
would be the first user of that infrastructure.  Rather, they undertook those projects expressly for  
Airbus.457  
4.275  The US notes that at paragraph 212 of its sec ond oral statement, the EC once again criticizes 
the US demonstration that infrastructure provided to  Airbus by French and German authorities confers 
a benefit on Airbus.  However, in each case, the governments involved undert ook substantial efforts 
to alter the condition of certain land to make it suita ble for Airbus production.  The value that Airbus 
ultimately received was not simply the value of the bare land.  The US asserts that a private 
landowner would have charged for these additiona l improvements, but the French and German 
authorities did not.  According to the US, their provision of infrastructure to Airbus thus confers a 
benefit and constitutes a subsidy.458  
4.276  The US notes that the EC asserts that in seeki ng a return on the provision of infrastructure a 
government need not obtain a market price if it expect s to receive other "remuneration" in the form of 
                                                      
454 US, SWS, Executive Summary, para. 37. 
455 US, SWS, Executive Summary, para. 38. 
456 US, SNCOS, Executive Summary, para. 14-16 
457 US comments on EC, SNCOS, Executive Summary, para. 14. 
458 US comments on EC, SNCOS, Executive Summary, para. 15. WT/DS316/R 
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  "higher tax revenues and increased employment."  Howe ver, if this were the relevant rule there would 
be virtually no SCM Agreement disciplines on the provision of infrastructure.459  
(d) Specificity of regional aid 
4.277  The US further notes that with respect to gran ts for the construction of Airbus and EADS 
manufacturing and assembly facilities provided by a regional government in Germany and by 
national, regional, and local governments in Spain,  supported in some cases by the European Regional 
Development Fund, the EC's principal defense is to argue that the grants are not specific within the 
meaning of Article 2 of the SCM Agreement.  The US considers that this  argument rests on two mistaken propositions: (1) that for a subsidy to meet the regional specificity test under Article 2.2, it 
must be limited to a subset of enterprises within a designated geographical region, and (2) that even if 
a subsidy meets this mistaken standard, it nevert heless may be found non-specific by virtue of 
Article 2.1(b).
460  
4.278  In the US view, the EC reading of Article 2.2 would  reduce Articles 2.1(a) and 8.2(b) of the 
SCM Agreement to redundancy or inu tility.  Article 2.1(a) provides that a subsidy "shall be specific" 
if access is "explicitly limit{ed}" to "certain enterp rises."  Yet, the EC would read Article 2.2 to 
provide the same thing.  Article 8.2(b) made s ubsidies in the form of assistance to disadvantaged 
regions non-actionable during the period when the Article was in force, as long as the subsidies met 
certain criteria.  One of those cr iteria was that the subsidies be " non-specific (within the meaning of 
Article 2) within eligible regions."   Yet, under the EC reading of Artic le 2.2, if a subsidy provided to a 
particular region is non-specific within that region, then it is not specific under Article 2.2 in the first 
place.  Following that logic, it would have been unn ecessary to provide that a regional subsidy is non-
actionable if, inter alia , it is non-specific within the region.  Similarly, under the EC reading of 
Article 2.2, Article 8.1(b) would make no sense.461   
4.279  The US notes that the EC professes to find support for its reading of Article 2.2 in the 
SCM Agreement negotiating history.  According to the US, the EC discussion of the history is 
inaccurate and ultimately does not support the EC conc lusion.  In particular, the EC ignores that the 
focus of the debate on regional specificity was on whether the fact that a subsidy was limited to a 
"designated geographical region" would automatically  make it specific or whether, instead, regional 
specificity would depend on the scope of the granting authority's jurisdiction.  According to the US, 
the EC's proposed construction of the regional specif icity provision in Article 2.2 is contrary to its 
own practice in countervailing duty proceedings.462 
4.280  Finally, the US points out that the SCM Agreement does not support the EC theory of a 
hierarchical relationship between Articles 2.1(b) and 2.2, whereby a finding of non-specificity under the former will prevail over a finding of specificity under the latter.  The US highlights that when the 
drafters of the SCM Agreement want ed to make one provision subject to another then knew how to do 
so, but did not do so with respect to these two articles.
463  
                                                      
459 US comments on EC, SNCOS, Executive Summary, para. 16. 
460 US, SWS, Executive Summary, para. 48.  See, also, US, FNCOS, Executive Summary, para. 12 and 
US, SNCOS, Executive Summary, para. 14-16. 
461 US, SWS, Executive Summary, para. 49. 
462 US, SWS, Executive Summary, para. 50. 
463 US, SWS, Executive Summary, para. 51.  WT/DS316/R 
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  2. Arguments of the European Communities 
4.281  The EC rebuts the US allegations that certain infrastructure projects and regional aid 
constituted a subsidy u nder the SCM Agreement.464  
(a) General Infrastructure 
4.282  The EC points to the fact that the Article 1.1 (a) (iii) of the SCM Agreement excludes general 
infrastructure projects from its scope.  Tracing back th e origins of that provision, the EC argues that 
the provision of general infrastructure in Ham burg, Bremen and Toulouse are covered by that 
exception.  The EC argues that having established th is, to the extent that Airbus entities used, leased 
or purchased parts of an industrial site, no benefit was conferred on them as these transactions were 
done at commercial rates and backed up  by independent expert assessments.  
4.283  In its second written submission, the EC recalls that measures of general infrastructure are 
excluded from the scope of the SCM Agreement.  Referring to the submissions from Canada and 
Korea on this issue, it explains that the phrase "g eneral" illustrates a broader concept than the one 
advocated by the US.  For something that is "gener al" to become "non-general", the limitation must be 
clearly specified.  In other words, infrastructur e does not become "non-general" because the public 
does not use it de facto  or because there is uneven use.  Rather, the government must have specified 
limitations on the general public's use.465   
4.284  Moreover, concurring with Canada, the EC maintains that improvements of general 
infrastructure are covered by this carve-out as well.  Every improvement of general infrastructure may initially have a particularly positive effect on certain  immediate users.  But that does not remove its 
character of general infrastructure, as it bene fits the public at large in the long run.
466 
4.285  The EC notes that both Canada and Korea are of the view that limitations on the use of 
general infrastructure do not deprive that infrastructur e of its general nature.  That leads to the two-
step approach that the EC has advocated in its first written submission: First , the governments builds 
general infrastructure.  Second , it may decide to put it at the disposal of certain users.  The second step 
does not invalidate the first – rather, the second step has to be assessed on its own merits, since it is at 
this stage that a benefit may or may not be conferred.467  
4.286  The EC asserts that it shows that the reclam ation of land in Hamburg constitutes general 
infrastructure.468  The EC argues that contrary  to what the US alleges, Scott Paper  is not relevant to 
the Hamburg measure.  Hamburg's measure involved the pure creation of land, in this case the conversion of wetland into usable land, which is a typical task of governments as providers of general 
infrastructure.  Governments, unlike private actors, are bound by public law and public policy 
considerations in such general infrastructure meas ures, and there is no market for such measures 
where private investors act.  Furthermore, Hamburg has not sold the land in  the reclaimed area to 
Airbus Germany.  On the contrary, Hamburg retain s ownership of the property and the possibility to 
use the newly created land for other purposes after a possible termination of the lease agreement with 
                                                     
 
464 EC, FWS, Executive Summary, para. 49. 
465 EC, SWS, Executive Summary, para. 33. 
466 EC, SWS, Executive Summary, para. 34. 
467 EC, SWS, Executive Summary, para. 35. 
468 EC, SWS, Executive Summary, para. 36. See, also, EC, SWS, Executive Summary, para. 37 and 
EC, SNCOS, Executive Summary, para. 7. WT/DS316/R 
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  Airbus.  The EC submits that, therefore, Hamburg's measures of land reclamation are not "financial 
contributions" within the meaning of Article 1.1(a) of the SCM Agreement.469 
4.287  The EC considers that the US relies on a mistaken  legal test and misrepresents key facts.  The 
EC points out that Hamburg did not create a "tailo r-made industrial site" for Airbus Germany.  It 
turned wetland into usable land.  The internal de velopment of the land was and is still being carried 
out by Airbus Germany, and when the land is retu rned to Hamburg after termination of the lease 
contract it must be undone.470  Even under the US test on general infrastructure, the Hamburg project 
would not be excluded from the notion of general infrast ructure.  With regard to the US argument that 
the Airbus site was created "exclusively" for Air bus, the EC argues that a government's knowledge of 
the first user does not render an infrastructure project non-general.471 
4.288  With regard to the US allegation that the Airbus site – apart from the quay facilities – is not 
part of the harbour area, the EC notes that it neve r claimed that the area was covered by the Hamburg 
Port Law.  The EC's argument was that the ha rbour could easily be expa nded to cover the newly 
created land, should Airbus Germany decide not to  continue the lease agreement after its expiration.472  
In addition, the US argument that German planni ng law restricts the use of the land to aircraft 
manufacturing and aviation is misplaced.  Under Ge rman Construction Law, a local "Bebauungsplan" 
can easily be amended at any time, if the regi onal "Flächennutzungsplan" so permits.  The latter 
contains no restriction with regard to the airc raft industry and so the "Bebauungsplan" can be 
amended when the need arises in the future.473  
4.289  The EC submits that the creation of the Zone d'Aménagement Concertée  (ZAC) in Toulouse 
constitutes a measure of general infrastructure.474  According to the EC, the Scott Paper  case under 
EC State aid law is not relevant to this measure, as the facts were assessed in the light of the State aid 
regime of the EC, and not the SCM Agreement.  The EC argues that for that reason alone, this case is not relevant for the present dispute.  Second, c ontrary to the US allegations, the facts in the Scott 
Paper  case bear no resemblance to the undisputed  facts in Aéroconstellation.  In the Scott Paper , the 
authorities turned existing agricu ltural land into a tailor-made in dustrial site, by selling land and 
building a factory warehouse for the benefit of a single company.
475  In the case of Aéroconstellation, 
the French authorities developed a Zone d'Aménagement Concerté , like many other ZACs elsewhere 
in France, which was then put for sale at what an appraisal confirms was a fair market price.  Any 
company that was interested in purchasing land in the ZAC could do so without restriction, and, indeed, Airbus is only one of ma ny companies that so purchased.
476    
4.290  The EC argues that in Bremen, the extension of  the runway falls under the notion of general 
infrastructure and the specific use by Airbus of the extension is adequately remunerated.477  The city 
of Bremen is entitled to provide its citizens w ith modern transportation facilities and services, 
including the development and operation of an airport, and to take measures to reduce noise.478  There 
                                                      
469 EC, FWS, paras. 779-792. 
470 EC, SNCOS, para. 202. 
471 EC, SNCOS, para. 204. 
472 EC, SNCOS, para. 205. 
473 EC, SNCOS, para. 206. 
474 EC, SWS, Executive Summary, para. 36. See, also, EC, SWS, Executive Summary, para. 37 and  
EC, SNCOS, Executive Summary, para. 7 
475 EC, SWS, para.394. 
476 EC FCCS para. 24.   
477 EC, SWS, Executive Summary, para. 36. 
478 EC, FWS, paras. 869-870.  WT/DS316/R 
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  is no basis to the US claim that the lengthening of  the runway was made for the "exclusive use" of 
Airbus.479 
(b) The challenged measures do not confer a benefit 
4.291  The EC argues that with respect particular ly to the Mühlenberger Loch and the ZAC 
Aéroconstellation, the US clings to the cost incu rred by government authorities in connection with 
these projects as the basis for a sserting a "benefit".  The cost-to-government standard has been 
rejected, and Article 14(d) tells us  how to apply the benefit to reci pient standard to the measures at 
issue.  Specifically, Article 14(d) directs the Pane l to assess whether "adequate remuneration" is paid 
for a good with reference to "prevailing market conditi ons", or in other words the market value of the 
good.  Moreover, the EC notes that the US fails to cite a single provision of the SCM Agreement that 
would support its "cost savings" theory.  Instead, it la tches on to an EC state aid decision that reflects 
the sui generis  characteristics of EC state aid law and has no bearing on this dispute.480 
(i) Hamburg 
4.292  The EC argues that, even if the panel were to conclude that the land creation and flood 
protection measures were not general infrastructure, th e financial contribution reflected in the terms of 
the land lease, and also the leases for the special purpo se facilities, does not confer a "benefit".  This is 
because the lease rates were set at fair market va lue using accepted valuation principles, as affirmed 
by the City of Hamburg Real Estate Experts Committee.481    
4.293  According to the EC, the US argument that the land rent should be based, as a surrogate for a 
market benchmark, on the cost to the City of Ha mburg of reclaiming the land and of constructing the 
flood protection is without merit.  It wrongly appli es a "cost to government" standard.  Article 14(d) 
of the SCM Agreement unambiguously sets the prope r standard for measuring the "benefit" from a 
financial contribution as the benefit to the recipient.482    
4.294  The EC notes, moreover, that the market value of the land, the fundamental value needed to 
measure any benefit to Airbus, is not in dispute.  The US real estate expert, Dr. Keunecke, and the 
City of Hamburg Real Estate Experts Comm ittee agree on the market value of the land.483  The EC 
explains that the City of Hamburg Real Estate  Experts Committee and Dr. Keunecke disagree only on 
the required market-based return on that investme nt.  The EC offers calculations which it asserts 
demonstrate that when both proposed benchmarks are properly reconciled, the Experts Committee and 
Dr. Keunecke agree on the base measure of return , before Dr. Keunecke's recommended additional 
return premium of 3 percent.484  The EC argues that, contrary to the US assertion, Dr. Keunecke's 
report does not support the suggested additional retu rn premium by any market evidence and that he 
justifies it by citing to market conditions th at are not relevant for the leases at issue.485  The EC notes 
that Dr. Keunecke does not dispute the appropriate method to measure lease rates on the land and the 
special purpose facilities found to be at market by the City of Hamburg Real Estate Experts 
Committee.486   
                                                      
479 EC, FWS, paras. 871-874. 
480 EC, SNCOS, Executive Summary, para. 7. 
481 EC, FWS, paras. 799-805. 
482 EC, FWS, paras. 820-827; 
483 EC, FWS, paras. 806-807.- 
484 EC, Answer to Panel Question 267, paras. 115-132. 
485 EC, Answer to Panel Question 267, paras. 115-132. 
486 EC, FWS, paras. 808-817, 828-857; EC, An swer to Panel Question 267, paras. 115-132. WT/DS316/R 
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  4.295  Moreover, the EC submits that Dr. Keunecke's report does not endorse the US cost to 
government measure of market rent.  On the question of using cost rather than value as a measure of 
benefit, Dr. Keunecke's report states only that if one accepts  the US legal standard of cost to 
government, the required lease rate paid by Airbus is too low.  Dr. Keunecke does not state that cost is 
the appropriate measure of market, and the EC notes that he cannot logically do so, as his report's 
analysis of observed market rates of return on commercial real estate (before the recommended 
premium for industrial real estate) is based on observed rents as a percentage of value, rather than cost.
487    
4.296  The EC posits, moreover, that the US argument – that the cost-to-government standard is 
required because the government's investment in crea ting the infrastructure reflects the savings to the 
recipient – rests on the flawed premise that Airbus would itself have borne the cost of reclaiming the 
land and flood protection measures had the city of Hamburg not done so.  In fact, the EC argues that evidence it has provided demonstrates that had Ha mburg not performed the land reclamation project, 
Airbus would have located the entire A380 FAL in Toulouse, [***].
488  
4.297  According to the EC, this documentary eviden ce demonstrates not only that Airbus did not 
benefit from the land reclamation and flood pr otection measures, but, additionally, that [***].  Airbus 
located a portion of the final assembly in Hamburg in order to prevent loss of MSF for the A380.  
Accordingly, [***].489  
4.298  According to the EC, cost does not provide a reliable measure of benefit to the recipient 
arising from government economic programs such as  land reclamation, because, unlike the case of a 
private investor, the rental cost to the lessee and th e total return to the lessor are not symmetrical.  As 
Dr. Keunecke observed in his report, no private investor (which would include Airbus) with returns limited to lease income, would have reclaimed the land at the Mühlenberger  Loch, because the cost 
would far exceed the value created.  However, as a government investor, the City of Hamburg could 
anticipate other sources of return in addition to the lease payments, including returns generated from 
the increased economic activity in the form of  higher tax revenue generated from increased 
employment and profits at Airbus and its many local suppliers.  This, in turn, would accelerate 
regional development, thereby generating even great er tax revenue.  Accordingly, providing the land 
to Airbus at market value could trigger economic ex pansion sufficient to justify the investment by the 
City.  The EC notes that this was not mere speculation on the part of the City of Hamburg, but the finding of an economic consulting firm retained by the City befo re agreeing to the investment.
490   
4.299  Finally, the EC argues that the US assertion that the City of Hamburg should at least have 
extracted a rent premium above mark et because the reclaimed land wa s adjacent to an existing Airbus 
facility is equally without merit.  The US fa ils to note that Hamburg and Toulouse were in 
competition for the location of the A380 final assembly line.  In T oulouse, where sufficient land was 
available to accommodate the entire fi nal assembly facility, Airbus paid [***] per square meter for 
land.  For the Hamburg site, Airbus ag reed to pay rent on the basis of a [***] per square meter market 
value.  That is already a [***] premium over the value of comparable land in Toulouse.  Competition 
from Toulouse put a limit on any so-called "premium" that Hamburg could demand.491   
                                                      
487 EC, SCOS, para. 12. RPQ 
488 EC, Comments on US Answer to Panel Question 155, paras. 154-156. 
489 EC, Comments on US Answer to Panel Question 155, paras. 148-164;EC, Comments on US 
Answer to Panel Question 219, paras. 380-387. 
490 EC, SCOS, para. 27; EC, Answer to Panel Question 267, para. 115-132. 
491 EC, SCOS, para. 23.  WT/DS316/R 
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  4.300  The EC notes that the special-purpose facilities, however, are unlike raw land reclamation.  
These facilities were built to the specifications requested  by Airbus, and the value of the facilities will 
be used up in whole or substantial part during th e lease.  In that case, the fair market rent, and 
accordingly any benefit, is best assessed based on a market return on the cost of constructing the 
facilities.  The EC observes that this is precisely th e approach followed by the Hamburg Real Estate 
Experts Committee, which found the rent agreed to by Airbus to reflect market.492 
(ii) Bremen 
4.301  The EC argues that in Bremen, the specific use by Airbus of the extension of the runway is 
adequately remunerated.493 
4.302  The EC points out that as the US itself notes, Ai rbus pays fees for the use of Bremen airport 
in accordance with the general fee schedule.  The EC notes that the US has not argued that these fees 
are not at market.  Rather, the US seems to imply th at Bremen should calculate a fee for Airbus which 
allows for a return on the costs of building the extens ion.  However, for the reasons given in respect of 
Hamburg, costs to the government are irrelevant  for determining the benefit to the recipient.494 
(iii) Toulouse 
4.303  The EC argues that the US allegations that th e sale to Airbus France of a portion of the ZAC 
Aéroconstellation and the lease of EIG was for less th an adequate remuneration is without merit.  The 
EC indicates that a commercial appraiser confirmed that the price of the land purchased by Airbus France in the ZAC Aéroconstellation was consistent with market.  As such, no benefit within the 
meaning of Article 1.1(b) of the SCM Agreement w as thereby conferred.  The EC considers that the 
US offers no credible reason why the Pa nel should ignore direct evidence of the market price  for 
industrial land in the ZAC, in comparable ZACs or as provided in the Atisreal appraisal, in favour of 
the cost incurred by French authorities.  The EC consider s, moreover, that in evaluating the EIG lease, 
the US grossly overstated the amount of land includ ed in the lease and also overstated the required 
lease rate of return.
495   
4.304  The EC notes that the US nonetheless asserts "ben efits" to Airbus by reference to the cost 
incurred by the French authorities to create the ZAC.   However, it is not relevant to the "benefit" 
inquiry whether the French authorities recover tho se costs by virtue of the purchase price paid by 
Airbus for land.  The Appellate Body has stressed th at the inquiry in Article 1.1(b) is whether a 
financial contribution confers a "benefit" on a recipi ent, relative to a market benchmark.  Moreover, 
the Appellate Body has held that a cost-to-govern ment approach "is at odds with the ordinary 
meaning of Article 1.1(b), which focuses on the " recipient  and not on the government providing the 
'financial contribution'".496  
(iv) Regional infrastructure measures  
4.305  The EC argues that certain of the regional infrastructure measures do not confer a benefit on 
Airbus because they were given to a company othe r than Airbus and/or do not relate to LCA. 
                                                      
492 EC, Answer to Panel Question 92, para 240; EC, Answer to Panel Question 184, paras. 128-136; 
EC, SWS, para. 364. 
493 EC, SWS, Executive Summary, para. 36. 
494 EC, FWS, paras. 871-874. 
495 EC, FWS, paras. 922-938; EC, Answer to Panel Question 185, paras. 145-146; EC, Answer to Panel 
Question 271, paras. 157-165. 
496 EC, FWS, paras. 922-938; EC, SWS, paras. 368-398. WT/DS316/R 
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  (c) Specificity of regional aid 
4.306  The EC submits that German, Spanish and Br itish authorities provided grants under generally 
available schemes at EC, national or  sub-national level.  Those grants were not limited to "certain 
enterprises" located within a designated region with in the jurisdiction of the granting authority.  
Rather they were available for all companies in th at region, according to ob jective criteria.  These 
criteria conformed to the requirements of Article  2.1(b) of the SCM Agreement and footnote 2 
thereto.  Just as any other company in the designa ted region, Airbus could benefit from a regional aid 
scheme that in itself is perfectly  in line with the SCM Agreement.497  
4.307  Further, the EC explains why in its view the grants for Airbus facilities in Nordenham 
(Germany), Sevilla, La Rinconada, Toledo, Puerto  de Santa Maria, Puerto Real (Spain) and 
Broughton (United Kingdom) are not specific within the meaning of Article 2.2 of the SCM Agreement.  The EC notes in particular that Article 2.2 does not make regional aid, i.e., aid 
generally available to all enterprises in  specifically designated regions, specific.
498  In fact, such aid is 
quite clearly non-specific under Article 2.2. With regard to the US argument concerning 
Article 8.2(b), the EC explains that the US misunderstands the dynami cs of the Uruguay Round 
negotiations.  The "green lighting" of regional aid was a key EC policy objective, against the 
background of a definition of specificity wh ich was changing throughout the negotiations.499  The EC 
argues that the US blatantly distorts the negotiating history of the provision, effectively claiming that 
federal states should have an inbuilt advantage und er the SCM Agreement, an outcome agreed by 
nobody.500 
4.308  Finally, the EC points out that several of th e Spanish measures concern activities which are 
not connected the manufacture of Airbus LCA ( e.g., military aircraft).  The EC further explains that 
the support to Broughton was not regional aid,  but was granted under two schemes which are 
generally available in Wales.  The EC argues that  the US is alleging specificity on the basis of a 
previous application for a regional aid grant, which was refused.501 
G. WHETHER THE GERMAN GOVERNMENT HAS SUBSIDIZED AIRBUS BY ITS DECISION IN 1998  
FORGIVING AT LEAST DM  7.7 BILLION OF DEUTSCHE AIRBUS ' GOVERNMENT DEBT 
1. Arguments of the United States 
4.309  The US argues that Deutsche Airbus relied al most entirely on Launch Aid and other German 
government subsidies to underwrite its early participa tion in the Airbus project.  The US observes that 
by the late 1990s, the total accumulated debt that Deutsche Airbus owed to the German government 
amounted to at least DM 11,000,000,000 (in pr incipal alone), including DM 9,400,000,000 related to 
A300/A310 and A330/A340 La unch Aid and other, smaller loans ("repayable grants") that the 
government had provided to the company.  In  1998, the German government allowed Deutsche 
Airbus to pay DM 1,735,000,000 to "settle" its DM 9,400,000,000 debt.  The government forgave the 
remaining DM 7,700,000,000.502 
4.310  The US notes that the EC does not dispute these facts.  Nevertheless, it would have the Panel 
believe that the elimination of DM 7,700,000,000 in debt did not confer a benefit on the company.  Its 
                                                      
497 EC, FNCOS, Executive Summary, para. 15.  See, also, EC, FWS, Executive Summary, para. 51 
498 EC, SWS, Executive Summary, para. 37. See, also, EC, SNCOS, Executive Summary, para. 7. 
499 EC, SNCOS,  para. 225. 
500 EC, SNCOS,  para.226. 
501 EC, SNCOS,  paras. 233-239. 
502 US, FWS, Executive Summary, para. 60.  See, also, US, SWS, Executive Summary, para. 57 and 
US, FNCOS, Executive Summary, para. 13.  WT/DS316/R 
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  theory is that the 1998 transaction was a fair-v alue payment for the net present value of the 
outstanding debt.503  The US argues that whether this tran saction is called debt forgiveness or a 
settlement for fair value does not matte r.  Either way, it is a subsidy.504 
4.311  The US points out that as the panel stated in Korea – Commercial Vessels , debt forgiveness is 
"comparable to a cash grant, as funds that were pr eviously provided as a loan, against interest, are 
now provided for free, given the removal of the repayment obligation."  Therefore, the German 
government's forgiveness of Deutsche Airbus' repayment obligations constitutes a financial 
contribution to Deutsche Airbus within the meaning of  Article 1.1(a)(1)(i).  It also confers a benefit 
on Deutsche Airbus.  The US submits that  debt forgiveness is comparab le to a cash grant, and 
therefore confers a benefit – and thus constitutes a subsidy – for the same reasons.  Finally, the US 
asserts that the debt forgiveness is specif ic because it was effectuated through an ad hoc  agreement 
between the German government and Deutsche Airbus.505 
4.312  Although the US does not accept the EC characterization of the 1998 transaction, the 
characterization does not change the fact that the transaction conferred a benefit.  The US asserts that 
under either characterization, the German  government effectively turned potential  benefits that 
Deutsche Airbus might have enjoyed in the future from savings on debt provided interest-free by the 
German government into an actual  cash grant of DM 7.7 billion provided in 1998.506 
4.313  The US considers that the EC wrongly accuses it of responding to the EC characterization of 
the 1998 transaction by asserting a new claim.  In fact, the US simply has responded to the EC on its own terms, demonstrating that even if, arguendo , the EC characterization of the 1998 transaction were 
accurate, the transaction still conferred a benefit.  The EC theory that the US really is challenging the 
German government's 1989 aid package to Deutsche Ai rbus rather than the 1998 debt settlement, and 
that the aid package is outside the Panel's terms of reference because it was not identified in the US 
panel request is mistaken.  First, the US panel reque st refers, in relevant part, not only to the German 
government's "forgiveness
" of debt owed by Deutsche Airbus but also to its earlier "assumption ... of 
... debt accumulated by Deutsche Airbus."507  
4.314  Second, the EC mistakes the relevance of the 1989 aid package to the US claim.  The US 
explains that it is not challenging the aid package in and of itself.  It is challenging the 1998 debt settlement transaction.  That transaction appears to be a forgiveness of the approximately DM 
7,700,000,000 difference between the face amount of  the debt and the amount the company actually 
paid the government.  In light of the EC respon se, the US re-examined the transaction from the point 
of view of the EC characterization.  That necessa rily entailed consideration of the elements that 
determined the fair value of the debt, notably its highly preferential repayment terms.  This showed 
that following the EC characterization leads economi cally to the same result as originally observed by 
the US.
508 
2. Arguments of the European Communities 
4.315  The EC argues that the 1998 settlement of ou tstanding repayment ob ligations owed the 
German Government by Deutsche Airbus does not constitute a subsidy. 
                                                      
503 US, SWS, Executive Summary, para. 57. 
504 US, FNCOS, Executive Summary, para. 13. 
505 US, FWS, Executive Summary, para. 61 
506 US, SWS, Executive Summary, para. 58. 
507 US, SWS, Executive Summary, para. 59.  See, also, US closing statement, first meeting Executive 
Summary, para. 21-23 and US, SNCOS, Executive Summary, para. 12 
508 US, SWS, Executive Summary, para. 60. WT/DS316/R 
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  4.316  The EC argues, first, that the US failed to make a prima facie  case showing that Airbus SAS – 
the only company which is currently producing LCA in the EC and, in the US view, causing present 
adverse effects to US interests – actua lly benefits from the alleged subsidy.509    
4.317  Second, the EC argues that the premise on which the US argument is based – i.e., the 
existence of DM 9.4 billion in debt owed the Germ an government – is factually incorrect.  No such 
debt existed on Deutsche Airbus' books, as confirmed by, inter alia , the company's financial 
statements.510  The EC argues that, therefore, the US assertions that the 1998 settlement constituted 
"debt forgiveness" fail.511  According to the EC, the 1998 settlement  reflected the fair market value of 
the repayment claims that the German government  actually held in 1998 against Deutsche Airbus, i.e., 
claims for repayment of prior financial c ontributions subject to certain conditions.512  Accordingly, the 
1998 settlement does not constitute a subsidy.     
4.318  Specifically, the EC argues that the repayment claims at issue in the 1998 settlement were 
valued by an independent international auditing fi rm, which set out its findings on the fair market 
value of those claims in a report provided to the Panel.513  The EC notes that the US has not 
challenged the robustness of that valuation.514  The contemporaneous valuations by independent 
financial experts formed the basis for the 1998 settlement.515  The settlement amount even exceeded 
the value placed on the claims held by the Germ an government, which – the EC argues – precludes a 
finding of a benefit.516   
4.319  The EC further explains that the settlement am ount in excess of the value determined by the 
international auditing firm can be seen as the appli cation to the projected cash flow stream of a lower 
discount rate than used in the valuation.  The EC argues that it shows that the actual settlement 
amount implies a discount rate that equals th e risk free German government borrowing rate.  
According to the EC, this means that the parties discounted the stream of likely  future payments by 
Deutsche Airbus to the Government as if those paym ents were certain.  This results in assigning the 
highest possible present value to th e stream of future payments.517   
4.320  The EC argues that, for these reasons, the 1998 settlement does not confer a benefit or 
constitute a subsidy.     
4.321  The EC also argues that instead of rebutting the contemporaneous evidence showing that the 
1998 settlement was made on market terms, the US  raises a legally and factually new claim, 
challenging, in addition to the 1998 settlement, the terms of the 1989 restructuring by arguing that 
Deutsche Airbus received a substantial financial bene fit "in the form of an interest rate of zero".518  
According to the EC, the US concedes that the allegedly "highly preferential repayment terms" 
emanate from the terms of the 1989 restructuring, i.e., a legally and factually distinct measure from 
the 1998 settlement.519  The EC points out that this new claim against a new measure appears neither 
in the US first written submission, nor in its panel request, and thereby falls outside the jurisdiction of 
                                                      
509 EC, FWS, Executive Summary, para. 57. 
510 EC, FWS, para. 1197.   
511 EC, FWS, paras. 1175-1176.   
512 EC, FWS, paras. 1175-1176. 
513 EC, FWS, para. 1186-1202.  See, also, EC, FNCOS, para. 18. 
514 EC, SNCOS, para. 243. 
515 EC, FWS, para. 1176. 
516 EC, FWS, paras. 1193, 1202. 
517 EC, SNCOS, paras. 247-248. 
518 EC, FNCOS, para. 108.  EC, SWS, paras. 586-590. 
519 EC, SNCOS, paras. 247-248. .  WT/DS316/R 
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  this Panel.520 The Panel cannot, therefore, make findings or recommendations concerning the 1989 
restructuring as a measure at issue.521  The EC notes that the US subsequently confirmed that it is not 
challenging the 1989 restructuring "in and of itself" , but that it is challenging the 1998 settlement for 
which the 1989 restructuring is "factual background".522  Yet, the EC asserts that the US 
characterization of its approach cannot distract from th e fact that the new US challenge is not merely a 
new argument, but rather a new claim which relates to a different measure that is outside the terms of reference of the Panel.
523  According to the EC, the US cannot challenge, as conferring a subsidy 
through the 1998  settlement, measures that were put in place in the 1989  restructuring.524  In this 
regard, the EC notes, again, that the 1998 settlement was based fully on the terms of the 1989 restructuring and did not provide any advantag e to Deutsche Airbus (as evidenced also by 
contemporaneous documents).
525   
4.322  Finally, the EC argues that even if the Panel were  to find that the new US claim is within its 
terms of reference or that it is entitled to assess th e 1989 restructuring of Deutsche Airbus as "factual 
background" to its claim of subsidization fro m the 1998 settlement, the US claim would fail 
nonetheless.  The EC explains that it is the US burden to demonstrate that the 1989 restructuring itself 
constitutes a subsidy and that the US has failed to so demonstrate.526  Thus, even if the US approach 
was correct as a matter of law, which it is not, the US claims regarding two "cherry-picked" elements 
of the 1989 restructuring – the repayment terms and the KfW investment addressed below – must fail, 
because in these proceedings the US  neither established nor claimed that the 1989 restructuring 
constitutes a subsidy.527  The US decision to limit its challenge cannot alleviate it of its burden to 
demonstrate that the 1989 restructuring constitutes a subsidy when challenging certain elements 
thereof.528  The EC, moreover, submits that the 1989 r estructuring is consistent with the actions a 
private investor in the shoes of the German gove rnment would have undertaken to minimize its 
losses.529 
H. WHETHER THE GERMAN GOVERNMENT 'S 1989  INVESTMENT IN DEUTSCHE AIRBUS OR THE 
SUBSEQUENT 1992  TRANSFER OF ITS OWNERSHIP SHARE IN DEUTSCHE AIRBUS TO THE 
DAIMLER GROUP IS A SPECIFIC SUBSIDY TO AIRBUS  
1. Arguments of the United States 
4.323  The US argues that the German government's tr ansfer of its ownership share in Deutsche 
Airbus to the Daimler Group is a specific subsidy to Airbus.530  The US submits that in 1989, the 
German government agreed to make an equity infusion into Deutsche Airbus by purchasing a 
20 percent share of the company for DM 505,000,000 (EUR 258,000,000).  Three years later, the German government agreed to give the shares to DAS A, without compensation.  The US first asserts 
that the equity infusion is a subsidy because the German government's deci sion to provide the DM 
505,000,000 infusion to Deutsche Airbus was inconsis tent with the usual investment practice of 
private investors in Germany.  The US then asserts  that the 1992 share transfer is a subsidy because it 
                                                     
 
520 EC, SWS, paras. 586-590. 
521 EC, Answer to Panel Question 187, para. 150. 
522 EC, SNCOS, para. 249. 
523 EC, SWS, paras. 585-591.   
524 EC, Answer to Panel Question 187, paras. 153-156. 
525 EC, SWS, paras. 565-570, 593-594.  See, also, EC closing statement, first meeting, para. 23. 
526 EC, SNCOS, para. 255.  See, also, EC, Answer to Panel Question 187, paras. 157-160, 165. 
527 EC, Answer to Panel Question 187, para. 157. 
528 EC, Answer to Panel Question 187, para. 162. 
529 EC, FWS, paras. 1177-1180; EC, Answer to Panel Question  100, para. 276. 
530 US, FWS, Executive Summary, para. 62. WT/DS316/R 
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  was, in effect, a DM 505,000,000 (EUR 258,000,000) gr ant.  The US also asserts that both subsidies 
were specific to Airbus.531 
4.324  The US contends that Airbus benefits fro m equity infusions provided by the German 
government at moments when a market-oriented inve stor would not have made such investments due 
to the dire financial condition of the German Airbus company.532  The US notes that the EC responded 
that the government' action was consistent with th e usual practice of private investors.  The US 
considers that the EC relies on a false benchmark that it holds up as a market benchmark.  The EC 
asserts that "at the same time" that the government made its investment a private investor, "Daimler 
(through MBB)," also made an investment in Deutsc he Airbus.  However, the US asserts that the EC 
omits the fact that Daimler's willingness to make its investment depended heavily on the government 
first providing a substantial aid package wh ich included the government's own investment.533 
4.325  In addition, the US considers that the EC errs  in its attempt to dis Crédit the evidence relied 
upon by the US.  In the US view, the EC incorrec tly suggests that the US based its assessment of 
Deutsche Airbus' equity-worthiness solely on an assessment of the financial condition of the 
company's parent (MBB).  While noting the dire st ate MBB was in when Daimler invested in MBB, 
the US points in particular to the financial distre ss that Deutsche Airbus was in at the time and was 
expected to be in for the foreseeable future.534 
4.326  The US points out that the EC's only basi s for calling the original stock purchase a 
commercial transaction is a comparison to an investment by Daimler Benz.  However, Daimler's 
investment was not independent of the German government's equity infusion such that it might 
corroborate the commercial nature of the infusion.  As for the German governme nt's later return of 
Deutsche Airbus shares to MBB, the US argues that the EC has yet to provide any explanation of why 
both Daimler and the then-Director General for Trade at the European Commission described the 
transaction as compensation for the withdrawal of  the German exchange rate insurance scheme 
following an adverse dispute settlement panel report.535 
2. Arguments of the European Communities 
4.327  The EC argues that neither the German govern ment's 1989 investment in Deutsche Airbus, 
nor the 1992 transfer to MBB of its shares in Deutsche Airbus, constitutes a subsidy.   
4.328  The EC explains, first, that the US failed to make a prima facie  case and show that either of 
the alleged subsidies benefits Ai rbus SAS, which today develops, manufactures and sells LCA alleged 
to cause adverse effects to the US interests.536 
4.329  Second, with respect to the 1992 share transfer, th e EC explains that this  transaction could not 
have conferred a benefit on Deutsche Airbus because it was MBB that received the shares in Deutsche 
Airbus held by the German government.537  The EC notes that the US has not explained how a 
subsidy to one company – which did not manufacture LCA at the time and does not do so today – can 
morph into a subsidy to a company that does.538  The EC also explains that the participation of KfW in 
Deutsche Airbus was conceived, from the very beginning, as a temporary  measure and that Daimler, 
                                                      
531 US, FWS, Executive Summary, para. 62. 
532 US, SWS, Executive Summary, para. 61. 
533 US, SWS, Executive Summary, para. 61. 
534 US, SWS, Executive Summary, para. 62. 
535 US, SNCOS, Executive Summary, para. 11. 
536 EC, FWS, paras. 1203, 1212. 
537 EC, FNCOS, para. 111 
538 EC, FNCOS, para. 111.  WT/DS316/R 
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  via MBB, exercised its commitment to take ove r KfW's 20 percent stake in Deutsche Airbus.539  The 
EC provides evidence showing that the determinati on of the value of KfW's shares in 1992 was based 
on the advice of two independent international respected accounting auditing firms and that the 
transfer of the KfW's shares to MBB w as not free of charge, as the US asserts.540  In fact, in addition 
to the market value of the shar es in 1992, the transfer price of KfW shares also included additional 
compensation envisioned under the terms of the 1989 restructuring.541  Therefore, contrary to the US 
assertions, the transfer was not free of charge.  It also did not benefit Deutsche Airbus.542  Finally, the 
EC notes that the US accepts that the 1992 share transfer was part of a transaction that amended 
certain terms of the 1989 restructuring, and that the US agrees that, on balance, this transaction did 
not affect positively or negatively the economic position of Deutsche Airbus.  As such, the 1992 
transfer cannot constitute a subsidy.543 
4.330  The EC also reacts to the US conditional ch allenge to the 1989 investment by KfW in 
Deutsche Airbus.544 The EC explains that the investment did not constitute a subsidy as it was not 
made on terms more favourable than those available at  market, as evidenced by the fact that a private 
investor – Daimler Benz, through MBB – invested in  Deutsche Airbus at the same time and on the 
same conditions.  As such, the investment was consis tent with the usual investment practice of private 
investors.545   
4.331  The EC argues that this conclusion is not underm ined by the fact that the investments by the 
German government and Daimler Benz in Deutsche Ai rbus were part of the 1989 restructuring of 
Deutsche Airbus.  While the US argues that the "sep aration of the alleged 'restructuring package' … 
from the KfW capital injection is artificial", the EC argues that it is an artificiality that the US has 
created by challenging only a particular aspect of the 1989 restructuring package.546  In fact, it is an 
artificiality that the US has created by "cherry-pic king" certain elements of the 1989 restructuring for 
challenge, while ignoring others.547  Moreover, the EC submits that a financial restructuring is not per 
se a subsidy.548  As such, it is not possible to conclude that the investment by KfW is a subsidy 
without a complete assessment of the 1989 restructuring of Deutsche Airbus.549  The EC recalls its 
arguments that the 1989 restructuring is outside the Panel's terms of reference and notes that the US 
clarified that it is not challenging the 1989 restructuring "in and of itself".550  Finally, the EC argues 
that even if the Panel were to take account of the 1989 restructuring as factual background, the US 
failed to demonstrate that the 1989 restructuring itself constitutes a subsidy.551  The EC submits that 
the 1989 restructuring is consistent with the actions  a private investor in the shoes of the German 
government would have undertaken to minimize its losses.552 
                                                      
539 EC, FWS, paras. 1206-1207. See, also, EC, FWS, para. 1213. 
540 EC, FWS, paras. 1208-1209.  See, also, EC, FNCOS, para. 112. 
541 EC, SWS, Executive Summary, para. 44. 
542 EC, SWS, para. 602. 
543 EC, SWS, para. 603.   
544 EC, FWS, Executive Summary, para. 58. 
545 EC, FWS, paras. 1214-1216.   
546 EC, Comments on US Answer to Panel Question 157, paras. 175-176. 
547 EC, Answer to Panel Question 187, paras. 157-162.   
548 EC, Comments on US Answer to Panel Question 224(a), paras. 405-411. 
549 EC, SNCOS, Executive Summary, para. 8. . 
550 EC, SNCOS, para. 261. 
551 EC, Answer to Panel Question 187, paras. 152, 157-160, 165.  See, also, EC, Comments on US 
Answer to Panel Question 157, para. 179; 
552 EC, FWS, paras. 1177-1180; EC, SWS, para. 564; EC, Answer to Panel Question 100, para. 269; 
Question 187, paras. 161. 163-166. WT/DS316/R 
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  4.332  Finally, the EC argues that, in case the Pane l agrees with the US attempt to revoke the 
conditionality of its claim against the 1989 KfW in vestment, the Panel must deny the US assertion 
that the DM 505 million invested by the German government can constitute a subsidy in 1989 and 
again constitute a subsidy of  the same amount in 1992.553  
I. WHETHER CERTAIN CAPITAL CONTRIBUTIONS AND 1998  TRANSFER OF DASSAULT SHARES 
TO AÉROSPATIALE ARE SPECIFIC SUBSIDIES TO AIRBUS  SAS 
1. Arguments of the United States 
4.333  The US argues that the equity infusions that the French government provided to Aérospatiale 
are specific subsidies.554  The US explains that in the late 1980s and in the 1990s, the French 
government made a series of equity infusions into th e French Airbus company Aé rospatiale.  First, in 
1987 and 1988, the French government made two infusions of FF 1,250,000,000, for a total of FF2,500,000,000.  Then, in 1992, the government injected another FF 1,400,000,000 into Aérospatiale through the state-controlled bank Crédit  Lyonnais.  Two years later, in 1994, the French 
government provided another FF 2,000,000,000 infusi on into Aérospatiale.  Finally, in 1998, the 
French government transferred its 45.76 percent share in the capital of Dassault Aviation S.A.  
("Dassault") to Aérospatiale.  The share tr ansfer was worth approximately FF 5,280,000,000.
555 
4.334  The US discusses Aérospatiale's financial cond ition and performance at the time of each of 
the equity infusions and contends that each of the d ecisions to invest in the company was inconsistent 
with the usual investment practice of private invest ors.  Therefore, according to the US, each equity 
infusion was a subsidy within the meaning of the SC M Agreement.  The US also contends that each 
infusion was specific to Airbus.556 
4.335  In the US view, the EC fails to rebut the US  showing that French equity infusions to 
Aérospatiale from 1987 to 1994 were not consistent with the usual investment practice of private 
investors.  The US notes that the EC explains w hy Aérospatiale was in critical need of additional 
funds in the 1987 to 1994 time period, but it does not explain why a private investor would have 
provided them.  Its discussion of the views of Bo eing's and Aérospatiale's management ignores that 
the relevant test is the usual investment practice of private investors, not the views of management.557  
The US notes that to make its case with respect to the French infusions, the EC relies on evidence 
such as statements by management  (rather than potential private investors) and ex post  information 
about returns supposedly realized on those investme nts.  The EC does not provide any evidence of 
contemporaneous studies or analyses by the Fr ench government on the investment prospects of 
Aérospatiale.  It also looks selectively at indicator s of financial performance , ignoring Aérospatiale's 
abysmal balance sheet, its troublesome financial ratios,  and the poor prospects it would have faced if 
it had not received very significant additional govern ment financing.558  
4.336  Furthermore, the US points out that the EC improperly relies on evidence newly included 
with its second written submission, which is not "objec tive," as it consists almost entirely of internal 
documents from Aérospatiale, Airbus GIE, and Crédit Lyonnais.  Other evidence focuses on demand 
for aircraft in general, rather than the prospects for Airbus in particular.559 
                                                      
553 EC, Comments on US Answer to Panel Question 161, paras. 206-210. 
554 US, FWS, Executive Summary, para. 63 
555 US, FWS, Executive Summary, para. 63 
556 US, FWS, Executive Summary, para. 64. 
557 US, FNCOS, Executive Summary, para. 15. 
558 US, SWS, Executive Summary, para. 63. 
559 US, SNCOS, Executive Summary, para. 10.  WT/DS316/R 
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  4.337  With respect to the French government's December 1998 transf er to Aérospatiale of its 
45.76 percent equity stake in Dassault Aviation, th e US notes that the EC argues that "nothing of 
economic significance occurred," because the French government effectively did nothing more than transfer its Dassault Aviation shares to itself.
560  The US contends that while the EC may believe this 
is true from the government's perspective, th e transaction provided a significant benefit to 
Aérospatiale.561  The US considers that the EC mistakenly assumes that the relevant perspective is that 
of the French government rather than that of Aé rospatiale, which unquestionably received a valuable 
asset for which it paid nothing.562 
4.338  The US asserts that the main problem with the EC argument is that it focuses on the intentions 
and perspective of the grantor of the infusions.  The US explains that under the SCM Agreement, the 
relevant perspective is that of the recipient.  From  that perspective, the infusions at issue in this 
dispute unquestionably provide a benefit and, therefore, constitute subsidies.563 
4.339  The US also notes that the EC argues that when  Aérospatiale was later combined with Matra 
Hautes Technologies to form ASM, the value of its "45.76 percent stake in Dassault was fully 
captured in the price charged for ASM shares in  the public offering that took place in 1999."  
According to the US, neither argument is correct.  The US explains that the problem with the EC's 
first argument is that it assumes that the relevant point  of view is that of the government rather than 
that of Aérospatiale.  Moreover, the EC assertion that "nothing of economic significance occurred" is 
belied by the fact that in order to persuade the pr ivate owners of Dassault Aviation to consent to what 
amounted to a tie-up with Aérospatiale, the French  government had to give up the valuable double 
voting rights associated with its shares in Dassault Aviation.564 
4.340  As for the EC's second argument, the US not es that the EC ignores that the French 
government received no compensation for giving up vo ting control in Dassault Aviation.  Also, the 
price charged for ASM shares in the 1999 public offering was based not on independent "fairness 
opinions," but on valuations by investment banks (post-dating the actual Dassault Aviation 
transaction) that sought to ratify a previously identified outcome.565   
2. Arguments of the European Communities 
4.341  The EC rebuts the US allegations that the f our subscriptions of new capital made by the 
French State in Aérospatiale in years 1988, 1989,  1992 and 1994 and the transfer of Dassault shares to 
Aérospatiale in 1998 constitute subsidies.  The EC  submits that the US did not establish that these 
alleged subsidies have benefited Airbus SAS, which is the only company that produces Airbus LCA 
(i.e., the product which, in the US view, causes a dverse effects to US interests) in the EC.566  
Additionally, the EC notes that the US ignores that  the capital increases in Aérospatiale concerned a 
company which no longer manufactures LCA.567 
4.342  The EC also rebuts the US allegation that the f our subscriptions of new capital by the French 
State in Aérospatiale in 1988, 1989, 1992 and 1994 were not in accordance with the usual investment 
practice of private investors.568  In the EC view, the US conclusi on that the French State did not act 
                                                      
560 US, SWS, Executive Summary, para. 64. 
561 US, FNCOS, Executive Summary, para. 15. 
562 US, SNCOS, Executive Summary, para. 10. 
563 US closing statement, first mee ting Executive Summary, para. 25. 
564 US, SWS, Executive Summary, para. 64. 
565 US, SWS, Executive Summary, para. 65. 
566 EC, FWS, Executive Summary, para. 55. 
567 EC, FNCOS, Executive Summary, para. 17. 
568 EC, SWS, Executive Summary, para. 41. WT/DS316/R 
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  consistently with "usual investment practice" is fundamentally wrong.  This is because the US based 
its analysis solely on data concerning Aérospatia le's past financial perfo rmance and did not take 
account of Aérospatiale's future prospects at the ti me each investment was made.  The data regarding 
past performance put forward by the US also were exaggerated.569  In the EC view, the US errs in 
assuming that a "usual investor" invests solely on th e grounds of a company's past performance.  The 
EC also asserts that for industries, such as the LCA industry, with long and costly development cycles, it is imperative to invest even during periods of weak performance.
570  The French State's 
prospects of a favourable return on each of the invest ments into Aérospatiale at the time were very 
good, which also is confirme d by later developments.571  
4.343  The EC also argues that Boeing's own case underscores the forward-looking nature of 
investors' behaviour and explains that poor fina ncial performance did not stop Boeing from investing 
in its future.572 The EC notes that despite abysmal fina ncial performance in the early 1990s, Boeing 
dramatically increased its investment in comme rcial aircraft assets by 82per cent and assumed 
significant additional debt.  Boeing's assessment of positive future prospects driven by forecasts of 
dramatic growth in LCA passenger demand led it a nd its investors to look beyond the firm's poor 
performance in recent years and to increase investment in the future.573 In the late 1980s and early 
1990s, Aérospatiale and its share holder drew the same conclusion.574  
4.344  The EC explains that while the past performan ce of Aérospatiale may not have been as robust 
as Aérospatiale or the French State might have wished, investors do not invest on the grounds of a 
company's past performance – to the contrary, th ey assess, first and foremost, companies' future 
prospects.  While the US expressly acknowledged this  approach as being correct (in its response to 
Question 26 from the Panel, the US stated that "investors commit capital based on their assessment on 
potential earnings in the years ahead" and "evaluate company's future prospects"), it seems to have 
ignored the contemporaneous evidence of Aérospatiale 's future prospects that the EC provided.  In 
any event, in its second written submission, th e EC provides to the Panel an even more 
comprehensive and detailed overv iew of the contemporaneous evidence of the very favourable 
prospects for the LCA industry and expected high demand for Airbus planes that, according to the 
EC, was available to informed investors, includi ng the French State, at the time of each of the 
challenged capital contributions.  The EC also provides evidence which it asserts shows that the 
French State, Aérospatiale's so le shareholder, was closely info rmed about the business plans and 
prospects of the company.  It is in light of all of this evidence that the EC concludes that the US 
position is untenable.575  
4.345  With regard to the French State's 1998 tran sfer of its shares in  Dassault Aviation to 
Aérospatiale, the EC argues that it was not an "i nvestment" and did not have any economic effect on 
Aérospatiale.576  The EC explains that unlike the four capital subscriptions, the contribution of the 
Dassault Aviation shares by the French State was made to facilitate the consolidation and 
privatization of the French aerospace industry and th at the French State was adequately compensated 
for the transfer of its shares in Dassault Aviation to Aérospatiale.577  The EC asserts that the French 
state acted as any market investor would have – namely, by pooling assets in its different aerospace 
holdings together before selling them, in order to r ealize a higher return.  The EC points out that the 
                                                      
569 EC, FWS, Executive Summary, para. 55. 
570 EC, FWS, para. 1139. 
571 EC, FNCOS, Executive Summary, para. 17. 
572 EC, FWS, para. 1142. 
573 EC, SWS, para. 532. 
574 EC, SWS, para 533. 
575 EC, SWS, Executive Summary, para. 41. 
576 EC, FNCOS, Executive Summary, para. 17. 
577 EC, FWS, Executive Summary, para. 56.  WT/DS316/R 
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  US has not established that this action would have been contrary to the usual investment practice of 
private investors.  Further, the EC submits that since the French State was fully compensated for the 
value of Dassault Aviation shares in the context of Aé rospatiale's subsequent privatization, in which 
Dassault Aviation shares were valued independently from those of Aérospatiale, the US also cannot 
establish a subsidy on any other grounds.578 
4.346  The EC also argues that with respect to the capital contributions and share transfer by the 
French State, it presented voluminous contemporan eous evidence showing the capital contributions 
and share transfer were consistent with the usual in vestment practice of private investors.  The French 
State did not secure the 30 percent control premium on the transfer of Dassault Aviation shares because it was legally impossible for the State to sell its control.
579 
4.347  Finally, the EC points out that the US assertion th at "while Aérospatiale was able to obtain 
billions of francs in subsidized capital, Boeing was forced to assume 'significant additional debt'" 
speaks volumes about the arguments brought by the US  in this case.  Boeing's additional debt is 
irrelevant to the question of whether a specific cap ital increase in Aérospatiale constitutes a subsidy or 
not.  There is ample evidence that each of the ch allenged investments was done with the expectation 
of a significant return.580 
J. WHETHER RESEARCH AND DEVELOPMENT FUNDING THAT THE EUROPEAN COMMISSION AND 
THE MEMBER STATES PROVIDE TO AIRBUS ARE SPECIFIC SUBSIDIES  
1. Arguments of the United States 
4.348  The US argues that the EC and the Airbus governments also subsidize Airbus by helping to 
fund its research and development efforts.  The US e xplains that the subsidies primarily take the form 
of straight cash grants, although in some cases th ey have taken the form of non-commercial loans.  
The primary vehicles for the subsidies at the European Commission level are the so-called EC 
Framework Programs, which the EC has maintained for many years.  At the member State level, and at the sub-national level, the vehicles are dedicat ed programs that the governments have established 
for the specific purpose of funding aeronautics research.
581 
(a) EC Framework Programs 
4.349  First, the US argues that the R&D funding th at the EC provides to Airbus under the EC 
"Framework Programs" are specific subsidies.  Th e US submits that for many years, the EC has 
provided grants to Airbus under the so-called EC Framework Programs to assist the company in funding its research and development efforts.  The EC provides the grants to research consortia that 
Airbus leads or in which it is a key participant.  Each grant is for an individual, discrete research 
project focusing on a particular aeronautics technology or production process.  A primary goal of the 
grants is to "improv{e} the competitiveness of the European aeronautical industries...  ."
582 
4.350  The US notes that the EC has confirmed that all of the funding that the EC provides to Airbus 
under the Framework Programs takes th e form of grants.  Article 1.1(a)(1)(i) of the SCM Agreement 
                                                      
578 EC, SWS, Executive Summary, para. 42 
579 EC, SNCOS, Executive Summary, para. 8. 
580 EC, FCCS, Executive Summary, para. 11. 
581 US, FWS, Executive Summary, para. 65. 
582 US, FWS, Executive Summary, para. 66.   WT/DS316/R 
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  includes grants among the types of "direct transfers of funds" that constitute financial contributions 
within the meaning of the SCM Agreement.583 
4.351  The US argues that grants confer bene fits because, as the panel stated in US – Cotton , they 
"place the recipient in a better position than th e recipient otherwise would have been in the 
marketplace."  Therefore, since EC Framework Program funding takes the form of grants, it 
necessarily confers benefits – and thus cons titutes subsidies – under Article 1.1 of the 
SCM Agreement.  In addition, the US argues that the subsidies are specific to Airbus and/or the 
aeronautics industry because each Framework Program  has a sub-budget that is specific to the 
aeronautics industry, and because research  proposals must be aeronautics-related.584 
(b) German funding 
4.352  Second, the US argues that the R&D funding that German Federal Authorities provide to 
Airbus under their research and development programs are specific subsidies.  The US explains that 
for many years, the German Federal Government  and the sub-federal ("Länder") governments of 
Hamburg, Bremen, and Bavaria have  provided grants to Airbus to help fund its civil aeronautics 
research and development efforts.  The Federal government has provided at least EUR 695,000,000 – 
including EUR 217,000,000 since 1995 under a series of Aeronautics Research Programs ("Luftfahrtforschungsprogramme" or "Lufo" 1, 2,  and 3).  The Länder governments have provided 
tens of millions of euros of additional funds.
585 
4.353  The US notes that the EC concedes that all of  the civil aeronautics R&D funding that the 
German Federal and sub-fe deral governments provide to Airbus tak es the form of grants.  Therefore, 
for the same reasons that the EC framework grants are subsidies, the German Federal and sub-federal 
grants are subsidies.  In addition, the US ar gues that the subsidies ar e specific because Germany 
disburses the subsidies pursuant to programs th at are dedicated specifically to aeronautics.586 
(c) French funding 
4.354  Third, the US argues that the R&D funding that French authorities provide to Airbus under 
their research and development program are specific subsidies.  The US explains that between 1986 
and 2005, the French Government  budgeted over EUR 1.2 billion in gr ants to the aeronautics industry 
for civil aeronautics research and development (" recherche amont de l'aéronautique").  Based on 
public information, DPAC budgeted EUR 391,0 00,000 from 1986 to 1993, and EUR 809,000,000 
from 1994 to 2005.  During the Annex V process, the EC  conceded that Airbus received a substantial 
amount of the DPAC funding from 1994 to 2005, a lthough it refused to provide any information 
regarding the 1986 to 1993 time period.587 
4.355  The US notes that the EC confirms that all of the R&D funding that French authorities 
provide to Airbus takes the form of grants.  Ther efore, for the same reasons that the EC framework 
grants are subsidies, the French government's grants are subsidies.  In additio n, the US argues that the 
subsidies are specific because France provides the gran ts pursuant to a budget that is dedicated to 
                                                      
583 US, FWS, Executive Summary, para. 67. 
584 US, FWS, Executive Summary, para. 68. 
585 US, FWS, Executive Summary, para. 69. 
586 US, FWS, Executive Summary, para. 70. 
587 US, FWS, Executive Summary, para. 71.  WT/DS316/R 
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  "aeronautic construction," and the government limits access to the gr ants to aeronautics 
manufacturing companies.588 
(d) UK funding 
4.356  Fourth, the US argues that the R&D funding that UK authorities provide to Airbus under their 
research and development programs are specific subsidies.  The US explains that for many years, the 
UK Department of Trade and Industry ("DTI") has provided aeronautics-related research and 
development grants to Airbus research consortia that Ai rbus leads or in which it is a key participant.  
Since 1992, DTI has agreed to provide tens of m illions of pounds in grants to Airbus research 
consortia under the CARAD program (subsequently  renamed the Aeronautics Research Programme 
("ARP")).  In addition, in 2004, the UK re placed the CARAD program with the so-called 
"Technology Program" ("TP").  DTI has committed add itional millions of pounds to Airbus under the 
TP program.589 
4.357  The US notes that the EC concedes that all of the funding the DTI has agreed to provide to 
Airbus research consortia under CARAD/ARP and TP h as taken the form of grants.  Therefore, the 
UK's grants under CARAD/ARP and TP are subsidies for the same reasons that the EC framework 
grants are subsidies.  In addition, the subsidi es are specific because CARAD/ARP grants are limited 
to entities carrying out research in aeronautics technologies and TP grants are awarded through calls for proposals that are limited to aeronautics-related technologies.
590 
(e) Spanish funding 
4.358  Fifth, the US argues that the R&D funding that Spanish authorities provide to Airbus under 
their research and development program are specific subsidies.  The US submits that like the German, 
French, and UK governments, the Spanish Government  provides funding to Airbus to help underwrite 
Airbus' R&D efforts.  The US explains that the funding takes the form of loans with better than 
commercial terms.  The US explains that the Spanish government disburses the funding through two 
programs, the Plan Tecnológico Aeronáutico ("PTA "), and the Programa de Fomento de Innovación 
Técnica ("PROFIT").  Airbus received the PTA lo ans between 1993 and 2003, and the PROFIT loans 
between 2000 and 2007.591 
4.359  Article 1.1(a)(i) of the SCM Agreement includes loans among the types of "direct transfers of 
funds" that constitute financial c ontributions within the meaning of the SCM Agreement.  Thus, the 
loans are financial contributions under the SCM Agre ement.  In addition, they confer benefits on 
Airbus because Spain provides the loans on better than commercial terms.  Thus, the loans are 
subsidies within the meaning of Article 1.1 of th e SCM Agreement.  In addition, they are specific 
because the government explicitly limited access to funding under the programs to aeronautics 
companies involved in the manufacturing, design, s upply and maintenance of aircraft and aircraft 
parts, and to engineering services companies and research institutions and universities developing 
specific technologies with aeronautics use.592 
                                                      
588 US, FWS, Executive Summary, para. 72. 
589 US, FWS, Executive Summary, para. 73. 
590 US, FWS, Executive Summary, para. 74. 
591 US, FWS, Executive Summary, para. 75. 
592 US, FWS, Executive Summary, para. 76. WT/DS316/R 
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  (f) Relevant amounts and specificity  
4.360  The US notes that the EC admits that Ai rbus has received EUR 648.9 million in R&D 
subsidies.  However, that number understates the amount actually received, as it reflects an arbitrary 
determination that certain recipients of LCA-re lated R&D subsidies are "relevant companies" and 
others are not.593  The US notes that the EUR 648.9 million figure includes only the subsidies granted 
to what the EC describes as the "relevant companies"; it does not in clude the subsidies received by 
other Airbus entities, such as Airbus' parent comp any EADS, and the EC has not explained why the 
Panel should disregard those subsidies.594 
4.361  The US clarifies that it is not  saying that the benefit of grants  to non-Airbus companies went 
to Airbus.  However, because the EC has refused to  provide information on grants to companies that 
are Airbus companies, it has given the Panel an incomplete number in describing the amount of R&D 
subsidy.  The number is higher than the EUR 650 million the EC asserts.  But, because the EC has 
withheld relevant information, it is not possible to know how much higher.595  
4.362  The US points out that the EC deems grants to certain entities to be "not relevant," based on 
its mistaken view that the US had to show that subsidies benefiting Airbus LCA models continued to 
benefit those models following corporate restruct urings leading to the creation of Airbus SAS.596  
Adding back in the amounts the EC arbitrarily excl udes, the total R&D subsidies Airbus actually has 
received under both the EC Framework Programs ( FPs) and national and regional programs likely 
exceeds EUR 3 billion.597  
4.363  Further, the US notes that the EC responds to  its showing that FP grants are specific by 
arguing that "{t}he Second, Third, Fourth and Fi fth Framework Programmes do not have sub-budgets 
specific to the aeronautics industry."  The EC does not dispute the existence of such a sub-budget in 
the Sixth Framework Programme .  With respect to the Second through Fifth Framework Programs, 
the EC seems to be arguing semantics.  Although it does not acknowledge the existence of formal 
"sub-budgets," it does seem to acknow ledge that the programs "allocate .  .  .  portions of their budget 
to research activities such as 'aerona utics and space' or 'aeronautics.'"598  
4.364  The US notes that in addition to making a sema ntic argument, the EC argues that specificity 
should be analyzed not at the level of the sub- budget but at the level of the entire Framework 
Program.  The US explains that accepting that argument, however, would lead to absurd results.  A Member could make virtually any subsidy to "cer tain enterprises" non-specific simply by formally 
joining it under one roof with other subsidies to other certain  enterprises and calling the combined 
subsidies a "program."  The US argues that the SCM Agreement does not support such a formalistic 
approach.  With respect to the de facto  specificity of aeronautics R&D grants under the Framework 
Programs, the relevant numbers show predominant use by Airbus (as well as showing Airbus' receipt 
of disproportionately large amounts of FP aeronautics funding).
599  The US considers that the EC 
contention that grants under certain programs are not specific is based on an artificial and 
unsubstantiated theory that specificity under Article 2 of the SCM Agreement must be determined at 
the broadest level of aggregation of the activities of the granting authority.600  
                                                      
593 US, FNCOS, Executive Summary, para. 16. 
594 US, FNCOS, Executive Summary, para. 16. 
595 US comments on EC, SNCOS, Executive Summary, para. 18. 
596 US, SNCOS, Executive Summary, para. 8. 
597 US, SWS, Executive Summary, para. 66. 
598 US, SWS, Executive Summary, para. 67. 
599 US, SWS, Executive Summary, para. 68. 
600 US, SNCOS, Executive Summary, para. 8.  WT/DS316/R 
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  4.365  The US notes that with respect to R&D subsidies provided by member State governments, the 
EC admits certain grant amounts but asserts that other amounts are "not relevant."  As it gives no explanation for its assertion of what is relevant and what is not, its argument should be rejected.
601  
4.366  In the case of grants under Germany's LuFo pr ogram, the EC contends that certain amounts 
are not relevant because they were only committed but not yet received by July 1, 2005.  However, a 
subsidy within the meaning of Article 1 of the SC M Agreement includes "potential direct transfers of 
funds" as well as an actual direct transfer of f unds.  Thus, even if the EC were correct in its 
characterization of the grants at issue that would not be a basis for excluding those amounts from the Panel's consideration.
602 
4.367  The US also notes that the EC ar gues that the US has not shown that loans provided to Airbus 
by the Spanish government under the PTA program confer a benefit on Airbus because the US has not performed a comparison to a market benchmark.  Ho wever, in view of the terms of the loans as 
demonstrated by the US, they are, by definition, pr eferential to terms available in the market.  In the 
US view, the EC also errs in arguing that loan s provided by Spanish authorities under the PROFIT 
program are outside the Panel's terms of reference,  as such loans plainly were covered by the US 
panel request.  The US considers that the EC argum ent that PROFIT loans are not specific is equally 
erroneous.  In addition, as with the EC Framew ork Programs, the EC mistakenly argues that for 
specificity purposes, PROFIT should be analyzed at the level of the broad "umbrella" under which it 
is implemented, rather than at the individual program level.
603    
4.368  Finally, with regard to the UK's Technology Programme, the EC itself has acknowledged that 
the program is sub-divided into 43 "research themes" targeting a limited set of industries.  Each of the 
research themes has its own budget and tends to be highly industry-specific.  The R&D funding 
provided to Airbus and the aeronautics industr y under the Technology Programme is therefore 
specific within the meaning of Article 2.1 of the SCM Agreement.604 
2. Arguments of the European Communities 
4.369  The EC considers that it demonstrates that the US overstated the amount of support that the 
EC, Germany and its Länder Bavaria, Hamburg and Bremen, France, the United Kingdom and Spain 
provided to Airbus SAS under research and technol ogy ("R&T") programmes.  The EC examines the 
US allegations with regard to every R&T progr amme challenged and demonstrates that the US 
inflated the amount of R&T support in four ways.605 
4.370  First, the EC makes clear that the US allega tions with regard to R&T funding by France and 
one of the Spanish R&T programmes are outside the Panel's terms of reference.  The EC asserts that 
in its panel request, the US has not properly id entified the challenged French R&T funding and has 
not mentioned the relevant Spanish programme at all.606 
4.371  Second, the EC shows that the US includes s upport for companies other than Airbus SAS or 
its subsidiaries, despite the fact that the latter ar e the only producers of LCA in the EC. The EC points 
out that the US included in its estimates: (1) ot her participants in collaborative research projects607,  
                                                      
601 US, SWS, Executive Summary, para. 69. 
602 US, SWS, Executive Summary, para. 70. 
603 US, SWS, Executive Summary, para. 71. 
604 US, SWS, Executive Summary, para. 72. 
605 EC, FWS, Executive Summary, para. 59. 
606 EC, FWS, Executive Summary, para. 60. 
607 EC, SWS, paras. 615-619. WT/DS316/R 
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  (2) the non-Airbus activities of companies with wide-ranging activities608 and (3) other recipients 
other than Airbus SAS.609  The EC argues that the US does not explain how such funding passed 
through to Airbus SAS.  This applies to la rge parts of the support provided under the R&T 
programmes of the EC (EC Framework Programmes) , Bavaria, Hamburg, Bremen, France and the 
UK.610 
4.372  Third, the EC asserts that th e US includes support which falls outside the temporal scope of 
Article 5 of the SCM Agreement611 since it was provided before 1995.612  This concerns two of the 
challenged EC Framework Program mes and parts of the R&T support provided by the German 
Federal government613, France, the United Kingdom and Spain.614 
4.373  Fourth, the EC maintains that the US incl uded support under R&T programmes that are not 
specific within the meaning of Article 2 of the SCM Ag reement.  The EC explains that this applies to 
the EC Framework Programmes and to certain  R&T programmes of the United Kingdom and 
Spain.615  The EC considers that the US includes pa yments made under R&T programmes that are not 
specific since they are extremely broad, cover varyin g research areas and are open to a broad range of 
sectors.616  
4.374  The EC concludes that the total amount of  R&T support provided to  Airbus SAS between 
1995 and 2005 under the programmes in question, a nd within the scope of the panel request, is de 
minimis when considered in light of Airbus SAS' annual research budget, R&T expenditure and its 
turnover.617   
4.375  The EC argues that the US inflates the actual R&T support for Airbus by including support 
for recipients other than Airbus SAS.618  The EC states that the US has inflated the amount of R&T 
support to EUR 3 billion, around 5 times higher than the precise information on payments to Airbus 
provided by the EC.619  The EC explains that the US included in its EUR 3 billion figure amounts 
provided not only to the current producer of LCA in Eu rope, Airbus SAS, but also to a wide range of 
other recipients and also inflated the amount of French R&D support.  Airbus SAS received only a de 
minimis  level of support.620 
4.376  In its second written submission, the EC contends that the US still fails to substantiate its 
vastly inflated figures with regard to R&T support to Airbus SAS in the EC.  The EC points out that the US has, in particular, not demonstrated how  R&T support to companies other than Airbus SAS 
was passed on to Airbus SAS.
621 
                                                      
608 EC SOS, para. 287. 
609 EC SOS, para. 288. 
610 EC, FWS, Executive Summary, para. 61. 
611 EC, FWS, Executive Summary, para. 62. 
612 EC, FNCOS, Executive Summary, para. 19. 
613 With regard to support by the German federal government, the EC provided information on the 
amounts Germany had disbursed to Airbus SAS by 1 July 2005 and on the amounts Germany had committed by then, see EC, SWS, para. 630. 
614 EC, FWS, Executive Summary, para. 62. 
615 EC, FWS, Executive Summary, para. 63. 
616 EC, FNCOS, Executive Summary, para. 19. 
617 EC, FWS, Executive Summary, para. 64, s ee also, EC, FNCOS, Executive Summary, para. 19. 
618 EC, FNCOS, Executive Summary, para. 19. 
619 EC SOS para. 283. 
620 EC, SNCOS, Executive Summary,  para. 9. 
621 EC, SWS, Executive Summary, para. 46.  WT/DS316/R 
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  4.377  In its closing statement at the second Panel mee ting, the EC stated that it welcomed the US 
statement that "it is not saying that the benefit of grants to non-Airbus companies went to Airbus."  
The EC therefore presumes that the US had dropped its allegation of EUR 3 b illion of R&T support to 
Airbus.622   
4.378  With regard to the EC Framework Programmes,  the EC maintains that they are neither de jure  
nor de facto  specific.  According to the EC, the US allegation that " aeronautics-specific sub-budgets 
exist under each Framework Program " is factually incorrect and cannot serve as a basis for finding de 
jure specificity.623  Concerning the US claim on de facto  specificity that " within each FP's 
aeronautics sub-budget, Airbus is the predominant user of the grants ", the EC points out that 
specificity must be assessed for the programme as a whole. This also applies to the assessment of de 
jure specificity.624  At the level of the programme, it is cl ear that aeronautics companies, and even less 
so Airbus SAS, are not the predominant users of R&T support.625   
4.379  The EC also contends that new US exhibits  relating to the UK Technology Programme do not 
indicate its specificity within the meaning of Article  2.1 of the SCM Agreement.  In the same way, the 
EC also contends that the Spanish PROFIT progra mme, in addition to not being within the scope of 
the panel request, is also clearly non-specific.626 
4.380  Finally, concerning these and the remaining R&T programmes of Germany, Bavaria, 
Hamburg, Bremen, France, the UK and Spain, the EC  sets out in detail why the actual level of R&T 
support to Airbus SAS is just a fraction of the infl ated US estimate and confirms that it has reported 
all payments to Airbus SAS unde r the relevant R&T programmes.627 
K. WHETHER THE SUBSIDIES HAVE CAUSED ADVERSE EFFECTS TO THE INTERESTS OF THE 
UNITED STATES  
1. Arguments of the United States 
4.381  The US argues that for over thirty years, th e governments of France, Germany, the United 
Kingdom, and Spain (the "Airbus governments") have  been giving Airbus the means to "win the 
battle" against its US competitors in the market for la rge civil aircraft ("LCA").  The US explains that 
they have done so systematically and methodically  in pursuit of a "European industrial policy" to 
create the world's largest producer of LCA.  Th e US claims that they have succeeded.  The US 
indicates that in less than four decades, Airbus has gone from a zero percent market share to its 
current position as the world's largest producer.628  The US asserts that the Airbus governments 
maintain a formal and institutionalized "European in dustrial policy" toward Airbus.  A core part of 
that policy has been the systematic and coordinate d provision of massive subsidies that Airbus has 
used to develop a family of LCA targeted at its US competitors.629 
4.382  The US points out that since Airbus delivered its first LCA in 1974, two US producers 
(Lockheed and McDonnell Douglas) have been driven  from the market, and in 2003 Airbus displaced 
Boeing as the world's largest LCA producer.  By 2005, Airbus' share of the world market had 
increased to 57 percent while Boeing's fell to 43 percen t – a drop of 25 percentage points over the last 
                                                      
622 EC, SNCOS, Executive Summary, para. 10. 
623 EC, SWS, Executive Summary, para. 47. 
624 EC, SWS, para. 626. 
625 EC, SWS, Executive Summary, para. 47. 
626 EC, SWS, Executive Summary, para. 47. 
627 EC, SWS, Executive Summary, para. 48. 
628 US, FWS, Executive Summary, para. 1. 
629 US, FWS, Executive Summary, para. 4. WT/DS316/R 
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  decade and 19 percentage points in the last five years.630  Tens of thousands of US workers have lost 
their jobs.631  Further, the subsidization of Airbus  jeopardizes the durability of any recent 
improvement in Boeing's competitive situation.  Indeed, the Airbus governments have recently 
"reaffirmed their agreement to support Airbus."632  
4.383  The US states that if the losses that it has suffere d were the result of fair competition, it would 
not be pursuing this dispute.  The US values competition and acknowledges Europe's right to pursue its own interests in the LCA sector in a WTO-comp atible manner.  But the US maintains that its 
losses are not the result of fair competition.  The Ai rbus governments created and fuel Airbus' success 
with massive amounts of WTO-inconsistent subsidies.
633  The US argues that the provision of these 
subsidies to Airbus by the EC and the Airbus govern ments is inconsistent with Article 5 because, as 
demonstrated in its submissions, they have cau sed both injury to the US domestic LCA industry 
within the meaning of Article 5(a) and serious prej udice to the interests of th e US within the meaning 
of Article 5(c).634 
(a) Conditions of Competition in the LCA Market 
4.384  The US explains that Boeing and Airbus ar e the world's only remaining LCA producers.  
Both companies compete head to head for virtually every LCA sale in the world in a largely "zero 
sum" competition – a win for one producer is almost always a loss for the other.  Competition between Boeing and Airbus is driven  by the performance characteristics of their aircraft and the price 
(net of all concessions) at which they offer their respective LCA.
635 
4.385  The US argues that Boeing and Airbus develop, produce, and market families of aircraft to 
supply demand for LCA that operate efficiently over  a variety of different routes.  The long-term 
viability of an LCA producer depends on continue d innovation and periodic laun ches of new aircraft.  
Yet to do so, the producer must incur enormous up -front designing, engineering, and testing costs 
over a period of years before a single aircraft can be delivered to a customer.  For an LCA manufacturer, decisions with respect to product la unches drive its subsequent pricing and production 
decisions.
636 
4.386  The US notes that the EC has plainly different views about how competition in the LCA 
market occurs and which aspects of that competition ar e most relevant to the Panel's analysis.  The US 
also notes that on virtually every significant point, the statement of Mr. Christian Scherer of Airbus coincides with its view of these matters, rather than the EC's.
637  Mr. Scherer explained how Airbus 
and Boeing "compete to develop new and improved aircraft."  This level of Airbus-Boeing 
competition – the competition to create the family of LCA that will best match customer needs – 
fundamentally shapes the day-to-day competition on sales and price.  The US agrees.  Yet Mr. Scherer also explained that, Boeing had, until quite recently, e xperienced a "failure to develop new aircraft."  
Mr. Scherer perceives that Airbus, not Boeing, h as been dominant in new product launches in recent 
decades, and this perception is in fact quite broadl y shared in the industry.  Although Mr. Scherer did 
                                                     
 
630 US, FWS, Executive Summary, para. 77.  See, also, US, FWS, Executive Summary, para. 2. 
631 US, FWS, Executive Summary, para. 2. 
632 US, FWS, Executive Summary, para. 77.  See, also, US, FWS, Executive Summary, para. 2. 
633 US, FWS, Executive Summary, para. 3. 
634 US, FWS, Executive Summary, para. 78. 
635 US, FWS, Executive Summary, para. 79. 
636 US, FWS, Executive Summary, para. 80. 
637 US, Comments on EC, SNCOS, Executive Summary, para. 19  WT/DS316/R 
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  not say so, it is quite clear that Launch Aid has played an important role in giving Airbus this 
competitive advantage at this most fundamental level of competition.638 
4.387  The US notes that in a spontaneous remark, Mr. Scherer explained that both Airbus and 
Boeing had an incentive to try to maintain stable production rates in the down market cycle that began 
in 2001.  As the US has shown in its submission, Ai rbus was successful in this, while Boeing was not.  
In Mr. Scherer's words, Boeing "fell off a cliff."  Th is shift in deliveries is what drove the enormous 
shift in the market share of Airbus, which Airbus has mostly maintained.639 
4.388  The US points out that Mr. Scherer also explains why, in his view, Airbus was successful in 
maintaining production (and gaining market share) in a period of falling demand, while Boeing was 
unsuccessful.  He tells of hearing from customers "that Boeing was responding very slowly to 
requests for technical assistance and concessions " – in his view, giving customers "not as much 
attention as we would have," and that Boeing salesp eople were far less flexible in negotiations on 
price with customers than the Airbus sales force.  In  short, Airbus was willing and able to use price to 
win orders, when Boeing was not.  Further, according to Mr. Scherer, this s ituation reversed only in 
2004, when Boeing finally got tired of losing sales to Airbus and reluctantly capitulated on price 
concessions.  The SCM Agreement has a term for this: "price depression."640 
4.389  The US notes that it was in this period that Airbus was completing the launch of and 
delivering the first A340-500/600s, beginning the e normously expensive and risky launch of the 
A380, and preparing for the coming launch of the A 350, and in this same period that Airbus took 
sales and market share from Boeing through more flexib le pricing.  And, as the US explained in its 
opening statement at the second Panel meeting, the evidence shows that, especially during this period, 
Airbus would have faced significantly greater financ ial constraints if not for Launch Aid.  The US 
wonders: How is it that Airbus was the producer th at was launching all the new aircraft, winning all 
the new customers, gaining all the new market share, winning more competitions on price, in a period when it faced real financial constraints? The US co ncludes that it is inconceivable that Launch Aid 
did not play a key causal role in this.
641 
4.390  The US points out that as Mr. Scherer noted, "when demand decreases .  .  .  there tends to be 
much greater competition by producers to win sales on price."  The US explains that the downcycle 
that began in 2001 provided Airbus with the opportuni ty to complete its full LCA family, launch the 
A340-500/600, A380, and A350 in rapid succession, a nd gain nearly 20 points of market share at 
Boeing's expense.  At that point, the US initiate d these proceedings against the EC and the Airbus 
governments for providing the subsidies to Air bus that are the cause of this situation.642 
4.391  If the EC had its way, this harm would be ig nored as "historical" adverse effects, of purely 
academic interest, if one focuses only on a short-term  snapshot of the LCA market in which the surge 
in demand in the last two years is used to portray everything as just fine.  But everything is not fine.  The adverse effects manifested during the 2001-2005 period are continuing in the form of ongoing 
losses of follow-on orders by customers captured by  Airbus during this period, sustained lower 
pricing, and unrecovered market share.  Moreover, Airbus is launching a new aircraft – the A350 – 
which Mr. Scherer confirmed is positioned to compete aggressively with the 787 and 777 on both 
technology and price.  And it is absolutely clear th at, if this Panel does not confirm that Launch Aid 
has impermissibly distorted the LCA market in favor of Airbus and caused adverse effects in 
                                                     
 
638 US, Comments on EC, SNCOS, Executive Summary, para. 20. 
639 US, Comments on EC, SNCOS, Executive Summary, para. 21. 
640 US, Comments on EC, SNCOS, Executive Summary, para. 22. 
641 US, Comments on EC, SNCOS, Executive Summary, para. 23. 
642 US, Comments on EC, SNCOS, Executive Summary, para. 24. WT/DS316/R 
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  contravention of the EC and Airbus government s' commitments under the SCM Agreement, the 
Launch Aid already committed for the A350 will be e nhanced and the adverse effects will continue.  
The current surge in demand will not last forever.  Mr. Scherer reminded us that the LCA industry is 
cyclical and that demand can turn down suddenly and unexpectedly.643 
4.392  Finally, the US points out that Mr. Scherer not only confirms the basic US explanation for 
how Launch Aid was causing adverse effects in th e 2001-2004 period, but also confirms the views 
that underlie the US subsidized product arguments.  According to Mr. Scherer, two aircraft models 
will compete with one another if they have seating cap acities within 15 to 20 percent of each other.  
The LCA market therefore forms a continuum in wh ich all aircraft compete with their neighbours on 
the spectrum but in which there are no sharp dividing lines.644 
(b) Subsidized and like product 
4.393  The US asserts that "as early as 1973, Airbus Industrie proposed the development over time 
of five related aircraft types."  The US argu es that the EC and the Airbus governments have 
subsidized, and Airbus has developed, a family of ai rcraft in order to compete against the family of 
aircraft offered by Boeing.  Airbus' business stra tegy has, accordingly, focused heavily on its 
integrated family.  The US submits that because s ubsidies are provided to Airbus for the development 
of an LCA family, and because subsidies for the development of each major Airbus LCA model benefit the production and marketing of its full LCA family, the "subsidized product" is the Airbus 
LCA family as a whole.
645 
4.394  The US argues that Launch Aid benefits the Airbus family as a whole in at least six ways: 
(1) it enables Airbus to be present in all segme nts of the LCA market, as the EC agrees any 
competitive LCA producer must; (2) technologies or production facilities developed as part of the 
launch of one Airbus LCA model are used for ot her models; (3) Airbus uses "commonality," or 
common elements among different LCA models that  reduce the cost of operating multiple Airbus 
LCA models, as a central feature in selling the entire Airbus LCA fleet to customers; (4) Airbus uses 
one Airbus LCA model to sell other LCA models in "package" deals, either simultaneously or 
consecutively; (5) Launch Aid reduces the debt bur den on Airbus of building each individual LCA 
model, which in turn allows Airbus to move on to launch the next model much more easily and 
quickly; and (6) Launch Aid provides Airbus with add itional cash flow that allows it to reduce prices 
of any LCA model whenever it concludes that a pr ice reduction is necessary to capture orders that 
would otherwise have gone to Boeing.  Thus, each provision of Launch Aid benefits the entire Airbus 
LCA family and has adverse effects on the entire like Boeing family.  Accordingly, the "subsidized 
product" for each of the subsidies, and for all of  the subsidies taken together, is Airbus LCA.646 
4.395  The US asserts that Airbus ma rkets its LCA products as a whol e and prominently features the 
commonality between its different LCA types.  The US notes that the EC submission acknowledges 
that an LCA producer cannot succeed by producing a single LCA model that competes independently 
in a particular segment of the LCA market.  Rather, to succeed in any segment of the LCA market, a 
producer must offer a range of products to meet the diverse needs of customers.  The Airbus governments have therefore subsidized the full range  of Airbus LCA so that each individual model 
could compete successfully.  The "subsidized pr oduct," therefore, is Airbus LCA as a whole.
647  
                                                      
643 US, Comments on EC, SNCOS, Executive Summary, para. 25. 
644 US, Comments on EC, SNCOS, Executive Summary, para. 26. 
645 US, FWS, Executive Summary, para. 81. 
646 US, SWS, Executive Summary, para. 86. 
647 US, FNCOS, Executive Summary, para. 25.  WT/DS316/R 
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  4.396  The US argues that the panel in US – Softwood Lumber Dumping  found that the identical 
definition of "like product" that appears in  the Antidumping Agreement has no relevance for 
determining what may or may not be included in a single "product under consideration."  Further, it is 
well established that a range of related, if not necessarily like, products can be grouped as a single 
"subsidized product" or "product under considera tion" under the SCM Agreement, and likewise under 
the Antidumping Agreement.  The recently circulated panel decision in Japan – DRAMS CVD  
provides an example in addition to those previously identified.648 
4.397  The US notes that the EC insists that, as a legal matter, when each individual item that 
benefits from a subsidy is not a "like product" to ev ery other such item, then there must be several 
separate "subsidized products" and several separate  "like products" that corre spond to them.  The US 
considers that the EC confuses the definition of th e subsidized product with the definition of the like 
product.649  The EC also argues that not every Airbus LCA model is "like" every other Airbus LCA 
model or every Boeing LCA model.  In the US vi ew, the EC confuses the identification of the "like 
product" with the identification of the "subsidized pr oduct."  This confusion is particularly evident in 
the EC discussion of the panel report in Indonesia – Autos , where the identity of subsidized product 
was undisputed.  Indeed, the reasoning of the Indonesia – Autos  panel, which defines the "like 
product" narrowly with respect to the "subsidized product," would support a broader  approach to the 
definition of the "subsidized product."650 
4.398  The US asserts that the EC argues that the Panel must  define the subsidized products based on 
whether the various items meet the "like product" test or compete with one another directly, and 
specifically not  with reference to the way in which the US has shown these particular subsidies to 
have provided benefits to Airbus' production and sales.  But, it cannot be overlooked that the subsidies 
at issue in this dispute have been provided to fac ilitate the development of the Airbus LCA family as a 
whole.  The US believes that assessing the effect of the subsidy by breaking up the object of 
subsidization – the Airbus LCA family – into sever al distinct products fails to be "reasonable and 
coherent."651  The US argues that "there are no clear dividing lines between the five categories 
proposed by the EC."652 The US argues that even if it were useful or reasonable to divide the LCA 
market into a number of submarke ts, the EC's proposed division is not supported by the evidence. The 
US observes that "in its own documents Airbus itself does not follow the particular five-market 
segmentation that the EC advocates here."653 And even if the Panel were to find any merit whatsoever 
in the EC market segmentation, the EC contentio n that no Airbus models compete with the Boeing 
747 is manifestly erroneous.654 
4.399  The US argues that just as the "subsidized produc t" in this dispute is the Airbus LCA family, 
the "like product" produced in the US is the Boeing LCA family.  The Boeing and Airbus LCA 
families, however, have "characteristics closely resembling" one another within the meaning of 
footnote 46 to the SCM Agreement.  This is unsur prising, given that Airbus has purposely developed 
its LCA family to compete directly with the Boeing LCA family.655   
                                                      
648 US, SNCOS, Executive Summary, para. 18. 
649 US, SNCOS, Executive Summary, para. 18. 
650 US, SWS, Executive Summary, para. 87. 
651 US, SNCOS, Executive Summary, para. 19. 
652 US, SWS, para. 650. 
653 US, SWS, para. 651. 
654 US, SWS, Executive Summary, para. 88. 
655 US, FWS, Executive Summary, para. 82. WT/DS316/R 
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  (c) Reference period 
4.400  The US considers that the EC focus on mark et developments after Panel establishment is 
legally and factually misplaced.  The US submits that  it has demonstrated the validity of its claim, set 
forth in its request for the establishment of this Panel, that the challenged subsidies have caused 
adverse effects to the interests of the US.  The US considers that the EC has chosen not to rebut this 
showing.  Instead, the EC contends that the only question for the Panel is whether the adverse effects 
referred to in the US panel request have ceased to exist.  Most of the trends that demonstrate the 
adverse effects to the interests of the US over the 2001-2005 period have c ontinued unabated through 
2006 and, to the extent data are available, into 2007.  Where the trends s how small improvements in 
2006 when compared to 2005, these are largely due to  temporary factors such as the 2006 delays in 
A380 production and A350 design rather than any elimination of the effects of the subsidies.  In any event, the EC's exclusive focus on data for 2006 s hows that it cannot contest that adverse effects had 
existed in the period through 2005; the EC certainly makes no effort to do so.
656  The US considers 
that the EC wants the Panel to believe that the EC subsidies to Airbus are not causing adverse effects 
to the interests of the US, because Bo eing is still alive.  But, being alive is not relevant to the issue of 
adverse effects.  What is releva nt, among other things, is that Boeing has suffered a 20-point market 
share loss and price erosion due to Airbus subsidies.657 
4.401  The US considers that the EC argument is al so legally incorrect.  The US notes that in EC – 
Biotech , the EC asked the panel to decline to rule on a disputed measure on the basis that the measure 
had allegedly ceased to exist after th e establishment of the panel.  Th e panel refused, finding that (1) it 
had the authority to make findings on the WTO-cons istency of the measure even if it had ceased to 
exist subsequent to the establishment of the panel, (2) that such findings would help "secure a positive 
solution" to the dispute, and (3) that it did not n eed to make findings on whether the measure was still 
in existence in order to make the recommendati on required by Article 19.1 of the DSU.  The 
reasoning of the Biotech  panel applies equally in the present dispute.658 
4.402  The US finds no support for the EC view that the US claims  that the contested measures in 
this dispute have breached the EC obligations u nder Article 5(a) and 5(c) of the SCM Agreement 
must be evaluated "at the time when a panel makes its decision" rather than at the time of panel 
establishment.  To the contrary, the Panel's te rms of reference require it to examine "the matter  
referred to the DSB by the US" in its 2005 request for panel establishment.  The "matter" includes the 
"claims" contained in the panel request.  Therefore,  the Panel must examine the claim of the US that 
the subsidies were causing adverse effects in 2005.   Any assertion by the EC that material injury 
ceased to exist after the establishment of the Pa nel should be left to the compliance stage.659 
4.403  In addition, the US notes that the EC contends that the appropriate starting point for the 
Panel's adverse effects analysis is 2004, not 2001.   The US points out that the 2001-2003 period was 
not aberrational, as the EC claims; if anything, it  is the increase in LCA demand in 2005 and 2006 that 
is historically anomalous.  Moreover, if the EC were  correct in its contention that changes in market 
share from 2001 to 2003 were due to temporary ph enomena unrelated to subsidization, one would 
expect the relative market shares of Boeing and Air bus to return to their "normal" levels after the 
market recovered in 2004.  Yet this has not occurred.660 
                                                      
656 US, SWS, Executive Summary, para. 91. 
657 US, FCCS, Executive Summary, para. 4. 
658 US, SWS, Executive Summary, para. 92. 
659 US, FNCOS, Executive Summary, para. 29 
660 US, SWS, Executive Summary, para. 89.  WT/DS316/R 
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  4.404  Indeed, the LCA market and industry operat e under unusually long time horizons.  It takes 
several years to develop a new aircraft and bring it to market.  Similarly, LCA sales typically are for deliveries over several years with options to purch ase additional aircraft over a time frame that is 
longer still.  The subsidies at issue are long-term loans intended to fund the launch of LCA that are 
produced and sold over a period of decades; any measur ement of their effects must therefore take into 
account their long-term nature.
661 
4.405  The US notes that, in its report in the US – Cotton Subsidies (Article 21.5)  dispute, "the 
Appellate Body reasoned that where subsidies have  been found to insulate producers from market 
signals over a long period of time, trends in mark et share and prices in the most recent period are not 
dispositive as to whether there is present serious prejudice."662  According to the US, "this reasoning 
would apply even more strongly in the present dispute,  where the effect of the subsidy is to facilitate 
Airbus launch decisions that, by their nature, have  even more long-term effects on Airbus production 
and pricing in the LCA market than could subsidies to  an agricultural commodity with a single year's 
growing cycle."663  "Accordingly, under the approach of the Appellate Body, the Panel is entitled to 
consider all facts, especially the nature of the subsidies and the market at issue, in determining 
whether the EC and Airbus government subsidies have  caused adverse effects.  More particularly, the 
application of the Appellate Body 's reasoning would lead the Panel to reject the EC's efforts to 
artificially restrict the Panel's focus to trends in the 2004-2006 period, without reference to what 
occurred before 2004 or the particular suppl y-creating effects of these subsidies."664 
(d) Injury Within the Meaning of Article 5(a)  
4.406  The US asserts that since 2001, Airbus has significantly increased its share of the LCA 
market relative to total US demand.  Airbus in creased its share of US LCA deliveries from 30 percent 
in 2001 to 48 percent in 2005.  Measured by valu e (at list prices), Airbus' share of the US market 
increased from 28 percent in 2001 to 53 percent in 2005, or by 25 percentage points over the period.  By any measure, this increase in the relative volume of LCA imports is significant, even after taking 
into account the overall decline in US demand during the period.  For example, if Boeing had simply 
been able to maintain its 2001 share of the US LC A market by value, its LCA sales in the US would 
have been 54 percent greater in 2005 than they were.
665 
4.407  The US notes that a significant share of the Ai rbus LCA delivered in the US market during 
the 2001-2005 period were sold to customers new to Airbus, including both start-up airlines and 
previous Boeing customers.  In each case, Boeing was a strong competitor for the initial order.  
Although the actual price that each airline paid to  Airbus, taking into account all concessions on the 
sale, is not available to the US, publicly available information indicates that Airbus price undercutting 
played a key role in winning these customers.  Boei ng also lost the most significant campaigns that 
did occur in the US market during this peri od on the basis of price undercutting by Airbus.666 
4.408  The US argues that the pricing pressures of these campaigns has had a direct and measurable 
impact on the prices Boeing has been able to obtain for those sales that  it has made in the US market.  
Indexed pricing data for 2001-2005 provided as business confid ential information ("BCI") by Boeing 
shows that the average price for B737s fell during this  period.  In addition, while the price of each 
LCA is contractually agreed at the time of a firm  order, Boeing had to reduce prices on undelivered 
                                                      
661 US, SWS, Executive Summary, para. 90. 
662 US, Comments on Appellate Body Report in US – Upland Cotton , para. 7. 
663 US, Comments on Appellate Body Report in US – Upland Cotton , para. 7. 
664 US, Comments on Appellate Body Report in US – Upland Cotton , para. 8. 
665 US, FWS, Executive Summary, para. 83.  See, also, US, SWS, Executive Summary, para. 98. 
666 US, FWS, Executive Summary, para. 84. WT/DS316/R 
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  aircraft for certain major customers because of dow nward trends in market pricing under pressure 
from Airbus.  Pricing trends for B747 and B777 sales in  the US market were similar.  The US points 
out that one would ordinarily expect that in the absence of price suppression, producers would over time increase prices generally in line with increases in  their costs.  Both Airbus and Boeing typically 
include price escalation clauses in their sales contracts to reflect cost increases from the year of order 
to the year of delivery.  However, Boeing has been  unable to maintain its US pricing for its LCA in 
line with cost increases.
667 
4.409  In the US view, these data demonstrate that Bo eing has experienced price depression (actual 
price decreases) and price suppression (price increases lower than what would be expected) for its US 
LCA sales.  Given the evidence of aggressive Airbus pricing in US sales campaigns, the price 
depression and price suppression are attributable to subsidized imports.668 
4.410  The US points out that data provided by Boeing relating to the factors enumerated in 
Article 15.4 of the SCM Agreement show a steep d ecline in the financial results of Boeing's LCA 
business over the past five years.  This decline h as occurred despite deep cuts in costs and steady 
gains in productivity.669 
4.411  The US asserts that Airbus' gains in its share of  the US market have come at the expense of 
Boeing, thus linking the subsidized imports to the significant adverse impact on Boeing's LCA production and sales figures.  Moreover, the decline in  Boeing's prices is a function of the pricing of 
subsidized imports from Airbus.  The deterioration in the other relevant indicators of the economic 
health of Boeing's LCA operations follows directly fr om this loss of market share and loss of revenue.  
Any injury resulting from the decline in total demand – a factor that affected both Airbus and Boeing 
– is distinguishable from injury resulting from loss of  market share to Airbus.  As Airbus recognized, 
"For our competitor, the effects of loss of market share and the contraction of the market itself are 
cumulative."  According to the US, no other factor s have caused the material injury to Boeing.
670 
4.412  The US notes that material injury is defined to  include a threat of material injury.  The 
evidence also shows that a threat of material  injury is "clearly foreseen and imminent."671 
4.413  The US argues that the improvement in Bo eing's financial performance in 2006 does not 
undermine the US material injury claim.  In 2006, Ai rbus could not effectively market either its A380 
(because of production problems) or its A350 (which had to be redesigned).  What 2006 shows is how 
the absence of a subsidized and aggressively market ed new Airbus aircraft improves the fortunes of 
the US LCA industry – and, by contrast, how significant the adverse effects of Launch Aid and the 
other Airbus subsidies have been.  However, Air bus can be expected to overcome the technical 
problems with A380 production, and the A350 with fu lly revised technical specifications will be back 
in the market in the very near future.  If Launch Ai d is permitted to continue, the adverse effects seen 
in recent years will continue as well.672  
4.414  The US notes that the EC discusses at length th e improvement in Boeing's financial condition 
in 2006 (while neglecting to mention that Airbus, t oo, had record deliveries and performance in the 
same year) and argues that, whatever may have been  the case in the past, Boeing cannot be said to be 
experiencing material injury at the present time.  Ho wever, the relevant question for an adverse effects 
                                                      
667 US, FWS, Executive Summary, para. 85. 
668 US, FWS, Executive Summary, para. 86. 
669 US, FWS, Executive Summary, para. 87. 
670 US, FWS, Executive Summary, para. 88. 
671 US, FWS, Executive Summary, para. 89. 
672 US, FNCOS, Executive Summary, para. 30.  WT/DS316/R 
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  claim under the DSU and the SCM Agreement is whet her the EC was in breach of its obligation under 
Article 5(a) when the Panel was established.  More over, the improvement in the financial condition of 
Boeing must be placed in the context of unusuall y high demand in 2005 and 2006 in this cyclical 
industry.  Indeed, the events of 2006 demonstrate how significantly relief from subsidized competition 
improves the fortunes of the US LCA industry.673 
(e) Serious Prejudice to the Interests of the US 
4.415  The US submits that adverse effects from subs idies also include "serious prejudice to the 
interests of another Member" as provided in Article 5(c).  Article 6.3 further provides that serious 
prejudice "may arise in any case where one or several" particular market effects of the subsidy are 
demonstrated.  The US argues that several of the eff ects of the subsidies described in Article 6.3 apply 
in this dispute.674 
(i) Subsidized Airbus LCA Have Displaced or Impe ded Imports of US-Produced LCA in the EC 
Market 
4.416  The US notes that Airbus increased its share of the EC LCA market by 9 percentage points 
from 2001 to 2005 measured by volume675 and maintained all of its increased market share in 2006.676  
By value, Airbus increased its share by 12 percenta ge points over the period.  The growth in Airbus' 
market share – and concomitant decline in Boeing' s share – demonstrates that Airbus LCA have 
displaced Boeing LCA in the EC market.677  According to the US, a signi ficant portion of the shift in 
EC market share is attributable to two particular  campaigns – easyJet and Air Berlin.  Both airlines 
were Boeing customers looking to expand their fleets,  the competitions were directly between Boeing 
and Airbus, and the wins for Airbus were losses fo r (and significant displacements of) Boeing.  Other 
lost sales campaigns have resulted in additional displacement of Boeing LCA in the EC market.678 
4.417  The US considers that the EC fails to respond to its argument; instead it segments and breaks 
up the data in a way that magnifies random fluctuations  and obscures trends.  In the US view, the data 
speak for themselves – significantly fewer Boeing LC A are being imported into the EC than was the 
case just a few years ago.679   
4.418  The US notes that the EC contends that the Panel should evaluate the US displacement and 
impedance claims under Article 6.3(a) and Article  6.3(b) by examining the market share of orders  
rather than the market share for actual deliveries .  However, the text of Article 6.3(a) refers to the 
displacement or impedance of "i mports" and "exports" of a like product of a Member.  The ordinary 
meaning of the terms "imports " and "exports" includes actual Articles or things  that cross international 
borders – that is, deliveries.680  The US argues that the EC focus on orders rather than deliveries is 
erroneous: the US notes that the EC agrees that the ordinary meaning of the terms "imports" in Article 6.3(a) and "exports" in Article 6.3(b) carries "the notion of movement of goods."  As contracts 
for the future "movement of goods," orders are certainly relevant to an analysis of likely future  trends 
in the LCA market, but the "movement of goods" th at has actually occurred and is now occurring is 
captured by data on actual deliveries.  Mo reover, an exclusive analytical focus on order  data leads to 
factually inaccurate conclusions, particularly in third-country markets where there are a relatively 
                                                     
 
673 US, SWS, Executive Summary, para. 98. 
674 US, FWS, Executive Summary, para. 90. 
675 US, FWS, Executive Summary, para. 91. 
676 US, SWS, Executive Summary, para. 94. 
677 US, FWS, Executive Summary, para. 91. 
678 US, FWS, Executive Summary, para. 92. 
679 US, SWS, Executive Summary, para. 94. 
680 US, FNCOS, Executive Summary, para. 27. WT/DS316/R 
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  small number of transactions.  This can be seen, for example, in an examination of the LCA market in 
Mexico.681 
(ii) Subsidized Airbus LCA Have Displaced or Impe ded Exports of US-Produced LCA in Third-
Country Markets 
4.419  The US observes that from 2001 to 2005 Airbus has increased its share in markets other than 
the US and the EC by a 20 percentage points (measured by volume) or 19 percentage points (measured by value).  In the two largest third-count ry markets in the 2001-2005 period, Airbus gained 
24 percentage points of market share at Boeing's expense in China and 18 percentage points in 
Australia.  Other significant markets where Air bus significantly increased market share include 
Singapore, Korea, Brazil, the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu 
("Chinese Taipei"), Mexico, and India.  Large new or ders in third-country markets, most evidently 
India, threaten further displacement of Boei ng exports to these markets for years to come.
682 
4.420  Boeing regained only five percentage points of  its share of these markets in 2006 and remains 
well below its share in 2001 and 2002.  These mark ets other than the EC and the US have grown 
substantially over the 2001-2005 pe riod and have continued to grow in 2006.  Total deliveries by 
Boeing and Airbus have increased in each year (except for a very small drop from 2003 to 2004).  Thus, the shift in market share in third-country ma rkets largely results from Airbus gaining more of 
the increased demand than Boeing.  With respect to particular third-country markets identified in the 
US first written submission, Boeing's loss of market  share to Airbus continued in 2006 in most 
markets.
683 
(iii) Subsidized Airbus LCA Have Undercut Prices and Taken Sales of Boeing LCA 
4.421  The US argues that from the late 1990s through at least 2005, Airbus won a series of 
campaigns at major low-cost carriers in the US, Eu rope, and Asia.  Public and confidential evidence 
shows that aggressive Airbus pricing was the key f actor in Airbus' winning, and Boeing's losing, these 
key campaigns.684  Airbus has captured market share thr ough a strategy of aggressive product launch 
and aggressive pricing at key, strategic campaigns.  In many cases, Airbus h as succeeded in capturing 
key customers from Boeing.  Even where Boeing has b een able to maintain customers, the increased 
competition from Airbus on the basis of price has resulted in depressed market prices and, 
accordingly, reduced revenues.  Th e public evidence, which is larg ely confirmed by the confidential 
evidence provided by the EC, is that Airbus, not Bo eing, took the lead in driving prices downward in 
recent years.685 
4.422  According to the US, that Airbus uses price undercutting to increase its share of the LCA 
market is well recognized in the industry.  The US points out that Airbus admits that retaining its 
targeted market share is more important to it th an profitability, stating that "one percent in 
profitability matters more than one percent in ma rket share, provided it remains at an average 
50 percent market share."686 
4.423  The US argues that a number of significant sales campaigns can be identified, based on 
available information, in which the customer was in the market for new aircraft, invited Boeing and 
                                                      
681 US, SWS, Executive Summary, para. 93. 
682 US, FWS, Executive Summary, para. 93. 
683 US, SWS, Executive Summary, para. 95. 
684 US, SWS, Executive Summary, para. 96. 
685 US, FNCOS, Executive Summary, para. 28. 
686 US, FWS, Executive Summary, para. 94.  See, also, US, SWS, Executive Summary, para. 98.  WT/DS316/R 
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  Airbus to bid against one another, chose the Air bus LCA over an equally qualified Boeing LCA, and 
did so because of the Airbus price.  For example, ea syJet officials remarked that "it surprised all of us 
to see just how aggressive Airbus was in the final round of sealed bids."  Public data from easyJet 
indicates a purchase price of $19.36 million per aircraft  in 2001 US dollars, a discount of 56 percent 
off the $44 million list price.  Taking into account additional guarantees and services to be provided 
by Airbus, easyJet concluded that "the offer received from Airbus ... was significantly better value than the offer received from Boeing."  Other majo r identifiable lost sales campaigns included Air 
Berlin/NIKI, AirAsia, Iberia Airlines, South Afri can Airways, Thai Airways International, Singapore 
Airlines, Emirates Airlines, Qantas, and Czech Airlines.
687 
4.424  The US asserts that prices of A380 aircraft so ld by Airbus in competition with Boeing were 
so low, in fact, that the impact of recently a nnounced delivery delays has turned them into loss-
making contracts.  EADS has announced publicly that "A380 loss making contracts" would result in a EUR 600,000,000 reduction in its 2006 pre-tax earnings.
688  Airlines that ordered the A380 would 
otherwise have expanded their fleets with Boeing LCA.689   
4.425  With respect to A340-500/600 sales, the US notes that the EC argues that Airbus had the right 
plane at the right time, while Boeing did not.  Once again, however, this concedes the causal link; in the absence of Launch Aid, Airbus would not have been in a position to offer what it claims was the 
right plane at the right time.  According to the US , the evidence therefore confirms that the significant 
lost sales identified by the US were lost primarily because of subsidies.
690 
4.426  The US submits that when the evidence shows – as it does here – that Airbus has not only 
taken numerous large sales from Boeing, several of th em worth billions of dollars, but also that it has 
done so primarily by offering a lower price than  Boeing, that evidence demonstrates not only 
"significant ... lost sales," but also the existence of  "significant price undercutting" within the meaning 
of Article 6.3(c).  In the course of a sales campaign, each customer engages in a detailed and painstaking review of every contractual term, incl uding the value of proposed  concessions contingent 
on future events (such as residual value guarant ees).  When the evidence establishes that, in a 
particular LCA transaction, a customer concludes th at Airbus, all other things  being equal, offered a 
lower price than Boeing, this constitutes prima facie  evidence of price undercutting within the 
meaning of Article 6.5 and, therefore, of Article 6.3(c).
691 
4.427  The US notes the EC assertion that many LCA sales do not involve "competition" between 
Airbus and Boeing, and that where sales are not "c ompetitive" there is no possibility for subsidies to 
cause adverse effects.  According to the US, the EC definition of a "competitive" sale excludes many 
sales in which price competition between Airbus and Boeing is highly relevant.  The US points out 
that a customer may not conduct a formal bidding process, but only if it believes that it is getting a market price.  If a customer thinks that holding  a competition will drive down the price, it will do 
so.
692 
4.428  The US also rebuts the EC interpretation of "the  term 'non-subsidized like product' as used in 
Article 6.4 and 6.5 to mean that, if the like pr oduct of the complaining Member benefits from any 
specific subsidy – no matter how small or indirect – that Member is affirmatively prevented from 
                                                      
687 US, FWS, Executive Summary, para. 95. 
688 US, FWS, Executive Summary, para. 96. 
689 US, SWS, Executive Summary, para 96. 
690 US, SWS, Executive Summary, para. 96. 
691 US, FWS, Executive Summary, para. 97. 
692 US, SWS, Executive Summary, para. 84.  See, also, US closing statement, first meeting, Executive  
Summary, para. 5. WT/DS316/R 
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  showing that the effect of another Member's s ubsidy – no matter how large or direct – has caused 
displacement or impedance of its exports to a thir d country under Article 6.3(b) or significant price 
undercutting under Article 6.3(c)."693  According to the US, "nothing in Articles 6.3, 6.4, or 6.5 
suggests that these provisions are in tended to deal with subsidies other  than the challenged subsidies – 
whether those other subsidies are provided by th e responding Member, the complaining Member, or 
other Members."694 
(iv) Boeing Has Experienced Price Suppression and Price Depression for Its LCA Sales in the 
World Market 
4.429  The US argues that in the context of this case, the world market is the appropriate market for 
measuring the price effects of the Airbus subsid ies.  Boeing provided as BCI the indexed annual 
prices of all actual, worldwide Boeing LCA orde rs for the period 2001-2005 for the B737, B767, 
B747, and B777.  These figures show negative trends in Boeing's prices for each aircraft type over the 
period.  Post-order price adjustments further demonstrate the price depressing effects of Airbus' pricing practices.  Airbus LCA was the only compet ition and Airbus was engaged in widespread and 
aggressive price undercutting during the period.  T hus, the evidence demonstrates significant price 
depression and price suppression in the world LCA market.
695 
4.430  The US contends that prices for Boeing LCA in the world market fell, or failed to rise in 
keeping with cost inflation, in the period fro m 2001-2005.  Despite two years of unprecedented high 
demand for LCA, prices for the Boeing 737, 747, and 767 continue d to be seriously depressed in 
2006.  The US argues that aggressive Airbus pricing h as altered price expectations of customers in the 
market and continues to prevent prices from rising.  Price trends for the 777 were somewhat different 
both in 2001-2005 and in 2006.  The US argues that its contention that the price suppression and depression is the effect of the subsidy is confirmed by the fact that the effect of price suppression and 
depression recedes first – and, so far, only – wher e Airbus' product offering has proven the weakest 
and at the time when Airbus' ability to leverage its s ubsidies to lower price to offset the difference is 
most strained.
696 
(v) Subsidies Cause These Ad verse Market Effects 
4.431  The US considers that with respect to the issu e of adverse effects, the first question is: How 
do the subsidies work?  How do they affect the mark et and how Airbus acts in the market?  The US 
argues that it has shown that the subsidy distorts the ma rket in two principal ways.  It allows Airbus to 
launch aircraft it could not have la unched on the scale and at the pace it has without subsidies.  And, 
its impact on Airbus' cash flow and costs allows it to price aggressively to buy market share, all while 
maintaining its pace of product development.697 
4.432  The US notes that the EC does not really contest  the first point.  And the EC largely avoids 
responding to the second point through its arguments a bout the subsidized product.  By deciding in 
advance that there are five separate product markets, the EC decides in advan ce that, for example, the 
Launch Aid provided for the A320 can only affect sales of the A320.  But this does not respond to the 
question of how the subsidy works; rather, the EC begs the question.698 
                                                      
693 US comments on EC, Answer to Panel Question 202, para. 225. 
694 US comments on EC, Answer to Panel Question 202, para. 226. 
695 US, FWS, Executive Summary, para. 98. 
696 US, SWS, Executive Summary, para. 97. 
697 US, FCCS, Executive Summary, para. 26. 
698 US, FCCS, Executive Summary, para. 27.  WT/DS316/R 
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  4.433  This leads to the second step in the analysis: what is the product that benefits from the 
subsidy?  Given the way the subsidy works, the analys is must be of the effect of the subsidies on all 
LCA as a whole.  The US notes that the EC says that  it is necessary to take account of the differences 
among the various LCA models.  The US agrees.  Wher e the US differs with the EC is in how the US 
takes account of these differences.  According to th e US, the EC approach is wrong, because it would 
force the Panel to ignore how the subsidy actually works.699 
4.434  After identifying how the subsidies work and the subsidized product, the third and final step 
in the analysis is whether the adverse effects – the various types of serious prejudice and the material 
injury – are the result of the subsidies.  With regard to displacement a nd impedance, the subsidy 
affects what Airbus has to sell, and thus certainly ha s an effect on market share.   With regard to lost 
sales, price undercutting, and price depression and suppression, the subsidy effects are plainly of sufficient magnitude, and the market is sufficiently competitive, that the effects on Boeing have been 
significant.
700 
4.435  According to the US, the key facts demonstrating adverse effects are not seriously disputable.  
First, Airbus increased its share of the world LC A market from 39 percent in 2001 to 57 percent in 
2005, and has maintained most of these gains in 2006 and, according to available data, in 2007.701  
Airbus deliveries in 2006 broke the company record  set in 2005, and in 2006 it built and delivered 
more LCA than Boeing for the fourth consecutive year.702  Second, Boeing lost significant sales to 
Airbus during this period, often as a result of dem onstrable price undercutting by Airbus.  Third, the 
prices that Boeing has been able to  receive for the LCA that it did se ll during this period have fallen, 
or failed to increase in keeping with inflation,  and largely have not recovered to this day.703  
4.436  The US notes that none of these facts, as such, are disputed.  In addition, the US notes that the 
EC concedes that the launches of the A300, A310,  A320, A330, and A340 – that is, the base model 
for every LCA that Airbus had ever delivered to  a customer before October 2007 – would not have 
occurred, at least not when and how they did, if  the Airbus governments had not provided Launch Aid 
or other subsidies.704 
4.437  The US argues that while Launch Aid has been th e primary tool that the EC and the Airbus 
governments have used to subsidize the Airbus LCA fa mily, the other subsidies also shift the costs of 
LCA development to the governments as part of the same broad strategy.705  The US asserts that 
subsidies other than Launch Aid, when provided in combination with Launch Aid, have the effect of 
amplifying and reinforcing the market-distorting im pact of Launch Aid.  To the extent that these 
subsidies to Airbus have effects that are comple mentary to Launch Aid, their effects should be 
considered together with Launch Aid.706  Because the volume and price effects of the various 
subsidies Airbus has received to develop and market its LCA family "manifest themselves collectively," it is permissible – as the panel stated in US – Cotton Subsidies , to "treat them as a 
'subsidy' and group them and their effects together."
707  
                                                      
699 US, FCCS, Executive Summary, para. 28. 
700 US, FCCS, Executive Summary, para. 29. 
701 US, SNCOS, Executive Summary, para. 16.  See, also, US, FNCOS, Executive Summary, para. 26. 
702 US, FNCOS, Executive Summary, para. 26. 
703 US, SNCOS, Executive Summary, para. 16.  See, also, US, FNCOS, Executive Summary, para. 26. 
704 US, SNCOS, Executive Summary, para. 16.  See, also, US, FNCOS, Executive Summary, para. 26. 
705 US, FWS, Executive Summary, para. 100. 
706 US, SWS, Executive Summary, para. 85. 
707 US, FWS, Executive Summary, para. 100. WT/DS316/R 
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  4.438  The US argues that subsidies have facilitated and accelerated the introduction of every major 
Airbus model, precisely as the EC and th e Airbus governments designed them to do.708  The US notes 
that while it has demonstrated that the Airbus gove rnments provided subsidies that were decisive to 
the launch of every Airbus LCA model, the EC c ontests this showing only for the A380.  The US 
asserts that Launch Aid played an indispensable role  in the development of the A380.  Nonetheless, 
the EC, by its silence, has left uncontested one of  the most important elements of the US adverse 
effects case – that Airbus and its entire product line would not be what it is today, but for the provision of Launch Aid and other subsidies.
709  
4.439  The US considers that the EC claim in this dispute that Launch Aid was not necessary for the 
launch of the A380 is contradicted by the eviden ce.  For example, the stated policy of the UK 
government is to provide Launch Aid only if the recipient demonstrates, inter alia , "that Government 
investment is essential for the project to proceed  on the scale and in the time-scale specified in the 
application."  For the French government, the prob lem was "above all" the crushing financial impact 
of private financing for the A380, even assuming it could be found, on the balance sheet of Airbus.710  
In addition, the US points out that the British g overnment concluded that the development of the 
A380 "would not have been possible if it had not been for the commitment of the British 
Government," and the French government found it " doubtful that the enterprise would be in a position 
to find outside financing" for the A380.711 
4.440  Further, the US submits that each new aircraft model that Airbus has added to its LCA family 
has targeted US LCA models.  The US notes that Airbus claims that its aircraft models were designed 
to "attack" or "kill" competitive US products or "really  hurt" a US competitor.  The US points out that 
the fact that the EC and the Airbus governments provide subsidies to help  Airbus take actions 
intended  to cause adverse effects to the US LCA indust ry is strong corrobora ting evidence that those 
adverse effects, which have in fact occurred, are caused by the subsidies.  Indeed, Airbus and the 
Airbus governments have, through their own admiss ions, confirmed each major element of the US 
adverse effects case.712 
4.441  The US argues that the provision of Launch Aid by the Airbus governments distorts the 
fundamentals of competition among LCA producers by  shifting the enormous costs and risks of 
aircraft development from the producer to the governme nts – as a French Senate report puts it, "a sort 
of insurance policy for the company against industrial risk."713 
4.442  The US argues that "Launch Aid commits Eur opean governments to absorbing much of any 
possible losses, so even if Airbus is risk averse, it has little incentive  not to adopt a risky, aggressive 
strategy."  According to the US, the Airbus governme nts thus enable Airbus to launch aircraft at an 
otherwise unsustainable scale and pace , if it could have la unched them at all.  Thus, they expand the 
range of the Airbus product family against which US producers must compete and lower the price at which Airbus is able to offer those products.
714  In the US view, the effect of Launch Aid is not only – 
and not even primarily – to bestow extra money on the LCA manufacturer when it launches.  The 
effect is also to shift much of the risk of launc h to the government – and therefore to make the very 
fact of launch more likely.715 
                                                      
708 US, FWS, Executive Summary, para. 101. 
709 US, FNCOS, Executive Summary, para. 19. 
710 US, SWS, Executive Summary, para. 80. 
711 US, FWS, Executive Summary, para. 101. 
712 US, FWS, Executive Summary, para. 102. 
713 US, FWS, Executive Summary, para. 99.  See, also, US, FNCOS, Executive Summary, para. 20. 
714 US, FWS, Executive Summary, para. 99.  See, also, US, FNCOS, Executive Summary, para. 20. 
715 US, FNCOS, Executive Summary, para. 21.  WT/DS316/R 
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  4.443  The US argues that Launch Aid also has a second and independent market-d istorting effect on 
the costs and cash flow of Airbus that gives Airbus  an advantage in pricing, particularly in LCA 
campaigns of strategic importance.  The impact of  the subsidies on the market's perception of the 
creditworthiness of Airbus is substantial.  The subsid ies thus have a direct impact on Airbus' ability to 
raise additional capital, and thus on its marginal cost of capital.  Launch Aid also reduces the cash 
drain of launch, allowing Airbus to be more flexible  in pricing all of its LCA while still maintaining a 
rapid pace of project development.716  The US argues that as the subsid ies have been instrumental in 
creating Airbus' LCA product family, they necessarily create supply-side pressure on market prices.  
Further, the impact of Launch Aid on the overall fina ncial performance of Air bus allows Airbus to 
keep to an aggressive launch schedule, while simu ltaneously following its publicly stated policy of 
pursuing market share, even at the cost of short-term profitability.717 
4.444  The US points out that what the EC calls th e "US cash flow argument" is something else 
entirely – an alleged US argument that the effect of the subsidy is to give Airbus cash that it somehow 
"uses" in order to "price down" its aircraft.  But this is an argument the US has not made.718 
4.445  The US further explained that Launch Aid also  affects "the marginal production costs and 
marginal revenue that Airbus receives from each LCA sold and delivered.  This occurs in at least two 
ways.  First, ... Launch Aid improv es Airbus's overall credit rating and therefore lowers its marginal 
cost of capital.  Given the long lead times between  investment at the time of launch and order and 
customer payment mostly at delivery, lowering Air bus's cost of borrowing has a direct impact on its 
marginal cost of production.  Second, ... if Airbus  had obtained a loan with all of the same terms as 
Launch Aid, except a commercial interest rate, each  individual per-aircraft repayment would have to 
be substantially increased.  The EC even calls this  increased per-aircraft repayment the 'benefit per 
aircraft.' .... The lower per-aircraft repayment due to subsidized Launch Aid directly results in greater 
marginal revenue (or lower marginal costs) for each  sale, and does so at the time of delivery for as 
long as the loan is outstanding.719 
4.446  The US observes that the report of Dr. Gary Dorman presents an economic model of the 
business case for a typical aircraft program and s hows how the success-dependant, back-loaded, and 
below-market aspects of Launch Aid fundamental ly change the economics of an LCA launch 
decision.720  In this model, the present value of the extra profits received because of Launch Aid if the 
"base case" assumptions turn out exac tly as expected is more than $1 billion, or 77 percent of the net 
present value without Launch Aid.  More importantly , when Launch Aid is provided, the decision to 
launch a new aircraft model is much less sensitive to  the level of confidence in the accuracy of the 
target assumptions.721  
4.447  The US considers that the EC attempt to rebut  the economic model of Dr. Gary Dorman fails, 
and in any event, the EC has chosen not to contest  that Launch Aid was decisive in most of Airbus' 
key launch decisions.  The US argues that the economis t selected by the EC to review Dr. Dorman's 
model, Dr. Wachtel does not consider the particular importance that economies of scale play in the 
LCA industry.  The US points out that as a 1995 study for the British government states, "scale 
                                                      
716 US, FNCOS, Executive Summary, para. 23.  See, also, US, SWS, Executive Summary, para. 82. 
717 US, SWS, Executive Summary, para. 82. 
718 US, SNCOS, Executive Summary, para. 20. 
719 US, Answer to Panel Question 230, para. 33 (footnotes deleted). 
720 US, FWS, Executive Summary, para. 99.  See, also, US, FNCOS, Executive Summary, para. 20. 
721 US, FNCOS, Executive Summary, para. 20. WT/DS316/R 
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  economies are so important in this t echnology that, if a producer enters  a market at all, it will always 
do so at a scale of production that makes a significant difference to its competitors' sales."722 
4.448  The US argues that nothing in the EC argumen t detracts from Dr. Dorman's conclusion that 
Launch Aid significantly affects the probability  that a launch will be profitable and therefore 
significantly influences the recipient's decision on whether  to launch at all.  However, the EC argues 
that the existence of aircraft that would not have  been launched without subsidies is part of the 
"conditions of competition" in the LCA market, a fait accompli  that the US, and the Panel, have to 
accept as given.  But some subsidies give their r ecipients a competitive advantage within the market 
as it exists, while other subsidies fundamentally  change the dynamics of the market.  Both  types of 
subsidy have an impact on the pricing and marke ting decisions of the subsidized entity, just in 
different ways.  And so both types of effect must be actionable under Part III of the SCM Agreement.  
Launch Aid lets Airbus do more than it could othe rwise do given its financial constraints, first  in 
terms of bringing new aircraft models into production, and second  in terms of having the pricing 
flexibility to gain market share with those aircraft models.723  
4.449  The US provided a statement by Professors Joseph E. Stiglitz and Bruce C. Greenwald of 
Columbia University that "discusses differences in the effects of different types of subsidies to LCA 
producers. Their conclusion is that subsidies, like Launch Aid, that directly influence the 
development, production, or sale of specific aircraft are the subsidies that are most likely to affect 
competition generally and market pricing in particul ar.  Their statement confirms that Launch Aid, 
because it has a direct impact on the supply of LC A that Airbus can produce and sell, has a causal 
relationship with the market behavior of Airbus and its impact on its competitor."724 
4.450  The US also considers its approach to the effect of the subsidy in this dispute to be consistent 
with the approach of the Appellate Body in US – Cotton Subsidies (Article 21.5) .  "According to the 
Appellate Body, an analysis of whether the 'effect of the subsidy' is significant price suppression (or, 
presumably, any of the other types of effects de scribed in Article 6.3 of the SCM Agreement) 
properly includes not only an analysis of the effect of the subsidy on short- term production levels, but 
a longer-term analysis of whether producers would even  be present in a particular market at all in the 
absence of subsidies."725  "Thus, ... significant price suppression (or, presumably, another form of 
serious prejudice) can be caused not only by a subsidy that directly impacts the recipient's short-term 
production or pricing decisions, but also by a subsid y that facilitates the entry or exit of the subsidy 
recipient into or out of a particular market and t hus the presence or absence of the subsidy recipient in 
that market over time."726 "If the Appellate Body's approach is  valid with respect to a commodity 
product such as upland cotton, it would appear to be  even more appropriate in the LCA industry, 
which has vastly longer production cycles and signifi cantly greater barriers to entry than does the 
production of upland cotton.  The United States has dem onstrated that the nature and magnitude of the 
EC and Airbus government subsidies to Airbus are su ch as to directly affect the outcome of Airbus's 
individual launch decisions, and therefore the entry of Airbus into various segments of the LCA 
market, which in turn has effects on the ma rketability of the entire Airbus LCA family."727 
4.451  The US notes that the EC response to the US  demonstration of the distorting effects of 
Launch Aid is not to contend that Launch Aid has had no im pact on Airbus' launch decisions.  Rather, 
the EC contends that the US, by arguing that subsid ies created the existing supply, in fact argues that 
                                                      
722 US, SWS, Executive Summary, para. 79. 
723 US, SNCOS, Executive Summary, para. 20. 
724 US, Answer to Panel Question 230, para. 32 (footnotes deleted). 
725 US, Comments on Appellate Body Report in US – Upland Cotton, para. 2. 
726 US, Comments on Appellate Body Report in US – Upland Cotton, para. 2. 
727 US US, Comments on Appellate Body Report in US – Upland Cotton, para. 3.  WT/DS316/R 
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  Boeing should have a monopoly in the LCA market; it then rebuts this straw man by arguing that even 
without the subsidized Airbus entry, there would ha ve been another competitor with exactly the same 
product line as Airbus.  The US considers that the EC argument is pure speculation devoid of evidentiary support.
728 
4.452  The US notes that the EC argues that even if Airbus was not able to launch any of its LCA 
models when it did, sooner or later Airbus or so me other competitor would have done so.  But it does 
not say when that "other competitor" would have entered the market, or what the technical capabilities 
and prices of the LCA produced by that "other comp etitor" would be.  Moreover, at the time Airbus 
launched the A300, A310, A320, A 330, and A340, there already was "another competitor" to Boeing, 
namely McDonnell Douglas, a US company.729 
4.453  The US notes that the EC further complains th at the US has not demonstrated that the 
subsidies have caused adverse effects because it fa ils to quantify with pr ecision the benefit that 
Launch Aid provides to Airbus and asserts that the magnitude of the benefit of Launch Aid and 
certain other subsidies is too small to produce signifi cant adverse effects.  The US considers that the 
EC contention is incorrect for several reasons.  Fi rst, the US is under no obligation to provide a 
detailed quantification and allo cation of the subsidy benefit.730  The US points out that nothing in the 
SCM Agreement requires a precise quantification of th e subsidy benefit in the context of a claim of 
serious prejudice; what matters is whether the subsid y is of sufficient magnitude to have caused the 
claimed effects.731   
4.454  Second, the EC attempt to show a small curre nt benefit from Launch Aid is riddled with 
significant errors.732  The US argues that it has shown that the magnitude of the subsidy was large 
enough to have materially affected all of Airbus' launch decisions because it did affect Airbus' launch 
decisions – that is a point that the EC mostly does not dispute.733  The US considers that the EC 
calculation of the subsidy benefit therefore is not credible.  How is it possible that government support 
played the instrumental role that it has throughout the growth of Airbus, as the EC recognizes, if the 
magnitude of the support is de minimis ?734 
4.455  The US argues that "any reasonable calculation of the magnitude of the subsidy demonstrates 
that it is – contrary to the EC's claims – very large."735  The US notes that "the identification of a 
'benefit' is only the beginning, not the end, of the inqu iry into the effect of the subsidy.  In particular, 
as the panel in US – Cotton Subsidies  recognized, it is 'common economic sense' that 'the effects of a 
subsidy may vary depending upon  the nature of the subsidy.'"736  To the extent that a rough 
calculation of the overall benefit is a useful way to  determine the general magnitude of the subsidy, 
the impact of Launch Aid, over the life of Airbus, is well over $100 billion.  This figure represents the 
additional cost that Airbus would have incurre d if it had obtained financing on the terms and 
conditions of Launch Aid at commercial interest rates fo r that type of financing.  In the US view, the 
magnitude of the subsidy is more than sufficient to  draw the conclusion that Airbus could not have 
done this. 
                                                      
728 US, SWS, Executive Summary, para. 81. 
729 US, FNCOS, Executive Summary, para. 22. 
730 US, SWS, Executive Summary, para. 83. 
731 US, SNCOS, Executive Summary, para. 21. 
732 US, SWS, Executive Summary, para. 83. 
733 US, SNCOS, Executive Summary, para. 21. 
734 US, SNCOS, Executive Summary, para. 21. 
735 US, SWS, para. 599. 
736 US, Answer to Panel Question 232, para. 48 (quoting US – Cotton Subsidies (Panel), para. 7.1208). WT/DS316/R 
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  (vi) Conclusions  
4.456  According to the US, the EC looks at this dispute through the lens of the "specific 
characteristics" of the LCA industry, including it s status as "one of the last mass-employment 
industries in economically developed countries, with  a highly skilled workforce" and "an industry in 
which a lot of pride is invested, which is consider ed strategic and is closely interwoven with defence 
industries."  The US further notes that in the EC view, the massive subsidies provided to Airbus' LCA 
development and production are justified by these "s pecific characteristics" of the LCA industry – 
though, of course, this view has no basis in the SC M Agreement.  Perhaps realizing this weakness in 
its argument, the EC has offered up a number of  other defenses, none of which are any more 
persuasive.737  
4.457  The US points out that in its statement at the first Panel meeting, the EC reminded it of the 
Appellate Body's admonition that "'{t}he procedural rules of WTO dispute settlement are designed to 
promote, not the development of litigation techniqu es, but simply the fair, prompt and effective 
resolution of trade disputes.'"  Yet, the US argues, on that day the Panel saw a perfect example of the 
EC disregard of that admonition.  The US considers that the EC has improperly designated 
information as highly sensitive business information (" HSBI") when it did not deserve that status.  A 
concern the US had when the HSBI rules were estab lished was that they could be manipulated in a 
way that would put the US at a disadvantage in ma king its case.  Regrettably, that concern was borne 
out by the EC's first submission, and was bor ne out again at the Panel's first meeting.738 
4.458  The US considers that the EC oral statement at  the first meeting was remarkable both for what 
it omitted and for its window into how the EC want s the Panel to think about this dispute.  Key 
omissions include the following: (a) The EC refers  to the SCM Agreement almost as an after-thought 
and asks instead that the Panel  focus on agreements , such as the Tokyo Round Subsidy Code and the 
1992 Agreement, that are not covered agreements and that are outside the Panel's terms of reference; 
(b) The EC disregards the concerted, systema tic, deliberate aspect of the Launch Aid Program; 
(c) The EC never mentions the $15 billion in Launch Aid that has been provided to Airbus; (d)  The 
EC never mentions the below-market interest rates that are characteristic of Launch Aid; (e) The EC 
never mentions the amount of Launch Aid debt that  is outstanding; (f) The EC never mentions the 
$4.2 billion in Launch Aid provided for the A380; (g ) The EC never mentions explicit commitments 
of Launch Aid for the A350; (h) The EC never ment ions Boeing's 20-point market share loss; (i) The 
EC never mentions sales campaigns that Boeing lost.739 
4.459  The US believes that the EC statement was rev ealing in several respects of how the EC wants 
the Panel to think about this dispute.  The EC notes that much of the EC view is summed up in 
paragraph 5 of its opening statement.  The US notes that there, the EC acknowledges that its support 
for the LCA industry is driven by a variety of so cial, non-commercial factors, such as maintaining 
"mass-employment" and preserving the "pride" invested  in the industry.  The EC would have the 
Panel believe that because the LCA industry is special, it is subject to a different set of rules.  But that 
assuredly is not the case.  The SCM Agreement is the only relevant standard for the dispute at hand, 
regardless of the factors that may make the LCA industry different from other industries.740  
4.460  Curiously, the EC acknowledgment of the LCA industry's exceptional characteristics does not 
carry over into the EC understanding of the returns that a market player providing Launch Aid type 
                                                      
737 US, SWS, Executive Summary, para. 1. 
738 US, FCCS, Executive Summary, para. 1 quoting EC First Oral Statement, para. 38 (quoting US - 
FSC (AB), para. 166). 
739 US, FCCS, Executive Summary, para. 2. 
740 US, FCCS, Executive Summary, para. 3.  WT/DS316/R 
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  financing would demand.  In any event, whatever the exceptional features of the LCA industry, they 
do not exempt it from the disciplines of the SCM Agreem ent.  Quite the contrary, the very fact that 
the SCM Agreement discusses LCA issues in certain foot notes, makes clear that the drafters thought 
about the Agreement's applicability to LCA and found it applicable.741 
4.461  Finally, the US notes that in its oral statement, the EC repeatedly appealed to the concept of 
"fairness."742  The US points out that what is fair is that the rules that the US and the EC agreed to in 
the SCM Agreement apply even-handedly.  These ar e rules the EC voluntarily undertook, not rules 
that would be "forcibly applied" to it, as it argued at the first Panel meeting.743   
2. Arguments of the European Communities 
4.462  The EC submits that to sustain its adverse effects claims, the US must show that the alleged 
subsidies at present ( i.e., the end of 2007) cause adverse effects to its LCA-related interests.  The EC 
maintains that the US failed to establish the requi red "genuine and substan tial relationship of cause 
and effect" between the alleged subsidies and the specific forms of adverse effects listed in these 
provisions.744  In particular, the EC argues that the US fa iled to establish all nece ssary elements of the 
"chain of causation" between the alleged subsidies and the alleged specific forms of adverse effects.745   
4.463  The EC remarks that under the SCM Agreement,  subsidies are, apart from export and local 
content subsidies, only actionable if they are demonstr ated to cause adverse effects.  Otherwise, they 
are legitimate public policy instruments that WTO Members are free to use.746  The EC also highlights 
its view that the 1992 Agreement should be the basis against which to judge the existence of adverse 
effects.  
4.464  The EC submits in an introductory section to  its submission, and indeed throughout its 
submission, that the US simply highlights the raw amounts of financing provided to various participants in the EC aerospace industry by EC  governments, over a period of four decades.
747  The 
EC argues that while the US exposition of figures may make for good story-telling, it is a story 
entirely devoid of either context or the specific c ontent required to state a claim of adverse effects 
under Articles 1, 5 and 6 of the SCM Agreement, including of (i) significant price suppression and depression, (ii) significant lost sales and price undercu tting, or (iii) displaced or impeded US market 
share.   
4.465  The EC argues that given that the US rai ses claims based on allegedly subsidy-lowered 
Airbus prising, the US must show that Airbus  SAS, the entity that today develops, sells and 
manufactures Airbus LCA, somehow has subsidies at its disposal with which to cause price suppression, lost sales, displacement, impedance, or material injury.  The EC argues  that it is not 
enough for the US to show that some company that  does not sell LCA has received those subsidies; 
the US must show that Airbus SAS, the compan y that sells LCA, benefits from those subsidies.
748  
According to the EC, the burden to show that Airbus  SAS receives subsidies is a first critical step in 
showing that those subsidies cause adverse effe cts – a first step the US fails to take.  
                                                      
741 US, FCCS, Executive Summary, para. 6. 
742 See, e.g. , EC First Oral Statement, para. 25. 
743 US, FCCS, Executive Summary, para. 7, citi ng EC First Oral Statement, para. 6. 
744 EC, FWS, paras. 7, 43, 2015, 2149, 2248. 
745 EC, Comments on US – Upland Cotton , paras. 35-38. 
746 EC, FCOS, para. 39. 
747 EC, FWS, Executive Summary, para. 2. 
748 EC confidential closing statement, first meeting, para. 9. WT/DS316/R 
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  4.466  According to the EC, the US adverse effect s causation analysis has many deficiencies.749  The 
EC considers that the US avoids critical issues, including by refusing to (i) discuss the 1992 Agreement, (ii) demonstrate that the EC producer of LCA benefits from any subsidies that may exist, 
(iii) recognize the market realities in relation to the definition of the subsidized and like products at 
issue, (iv) put a proper figure on any alleged subsid isation, or (v) assess how long benefits or effects 
from any subsidisation may last.  According to the EC, the US furthermore fails to demonstrate that 
the alleged subsidies cause price undercutting, price depression or lost sales taking into account the 
required legal standards, nor does the US address any of  the myriad of non-attribution factors, such as 
9/11, Boeing's own admitted mismanagement of cust omer relations and significant changes in the 
conditions of competition.   
4.467  The EC maintains that the US overly simplistic approach would allow most subsidies to be 
condemned as causing adverse effects. The EC contends  that this is not the approach permitted or laid 
out in the SCM Agreement.  In light of these defici encies, the EC submits that the US does not show a 
causal link between subsidies and adverse effects, as required by Articles 5 and 6 of the 
SCM Agreement.  Rather, in the EC's view, the US  reasoning boils down to saying that any sales by 
Airbus necessarily take sales away from Boeing and prevents Boeing from obtaining monopoly 
profits.
750  
(a) 1992 Agreement – " Volenti non fit Injuria "  
4.468  The EC argues that, in bringing its claim, the US ignores the agreement concluded with the 
EC that regulates the type and amount of government  support that may be offered to the LCA industry 
– i.e., the 1992 Agreement.751  The EC consider this to be a fu ndamental obstacle to the US claims.  
According to the EC, the US cannot argue that it su ffers adverse effects as a result of measures that 
were granted on terms that the US expressly consented to: Volenti non fit Injuria .752  T h e  E C  
considers that this principle is implicit in Artic les 5 and 6 SCM Agreement as well as Article 3 DSU, 
all of which thus support a conclusion that tho se measures cannot be considered to cause adverse 
effects.753   
4.469  In providing financing, the EC respected the te rms and conditions set out in Article 4 of the 
1992 Agreement and consider that the US has not  even attempted to rebut this argument.754  The EC 
explains that WTO law should not be interpreted in clinical isolation from the rest of international 
law.  It considers that there can be no conflict betw een two international agreements if one of the two 
contains more specific rules.  Lex specialis  prevails over the "later-in-time" rule in such a case.755     
4.470  The EC also points out that Article 10.1 of the 1992 Agreement provides that parties shall 
seek to avoid any trade conflict "on matters covered by the present Agreement".756  The 1992 
Agreement, voluntarily signed by the US, makes a careful distinction between pre-1992 and post-
1992 government support.  The EC considers that  the continued application and reliance on the 
Agreement following the entry into force of the SCM Agreement justifies the EC's reliance on the fact 
that MSF granted in accordance with the terms of  Article 4 of the 1992 Agreement would be 
                                                      
749 See, e.g., EC, FWS, paras. 7, 1375-1506.  EC, SWS, paras. 755-914. 
750 EC, closing statement, first mee ting, Executive Summary, para. 24. 
751 EC, FWS, paras. 1353-1359, EC, SWS, para. 676. 
752 EC, SNCOS, Executive Summary, para. 4. 
753 EC, SCCS, para. 3. 
754 EC, FWS, paras. 1353-1359 and EC, SWS, para. 676. 
755 EC, SNCOS, paras. 14-15. 
756 EC, Answer to Panel Question 59 and 60.  WT/DS316/R 
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  acceptable to the US.757  Since 1992, the EC has acted in a tr ansparent manner, regularly consulting 
with the US and providing the information required by the agreement.758   
4.471  In this situation, the US should be estoppe d from claiming adverse effects under Articles 5 
and 6.3 of the SCM Agreement.  It would run agai nst a fundamental principle of fairness and good 
faith if the US were allowed to first encourag e the EC to adopt certain MSF practices as being 
compatible with the 1992 Agreement and then  challenge these very same practices as being 
incompatible with the SCM Agreement.759   
4.472  Moreover, the EC notes that the 1992 Agreem ent allowed the US to provide billions of 
dollars in research and development subsidies to Boeing.  These US subsidies are among the many 
factors that have played a major role in shaping the present  conditions of competition.760 
4.473  Finally, the EC submits, in the alternative, that the US still bears the burden of proving that 
the alleged subsidies cause adverse effects.  The EC submits a host of arguments that demonstrate that the US claims of adverse effects must fail.
761 
(b) Reference Period  
4.474  The EC notes that the US argues that the Panel' s "present" adverse effects analysis is limited 
to determining whether adverse effects existed as of the date of establishment of the Panel  – i.e., 
more than three years ago, on 20 July 2005.762  According to the EC, the US errs.763  It explains that 
the disciplines of Part III of the SCM Ag reement deal with subsidies that cause present  adverse 
effects in the form of serious  prejudice and material  injury.764  That is, according to the EC, in 
examining the US claims under Articles 5 and 6.3 of  the SCM Agreement, the Panel must determine 
whether there are any present adverse effects, based on current factual conditions .765  The Panel must 
make this assessment based on an appropriate reference period.766  Citing the panel decision in US – 
Upland Cotton , the EC argues that "the most recent peri od for which data are available will be the 
appropriate period."767   
4.475  Any adverse effects that might have been caused  5, 10, 20 or 30 years ago do not constitute a 
present violation of Part III of the SCM Agreement.768  Rather, a complaining Member must show that 
the use of challenged subsidy measures causes adverse effects today .769  Only with such a showing 
would the US be entitled to remedy provide d in Article 7.8 of the SCM Agreement.770 
                                                      
757 EC, FWS, paras. 1353-1359 and EC, SNCOS, paras. 11-13. 
758 EC, Answer to Panel Question 59 and 60. 
759 EC, Answer to Panel Question 59 and 60. 
760 EC, SWS, para. 659. 
761 See, e.g. , EC, SCOS, para. 23 and EC, FWS, paras. 1999-2259, EC, SWS, paras. 755-914. 
762 US, FWS, note 916.   
763 EC, FWS, paras. 1468-1506. 
764 EC, FWS, paras. 1491-1506. 
765 EC, Comments on US – Upland Cotton (21.5) , para. 20. 
766 EC, FWS, paras. 1468-1506; EC, FNCOS, paras. 134-141. 
767 EC, FWS, para. 1479. 
768 EC, FWS, paras. 1792-1794; 1799, 2019-2020, 2073-2075. 
769 EC, Comments on US – Upland Cotton (21.5) , paras. 8-28. 
770 EC, Comments on US – Upland Cotton (21.5) , paras. 27-28. WT/DS316/R 
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  4.476  The EC cites to the panel and Appellate Body Reports in US – Upland Cotton (Article 21.5 – 
Brazil)  in support of its position.771  The EC also explains that the prevailing US arguments in that 
dispute are directly contrary to the ar guments the US advances in this dispute.772   
4.477  The EC notes that, before the panel in US – Upland Cotton (Article 21.5 – Brazil) , the US 
argued that the relevant time period for the panel to examine Brazil's claims of significant price 
suppression was "the immediate present rather than a historical period."773  The United States in that 
dispute urged the panel to use marketing year 2006774 – i.e., a time period extending well after the date 
of the establishment of the panel in that dispute (28 September 2006).775  The panel in US – Upland 
Cotton (Article 21.5 – Brazil) agreed with the United States that it was required to assess data and 
evidence from marketing year 2006 in making its findings on Brazil's present  adverse effects 
claims.776   
4.478  The EC also notes that the compliance panel in US – Upland Cotton (Article 21.5 – Brazil)  
further reasoned that  
{t}he claim of Brazil under Article 6.3(c) of  the SCM Agreement requires an analysis 
by the Panel as to whether "the effect of the subsidy … is  … significant price 
suppression."  While the SCM Agreement does not contain a specific provision on the period to be considered for this purpose, th e use of the present tense logically implies 
the need to make a determination with respect to the present period .777   
4.479  Moreover, the compliance panel held that it was required to examine the most current factual 
information  in making its assessment of Brazil's adverse effects claims.  Specifically, the panel noted 
that it saw "no reason to exclude data relating to  MY 2006 to the extent that it is available."778  The 
panel continued its reasoning, stating that a 
failure to take into account relevant and available data  placed before us pertaining to 
the period since July 2006 would not be consistent with the requirement under 
Article 11 of the DSU  that a panel 'make an objective assessment of the matter before 
it, including an objective assessment of the facts of the case ….779 
4.480  Relying on the panel and Appellate Body decisions in US – Upland Cotton (Article 21.5 – 
Brazil) , the EC also  refutes the US reliance on the EC –  Biotech case.780  The United States cites to 
EC – Biotech as allegedly mandating the Panel to examine only whether adverse effects existed at the 
time of the panel request.781  The EC argues that the EC –  Biotech decision is not relevant for 
purposes of this dispute because the case did not involve a claim of present adverse effects under 
Articles 5 and 6 of the SCM Agreement .782  T h e  US – Upland Cotton decisions have firmly 
                                                      
771 EC, SWS, paras. 677, 679, 695-696; EC, Comments on US – Upland Cotton (21.5) , paras. 27- 28.   
772 EC, Comments on US – Upland Cotton (21.5) , paras. 9-11. 
773 EC, Comments on US – Upland Cotton (21.5) , note 2. 
774 MY 2006 began on 1 August  and continued through 31 July 2007.  EC, Comments on US – Upland 
Cotton (21.5) , para. 10. 
775 The date of the establishment of the panel in that dispute was 28 September 2006.  EC, Comments 
on US – Upland Cotton (21.5) , para. 10.    
776 EC, Comments on US – Upland Cotton (21.5) , para. 11. 
777 EC, Comments on US – Upland Cotton (21.5) , para. 14. 
778 EC, Comments on US – Upland Cotton (21.5) , para. 16. 
779 EC, Comments on US – Upland Cotton (21.5) , para. 17.   
780 EC, Comments on US – Upland Cotton (21.5) , paras. 25-26. 
781 US, SWS, paras. 673-684. 
782 EC, Comments on US – Upland Cotton (21.5) , paras. 25-26.  WT/DS316/R 
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  established that claims of adverse effects under Articles 5 and 6 of the SCM Agreement  are particular 
because they require the establishment – at the time of briefing before the Panel – as to whether 
adverse effects are present.  Adverse effects claims necessarily focus on present  effects of subsidies – 
not past effects predating the period of time before the briefing before the panel.783  Both US – Upland 
Cotton panels have noted that the text of Article 6.3 ("the effect of the subsidy … is significant price 
suppression") "logically implies the need to make  a determination with respect to the present 
period."784     
4.481  Second, the EC – Biotech case is also inapplicable because it dealt with the question of 
whether the panel had jurisdiction to rule on whether there was a measure existing at the time of the 
establishment of the panel and whether that me asure continued to exist at the end of the 
proceedings.785  In this case, there is no dispute co ncerning any change to the alleged subsidy 
"measures" at issue since September 2005 (except th at time has confirmed the absence of any alleged 
subsidies for the A350).786  But even if those measures had been withdrawn or expired, the question 
before this Panel would be whether there are continuing adverse effects today from those measures.787  
That is the essence of an Article 5 and 6.3 claim involving "present" adverse effects as confirmed by 
both US – Upland Cotton panels and the Appellate Body.788  Moreover, in EC – Selected Customs 
Matters , the Appellate Body emphasized that "{e}vidence  in support of a claim challenging measures 
that are within a panel's terms of reference may pre-date or post-date  the establishment of the 
panel."789 
4.482  The EC identifies data and evidence from the 2004-2007 period as reflecting current  factual 
conditions under which, according to the EC, the Panel must assess whether the alleged subsidies 
cause present  adverse effects.  Both US – Upland Cotton panels have noted that past effects may be 
relevant but only if they reflect conditions of co mpetition that are similar to present conditions of 
competition.790   
4.483  The US adverse effects claims are based, to a large extent, on evidence of alleged adverse 
effects from the period 1999-2003.  Yet, sales cam paigns during that time period were conducted 
under very different conditions of competition that tho se in effect today.  Therefore, these historic 
sales campaigns provide the Panel with little, if any,  information about the effects of any subsidies 
under present conditions of competition. 
4.484  The EC argues that use of data from the 2001-2003 period to substantiate a finding of 
displacement or impedance in the European Community market or third country markets under 
Articles 6.3(a) and 6.3(b) of the SCM Agreement would be inconsistent with Article 6.7(c).  
Therefore, the EC considers that the Panel is le gally precluded from using such information as a basis 
for assessing the US' displacement or impedance claims .  With respect to the remaining US claims of 
serious prejudice or its claim of material injury, it is not the position of the EC that the Panel is precluded, as a matter of law, from consideri ng information from 2001-2003, or from any other 
period.  Instead, the EC questions the relevance of information from a historical period exhibiting 
                                                     
 
783 This contradicts the US arguments at paragraph 678 of its second written submission where the 
United States argues – contrary to what it argued before the panel in US – Upland Cotton (Article 21.5 – Brazil) 
– that the word "is" allows panels to make findings that adverse effects may have existed at any time, even 
presumably in the distant past.   
784 EC, Comments on US – Upland Cotton (21.5) , para. 14. 
785 EC, Comments on US – Upland Cotton (21.5) , paras. 25-26. 
786 EC, Comments on US – Upland Cotton (21.5) , paras. 25-26. 
787 EC, Comments on US – Upland Cotton (21.5) , paras. 25-26. 
788 EC, Comments on US – Upland Cotton (21.5) , paras. 25-26. 
789 EC, Comments on US – Upland Cotton (21.5) , para. 26. 
790 EC, Comments on US – Upland Cotton (21.5) , para. 25. WT/DS316/R 
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  conditions of competition that are very different from those prevailing in the LCA industry today to 
establishing the existence or absence of present adverse effects.  791  The EC points out that both US – 
Upland Cotton panels have noted that past effects may be relevant to an assessment of present effects, 
but only if  they existed under conditions that resemble current factual conditions.792     
4.485  The EC argues that in presenting its claim, the US ignores that there have been fundamental 
changes in the LCA markets since 2003.  The EC argues that these changed economic circumstances 
(i) make pre-2004 data largely irrelevant to the Pane l's assessment and (ii) have eliminated any basis 
for finding, on that basis, that adverse effects exist presently .793  Specifically, the EC considers 
relevant the following facts.794   
4.486  First, the nature and extent of de mand for LCA has changed significantly.795  The 2001-2003 
period following the events of 9/11 was characterized  by extraordinarily low demand, few deliveries, 
low revenues, and significant reductions  in LCA prices for new and used LCA.796  Mr. Christian 
Scherer, Executive Vice President of Airbus, c onfirms that this period was a "buyers' market ," in 
which both Airbus and Boeing had every incentive to compete vigorously to win sales campaigns on 
pricing considerations or other competitive parameters.797  In comparison, Mr. Scherer confirms that 
today's conditions of competition in the LCA markets reflect a "sellers' market ."798  Today, demand 
for LCA has exploded to record highs in line with de mand for air travel, and as a result of air traffic 
liberalization and the economic boom in China, India and the Middle East.799  Mr. Scherer explains 
that part of this demand-side development is the rapid growth and success of low-cost carriers in North America, Europe and Asia.  The importance and market presence of low-cost carriers has 
expanded exponentially, as the low fares offered by  such airlines have created additional demand for 
air travel.
800  In the current market conditions reflec ting very high demand, Airbus and Boeing 
generally have less of an incentive to heavily discount LCA prices, including an incentive to use 
subsidy funds, if available.801 
4.487  Second,  both manufacturers' order backlog has increased dramatically.802  In the buyers' 
market following 9/11, Mr. Scherer notes that bot h Boeing and Airbus had difficulties securing 
sufficient orders to keep their production lines filled.803  This has changed since the beginning of 
2004.  Since then, both Boeing and Airbus have experienced sustained, exponential growth in 
orders.804  Mr. Scherer explains that this growth h as been far greater than both manufacturers' 
capability to meet demand.  Although Boeing and Airbus are producing at full capacities, at 
                                                      
791 EC, Answer to Panel Question 204, paras. 279-289. 
792 EC, Comments on US – Upland Cotton (21.5), para. 25. 
793 EC, Comments on US – Upland Cotton (21.5) , para. 33. 
794 EC, Comments on US – Upland Cotton (21.5) , paras. 25-26. 
795 EC, Comments on US – Upland Cotton (21.5) , paras. 25-26. 
796 For further details on the effects of 9/11 on the conditions of competition in the LCA markets, see 
EC, FWS, paras. 1440-1467; EC, Answer to Panel Question 116, paras. 355-368; EC, SWS, paras. 1092-1099; 
EC, SNCOS, paras. 314, 316, 325, 334; EC, Answer to Panel Question 286, 288, 292, paras. 241-256, 280, 284, 
292, 318. 
797 EC, SNCOS, para. 334. 
798 EC, SNCOS, para. 335. 
799 EC, SNCOS,  para. 335. 
800 EC, SNCOS, paras. 337-338. 
801 EC, SWS, paras. 1072-1076; EC, SNCOS, para. 316. 
802 EC, Comments on US – Upland Cotton (21.5) , para. 33. 
803 EC, SNCOS, paras. 314, 325. 
804 EC, FWS, paras. 1361-1364.  WT/DS316/R 
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  increasing rates, both manufacturers' order backlog is ever increasing.805  For example, the value of 
Boeing Commercial Airplane's backlog is now $255 billion – it increased by 46 percent in 2007 to 
more than seven times BCA's revenue in that year .806  Similarly, Mr. Scherer confirms that the time 
until delivery for new orders constantly increases.  Boeing's new customers must wait four to six years 
between an order and delivery of its 737NG, 787, and 777 family LCA.807   
4.488  Third, there have been significant changes in  LCA products competing in sales campaigns 
through the introduction of new LCA and the abandonment of other LCAs.808  Mr. Scherer explains 
that the period since the beginning of 2004 is dis tinct from earlier periods because of changes in the 
LCA product offerings of Boeing and Airbus that compete in sales campaigns.  These changes affect 
the competitive position of both manufacturers  and include the launch of Boeing's 787809 and 747-8,810 
the launch of Airbus' A350XWB811 and the entry into service of Airbus' A380.812  Other LCA, such as 
Boeing's 717 and 757 and Airbus' A300 and A310, were phased out.813  Similarly, the Boeing 767 has 
effectively been replaced by the 787.814  
4.489  Fourth, critically, Boeing's change in business strategy altered the conditions of competition 
in the LCA markets since 2004.815  Over the 1999-2003 period, Boeing CFO James Bell 
acknowledged that Boeing – as the incumbent LC A supplier – had an "entitlement mentality."816  
Boeing officials readily acknowledge that Boeing had lost its customer focus and had poorly marketed 
its products, which led the company to lose market share.817  This changed in 2004, when Boeing 
replaced its head of sales with Scott Carson.  Mr . Scherer notes that under Carson, Boeing started 
engaging in a noticeable, widespread standardized pricing policy change.818  Mr. Scherer testified that 
the "new" BCA was much more pri ce-aggressive in sales campaigns, offering steep discounts to all its 
customers to a much greater extent than had been observed in the past.819      
4.490  Finally, changes in the regulatory environment affecting the LCA industry have changed 
conditions of competition.820  Mr. Scherer explains that through the de-regulation and liberalization of 
air traffic, the air transportation business ha s undergone – and is still undergoing – significant 
changes.821  Mr. Scherer notes that the de regulation of state-owned airlines in many countries, as well 
as the growth of "open sky" agreements, ha ve opened a considerable number of routes.822  Many new 
airlines were formed, particularly in China, India, and other parts of Asia, but also in Europe and in 
the Middle East.  Those airlines are now attempting to meet rapidly increasing demand for air travel, 
                                                      
805 EC, Answer to Panel Question 210 and 211, paras. 467-504; EC, Comments on US Answer to Panel 
Question 240, paras. 192-220. 
806 EC, Comments on US – Upland Cotton , para. 33. 
807 EC, SNCOS, para. 417. 
808 EC, Comments on US – Upland Cotton (21.5) , para. 33. 
809 EC, FWS, paras. 2000-2010, 2191 and 2300 for a discussion of the effect of the launch of the 787 in 
the 200-300 seat LCA market. 
810 EC, FWS, paras. 1689-1700 for a discussion of the launch of the 747-8. 
811 EC, FWS, para. 2301. 
812 EC, SNCOS, para. 321. 
813 EC, FWS, note 2011; US, FWS, note 904. 
814 EC, FWS, paras. 2000-2010 and 2026.   
815 EC, Comments on US – Upland Cotton (21.5) , para. 33. 
816 EC, FWS, para. 1462. 
817 EC, FWS, paras. 1459-1466. 244; 
818 EC, SNCOS, paras. 325-326. 
819 EC, SNCOS, paras. 325-326. 
820 EC, Comments on US – Upland Cotton (21.5) , para. 33. 
821 EC, SNCOS, para. 322, 335. 
822 EC, SNCOS, para. 322, 335; EC, FWS, paras. 1745-1746. WT/DS316/R 
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  and to build in expectations for future growth.  In  addition, regulatory pressu res increase the need to 
replace older aircraft, in particular noise constraints and emissions constraints.823    
(c) Subsidized and like product 
4.491  The EC asserts that it corrects the artificial US  grouping of all Airbus LCA into a single 
"subsidized" product and all Boeing LCA into a single like product.824  The EC argues that the 
product and market analyses must be based on objective facts taking into account the physical, 
performance and price characteristics, and the perc eption of market participants of the products 
involved.825   
4.492  The EC presents evidence – including statem ents from Airbus Executive Vice President 
Christian Scherer, airline expert Rod Muddle, fina nciers, airline customers and Boeing itself – to 
demonstrates that the US single subsidized and single like product theory conflicts with market 
realities.826  The EC submits that technologically adva nced, sophisticated and made-to-order LCA are 
not fungible commodities.827  According to the EC, the differences in physical – particularly seating 
capacity and range – performance and price characteri stics, the perception of market participants, 
including Boeing and Airbus, and the actual compe titive relationships between these products confirm 
there to be different Airbus LCA competing in different  LCA markets.828  
4.493  The EC identifies five different LCA product markets.829  Airbus "subsidized" products 
almost exclusively compete with Boeing "like" products in three of these five product markets.830  In 
his testimony, Mr. Scherer confirms the multitude  of evidence supporting the existence of the 
following five LCA markets:831  (i) the single-aisle (100-200 seat) LCA market, where the Airbus 
A320 and Boeing 737NG family LCA compete;832  (ii) the 200-300 seat LCA market, where the 
Airbus A330 family and A350XWB-800 LCA and Boeing 767 and 787 family LCA  compete;833  (iii) 
the 300-400 seat market, where the Airbus A 340 family, A350XWB-900 and -1000XWB and Boeing 
777 family LCA compete;834  (iv) the 400-500 seat LCA market, where Boeing offers its 747 family 
LCA with no competing Airbus product;835  and (v) the 500+ seat LCA market, where Airbus offers 
its A380 LCA, with no competing Boeing product.836  The EC also argues that Boeing itself divides 
its product portfolio into the same separate markets as those proposed by the EC.837   
4.494  In addition, the EC adduces statements of Boei ng executives confirming that the 747-8 is "the 
only airplane serving the 400- to 500-seat market."838  Further, the EC provides evidence to 
demonstrate that the Airbus A380 is not "like" th e Boeing 747-8 and that both are sold and marketed 
                                                      
823 EC, SNCOS, para. 322, 335. 
824 US, FWS, para. 1554. 
825 EC, FWS, paras. 1507-1568. 
826 EC, FWS, paras. 1347-1351, 1427-1439, 1526-1550. 
827 EC, SNCOS, para. 351. 
828 EC, FWS, paras. 1523-1568. 
829 EC, FWS, paras. 1539-1550. 
830 EC, FWS, paras. 1542-1549. 
831 EC, SNCOS, paras. 319-332. 
832 EC, SNCOS, para. 318. 
833 EC, SNCOS, paras. 328-330. 
834 EC, SNCOS, para. 331. 
835 EC, SNCOS, para. 332-333. 
836 EC, SNCOS, para. 332-333. 
837 EC, FWS, paras. 1535-1536. 
838 EC, SWS, para. 730.  WT/DS316/R 
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  in different LCA markets.839  According to the EC, Boeing executives concur with the EC 
assessment.840   The EC adduces the following remark by Boeing's then Vice President Marketing, 
Randy Baseler, to that effect:  "You'll probably see a lot of coverage in which the A380 is compared 
side-by-side with the Boeing 747-8. So, just to be  clear, these two airplanes serve different markets - 
the 747-8 has about 100 fewer seats. We think there's a market there for both airplanes."841 
4.495  The EC notes that, to overcome these facts, the US relies on the alleged importance of 
commonality between Airbus LCA842 and "bundled" sales (also called "package" deals).843  The EC 
argues that the US grossly overstates the importance of commonality and bundled sales.844  The EC 
provides evidence to demonstrate that these two factors are not significant enough to warrant 
conflating different aircraft families into one single LCA market.845  In addition, the EC submits that 
these factors do not affect the way in which Boeing,  airlines, leasing companies, and other market 
participants perceive  the various Airbus product, i.e., as belonging to different LCA markets. 846 
4.496  With regards to the legal arguments regarding "subsidized" and like" products, the EC asserts 
that it corrects the inaccurate US assertion that the Panel is required to slavishly adhere to the US 
definition of a single subsidized and like product.847  The EC argues that Article 11 of the DSU 
requires the Panel to conduct an objective assessment of the facts and matter before it – not merely 
rubber-stamp one Member's arguments.848  The EC asserts that it is fundamentally a question of fact 
for the Panel to determine the identity and com position of the "subsidized" product and the like 
product.849  The EC submits that this is confirmed by the panel's approach in Korea – Commercial 
Vessels .850  In that dispute, the panel did not find that  its causation analysis must slavishly follow a 
complaining Member's assertions regardi ng "subsidized product" and "like" product.851  Instead, that 
panel concluded after "having considered this question carefully" that "we should make separate 
serious prejudice findings in respect of each product category {which is} necessary for analytical coherence, i.e., the scope of our final conclusions on seri ous prejudice will be consistent with the 
scope of our analysis of price suppression/price depression ."
852 
4.497  The EC argues that this objective assessment must be based largely on the physical 
characteristics of the products, principally their seating capacity and range, and how those differences 
are perceived in the marketplace.853  The EC argues that this market-b ased analysis is consistent with 
footnote 46 of the SCM Agreement.854  This provision  requires the "like" product to have, inter alia , 
"characteristics closely resembling those of the product under consideration," as confirmed by the 
panel in Indonesia – Autos .855  The panel in that dispute furthermore emphasized that "innumerable 
                                                      
839 EC, FWS, paras. 1731-1738; EC, FCCS, paras. 26-28; EC, SWS, paras. 727-736. 
840 EC, FCCS, para. 25; EC, SWS, paras. 729-730. 
841 EC, FCCS, para. 25. 
842 US, FNCOS, para. 162; US, Answer to Panel Questio n 39, paras. 228-234; US, SWS, para. 365.     
843 US, FCOS, paras. 65-67.   US, Answer to Panel Question 131, paras. 422-428. 
844 EC, SWS, paras. 703-726. 
845 EC, SWS, paras. 705-706; EC, Answer to Panel Question 131; EC, SWS, paras. 720-726; EC, 
SNCOS, paras. 354-355. 
846 EC, FWS,  paras. 1523-1550; EC, SWS, para. 711. 
847 EC, SWS, paras. 737-743; EC, SNCOS, paras. 352-353. 
848 EC, Answer to Panel Question 128-130, paras. 404-419. 
849 EC, SWS, paras. 737-742. 
850 EC, Answer to Panel Question 128-130, paras. 409-410. 
851 EC, Answer to Panel Question 128-130, para. 409. 
852 EC, Answer to Panel Question 128-130, para. 409. 
853 EC, Answer to Panel Question 128-130, paras. 404-419. 
854 EC, Answer to Panel Question 128-130, para. 409. 
855 EC, Answer to Panel Question 128-130, para. 417; EC, FWS, para. 1520. WT/DS316/R 
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  differences among passenger cars and … the identificati on of appropriate dividing lines between them 
… does not … justify lumping all such products together where the differences among the products 
are so dramatic."856  The EC argues that similar to the panel in Indonesia – Autos , the Panel should 
consider and rely on Boeing, Airbus, airlin es, leasing companies and LCA industry experts' 
perceptions concerning the various LCA markets.857    
4.498  In addition, the EC argues that a decision rega rding subsidized and like product must give 
meaning not only to the physical similarities require d by footnote 46, but also whether those products 
are in actual competition to each other .858  The Appellate Body in US – Upland Cotton confirmed that 
"two products would be in the same market if they  were engaged in actual or potential competition in 
that market."859  Thus, allegedly subsidized aircraft may r easonably be considered to be in the same 
market if they are engaged in actual or potential competition  with each other.860  According to the EC, 
the US reliance on AD jurisprudence, in particular US – Softwood Lumber , for the definition of  "like" 
product ignores that the primary focus of an a dverse effects cl aims under Part III of the 
SCM Agreement  is the effects of subsidies on actual or potential competition in particular product 
and/or geographic markets.861   
4.499  Finally, the EC argues that, in any event, the causation analysis must be conducted on the 
foundation of appropriate groupings of products that compete in th e relevant markets at issue.862  
Indeed, the EC notes that the US presents its ow n sales-campaign-based causation arguments largely 
with reference to exactly the same product gro upings and markets advocated by the European 
Communities.863  Ultimately, determining whether subsidy effects exist or not must be conducted by 
examining their impact on actual competition between Airbus and Boeing LCA.864  That actual 
competition takes place in the competitive LCA markets identified by the EC.   
(d) Material Injury 
4.500  The EC argues that a claim unde r Article 5(a) involves two cu mulative steps:  First, an 
assessment of whether the domestic industry of anot her Member is suffering from "material injury;" 
and, second, whether the identified material injury f ound in the first step is caused by reason of the 
"use of any subsidy."865   
4.501  The EC argues that, given the lack of any credib le evidence of material injury to Boeing over 
the period 2001-2007 or 2 004-2007, the Panel need not move on to the second step in the enquiry, i.e., 
whether the material injury was caused by  the effects of the alleged subsidies. 866  The EC explains 
that, for purposes of its material injury claim, th e US agrees with the EC and properly adopted a 
bifurcated approach, i.e., it first sought to attempt to demonstrat e the existence of material injury to 
Boeing, and in a second step, attempted to prove su ch material injury was caused by the alleged 
                                                      
856 EC, Answer to Panel Question 128-130, para. 417. 
857 EC, Answer to Panel Question 129, paras. 437-441. 
858 EC, Answer to Panel Question 129, para. 442; EC, Answer to Panel Question 128 and 130, 
paras. 406, 411-414. 
859 EC, FWS, para. 1518; EC, Answer to Panel Question 128 and 130, para. 406. 
860 EC, Answer to Panel Question 128 and 130, para. 406. 
861 EC, FWS, para. 1518; EC, Answer to Panel Question 129, paras. 423-427; EC, SWS, paras. 751-
753. 
862 EC, FWS, paras. 1518-1519; EC, Answer to Panel Question 128 and 130, paras. 408-410. 
863 EC, Answer to Panel Question 128 and 130, para.413 citing US, FWS, paras. 779-787, 804, 806-
808.     
864 EC, FWS, paras. 1518-1519; EC, Answer to Panel Question 128 and 130, paras. 408-410. 
865 EC, FWS, para.2146. 
866 EC, Comments on US Answer to Panel Question 240, para. 195.    WT/DS316/R 
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  subsidies.867  According to the EC, this means that, if th ere is no present "decline{}in the state of the 
domestic industry, " the Panel need not assess "wha t factors caused" that state, including alleged 
subsidies.868   
4.502  The EC refers to its arguments that the Panel is required to assess the existence of present 
adverse effects from the alleged subsidies.  Accordi ng to the EC, the US must, therefore, demonstrate 
present  material injury on the basis of the most recent  data available that is complete and reliable.  
The EC submits that complete and reliable data on the condition of Boeing is available through the 
end of 2007.869  Thus, the US cannot meet its burden of demonstrating material injury by relying 
exclusively on data from the 2001-2004 period.870   
4.503  The EC adduces extensive evidence to demonstr ate that Boeing is not presently materially 
injured or threatened with material injury.871  The following table, prepared by the EC, summarizes 
data regarding Boeing's financia l and commercial performance: 
                                                      
867 EC, Answer to Panel Question  288, paras. 273-275; US, Answer to Panel Question  241, paras. 95-
96. 
868 EC, Comments on US Answer to Panel Question  240, para. 195. 
869 EC, Comments on US Answer to Panel Question  240, paras. 192-200. 
870 EC, Comments on US Answer to Panel Question  240, para. 194. 
871 EC, FWS, paras. 2137-2246. WT/DS316/R 
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  Trends in Boeing's LCA Operations – 2001-2007872 
 
 2001 2002 2003 2004 2005 2006 2007 Change 
(2004 – 
2007) 
Sales (LCA 
ordered) 316 251 249 277 1,025 1,052 1,421 +414% 
Share of global  
market (by LCA) 50% 47% 47% 45% 51% 56% 50% +5% 
Share of global  
market (by seats) 41% 51% 35% 46% 55% 59% 49% +3% 
Share of US 
market  
(by LCA) 48% 59% 43% 35% 57% 69% 50% +15% 
Share of US 
market  
(by seats) 47% 54% 40% 33% 55% 73% 51% +18% 
Contractual 
backlog at year end  
(US 
dollars, millions) 75,850 68,159 63,929 70,449 124,132 174,276 255,200 +262% 
Backlog units at 
year  
end (LCA) 1,228 1,098 1,066 1,058 1,796 2,455 3,427 +224% 
Production  
(LCA delivered) 527 381 281 285 288 396 440 +54% 
Net earnings  
(US 
dollars, millions) 1,911 2,107 707 753 1,432 2,733 3,584 +376% 
Operating 
margin 5.45% 7.41% 3.31% 3.78% 6.70% 9.60% 10.74% +184% 
Return on assets  
(LCA Division-only) 15.9% 20.2% 8.1% 10.2% 19.9% 26.5% 31.2% +206% 
Return on assets  
(US method) [***] [***] [***] [***] [***] [***] [ ***] [***] 
Cash flow  
(US dollars, millions) 2,244 2,345 977 839 1,206 2,158 2,943 +251% 
Employment, 
applying US exclusions 
January  
December  
 
[***] 
[***]  
 
[***] 
[***]  
 
[***] 
[***]  
 
[***] 
[***]  
 
[***] 
[***]  
 
[***] 
[***]  
 
[***] 
[***]  
 
[***] 
[***] 
Wages per 
employee  [***] [***] [***] [***] [***] [***] n/a n/a 
Utilization of 
capacity n/a n/a n/a ~100% ~1 00% ~100% ~100% - 
Productivity (US  
dollars, thousands) [***] [***] [***
] [***] [***] [***] [***] [***] 
 
                                                      
872 EC, Comments on US Answer to Panel Question 240, table at para. 199.  WT/DS316/R 
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  4.504  The EC explains that the required assessment of  the overall picture of the domestic industry, 
as demonstrated by the above data, establishes that Boeing is not presently  materially injured.873   The 
2004-2007 period data demonstrates Boeing's LCA bus iness remains vibrant, with Boeing achieving 
record profit levels (operating profits up 184per cent), record order levels (up 414per cent), and a 
record order backlog (up 224per cent).  In light of th is data, the EC argues that the US depiction of 
"the poor state of the domestic industry,"874 which the US attributes to "decreased revenues due to 
dramatically reduced production and sales volume and lower unit prices,"875 is wildly out of touch 
with reality.876 
4.505  The EC explains that this current sales and financial data evidences that Boeing is neither 
experiencing present material injury nor is threatened with material injury.877   In particular, the EC 
points out that, at 3,427 aircraft orders, the 2007 level of the Boeing's backlog – nearly eight times the total number of aircraft Boeing produced in 2007 – is evidence that this robust health is not 
temporary.
878  In addition to the above empirical data , the EC quotes the remarks of former Boeing 
Vice President Marketing, Randy Baseler, characteri zing the future of Boeing's LCA business in the 
following glowing terms: "The Future's So Bright, I Gotta Wear Shades."879 
4.506  The EC further argues that 2006 data provide d by the US also corroborates the absence of 
material injury in that year.880  The EC also notes that the US recognition that "the state of the 
domestic industry has improved since the establishment of the Panel" 881 in mid-2005 and explains 
that this statement implies that the US accepts th e absence of present material injury to Boeing.882  
4.507  The EC argues that, given the lack of material injury to Boeing, the Panel need not move on 
to the second step in the enquiry, i.e., whether the material injury w as caused by the effects of the 
alleged subsidies. 883   
4.508  In any event, the EC argues that  the US has failed to demonstrate a causal link and that the 
EC arguments rebutting the existence of the various  forms of serious prejudice would apply similarly 
to rebut any causal link between the alleged subsidies and the alleged material injury.884   
4.509  Finally, the EC notes that the US provided data relating to Boeing's LCA operations as a 
whole, but fails to provide data relating to each  of the properly separated US domestic industries 
producing LCA for the various separate product markets at issue – i.e., the single-aisle 100-200 seat 
LCA market, the 200-300 seat LCA market, the 300- 400 seat LCA market, and the 400-500 seat LCA 
                                                      
873 EC, Answer to Panel Question 261, paras. 82-94; EC, Comments on the US, Answer to Panel 
Question 240; EC, Comments on US Answer to Panel Question 242, paras. 230-232. 
874 US, Answer to Panel Question 241, para. 96; EC, Comments on US Answer to Panel Question 240, 
para. 205. 
875 US, Answer to Panel Question 241, para. 96; EC, Comments on US Answer to Panel Question 240, 
para. 205. 
876 EC, Comments on US Answer to Panel Question 240, para. 205.   
877 EC, FWS, paras. 2137-2246; EC, SWS, paras. 1175-1193; EC, SNCOS, paras. 293-310; EC, 
Comments on US Answer to Panel Question  240, paras. 192-220; EC, Answer to Panel Question 261, paras. 82-94. 
878 EC, Comments on US Answer to Panel Question 240, table at para. 199; EC, Comments on US – 
Upland Cotton  (21.5), para. 33. 
879 EC, FWS, para. 2234. 
880 EC, Comments on US Answer to Panel Question 240, para. 197. 
881 EC, Comments on US Answer to Panel Question 240, para. 197. 
882 EC, Comments on US Answer to Panel Question 240, para. 197. 
883 EC, FWS, paras. 2146-2148. 
884 EC, FWS, paras. 2138, 2148-2158, 2260-2324. WT/DS316/R 
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  market.885  According to the EC, the US also  failed for this reason to make a prima facie case that the 
alleged subsidies cause material injury.886 
(e) Causation 
(i) Magnitude of the Subsidy 
4.510  The EC argues that the US causation arguments  fail to address the crucial issue of the present  
magnitude and age of the alleged subsidies.887   
4.511  The EC points out that WTO panels and the Appellate Body have repeatedly stressed the 
importance of determining the magnitude of the su bsidy for an objective assessment of an adverse 
effects claim.  Specifically, the Appellate Body expl ained that "{t}he magnitude of the subsidy is an 
important factor" in determining whether a subsidy causes effects that are remediable under Part III of 
the SCM Agreement.888  In US – Upland Cotton , the Appellate Body also found "that a panel should 
have regard to the magnitude of th e challenged subsidy" and that "it might be difficult to decide this 
question {whether adverse effects are caused}  in the absence of such an assessment."889  T h e  
Appellate Body further held that "{a}ll things bein g equal, the smaller the subsidy for a given product, 
the smaller the degree to which it will affect the cost  or revenue of the recipient, and the smaller its 
likely impact on the prices charged by the recipient for the product."890  And the panel in US – Upland 
Cotton  found that "with the passage of time a subsidy' s effects may diminish.  For example a subsidy 
granted 9 or 10 years ago would indubitably be less li kely to affect producer decisions now than it did 
8 years ago."891 
4.512  The EC submits that the US ignores this jurisp rudence and fails to provide the annual or per-
aircraft magnitude of the alleged subsidies during the relevant reference pe riod.  The EC points out 
that the US fails even to establish that the benef it of subsidies actually passed through Airbus SAS.  
The US causation theory requires proof that, notwith standing share transfers leading to the extinction 
of subsidies, cash extractions and the passage of time, subsidies (most of which were conferred 
decades ago) provide Airbus SAS with the fina ncial cushion necessary to cause present adverse 
effects.892 
4.513  According to the EC, the US failure to provide  annual or per-aircraft subsidy magnitudes is 
telling.  The EC explains that it assessed the magn itude of the alleged MSF and R&T subsidies to 
Airbus and its predecessor companies based on US  CVD methodology, as informed by Boeing, and 
based on the overstated US benchmarks.893  Even with the overstated US  benchmarks, the results of 
the EC analysis show that the magnitude of any "tied" and allocated subsidies for the A320, A330, 
A340, family LCA are at de minimis  levels, i.e., significantly below 1 percent ad valorem .  Combined 
with the fact that most of the alleged subsidies were granted 15-25 years ago, th e de minimis  levels of 
                                                      
885 EC, Comments on US Answer to Panel Question 240, para. 220; EC, Answer to Panel 
Question 225, paras. 571-592. 
886 EC, FWS, para. 2137. 
887 EC, FWS, para. 1569. 
888 EC, FWS, para. 1571,1576-1585. 
889 EC, FWS, para. 1576. 
890 EC, FWS, para. 1577. 
891 EC, SWS, para. 947. 
892 EC, SWS, para. 931; EC, FNCOS, para. 156. 
893 EC, FWS, paras. 1572.  WT/DS316/R 
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  these subsidies could not possibly cause the alleged adverse effects.894  Accordingly, the EC argues, 
the magnitude of these subsidies strongly militates ag ainst the existence of current adverse effects.895 
4.514  The EC notes that, rather than presenting evid ence of any alleged per-aircraft magnitude of 
subsidies, at the first hearing, the US offered the Panel a subsidy figure of well over $100 billion, 
allegedly representing the present value  of the benefits to any of the recipient companies.  With its 
second written submission, the US provides the Pane l with a report by its economic consultants, 
NERA, which concludes that the December 2006 present value of alleged MSF subsidies was 
between $122 billion and $205 billion.896   
4.515  The EC argues that the US approach, which led it to calculate first $100 billion and then $200 
billion in present benefits to Air bus SAS, is fundamentally flawed.897  According to the EC, rather 
than assessing the magnitude of alleged subsidies presently available to Airbus SAS to cause adverse 
effects (or at the some other time when alleged a dverse effects were caused), the US provides flawed 
information on what it considers to be the present value  of all alleged MSF subsidies ever granted.  
That is, the US achieves the unrealistically larg e subsidy magnitudes that it does by compounding 
interest on alleged subsidies dating back as far as  the 1970s – as if the alleged subsidies lay in a 
virtual bank account, unused and perp etually accumulating compound interest.   The EC explains that 
under this US compounding methodology, the calculated benefits increase  with age, ad infinite ; 
thereby, assigning the greatest present competitive impact to the oldest measures.  MSF loans 
provided in the 1970s and early 1980s for the A300 and A310 programmes – aircraft no longer produced – account for approximately 70 percent of  the alleged US $200 b illion in present subsidy 
benefits.
898   
4.516  The EC considers that the US results are manif estly absurd and incons istent with panel and 
Appellate Body precedent.  The EC argues that by  compounding, rather than expensing and allocating 
decades-old subsidies, the US methodology is inc onsistent with Part III of the SCM Agreement, 
which is based on the "use," not virtual banking, of subsidies.899  As such, it is even inconsistent with 
the US own causation theory, which is based on th e alleged use of subsidies to cause launch LCA 
products and provide cash flow to use in sales campaigns, not their being put in a bank account.  Specifically, that theory asserts that the subsidi es allegedly associated with the MSF loans provide 
Airbus SAS and its predecessors with a financial "c ushion" that it can use to launch and price down 
aircraft.  In other words, the US  theory assumes that the company has spent and continues to spend 
the subsidies that it receives.
900  Finally, the EC submits that the US compounding methodology 
defies economic logic, resulting in  alleged subsidy amounts that ar e many times larger than the 
present market capitalization and net assets of Airbus SAS' parent company, EADS.901   
4.517  The EC submits that, while arguing that the alle ged subsidies provide Airbus with a cash flow 
"cushion", allowing it to price down aircraft, the US fails to quantify the per-aircraft magnitude of that 
alleged cushion.902  The EC argues that, when quantifying the alleged present cash flow effects, their 
magnitude is de minimis  – in 2007, for example, they were c onsiderably less than one percent – and 
similar to the magnitude obtained under the US/Boe ing CVD methodology.  According to the EC, this 
                                                      
894 EC, FNCOS, para. 155; EC, FWS, paras. 1588-1633. 
895 EC, FWS, para. 1575. 
896 EC, SNCOS, para. 381; EC, SWS, para. 916. 
897 EC, SWS, paras. 923-971; EC, Comments on US Answer to Panel Question  230, paras. 63-64. 
898 EC, SWS, paras. 923-971 ; see also, EC, Comments on US Answer to Panel Question 230, 
paras. 63-64. 
899 EC, SWS, para. 927, 940-946. 
900 EC, SWS, para. 933. 
901 EC, SWS, para. 928, 953-962.   
902 EC, SWS, para. 916. WT/DS316/R 
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  is true regardless of whether the inflated US E llis benchmark or the corrected benchmark developed 
by Professor Whitelaw is applied, and regardless whet her the alleged subsidies are properly treated as 
tied to particular programmes or  improperly treated as untied.  The resulting present per-aircraft 
magnitude of the subsidy in 200 7 is too small to cause present adverse effect to US interest.903  
4.518  The EC also responds to the US assertion th at the cash flow benefit from the MSF loans 
exceeded EADS profits during the 1997-2007 period.   The EC explains that, in making its 
comparison, the US erroneously relies on the princi pal of the loan, rather than any benefit from 
alleged below-market interest rates.  Moreover, the EC points out that the US errs in its calculation by 
analyzing EADS' profits, rather than Airbus SA S' profits, and by comparing EADS' actual profit 
stream with an alleged cash benefit stream based on  aircraft deliveries, as projected in the original 
1980s business case, rather than actual  deliveries.  The EC explains that, once these US errors are 
corrected, the alleged cash flow be nefit related to the MSF loans is shown to be much less than 
one percent of Airbus SAS' revenue, i.e., de minimis .904 
4.519  Further, the EC argues that, to show remediab le effect from the alleged subsidies, the US 
must show that, absent the subsidy, Airbus could not or would not have priced its LCA as it did.905  
The EC submits that the corrected cash flow calculation demonstrates that removing the alleged 
subsidies over the past seven years would have allo wed Airbus SAS to price in the exact same manner 
and to earn a return sufficient to meet its cost of equity.906  Specifically, if one assumes that, rather 
than passing the alleged cash flow benefit on to its customer via lower prices, Airbus retained it as 
increased earnings for its shareholders, the effect  of removing these cash flow benefits on Airbus' 
earnings over the 2001-2007 period was insignificant.  Airbus SAS' average return on equity during 
this period remains at a robust leve l of approximately 13 percent even after this reduction to earnings.  
Alternatively, if Airbus did pass the entire benefit on  to its customers in the form of reduced prices 
(i.e., without affecting its earnings), any present be nefits from these price reductions would be too 
small to cause the present adverse effects alleged by the US.907     
4.520  Finally, the EC submits that, rather than quan tifying the per-aircraft magnitude of any alleged 
subsidies benefiting Airbus LCA, the US imprope rly relies on affixing the term "subsidized" on each 
Airbus LCA and using this as its basis for claiming causation.  While this approach is tactically 
understandable given the de minimis  magnitude of the alleged subsidies, it is legally insufficient to 
demonstrate the required causal link between the a lleged subsidies and the alleged specific forms of 
adverse effects.908   
(ii) US Causation Theories 
4.521  The EC submits that, to meet the standard of  Articles 5 and 6.3 of the SCM Agreement, the 
US must establish the required "ge nuine and substantial re lationship of cause and effect" between the 
alleged subsidies and the specific forms of adverse effects listed in these provisions. 909   This involves 
demonstrating that, absent the alleged subsid ies, Boeing's present prices would be higher, 910 Boeing 
                                                      
903 EC, SWS, paras. 1015, 1016-1024; EC, Comments on US Answer to Panel Question 230, paras. 56-
62. 
904 EC, Comments on US – Upland Cotton (21.5), paras. 48-50. 
905 EC, Comments on US – Upland Cotton (21-5), paras. 48. 
906 EC, Comments on US – Upland Cotton (21-5), para. 54. 
907 EC, Comments on US – Upland Cotton (21-5), para. 50-57. 
908 EC, SNCOS, para. 398. 
909 EC, Comments on US – Upland Cotton , paras. 35-38. 
910 EC, FWS, paras. 1798-1819, 1999, 2058-2064; EC, Answer to Panel Question 206, paras. 314-321; 
EC, Comments on US – Upland Cotton , paras. 39-42.  WT/DS316/R 
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  would currently have significantly more sales,911 or Boeing's present market share in specific markets 
would be significantly higher.912  According to the EC, the US fails to meet the standard.  Specifically, 
the EC argues that the US fails to establish causa tion under (i) its historic product launch causation 
arguments913 and (ii) its cash flow causation arguments,914 as well as (iii) under any "cumulation" of 
the two causation theories it develops.915 
US historical product launch causation theory  
4.522  The EC responds to what the US te rms its "primary" causation argument – i.e., that MSF 
loans enabled all of Airbus' product launches over a period of four decades and that those product 
launches allegedly created "additional supply" that is causing competitive harm to Boeing.916  
According to the EC, to succeed in its argument the US must causally link the alleged "additional 
supply" to the specific forms of present advers e effects listed in Articles 5 and 6.3 of the 
SCM Agreement, including significant price suppression or depression, specific instances of significant lost sales and price undercutting, and di splacement or impedance, amounting to serious 
prejudice.
917  The EC submits that the US "additional supply" argument based on historic product 
launches fails to sustain this burden.   
4.523  First, the EC argues that the US fails to prove present  adverse effects, i.e., that today  Boeing 
would be better off with a non-Airbus competitor, and absent Airbus and the products it launched over 
the past four decades.918  The EC argues that, in practice, "today"  refers to the period ending at the end 
of 2007.919   According to the EC, the US concedes th at, absent Airbus and its various LCA products, 
Boeing would face active competition in the LCA ma rkets through the various reference periods 
identified by each party.920  The EC submits that the acknowledged presence of a viable competitor to 
Boeing means that Boeing would lose a substantial number of sales, would obtain far less than 100 percent market share, and – as the US recogni zes – that competition would have the effect of 
lowering prices.
921  Against this background, the EC argues th at the US failed to show that there is a 
significant difference – amounting to adverse eff ects –  between the acknowledged competition that 
Boeing would face in the LCA markets from a non-Airbus competitor, and today's LCA markets, in 
which Airbus and its various LCA exist.922   
4.524  Second, the EC argues that, with very few ex ceptions, the US makes no attempt to attribute 
specific instances of lost sales, price undercutting, price suppression or depression, and displacement or impedance to the alleged product launch effects.
923  The US cites four instances in which alleged 
product effects led to lost sales.  Yet, even in these limited instances – i.e., sales campaigns involving 
the A340-500/600 (Thai Airways)924 and the A380 (Singapore Air lines, Qantas, and Emirates)925 – the 
                                                      
911 EC, FWS, paras. 1820-1834, 2058-2064. 
912 EC, FWS, paras. 1933-1948, 2024-2036, 2058-2064. 
913 SWS, paras. 837-914; EC, SNCOS, paras. 364-365, 403-408 
914 EC, Answer to Panel Question 288, paras. 276-284. 
915 EC, Comments on US Answer to Panel Question 230, 231 and 232, paras. 26-95, 
916 EC, SWS, paras. 665, 758, 762, 755-795, 837-869. 
917 EC, SWS, paras. 755-795. 
918 EC, SWS, paras. 837-857. 
919 EC, FWS, paras. 1468-1506; EC, Answer to Panel Question 115, paras. 334-354; EC, SNCOS, 
paras. 343-349. 
920 EC, Answer to Panel Question 209, paras. 462-464.   
921 EC, FWS, paras. 1391, 1396-1400. 
922 EC, SWS, paras. 858-869.   
923 EC, SWS, paras. 755-762, 796-798. 
924 EC, FWS, paras. 2198-2211. 
925 EC, Answer to Panel Question 291, para. 196. WT/DS316/R 
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  EC explains that the evidence disproves the US clai ms for one simple reason:  it shows that alleged 
MSF subsidies for these products were not instru mental in the launch of either aircraft.926  Thus, the 
US fails to show how product  effects – in the form of product attr ibutes, early availability, increased 
supply, or the like – have resulted in sp ecific instances of competitive harm.   
4.525  Based on either of these two deficiencies of th e US causation theory, the Panel should end its 
analysis and find an absence of a causal link.927  Nonetheless, the EC also addresses the substance of 
the US arguments.  The EC identifies as the centr epiece of the US historic product launch causation 
argument an economic analysis (the "Dorman report") that allegedly demonstrates that but for MSF 
loans, there would be no Airbus LCA.928  The EC maintains that certain key assumptions on which the 
Dorman report is based are unrealistic and result in  severely understating LCA programme's expected 
financial return, as explained in a report by Professor Wachtel.929  This makes the Dorman model 
hypersensitive to small changes in budgeted costs or revenues.   
4.526  The EC provides additional analysis supporting Professor Wachtel's finding.  This additional 
analysis, according to the EC, demonstrates that the low revenue, profits and fi nancial return forecast 
by Mr. Dorman's model are driven by his obsolete assumption of 850 programme lifetime deliveries 
for an allegedly "typical" middle-of-the-market wi de-body aircraft programme  launched in 2004 with 
estimated development costs of approximately 10 bil lion dollars.  According to  evidence provided by 
the EC, that number of expected deliveries should be between 1400 and 1750 aircraft, rather than 
850.930  The EC notes that Boeing itself publicly contra dicted Mr. Dorman's delivery estimate when it 
announced that its new aircraft the 787 – which preci sely fits Mr. Dorman's criteria – was launched 
with expected deliveries of 1750 aircraft.931     
4.527  The EC submits that, when Mr. Dorman's mode l is run with a more realistic but still 
conservative assumption of 1375 aircraft deliveries it results in expected programme returns that are 
robust and [***] .932  The EC notes that the capital budget for the A380, which was prepared by the 
company prior to the launch of the aircraft in D ecember 2000, concluded that the most likely return 
from the A380 programme was [***] .933  The EC points out that that the capital budget finds that, if 
MSF for the A380 were not available, there would be [***] .934  By contrast, Mr. Dorman finds that 
returns would be halved.935  Like Mr. Dorman, the [***] .  In contrast to Mr. Dorman, however, [***]  
of a [[HSBI ]] cost of capital, i.e., the investment remains viable.936  The EC also relies on the capital 
budgeting studies for the A330-200 and A340-500/600 to show the same point.937   
4.528  Thus, in contrast to the Dorman theory, the assessment underlying the actual launch decisions 
by Airbus GIE/SAS with respect to the A330- 200, the A340-500/600, the A380, and the likely 
assessment by Boeing with respect to its decision to launch the 787, [***] .938  Thus, the EC submits 
that Mr. Dorman – at Boeing's request – prepar ed a model for these proceedings that makes the 
achievement of viable returns on the LCA programme  in all but the most fortuitous circumstances 
                                                      
926 EC, Comments on US Answer to Panel Question 230, para. 35;   
927 EC, SWS, paras. 755-795. 
928 EC, FWS, paras. 2306-2316.   
929 EC, SWS, paras. 796-836. 
930 EC, SWS, paras. 799-821. 
931 EC, SWS, paras. 814. 
932 EC, SWS, paras. 817. 
933 EC, SWS, paras. 767-780. 
934 EC, SWS, para 767. 
935 EC, SWS, para. 803. 
936 EC, FCCS, paras. 35-38. 
937 EC, SWS, paras. 781-794. 
938 EC, SWS, (HSBI), paras. 45-71.  WT/DS316/R 
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  dependent on extremely favourable MSF terms.939  Given unrealistic assumptions of the Dorman 
report, its conclusions cannot support the US argum ent that, absent MSF, none of Airbus' products 
would have been launched.940   
4.529  The EC also addresses the alleged effect of MSF loans on two groups of LCA launches, and 
any resulting implications for the US ability to demonstrate causation.  With respect to alleged 
product launch effects on Airbus LCA launches afte r the 1992 Agreement, the EC submits that the 
evidence shows that no such effects existed.  According to the EC, [***]  would have been launched 
even without MSF loans.941  The EC argues that these analyses re present the best and most relevant 
evidence regarding the economics of each launch d ecision, remain un-rebutted by the US, and are 
supported by additional contemporary evidence.   
4.530  The EC notes that the US attempts to challe nge these contemporaneous analyses, by relying 
on a collection of quotes regarding the alleged inabilit y of Aérospatiale, one of the four Associated 
Manufacturers, to finance the A340-500/600 or A380 without MSF loans.942  The EC explains that the 
US distorts the meaning and import of these st atements, which in any event cannot rebut the 
quantitative evidence provided in the la unch business cases for these programmes.943  Crucially, the 
EC points out that these statements ignore what th e US accepts – namely, that Airbus could have 
turned to risk-sharing supplier financing as an alte rnative source of financing, which means that the 
alleged inability to obtain finance did not exist.944 
4.531  With respect to alleged product launch effects on Airbus LCA prior to the 1992 Agreement, 
the EC explains that even if, arguendo , Airbus would not have been able to launch these pre-1992 
LCA without MSF loans, including those launched as long ago as the 1970s, this would not enable the 
US to demonstrate the existence of present adverse effects, i.e., that Boeing's current  commercial 
position would be better but for the a lleged subsidies.  According to th e EC, this is due to the crucial 
US admission that absent Airbus, there would none theless be competition in the LCA markets at issue 
today.945  The EC agrees with the US that it is this competition "that holds prices down."946  The EC 
submits that by accepting the existence of a comp etitive duopoly absent Airbus, the US also accepts 
that each duopolist will secure roughly half of the sa les and market share; ot herwise, the commercial 
viability of the other competitor would be  negatively impacted over the long-run.947   
4.532  Against this background, the EC submits that, to  demonstrate causation, the US would need to 
demonstrate how Boeing's present prices and market share in the face of non-subsidized non-Airbus 
competition would differ from its present prices, sal es and market shares in the face of competition 
from Airbus.  The US would need to show that this  "difference" in prices, sales and market shares 
fulfils the conditions of the specific forms of a dverse effects enumerated in Articles 5 and 6.3, i.e., 
that Boeing's present prices, sales, and market share would be significantly higher.948 
4.533  The EC argues that assessing the difference in competition between Airbus and a hypothetical 
non-subsidized Boeing competitor is hopelessly specu lative.  This is because, for decades, Boeing's 
product launches shaped Airbus' product launches and vice versa .  As a consequence, it is impossible 
                                                      
939 EC, FCCS, paras. 35-38. 
940 EC, SWS, paras. 664-666. 
941 EC, SWS, paras. 763-795.   
942 EC, SWS, paras. 767-791. 
943 EC, SWS, paras. 767-791.   
944 EC, SWS, paras. 781-782; 792-794. 
945 EC, SWS, paras. 858-879. 
946 EC, Comments on US Answer to Panel Question 292, para. 421. 
947 EC, SWS, paras. 828-836, 837-857, 858-869. 
948 EC, Answer to Panel Question 206, paras. 314-321. WT/DS316/R 
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  to determine what competition in the various pr oduct markets at issue would look like in a 
counterfactual with a non-Airbus competitor.949  Accordingly, the EC argues that the US leaves the 
Panel guessing as to how to link its primary causation argument, which relates to historic  product 
launches 20-40 years ago, with its claim of specific forms of present  adverse effects resulting from 
alleged Airbus price undercutting.950  The US requires the Panel to take unwarranted speculative leaps 
that would be inconsistent with the requirement to find a "genuine and substantial relationship of 
cause and effect",951 under Articles 5 and 6.3 of the SCM Agreement.  Such speculation is also 
inconsistent with the Panel's requirement to conduct an objective assessment of the facts under 
Article 11 of the DSU.952     
4.534  Moreover, the EC emphasizes that, had the US been concerned with Airbus' existence and 
product launches as long ago as the 1970s, it could have challenged these alleged subsidy-enabled 
product launch much earlier, under Article XVI:1  of the GATT 1947, the Tokyo Round Subsidies 
Code, or even the SCM Agreement  when it entered into force in 19 95.  Instead, the US chose to 
negotiate the 1992 Agreement with the European Co mmunities, in which it expressly agreed to MSF 
financing on certain terms and conditions.  Accord ingly, the US should be estopped from challenging 
those alleged past effects today.953 
4.535  The EC argues that, in any event, any product effects would be short-lived.954  LCA do not 
retain a performance advantage indefinitely.  In  the dynamic LCA industry, competitive conditions 
change over time and do not remain st atic over a period of 20-37 years.  The EC explains that, within, 
on average, two to three years after any allegedl y subsidy-enabled Airbus launch, any enhanced 
performance advantage enjoyed by those LCA was effectively eliminated through the launch of 
competing LCA by Boeing, and vice versa .  According to the EC, once those competitive advantages 
are extinguished, and with them the ability of a su bsidy-enabled product to cause adverse effects, a 
"launch" subsidy can cause adverse effects onl y through subsidy-enabled pricing, if any.955     
4.536  Finally, the EC notes that the US belatedly submits a study by Professors Greenwald and 
Stiglitz.  The US uses this generic report in an a ttempt to bolster its product launch arguments.  The 
EC explains, however, that the study does not support the US contention the MSF causes present 
adverse effects.  Asked to address a hypothetical extreme case of subsidy enabled product launches, 
the authors come to the unremarkable conclusion th at these would have effects on supply and prices.  
The EC notes that, not surprisingly, however, the US did not ask Professors Greenwald and Stiglitz to 
examine the specific facts of this case, includi ng the evidence that post 1992 launches were not 
dependent on MSF.  Moreover, the EC notes that  the Greenwald/Stiglitz study similarly does not 
address other critical factors such as passage of time  and its effect on competitive advantage and the 
continued existence of any effects of a product launch subsidy, the dec lining magnitude of MSF 
subsidies, or any other elements that break the chai n of causation in the present dispute.  This renders 
the study's conclusions irrele vant for the present dispute.956   
US cash-flow price effects causation theory  
4.537  The EC also responded to US arguments related to its second general theory of causation, the 
so-called "cash flow" theory.  Under its cash flow causation theory, the US asserts that the alleged 
                                                      
949 EC, SWS, paras. 837-914.   
950 EC, SWS, pars. 837-914, 858-869. 
951 EC, Comments on US – Upland Cotton , paras. 35-38. 
952 EC, SWS, para. 839. 
953 EC, SWS, paras. 659 and 855-857.   
954 EC, SWS, paras. 870-912. 
955 EC, SWS, paras. 875-878. 
956 EC, Comments on US Answer to Panel Question  230, paras. 45-49.  WT/DS316/R 
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  subsidies enhance Airbus GIE/SAS' cash flow, permitting it to undertake a strategy of aggressive 
pricing that results in present competitive harm to Boeing and US interests in the form of significantly 
suppressed or depressed prices, significant price undercutting, significant lost sales, displacement or impedance, and in injury to the US domestic industry.
957  Given the wholly speculative nature of the 
US product launch theory, and given the US reli ance on "price undercutting" as evidence supporting 
all of its serious prejudice claims, the EC submits that the US must demonstrate (i) that the alleged subsidies provided Airbus with the ability to pri ce down its aircraft, (ii) that Airbus had the 
opportunity and (iii) the incentive to use the alleged s ubsidies to price down its aircraft, and (iv) that 
further evidence suggests that it actually did so.
958  The EC notes the US agreement that "{t}he mere 
fact that subsidies provide a recipient with additio nal cash is not sufficient, in and of itself, to 
demonstrate a causal link between the subsidy a nd any particular form of serious prejudice".959 
4.538  The EC argues that the chief flaw in the US cash  flow price effects argument is the US failure 
to demonstrate that a sufficient per-aircraft magnit ude of subsidy was available for, and used in, 
individual sales campaigns to price a ggressively during the reference period.960  The EC posits that the 
evidence shows conclusively that the alleged subs idies are not the cause of any significant price 
effects.   
4.539  With respect to Airbus' ability to price down its  aircraft, the EC notes the US claim that the 
alleged MSF subsidy provides two be nefits: (i) a lower cost of capital, and (ii) below market MSF 
repayments on the delivery of each aircraft.  Neither  alleged "benefit" supports a finding of present 
price effects.961 
4.540  The EC observes that the first of these "benefits" is neither a "benefit" nor even the effect of a 
subsidy.  It is not a benefit because the same risk reduction and accompanying improvement in the credit rating can be obtained from market financing.  The EC explains that Boeing enjoys the same 
"benefit" from its heavy reliance on risk-sharing supplie rs.  It is also not an effect of the subsidy 
because the effect of risk-sharing financing in impr oving credit ratings exists, whether that financing 
is provided at market or at below market terms.  In any event, the EC notes that the US has not 
demonstrated any price effect arising from the improved credit rating, let alone that those price effects are caused by allegedly subsidized MSF loans.
962   
4.541  The EC notes, the entire benefit, if any, is captured in the difference between the benchmark 
rate and the anticipated MSF return, the second basis fo r the US price effects clai m.  The EC refers to 
its arguments on the magnitude of any subsidies and notes that the US agrees that the magnitude of 
the benefit is the reduction in marginal cost – me asured as the difference between what Airbus would 
have had to repay at market on each actual  aircraft delivery and what it did repay.963  The EC recalls 
that the US has failed to even quantify the increas ed cash flow arising from below market financing 
on present sales of aircraft.964  The EC undertook this calculation and shows that any benefit from 
MSF loans for the A320, A330, and A340 airc raft during 2004-2007 is either zero or de minimis , 
whether measured on the basis of the US/Boeing methodology or the US cash flow methodology.965  
                                                      
957 EC, Comments on US Answer to Panel Questi on 288, paras. 347-385; EC, Comments on US 
Answer to Panel Question 290, paras. 396-399. 
958 EC, Answer to Panel Question 289, 191-197. 
959 EC, Comments on US Answer to Panel Question 230, para. 26. 
960 EC, SWS, paras. 1010-1024, 1031-1034. 
961 EC, Comments on US Answer to Panel Question 228, paras. 4-13; EC, Comments on US Answer to 
Panel Question 230, para. 54. 
962 EC, Comments on US Answer to Panel Question 230, para. 55; EC, SWS, paras. 1036-1046. 
963 EC, Comments on US Answer to Panel Question 230, para. 58. 
964 EC, Comments on US Answer to Panel Question 230, para. 58. 
965 EC, SWS, paras. 1010-1024, 1031-1034. WT/DS316/R 
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  The EC further argues that any price effects fro m alleged MSF subsidies exist only for as long as 
there remain outstanding repayment obligations, whic h at present is not the case for the discontinued 
A300 and A310, and for orders of the A320, A330, A340-300.966 
4.542  The EC asserts that even if the Panel were to make the extreme assumption that the size of the 
price effect was the full amount of any subsidy, the per-aircraft subsidy is simply too small to cause 
significant price effects.  And even here, the EC observes, the US concedes that the effect on price 
will be less than dollar-for-dollar.967 
4.543  Further, the EC argues that even if, at presen t, Airbus had available cash flow from alleged 
subsidies, the company has no incentive to use any a lleged subsidies to lower its prices, in light of 
present high levels of demand and subs tantial and growing order backlogs.968  Moreover, in certain of 
the challenged sales campaigns, Airbus did not even  have the opportunity to lower its price in 
response to available subsidies, because Airbus was not involved in that sale.969   
4.544  Finally, the EC recalls that, in the context of its subsidy magnitude related arguments, it 
established that Airbus could and would have be haved in a similar commercial manner during the 
2001-2007 period, even if it had not received the alle ged subsidies.  As such, the alleged subsidies 
cannot have changed Airbus' commerc ial behaviour and, therefore, ca nnot be the cause of any price-
based adverse effects.970   
Cumulative US causation arguments  
4.545  The EC notes that the US, in various instan ces alleges further caution arguments that are 
based on a cumulation of product launch and price effects.   These arguments are, however, simply 
variations of their two constituent arguments , and therefore fail for the same reasons.971 
(iii) Serious Prejudice 
4.546  The EC argues that, in additional to its failure to establish causation on a general level, the US 
also fails to meet its burden of demonstrating that the effects of the alleged subsidies caused the four 
types of serious prejudice asserted by the United States – significant price undercutting, significant 
lost sales, significant price suppression or depression, and impedance or displacement.  The EC recalls 
the Appellate Body's finding that "the effect – {serious prejudice} – must result from a chain of 
causation that is linked to the impugned subsidy."972  
Intervening Events and Non-Attribution Factors  
4.547  The EC explains that, as a general matter, each of the US serious prejudice claims fail to take 
account of a number of important developments in the LCA markets that had a significant impact on 
sales and prices of Airbus and Boeing LCA during the reference periods advocated by the parties.973  
These developments took place not only historically  – beginning with launch of Airbus and Boeing 
LCA decades ago, but also in the most recent re ference period of 2004-2007.  The EC submits that 
                                                      
966 EC, Comments on US Answer to Panel Question 230, paras. 59-60. 
967 EC, Comments on US Answer to Panel Question 230, paras. 55-62. 
968 EC, SNCOS, paras. 390-391. 
969 EC, SWS, para. 1064-1076.   
970 EC, Comments on US, Comments on US – Upland Cotton (21.5) , paras. 46-55. 
971 EC, Comments on US Answer to Panel Question 230, para. 66. 
972 EC, Comments on US – Upland Cotton (21.5) , para. 36. 
973 EC, FWS, paras. 2077-2136; EC, SWS, paras. 1090-1099, 1148-1174.  WT/DS316/R 
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  these "intervening events" or "non-attribution" factors, coupled with the passage of time974 and the 
diminishing magnitude of the subsidies,975 collectively strain and then break the causal link between 
Airbus LCA launches and alleged present adverse e ffects.  The EC considers that these intervening 
events are further evidence that th e US "historic/product launch causation"976 and "cash flow"977 
theories cannot be sustained.  And more specifically , these intervening events break the causal chain 
for the various forms of serious prejudice ass erted by the US – price undercutting, price 
suppression/depression, lost sales, and displacement/impedance.978   The EC considers that among the 
relevant intervening events that br eak the causal link are the following:  
• Boeing's own launches of new LCA reduced  or negated any competitive advantage  enjoyed 
by Airbus at the time of an a llegedly subsidy-enabled LCA launch.979   The EC considers that 
any enhanced performance-based competitive advantage from Airbus' LCA launches was 
short-lived.980  Even assuming, arguendo , that the alleged subsidies provided Airbus GIE with 
a competitive advantage over Boeing at the ti me of launch of the A300, A310, A320 and 
A340, the EC notes that Boeing generally responded within two to three years981 with its own 
technological advances that allowed it to regain market share and, in some cases, even obtain 
a dominant market share.  It claims that over a number of decades, these reactive Boeing 
launches put Boeing on either an equal or better footing than Airbus.982 
 
• Boeing's replacement of older version LCA.   The EC argues that in the 200-300 seat LCA 
market, Boeing's 767 has effectively been replaced by the 787.983  Similarly, the EC argues 
that the evidence from the 400-500 seat LCA market demonstrates that  the 747-400 has effectively been replaced by the 747-8.
984  And in the 100-200 seat LCA market, earlier 
versions of the 737 have been replaced by th e 737NG family.  The EC considers that those 
launches of new Boeing LCA have been the cause  of any negative effects on earlier versions 
of Boeing products in the same markets – not  decades old alleged subsidies to Airbus.985   
 
• Boeing's abandonment of LCA.  The EC notes that it was Boeing's commercial decision – 
not allegedly subsidized competition from Ai rbus – to discontinue the technologically 
outdated 757 programme.986  Similarly, the EC notes that shortly after its merger with 
McDonnell Douglas in 1997, Boeing decided to  discontinue the performance-plagued 300-
400 seat MD-11.987  These Boeing aircraft were discontinued long before even the US 
proposed reference period in this dispute.988   Thus, the EC considers that with respect to these 
Boeing LCA, the US cannot claim now – long after Boeing decided to discontinue these 
                                                      
974 EC, FWS, paras. 1792-1794; 1799, 2019-2020, 2073-2075. 
975 EC, FWS, paras. 1800-1805, 2019-2023, 2073-2076. 
976 SWS, paras. 837-914.  
977 EC, Answer to Panel Question 288, paras. 276-284; EC, Comments on US Answer to Panel 
Question 288, paras. 347-385 
978 EC, SWS, paras. 870-914. 
979 EC, Comments on US – Upland Cotton (21.5) , para. 33. 
980 EC, SWS, para. 877. 
981 EC, SWS, para. 877. 
982 EC, SWS, paras. 870-878, 884, 891-893, 901-906. 
983 EC, FWS, paras. 2000-2010 and 2026.   
984 EC, FWS, paras. 1693-1700.   
985 EC, FWS, paras. 2000-2010. 
986 EC, SWS, paras. 881-884. 
987 EC, SWS, paras. 897-900. 
988 EC, SWS, paras. 881-884, 897-900. WT/DS316/R 
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  respective LCA – that it is presently seriously prejudiced for an LCA that was removed from 
the market by a US company. 989  
   
• Airbus' abandonment of LCA.   The EC notes that since 2003, Airbus has effectively phased 
out its A300 and A310 LCA.990  It emphasizes that abandoned LCA programmes – even if 
they were launched decades before as an effect  of alleged subsidies – cannot cause present 
adverse effects.991  
 
• Airbus' launch of new LCA.   The EC argues that a launch by Airbus of new or modified 
versions of LCA that are either not subsidized  or which reflect far lower levels of alleged 
subsidization than earlier Airbus LCA diminishes the effects of any earlier Airbus 
subsidies.992 
 
• Enormous order backlog and Boeing's unw illingness – or inability – to meet demand.   
The EC alleges that since 2004, both Boeing a nd Airbus are experiencing an exponential and 
sustained growth in orders, in particular in  the single-aisle and 200-300 seat LCA markets.993  
At the end of 2007, the value of BCA's or der backlog stood at $255 billion, representing 
many times its annual revenue and production capacity.994  Despite Boeing's moderate 
increases in production capacity, this backlog is a clear indication that the company is unable 
to meet demand.995  The EC considers that the US th erefore cannot claim present adverse 
effects from historic lost sales when Boeing is presently producing at full capacity, suggesting that all production slots at issue in the allege d lost sales campaigns have subsequently been 
sold, potentially at higher prices.
996  Indeed, the company is reportedly turning down orders 
for its 737NG.997  The EC also notes that Boeing itself put a limit on its increases in 
production capacity.998  In these circumstances, no lost sales can be significant, as required by 
Article 6.3(c). 
 
• Surge in fuel prices.   The dramatic rise in jet fuel prices since late 2004, the EC contends, 
has greatly reduced the market appeal of the four-engine A340 compared to the twin-engine 
Boeing 777.999  Given the market dominance of Boeing's 777,1000 there is no basis for the US 
to claim adverse effects with respect to that pr oduct.  Similarly, the surge in fuel prices and 
Boeing's offering of the fuel-efficient 787 have greatly reduced the market appeal of its 
technologically outdated 767.1001 
 
4.548  Moreover, the EC considers that with respect to  each form of serious prejudice asserted by the 
US, there are a number of non-attribution factors that further disprove the existence of any causal link.  These are addressed in the following sections. 
                                                     
 
989 EC, SWS, para. 900. 
990 EC, FWS, notes 1401 and 2011;  EC, SWS, paras. 890-891. 
991 EC, SWS, para. 879. 
992 EC, FWS, paras. 2000-2010. 
993 EC, FWS, paras. 1361-1364. 
994 EC, Answer to Panel Question 286, para. 247. 
995 EC, SNCOS, para. 417. 
996 SNCOS, para. 308. 
997 EC, SWS, paras. 864-865, 885-887, 906.   
998 EC, SWS, para. 865; EC, Answer to Panel Question 286, para. 248. 
999 EC, SWS, para. 907. 
1000 EC, SWS, para. 907. 
1001 EC, FWS, paras. 2000-2010, 2017-2018.  WT/DS316/R 
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  EC Responses to US Allega tions of Price Undercutting  
4.549  With respect to the US claims of significant price undercutting, the EC notes that each of US 
allegations of serious prejudice is based on the assertion that Airbus undercut Boeing prices.1002  As a 
result of such alleged price undercutting, the US  argues, Boeing's prices were suppressed/depressed, 
Boeing allegedly lost sales, and Boeing lost third country market shares.1003 
4.550  In response, the EC argues that the US allega tions of price undercutting are invalid for three 
fundamental reasons:  First, the US failed to demonstrate that Boeing's LCA in competition with Airbus LCA were non-subsidized for the purposes of any claims under Articles 6.3(c) and 6.5 of the 
SCM Agreement .
1004  Second, the US failed to demonstrate that, based on actual LCA prices, the 
Airbus prices did, in fact, undercut the Boeing LCA prices.1005  And third, that a detailed analysis 
from the sales campaign evidence demonstrated both the absence of price undercutting, and of any 
causal connection between alleged EC  subsidies and Airbus pricing.1006  
4.551  First, the EC maintains that the US claims of significant price undercutting fail because the 
US like products – Boeing LCA – are subsidized.  The US like products, therefore, fails the "non-
subsidized like product" requirement in  Article 6.5 of the SCM Agreement.1007 
4.552  Second, the EC argues that actual transaction prices are key for the US to prove that Airbus 
undercut, i.e., offered a lower  price, than Boeing.1008  The EC notes that the US agrees that "the {price 
undercutting} analysis must be based upon evidence regarding the actual price , including all the 
relevant elements in a particular transaction."1009 
4.553  Thus, the EC submits that the issue in a pri ce undercutting claim is whether Airbus undercut 
Boeing's price , not whether Airbus made a higher value  offer.1010  The EC considers that the US 
improperly conflates the concepts of price and NPV.1011  It implies that price undercutting is 
demonstrated simply by evidence that the customer  decided to order from Airbus due to the better 
value of the Airbus offer.1012   
4.554  The EC explains that pricing data is th e required basis for an assessment of price 
undercutting, and that merely demonstrating that th e NPV of the Airbus offer was better than the NPV 
of the Boeing offer, in and of itself, does not demonstrate price  undercutting, unless it has been 
established that no non-price factor impacted the NPV calculation.1013  According to the EC, in the 
LCA industry, non-price factors can and do play  an important factor in many customers' NPV 
assessment.1014  As Mr. Muddle and Mr. Scherer explain, the actual price of an aircraft is but one of 
                                                      
1002 EC, FWS, paras. 1340, 1621, 1820-1821, 2058, 2089. 
1003 EC, FWS, paras. 1798-1819, 1820-1834, 1933-1948, 1999, 2024-2036, 2058-2064. 
1004 EC, SWS, paras. 1100-1137. 
1005 EC, Comments on US Answer to Panel Question 281, paras. 280-298. 
1006 EC, FWS, (HSBI), 1829-1833, 1837-1842, 1844-1847, 1850, 1854, 1855-1857, 1859-1862, 1864, 
1866-1868, 1870-1873, 1875-1901, 1903-1913, 1915-1920, 1923-1931, 2095-2099, 2101-2108, 2109-2112. 
1007 EC, SWS, paras. 1106-1110.   
1008 EC, Answer to Panel Question 281, paras. 190-203; EC, Comments on US Answer to Panel 
Question 281, paras. 280-298. 
1009 EC, Comments on US Answer to Panel Question 281, para. 283. 
1010 EC, Answer to Panel Question 281, paras. 190-203; EC, Comments on US Answer to Panel 
Question 281, paras. 280-298. 
1011 EC, Comments on US Answer to Panel Question 235, para. 115. 
1012 EC, Comments on US Answer to Panel Question 235, para. 115. 
1013 EC, Comments on US Answer to Panel Question 281, paras. 280-298. 
1014 EC, Answer to Panel Question 281, para. 198; EC, Answer to Panel Question 282, paras. 204-210. WT/DS316/R 
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  the many elements that is taken into consideration together with many non-price related factors when 
a customer evaluates the total Net Present Value  of an offer.1015  Customers order aircraft, not only on 
the basis of the aircraft price, but on the basis of th e offers' total value, incl uding the aircraft revenue 
capacity, operating costs, maintenance co sts, delivery slots, financing, etc.1016  As a result, a clear 
distinction must be made between "price" and "value".1017 
4.555  Consequently, in the view of the EC, the fact that the value  of the Airbus offer is better than 
the value  of the Boeing offer, does not necessarily mean th at Airbus is offering its aircraft at a lower 
price .1018   Airbus may very well be offering its aircraft at a significantly higher price than Boeing, yet 
still be making the better value offer because, for example, it managed to offer the airline earlier 
delivery slots.1019   
4.556  The EC considers that, contrary to its asserti ons, the US has not "presented evidence with 
respect to customers' evaluations of the actual  price  offered by Airbus and Boeing, taking into 
account all price concessions and all relevant  attributes of the models in question."1020  For example, 
the US has not submitted any evaluations of actual prices, instead limiting its evidence to press 
speculation and statements about NPVs.1021  Nor did the US take into account the relevant attributes 
(including operating performance and economics, size , technology, etc.) of the LCA in question in 
discussing that NPV – or more importantly prices properly adjusted, as required by Article 6.5 of the SCM Agreement.
1022  Indeed, the EC is of the view that th e US approach to rely on alleged evidence 
of better NPVs is inconsistent with the US acknowledgement that, in making their fleet decisions, 
customers consider a large number of factors, all of which can have an effect on the final NPV  of an 
offer.1023 
4.557  The EC stresses that if the Panel were to uncr itically use NPV as the proxy for price, as urged 
by the US, it would assume price undercutting in every sale won by either Airbus or Boeing.  The EC 
submits that only in those particular instances wh ere non-price factors have played no role in the 
value of the transaction for the purch aser could NPV substitute for "price."1024 
4.558  Third, the EC submits that the US does not meet the final step in establishing its price 
undercutting claim, i.e., the establishment of the causal link between alleged subsidies and the 
significant price undercutting.1025   The EC submitted extensive evidence from contemporaneous sales 
campaign documents refuting the US assertions that "product" or "price" effects of any alleged subsidies caused Airbus to offer the price it did in each and every one of the sales campaigns at issue in this dispute.
1026  Thus, according to the EC, based on th e evidence existing at the level of a sales 
campaign, the US did not establish the required cau sal link between the alleged subsidies and any 
                                                      
1015 EC, FWS, paras. 1427-1439.   
1016 EC, FWS, paras. 1427-1439; EC, Comments on US Answer to Panel Question 235, para. 115. 
1017 For a discussion on the distinction of "price" and "value", see EC, Comments on US Answer to 
Panel Question 235, para. 110-119. 
1018 EC, FWS, paras. 1427-1439. 
1019 EC, Comments on US Answer to Panel Question 235, para. 110-119; EC, Comments on US 
Answer to Panel Question 236 120-178 relating to Czech Airlines and Air Asia respectively.   
1020 EC, Comments on US Answer to Panel Question 282, para. 305. 
1021 EC, Comments on US Answer to Panel Question 236, paras. 120-178.    EC, Comments on US 
Answer to Panel Question 281, paras. 280-298. 
1022 EC, Comments on US Answer to Panel Question 236, paras. 124-178. 
1023 EC, Comments on US Answer to Panel Question 282, paras. 299-310. 
1024 EC, Answer to Panel Question 281, paras. 198-203. 
1025 EC, FWS, (HSBI), 1829-1833, 1837-1842, 1844-1847, 1850, 1854, 1855-1857, 1859-1862, 1864, 
1866-1868, 1870-1873, 1875-1901, 1903-1913, 1915-1920, 1923-1931, 2095-2099, 2101-2108, 2109-2112. 
1026 EC, Comments on US Answer to Panel Question 236, paras. 124-178.     WT/DS316/R 
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  alleged lower Airbus pricing.  No r does the EC consider that the ge neral US historical/product launch 
and cash-flow causation arguments demonstrate su ch a causal link in these individual sales 
campaigns, particularly in light of the non-existent or de minimis levels of allege d subsidization.1027   
4.559  Because the EC considers that the US price unde rcutting claim fails – given the failure of the 
US to sustain either required step in its price undercutting claims – the US price suppression, price 
depression and lost sales claims must also fail.  This  is because all of the US serious prejudice claims 
are all based on the same "evidence," namely the US alleged evidence of price undercutting.1028 
4.560  Finally, with respect to the alleged "significan ce" of the price undercutting, the EC argues that 
the appropriate legal standard fo r assessing whether the alleged pri ce undercutting is "significant" is 
whether but for the undercutting, Boeing would have secured the sale.1029  The EC notes that when 
asked by the Panel for evidence of "significant" pr ice undercutting, the US provided no information 
regarding the JetBlue, Frontier Airways, America West, Virgin America or Thai Airways sales 
campaigns.1030  The EC points out that for these sales cam paigns, there is therefore no evidence that 
the product or price effects alleged by the US were the cause of any alleged price undercutting.1031  In 
fact, the EC believes that the considerable weight of the evidence before the Panel demonstrates that 
Airbus did not undercut the Boeing price in any of the sales campaigns at issue, including the A320 sales campaigns involving JetBlue, Frontier Airlin es, America West, Virgin America, easyJet, Air 
Berlin, Air Asia, Czech, the A340 sales campaigns invol ving Air Asia, Iberia Airways, South African 
Airways, and the A380 sales campaigns involving Qantas, Singapore Airlines and Emirates.
1032  
EC Arguments Responding to US Lost Sales Allegations  
4.561  The EC has offered extensive evidence and argumentation which it asserts rebuts each and 
every US claim of significant lost sales.1033       
4.562  The EC considers that the legal standard fo r establishing a lost sale requires the US to 
demonstrate that but for the effect of the subsidy, Boeing would have won the sale – i.e., everything 
else being equal, the effect of the subsidy was the determining factor in the loss of the sale.1034  
Therefore, if Boeing would have lost the sale even if Airbus had raised its prices by the amount of 
available alleged subsidy, there is no basis fo r finding that the subs idy caused the lost sale.1035  Given 
the conditions of the LCA markets, the EC consid ers that the Panel can only determine whether the 
subsidy is the "but for" cause of a lost sale by  conducting a detailed assessment of the facts and 
circumstances of each sales campaign claimed to have been "lost."1036  The rebuttal evidence offered 
by the EC, accordingly, is largel y focused on such sales campaigns.  
4.563  The EC argues that each of the alleged "los t" sales campaigns involved numerous "non-price" 
and, hence, non-subsidy factors, and that it estab lished that in each of the sales at issue such non-
                                                      
1027 EC, Comments on US Answer to Panel Question 288, paras. 347-385; EC, Comments on US 
Answer to Panel Question 290, paras. 396-399. 
1028 EC, Answer to Panel Question 282, paras. 193-194. 
1029 EC, Comments on US Answer to Panel Question 236, paras. 120-178. 
1030 EC, Comments on US Answer to Panel Question 236, para. 122.   
1031 EC, Comments on US Answer to Panel Question 236, para. 122.   
1032 EC, Comments on US Answer to Panel Question 236, paras. 124-178. 
1033 EC, Answer to Panel Question 206, paras. 314-321; EC, Answer to Panel Question 291, paras. 307-
314; EC, Comments on US – Upland Cotton , paras. 39-42. 
1034 EC, Answer to Panel Question 206, para. 318.   
1035 EC, Answer to Panel Question 206, para. 318.   
1036 EC, Answer to Panel Question 206, para. 318.    WT/DS316/R 
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  subsidy factors were the cause of Boeing not securing the sale.1037  Examples of relevant 
considerations include the availability of delivery slots, Boeing's mismanaged customer relationships, 
product preferences for Airbus products, political co nsiderations, among many other factors discussed 
in detail in the EC submissions and in  the contemporaneous evidence provided.1038    
4.564  The EC also argues that, given the de minimis  magnitude of any alleged subsidies available to 
Airbus, the US cannot establish a causal link between an y subsidies and the claimed lost sales. Even if 
Airbus had reduced its sales prices by the full amount of any allegedly availabl e per-aircraft subsidy, 
that change in prices would have been so insignificant as to not impact the outcome of the sales 
campaign at issue. 1039        
4.565  The EC recalls that, as a legal matter, the Pa nel is called upon to determine whether the 
alleged subsidies cause present adverse effects, including present serious prejudice.1040  The EC also 
considers that the Panel must asses s whether any past lost sales, should it find that these were caused 
by the alleged subsidies, continue to constitute a "significant" lost sale, amounting to present serious 
prejudice to US LCA-related interests.1041   
4.566  The EC argues that, as a factual matter, it establishe d that, in light of the particular conditions 
of competition that have existed in the LCA market s since 2005, any "lost" sale that the US might be 
able to demonstrates during the period 1999-2005 would no longer constitute prejudice to Boeing.1042  
This is because the huge increase in orders in 2005-2007 resulted in Boeing's production capacity 
being sold out for years to come, and in an accompanying record large order backlog.1043  According 
to the EC, this evidence shows that  any delivery slot at issue in an allegedly "lost" sales campaign has 
been subsequently sold by Boeing.1044  The EC also refers to the testimony of Christian Scherer who 
explained that, in periods of extremely high demand such as that existing since 2005, Airbus and Boeing can command premium prices for early delivery slots.
1045  Accordingly, the delivery slots 
subsequently sold were likely sold at even higher prices than those offered in the sales alleged lost 
sales campaigns at issue. 1046     
4.567  The EC considers that these facts means that, ev en if it were established that Boeing lost a 
sale of a delivery slot during 1999-2005 due to alleged subsidies, this open delivery position 
constitutes a valuable asset at times of very high demand.1047  This delivery slot would give Boeing a 
relative advantage over Airbus in the next sales campaign because Boeing could offer earlier delivery 
slots to customers that need new LCA quickly to e ither reduce operating cost or to increase capacity, 
                                                      
1037 EC, Answer to Panel Question 291, paras. 307-314; EC, SCOS, paras. 118-149, 157-167.  See, 
also, EC, FWS, paras. 1427-1439. 
1038 EC, Answer to Panel Question 291, paras. 307-314;  EC, FWS, paras. 1427-1439. 
1039 EC, Answer to Panel Question 205, paras. 290-313; EC, Comments on US – Upland Cotton (21.5) , 
para. 70. 
1040 EC, FWS, paras. 1491-1506; EC, FNCOS, para. 134; EC, Answer to Panel Question 115, paras. 
334-354; EC, Answer to Panel Question 133(b), paras.  485-487; SWS, paras. 678-681; EC, Comments on US – 
Upland Cotton (21.5) , paras. 8-28. 
1041 SWS, paras. 837-914; EC, Answer to Panel Question 210, paras. 467-488; EC, Answer to Panel 
Question 287, paras. 266-268; EC, Answer to Panel Question 288, paras. 285-290; EC, Comments on US 
Answer to Panel Question 234, paras. 102-109; EC, Comments on US – Upland Cotton , paras. 43-73. 
1042 EC, Answer to Panel Question 210, paras. 467-488. 
1043 EC, FWS, pars. 1360-1374;  EC, Answer to Panel Question 210, paras. 467-488. 
1044 EC, Answer to Panel Question 210, paras. 467-488; EC, Comments on US Answer to Panel 
Question 210, paras. 333-350. 
1045 EC, SNCOS, paras. 317-318. 
1046 EC, Answer to Panel Question 204, paras. 287. 
1047 EC, SNCOS, para. 308.  WT/DS316/R 
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  or both.  And when Boeing eventually sold each a nd every one of the present and future delivery slots 
at issue in the alleged "lost" sales, it most likely did so at higher prices than it would have secured during the earlier competitive sales campaigns challenged by the US.
 1048     
4.568  The EC emphasizes that it is undisputed that neither Boeing nor Airbus could meet demand 
by increasing capacity.  As Mr. Scherer explained "because both producers use thousands of aircraft 
components from hundreds of suppliers – including ma ny of the same suppliers – to manufacture their 
products, supply chain constraints can make it difficult and time-consuming to ramp up 
production."1049  The EC notes that the US agrees with this assessment that "production capacity at 
any point in time is limited by the capacity of the supply chain"1050 and that "it takes time to ramp up 
existing capacity."1051 In addition to these limitations on Boei ng's ability to significantly and rapidly 
increase production capacity, there are limitations on Boeing's willingness to do so.1052   I n d e e d ,  
Boeing has repeatedly indicated that it is unwilling to increase its LCA production beyond the 
increase currently underway. 1053    
4.569  Thus, according to the EC, Boeing's (and Airbus ') growing and record-high backlog by the 
end of 2007 is a key fact to consider in obj ectively assessing whether the alleged subsidies cause 
present significant lost sales.1054   Randy Baseler, former Vice President for Marketing for Boeing puts 
it succinctly: "if a customer came to us and said we want a 777 or a 747 and here's a big pile of 
money, we couldn't meet the demand."1055      
4.570  The EC notes that in response, the US argued that  the sales that it lost in the 2001-2004 period 
still cause serious prejudice to Boeing today because "Airbus has been able to win further follow-on 
orders from some of these airlines."1056  The EC responds by arguing that whether an airline ordered 
Airbus aircraft in 2001-2004 and made a follow- on order in 2006, in no way demonstrates how 
Boeing is suffering present serious prejudice, given that Boeing was more than able to "sell out" all of its slots in the period 2005-2007 and has a huge a nd increasing backlog of orders by the end of 
2007.
1057  In addition, the EC notes that the US asser tion is based on a false premise – that these 
airlines would never again order Boeing aircraft.1058  The EC argues that the evidence demonstrates 
that many of these airlines, including Air Berlin , Thai Airways, Singapore Airways, Emirates 
Airlines, Qantas Airlines and Czech Airlines are not  lost to Boeing but continue to order Boeing 
aircraft.1059  Thus, the US suggestion that these airlin es are somehow "lost" to Airbus, and that, 
                                                      
1048 EC, Answer to Panel Question 204, paras. 287. 
1049 EC, SNCOS, para. 316. 
1050 EC, Answer to Panel Question 210, para. 483. 
1051 EC, Answer to Panel Question 210, para. 483. 
1052 EC, SWS, para. 865; EC, Answer to Panel Question 286, para. 248. 
1053 EC, SWS, para. 865; EC, Answer to Panel Question 286, para. 248. 
1054 EC, FWS, pars. 1360-1374; EC, Answer to Panel Question 210, paras. 467-488. 
1055 EC, FWS, para. 2202. 
1056 EC, Comments on US Answer to Panel Question 234, para. 106. 
1057 EC, FWS, pars. 1360-1374; EC, SWS, paras. 651, 864, 885-886, 893, 908, 1171, 1175; EC, 
SNCOS, paras. 416-423. EC, Answer to Panel Question 204, para. 287; EC, Answer to Panel Question 210, paras. 467-488; EC, Comments on US Answer to Panel Question 210, paras. 333-350. EC, Comments on US 
Answer to Panel Question 234, paras. 102-109. 
1058 EC, Comments on US Answer to Panel Question 234, para. 107.  See, also, EC, Comments on US 
Answer to Panel Question 234, paras. 102-106, 108-109. 
1059 EC, Comments on US Answer to Panel Question 234, para. 107.  See, also, EC, Comments on US 
Answer to Panel Question 234, paras. 102-106, 108-109. WT/DS316/R 
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  therefore, there is some kind of "continued effect"1060 of a sale that Boeing lost in the 2001-2004 
period, is inconsistent with the evidence.1061   
EC Responses to US Allegations of Displacement or Impedance  
4.571  The EC argues  that it has set forth consider able contemporaneous documentary evidence to 
rebut the US claims of displacement or  impedance in its various submissions.1062     
4.572  The EC argues that there are, however, a number of legal flaws in the US displacement and 
impedance claims.  First, the EC maintains that the US claims of impedance and displacement of 
Boeing LCA in certain third country markets fail because the US like products – Boeing LCA – are 
subsidized.1063  The US like products, therefore, fails the "non-subsidized like product" requirement in 
Article 6.4 of the SCM Agreement.1064   
4.573  A second legal flaw is that to the extent th at the US relies on delivery data from the 2001-
2003 period,1065 the EC views the severe market impacts r esulting from 9/11, which remained in effect 
through 2003, as force majeure .1066  Therefore, it claims that use of delivery data from that severely 
distorted period to support a finding of displacement  or impedance under Articles 6.3(a) or 6.3(b) is 
inconsistent with Article 6.7(c).  
4.574  A third legal flaw asserted by the EC is the bundling by the US of all LCA into one single 
LCA product market.1067  The EC has initially rebutted the US claims of displacement and impedance 
by examining evidence and data using the appr opriate different LCA product markets (100-200 seat, 
200-300 seat, and 300-400 seat) where competitive sales between Airbus and Boeing take place. 1068   
The EC examined and rebutted US arguments usi ng evidence of market share and causation-related 
evidence in each of the third country markets wh ere the US claimed displacement and impedance.1069 
4.575  Alternatively, the EC accepted, for purposes of  argument, the single LCA product market, and 
rebutted the US displacement and impedance ar guments in the various third country markets.1070  The 
EC argues that it provided extensive evidentiary an alysis further demonstrating that, even when 
engaging in the wholly distorted single subsid ized product/single like product/single LCA product 
market analysis, the US cannot sustain a displace ment or impedance claim in any third country 
market.1071  The EC argues that in conducting that singl e-market LCA analysis, it showed that in a 
number of the third country markets a ddressed, Boeing's market share actually increased  over the 
2001-2006 period.1072  For these countries, there simply is no evidence of displacement.   
                                                      
1060 EC, Comments on US Answer to Panel Question 234, para. 105. 
1061 EC, Comments on US Answer to Panel Question 234, paras. 102-109. 
1062 EC, SCOS, paras. 168-172; EC, Answer to Panel Question 207, paras. 322-427; EC, Answer to 
Panel Question 288, paras. 349-361. 
1063 EC, SWS, paras. 1100-1137; EC, Answer to Panel Question 202, paras. 255-270; EC, Answer to 
Panel Question 207, paras. 322-323. 
1064 EC, SWS, paras. 1100-1105; EC, Answer to Panel Question 202, paras. 256-270; EC, Answer to 
Panel Question 207, para. 421.   
1065 EC, Answer to Panel Question 207, para. 422. 
1066 EC, FWS, paras. 1494-1496; EC, Answer to Panel Question 207, para. 422. 
1067 EC, Answer to Panel Question 207, para. 423.   
1068 EC, SCOS, paras. 168-172; EC, Answer to Panel Question 207, paras. 322-427. 
1069 .EC, SCOS, paras. 168-172; EC, Answer to Panel Question 207, paras. 322-427. 
1070 EC, Answer to Panel Question 207, paras. 340-427. 
1071 EC, Answer to Panel Question 207, paras. 342-420. 
1072 EC, Answer to Panel Question 207, paras. 340-427.  WT/DS316/R 
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  4.576  Regarding causation, the EC asserts that the appropriate counterfactual for this causation 
assessment is whether, but for the alleged subsidy,  Boeing's deliveries would have been higher.  In 
other words, what extra sales would Boeing have won, and how many more deliveries would it have 
made, but for  the alleged subsidies?1073  The EC states that by not examining each and every sales 
campaign in the various third country markets whic h form the statistical b asis for its claims of 
displacement or impedance, the US has failed to make a prima facie case of a causal link between the 
alleged subsidies and the displace ment or impedance claimed. Si mply examining raw numbers of 
market share movement (involving a distorted singl e LCA product market) does not constitute a basis 
for the Panel to sustain a finding that such a causal  link exists today – or that it existed at any time 
throughout the 2001-2007 period.1074    
4.577  The EC argues that whether the third country market shares are examined on a single LCA or 
multiple LCA basis, that the US clai ms of displacement or impedance fails to demonstrate, as required 
by Article 6.4 of the SCM Agreement, clear trends  in the market share development because as the 
US acknowledged, "most individual third-country markets import only a small number of LCA in any 
given year, and it is therefore sometimes difficult to identify a 'representative period sufficient to 
demonstrate clear trends in the de velopment of the {LCA} market.'"1075  The sporadic, erratic and 
very small numbers of deliveries in many third co untry markets make it very difficult to draw any 
firm conclusions about meaningful, subsidy-affected , changes in market share – certainly when only 
deliveries to that market are examined.1076  
4.578  The EC argues that the US has also failed to demonstrate that Boeing's exports to the third 
country markets discussed above were displaced or impeded due to "the effect  of the subsidy."1077  In 
those third country markets in which Boeing did lo se market share, the EC pointed out that the 
evidence demonstrates that it did so, not because of any alleged Airbus subsidies, but because of a 
variety of market-based factors, including the bank ruptcy of airlines, the specific fleet choices of 
airlines, and geopolitical considerations, all of which had nothing to do with the decades old and de 
minimis  alleged subsidies benefiting Airbus.1078   
4.579  The EC rebuts the US arguments that the alle ged historical 2001-2005 decline in Boeing's 
third country market shares in some countries is due to a single  factor – alleged subsidies benefiting 
Airbus.  The EC argues that the US has failed to demonstrate causation, even apart from the specific 
non-attribution factors, for the following reasons:  
• It does not meet its burden of establishing how Boeing's market share of deliveries in 2001-
2005 would have been "different" or less adversely affected, if, according to the US "historic 
causation" theory, Airbus did not exist during that time period but some other LCA competitor 
did. 1079 
 
• It fails to establish (much less rebut evidence to the contrary) that the magnitude of any 
additional cash flow from alleged MSF subsidies was the cause of Boeing losing orders/sales 
                                                      
1073 EC, Answer to Panel Question 206, paras. 314-321. 
1074 EC, Answer to Panel Question 206, paras. 314-321; EC, Answer to Panel Question 207, paras. 322-
427. 
1075 EC, Answer to Panel Question 207, para. 337. 
1076 EC, Answer to Panel Question 207, para. 337. 
1077 EC, Answer to Panel Question 207, para. 426.    
1078 EC, Answer to Panel Question 207, paras. 342-420.   
1079 EC, Answer to Panel Question 288, paras. 285-290; EC, Comments on US Answer to Panel 
Question 288, paras. 347-385; EC, Comments on US – Upland Cotton , paras. 43-73. WT/DS316/R 
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  during 1998-2002 that resulted in Boeing losing ma rket share of deliveries three years after 
those orders, during 2001-2005.1080 
 
• It does not assert, much less prove, that any subsidized product  advantage from any Airbus 
LCA was the cause of Boeing's loss  of delivery market share in 2001-2005.  Moreover, the EC 
has established that any such product effects ha ve been superseded by numerous launches of 
enhanced-performance Boeing LCA since the 1970s and the drastically changed conditions of 
competition between 2001-2003 and 2004-2007, among other factors.1081 
 
• And even if the US had demonstrated those poi nts, its focus on historic 2001-2005 events fails 
to satisfy the requirement to demonstrate present  adverse effects.1082 
 
4.580  With respect to the specific evid ence relating to Boeing's loss of market share in various third 
country markets, the EC claims that an objective assessment of that eviden ce reveals that Boeing's 
market share declined during 2001-2005 for reasons not causally linked to any alleged subsidies.  In 
short, the EC argues that:  
• The evidence adduced by the US fails to link Boeing's loss of delivery market share to 
specific sales it lost to Airbus.1083 
 
• By contrast, the evidence s hows that Boeing's loss of market share in 2002/2003 was the 
result of Boeing having to cancel, defer or r eschedule many more deliveries than Airbus.1084 
 
• More broadly, several other factors explain Boeing's overall loss of market share during the 
2001-2005 period.1085 
 
4.581  In addition, the EC asserts that it produced eviden ce showing that there were other factors that 
were holding down Boeing's delivery market shar e during the 2001-2005 peri od.  These include over 
1000 LCA deliveries on Boeing's order books that had to be cancelled or rescheduled as a result of 9/11 as confirmed by Boeing officials.
1086  This volume of deferrals is  enormous – equivalent to 
nearly the entirety of Boeing's or der backlog in 2001 or 2002 – an d understandably had a detrimental 
impact on Boeing's absolute number of deliveries by 2002.1087  The EC points out that the events of 
9/11 had a much less severe impact on the number of Airbus deliveries which remained relatively stable over the 2001-2004 period, in particular due to Airbus' more limited exposure to US legacy 
carriers affected the most by the crisis and by its much larger share of leasing company customers that 
did not cancel or reschedule their delivery positions.
1088         
4.582  Second, the EC asserts that Boeing officials th emselves admitted that their drop in market 
share was due to their mismanagement of customer relationships.1089  These statements are 
                                                      
1080 EC, Answer to Panel Question 206, paras. 314-321. 
1081 EC, SWS, para. 663. 
1082 EC, SWS, paras. 678-681; EC, Comments on US – Upland Cotton (21.5) , paras. 8-28. 
1083 EC, FWS, paras. 2260-2324; EC, Answer to Panel Question 291, paras. 307-314; EC, SCOS, 
paras. 118-149; 168-172 
1084 EC, FWS, paras. 1440-1458. 
1085 EC, Answer to Panel Question 207, paras. 322-427. 
1086 EC, FWS, paras. 1440-1467; EC, Answer to Panel Question 116, paras. 355-369; EC, SWS, 
para. 672; EC, SNCOS, paras. 314-316. 
1087 US, FWS, para. 1446. 
1088 EC, Answer to Panel Question 116, paras. 355-369; EC, SWS, para. 672; EC, SNCOS, paras. 314-
316. 
1089 EC, FWS, paras. 1459-1466; EC, Answer to Panel Question 288, paras. 370-371.  WT/DS316/R 
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  corroborated by, and entirely consistent with, wh at Airbus heard from its airline customers, as 
testified to by Christian Scherer.1090  Consistent with Boeing's own recognition of its customer 
management failures, in 2004, Boeing opted to re -organize the entire LCA Division sales team, and 
fired its sales chief Toby Bright.1091  
4.583  Third, EC claims that geopolitical factors such as state-owned airlines splitting orders 
between Boeing and Airbus, and other non-commercia l-based decisions explained Boeing's failure to 
win specific sales campaigns and/or explain its losses of market share in various geographic markets.
1092  
4.584  The EC argues that the US has improperly attribut ed to the effects of subsidies its loss of 
market share in various countries where such non-price, non-product-based factors are decisive in 
Airbus winning a sale.1093  
4.585  Apart from these general non-attribution factors that impacted many sales campaigns (and 
hence market share in many third countries), there were particular non-attribution factors that influenced particular sales campaign results.  For exam ple, the EC argues that there is no basis for the 
US claim that it lost market sh are, and failed to launch the 747X, because of Airbus price undercutting 
in the A380 Singapore Airlines, Qantas and Emirates sales campaigns.
1094  The US' assertion is that, 
but for the alleged subsidies, Boeing would have launched the 747X in 2000.1095  Yet, the EC notes 
that even if the US were correct, the first deliv ery of the 747X would have been in 2005, at the 
earliest.  Thus – based on the US own assertion – even if Boeing had won these three sales, the EC argues that this would have had no impact on Bo eing's market share decline in the 2001-2004 
period.
1096      
4.586  In addition, the EC recalls that it rebutted US cl aims that Boeing lost market share because of 
Airbus price undercutting at easyJet (2002), South African Airways (2002), Thai Airways (2003), Iberia (2003), Air Berlin (2004) and Air Asia (2005).
1097  The EC notes that it has provided numerous 
rebuttals of the US allegations  regarding these transactions.1098 And it claims that the US has failed to 
demonstrate that Airbus significantly undercut Boei ng's price and has failed to demonstrate that any 
price undercutting  (and resulting displacement or  impedance) was the effect of the subsidies. 1099    
4.587  The EC also rebuts US legal and factual clai ms that there is allegedly a world-wide 
displacement or impedance of Boeing's LCA market shares.  The EC notes that there is no legal basis 
for the US claims regarding because impedance or displacement is only recognized in third country 
markets in the case of Article 6.3(b) and the EC market under Article 6.3(a).1100   
                                                      
1090 EC, SNCOS, para. 322. 
1091 EC, SNCOS, para. 325. 
1092 EC, Answer to Panel Question 288, paras. 372-374.    
1093 EC, Answer to Panel Question 206, paras. 314-321; EC, Answer to Panel Question 288, paras. 272-
290. 
1094 EC, FWS, paras. 1701-1725.  See, also, EC, FWS, paras. 1660-1725. 
1095 EC, FWS, paras. 1670-1672. 
1096 EC, FWS, paras. 1660-1725. 
1097 EC, FWS, paras. 1874-1898, 1902-1913, 1921-1932, 2094-2112. 
1098 EC, FWS, paras. 1874-1898, 1902-1913, 1921-1932, 2094-2112. 
1099 EC, FWS, paras. 1829-1833, 1837-1842, 1844-1847, 1850, 1854, 1855-1857, 1859-1862, 1864, 
1866-1868, 1870-1873, 1875-1901, 1903-1913, 1915-1920, 1923-1931, 2095-2099, 2101-2108, 2109-2112. 
1100 EC, Answer to Panel Question 285, paras. 234-240; EC, Comments on US Answer to Panel 
Question 285, paras. 315-320. WT/DS316/R 
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  4.588  The EC notes that while the US focuses its disp lacement or impedance claims on deliveries in 
the 2001-2005 period, it never produced evidence of  the effect of subsidies on the orders that 
generated those deliveries,  i.e., three years earlier in the 1998-2002 time period.1101  The EC contends 
that the absence of any temporal coinciden ce between alleged MSF subsidies and Boeing's 
maintenance of its delivery market share in the 199 6-2000 period refutes US arguments that Airbus' 
alleged subsidy-enabled predatory market activity in the post 9/11 (2001-2003) period allowed it to 
allegedly use subsides to seize market share.1102   
4.589  This lack of temporal coincidence is impor tant, the EC asserts, because Airbus received MSF 
and launched the A320, A330, a nd A340 models starting in 1984.1103  By 1996, all of the alleged 
subsidized A320, A330, and A340  models had been la unched, had received or ders, and had been 
delivered for years.1104  Yet, the EC stated that undisputed data from the 1996-2003 period shows that 
Boeing had a commanded market share of approximate ly 60 percent of the US-imagined single LCA 
market during the 1996-2000 period.1105  The EC points out that the same alleged subsidy effects must 
have been present in the 1996-2000 period as exis ted during the 2001-2003 and during the 2004-2007 
period.1106  Yet, the EC notes that Boeing's share of the orders and deliveries remained in the 
60 percent range during the 1996-2000 period.1107   It points out that during this period, the magnitude 
of alleged MSF subsidies were also higher than they were during the 2001-2003 period.1108   The EC 
noted that the US has never explained how, although the same alleged subsidies and their effects were 
present during the 1996-2000 period, there were no apparent negative impacts on Boeing's market 
share of orders or deliveries during that period.1109 
4.590  Finally, the EC argues that US assertions that  Airbus has allegedly maintained a "dominant 
position over Boeing" since 2001 are false.1110 Airclaims data through 2007 shows that in a single 
LCA market, Airbus' average shar e of total LCA deliveries between 2004-2007 is 51 percent while 
Boeing's is 49 percent.1111  Boeing and Airbus' average share of total LCA orders between 2004-2007 
is 50 percent.1112  When the individual competitive LCA markets in the 200-300 seat, and 300-400 
seat market are examined, it is Boeing, rather than  Airbus, that has more of a competitive advantage 
in recent years.  In the 100-200 single-aisle market, Airbus and Boeing have achieved rough 
equivalence that would be expected from equa lly matched duopoly producers in orders and 
deliveries.1113  This competitive situation between Boeing and Airbus over the past four years in both 
orders and deliveries is one of a series of key f acts (along with Boeing's record profits and order 
backlog as of the end of 2007) suggesting that Boeing is not suffering present displacement or 
impedance.1114  
                                                      
1101 EC, Answer to Panel Question 207, paras. 322-427. 
1102 EC, Answer to Panel Question 287, paras. 257-271; EC, Comments on US Answer to Panel 
Question 287, paras. 333-346. 
1103 EC, Answer to Panel Question 287, paras. 257-271; EC, Comments on US Answer to Panel 
Question 287, paras. 333-346; EC, Comments on US, Comments on US – Upland Cotton (21.5) , paras. 23-27. 
1104 EC, Comments on US, Comments on US – Upland Cotton (21.5) , paras. 23-27. 
1105 EC, Comments on US, Comments on US – Upland Cotton (21.5) , figure 5 at para. 23. 
1106 EC, Comments on US, Comments on US – Upland Cotton (21.5) , para. 24. 
1107 EC, Comments on US, Comments on US – Upland Cotton (21.5) , para. 24. 
1108 EC, Comments on US, Comments on US – Upland Cotton (21.5) , para. 24. 
1109 EC, Comments on US, Comments on US – Upland Cotton (21.5) , para. 25. 
1110 EC, Comments on US, Comments on US – Upland Cotton (21.5) , para. 15. 
1111 EC, Comments on US, Comments on US – Upland Cotton (21.5) , para. 17, figure 1 at para. 16. 
1112 EC, Comments on US, Comments on US – Upland Cotton (21.5) , para. 17, figure 1 at para. 16. 
1113 EC, Comments on US, Comments on US – Upland Cotton (21.5) , figure 2 at para. 18. 
1114 EC, Comments on US, Comments on US – Upland Cotton (21.5) , para. 19.  WT/DS316/R 
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  4.591  Finally, the EC argues that Boeing's current operating performance by the end of 2007 is a 
key factor in determining whether Boeing is suffering present serious prejudice.  In light of the fact that all of Boeing's delivery slots are sold out for th e next four years, and considering that Boeing is 
producing at maximum capacity, the US claim of serious prejudice by reason of impedance and 
displacement in the EC and in certain third country markets must fail.  
EC Responses to US Allegations Rega rding Price Suppression and Depression
 
4.592  The EC argues that the US significant price suppression and depression claims involving 
Boeings various LCA – the 737, 767, 777, and 747 – are unfounded because the US fails to establish 
that the alleged effects on prices are caused by any alleged EC subsidies or are "significant".1115  In 
particular, the EC pointed to the very small magn itude of the alleged subsidies throughout the period 
2001-2007 and the decades old age of the subsidi es, among other reasons, that explain why the 
alleged subsidies could not have caused significant price suppression or depression.1116  And in light 
of the US acknowledgement that, but for Airbus, there would be other competition,1117  the EC asserts 
that it is utterly speculative for the US to assu me that competition from a non-Airbus competitor 
would be different and would not have suppressed or depressed Boeing prices to a similar degree.1118  
The EC notes that this is, after all, the essence of competition.1119 
4.593  Among the many non-attribution factors that cau sed lower prices in each of the LCA markets 
where the US claims significant price suppression, th e EC points, first, to the collapse of demand 
following 9/11, the resulting cancellations of deliveries and the lack of orders that were recognized by 
market participants to have resulted in lower or stagnant prices.1120  The EC introduces substantial 
evidence, including the un-rebutted testimony of  Christian Scherer, Airbus SAS Executive Vice 
President,1121 establishing that other factors, such as Boeing's pricing strategy and launch of 
competing, low-priced LCA such as the 787, have be en primarily or largely responsible for the lower 
LCA pricing alleged by the US. 1122  The EC notes that there is a close temporal correlation between 
9/11 and the resulting collapse in demand, and declines in LCA prices between 2001 and 2002.1123  
Boeing's former CEO declared this period as the "worst downturn" in the history of commercial 
aviation.1124  
4.594  Second, the EC considers that another key non-subsidy factor that had a significant impact on 
LCA pricing in all LCA markets was [***] .1125  The EC notes that US itself has acknowledged that 
[***]  had a significant impact on LCA pricing in all LCA.1126 
4.595  Third, the EC argues that during the 2001-2002 pe riod, the relatively favourable Euro to US 
dollar exchange rate granted Ai rbus a pricing advantage because , although LCA are priced in US 
                                                      
1115 EC, Answer to Panel Question 213, paras. 506-511; EC, Answer to Panel Question 290, paras. 298-
306; EC, Comments on US Answer to Panel Question 237, paras. 179-188; EC, Comments on US Answer to 
Panel Question 289, paras. 386-390; EC, Comments on US Answer to Panel Question 290, paras. 391-399. 
1116 EC, FWS, paras. 1792-1805, 2019-2023, 2073-2076; EC, SWS, paras. 1031-1034. 
1117 EC, SWS, paras. 870-879; EC, Answer to Panel Question 209, paras. 462-464.  See, also, EC, 
SWS, paras. 858-869. 
1118 EC, SWS, paras. 837-914.   
1119 EC, Comments on US, Comments on US – Upland Cotton (21.5) , para. 71. 
1120 EC, Answer to Panel Question 116, paras. 355-369. 
1121 EC, SCOS, paras. 173-177. 
1122 EC, SWS, paras. 1064-1076, 1148-1161, 1166-1174. 
1123 EC, SNCOS, para. 325; EC, Answer to Panel Question 288, paras. 279-281.   
1124 EC, Answer to Panel Question 116, paras. 357.    
1125 EC, SNCOS, para. 326. 
1126 EC, SNCOS, para. 326. WT/DS316/R 
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  dollars, Airbus keeps its financial accounts, incurs much of its costs, and accounts for its profits, in 
Euros.1127  The EC notes that the Euro to US dollar exchange rate in 2000-2002 was over 30 percent 
better than the rate in 2004-2006.1128  Indeed, the EC stresses that the exchange rate advantage was 
exponentially larger than any alle ged MSF subsidy magnitude  available for aggressive pricing in sales 
campaigns.1129    
4.596  When coupled with the lack of demand in th e 2001-2003 period, these factors are a far more 
likely explanation for Boeing's lower prices than the zero or de minimis  magnitude of alleged 
subsidies.1130 
4.597  The EC also argues that the US benchmark for assessing the alleged existence of price 
suppressing and depressing effects of subsidies – th e US Aircraft Manufactures Producer Price Index 
– was flawed.1131  The EC considers that the US errs in c oncluding that the US PPI is both a measure 
for cost increases faced by Boeing and a proxy for expected LCA pricing.1132  In fact, the US PPI is 
neither.  According to the EC, the US PPI is a th eoretical construct that provides little information 
about Boeing's actual aircraft manufacturing costs,  but considers general cost increases for materials 
and US labour relevant to LCA.1133   That is, it does not take into account in which country Boeing's 
actual sourcing takes place, nor does it reflect Boeing's actual cost developments affected by efficiency improvement measures.
1134  Indeed, the EC argues notes that despite Boeing's cost 
reductions over the last decade, th e US PPI has consistently increased.1135  As such, the EC submits, 
the US PPI cannot be used to assess costs or be th e baseline for determining whether Boeing's prices 
are suppressed or depressed.1136  
4.598  Moreover, the EC explains that, the US PPI in creases in line with inflation, while actual LCA 
pricing is "based on supply and demand."1137  As a logical consequence, LCA pricing may not 
increase at the same rate as the US PPI.1138   The EC notes that the US acknowledges as much when it 
argues that, "{b}ecause demand has increased substan tially {in 2006-2007}, on e would expect that 
prices would have increased substantially."1139  Thus, the EC concludes that with LCA pricing being a 
function of a number of factors and fluctuating from one year to the next, it cannot be said to be 
"suppressed" – i.e., prevented or inhibited from rising – simply because it does not increase in line 
with the US PPI.1140  Nor can the US PPI be relevant for assessing price depression.  In fact, the EC 
recalls that, as recognized by the Appellate Body , price depression is an observable phenomenon:  
                                                      
1127 EC, Answer to Panel Question 205, paras. 307-308. 
1128 EC, Answer to Panel Question 205, para. 307. 
1129 EC, Answer to Panel Question 205, para. 307. 
1130 EC, Answer to Panel Question 116, paras. 355-369; EC, SWS, paras. 1031-1034. 
1131 EC, Answer to Panel Question 213, paras. 506-511; EC, Comments on US Answer to Panel 
Question 237, paras. 179-188. 
1132 EC, Answer to Panel Question 213, paras. 508-511. 
1133 EC, Answer to Panel Question 213, paras. 506-511. 
1134 EC, Answer to Panel Question 213, para. 510. 
1135 EC, Answer to Panel Question 213, paras. 506-511; EC, Comments on US Answer to Panel 
Question 237, paras. 179-188. 
1136 EC, Answer to Panel Question 213, paras. 506-511; EC, Comments on US Answer to Panel 
Question 237, paras. 179-188. 
1137 EC, Comments on US Answer to Panel Question 237, para. 388. 
1138 EC, Answer to Panel Question 213, paras. 506-511; EC, Comments on US Answer to Panel 
Question 237, paras. 179-188. 
1139 EC, Answer to Panel Question 213, paras. 506-511; EC, Comments on US Answer to Panel 
Question 237, paras. 179-188. 
1140 EC, Comments on US, Comments on US – Upland Cotton (21.5) , para. 67.  WT/DS316/R 
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  actual prices fall.1141  No alleged cost-related index is necessary for assessment the direction in which 
actual prices move.1142  
4.599  And even if the US PPI were the correct measure  by which to compare actual pricing, the US 
must prove that Boeing's prices did not increase in line with the US PPI because of the alleged 
subsidies.1143  As the Appellate Body concluded " {t}he effect – price suppression {or price 
depression} – must result from a chain of causation that is linked to the impugned subsidy."1144  The 
EC concludes that the US has failed to establish this chain of causation.1145   It simply assumes that 
Boeing's failure to increase prices in line with the US PPI is the result of the alleged subsidies.1146  
Specifically, when LCA prices do not increase at the same rate as the US PPI, the US attributes the 
price disparity to the alleged subsidies.1147  Yet, when LCA prices increase at a higher rate than the 
US PPI, the US does not attribute this to a lack  of subsidies impacting the market, but readily 
attributes that price increase to favourable market conditions.1148  The US cannot square these two 
positions.1149     
4.600  Turning to the US price suppression claims with respect to individual Boeing LCA, the EC 
explains that uncontested evidence shows that Bo eing's launch of the 787, a replacement for the 
outdated Boeing 767, had a depressi ng effect on Boeing 767 pricing.1150  In addition, the EC 
emphasizes that the lack of causation is further demo nstrated by the fact that there was no competition 
between the A330 and the Boeing 767 during 2004-2006.1151  Thus, the EC asserts that any prices 
secured by Boeing for the 767 – and hence, any alle ged price suppression or depression – were due to 
other, non-subsidy related factors.1152 
4.601  With respect to the 747's allegedly suppressed /depressed prices, the EC argues that the 
evidence demonstrates that other non-subsidy related factors were the cause for the failure of Boeing's 
747 prices to grow at the same rate as the US PPI over the 2001-2006 period.1153  In addition to 
submitting evidence demonstrating that Airbus was not even involved in most of the 747 orders that 
were allegedly secured at suppressed prices,1154 the EC has provided a significant amount of (un-
rebutted) evidence that demonstrates that any pricing pressure felt on the Boeing 747 was caused 
by:1155  
• The fact that the 747 is almost at the end of its product life;1156 
 
• The fact that global air traffic has changed over the last decade to deemphasize long-haul, 
hub-to-hub services;1157 and 
                                                      
1141 EC, Comments on US, Comments on US – Upland Cotton (21.5) , para. 58. 
1142 EC, Comments on US, Comments on US – Upland Cotton (21.5) , para. 67. 
1143 EC, Comments on US, Comments on US – Upland Cotton (21.5) , para. 69. 
1144 EC, Comments on US, Comments on US – Upland Cotton (21.5) , para. 69. 
1145 EC, Comments on US, Comments on US – Upland Cotton (21.5) , para. 69. 
1146 EC, Comments on US, Comments on US – Upland Cotton (21.5) , para. 69. 
1147 EC, Comments on US, Comments on US – Upland Cotton (21.5) , para. 69. 
1148 EC, Comments on US, Comments on US – Upland Cotton (21.5) , para. 69. 
1149 EC, Comments on US, Comments on US – Upland Cotton (21.5) , para. 69. 
1150 EC, FWS, paras. 2000-2010. 
1151 EC, FWS, paras. 2011-2015. 
1152 EC, FWS, paras. 2000-2023. 
1153 EC, FWS, paras. 1726-1758. 
1154 EC, FWS, paras. 1728-1738; FCOS, para. 52. 
1155 EC, FWS, paras. 1739-1757. 
1156 EC, FWS, paras. 1752-1756.   
1157 EC, FWS, paras. 1745-1751. WT/DS316/R 
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• The effect of geopolitical events such as the 1991 Gulf War, the 1997 Asian financial crisis 
and the terrorist attacks of September 2001 on demand for 747s.1158 
 
4.602  Regarding 777 prices, the EC notes the US acknowledgement that the "combination of 
particular market factors … appear to have been of sufficient magnitude as to [***]."1159  T h u s ,  
having looked at the conditions of competition in  the industry, the EC argues that the US 
acknowledges that Boeing 777 prices are not significantly suppressed or depressed in 2006.1160  
4.603  The lack of a causal link for the US price suppression/depression claims is further 
demonstrated, according to the EC, by Boeing's record  profits and the projected future profits at the 
end of 2007.  The EC recalls that Boeing's profits  during 2005-2007 were based on prices secured for 
LCA orders in the period 2001-2004, reflecting the average three year gap between order and delivery 
that existed at that time.  The EC considers th at Boeing's record-high profit margins during the 2006-
2007 period are inconsistent with the US argument th at Boeing's prices were significantly suppressed 
during the earlier 2002-2004 period.  Indeed, Boeing's 2006 operating margins exceeded those of any 
previous year since 1995, and Boeing's 2007 and 2008 margins are expected to reach "record" 
level.1161  
4.604  Nor is there any evidence, the EC asserts, of significant price suppression caused with respect 
to orders in the most recent 2006-2007 period.  Indeed, it notes that sales prices for Boeing LCA have 
[***] .  In April 2007, Boeing's CEO stated that Boeing 's LCA pricing today is "better than it was 2-3 
years ago."1162  In June 2007, a Boeing executive explained that Boeing is "happy with where we are 
with prices now."1163  In line with improving prices, Boeing predicted near the end of 2007 that its 
record-setting operating margins will not only continue, but continue to increase.1164   These 
increasing prices are consistent with the record leve ls of demand for Boeing 737, 787, and 777 LCA 
during the 2005-2007 period.  In view of this st rong demand, the EC considers that Airbus had no 
incentive to lower its sales prices in sales campaigns  with Boeing during the 2005-2007 period.  And 
even if it had, the zero or de minimis magnitude of any allegedly available per-aircraft subsidies 
would be too small to cause any significant price effects. 
4.605  Finally, even if the Panel were to conclude  that significant price suppression existed in the 
2001-2005 period, that price suppr ession is no longer "significant," i.e., "important or meaningful," in 
light of Boeing's current financial performance.  And even if Boeing were experiencing some minor 
prejudice in the form of lower revenue today from suppressed prices in historic sales – which it is not 
– this prejudice could not be considered "serious," within the meaning of Articles 5(c) and 6.3 of the 
SCM Agreement.1165 
(f) Conclusions  
4.606  The EC contends it has demonstrated that, today (as of the end of 2007), there are no present 
adverse effects to US interests, including Boeing.  Boeing's generally dominant share of LCA markets 
at a time of sky-rocketing demand, its record-hi gh backlog and lengthy wait for open aircraft delivery 
                                                      
1158 EC, FWS, paras. 1741-1745. 
1159 EC, Comments on US Answer to Panel Question 282, para. 308. 
1160 EC, Comments on US Answer to Panel Question 282, para. 308. 
1161 See, e.g. , EC, SWS, paras. 1148-1174, EC, Answer to Panel Question 261. 
1162 EC, SNCOS, paras. 424-431. 
1163 EC, SNCOS, paras. 424-431. 
1164 EC, Answer to Panel Question 210 and 214, EC, Comments on US Answer to Panel Question 210. 
1165 See, e.g. , EC, SNCOS, paras. 424-431.  WT/DS316/R 
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  positions, its high and anticipated reco rd profit margins, its record level of orders, the rising prices it 
receives for its LCA, and its many other rapidly rising financial and commercial indicators 
conclusively demonstrate this.1166  The EC argues that it has shown that the present per-aircraft 
magnitude of any alleged MSF subsidies availabl e to Airbus SAS for the A320, A330, and A340 
models is de minimis , or even non-existent, and, in light of their nature and the present conditions of 
competition, cannot be the cause of the alleged adve rse effects.  Alleged subsidies for the A380, 
which does not compete with any Boeing product, cannot cause present adverse effects.  And the 
A350-XWB is non-subsidized.1167   In any event, Airbus frequently  had neither the incentive – given, 
for example, Airbus' five-year backlog of single-aisle LCA orders – nor the opportunity – given wide-
spread non-competition for LCA sales – to use any av ailable subsidy to aggressively price its LCA.  
Moreover, the EC asserts it has demonstrated that , given the impact of num erous non-subsidy factors, 
the effects of any alleged subsidized pricing were not the determining factor in the sales campaigns 
raised by the US as evidence of adverse effects.1168  
4.607  But even assuming, arguendo, that the effect of any alleged subsidies to Airbus caused 
Boeing to lose certain sales between 1999-2005, th ose alleged "lost sales" are not today significant 
given the huge order backlog and the fact that Boei ng sold all the early "lost" order slots to other 
customers at what were likely higher prices.  Si milarly, historic price suppression is no longer 
"significant" both because prices have generally  increased between 2004- 2005 and 2006-2007 and 
because Boeing's 2006-2007 operating margins, largely reflecting present deliveries from orders made 
in the years 2002-2005, are at or near record levels.1169  Meanwhile, the US steadfastly refuses to 
show how – in light of their age, nature, and magn itude – the alleged subsid ies caused the particular 
lost sales, price suppression, and displacement it claims existed during 19 99-2005.  Instead, its 
causation arguments – including the hopelessly sp eculative "historical product launch causation" 
counterfactual, wishing away Airbus and 40 year s of LCA market developments – boil down to 
affixing a "subsidized" label on all Airbus products and then presuming that, so tainted, they cause the 
competitive harms alleged.1170  
4.608  The EC argues that the US raises sweeping claims against more than 70 measures and alleges 
these to be prohibited subsidies or subsidies causing a dverse effects to the US LCA interests.  At the 
same time, however, the US chooses to ignore the sp ecifics of the LCA market and the relevant legal 
framework it agreed to, namely th e 1979 Agreement and the 1992 Ag reement which specifically deal 
with LCA.  On numerous occasions, the US fails to id entify proper recipients of the alleged subsidies 
and, in so doing, fails to make a prima facie  case demonstrating how the alleged subsidies benefit the 
EC producer of LCA that is alleged to cause adverse e ffects to US interests.  Finally, the EC considers 
that the US fails to demonstrate a "genuine and substantial relationship of  cause and effect" between 
the alleged subsidies and the adverse effects it cl aims – a claim which is at odds with economic 
reality, as Boeing is in excellent financial health.1171 
4.609  The EC considers that the US arguments in this dispute are based on unfounded presumptions 
and evidentiary shortcuts.1172  As the Panel assesses whether the US has met its burden of establishing 
                                                      
1166 EC closing statement, second mee ting, Executive Summary, para. 11. 
1167 EC closing statement, second mee ting, Executive Summary, para. 12. 
1168 EC closing statement, second mee ting, Executive Summary, para. 13. 
1169 EC closing statement, second mee ting, Executive Summary, para. 14. 
1170 EC closing statement, second mee ting, Executive Summary, para. 15. 
1171 EC, FWS, Executive Summary, para. 93. 
1172 EC, SCCS, para. 23. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  causation by positive evidence, the EC respectfully requests it to keep in mind some of the more 
consequential and unwarranted infe rential leaps taken by the US.1173  In particular, the US:   
• Selects a grouping of subsidized products and lik e products with no basis in the evidence of 
physical, performance and price characteristics, the perception of market participants, including Boeing and Airbus, and the actual  competitive relationships between these 
products; 
 
• Ignores the dissimilar nature, age, magnitude, a nd impact of individual MSF loans from four 
different governments over a 40-year period, in favour of an alleged effect from a non-
existent "Launch Aid Program"; 
 
• Ignores the dissimilar nature, age, magnitude, and impact of alleged subsidies in the form of 
infrastructure measures, EIB loans, research & technology grants, capital contributions and 
restructuring measures, alleging that these measure s all have the same effect as, and merely 
augment the effect of, the "Launch Aid Program"; 
 
• Ignores the changing conditions of competition in  LCA markets and focuses its claims almost 
exclusively on sales campaigns, prices and mark et share data from the historical 1999-2005 
period, rather than the appropr iate 2006/2007 reference period; 
 
• Fails to undertake the required sales campaign-specific assessment of causation, thereby 
glossing over the many factors that affect the outcome and pricing of an LCA sale;  
 
• Refuses to determine the magnitude of any subsidies on a per-aircraft basis allegedly 
available, today, to Airbus to affect pric ing decisions in individual sales campaigns, and 
instead ignores well-accepted allocation and am ortization principles, the SCM Agreement, 
CVD practice, and logic in employing a "compounding" methodology to derive a nebulous subsidy amount of "we ll over $100 billion"; and 
 
• Concedes there would be active competition, but th en fails to take into account the impact of 
competition when assuming that every sale Boeing fa ils to win is a "lost sale" due to alleged 
Airbus subsidies and that every price that is  lower than the US' "expected price" is so 
exclusively as a result of alleged Airbus subsidies.
1174 
 4.610  In combination with the affirmative evidence o ffered by the EC – dem onstrating, among other 
things, the absence of present adverse effects and the absence of a causal link between the challenged 
measures and any alleged effects – th e US cannot overcome this rebuttal.
1175  
4.611  The EC requests that the Panel reject all cl aims advanced by the US in this dispute.1176  
V. ARGUMENTS OF THE THIRD PARTIES 
5.1 The arguments of the third parties Australia, Br azil, Canada, China, Japan and Korea are set 
out in their written and oral submissions to the Pane l, and in their answers to questions.  The third 
                                                      
1173 EC, SCCS, para. 23. 
1174 EC closing statement, second mee ting, Executive Summary, para. 16. . 
1175 EC closing statement, second mee ting, Executive Summary, para. 17. 
1176 EC, SWS, Executive Summary, para. 75.  See, also, EC, FWS, Executive Summary, para. 94..  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  parties' arguments, based on the summaries submitted by them pursuant to paragraph 13 of the Panel's 
working procedures, are presented in this section.1177   
A. AUSTRALIA  
5.2 In its Third Party Submission, Australia stat es that these proceedings raise significant 
systemic issues as well as important questions of legal interpretation.  In its submission Australia 
focused on a select few issues.  However, Australia po ints out that the fact that it has not commented 
on a particular issue should not be taken as an indi cation that it accepts the views of either party on 
that issue.1178 
1. The 1979 and 1992 Agreements  
(a) The 1979 and 1992 Agreements as applicable law 
5.3 Australia considers that the EC argument th at the 1979 and 1992 Agre ements constitute law 
that is applicable to this dispute invites an exam ination of the position of these agreements in relation 
to the WTO Agreement.1179  Australia notes that the 1979 Agreement is one of the Plurilateral Trade 
Agreements listed in Annex 4 to the WTO Agreemen t.  The Plurilateral Trade Agreements are listed 
in Appendix 1 to the DSU as falling within the coverage  of the DSU, provided that the parties to each 
Agreement have taken a decision setting out the te rms for the application of the DSU to that 
Agreement.  Australia notes that the parties to th e 1979 Agreement have not taken such a decision.  
Accordingly, the 1979 Agreement is not a covered agreement under the DSU.1180 
5.4 Australia notes that the EC as serts that the 1992 Agreement can be invoked as a defence in 
this dispute, arguing that Article 7.2 of the DSU permits defences to be drawn from non-WTO law.  
However, Article 7.2 deals only with defences ba sed on covered agreements cited by parties to a 
dispute, and not with defences based on non-covered agreements.1181  Australia points out that the 
Appellate Body has made it clear, in light of DSU Article 7.2 that the DSU operates in relation to 
covered agreements only.  It is not the function of  panels to seek to clarify the provisions of non-
covered agreements.  The 1979 Agr eement falls into the latter category.  The 1992 Agreement also 
falls into the latter category.  In Australia's view, the Panel in this dispute should decline to use the 
WTO dispute settlement system to determin e rights and obligations in the 1979 and 1992 
Agreements.1182 
(b) The 1979 and 1992 Agreements as aids to interpretation of the SCM Agreement  
5.5 Australia notes that the EC relies on Article 31( 3)(c) of the Vienna Convention in support of 
its argument that the 1979 and 1992 Agreements can be drawn on to assist with interpreting the 
SCM Agreement.1183  Australia does not consider that the ru les of international law contained in the 
1979 and 1992 Agreements, which are only applicable in  the relations between subsets of parties to 
the SCM Agreement, can be taken into account unde r Article 31(3)(c) of the Vienna Convention in 
                                                      
1177 China and Korea did not submit executive summaries of their oral statements.  The presentation 
therefore refers to the full te xt of their oral submissions. 
1178 Executive Summary of the Third Party Submission of Australia (hereinafter Australia Third Party 
Submission Executive Summary), para. 1. 
1179 Australia Third Party Submission Executive Summary, para. 2. 
1180 Australia Third Party Submission Executive Summary, para. 3. 
1181 Executive Summary of the Opening Statement of Australia at the Meeting with Third Parties 
(hereinafter Australia Opening Stat ement Executive Su mmary), para. 3. 
1182 Australia Third Party Submission Executive Summary, para. 4. 
1183 Australia Third Party Submission Executive Summary, para. 5. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  interpreting the SCM Agreement.  More generally, gi ven that the application of Article 31(3)(c) has 
potentially significant systemic implications fo r the WTO dispute settlement system, Australia 
submits that the Panel in this dispute should  approach the issue with a degree of caution.1184 
5.6 At the Panel meeting with the third parties Aust ralia noted that the Panel did not consider it 
necessary to determine whether the 1992 Agreement1185 fell within the scope of Article 31(3)(c) of the 
Vienna Convention on the Law of Treaties 1969 .  Should the Panel have cause to consider the 
application of that provision, Australia reiterates its view that the 1979 Agreement1186 and the 
1992 Agreement are not covered by Article 31(3)(c).  Neither agreement is a rule of international law 
which is applicable in the relations between all the parties to the SCM Agreement, as required by 
Article 31(3)(c).1187  Australia notes that the Panel's prelim inary ruling expressly states that it does not  
address certain arguments made by the EC in rela tion to the relevance of Article 4 of the 1992 
Agreement.1188  In Australia's view, the Panel should reject these arguments.1189  Finally, Australia 
observes that the Panel's preliminary ruling dealt at some length with the EC argument that the 1992 
Agreement gives rise to an estoppel.  Australia point s out that no claim of estoppel has been accepted 
by a panel or the Appellate Body.  Australia does not accept the EC position on estoppel in this 
dispute.1190  
2. Applicability of the SCM Agreement to Pre-1995 subsidies  
5.7 Australia notes that the US asserts that subsidi es have been provided by the EC over a number 
of decades, beginning with the provision of Launch Ai d for the development of the first large civil 
aircraft (LCA) in the Airbus family, the A300, in the 1970s.1191  Australia contends that as a number 
of these alleged subsidies were provided prior to  the entry into force of the SCM Agreement on 
1 January 1995, the question arises as to whether tho se alleged subsidies properly fall within the scope 
of the SCM Agreement.1192   
5.8 Australia notes that Article 28 of the Vienna Convention provides that, absent a contrary 
intention, a party is not bound by a treaty in relatio n to 'any situation which ceased to exist' before 
entry into force of the treaty for that party.  The use of the word 'situation' suggests something that 
subsists and continues over time.  Article 28 also ne cessarily implies that, absent a contrary intention, 
treaty obligations do apply to any 'situation' which has not ceased to exist.1193  Australia considers that 
the Panel in this dispute should draw on guidance provided by the Appellate Body in relation to 
Article 28 of the Vienna Conventio n in determining whether payments made prior to the entry into 
                                                      
1184 Australia Third Party Submission Executive Summary, para. 6. 
1185 Australia Opening Statement Executive Summary, para. 1 citing, the Agreement between the 
Government of the US and the European Economic Community Concerning the Application of the GATT Agreement on Trade in Civil Aircraft on Trade in Large Civil Aircraft 1992  
1186 Australia Opening Statement Execu tive Summary, para. 1 citing, the Agreement on Trade in Civil 
Aircraft 1979  
1187 Australia Opening Statement Executive Summary, para. 1. 
1188 Australia Opening Statement Executive Summary, para. 2 citing, the Preliminary Ruling 
(WT/DS316), 11 July 2007, para. 58. 
1189 Australia Opening Statement Executive Summary, para. 2. 
1190 Australia Opening Statement Executive Summary, para. 4 citing, the Second Written Submission of 
the EC, para. 41. 
1191 Australia Third Party Submission Executive Summary, para. 7. 
1192 Australia Third Party Submission Executive Summary, para. 8. 
1193 Australia Third Party Submission Executive Summary, para. 9.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  force of the SCM Agreement can be properly character ised as forming part of a 'situation' or subsidy 
continuum which continued to exist after entry into force of the SCM Agreement.1194 
3. In Fact Export Contingency 
5.9 Australia notes that the US alleges that the La unch Aid granted to Airbus for the A380, the 
A340-500/600, and the A330-200 models was c ontingent in fact on export performance, and 
accordingly, is a prohibited subsidy under Article 3.1(a) of the SCM Agreement.  Australia considers 
that in making this argument the US focuses primarily on the export propensity of the LCA product at the expense of an examination of the total configurati on of the facts.  In Australia's view, this leads to 
a misapplication of the Appellate Body guidance on export contingency and the Panel's findings in 
Australia – Automotive Leather II .
1195 
5.10 Australia recalls that, in establishing export co ntingency three elements must be established: 
(1) the granting of a subsidy; (2) that is 'tied to'; (3) actual or anticipated exportation or export 
earnings.  The second element is at the very heart of the legal standard and must be considered 
independently from the third element and evidence of  export orientation.  Consequently, evidence of 
the export nature of a product supports the establishm ent of a relationship of conditionality but is not 
conclusive of this second element.1196 
5.11 The second sentence of footnote 4 to Article 3.1(a) explicitly states that the mere fact that a 
subsidy is granted to enterprises which e xport cannot by itself support a finding of export 
contingency.  This does not mean that export propens ity is irrelevant to the analysis of contingency—
it simply means that it is only one of several facts to be taken in to account.  Careful consideration 
needs to be given in the present case to the ev idence used to support export contingency and the 
weight it should be accorded.  If disproportionate em phasis is given to export propensity, this would 
undermine the second sentence of footnote 4.1197 
5.12 In Australia's view there are tw o main deficiencies with the US analysis of in fact export 
contingency in the present case.  First, by focu sing on export propensity the US conflates product 
sales generally with export sales.  This leads to the erroneous conclusion that sales performance is 
export performance.  Second, the US focuses on the c ontractual requirement to repay the loan and its 
connection with sales performance.  However, it is not  clear on the facts presented the extent to which 
the repayment of Launch Aid is mandatory.  Moreover, it appears that Airbus receives payment of Launch Aid whether or not there are any sales.  Th erefore, the US has failed to explain why a link 
between the requirement to repay the loan and sales performance establishes a tie between the grant of 
an alleged subsidy and export performance.
1198 
5.13 Australia points out that in meeting the legal st andard of export contingency under footnote 4 
of Article 3.1, the relationship of conditionalit y between the granting of the subsidy and export 
performance is paramount.  Australia ob serves that the Appellate Body in Canada – Aircraft noted 
that to establish export contingency, the re quisite relationship of contingency 'must be inferred  from 
the total configuration of the facts  constituting and surrounding the gr anting of the subsidy, none of 
which on its own is likely to be decisive in any given case'.1199  In Australia's view, such relevant facts 
could include: an analysis of the nature of the pr oduct; the design and form of the subsidy; the export 
                                                      
1194 Australia Third Party Submission Executive Summary, para. 10. 
1195 Australia Third Party Submission Executive Summary, para. 11. 
1196 Australia Third Party Submission Executive Summary, para. 12. 
1197 Australia Third Party Submission Executive Summary, para. 13. 
1198 Australia Third Party Submission Executive Summary, para. 14. 
1199 Australia Opening Statement Executive Summary, para. 5 citing, Canada – Aircraft , para. 167. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  propensity of the product; performance requirements or conditions attached to the granting of the 
subsidy; any distinction made between domes tic and export sales in relation to repayment 
requirements; the level of sales requirements relativ e to domestic demand; and official statements by 
governments indicating the intention behind the gran ting of the subsidies.  The possibility that 
there may also be some sales that do not involve exportation may not sever the tie to anticipated 
exportation.1200  
5.14 Australia considers that the US characterizati on of export performance as an 'exchange of 
commitments'1201 is a lesser standard than that required under footnote 4 of Article 3.1.  The Panel's 
analysis of the relationship of conditionality between the granting of the subsidy and export 
performance should be based on the total configuration of facts.  The loan contracts may contain 
provisions whereby Airbus promises to make loan repayments based on sales.  The issue is therefore to what extent the text of these contracts is represen tative of the true nature of  the loans, and to what 
extent it can be said that the granting of the subs idy is conditional upon the promise to repay based on 
export sales.
1202 
5.15 Australia considers that one relevant factor in  determining to what extent sales or production 
targets amount to export performance is the point at which repayment of the loans is due.  For 
instance, if the loans require a certain level of sales  that could only be achieved by exporting, then that 
would indicate that the performance requirements necessitate exports.1203 
5.16 Australia does not agree that 'motivations' or 'reasons' are necessarily irrelevant to the test for 
in fact  export contingency.1204 Such 'motivations' or 'reasons' may be objectively ascertained from 
official statements by a government and may shed light on whether the granting of the subsidy is tied 
to exportation.1205   
5.17 Australia considers that the EC approach, namely that to be contingent upon export 
performance a subsidy must be a 'consequence of' export performance,1206 seriously undermines  the 
standard for in fact export contingency in the first sen tence of footnote 4 to Article 3.1.  The fact that 
the grant of a subsidy is not the consequence of ac tual exportation does not mean that the grant of a 
subsidy is not tied to export performance and ther efore contingent upon export performance within 
the meaning of the SCM Agreement.1207 
5.18 Australia notes that the EC has raised some leg itimate concerns in rela tion to the likelihood of 
export propensity in the case of small export de pendent economies or in the case of a global 
market.1208  Australia considers that the second sentence in footnote 4 of the SCM Agreement has 
relevance in this regard.  Export propensity is only one element in demonstrating the requisite 
relationship of conditionality or dependence between the gran ting of a subsidy and export 
                                                      
1200 Australia Opening Statement Executive Summary, pa ra. 6, citing, Second Submission of the US of 
28 June 2007, paras. 244. 
1201 Australia Opening Statement Executive Summary, pa ra. 7, citing, Second Submission of the US of 
28 June 2007, paras. 134, 142, & 161-167 and 136, & 210-214. 
1202 Australia Opening Statement Executive Summary, para. 7. 
1203 Australia Opening Statement Executive Summary, para. 8. 
1204 Australia Opening Statement Executive Summary, pa ra. 9, citing, Second Submission of the US of 
28 June 2007, paras. 231-232. 
1205 Australia Opening Statement Executive Summary, para. 9. 
1206 Australia Opening Statement Executive Summary, para. 10,  citing, Second Submission of the US 
of 28 June 2007,  paras. 144, 148-160. 
1207 Australia Opening Statement Executive Summary, para. 10. 
1208 Australia Opening Statement Executive Summary, para. 11, citing, the Second Written Submission 
of the EC, paras. 228-231.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  performance.  Contingency must still be established.  Export propensity must not be confused with 
export contingency and must be assessed on an analys is of the total configuration of the facts.  
Establishing a relationship of con tingency allows a differentiation to  be made between situations 
where the size of a country's economy, and its ge neral dependence on exports, would lead to a 
positive finding of export propensity and thereby discrimination against small export dependent 
economies.1209 
5.19 Australia notes that for the EC, the term 'an ticipated' in footnote 4 of the SCM Agreement 
means an export that has not yet taken place at the moment when the subsidy is deemed to exist but 
will occur subsequently.1210  Australia considers that this interp retation is problematic as it requires an 
analysis after the fact and renders 'anticipated' exportation as 'actual' exportation.  The ordinary 
meaning of the term 'anticipate' involves an elemen t of probability, that is, exportation is likely to 
occur but it may not occur.  Further, the Appellate Body has found that it does not suffice to demonstrate solely that a government granting a subsidy anticipated that exports would result.
1211,1212 
4. Adverse Effects  
5.20 Australia notes that the US claims that the provi sion of the alleged subsidies to Airbus by the 
EC and the Airbus Governments has caused adverse effects to its interests under Article 5 of the 
SCM Agreement.1213 
(a) Temporal issues regarding the US claim of adverse effects  
5.21 Australia considers that there are two temporal issues in relation to the US claim of adverse 
effects.  First, whether adverse effects should be assessed at the time when the panel makes a decision 
or at the time of the panel establishment.  Sec ond, what is an appropriate representative period for 
assessing adverse effects.  According to Australia, in  addressing these issues the Panel in this dispute 
should draw on guidance in US – Upland Cotton .1214  Australia notes that Part III of the 
SCM Agreement provides minimal direction as to th e specific time period within which to conduct an  
evaluation of adverse effects.  US – Upland Cotton  refers to a 'recent period '1215 but does not specify 
how long that period should be.  However, the case  does seem to suggest that consideration of 
developments over a period longer than one year pr ovides a more robust basis for evaluation and puts 
developments in a broader temporal context.1216  
5.22 In Australia's view, the appropriate reference period for adverse effects must be assessed on a 
case-by-case basis taking into account all the relevant facts and circumstances.  Relevant factors include: (a) that subsidization is a lleged to have occurred for over thir ty years; (b) the nature of the 
alleged subsidies, including long te rm loans; (c) that product development and sales in the large civil 
aircraft industry occur over long timeframes; (d) that  the average useful life of an aircraft is over 20 
years; (e) that neither the SCM Agreement nor th e DSU preclude the Panel from considering evidence 
of adverse effects subsequent to the date of panel establishment ( i.e., 20 July 2005), provided that the 
                                                     
 
1209 Australia Opening Statement Executive Summary, para. 11. 
1210 Australia Opening Statement Executive Summary, para. 12,  citing, the Second Written Submission 
of the EC, paras. 232-250. 
1211 Australia Opening Statement Executive Summary, para. 12, citing, Canada – Aircraft , para. 171. 
1212 Australia Opening Statement Executive Summary, para. 12. 
1213 Australia Third Party Submission Executive Summary, para. 15. 
1214 Australia Third Party Submission Executive Summary, para. 16. 
1215 Australia Opening Statement Executive Summary,  para. 17, citing, Third Party Submission of 
Australia, 7 May 2007, paras. 35-36.   
1216 Australia Opening Statement Executive Summary, para. 17, citing, US – Upland Cotton , Panel 
Report, para. 7.1199. WT/DS316/R 
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  evidence relates to measures that were within the panel's terms of  reference; and (f) the reference in 
Article 6.4 of the SCM Agreement to 'an appropriate ly representative period sufficient to demonstrate 
clear trends  in the development of the market for the product concerned, which, in normal 
circumstances, shall be at least  one year'.1217 
(b) Causation 
5.23 Australia considers that, depending on the fact s and circumstances of a particular case, 
aggregation of subsidies to assess whether they ar e causing adverse effects is permissible under the 
SCM Agreement.  In such circumstances a complainan t is not required to demonstrate adverse effects 
with respect to each subsidy individually.1218  
(c) Magnitude of the subsidy and methodology 
5.24 Australia notes that in terms of methodology, Pa rt III and Part V of the SCM Agreement serve 
different purposes.1219  As stated by the Appellate Body in US – Upland Cotton , the provisions of 
Part V 'must not be automatically transposed into Part III'.1220  Those provisions may nevertheless 
provide context for the interpretation on Part III in appropriate cases.1221 
5.25 Australia does not consider that Part III of the SCM Agreement calls for a precise 
quantification or allocation of the subsidy benefit.1222  The magnitude of a subsidy benefit is only 
relevant to a serious prejudice claim to the extent th at it confirms whether the subsidy is of sufficient 
magnitude to cause the claimed effects.1223  Accordingly, there is no basis for the EC to suggest in this 
dispute that the US is required to allege a precise per-aircraft magnitude of subsidy.1224 
(d) Relevance of the concepts of 'subs idized product' and 'like product'  
5.26 Australia notes that in light of Articles 5( a), 5(c), 6.3, 15.1, and footnote 46 of the 
SCM Agreement, it is clear that when assessing the US claim of adverse effects, it is necessary to 
identify both the 'subsidized product' ( i.e., 'product under consideration' ) and the corresponding 'like 
product'.  Further, Australia notes that, in ela borating on the requirements for establishing serious 
prejudice under Articles 6.3(b) and 6.3(c), the SCM Agreement refers to 'non-subsidized like product' 
in Articles 6.4 and 6.5 respectively.1225 
                                                      
1217 Australia Opening Statement Executive Summary, para. 18. 
1218 Australia Opening Statement Executive Summary, para. 19, citing, US – Upland Cotton , Panel 
Report, 7.1290-7.1307, s ee also, Third Party Written Submission of Braz il, 7 May 2007, para. 56; and Third 
Party Submission of Canada, 7 May 2007, paras. 61 & 62.   
1219 Australia Opening Statement Executive Summary, para. 14, citing, Second Submission of the US 
of 28 June 2007, para. 600-601; and Third Party Wr itten Submission of Brazil, 7 May 2007, para. 37-38 
1220 Australia Opening Statement Executive Summary, para. 14, citing, US – Upland Cotton , Appellate 
Body Report, para. 438. 
1221 Australia Opening Statement Executive Summary, para. 14. 
1222 Australia Opening Statement Executive Summary, pa ra. 13, citing, Second Submission of the US, 
28 June 2007, para. 600-602; and Third Party Writte n Submission of Brazil, 7 May 2007, para. 37-38. 
1223 Australia Opening Statement Executive Summary, para. 13, citing, US – Upland Cotton , Panel 
Report, para. 7.1173 & 7.1177; US – Upland Cotton , Appellate Body Report, para. 461. 
1224 Australia Opening Statement Executive Summary, para. 13. 
1225 Australia Third Party Submission Executive Summary, para. 17.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  (e) US' characterization of the 'subsidi zed product' and the 'like product'  
5.27 Australia notes that in order to demonstrate its claim of adverse effects the US has grouped all 
the Airbus LCA models together under the banner of  the Airbus LCA family.  According to the US 
the 'subsidized product' for the purposes of this disput e is the Airbus LCA family.  Similarly, the US 
has grouped all the Boeing LCA models together and asserted that the 'like product' for the purposes 
of this dispute is the Boeing LCA family.  Austra lia notes that the EC acknowledges the existence of 
some sort of 'family concept' in relation to LCA.1226 
5.28 In Australia's view, one of the key issues for the Panel in this dispute is whether the US 
characterisation of the 'subsidized product' and th e 'like product' provides an appropriate point of 
comparison for the purposes of assessing whether the alleged subsidies have caused adverse effects to 
the interests of the US.1227 
(f) Legal considerations in determining the 's ubsidized product' and the 'like product'  
5.29 Australia argues that in assessing a claim of advers e effects it is necessary to first identify the 
'subsidized product' before identifying the 'like pr oduct'.  However, the two concepts are obviously 
closely related.1228  Australia notes that there appears to be little guidance in the SCM Agreement or 
WTO cases regarding the complaining WTO Member's determination of the 'subsidized product'.  However, given that the definition of 'like produc t' under the SCM Agreement in footnote 46 requires 
that the 'like product' be 'identical' or have 'chara cteristics closely resembling' the subsidized product it 
seems reasonable to assume that there must be limitations on the scope of the 'subsidized product'.
1229  
Australia has highlighted a number of WTO cases which provide guidance on the determination of 
'like product'.  Indonesia – Autos  seems to be of particular relevance to the present dispute.1230 
5.30 In light of the relevant WTO cases, Australia su bmits that the Panel should satisfy itself of the 
following issues when examining th e US characterisation of the 'subsidized product' and the 'like 
product': 
(i) Is it reasonable for the US, having predominantly sought to establish the existence of 
subsidies on the basis of particular models of Airbus LCA, to shift focus, in relation to 
its claim of adverse effects, to the Airbus LCA family as the 'subsidized product'?  In 
other words, does a claim under the SCM Agre ement require a consistent approach in 
establishing the existence of a subsidy and in establishing adverse effects? 
(ii) In terms of physical characteristics ( e.g., length, height, wingspan, seating capacity, 
cargo capacity, and range) and price, is it appr opriate to suggest, for example, that the 
Boeing 747 (as the notional 'like product') ha s 'characteristics closely resembling' 
those of the Airbus A320 (as the notional 'subsidized product')? 
(iii) How does the LCA industry analyse market segmentation?  What are the airlines' 
(i.e., consumers') tastes and habits in purchasi ng a range of LCA models to form their 
fleet? 
                                                      
1226 Australia Third Party Submission Executive Summary, para. 18. 
1227 Australia Third Party Submission Executive Summary, para. 19. 
1228 Australia Third Party Submission Executive Summary, para. 20. 
1229 Australia Third Party Submission Executive Summary, para. 21. 
1230 Australia Third Party Submission Executive Summary, para. 22. WT/DS316/R 
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  (iv) How widely should the 'accordion of likeness ' be stretched in terms of the definition 
of 'like product' under the SCM Agreement? 
(v) Does the US grouping of various LCA models together result in individual product 
characteristics being ignored so that it could affect the outcome of the case? 
(vi) Would it be appropriate to disaggregate th e US grouping of products on the basis of 
the physical characteristics ( e.g.,  length, height, wingspan, capacity and range), end-
uses, and consumers' perceptions?1231 
5.31 Australia points out that contrary to what the EC has suggested,1232 Australia's third party 
submission does not 'urge this Panel to follow the findings of the panel in Indonesia – Autos' .  
Australia considers that in assessing a claim of ad verse effects it is necessary first to identify the 
'subsidized product' before identifying the 'like product'.1233  Australia also reiterates that in Japan – 
Alcoholic Beverages II  the Appellate Body highlighted that the concept of likeness was flexible and 
depends on 'the particular provision… as well as...the context and the circumstances that prevail in any 
given case'.1234  In addition, Australia recalls that the A ppellate Body has held that the grouping of 
products may be an acceptable analytical tool when assessing likeness.1235  
5.32 Finally, Australia notes that in Korea – Commercial Vessels  the Panel indicated that it was 
always for the complaining party in a WTO disput e to determine the basis and nature of its own 
complaint, including the breadth or narrowness of the description of the 'subsidized product'.  The 
Panel stated that it was then up to the complain ant to demonstrate causation in relation to this 
'subsidized product'.1236  
5. General Infrastructure 
5.33 Australia considers that Article 1.1(a)(1)(iii) excludes "general infrastructure" from what is 
deemed a financial contribution in the context of the provision of goods and services by government.  
The Appellate Body has noted in regard to sub- paragraph (iii), that general infrastructure is 
infrastructure of a general nature.1237  Australia submits that the Panel should take into account its 
observation that 'general infrastructure' in this context means the provision, by government, of goods 
and services that are generally available or multi-user.1238 
5.34 Australia considers that a broad definiti on, as advocated by the EC, of 'general 
infrastructure'1239 as infrastructure that fulfils public policy goals finds no support in the 
                                                      
1231 Australia Third Party Submission Executive Summary, para. 23. 
1232 Australia Opening Statement Executive Summary, para. 15, citing, Second Written Submission by 
the European Communities, 28 June 2007, para. 745. 
1233 Australia Opening Statement Executive Summary, para. 15, citing, Korea – Commercial Vessels , 
paras. 7.555-7.556. 
1234 Australia Opening Statement Executive Summary, para. 15, citing, Japan – Alcoholic Beverages II , 
Appellate Body Report, pp.19-21. 
1235 Australia Opening Statement Executive Summary, para. 15, citing, Korea – Alcoholic Beverages , 
Appellate Body Report, paras. 141-144. 
1236 Australia Opening Statement Executive Summary, para. 16, citing, Korea – Commercial Vessels , 
paras. 7.559-7.560; s ee also, Third Party Written Submission of Brazil, 7 May 2007, paras. 52-53. 
1237 Australia Opening Statement Executive Summary, para. 20 citing, US – Softwood Lumber IV , 
Appellate Body Report, para. 60.  See, also, Australia Third Party Submission Executive Summary, para. 24. 
1238 Australia Third Party Submission Executive Summary, para. 24. 
1239 Australia Opening Statement Executive Summary, para. 21, citing, First Written Submission of the 
EC, paras. 710-724.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  SCM Agreement.  If this were the test, then virt ually every financial contribution by government 
towards infrastructure would be excluded from the definition of 'subsidy' in the SCM Agreement, 
even if granted to a specific en terprise.  Such an interpretatio n would seriously undermine the 
discipline of the SCM Agreement.1240 
5.35 Further, Australia does not accept that '{ a}s long as the infrastructure is potentially  accessible 
by the public or providing common goods to the public , it should be treated as "general 
infrastructure"'.1241  Such a test would be too broad.1242 
5.36 Australia submits that the Panel needs to analy se whether the infrastructure is for exclusive or 
limited use by enterprises.  Australia does not consid er that sub-paragraph (iii) requires a presumption  
that government funded infrastructure is general unl ess evidence demonstrates that its use is limited 
exclusively to certain users.  Fu rther, infrastructure is not necessarily of a general nature simply 
because limitations on its use to certain users are tem porary.  Ultimately, any analysis of infrastructure 
needs to be undertaken on a case-by-case basis, taking into account all the relevant facts and 
circumstances, including the terms and conditions relating to its use.1243 
5.37 According to Australia, the 'general infrast ructure' exclusion under Article 1 of the 
SCM Agreement should be distinguished from specific ity analysis under Article 2.  It is also a 
separate consideration from the question of whethe r a benefit has been conferred by government 
which is required in order to complete th e analysis of the existence of a subsidy.1244 
6. Regional Specificity 
5.38 Australia notes that the EC argues that Article 2.2 involves a two- step test: (i) the subsidy is 
limited to a designated geographic region; and (ii) th e subsidy is limited to certain enterprises within 
that designated geographic region.  However, Austra lia draws the Panel's attention to the fact that 
under such a two-step test for regional specificity it is difficult to envisage a situation covered by 
Article 2.2 that would not already be covered by Article 2.1(a).1245 
7. Extinguishment of Subsidies 
5.39 Australia notes that the EC argues that any be nefit conveyed by a financial contribution is 
presumptively 'extinguished' for purposes of the SCM Agreement when the recipient firm (or 
segments thereof) is sold at 'arms length' and for 'fai r market value'.  In Australia's view, in addressing 
this issue, the Panel should examine all relevant facts in this disput e, including any provisions made in 
loan contracts between governments and Airbus SAS in relation to the transfer of obligations to 
successor entities.1246 
                                                      
1240 Australia Opening Statement Executive Summary, para. 21. 
1241 Australia Opening Statement Executive Summary,  para. 22, citing, Third Party Submission of 
Korea, 23 April 2007, para. 47. 
1242 Australia Opening Statement Executive Summary, para. 22. 
1243 Australia Opening Statement Executive Summary, para. 23. 
1244 Australia Opening Statement Executive Summary, para. 24. 
1245 Australia Third Party Submission Executive Summary, para. 25. 
1246 Australia Third Party Submission Executive Summary, para. 26. WT/DS316/R 
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  8. Withdrawal of the subsidy 
5.40 Finally, Australia notes that the EC states errone ously that Article 4.7 requires the withdrawal 
of the subsidy in terms of withdrawal  of the benefit amount, not the subsidy.1247  However, Article 4.7 
is clear that it is the subsidy that  must be withdrawn, not the benefit.1248 
B. BRAZIL  
1. Introduction  
5.41 In its third party submission, Brazil discusses the following specific issues of particular 
importance to Brazil in this dispute: 
• The rights and obligations under the SCM Agreemen t apply in all respects to the aircraft 
sector. 
 
• Subsidies provided before 1 January 1995 sh ould be excluded from the scope of the 
proceeding. 
 
• Failure of the EC to cooperate in the Anne x V information gathering process threatens to 
undermine the WTO dispute settlement process and should result in the application of 
inferences, including adverse inferences, where appropriate. 
 
• "Launch aid" severely distorts the competitive c onditions in the market for civil aircraft.  
Upon considering all of the characteristics of la unch aid, the Panel should find that launch aid 
confers a benefit and should examine carefully  the EC arguments regarding the duration or 
expiration of the benefit of launch aid subsidies. 
 
• The Panel should avoid a narrow interpretation of de facto  export contingency under 
Article 3.1(a) of the SCM Agreement. 
 
• In evaluating whether the subsidies to Airbus ar e causing adverse effects or the threat thereof, 
the Panel should (a) take into account the c onditions of competition in the LCA market, 
(b) give substantial discretion to the US to define the "subsidized product," and (c) examine 
other critical legal issues relevant to its consid eration of the US claims of serious prejudice 
and material injury.1249 
 
2. The SCM Agreement applies in a ll respects to the aircraft sector 
5.42 Brazil considers that the SCM Agreement establis hes the rights and obligations applicable to 
assessing the US claims in this dispute.   In Brazil's view, the 1979 Agreement  and the 1992 
Agreement  are outside the Panel's terms of reference.  To the extent relevant to the Panel's review, the 
1979 Agreement actually places an additional burden on th e EC not to cause further distortions in the 
civil aircraft market.  Moreover, the 1992 Agreement ca nnot serve to carve EC subsidies to its aircraft 
                                                      
1247 Australia Opening Statement Executive Summary , para. 25, citing, Second Written Submission of 
the EC, para. 224. 
1248 Australia Opening Statement Executive Summary, para. 25. 
1249 Executive Summary of the Third Party Submissi on of Brazil (hereinafter Brazil Third Party 
Submission Executive Summary), para. 1.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  industry out of the obligations under the SCM Agre ement, in particular because it is not a WTO 
covered agreement to which all WTO Members are a party.1250 
5.43 At the Panel meeting with the third parties, Br azil noted that in its preliminary ruling, the 
Panel found no basis for applying the 1992 Agreem ent to the temporal scope of the dispute1251 but did 
not address whether the 1992 Agreement was relevant to other substantive issues.1252  Among other 
things, the Panel's conclusion was based on lack of jurisdiction and on its finding that the 
SCM Agreement prevails over the 1992 Agreement.1253  For the same reasons, Brazil considers that 
the Panel should find no basis for applying the 19 92 Agreement to the substantive claims under the 
SCM Agreement in this dispute.1254 
5.44 Brazil also objects to the use of the 1992 Ag reement to interpret provisions of the 
SCM Agreement.  A bilateral treaty such as the 1992 Agreement simply does not reflect the common 
intentions of all WTO Members, and as a result, it cannot be used to inform what WTO Members 
intended when drafting the SCM Agreement.  Any other interpretation would lead to absurd and 
prejudicial results, with third parties seeing their WTO rights affected by a bilateral treaty to which 
they were not a party and with the provisions of  the SCM Agreement poten tially being interpreted 
differently for different WTO Members.  Alterna tively, any interpretation of the SCM Agreement 
based on the 1992 Agreement can only apply to the bilateral relations between the US and the EC.1255 
3. Subsidies provided before 1 January 1995 should  be excluded from the scope of this 
proceeding 
5.45 Brazil notes that the US has presented a number of claims based on subsidies provided prior 
to 1 January 1995, the date the SCM Agreement entered into force.  Consistent with the text and as 
interpreted in accordance with customary rules of interpretation of public international law, Brazil 
maintains that the SCM Agreement cannot bind a WT O Member in relation to any act that has taken 
place before 1 January 1995.1256   
5.46 Accordingly, Brazil considers that the temporal scope of any dispute under the 
SCM Agreement is limited to subsidies actually gran ted or maintained on or after 1 January 1995.  
One-time grants provided prior to 1 January 1995,  for example, should be excluded.  Recurring 
subsidies and subsidy programmes in which cont ributions are actually provided on or after 
1 January 1995 should be covered, including any contributions provided on or after 1 January 1995 
that are pursuant to commitments, decisions, or othe r actions taken prior to that date.  Brazil also 
considers that launch aid that was granted prior to  1 January 1995 and that remains subject to the 
repayment of interest or principal after that date s hould be within the scope of this dispute, including, 
under certain circumstances, situations where th e relevant launch aid was fully repaid after 
1 January 1995.1257 
                                                      
1250 Brazil Third Party Submission Executive Summary, para. 2. 
1251 Executive Summary of the Opening Statement of Brazil at the Meeting with the Third Parties 
(hereinafter Brazil Opening Statement Executive Summar y), para. 5, citing, Preliminary Ruling, para. 89. 
1252 Brazil Opening Statement Execu tive Summary, para. 5, citing, Preliminary Ruling, para. 58. 
1253 Brazil Opening Statement Executiv e Summary, para. 5, citing, Preliminary Ruling, footnote 141. 
1254 Brazil Opening Statement Executive Summary, para. 5. 
1255 Brazil Opening Statement Ex ecutive Summary, para. 6.  See, also, Brazil Opening Statement, 
para. 7. 
1256 Brazil Third Party Submission Executive Summary, para. 3. 
1257 Brazil Third Party Submission Executive Summary, para. 4. WT/DS316/R 
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  4. The EC failure to cooperate in the Anne x V process threatens to undermine the WTO 
dispute settlement process and should result in the application of inferences, including adverse inferences, where appropriate     
5.47 In Brazil's view, the Annex V process is particular ly critical in cases such  as this one in which 
the relevant information is almost exclusively contained in confidential documents held by the 
subsidizing Member.
1258  Brazil points out that Annex V of the SCM Agreement establishes an 
information gathering process that is a critical and integral part of the SCM Agreement.  In Brazil's view, the Annex V process is mandatory.
1259  In the interest of the timely and efficient resolution of 
disputes and consistent with the text of Annex V, Members should consent to the initiation of 
Annex V procedures and should full y cooperate in providing request ed information, particularly 
because information about subsidies is often only available to the subsidizing Members.1260   
5.48 Brazil notes that at the outset of this proceeding,  the EC refused to consent to three requests 
by the US to initiate the procedures under Annex V of the SCM Agreement.  The EC also failed to 
respond fully to questions and "follow-up" questions  from the Annex V Facilitator.  In Brazil's view, 
the EC actions in withholding evidence in the Annex V process severely prejudiced the rights of third 
parties to protect their interests in this proceed ing within the meaning of Article 10 of the DSU.1261  
5.49   To the extent that the EC continues to withhold relevant evidence, Brazil encourages the 
Panel to use its discretion under paragraph 7 of Annex V of the SCM Agreement to draw adverse 
inferences where appropriate and thereby adopt effec tive sanctions to ensure that Annex V remains an 
effective tool for the resolution of disputes under the SCM Agreement.1262   
5. "Launch aid" severely distorts the market s for aircraft and constitutes a specific 
subsidy 
5.50 Brazil considers that launch aid is a particularly  distortive type of subsidy because it shifts the 
enormous up-front expense and commercial risk of developing new aircraft to taxpayers.  Although 
Brazil agrees with the EC that the LCA industry h as special characteristics, it rejects the notion that 
this justifies subsidies inconsistent  with a Member's WTO obligations.1263   
5.51 Brazil agrees with the legal test articulated by  the US for determining whether a benefit was 
conferred, i.e., a benefit corresponds to some form of adva ntage and can be identified by determining 
whether the recipient has received a financial c ontribution on terms more favourable than those 
available to the recipient in the commercial market .  Launch aid takes the form of a loan for which 
repayment is success-dependent and, thus, may not earn  a commercial rate of return if relevant aspects 
are taken into account, including the risks inherent in  the development and mark eting of new aircraft, 
the nature of the launch aid (including its success- dependent and back-loaded features and lack of 
security), the relevant interest rates (including the na ture of any obligation to pay interest), the fact 
that credit ratings are affected by the expectati on of continuing government support, and any other 
preferential features, including the waiver of normal fees.  The Panel should account for these aspects 
in establishing an appropriate commercial benc hmark for determining whether the launch aid 
                                                      
1258 Brazil Opening Statement Executive Summary, para. 2. 
1259 Brazil, Third Party Submission, para. 16. 
1260 Brazil Third Party Submission Executive Summary, para. 5. 
1261 Brazil Third Party Submission Executive Summary, para. 6. 
1262 Brazil Third Party Submission Executive Summary, para. 7.  See, also, Brazil Opening Statement 
Executive Summary, para. 5. 
1263 Brazil Third Party Submission Executive Summary, para. 8.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  subsidies in this proceeding have conferred a benefit within the me aning of Article 1.1(b) of the 
SCM Agreement.1264   
5.52 Based on the evidence provided by the US, Br azil considers that the US has presented a prima 
facie  case that launch aid granted without any inte rest obligation confers a benefit on Airbus.  
Moreover, when the launch aid does require the paym ent of interest or royalties, the EC admission 
that such launch aid was granted on terms and condi tions more favourable than even its own proposed 
commercial benchmarks means that the US has es tablished that launch aid confers a benefit on 
Airbus.  Brazil considers that the additional statemen ts by officials from member States of the EC and 
by Airbus further demonstrate that launch aid confers a benefit on Airbus.1265  
5.53 Brazil disagrees with the EC assertion that the t est for whether launch aid confers a benefit 
should be based solely on the reasonableness of sales forecasts.1266  This test has no support in the 
SCM Agreement .  Based on its reference to governments secu ring an "adequate rate of return" and 
ensuring "adequate recoupeme nt of its contribution,"1267 the EC is attempting to resurrect the "cost to 
government" approach to examining the existence of  a benefit, which has been rejected in past 
cases.1268  Brazil also objects to the use of risk-sha ring suppliers in determining the appropriate 
commercial benchmark for assessing the benefit of launc h aid to a civil aircraft producer.  The terms 
and conditions for risk-sharing suppliers are substa ntially distorted by the government subsidies for 
the underlying project and would not reflect th e situation without government intervention.1269 
5.54 Regarding the duration and expiration of the bene fits of subsidies to Airbus, Brazil urges the 
Panel to examine the issues carefully and to ensure that its findings in this dispute do not lead to 
interpretations that would undermine the disciplines set  out in the SCM Agreement.  In the absence of 
guidance in the SCM Agreement regarding the quantifi cation of subsidies, the Panel should not, as the 
EC argues, require the US to allege a precise per aircraft subsidy rate in accordance with strict 
methodologies or thresholds.  Moreover, although th e general magnitude of the subsidies may be 
relevant, the Panel should also consider the nature of launch aid, which necessarily distorts the market 
and facilitates the ability of Airbus to launch aircraft that would not otherwise be developed or at least 
not developed at the same time or at the same cost.1270   
5.55 At the Panel meeting with the third parties, Braz il asserted that absent launch aid, certain new 
aircraft would not be developed and sold in the mark et or would be developed and sold much later at a 
higher cost.  Therefore, a beneficiary of launch aid is able to be more a ggressive in producing and 
marketing aircraft than a comp eting producer without launch aid.1271 
5.56 Brazil also notes that subsidies are not a requi rement for the development and launch of new 
aircraft, even if a producer is located in a devel oping country.  For example, to finance the design and 
                                                      
1264 Brazil Third Party Submission Executive Summary, para. 9. 
1265 Brazil Third Party Submission Executive Summary, para. 10. 
1266 Brazil Opening Statement Executive Summary, para. 7, citing, First Written Submission of the EC, 
paras. 442-478 and Second Written Submi ssion of the EC, paras. 151-157. 
1267 Brazil Opening Statement Executive Summary, para. 7, citing, Second Written Submission of the 
EC, paras. 154 and 157. 
1268 Brazil Opening Statement Execu tive Summary, para. 7, citing, Canada-Aircraft I (AB) , para. 156. 
1269 Brazil Opening Statement Executive Summary, para. 8. 
1270 Brazil Third Party Submission Executive Summary, para. 11.  See, also, Brazil, Third Party 
Submission, para. 37, citing US-Cotton (AB) , para. 467. 
1271 Brazil Opening Statement Executive Summary, para. 3. WT/DS316/R 
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  development of its EMBRAER 170/190 family of airc raft with four models ranging from 70 to 118 
seats, EMBRAER did not rely on launch aid.1272 
6. The Panel should avoid a narrow interpretation of de facto  export contingency  
5.57 In examining US claims that certain launch aid constitutes prohibited export subsidies under 
Article 3.1(a) and footnote 4 of the SCM Agreemen t, Brazil considers that the Panel should not 
interpret the applicable provisions so narro wly as to effectively prevent a finding of de facto  export 
contingency in certain sectors where there may in deed be a global market or in industries with 
substantial export orientation.1273  In particular, the Panel should ex amine export contingency as of the 
date the subsidy is granted.  In the re levant agreements to provide launch aid ( i.e., to provide the 
subsidy) in this proceeding, each government require d a certain rate of return, and thus, the provision 
of the launch aid was contingent on agreement be tween the government and Airbus to the specified 
contractual rate of return and the projected sales.  If this return could only be reached through actual 
or anticipated exportation or export earnings as eviden ced by, for example, market data in the launch 
aid agreement itself, Brazil considers that this may be sufficient to demonstrate de facto  export 
contingency.  Likewise, the relevant launch aid co ntracts were concluded in the expectation that a 
certain amount of sales would occur, according to "reasonable forecasts".  If this amount could only be reached through actual or anticipated exportation,  this should also be sufficient to demonstrate de 
facto  export contingency.
1274 
5.58 At the Panel meeting with the third parties,  Brazil stated that based on the information 
available to it, certain instances of launch aid in  this dispute do appear to constitute prohibited 
subsidies because they are contingent on export perf ormance within the meaning of Article 3.1(a) of 
the SCM Agreement.  If the evidence demonstrates that the launch aid contracts were concluded on 
the basis of a rate of return that could only be achieved through sales forecasts that inevitably imply 
exportation of subsidized products, the Panel should find that such evidence may be sufficient to 
demonstrate de facto  export contingency.1275   
5.59 Brazil notes that in Canada-Aircraft , the Panel stated that, in order to rebut Brazil's prima 
facie  case, Canada should have, inter alia , "adduce{d} ... evidence demonstrating that TPC assistance 
to the Canadian regional aircraft industry would have been granted irrespective of anticipated 
exportation or export earnings."1276  Likewise, in order to rebut the US prima facie  case here, the EC 
must present evidence demonstrating that the same  launch aid would have been granted irrespective 
of anticipated exportation or export earnings .1277  Brazil concludes that if the launch aid at issue here 
is endorsed by the Panel, it will open a loophol e for Members to provide export incentives under the 
guise of "royalty-based" or similar de facto  export performance based financing.  In Brazil's view, the 
Panel should ensure that its findings do not open such  a loophole, and it should not otherwise interpret 
Article 3.1(a) of the SCM Agreement so narrowly that a finding of de facto  export contingency is no 
longer possible.1278 
                                                      
1272 Brazil Opening Statement Executive Summary, para. 4. 
1273 Brazil Third Party Submission Executive Summary, para. 12. 
1274 Brazil Third Party Submission Executive Summary, para. 13. 
1275 Brazil Opening Statement Executive Summary, para. 9. 
1276 Brazil Opening Statement Executive Summary, para. 10, citing, Canada-Aircraft I (Panel) , 
para. 9.344. 
1277 Brazil Opening Statement Executive Summary, para. 10. 
1278 Brazil Opening Statement, para. 18.  WT/DS316/R 
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  7. The US has made a prima facie  case that the subsidies to Airbus cause adverse effects or 
the threat thereof 
5.60 Brazil considers that the conditions of competition in the LCA market are critical to the 
Panel's analysis of adverse effects under Article 5 of the SCM Agreement.  Brazil disagrees with the 
EC argument that there is often a lack of competition in the LCA market.  Given that Boeing and 
Airbus are the only surviving LCA producers, if Airbus wins a sales campaign, Boeing necessarily 
loses a sale, even if Boeing was not asked to compete for the sale.1279   
5.61 Brazil also agrees with the US description of the competitive conditions in the LCA market, 
including the large but infrequent orders of LCA a nd the likelihood that airlines purchasing subsidized 
aircraft will continue purchasing the same model or  models from the same family due to commonality 
of spare parts, pilot and crew training, special tooling, and ground support equipment.  Accordingly, 
subsidies that distort a customer's purchasing decisions have adverse effects that are far greater than in 
most other sectors and are also likely to affect future aircraft sales.1280   
5.62 Moreover, the nature of aircraft production is  such that the continued development of new 
aircraft and technology is necessary to remain comp etitive.  Brazil agrees with the US and with the 
logic contained in the Dorman Report that subsid ies significantly distort the market because they 
enable a producer to reduce the risk of launching new ai rcraft, lower its costs, divert internal funds to 
other uses, and otherwise make decisions th at are inconsistent with normal commercial 
considerations.1281   
5.63 Regarding the determination of the "subsidized pr oduct" in this dispute, Brazil considers that 
the Panel should afford the US substantial discretion as the complaining party to define the subsidized 
product or products to which its claims apply.1282  Brazil also agrees with the criteria proposed by the 
US for determining the "like prod uct" in this dispute, althou gh Brazil does not take a position 
regarding whether the entire Boeing family of LCA is the appropriate like product or products in this 
case.1283  Brazil notes that the SCM Agreement provid es no definition for "subsidized product" and no 
textual support for the proposition that the subsidi zed product has to conform to a particular 
configuration, be it narrow or wide.1284 
5.64 In its Third Party submission and at the Panel meeting with the third parties, Brazil provided 
the following comments on some of the important issues regarding the US adverse effects-related claims and arguments: 
• Brazil notes that the SCM Agreement does not specify what type of market (monopoly, 
duopoly or a perfectly competitive market) should prevail in any given context of 
international trade.  If the evidence shows,  for example, that a certain aircraft would not exist  
but for a subsidy and that the entire market for that kind of product would be supplied by a single non-subsidized firm, there are strong grounds for a prima facie  case that the subsidy 
causes serious prejudice within the meaning of Article 6.3. 
 
                                                     
 
1279 Brazil Third Party Submission Executive Summary, para. 14. 
1280 Brazil Third Party Submission Executive Summary, para. 15. 
1281 Brazil Third Party Submission Executive Summary, para. 16. 
1282 Brazil Third Party Submission Executive Summary, para. 17.  See, also, Brazil Opening Statement 
Executive Summary, para. 11 
1283 Brazil Third Party Submission Executive Summary, para. 17 
1284 Brazil Opening Statement Executive Summary, para. 11. WT/DS316/R 
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  • Brazil submits that contrary to the EC position, price need not be the only reason for lost 
sales, provided it is one of the material factors causing the lost sales. 
 
• Brazil disagrees with the EC assertion that adve rse effects are extinguished, for example, by 
the launch within two or three years of a technol ogically equal or superior competing aircraft 
by Boeing.  The continuing distortive effect of  subsidies in the market does not disappear 
with the launch of a competing aircraft. 
 
• Brazil disagrees with the EC position that Boeing's healthy financial and market position at 
the peak of the business cycle precludes the po ssibility that the US is suffering serious 
prejudice caused by the subsidy.  The relevant issue is whether Boeing's market share would 
be greater absent the subsidized Airbus product. 
 
• Brazil agrees with the US that if data on exports to certain third country markets is 
insufficient, the Panel may conduct an anal ysis of displacement or impedance under 
Article 6.3(b) of the SCM Agreement based on the aggregate of all third country markets. 
 
• Brazil considers that the effect of subsidies may be gauged not only as aircraft are physically 
delivered to customers, but also as orders ar e secured by manufacturers subsidized by their 
governments. 
 
• Brazil disagrees with the EC two-step anal ysis of displacement or impedance under 
Article 6.3(b) of the SCM Agreement requiring pr oof first that  'displacement' or 'impedance' 
is caused by the effects of challenged subsid ies and second that such displacement or 
impedance rises to the level of serious prejudice.   Brazil notes that displacement or impedance 
in the sense of Article 6.3(b) is an instance of "serious prejudice" within the meaning of 
Article 5(c).  There is no additional requirement to show that such displacement or impedance 
rises to the level of serious prejudice.  The panel in US-Cotton  made it clear that a finding of 
an effect under Article 6 is sufficient for a finding of serious prejudice under Article 5(c).  In Indonesia-Autos , the panel found that "{i}f the type of analysis set forth in Article 6.4 is 
appropriate in this case, then the complainants arguably could make a prima facie  case of 
displacement or impedance simply by demonstrating that the market share of a subsidized product has increased over an appropriately re presentative period."  Thus, Brazil considers 
that if the demonstration require d by Article 6.4 is made for a single  third country market (or 
for third country markets considered as a whol e) under Article 6.4, this amounts to a prima 
facie  case of serious prejudice within the meaning of Article 5(c) of the SCM Agreement.
 1285   
 
• With respect to material injury under Article 5( a) of the SCM Agreement, Brazil agrees with 
the US that evidence that Boeing's performan ce was improving in 2006 does not mean that 
the US did not suffer adverse effects from subsidized Airbus products.1286  
 5.65 Brazil points out that the precise quantification of subsidies is not required in a dispute under 
Part III of the SCM Agreement.  In addition to the findings of the Appellate Body in US-Cotton (AB)  
directly on this point,
1287 the absence of a de minimis  provision under Part III of the SCM Agreement 
and the use of the language "effect of the subsidy"  in Article 6.3 of the SCM Agreement support the 
lack of any requirement to quantify the subsidy.   Thus, the Panel should not adopt any specific 
                                                      
1285 Brazil, Third Party Submission, paras. 63-64, citing, Indonesia-Autos (Panel) , paras. 14.208-
14.211.  See, also, Brazil Third Party Executive Summary, para. 18. 
1286 Brazil Third Party Submission Executive Summary, para. 18. 
1287 Brazil Opening Statement Execu tive Summary, para. 13, citing, US-Cotton (AB) , paras. 464-467.  WT/DS316/R 
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  calculation or allocation methodologies for purposes of  this case and should not require the US to 
demonstrate a precise per-aircraft subsidy rate.1288 
5.66 Brazil notes that the EC contends that Airbus  LCA would have been viable without the 
challenged launch aid.1289  In Brazil's view, the EC arguments are not relevant in demonstrating 
causation in this case.  The possibility that certain  aircraft would have b een launched without the 
preferential terms provided by launch aid does not unde rmine arguments in relation to the effects of 
alleged subsidies on the pace and conditions by which such aircraft were actually introduced into the 
market.1290 
5.67 Brazil points out that according to the EC, the competitive advantage enjoyed by Airbus in 
launching a more technologically advanced aircraft  earlier than it would have done absent subsidies 
was quickly neutralized or eliminated when Bo eing launched a competing or superior aircraft.1291  As 
a legal matter, Brazil objects to th e EC argument that the actions of  a producer of the like product to 
remedy the adverse effects caused by subsidies eith er breaks the causal link between the subsidies and 
the adverse effects or removes the adverse effects.  Such an interpretation is not supported by the 
SCM Agreement and would lead to the absurd result  that a commercial response to reduce the adverse 
effects of subsidization would lessen the likelihood that the subsidizing Member would be found to 
violate its WTO obligations, despite causi ng the adverse effects in the first place.1292  
5.68 Brazil notes that the EC would have the Pane l require the US to provide evidence showing 
that funds received in the past under launch aid cont racts is directly linked to cash flow or "free 
money" that Airbus has chosen at the time of sal e to spend on reducing prices in each and every sales 
campaign.  Given the fungible nature of the funds provided and the fact that the subsidies benefited 
Airbus far in advance of the actual sale of any partic ular aircraft, such test is not required and would 
impose an impossible evidentiary burden on a complainant.1293 
5.69 Moreover, the EC argues that the US must al so prove that Airbus had the incentive and 
commercial opportunity to use the additional cash flow  from subsidies to lower sales prices.  Brazil 
considers that the EC approach lacks th e common sense that the EC advocated in Korea-Vessels .1294  
It follows from basic principles of economics and,  in fact, from common sense that a significant 
magnitude of subsidy-induced cash flow would re duce a producer's costs and affect prices.  A 
complainant should not be required to further de monstrate that the subsidized producer had the 
incentive and commercial opportunity to lower prices for its products.1295 
5.70 Brazil disagrees with the EC assertion that the lower development costs provided by launch 
aid do not affect pricing.  Because it lowers per unit costs of aircraft and improves the recipient's cash 
flow, launch aid enables Airbus to offer more aggressive pricing on its products. 
5.71 Brazil notes that the EC contends that to s how that displacement or impediment under 
Articles 6.3(a) and 6.3(b) of the SCM Agreement is ca used by the "effect of the subsidy," the US must 
                                                      
1288 Brazil Opening Statement Executive Summary, para. 13. 
1289 Brazil Opening Statement Executive Summary, para. 14, citing, Second Written Submission of the 
EC, paras. 757-795. 
1290 Brazil Opening Statement Executive Summary, para. 14. 
1291 Brazil Opening Statement Executive Summary, para. 15, citing, Second Written Submission of the 
EC, para. 914. 
1292 Brazil Opening Statement Executive Summary, para. 15. 
1293 Brazil Opening Statement Executive Summary, para. 16. 
1294 Brazil Opening Statement Executiv e Summary, para. 17, citing, Korea-Vessels , Annex F-1 (Second 
Oral Statement of the EC, para. 41). 
1295 Brazil Opening Statement Executive Summary, para. 17. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  conduct a sales-campaign by sales-campaign analysis.1296  Such an approach lacks any support under 
the SCM Agreement or past practice.  It is simp ly not a requirement for the complainant to present 
evidence relating to each sale of a subsidized produ ct (whether aircraft or  any other product) and 
demonstrate that the subsidy caused the relevant displacement or impediment on a sale-by-sale 
basis.1297 
5.72 Brazil agrees that the challenged subsidies s hould be cumulated in examining whether they 
are causing adverse effects to US interests if su ch subsidies "manifest themselves collectively." 
5.73 Brazil notes that the EC argues that the US cannot meet its burden of demonstrating serious 
prejudice under Articles 6.3(b) and 6.3(c) of the SCM Agreement because the various like Boeing 
products are subsidized and because Articles 6.4 a nd 6.5 refer to comparisons only with the "non-
subsidized like product."1298  The drafters' use of "non-subsidized like product" in Articles 6.4 and 6.5 
(as well as in paragraph 5 of A nnex V), however, was intended merely to ensure that the analysis 
excluded the like product of third countries and was li mited to a comparison of the subsidized product 
and the like product of the complainant.  In short, Brazil considers that alleged subsidies to Boeing are 
no defence to the US claims in this dispute.1299 
5.74 In Brazil's view, the Panel should disregard the EC  attempts to use US subsidies to Boeing as 
a defence against the US claims.  Alleged claims re garding US subsidies to Boeing will be considered 
by the panel in DS353. 
C. CANADA  
1. Introduction 
5.75 Canada states that it is participating in this proceeding because of its role as one of the world's 
major producers of civil aircraft and its syst emic interest in the interpretation of the 
SCM Agreement.1300    
2. De facto  Export Contingency  
5.76 Canada considers that the US has faile d to accurately apply the test for de facto  export 
contingency set out in footnote four of the SCM Agreement.1301  Canada argues that instead of 
applying this test, the US attempts to establish only that repayment of the financing was tied to actual 
or anticipated exportation or export earnings.1302  Canada notes that the US paraphrases the test as:  
"(1) the 'granting' of a subsidy; (2) that is 'tie d to' (3) 'actual or anticipated exportation or export 
earnings'."  By inserting the word "that" the US h as obscured the locus of the inquiry.  In Canada's 
                                                      
1296 Brazil Opening Statement Executive Summary, para. 18, citing, Second Written Submission of the 
EC, paras. 1142-1143. 
1297 Brazil Opening Statement Executive Summary, para. 18. 
1298 Brazil Opening Statement Executive Summary, para. 19, citing, Second Written Submission of the 
EC, para. 1100-1137. 
1299 Brazil Opening Statement Executive Summary, para. 19. 
1300 Executive Summary of the Third Party Submission of Canada (hereinafter Canada Third Party 
Submission Executive Summary), para. 1. 
1301 Canada Third Party Submission Executive Summary, para. 2.  Canada asserts that this standard is 
met when the facts demonstrate that the granting of a subsidy, without having been made legally contingent 
upon export performance, is in fact tied to actual or anticipated exportation or export earnings.  The mere fact 
that a subsidy is granted to enterprises which export shall not for that reason alone be considered to be an export 
subsidy within the meaning of this provision. 
1302 Canada Third Party Submission Executive Summary, para. 2.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  view, the text is clear in  establishing the locus of the "tied to" i nquiry as "the granting of the subsidy".  
Therefore, the relevance of repayment is limited to the light it sheds on whether the granting of the subsidy was export contingent.  Repayment is not dispositive.
1303   
5.77 Canada asserts that the SCM Agreement locates the "tied to" inquiry in the granting of the 
subsidy rather than its repayment for good reason.  A tie between repayment of a subsidy and sales 
can provide governments with an effective mech anism for establishing when repayments are due 
without creating any incentive to export.  Indeed, requiring repayment of a subsidy only when export 
sales are made could be a device for using subsidi es to develop domestic sales in preference to export 
sales.1304   
5.78 According to Canada, the US errs in confla ting the terms "export performance", "exportation" 
and "export earnings", with the term "sales".  By c onflating these terms, the US would have it that any 
subsidy provided in the form of royalty-based fina ncing is prohibited if the level of anticipated 
repayment factored in even a singl e export sale.  This nullifies the final sentence of footnote four.1305    
5.79 Canada considers that if the US is arguing th at the granting of the financing was conditioned 
on full repayment, it has provided no evidence.  Ev en if such evidence was provided, it would be 
absurd to characterize a full repayment requirement as an export contingency.  Every prior finding of 
a prohibited export subsidy was based on a positive,  direct correlation between subsidization and 
exportation.  Here, the correlation is the inverse:  repayments triggered by export sales only reduce 
any benefit to Airbus.1306 
5.80 Canada notes that the US argues that the cont ractual commitments to repay Launch Aid on a 
per plane basis are sufficient in this globalized mark et to establish that the granting of the alleged 
subsidies is export contingent.  This turns Article 3. 1 on its head.  As is clear from footnote four, the 
locus of the inquiry in Article 3.1 is the granting of the subsidy, not the repayment of the financial 
contribution.1307   
5.81 The US further asks the Panel to accept the proposition that the per plane repayment 
requirements in the member State financing at issue are "like" the b est endeavours performance 
targets set out in the grant contract in Australia – Leather .  However, the two cases are in no way 
analogous.  Australia – Leather  involved targets that, if met, would result in additional subsidization.  
In the case before the Panel, each sale, export or dom estic, when made, only triggers repayment of the 
financial contribution.1308  
5.82 Canada points out that by its own admission, the entire US case on export contingency 
depends on the repayment schedules in the relevant financial contribution agreements.  Canada notes 
that in its second submission, for example, the US  claims that "{i}t is this contractual tie that 
distinguishes the provision of Launch Aid from the provision of a subsidy based on the mere expectation that the subsidy would result in exportation."
1309  However, the simple fact that the 
repayment schedules are incorporated into the fina ncial contribution agreements does not make the 
granting of the alleged subsidies con tingent upon export performance.  In Australia – Leather , the 
                                                      
1303 Canada Third Party Submission Executive Summary, para. 3. 
1304 Canada Third Party Submission Executive Summary, para. 4. 
1305 Canada Third Party Submission Executive Summary, para. 6. 
1306 Canada Third Party Submission Executive Summary, para. 7. 
1307 Executive Summary of the Oral  Statement of Canada at the Meeting with the Third Parties 
(hereinafter Canada Oral Statem ent Executive Summ ary), para. 2. 
1308 Canada Oral Statement Executive Summary, para. 3.  See, also, Canada Third Party Submission 
Executive Summary, para. 5. 
1309 Canada Oral Statement Ex ecutive Summary, para. 4. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  panel took into account a number of circumstances to find that export performance was one of the 
conditions of the granting of the subsidies.  The two cases are dissimilar, since the per plane 
repayment schedules in this case are based on a ll sales – export and domestic – and therefore the 
agreements are neutral as to export performance .  This neutrality sugg ests no tie between export 
performance and the granting of the alleged subsidy.1310 
5.83 Canada asserts that the repayment terms c onfer no subsidy on Airbus based on its export 
performance.  Indeed, if Airbus failed to make a si ngle export sale of the relevant planes, the Airbus 
governments would have no recourse against Airbus under these contracts.  Further, repayments 
triggered by export sales can only reduce the conferral of benefit to Airbus.  These facts alone are 
sufficient to dispose of the US claim.1311 
5.84 Canada notes that the US complains that th e EC ignores its arguments  in respect of the 
repayment terms and answers an argument that the US  did not make.  But in fact it is the US that 
misunderstands the importance of the contractual term s of repayment for the granting of the subsidies 
in question.  The most that these terms can show in respect of the granting of the subsidy is an 
expectation of export sales.  In Canada's view, as is clear from the last sentence of footnote four to the 
SCM Agreement, mere expectation of export sales is not sufficient to establish that a subsidy is export 
contingent.1312  
5.85 Canada notes that in its second written submission,  the EC elaborated on its argument that the 
test for export contingency in Article 3.1 requires a finding of contingency in respect of both elements 
of the definition of subsidy in Article 1– the fina ncial contribution and the be nefit conferred by that 
financial contribution.1313  In Canada's view, the reference in  Article 3.1 to subsidies "within the 
meaning of Article 1" supports the EC view that export contingency must be proven in respect of both 
the financial contribution requireme nt established by Article 1.1(a) and the benefit thereby conferred 
element established by Article 1.1(b).  Canada has previously noted the importance of the words "the 
granting of" in footnote four for identifying the releva nt locus for the export contingency inquiry.  The 
reference to "the granting of" also serves to emph asize the importance of conducting the contingency 
inquiry in respect of the conferral of benefit element of a subsidy.1314     
5.86 Canada points out that a failure to examine whether an export contingency relates to the 
conferral of benefit would lead to the absurd result that an alleged export contingency, which 
withdraws benefit rather than confers benefit on expo rt, is sufficient to qualify a subsidy as prohibited.  
That interpretation of export contingency would r un counter to every prior finding of a prohibited 
export subsidy in WTO dispute settlement cases , all of which relied on a positive and direct 
correlation between subsidization and exportation.  Ye t that is exactly the interpretation advanced by 
the US in this dispute.  The Panel should reject that interpretation.1315 
3. Infrastructure 
5.87 Canada notes that the US claims that certain in frastructure projects are subsidies, but fails to 
first establish that they are not excluded from th e SCM Agreement as "general infrastructure" by 
Article 1.1(a)(1)(iii).1316  Canada identifies problems with the US definition of general infrastructure 
                                                      
1310 Canada Oral Statement Ex ecutive Summary, para. 5. 
1311 Canada Oral Statement Ex ecutive Summary, para. 6. 
1312 Canada Oral Statement Ex ecutive Summary, para. 7. 
1313 Canada Oral Statement Ex ecutive Summary, para. 8. 
1314 Canada Oral Statement Ex ecutive Summary, para. 9. 
1315 Canada Oral Statement Ex ecutive Summary, para. 10. 
1316 Canada Third Party Submission Executive Summary, para. 8.  WT/DS316/R 
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  and elaborates on the principles it identified in its  written submission as relevant to the Panel's 
analysis of the US infrastructure claims.1317   
5.88 In Canada's view, the most relevant ordinary m eaning of "general" is "not specifically limited 
in application; relating to a whole class of objects, cases, occasions, etc".  According to Canada it is 
possible to say therefore, that where a government  provides infrastructure and does not specifically 
limit its public availability, there is no financial contri bution.  Canada considers that this meaning of 
"general" is confirmed by the exclusion's roots in proposals that infrastructure available "for general 
public use" be excluded from the SCM Agreement.1318 
5.89 In Canada's view, the context of the term "gen eral infrastructure" supports a presumption that 
infrastructure is general unless a government specifically restricts usage by the general public.  First, 
the term is in Article 1.  It is the only exclusi on in the SCM Agreement where the legal analysis can 
be completed without any consideration of whethe r the measure confers a benefit.  Second, the 
drafters only reference infrastructure in an exclusi on, indicating their primary purpose was to ensure 
that general infrastructure was excluded, rather  than ensuring that certain infrastructure was 
included.1319  Finally, the object and purpose of Article 1 supports a presumption that infrastructure is 
general unless specifically limited.  As the panel in US – Export Restraints  found, the Article 1 
subsidy definition "was drafted w ith the express purpose of ensuring that not every government 
intervention in the market would fall within the c overage of the Agreement."  Article 1.1(a)(1)(iii) 
should not be interpreted to unduly broaden the scope of the Agreement.1320  
5.90 Canada notes that the US claims that public  road network improvements constitute "the 
provision of goods or services other than general infrast ructure".  However, the US identifies no limits 
on the use of the roads at issue by the public as a result of the improvements.  The Bremen runway 
extension could raise different issues if the ne w portion is indeed for exclusive use by Airbus.  
Restrictions on the use of a distinguishable element of infrastructure can justify separate consideration 
of that element.1321 
5.91 Canada submits that limitations on the use of infrastructure to certain users do not necessarily 
deprive infrastructure of its general nature if ther e is a reasonable expectation that general use will 
resume in the foreseeable future.  A temporary right of exclusive use may, however, require 
independent consideration to dete rmine if an exclusive right itself constitutes provision of a good (or 
service).1322   
5.92 Canada notes that the US first written s ubmission merely asserted its view that the 
infrastructure at issue was "other than general".  At  the prompting of the Panel, the US finally offered 
a definition of general infrastructure in its answer to Panel question 20.1323  Canada points out that in 
this definition, the US restricted the concept of general infrastructure to infrastructure that "must 
include, involve or affect all or nearly all the parts of a whole territory or community; must be 
completely or nearly universal, as opposed to partial,  particular or local in order to qualify as general 
infrastructure."  According to Cana da, this is an impossible standard.  For one thing, it would create a 
host of new definitional problems such as what c onstitutes a "whole territory or community".  But 
more fundamentally, it would be an impossible sta ndard to meet.  Infrastructure such as a harbour 
                                                      
1317 Canada Oral Statement Ex ecutive Summary, para. 11. 
1318 Canada Third Party Submission Executive Summary, para. 9. 
1319 Canada Third Party Submission Executive Summary, para. 10. 
1320 Canada Third Party Submission Executive Summary, para. 11. 
1321 Canada Third Party Submission Executive Summary, para. 13. 
1322 Canada Third Party Submission Executive Summary, para. 14. 
1323 Canada Oral Statement Ex ecutive Summary, para. 12. WT/DS316/R 
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  facility might never satisfy this definition.  And for WTO Members as geographically large as 
Canada, or either of the disputing Parties, it is  hard to imagine any element of the physical 
infrastructure that could be said to include, involve or affect all or nearly all of its territory or 
community.1324 
5.93 The guiding principles identified by Canada in its written submission are more consistent with 
the margin of appreciation that WTO Members acco rded themselves for determining what constitutes 
general infrastructure.  This margin of appr eciation has appropriate boundaries.  As Canada 
demonstrated in its written submission, the concept of general infrastructure is closely tied to its 
availability for use by the public and covers th e provision of basic goods and services underpinning 
the economy.1325 
5.94 While public policy considerations are at the core of any government decision to provide 
general infrastructure, Canada is not arguing that a public policy justification is by itself sufficient.  
The fact that infrastructure is provided exclusivel y to one company for public policy reasons does not 
preclude another Member from establishing, through ev idence, that it is something other than general 
infrastructure because it is not a basic good or ser vice underpinning the economy or because there is 
no actual or potential general availability.1326  Canada argues that the presumption that government-
provided infrastructure is "general" absent proof to the contrary reflects the standard rule under the 
DSU that "the burden of proof rests upon the party, whether complaining or defending, who asserts the affirmative of a particular claim or defence".  In this case, the US has the burden to establish that 
the infrastructure it is challenging is "other than general infrastructure".
1327 
5.95 Canada disagrees with the proposition advanced by  Australia that the facts and circumstances 
surrounding the provision of general infrastructure need to be examined to determine whether it 
confers a benefit to an enterprise.  General infrastru cture, by its nature, is presumed to have wide-
ranging benefits and so the fact of benefit to an ente rprise is not relevant to the question of whether it 
constitutes a financial contribution.  Australia is blending the 'benefit' and 'financial contribution' tests, 
something the Appellate Body has repeatedly cautioned against.  In the structure of Article 1, it is 
only once infrastructure has been determined to be a financial contribution – that is to say 
infrastructure "other than general infrastructure" – that the analysis proceeds to the question, under 
Article 1.1(b), as to whether it also confers a benefit on a recipient.1328 
5.96 Canada considers that the concept of dispro portionate or predominant use by certain 
enterprises is an issue to be considered under Artic le 2 of the SCM Agreement and is not appropriate 
in the context of Article 1.1(a)(iii).  As noted in  Canada's written submission, this concept is not 
appropriate because it would introduce an element of  redundancy to the analysis under Articles 1 and 
2 and would disadvantage Members with little economic  diversification.  Also, establishing whether 
infrastructure is general or not based on subsequent private use would make the status of the measure 
at the time of its creation uncertain.  Whether a government action will result in a subsidy should be 
clear before, not after, a government takes action.1329    
5.97 Similarly, the US has challenged the AéroCons tellation industrial site, in part, because it was 
a site "tailor-made" for a specific s ector of the economy.  Caution needs to be exercised with this line 
                                                      
1324 Canada Oral Statement Ex ecutive Summary, para. 13. 
1325 Canada Oral Statement Ex ecutive Summary, para. 14. 
1326 Canada Oral Statement Ex ecutive Summary, para. 15. 
1327 Canada Oral Statement Ex ecutive Summary, para. 16. 
1328 Canada Oral Statement Ex ecutive Summary, para. 17. 
1329 Canada Oral Statement Ex ecutive Summary, para. 18.  See, also, Canada Third Party Submission 
Executive Summary, para. 12.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  of reasoning, as an airport or harbour could also be classified as "tailor-made" for a specific sector of 
the economy, even though they are more properly understood as basic goods underpinning the economy and available for public use.  In regard to  the US argument that the French Government 
should have sold land at the AéroC onstellation site at a price that reflected its own costs, Canada 
considers that a more appropriate benchmark for the sale of land is the market value of the land as 
determined by reference to prevailing market rates in accordance with Article 14(d) of the 
SCM Agreement.
1330 
5.98 In respect of land reclamation, it is hard to conceive of a more durable asset than land.  Any 
reasonable consideration of possible use and availa bility by the public of new lands, where title is 
retained by the state, must necessarily take a very  long view.  In the case of the Mühlenburger Loch 
facility, the lease terms to Airbus provide the Panel w ith a valuable encapsulation of that aspect of the 
project that is exclusive to Airbus.  In Canada's view, the lease provides a useful basis for determining 
whether Airbus has received terms more favourab le than those it would have received on a 
comparable commercial lease in the prevailing market.1331 
5.99 Canada notes that the US also argues that EC State Aid rules offer guidance in defining when 
infrastructure is a subsidy.  However, those rules represent the internal practice of the EC and are in 
no way related to the SCM Agreement.  As such , they have no relevance at all to the proper 
interpretation of Article 1.1( a)(iii) of the SCM Agreement.1332 
4. Serious Prejudice 
5.100  Canada considers that there are two fundament al deficiencies in the US serious prejudice 
analysis.  First, the US approach to "like product"  is, on the facts of this case, incorrect.  Second, 
assessing the effect of all the alleged subsidies in the aggregate does not account for differences in 
their nature and effect.1333 
(a) Like Product  
5.101  Canada notes that the US claims of serious prejudice are premised on its assertion that there is 
only one subsidized product at issue in this disp ute, which is the entire family of LCA aircraft 
produced by Airbus.  However, this ignores the mark et realities in the civil aircraft sector which 
recognize that the family of LCA aircraft include  a number of different and distinct products.  
Recognizing the vulnerability of its position, the US has asked the Panel to de fer to the US in its 
identification of the subsidized product.1334   
5.102  Canada sees no basis in the SCM Agreement to requi re deference by this Panel to either of the 
disputing parties' views on subs idized product and corresponding like product.  Whether the dispute 
implicates one or several subsidized products is a matt er for the Panel to determine, as the trier of fact.  
As trier of fact, the Panel acts pursuant to its ob ligation under Article 11 of the DSU to make "an 
objective assessment of the facts of the case and the a pplicability of and conform ity with the relevant 
covered agreements".1335  
                                                      
1330 Canada Oral Statement Ex ecutive Summary, para. 19. 
1331 Canada Oral Statement Ex ecutive Summary, para. 20. 
1332 Canada Oral Statement Ex ecutive Summary, para. 21. 
1333 Canada Third Party Submission Executive Summary, para. 15. 
1334 Canada Oral Statement Ex ecutive Summary, para. 23. 
1335 Canada Oral Statement Ex ecutive Summary, para. 24. WT/DS316/R 
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  5.103  In this regard, and contrary to the assertions of the US, Canada considers the definition of like 
product in footnote 46 of the SCM Agreement is hi ghly relevant context fo r determining whether 
there are one or more subsidized products at issue.  In particular, the requirement in footnote 46 that 
there be a close correspondence between the s ubsidized product and like product, based on the 
characteristics of the like product, would be rendere d meaningless if the complainant could simply 
assert that a number of discrete products with very different characteristics were a single subsidized product.
1336   
5.104  Canada notes that to support its request for deference to its unilateral grouping of all LCA 
into a single product, the US relies on a case deci ded under the Anti-Dumping Agreement.  However 
Anti-Dumping jurisprudence is inapposite – sin ce, in the context of the AD Agreement, the 
determination of dumped and like product only arises for a panel in  a review of determinations 
already made by a domestic investigating authority.  In reviewing a determina tion of an investigating 
authority, a panel may not engage in a de novo  review and may not substitute its views for that of the 
investigating authority.  Those strictures do not apply here.1337 
5.105  According to Canada, it is not accurate to claim,  as the US does here, that "because subsidies 
are provided to Airbus for the development of an LCA family….  the 'subsidized product' is the 
Airbus LCA family as a whole."  Canada explains that the identification of a "like product" and its corresponding subsidized product in the serious prejudi ce analysis, is, by virtue of the definition in 
footnote 46, focused on the characteristics of the pr oducts at issue, not the characteristics of the 
subsidy.
1338  It follows that the fact that a complainant has challenged multiple subsidies in one panel 
request does not justify aggregating a number of discrete products into a single "like product".  To 
consider otherwise would be to bl ur the distinction between the scope of a panel proceeding, which is 
set by the panel request, and the definition of "like product", which is set by footnote 46.1339 
5.106  In Canada's view, the US misses the point when it seeks to support its "like product" claim by 
noting that royalty-based financing for individual Airbus models actually benefit the entire Airbus 
LCA production because the "subsidies for the developm ent of each major Airbus LCA model benefit 
the production and marketing of its full LCA family".  It is the characteristics of the products being 
compared that are relevant to whether they are " like".  Company-wide bene fits of a subsidy have 
nothing to do with the actual characteristics of the products produced by that company.1340  
5.107  Canada notes that the US 'family'-related argumen ts essentially propose that the Airbus 380 is 
somehow 'like' the Boeing 737.  However, the 737 is a narrow body aircraft with a seating capacity of 
approximately 120 to 200 seats and a range of approx imately 3,000 to 6,000 km.  The A380 is a wide 
body aircraft of over 500 seats and a range of 15,0 00 km.  It is inconceivable that an A380 could 
displace or impede or price undercut a 737 as they are simply not considered by the market to be in competition.
1341  
5.108  Canada points out that the panel in Indonesia – Autos  dismissed a similar argument.  A key 
reason why that panel rejected the argument that  all passenger cars should be considered a "like 
                                                      
1336 Canada Oral Statement Ex ecutive Summary, para. 25. 
1337 Canada Oral Statement Ex ecutive Summary, para. 26. 
1338 Canada Third Party Submission Executive Summary, para. 16, citing, Footnote 46:  "Throughout 
this Agreement the term "like product" ("produit similaire") shall be interpreted to mean a product which is identical, i.e., alike in all respects to the product under consideration, or in the absence of such a product, 
another product which, although not alike in all respect s, has characteristics closely resembling those of the 
product under consideration."   
1339 Canada Third Party Submission Executive Summary, para. 17. 
1340 Canada Third Party Submission Executive Summary, para. 18. 
1341 Canada Third Party Submission Executive Summary, para. 19.  WT/DS316/R 
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  product" of the "Timor" car was the lack of s ubstitutability between the Timor, a small budget car, 
and passenger cars at the high end of the market, for example a Rolls-Royce.  The Indonesia – Autos  
panel found that it was "almost inconceivable" that  a subsidy for Timors could displace or impede 
Rolls-Royces or that there could be any meaningful price undercutting analysis between these two 
models.1342    
5.109  Canada notes that the panel in Indonesia – Autos  found that "one reasonable way" to approach 
the like product issue is to look at the manner in which the industry at issue has analyzed market 
segmentation.  Canada agrees that industry analyses of market segmentation can be a useful tool in 
conducting a like product analysis and would urge the Panel to conduct its analysis in a manner that 
distinguishes among products based on characteristics that the market itself considers significant and 
distinctive.1343 
(b) Causation and the US Aggregated Analysis  
5.110  In Canada's view, the US errs by examining only whether a causal link exists between the 
aggregated grouping of subsidies and the aggregated grouping of effects set out in Article 6.3(a) to 
(c).  There are two aspects to this error.  First, subsidies were a ggregated without regard for their 
nature and effect.  Second, the US failed to est ablish a nexus between a lleged subsidies and the 
adverse effects claimed.1344   
(i) Aggregation of Subsidies 
5.111  Canada notes that the US serious prejudice clai m remains predicated on the aggregated effects 
of all alleged subsidies, regardless of the amount, ag e, nature or type of benefit in respect of all 
Boeing LCA.  In Canada's view, this approach is not consistent with the approach of prior panels, 
particularly the panel in US – Upland Cotton , and it is inconsistent with the rigour required by 
Article 6.3 of the SCM Agreement.1345 Canada states that the aggregation of a number of subsidies for 
a serious prejudice analysis is appropriate to the extent the subsidies that  are aggregated share a 
similar nature and effect in relation to  the like product.  Canada notes that the US – Upland Cotton  
panel aggregated certain subsidies and declined to aggregate others because of what it considered to 
be their different nature and effect.1346  
5.112  Canada considers that the caution exercised by the US – Upland Cotton  panel in recognizing 
that "due attention must be paid to each subsidy at issue" was appropriate because of the dangers of 
any cumulative assessment.  An aggregate assessment may result in a finding of serious prejudice even if not all of the subsidies result in serious pr ejudice.  Overly broad aggregation can, therefore, 
leave Parties with inadequate gui dance as to what actions are required by a subsidizing Member to 
comply with a recommendation from the DSB to wit hdraw the adverse effects caused by subsidies in 
the aggregate.
1347 
5.113  Canada argues that in this case, it is not appropriate  for the US to aggregate:  1. the effect of 
four decades of subsidies regardless of when they  were granted and expended; and 2. research and 
                                                      
1342 Canada Third Party Submission Executive Summary, para. 20. 
1343 Canada Third Party Submission Executive Summary, para. 21. 
1344 Canada Third Party Submission Executive Summary, para. 22. 
1345 Canada Oral Statement Ex ecutive Summary, para. 27. 
1346 Canada Third Party Submission Executive Summary, para. 23. 
1347 Canada Third Party Submission Executive Summary, para. 24.  See, also, Canada Oral Statement 
Executive Summary, para. 28. WT/DS316/R 
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  development programs with other forms of subsidies without considering how su ch subsidies relate to 
the subsidized products and the adverse effects claimed.1348   
(ii) Aggregation of Subsidies Regardless of When Granted and Expended 
5.114  It is highly speculative that royalty-based financing granted and expended between 1969 and 
2001 could have any continuing effect on Airbus pric ing decisions, and therefore on Boeing LCA.     
This is particularly true as repayment obligations  are triggered by each sale.  Canada questions 
whether the receipt of such subsidies, in what is  the distant past from a corporate standpoint, could 
trigger current price undercutting or establis h an ongoing risk of price undercutting.1349   
5.115  Canada notes that the EC submission lays out what it refers to as the "US/Boeing 
methodology" for allocating subsidies over time.  According to Canada, whether or not the Panel 
adopts this methodology, the Panel should decline to aggregate subsidies granted prior to the review 
period with more recent subsidies absent persuasi ve evidence from the US th at the earlier subsidies 
have an ongoing effect.1350   
(iii) Aggregation of Research and Development (R&D) Programs 
5.116  Similarly, Canada considers that R&D program s should only be aggregated after analyzing 
their nature and effects to determine if they are sufficiently similar to other alleged subsidies to 
warrant aggregation.  Canada notes that there is  no such analysis in the US first submission.1351   
5.117  Canada points out that R&D frequently results in  benefits that go beyond the particular 
interests of a producer.  R&D programs may therefore not be appropriate to aggregate with financing 
for the launch of a new aircraft.  The view that R& D is distinctive is supported by Part IV of the 
SCM Agreement on non-actionable subsidies.  The provisi ons of this Part have lapsed by operation of 
Article 31 of the SCM Agreement and Members have  taken no action to extend its application.  
However, as the US – Upland Cotton  panel and the Arbitrator in US – FSC (Article 22.6 – US)  found, 
these provisions "can nevertheless be instructiv e in understanding the overall architecture of the 
Agreement with respect to the different typ es of subsidies it sought and seeks to address."1352    
5.118  Canada notes that Part IV, Article 8.2(a) est ablished that "assistance for research activities 
conducted by firms or by higher e ducation or research establishments on a contract basis with firms" 
qualified conditionally for non-actionable status.  Thus , Article 8(2)(a) indicates that, for the drafters 
of the SCM Agreement, these R&D programs were di stinctive.  Automatic protection for qualifying 
subsidies under this provision has lapsed, but the provision does support giving separate consideration to R&D programs from other subsidies.
1353 
5.119  Canada notes that the R&D programs are also dis tinctive in this proceed ing as they involved a 
number of different entities, many with no direct conn ection to Airbus.  In such circumstances, the US 
has the burden of demonstrating how the benefits were passed through to Airbus.1354 
                                                      
1348 Canada Third Party Submission Executive Summary, para. 25. 
1349 Canada Third Party Submission Executive Summary, para. 26. 
1350 Canada Third Party Submission Executive Summary, para. 27. 
1351 Canada Third Party Submission Executive Summary, para. 28. 
1352 Canada Third Party Submission Executive Summary, para. 29. 
1353 Canada Third Party Submission Executive Summary, para. 30. 
1354 Canada Third Party Submission Executive Summary, para. 31.  WT/DS316/R 
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  (iv) The US fails to demonstrate the c ausal link required under Article 6.3 
5.120  Canada maintains that Article 6.3 requires that  there must be a link between the subsidy and 
its effect.  If an allegation of displacing imports under Article 6.3(a) is made, the "causal link", 
between the subsidy and the displacing of the impor ts must be demonstrated.  If an allegation of 
significant price undercutting under Article 6.3(c) is made, the causal link between the subsidies and 
the price undercutting must be demonstrated, and so on for each effect alleged.1355 
5.121  This was the approach in US – Upland Cotton .  That panel conducted one examination to 
determine whether all the elements of the allegati on under Article 6.3(c) were fulfilled and a separate 
examination to determine whether all the elements  of the allegation under Article 6.3(d) were 
fulfilled.  The panel identified the causal link between  the alleged effect and the alleged subsidies as 
one of the elements to be de monstrated under Article 6.3(d).1356  
5.122  Canada submits that here, the US is required to demonstrate the causal link for each of 
Article 6.3(a) to Article 6.3(c) since it alleges each of these effects.  Further, for its allegation relating 
to Article 6.3(c), the US is required to demonstrat e that the requisite causal link exists between the 
subsidies and each of the alleged effects of si gnificant price suppression, significant price depression 
and lost sales.  Canada argues that by simply ex amining the existence of a causal link between the 
aggregated grouping of subsidies and the aggregated grouping of effects, the US has failed to perform 
a causal analysis for each alleged effect in Article 6.3(a) to Article 6.3(c).  Rather, by adopting a 
global causal analysis the US has obscured the elements required to be demonstrated under Article 6.3.
1357 
5.123  According to Canada, the US global causal theory is two-fold:  1. the cumulative effect of the 
subsidies allowed the development of Airbus LCA, "tha t would not have been undertaken at all, or at 
the same pace, without subsidies";  and 2. the cumu lative effect of the subsidies provides Airbus with 
a financial cushion that permits it "to further a po licy of pricing its LCA in order to obtain market 
share."  In respect of the first aspect, it is specula tive to assert that, absent subsidies, there would be 
no competition affecting the US producer.  Canada notes that the US has not substantiated such a 
claim.  Moreover, the focus in Article 6.3 is on de termining the effects of subsidies in the relevant 
markets on the complainant's products.  The benchmar ks for this exercise ar e not the markets absent 
the products of the subsidizing Member, but the market s absent the effects of th e subsidies at issue.  
The second aspect of the US causal theory – that su bsidies support an Airbus pricing policy designed 
to obtain market share – does, in theory, relate dir ectly to each inquiry in Article 6.3(a) to (c).  
However, the US never engages in this analysis with respect to each of the effects it has alleged.1358     
5.124  Last, Canada agrees with the views of Japan th at a non-attribution analysis is important in 
respect of other known factors that could be causing the alleged serious prejudi ce.  As Japan's written 
submission explained, while the SCM Agreement doe s not provide an explicit requirement to conduct 
a non-attribution analysis in serious prejudice cases, it is an implicit obligation of any causal test.  
Previous WTO reports have recognised the importance of ensuring that the eff ects of other factors are 
not improperly attributed to the challenged subsidies in  the context of Article 5.3(c).  In this regard, 
the requirements identified for a non-attribution analys is in Part V of the SCM Agreement, and related 
jurisprudence, establish a reasonable roadmap for this Panel to follow.1359 
                                                      
1355 Canada Third Party Submission Executive Summary, para. 32. 
1356 Canada Third Party Submission Executive Summary, para. 33. 
1357 Canada Third Party Submission Executive Summary, para. 34. 
1358 Canada Third Party Submission Executive Summary, para. 35. 
1359 Canada Oral Statement Ex ecutive Summary, para. 29. WT/DS316/R 
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  5. Conclusion 
5.125  Canada takes the view that the application of the SCM Agreement to specific measures 
requires rigorous analysis that cannot be abbrevia ted because of the complexity of the dispute.  
Canada argues that the US serious prejudice claim is so general that it fails the legal tests provided for 
in Part III of the SCM Agreement.  In regards to de facto  export contingency unde r Article 3.1(a) and 
the test for determining whether infrastructure is subject to the SCM Agreement pursuant to 
Article 1.1(a)(1)(iii), the US has not tied its analys is to the text of these provisions, considered in 
context and in the light of the Agreement's object and purpose.1360   
D. CHINA  
1. Introduction 
5.126  In its third party submission and at the Panel me eting with the third parties China presents its 
views on the following two legal issues:  (i) in fact  export contingency under Article 3.1(a) of the 
Agreement on Subsidies and Countervailing Measures  ("SCM Agreement"); and (ii) the non-
attribution analysis under Article 15.5 of the SC M Agreement in the context of joint claims under 
Article 5(a) and (c).1361   
2. In fact export contingency under Article 3.1(a) of the SCM Agreement 
5.127  China notes that in this dispute, the US seems to  argue that certain Launch Aids – in the form 
of loans – are in fact contingent upon export perfo rmance in that (i) the Airbus governments tied the 
repayment  of such aids to the sales of LCA, and (ii) given the limited demand in the European market, 
the repayment  was necessarily tied to substantial exports.1362  In China's view, the finding of in fact 
export subsidies in the form of loans, as a matter of rules under footnote 4 to Article 3.1(a) of the 
SCM Agreement, shall be focused on the " granting " – instead of the " repayment " – of the loans.1363  
5.128  First, in accordance with Article 3.1(a) and footnote 4 thereto of the SCM Agreement, three 
elements must be demonstrated in orde r to find in fact export contingency, i.e., (i) "the granting of a 
subsidy"; (ii) "is … tied to …"; and (iii) "actua l or anticipated exportation or export earnings".1364  In 
this regard, China recalls that the Appellate Body in Canada – Aircraft  further clarified the above 
three elements in finding in fact export contingency.  As to "the granting of a subsidy", the Appellate 
Body held, inter alia , that the initial inquiry must be on whether the granting authority  imposed a 
condition based on export performance in providing  the subsidy, and that the prohibition under 
Article 3.2 and footnote 4 of the SCM Agreement is on the " granting  of a subsidy" and not on 
receiving it.1365  Based upon the above quoted and other holdings by the Appellate Body, China 
submits that in finding in fact export c ontingency, the focus should be placed on the granting  of a 
                                                      
1360 Canada Third Party Submission Executive Summary, para. 36. 
1361 Executive Summary of the Third Party Submission of China (hereinafter China Third Party 
Submission Executive Summary), para. 2. 
1362 China Third Party Submission Executive Summary, para. 3.  See, also, Opening Statement of China 
at the Meeting with the Third Parties (herei nafter China Opening Statement), para. 2. 
1363 China Third Party Submission Executive Summary, para. 4. 
1364 China Third Party Submission Executive Summary, para. 5.  See, also, China Opening Statement, 
para. 3. 
1365 China Third Party Submission Executive Summary, para. 6.  See, also, China Opening Statement, 
para. 4.  WT/DS316/R 
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  subsidy and it must be demonstrated by the total configuration of the facts that there is a 
conditionality between the granting of a subsidy and the actual or anticipated export.1366 
5.129  Second, in China's view, the same rule well applies to a subsidy in the form of a loan.  In such 
a case, in order to determine whether the loan cons titutes a subsidy in fact contingent upon export, it 
must be established that the granting authorit y imposes a condition based on export performance 
when providing  the loan.  In reality, the actors of gr anting and repaying the loan are different, 
respectively the government and the subsidy recipient.  Therefore, in light of the above quoted holdings of the Appellate Body, China submits that  Article 3.1(a) is not intended to prohibit the 
repayment of a loan contingent upon export performan ce.  In any event, when considering in fact 
export contingency, the granting of a loan has nothi ng to do with how the debtor will repay the loan 
subsequently, which is more closely related to the fi nding of a benefit.  Thus, one should not blur the 
distinction between the granting of a loan and the re payment of a loan when discussing the issue of in 
fact export contingency.
1367 
5.130  Furthermore, after observing two relevant WTO cases, Canada – Aircraft  and Australia – 
Leather , China submits that the relevant facts of a particular case must sufficiently prove the "tie" 
between the "granting of a subsidy" and the "actua l or anticipated exportation" and that the export 
orientation of a subsidy recipient alone does not su fficiently demonstrate the existence of in fact 
export contingency.1368  
3. Non attribution analysis in the context of  joint claims under Article 5 (a) and (c) 
5.131  China notes that in its first written submission,  the US claims the adverse effects under both 
paragraphs (a) and (c) of Article 5 of the SCM Agre ement.  As to its Article 5(a) claim, the US 
submits that the subsidized imports of Airbus LCA into the US market have caused injury to the US 
domestic LCA industry.1369 
5.132  At the outset, in view of the cross-reference to  Part V in footnote 11 to Article 5(a), China 
submits that, when a complaining party files an Artic le 5(a) claim and asserts injury, it is obligated to 
firstly demonstrate on a prima facie  basis that the subsidized imports , through the effects of subsidies, 
cause injury to the domestic industry, in acco rdance with Article 15 of the SCM Agreement.1370  
5.133  As to the non-attribution analysis under Article 15.5, China submits that a complaining party 
filing an Article 5(a) claim is also required to condu ct such an analysis.  Th e US also shares such a 
position.  In addition, recalling the Appellate Body's interpretation in US – Hot-Rolled Steel  of the 
parallel provision of Article 3.5 of the AD Agreement , China submits that a complaining party is 
obligated under Article 15.5 of the SCM Agreement  to separate and distinguish  the injurious effects 
of the other known factors  from those of the subsidized imports.1371  Furthermore, China submits that 
                                                      
1366 China Third Party Submission Executive Summary, para. 7.  See, also, China Opening Statement, 
para. 5. 
1367 China Third Party Submission Executive Summary, para. 8.  See, also, China Opening Statement, 
para. 6. 
1368 China Third Party Submission Executive Summary, para. 9. 
1369 China Third Party Submission Executive Summary, para. 10. 
1370 China Third Party Submission Executive Summary, para. 11.  See, also, China Opening Statement, 
para. 7. 
1371 China Third Party Submission Executive Summary, para. 12.  See, also, China Opening Statement, 
para. 8. WT/DS316/R 
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  the non-attribution requirement under Ar ticle 15.5 is particularly releva nt when a Member files claims 
under both paragraphs (a) and (c) of Article 5 of the SCM Agreement for the following reasons.1372 
5.134  First, an Article 5(c) claim requires the demonstration of any scenario of serious prejudice as 
prescribed under Article 6.3, any of which is a manifest indication of a downturn of the export 
performance of the complaining Member's domestic  industry.  Accordingly, if the complaining 
Member allegedly establishes the existence of any serious prejudice scenario, it seems appropriate to 
infer that the relevant domestic indus try must have been, more or less, adversely affected or "injured" 
by its poor export performance .1373   
5.135  Second, Article 15.5 of the SCM Agreement exp licitly requires the investigating authority (in 
this case, the complaining Member) not to attribute the injury caused by export performance  to that 
caused by subsidized imports.  Thus, it is obvi ous that when a Member makes joint claims under 
Article 5(a) and (c), it is manifestly obligated to conduct a non-attribution analysis on the injury 
caused by the downturn of the export performance of its domestic industry.1374   
5.136  Third, "injury to the domestic industry" a nd "serious prejudice" are two different legal 
concepts.  "Injury to the domestic industry" under Article 5(a) is the injury caused by subsidized 
imports  to the domestic industry in the home market of the complaining Member.  While "serious 
prejudice" under Article 5(c) as elaborated in Article 6.3 are the adverse situations caused by " the 
effect of the subsidy " in the market of the subsidizing Member, in a third country market, or in the 
same market, as the case may be.1375 
5.137  Fourth, there are separate legal requirements unde r the SCM Agreement on how to find injury 
and how to establish the various cases of serious pr ejudice respectively.  Therefore, an Article 5(a) 
claim is legally distinct and independent from an Article 5(c) claim.1376  
4. Conclusion 
5.138  In conclusion, China submits that,  
1. in order to determine the existence of in fact  export contingency under Article 3.1(a) of the 
SCM Agreement, it must be demonstrated based  on all relevant facts that the granting – 
instead of repayment or anything else – of a subs idy is in fact tied to or contingent upon actual 
or anticipated exports.  Meanwhile, the export or ientation of a subsidy recipient alone does not 
sufficiently demonstrate the existence of in fact export contingency; and 
 
2. a complaining Member filing an Article 5(a) cl aim shall be subject to the obligations under 
Part V, which includes, inter alia , the non-attribution requirement under Article 15.5 of the 
SCM Agreement.  This is particularly important  where the complaining Member also files an 
Article 5(c) claim, knowing that the export perfo rmance of its domestic industry, besides the 
subsidized imports, is also causing injury to the domestic industry.1377 
                                                      
1372 China Third Party Submission Executive Summary, para. 13.   
1373 China Third Party Submission Executive Summary, para. 14.  See, also, China Opening Statement, 
para. 9 
1374 China Third Party Submission Executive Summary, para. 15.  See, also, China Opening Statement, 
para. 10. 
1375 China Third Party Submission Executive Summary, para. 16.  See, also, China Opening Statement, 
para. 11. 
1376 China Third Party Submission Executive Summary, para. 17.  See, also, China Opening Statement, 
para. 12. 
1377 China Third Party Submission Executive Summary, para. 18.  WT/DS316/R 
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E. JAPAN  
1. Subsidy measures that came into existence pr ior to January 1, 1995 are subject to the 
SCM Agreement if they provided a benefit on or after that date 
5.139  In its Third Party Submission, Japan points out th at an important threshold question before the 
Panel is whether the SCM Agreement applies to s ubsidy measures that came into existence prior 
to January 1, 1995, the date on which the SCM Agreem ent entered into force.  Japan explains below 
that Article 28 of the Vienna Convention supports the conclusion that subsidies granted prior to 1995 
are not automatically beyond the reach of the SCM Agreement.1378 
5.140  Japan notes that Article 28 of the Vienna Convention provides that, "{u}nless a different 
intention appears from the treaty or is otherwise established, its provisions do not bind a party in 
relation to any act or fact which took place or any situation which ceased to exist  before the date of 
the entry into force of the treaty w ith respect to that treaty" (emphasis supplied).  As applied to the 
alleged subsidies conferred on Ai rbus before 1995, the Panel shoul d consider two key questions:  
(1) whether the SCM Agreement contains any provision indicating the intention of the WTO 
Members with respect to the temporal limitations of the Agreement, and, (2) whether the alleged EC and member state subsidy measures under challenge were "situations" that continued "to exist" 
on January 1, 1995 or thereafter.
1379 
5.141  Japan notes that the text of the SCM Agreement demonstrates that its drafters did not intend 
its disciplines to be limited only to subsidies that we re granted on or after January 1, 1995.  Japan's 
position accords with the Panel's preliminary analysis of this issue.1380  For example, the language of 
Article 28.1 of the SCM Agreement implies that Members could  challenge pre-WTO programs after 
the grace period had expired.  It also appears that individual subsidies grante d before January 1, 1995 
could be challenged under Part II of the SCM Ag reement even during the grace period, because 
Article 28.1 refers only to "subsidy programmes" and not to individual subsidies.  Similarly, Annex 
IV, paragraph 7, recognizes that Members may allo cate benefits to future production arising from 
"{s}ubsidies granted prior to the date of entry into force of the WTO Agreement " (emphasis supplied) 
and that are being challenged under Part III of th e SCM Agreement.  Further, the provisions most 
directly at issue here – Articles 1, 5, 6, and 71381 – contain no temporal limitations whatsoever.  The 
absence of any such limitation for pre-1995 subsidies is significant.1382 
5.142  Japan notes that the Appellate Body has app lied Article 28 on a number of occasions in 
finding that pre-1995 measures were covered by other WTO Agreements, and these findings are 
directly relevant to the present dispute.  For example, in Canada – Patent Term , the Appellate Body 
concluded that "treaty obligations do apply to 'any situation' which has not ceased to exist – that is, to 
                                                      
1378 Executive Summary of the Third Party Statement of Japan (hereinafter Japan Third Party 
Submission Executive Summary), para. 1. 
1379 Japan Third Party Submission Executive Summary, para. 2. 
1380 Japan Third Party Submission Executive Summary, para. 3.  See, Panel Letter to Parties to Third 
Participants (11 January 2007).   
1381 Japan Third Party Submission Executive Summary, para. 3.  Japan considers that these provisions 
are most directly at issue here because , in this dispute, the US advances its claim on prohibited subsidies only in 
relation to certain Launch Aids (US First Written Submissi on, para. 321), all of which the US argues came into 
existence on or after January 1, 1995. 
1382 Japan Third Party Submission Executive Summary, para. 3.  Japan notes that Article 27 of the 
SCM Agreement, concerning the special and differential treatment of developing countries, contains several 
such temporal limitations.   WT/DS316/R 
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  any situation that arose in the past, but  continues to exist under the new treaty."1383 The facts of 
Canada – Patent Term  are directly analogous to the present dispute because the patent protection at 
issue, which came into effect before the TRIPS Ag reement entered into force for Canada, remained in 
place and thus had continui ng "effects" after entry into force of the TRIPS Agreement – just as 
alleged subsidies that came into effect remained  in place and thus had continuing effect on or 
after January 1, 1995.1384  
5.143  Japan submits that the Panel should determin e whether each alleged pre-1995 EC or EC 
member state subsidy is covered by the SCM Agreement by evaluating whether the subsidy 
"situation," to use the terms of Article 28 of the Vi enna Convention, "ceased to exist" prior to 1995, or 
if it continued into 1995 or beyond.  In this rega rd, Japan would like to express to the Panel its views 
as to the appropriate test for the Panel to apply in conducting this analysis.1385 
5.144  Japan explains that under the logic of the SC M Agreement's provisions, a subsidy "situation" 
is ongoing so long as the benefit of that subsidy con tinues to exist.  For example, the benefits of a 
subsidy bestowed prior to 1995 might be properly allocated over future production extending into or 
beyond 1995.1386  In this case the subsidy would be s ubject to the SCM Agreement, because the 
subsidy "situation" had continued to exist.1387  
5.145  In Japan's view, the analysis should begin by reviewing the SCM Agreement's definition of a 
subsidy, set forth in Article 1.1.  As the Appella te Body has observed, "Ar ticle 1.1 does not address 
the time at which the 'financial contribution' and/ or the 'benefit' must be shown to exist."1388  Indeed, 
the Appellate Body goes on to state that normally it "may {be} presume{d} … that a 'benefit' 
continues to flow from an untied, non-recurring 'financial contribution'."1389  This supports the 
provisions of Part III, mentioned above, which indi cate that, in certain circumstances, "benefits" may 
extend over a period of time subsequent to the confer ral of the underlying financial contribution.  For 
example, Annex IV, which provides guidelines for the calculation of subsidy rates for purposes of 
Article 6.1(a), at paragraph 7 requires the inclus ion of subsidy benefits "allocated to future 
production."1390  
5.146  Interpreting the SCM Agreement definition of s ubsidy in light of Article 28 of the Vienna 
Convention, Japan notes that the concept of "situ ation" in Article 28 corresponds closely to the 
concept of "benefit" in the sense that a subsidy "situation" would continue should the benefits 
                                                      
1383 Japan Third Party Submission Executive Summary, para. 4, citing, Canada – Patent Term,  
Appellate Body Report, at para. 72 (emphasis in original).   
1384 Japan Third Party Submission Executive Summary, para. 4. 
1385 Japan Third Party Submission Executive Summary, para. 5. 
1386 Japan Third Party Submission Executive Summary, para. 6.  Japan notes that Annex IV to the 
SCM Agreement, at para. 7, anticipates that some benefits may properly be allocated to future production.  As 
explained by the panel in US – Upland Cotton , Panel Report, at  para. 7.1179, that the benefit methodologies set 
forth in Part V of the SCM Agreement are not binding in an analysis conducted under Part III.  Nevertheless, benefit calculation methodologies set forth in Part V suggest methodologies that may serve as a reference for 
Part III analyses as well. 
1387 Japan Third Party Submission Executive Summary, para. 6. 
1388 Japan Third Party Submission Executive Summary, para. 7, citing, US – Lead Bar , Appellate Body 
Report, at para. 60 (emphasis in original).   
1389 Japan Third Party Submission Executive Summary, para. 7, citing, US – Lead Bar , Appellate Body 
Report, at para. 62. 
1390 Japan Third Party Submission Executive Summary, para. 7.   Japan recognizes that Article 6.1 of 
the SCM Agreement and Annex IV are no longer in force.  However, as noted by the panel in the US– Upland 
Cotton , provisions of the SCM Agreement that have lapsed can be useful in understanding the "overall 
architecture" of the SCM Agr eement with respect to the different type s of subsidies it sought and seeks to 
address.  US– Upland Cotton , Panel Report, at para. 7.907, n.1086.  WT/DS316/R 
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  accruing from that subsidy continue as well.  Accordingl y, the task of the Panel is to determine, for 
each alleged subsidy that was confer red prior to January 1, 1995, whet her the benefits of that subsidy 
continued in effect on or after that date.1391  
2. The Panel is authorized to take into acco unt evidence of any continuing adverse effects 
after the date of establishment of the Panel 
5.147  Concerning the adverse effects which the Panel sh ould examine, Japan is of the view that 
nothing in the SCM Agreement or the DSU pr ecludes the Panel from considering evidence of 
continuing adverse effects (or absence thereof) s ubsequent to the date of panel establishment, 
provided that the evidence related to  measures that were within the Panel's terms of reference.  Japan 
notes that the US acknowledges that a panel may ex amine evidence that pre-dates or post-dates the 
establishment of a panel,1392 in line with the position it has taken in prior cases.1393  
5.148  Japan's position is that the Panel is authorized  to consider evidence concerning continuing 
adverse effects, beyond the date of panel establishmen t, of a subsidy measure within the Panel's terms 
of reference.  The Appellate Body has indicated that evidence that post-dates the panel establishment 
is not precluded from the panel's assessment.1394  The same logic can be applied by the Panel in this 
dispute to evaluate evidence generated after the date of panel establishment concerning any 
continuing adverse effects of the challenged subsidy measures.1395 
5.149  Japan respectfully requests the Panel to caref ully examine post-panel establishment evidence 
that it considers relevant to the evaluation of clai med adverse effects and, where the Panel considers 
such evidence probative, to provide a detailed e xplanation of its reasoning.  Given the rapidly 
evolving conditions of competition for the US and EC LCA industries, it is possible that highly 
probative evidence concerning continuing adverse eff ects (or the lack thereof) will come to light for 
the period following the date of panel establishmen t.  In analogous scenarios, the Appellate Body has 
stressed the importance of considerati on of the most recent available evidence.1396  As explained in the 
next section, such post-panel establishment evid ence may assist the Panel in determining, among 
other things, possible causes of the adverse effects other than  the alleged subsidies.1397 
5.150  At the Panel meeting with the third parties Japan  reiterated that it has observed that neither 
the SCM Agreement nor the Understanding on Rules and Procedures Governing the Settlement of 
Disputes  ("DSU") precludes a panel from considering ev idence of continuing adverse effects (or the 
absence thereof) subsequent to the date of panel est ablishment, provided that the evidence relates to 
measures that were within the panel's terms of reference.1398  Japan clarified its position by noting 
                                                      
1391 Japan Third Party Submission Executive Summary, para. 8. 
1392 Japan Third Party Submission Executive Summary, para. 9, citing, Opening Statement of the US, 
First Meeting of the Panel (March 20, 2007), at para. 182. 
1393 Japan Third Party Submission Executive Summary, para. 9, citing, EC – Customs Matters , at 
para. 183. 
1394 Japan Third Party Submission Executive Summary, para. 10, citing, EC – Customs Matters , at 
para. 188 (emphasis supplied).  EC - Trademarks/GIs , Panel Report, para. 7.20. 
1395 Japan Third Party Submission Executive Summary, para. 10. 
1396 Japan Third Party Submission Executive Summary, para. 11, citing, as an example Mexico –Rice , 
Appellate Body Report, at para. 166. 
1397 Japan Third Party Submission Executive Summary, para. 11. 
1398 Executive Summary of the Oral  Statement of Japan at the M eeting with the Third Parties 
(hereinafter Japan Oral Statement Executive Summary), para. 7, citing, Third-Party Submission of Japan, 
paras. 12-14. WT/DS316/R 
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  that, consistent with the Appellate Body's finding in EC – Customs Matters ,1399 this Panel is 
authorized to examine evidence both that pre-dat es – as well as post-dates – the establishment of the 
Panel.  In this regard, with reference to pa ragraph 694 of the EC second written submission, Japan 
also makes clear that while it believes that the Pa nel may consider post-panel establishment evidence 
of claimed adverse effects, it is not required to do so.1400  
3. Demonstrating causation requires detailed anal ysis of relevant facts and economic data 
5.151  Japan expresses its views on the analysis require d to determine whether the claimed adverse 
effects were caused by the subsidies the US has allege d, or by other factors.  Such a determination is 
required under Article 5 of the SCM Agreement.  In  the case of adverse effects through injury to the 
US domestic industry, pursuant to Article 5(a) , the SCM Agreement requires application of the 
causation test set forth in Article 15.5, which re quires a demonstration of a causal relationship 
between the subsidized imports based on an examin ation of all relevant evidence and of any known 
factors other than the subsidized imports that are injuring the domestic industry.1401 
5.152  Japan notes that in the case of adverse e ffects resulting from serious prejudice, under 
Articles 5(c) and 6 of the Agreement, the SCM Agreement does not provide an express test for 
evaluating the causes of the serious prejudice.  However, the Appellate Body in US – Upland Cotton  
explained that in evaluating claims of serious pr ejudice under Article 6.3 of the SCM Agreement, it is 
"necessary to ensure that the effects of other fact ors on prices are not improperly attributed to the 
challenged subsidies."1402  Japan respectfully submits that the Panel should refer to the causation tests 
set forth in Article 15.5 of the SCM Agreement and in the other WTO Agreements as relevant context 
for its examination of the US claims in th is case, as the Appellate has found previously.1403  
5.153  Finally, Japan also submits that the analysis  required to evaluate the causes of the claimed 
adverse effects for purposes of Article 5 is closely related to the selection of the appropriate reference 
period, as addressed above.  In Japan's view, the Panel should, in its causation analysis, take into account the features of the market for the goods at issue during the entire reference period .  As 
explained in Section II, there is no doctrine requiring  panels to reject evidence of adverse effects 
subsequent to the date of panel establishment, and there may be compelling reasons why it may be 
appropriate for panels to consider such evidence.
1404   
                                                      
1399 Japan Oral Statement Executive Summary, para. 7, citing, EC – Selected Customs Matters , 
WT/DS315/AB/R, ad opted 11 December 2006, para. 188. 
1400 Japan Oral Statement Executive Summary, para. 7, citing, Third Party Submission of Japan, 
paras. 12-14. 
1401 Japan Third Party Submission Executive Summary, para. 12. 
1402 Japan Third Party Submission Executive Summary, para. 13, citing, US – Upland Cotton , 
Appellate Body Report, para. 437.   
1403 Japan Third Party Submission Executive Summary, para. 14, citing, US – Hot-Rolled Steel , 
Appellate Body Report, at para. 228; US  – Lumber ITC Investigation , Appellate Body Report (21.5), at 
para. 132; US – Wheat Gluten,  Appellate Body Report, at para. 69. 
1404 Japan Third Party Submission Executive Summary, para. 15.  WT/DS316/R 
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  4. The Panel is authorized to examine alleged subsidies whose adverse effects have ceased 
to exist 
5.154  Japan agrees with the US that the Panel has th e authority to examine and to issue findings 
concerning an alleged subsidy even where the adver se effects of that subsidy have ceased to exist, 
provided that they existed at the time the Panel was established.1405  
5.155  Japan considers that the first st ep in interpreting a WTO Agreement is, of course, to examine 
the text of the Agreement itself.1406  Articles 7.1, 7.4 and 7.5 of the SCM Agreement, which provide 
for the rules on consultations and a panel establis hment as remedies for actionable subsidies, do not 
indicate that a panel may not examine and rule upo n an alleged subsidy where the adverse effects 
have ceased to exist between the time of the panel request and the issuance of the report.1407 
5.156  This conclusion is supported by the jurisprudence.  The Appellate Body in US – Upland 
Cotton ruled that measures that had expired prior to  the date of panel establishment could be 
challenged, provided that benefits accruing to the complaining Member under the covered agreements 
were still being impaired by the measures at the time of the panel request .1408  Thus, it is the time of 
the panel request that governs, and the possibility that adverse effects may have ceased after the 
establishment of the panel does not impair the ability of the panel to rule on the consistency of the 
alleged subsidy with the SCM Agreement.1409 
5.157  Japan further notes that there are also numer ous GATT and WTO decisions in which panels 
have made findings with respect to measures that had been withdrawn after the establishment of the 
panel.1410  These analogous cases further show that the cessation of adverse effects after the 
establishment of a panel does not affect the panel's authority to issue findings concerning the alleged 
subsidies.1411  
5.158  Japan notes that an important reason for this do ctrine is that it may help to secure a positive 
solution to the dispute, which is the aim of the WTO dispute settlement system as expressed in 
Article 3.7 of the DSU.  In EC – Biotech, the panel, in line with the decisions referred to above, held 
that it had authority to make findings on a measure w ithin its terms of reference even if that measure 
had subsequently ceased to exist.1412  It observed that the challenged measure, even if it had ceased to 
exist, might subsequently be re-introduced, and that a finding that it was inconsistent with WTO 
obligations might help to prevent this from occurri ng.  In the present case, if any cessation of adverse 
effects of the subsidies at issue is due to temporar y phenomena, the adverse effects could reappear if 
conditions change.  A remedy based on a ruling th at the subsidies were inconsistent with the 
                                                      
1405 Japan Oral Statement Executive Summary, para. 8, citing, US  Second Submission, para. 670.  
Japan does not express a view as to whether, as a factua l matter in this dispute, alleged adverse effects are still 
occurring. 
1406 Japan Oral Statement Executive Summary, para. 9,  quoting the Appellate Body statement, "{a} 
treaty interpreter must begin with, and focus upon, the te xt of the particular provision to be interpreted."  US – 
Import Prohibition of Certain Shrimp and Shrimp Products , WT/DS58/AB/R, adopted November 6, 1998, 
para. 114. 
1407 Japan Oral Statement Executive Summary, para. 9. 
1408 Japan Oral Statement Executiv e Summary, para. 10, citing, US – Subsidies on Upland Cotton, 
WT/DS267/AB/R (2005), adopted March 21, 2005, para. 270.   
1409 Japan Oral Statement Execu tive Summary, para. 10. 
1410 Japan Oral Statement Executive Summa ry, para. 11, citing, cases cited in Upland Cotton , at n.214; 
Indonesia – Certain Measures Affecting the Automobile Industry , WT/DS64/R, adopted July 23, 1998, at n.642. 
1411 Japan Oral Statement Execu tive Summary, para. 11. 
1412 Japan Oral Statement Executive Summary, para. 12, citing, EC – Measures Affecting the Approval 
and Marketing of Biotech Products, WT/DS291/R, adopted November 21, 2006, para. 7.1308. WT/DS316/R 
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  SCM Agreement might therefore help to secure a positive outcome by preventing the recurrence of 
adverse effects.1413 
5.159  It is of course true that the withdrawal of a s ubsidy or the ending of adverse effects after the 
establishment of the panel could affect the nature of the recommendation made by the panel, as noted 
by the Appellate Body in US – Upland Cotton .1414  However, as also observed by the Appellate Body 
in that case, this is not dispositive of the question whether the panel has authority to address claims 
with respect to the measure before it.1415    
5. Arm's-length, fair market value transa ctions extinguish alleged subsidies  
5.160  Japan notes that many of the subsidies alleged by  the US in this dispute were bestowed upon 
corporate entities that were predecessors to Airbus SAS.1416  Japan respectfully submits that the Panel 
should closely examine whether the EC has demons trated that the privatizations have been 
accomplished at arm's length and for fair market va lue and any alleged benefits have in fact been 
extinguished, based on the specific fact s pertinent to the current case.  Japan sets out below relevant 
precedents in this regard.1417 
5.161  Japan points out that the Appellate Body h as indicated in its analysis of possible 
extinguishment of subsidies – that a benef it flowing from a financial contribution is presumptively  
extinguished when the firm that received the subsidy is sold at "arm's length" and for "fair market 
value."1418  The Appellate Body, in this respect, has indi cated an important limitation in the context of 
the privatization of government-owned assets.  As the Appellate Body held in that case, 
"{p}rivatization at arm's length for fair market valu e may result in extinguishing the benefit," but does 
not necessarily do so.1419  The outcome of the analysis will depend on the unique factual 
circumstances of each case.1420  
5.162  According to Japan, there is no basis in the SCM Agreement, in the applicable jurisprudence, 
or in logic, for the proposition that a partial tran sfer should not be subject to the same rebuttable 
presumption of extinguishment as set forth by the Appellate Body in US – CVDs on EC Products .  
Thus, in the Article 21.5 phase of that case, the pane l reviewed a revised determination in which the 
US Department of Commerce found that a subsidy w as partially extinguished where the majority, but 
not all, of the company's shares were sold at arm's length and for fair market value.1421  
                                                      
1413 Japan Oral Statement Execu tive Summary, para. 12. 
1414 Japan Oral Statement Executive Summary, para. 13, citing, US – Upland Cotton, para. 272. 
1415 Japan Oral Statement Executive Summary, para. 13, citing, US – Upland Cotton, para. 272. 
1416 Japan Third Party Submission Executive Summary, para. 16, citing, EC, FWS, (5 April 2007), at 
paras. 192-97. 
1417 Japan Third Party Submission Executive Summary, para. 16. 
1418 Japan Third Party Submission Executive Summary, para. 17, citing, US  – CVDs on EC products , 
Appellate Body Report, at para. 127. 
1419 Japan Third Party Submission Executive Summary, para. 17, citing, US  – CVDs on EC products , 
Appellate Body Report, at para. 127 and  US – Lead Bar , Appellate Body Report, at para. 62.  Japan notes that 
the applicable jurisprudence examined the issue of extinguishment in the context of countervailing measures.  
However, because the definition of subsidy set forth in Article 1 of the SCM Agreement (including the concept of "benefit") applies equally to the provisions governing prohibited and actionable subsidies, Japan considers 
that the principles enunciated in those cas es apply equally in the present dispute. 
1420 Japan Third Party Submission Executive Summary, para. 17, citing, US  – CVDs on EC products , 
Appellate Body Report, at para. 127. 
1421 Japan Third Party Submission Executive Summary, para. 18, citing, US  – CVDs on EC Products , 
Panel Report, at paras. 7.130-7.158.  WT/DS316/R 
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  6. Mere anticipation of exports is not proof of de facto  export contingency  
5.163  Japan expresses its views on the applicable sta ndard for determining whether an alleged 
export subsidy is "contingent … in fact  … upon export performance" for purposes of 
SCM Agreement Article 3.1(a).  Japan is of the view  that mere anticipation of future exports at the 
time of subsidy bestowal does not, by itself, pr ove that the subsidy is contingent upon export 
performance.  Japan also notes that while the term  "contingent" in Article 3.1(a) has the same 
meaning as applied to both de jure  and de facto  export contingency, dem onstrating the latter is 
inherently more difficult.1422  
5.164  Japan considers that Footnote 4 to SCM Agreemen t Article 3.1(a) is central to the Panel's 
analysis in determining whether the alleged expor t subsidies are contingent in fact upon export 
performance.  In Japan's view, the Panel's task in  applying footnote 4 is to determine whether the 
granting  of the alleged export subsidies at issue was tied to actual or anticipated  export activity.  As 
described by the Appellate Body in Canada – Aircraft , the footnote 4 test for de facto  export 
contingency "requires proof of thr ee different substantive elements".1423  Each test must be 
independently applied to the relevant facts.  The mere fact of anticipated export activity, standing 
alone, cannot suffice to establish de facto export contingency for a given subsidy.1424  Similarly, like 
mere anticipation of export performance, an e xporter's export orientati on, standing alone, is 
insufficient.1425  
5.165  Japan further observes that the de facto  export contingency analysis is necessarily fact-
intensive, and will differ based on the unique facts of each case.  The Appellate Body in Canada – 
Aircraft , for example, cautioned that, in performing the analysis required by footnote 4, "there can be 
no general rule as to what facts or what kinds of facts must  be taken into account,"1426 none of which 
facts had been given undue emphasis.1427  Japan submits that a similarly broad approach is warranted 
in this dispute and that the Panel should examin e the specific factual elements pertinent to this 
case.1428 
5.166  At the Panel meeting with the third parties,  Japan pointed out that Article 1.1 of the 
Agreement on Subsidies and Countervailing Measures  ("SCM Agreement") provides that a subsidy 
shall be deemed to exist if: 
(a) (1) there is a financial contribution…where: … 
(i) a government provides goods or service s other than general infrastructure …; 
and… 
(b) a benefit is thereby conferred.  (Emphasis added.) 
                                                      
1422 Japan Third Party Submission Executive Summary, para. 19, citing, as an example Canada – 
Aircraft , Appellate Body Report, at para. 167. 
1423 Japan Third Party Submission Executive Summary, para. 20, citing, Canada – Aircraft , Appellate 
Body Report, at para. 169 (emphasis in original). 
1424 Japan Third Party Submission Executive Summary, para. 20, citing, Canada – Aircraft , Appellate 
Body Report, at para. 171.   
1425 Japan Third Party Submission Executive Summary, para. 20, citing, Canada – Aircraft , Appellate 
Body Report, at para. 173. 
1426 Japan Third Party Submission Executive Summary, para. 21, citing, Canada – Aircraft , Appellate 
Body Report, at para. 169. 
1427 Japan Third Party Submission Executive Summary, para. 21, citing, Canada – Aircraft , Appellate 
Body Report, at paras. 169-70.   
1428 Japan Third Party Submission Executive Summary, para. 21. WT/DS316/R 
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  The SCM Agreement does not define the term "gener al" in this regard, but the plain language of 
Article 1 makes clear that the exception applies only to "general infrastructure" and does not apply to 
infrastructure of any kind.1429 
 
5.167  Japan notes that Canada in its third-party submission presents its views on how the Panel 
should determine whether alleged subsidies constitut e "general infrastructure."  Japan agrees with 
Canada that analysis of whether a "subsidy" ex ists under Article 1 and whether that subsidy is 
"specific" under Article 2 are distinct issues and re quire separate analyses under the SCM Agreement.  
Japan is not, however, sure if Canada's argument is correct when it asserts that the tests for de facto  
specificity under Article 2.1(c), such as predominant use or disproportionate benefit, are not relevant 
at all to the analysis of whether an alleged subsidy constitutes "general infrastructure" under 
Article 1.1(a)(1)(iii), and that the fundamental test  is whether the government has limited use of the 
infrastructure "exclusively to certain users."1430  Japan believes that, under some circumstances, the de 
facto  specificity analysis under Article 2 could help  inform the Panel's determination of whether 
infrastructure is "general" under Article 1.  The Panel should analyze all relevant information – 
including the de facto  specificity criteria under Article 2, where warranted – when determining 
whether the infrastructure at issue is "general."1431 
5.168  Moreover, Canada's proposed test of whet her the government has limited use of the 
infrastructure "exclusively to certain u sers" essentially seems to be equal to the de jure  specificity test 
set out in Article 2.1(a).1432  In effect, therefore, Canada seems to be arguing that the de jure  
specificity criteria set out in Article 2.1(a) – whet her the granting authority "explicitly limits access to 
a subsidy to certain enterprises" – are relevant to  the identification of "general" infrastructure under 
Article 1, but that the de facto  specificity criteria set out in Article 2.1(c) are not relevant to that same 
determination.  Japan believes that there is no textual support for differentiating application of the de 
jure and de facto  specificity criteria in this regard.1433   
5.169  Japan points out that pursuant to the Vienna Convention on the Law of Treaties, the Panel 
should interpret the phrase "general infrastructure" in accordance with the ordinary meaning of the 
term.  The ordinary meaning of the term "gener al" could support the Panel's examination of the de 
facto  specificity criteria for the purposes of determining whether infrastructure is "general" or not.  
The word "general" is defined as " (1) involving or belonging to the whole of a body, group, class, or 
type: applicable or relevant to the whole rather t han to a limited part…(2) involving or belonging to 
every member of a class, kind or group: applicable  to everyone in the unit referred to, applicable or 
pertinent to the majority of individuals involved …"1434  T h e  de facto  specificity criteria, including 
predominate use or disproportionate use, thus coul d be relevant to a determination of whether the 
infrastructure at issue is "applicable or pertinent to the majority of individuals involved," or is 
"applicable to everyone in the unit referred to."1435 
5.170  Japan addresses another aspect of the test for de termining whether infrastructure is "general."  
Japan notes that the EC would include within the meaning of "general" infrastructure those projects 
that fulfill a "public policy objective (e.g., unemp loyed workers may participate in a government 
                                                      
1429 Japan Oral Statement Executive Summary, para. 1. 
1430 Japan Oral Statement Executive Summary, para. 2, citing, Third-Party Submission of Canada, 
paras. 33 and 39. 
1431 Japan Oral Statement Executive Summary, para. 3. 
1432 Japan Oral Statement Executive Summary, para. 4, citing, Third-Party Submission of Canada, 
paras. 27 and 39. 
1433 Japan Oral Statement Executive Summary, para. 4. 
1434 Japan Oral Statement Executive Summary, para. 5,  citing, the Webster's Third New International 
Dictionary (Merriam-Webster, 1971), p. 944. 
1435 Japan Oral Statement Executive Summary, para. 5.  WT/DS316/R 
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  training scheme…)," and states that WTO members left "a large margin of appreciation to decide for 
themselves what they consider to constitute 'general infrastructure'."1436  Japan notes that there is no 
textual support in the SCM Agreement for this pos ition.  Nor is it consistent with the ordinary 
meaning of the term "general."  Japan considers that such a broad test would make it effectively 
impossible to distinguish between "general infrastructure" and "infrastructure.1437 
F. KOREA  
1. Introduction 
5.171  In its Third Party Submission, the Re public of Korea ("Korea") focuses on: 
• the standard of proof required to establish a prima facie  case in a subsidy dispute; 
 
• the meaning of general infrastructure under Ar ticle 1.1(a)(1)(iii) of the SCM Agreement; 
 
• the interpretation of "benefit" within the mean ing of Article 1.1(b) of the SCM Agreement; 
and  
 
• de facto  contingency of export subsidies under Article 3.1(a) of the SCM Agreement.1438 
 
2. The standard of proof required to establish a prima facie  case in a subsidy dispute   
5.172  Korea observes that while it does not wish to take  a particular side in this proceeding, it 
would like to set out the standard of proof, in its view, required to establish a prima facie  case in a 
subsidy dispute.1439   
(a) The legal standard to establish a prima facie  case  
(i) "Evidence sufficient to demonstrate" 
5.173  Korea submits that as a basic rule, a Member claiming a violation of a provision of WTO 
Agreements by another Member must "assert and pr ove its claim" by putting forward "evidence and 
legal argument sufficient to demonstrate" the inconsistency of the challenged action with the 
defending Member's obligations under the WTO Agre ements.  Korea asserts that a submission is 
insufficient where only facts or only legal arguments are provided.1440  Korea further notes that the 
legal standard the Appellate Body sets for prima facie  evidence is relatively high and clearly excludes 
mere allegations and conjectures of the facts.  Li kewise, mere claims that certain measures violate 
relevant WTO Agreements without furthe r substantiations are also insufficient.1441 
                                                      
1436 Japan Oral Statement Executive Summary, para. 6, citing, EC First Written Submission, paras. 712, 
716. 
1437 Japan Oral Statement Executive Summary, para. 6. 
1438 Executive Summary of the Third Party Submissi on of Korea (hereinafter Korea Third Party 
Submission Executive Summary), para. 2. 
1439 Korea Third Party Submission Executive Summary, para. 3. 
1440 Korea Third Party Submission Executive Summary, para. 4.  See, also, Korea Opening Statement, 
para. 2. 
1441 Korea Third Party Submission Executive Summary, para. 5. WT/DS316/R 
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  (ii) Prima facie evidence sets a higher stand ard than Article 6.2 of the DSU 
5.174  Korea points out that established case law shows that prima facie  evidence is a higher 
standard than that required under Article 6.2 of the DSU for the establishment of a Panel.1442 In 
Thailand – H Beams  the Panel elaborated that Article 6.2 of  the DSU does not relate directly to the 
sufficiency of the subsequent written and oral s ubmissions of the parties in the course of the 
proceedings, which may develop the arguments in suppor t of or against the claims set out in the panel 
request.  Nor does the Article determine whether or not the complaining party will manage to 
establish a prima facie  case of violation of an obligation under a covered agreement in the actual 
course of the panel proceedings.1443 
(b) Other factors relevant to prima facie  evidence  
5.175  Having established the basic standard for prima facie  evidence, there are several other 
relevant issues to consider.1444 
(i) Difficulty of collecting information to prove a case  
5.176  According to established case law, the burden of  proof and consequently the standard for 
establishing prima facie  evidence are not lowered where the co mplaining Member has difficulties in 
obtaining relevant information.  The complain ing Member must nevertheless prove its claim.1445  
Therefore, if a Member cannot obtain sufficient information to establish a prima facie  case, its claim 
should fail.  In Korea's view, this rule is of particular importance to this proceeding.1446 
(ii) The Panel's obligation to investigate under Ar ticle 13 of the DSU does not override the 
party's obligation to establish prima facie evidence 
5.177  The Appellate Body held in Japan – Agricultural Products II  that the Panel's authority under 
Article 13 of the DSU to engage in fact-finding does not relieve the complaining party of the 
requirement to present a prima facie  case on its own.1447  A Member cannot rely on the Panel to find a 
violation of WTO Agreements and the Panel should re frain from deciding the issue if the party fails to 
establish prima facie  evidence.  Korea submits that this ru ling is of significant importance in this 
proceeding as well.1448 
(iii) Summary 
5.178  The DSU does not allow derogation from the above described standard of proof simply 
because relevant evidence is difficult to obtain.  Ko rea argues that while the Panel is free to make a 
decision based on the facts before it, this does not relieve the complaining Member of the requirement 
to first establish a prima facie  case.1449 
                                                      
1442 Korea Third Party Submission Executive Summary, para. 6. 
1443 Korea Third Party Submission Executive Summary, para. 7. 
1444 Korea Third Party Submission Executive Summary, para. 8. 
1445 Korea Third Party Submission Executive Summary, para. 9.  See, also, Korea Opening Statement, 
para. 3.   
1446 Korea Third Party Submission Executive Summary, para. 10. 
1447 Korea Third Party Submission Executive Summary, para. 11. 
1448 Korea Third Party Submission Executive Summary, para. 12. 
1449 Korea Third Party Submission Executive Summary, para. 13.  WT/DS316/R 
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  (c) Standard of Review by the Panel under Article 11 of the DSU 
5.179  Further to the arguments concerning prima facie  evidence, Korea believes that established 
case law ( EC – Hormones ) requires the Panel to review and evaluate each and all evidence on the 
record carefully to determine whether the measu res challenged by the US do constitute financial 
contributions by the EC and the Airbus Government s that confer benefits specifically on Airbus.1450   
3. The meaning of general infrastructure under Article 1.1(a)(1)(iii) of the 
SCM Agreement 
5.180  Korea notes that the US alleges that the Airbus Governments have provided subsidies to 
Airbus in the form of expanding and upgrading infr astructure, as well as other facilities, within the 
meaning of Article 1.1(a)(1)(iii) of the SCM Agreem ent.  Korea notes that the US thereby fails to 
analyse whether the infrastructures at issue ar e "general" in accordance with the meaning of 
Article 1.1(a)(1)(iii) of the SCM Agreement.1451   
5.181  Korea requests the Panel to interpret th e term "general infrastructure" under 
Article 1.1(a)(1)(iii) of the SCM Agreement carefu lly, based on general rules of treaty interpretation 
as stipulated in the 1969 Vienna Convention.  Such interpretation, Korea believes, dictates1452 that 
goods and services, to the extent they constitute infrast ructure and either affect all or most people or 
things or are not specialised or limited, must be considered to be "general infrastructure" in the 
meaning of Article 1.1(a)(1)(iii) of the SCM Agreem ent and not to constitute a subsidy.  Once these 
conditions have been satisfied, whether such "general  infrastructure" is, in th e specific circumstances, 
used by a limited number of people or enterprises is irrelevant.  As long as the infrastructure is 
potentially accessible by the public or providing common goods to the public, it should be treated as 
"general infrastructure", hence no financial contribution by the government.1453 
4. The interpretation of "Benefit" within the meaning of Article 1.1(b) of the 
SCM Agreement  
5.182  Korea notes that the US claims that the EC and the Airbus Governments provide subsidies 
within the meaning of Article 1 of the SCM Agre ement to Airbus, through measures such as Launch 
Aid, corporate restructurings, share transfer, debt  forgiveness and equity infusions.  The EC argues 
that these measures did not confer benefits in the meaning of Article 1.1(b) of the SCM Agreement on 
Airbus.1454  It is Korea's view that measures as those at  issue only constitute a subsidy if they clearly 
confer a benefit on the recipient.  This requir es a thorough analysis of the relevant factual 
circumstances.1455   
5.183  In Canada – Aircraft , the Appellate Body confirmed that a financial contribution only confers 
a "benefit", if it is provided on more advantageous terms than those available to the recipient on the 
market.  The Panel in Brazil – Aircraft  further elaborated that the beneficiary must be the producer not 
a third party and that "market" to which refe rence must be made is the commercial market.1456  
                                                      
1450 Korea Third Party Submission Executive Summary, para. 14. 
1451 Korea Third Party Submission Executive Summary, para. 15. 
1452 Opening Statement of Korea at the Meeting with  the Third Parties (her einafter Korea Opening 
Statement), para. 5. 
1453 Korea Third Party Submission Executive Summary, para. 16. 
1454 Korea Third Party Submission Executive Summary, para. 17. 
1455 Korea Third Party Submission Executive Summary, para. 18. 
1456 Korea Third Party Submission Executive Summary, para. 19.  See, also, Korea Opening Statement, 
para. 6. WT/DS316/R 
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  5.184  It is Korea's view that, in order to demonstr ate that a contribution confers a benefit, the 
contribution must be (1) provided to the recipien t (2) on terms more advantageous than (3) those 
available on the market.  All three criteria mu st be fulfilled separately and individually.1457 
5.185  Regarding the first element, Korea agrees that a benefit within the meaning of Article 1.2 of 
the SCM Agreement only exists where an enterpri se targeted by an investigation is the actual 
beneficiary.  The second element, "on terms more advantageous", requires a detailed inquiry including 
the circumstances under which a financial contribution is provided.  A benefit is not conferred where 
the recipient provides adequate commercial considera tion.  With regard to the third element, Korea 
generally agrees that the commercial market will provide an appropriate benchmark for the 
comparison of terms available for a certain investment or transaction.  Nevertheless, it is necessary to 
acknowledge that under particular circumstances, the general market may encounter a systematic 
failure or that an undistorted co mmercial market does not exist in a particular sector, as acknowledged 
by the Appellate Body in US – Certain Products from the EC .1458 
5.186  Korea is of the view that a finding of bene fit should include a detailed analysis of the 
conditions established in Canada – Aircraft .  The US must establish a prima facie  case as to all three 
criteria and cannot plainly state that a benefit is conferred.1459   
5. De facto  contingency of export subsidies under Article 3.1(a) of the SCM Agreement 
5.187  Korea notes that the US argues that the Launch Ai ds that Airbus has received for the aircrafts 
A380, A340-500/600 and A330-200 are prohibited e xport subsidies under Article 3.1(a) of the 
SCM Agreement.  The EC contests that claim.1460 
5.188  Korea notes that the Panel and the Appellate B ody have previously addressed the issue of a de 
facto  export subsidy on various occasions.  In  particular, the Appellate Body in Canada – Aircraft  set 
out a three elements test for demonstrating de facto  export contingency.  Accordingly, (1) the 
"granting of a subsidy" must be (2) "tied to" (3) "actual or anticipated exportation or export 
earnings".1461 
5.189  Korea is of the view that, in order to est ablish that the Launch Aid is "tied to" export 
performance, the US has to prove that the Launch Ai d would not have been granted to Airbus if the 
Airbus Governments had known that no export sales ma y ensue from the Launch Aid.  In other words, 
the US has to prove that the grant of a subsidy is contingent upon export sales, and not mere sales.1462 
5.190  Korea respectfully submits that the Panel reviews evidence on the record carefully and 
determines whether the US has duly satisfied various legal thresholds in setting forth its legal claims 
in accordance with applicable jurisprudence.1463  
                                                      
1457 Korea Third Party Submission Executive Summary, para. 20.  See, also, Korea Opening Statement, 
para. 7. 
1458 Korea Third Party Submission Executive Summary, para. 21. 
1459 Korea Third Party Submission Executive Summary, para. 22.  See, also, Korea Opening Statement, 
para. 8. 
1460 Korea Third Party Submission Executive Summary, para. 23. 
1461 Korea Third Party Submission Executive Summary, para. 24.  See, also, Korea Opening Statement, 
para. 9. 
1462 Korea Third Party Submission Executive Summary, para. 25.  See, also, Korea Opening Statement, 
para. 10. 
1463 Korea Opening Statement, para. 11.  WT/DS316/R 
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  VI. INTERIM REVIEW 
A. INTRODUCTION  
6.1 On 4 September 2009, we submitted our Interim Report to the parties.   On 16 October 2009, 
the United States and the European Communities submitted written requests for review of precise 
aspects of the Interim Report.  On 6 November 2009, the United States and the European 
Communities submitted written comments on each other's requests for interim review.  Neither party 
requested an additional meeting with the Panel. 
6.2 Due to changes as a result of our review, th e numbering of paragraphs and footnotes in the 
final report has changed from the Interim Report.  The text below refers to th e paragraph and footnote 
numbers in the Interim Report regarding which the parties requested review.  Where we have made 
changes, a reference to the corresponding paragraph or  footnote number in the final report is included 
(in parentheses) for ease of reference.  We have also corrected a number of typographical and other 
non-substantive errors throughout the report, including those identified by the parties, which are not referred to specifically below. 
6.3 In order to facilitate understanding of the in terim review comments and changes made, the 
following section is structured to follow the organizati on of the report itself, with the review requests 
of the parties, and their comments, addressed sequentially.   
B. G
ENERAL COMMENTS  
1. Use of the term "EC" 
6.4 The European Communities notes that the term "EC" is used in the Interim Report when 
referring to the European Communities, while the term "United States", which the European 
Communities describes as a "full referen ce", is used when referring to the United States of America.  
In light of this, the European Communities requests the Panel to replace the term "EC" by the term 
"European Communities" in all inst ances where the European Commun ities is mentioned or used as a 
noun, referring in support to a footnote in its answ ers to the Panel's questions filed 30 April 2007, 
which states "{t}he European Communities would also  ask the Panel to avoid adopting the irritating 
US habit of systematically abbreviating the European Communities to "EC"."1464    
6.5 The United States did not comment on this aspect of the European Communities' request. 
6.6 Although we have referred to the European Communities variously, using both the term 
"European Communities" and the abbreviated term "EC" throughout these proceedings and the use of 
the abbreviated term "EC" is common in WTO dispute settlement and other areas, we have 
determined to grant the European Communities' re quest, and will refer to the European Communities 
by its preferred designation.   
6.7 In this context, we note that as a result of the entry into force of the Lisbon Treaty, the 
European Union succeeds and replaces the European  Community with respect to all rights and 
obligations of the latter in the WTO.  However, al l the arguments and presentations in this dispute, 
including the requests for interim review and commen ts thereon predate the entry into force of that 
                                                      
1464 Comments of the European Communities on the Panel's Interim Report (hereinafter "EC, Request 
for Interim Review"), p. 2, citing, EC, Replies to Questi ons of the Panel Following the Panel's First Substantive 
Meeting with the Parties, footnote 2.  The European Communities implies that it made more than one request in 
this regard, but refers only to this submission.   WT/DS316/R 
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  treaty.  Therefore, we have not referred to the European Union in our final report.  However, we 
recognize the significance of the entry into force of the Lisbon Treaty, and have included the following footnote in the final report at the beginning of the report, and, in view of the length of the 
document, again at the beginning of our findings: 
"On 1 December 2009, the Treaty of Lisbon amending the Treaty on European Union 
and the Treaty establishing the European Community  (done at Lisbon, 13 December 
2007) entered into force.  On 29 November  2009, the WTO receiv ed 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 European Uni on replaces and succeeds the European 
Community." 
2. Specific references to BCI/ HSBI  exhibits 
6.8 The European Communities comments that there are numerous references to BCI/HSBI 
Exhibits in which the Panel does not precisely indi cate the source and/or the specific location of the 
information used by the Panel, and  requests the Pa nel to provide specific references to page numbers, 
paragraphs, bullet points, etc. when  referring to BCI/HSBI information.
1465   
6.9 The United States requests that the Panel declin e the European Communities' request, stating 
its view that where the Panel has relied on HSBI ev idence, it has adequately identified the location of 
the relevant information, particularly when citati ons to HSBI documents are considered in conjunction 
with the text of the report, such that the parties are aware of the context in which the HSBI document 
in question is considered relevant by the Panel.1466   
6.10 The European Communities cites only one inst ance as an example of "missing" specific 
references, and identifies no instance in which the lack of more specific references to pages or 
paragraphs of BCI or HSBI exhibits has affected its ability to comprehend the Panel's analysis.  We 
have, in each instance where we refer to BCI or HS BI exhibits, specifically identified the relevant 
exhibits and sources, and in some, but not all cases, indicated specific page or paragraph numbers.  
There is, however, no rule or consistent practice in this regard.  We agree with the United States that 
the relevant information is adequately identified when  considered in context with the analysis set out 
in the Interim Report, and consider that the de gree of precision sought by the European Communities 
is not, in all instances, necessary.  This is par ticularly the case as the European Communities does not 
even suggest that any particular reference is, in its  view, insufficiently clear to allow it to understand 
the relevance of the cited information to the Pane l's decision.  We therefore deny the European 
Communities' request to systematically provide more  detailed references for all citations of BCI/HSBI 
exhibits throughout the report.  However, we have  added such specific references to the extent 
possible in light of our consideration of such ev idence in the context of the interim review, and 
particularly where references to HSBI information were made by the parties in their requests for 
interim review or comments thereon.    
3. Consistency and accuracy in names  
6.11 The European Communities contends that the Inte rim Report is inconsiste nt in its references 
to "BAe" and "BAE Systems", argues that those entiti es are distinct companies that existed at various 
                                                      
1465 EC, Request for Interim Review, p. 2. 
1466 US, Comments on EC Request for Interim Review, para. 7.  WT/DS316/R 
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  points in time and requests that the Panel "review its report and amend it" such that it accurately 
reflects the particular companies at issue.1467   
6.12 The United States did not comment on this issue. 
6.13 As we noted in footnote 1764 of the Interi m Report (now footnote 2057), the "original" 
British Airbus partner in 1979 was the crown corporation,  British Aerospace Corporation.1468  The 
successor entity to British Aerospace Corpora tion was the public limited company, British 
Aerospace PLC.  The European Communities refers to this company as "BAe" in its submissions.1469  
In 1999, this company merged with Marconi Electronic Systems to become BAE Systems PLC.  We have revised the Interim Report to use the term "British Aerospace" to refer to British Aerospace 
PLC, the UK Airbus partner prior to the 1999 merger , and the term "BAE Systems" to refer to BAE 
Systems PLC, the UK Airbus partner following the 1999 merger. 
6.14 The European Communities also requests that the Panel use the term "Broughton, Wales" 
consistently when referring to "Broughton", and use the term "UK Department" rather than the term 
"British Department".
1470   
6.15 The United States did not comment on this request.   
6.16 With the exception of one inst ance of usage of "British Department" at paragraph 7.1906 
(now paragraph 7.1917) of the Interim Report, the European Communities did not provide any specific indications as to where in the Interim Report it noted the inconsistencies to which it refers in 
this regard.  Nonetheless, we have reviewed the In terim Report and made every effort to ensure that 
that consistent references to "Broughton, Wales" and "UK Department" are made, as appropriate.  
4. Text in French or Spanish 
6.17 The European Communities observes that the In terim Report contains references to text 
provided in Spanish or French, referring in this re gard to paragraphs 7.418 and 7.547 of the Interim 
Report.  The European Communities notes that in ot her WTO disputes an English translation has been 
provided in the report itself under similar ci rcumstances, referring to Panel Report, Mexico – 
Telecoms at, inter alia , paragraph 7.93, where the Spanish versi on of text cited in the body of the 
Report in English was provided in a footnote.
1471  In view of this, the European Communities requests 
the Panel to include a translation of any Spanis h or French text included in the Interim Report.1472   
6.18 The United States did not comment on the Europ ean Communities' request in this regard. 
6.19 The Interim Report quotes in the original Spanis h and French language the text of exhibits 
that were submitted by the parties only in those languages, which are,  we recall, working languages of 
the WTO.1473  In Mexico – Telecoms , the English text in the body of the report was quoted from a 
WTO document, the English version of Mexico's schedule, while the footnote quoted from another 
WTO document, the authentic Spanish version of that  schedule submitted by Mexico – that is to say, 
                                                      
1467 EC, Request for Interim Review, p. 2. 
1468 Interim Report, para. 7.183, at footnote 1764. 
1469 EC, FWS, para. 60. 
1470 EC, Request for Interim Review, p. 2. 
1471 Panel Report, Mexico – Measures Affecting Telecommunications Services  ("Mexico – Telecoms "), 
WT/DS204/R, adopted 1 June 2004, DSR 2004:IV, 1537, para. 7.93. 
1472 EC, Request for Interim Review, p. 2. 
1473 We recall that the Panel did require the translati on by the parties of exhibits in non-WTO working 
languages, principally German, into English, where it deemed necessary. WT/DS316/R 
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  both versions already existed.  In this case, we considered exhibits submitted by both parties in 
original French and Spanish versions in our deliber ations, without translation into English.  Thus, 
references to text in Spanish and French accurately  reflect our deliberations, and form part of our 
findings.  Therefore, we have determined not to tr anslate into English those sections of the Interim 
Report that quote text in Spanish or French prior to issuance of the final report to the parties.  
However, we do note that those sections will be translat ed prior to circulation of the final report to the 
Members and the public, such that the Spanish versi on of the final report will be entirely in Spanish, 
the French version of the final report will be entirel y in French, and the English version of the  final 
report will be entirely in English.   
C. PRELIMINARY RULING  
1. Paragraph 7.46 
6.20 According to the United States, the last sentenc e of paragraph 7.46 of the Interim Report may 
be read to suggest that the Pane l is applying Article 28 of the Vienna Convention on the Law of 
Treaties (VCLT) as a rule of international law to  adjudicate the rights and obligations of Members 
under the covered agreements.  The United States ar gues that panels and the Appellate Body cannot 
apply rules of international law other than the prov isions of the WTO Agreemen t.  The United States 
submits that, pursuant to Article 3.2 of the DSU, pa nels do not clarify rules of international law that 
are not found in the covered agreements, although such rules may be relevant to clarifying the provisions of the covered agreements under the customary rules of interpretation of public 
international law, specifically as reflected in Article 31.3(c) of the VCLT.
1474  The United States 
suggests that the Panel replace the last sentence in paragraph 7.46 of the Interim Report with a 
proposed text it considers to be a more appropriate  formulation of the relationship between Article 5 
of the SCM Agreement and Article 28 of the VCLT.1475 
6.21 The European Communities objects to the United St ates' request to modify the last sentence 
of paragraph 7.46 of the Interim Report.1476  First, the European Co mmunities considers that the 
United States' concern is fully addressed in footnot e 1536 at the end of paragraph 7.46 of the Interim 
Report, which states that the Appellate Body has said in previous disputes that the principle codified 
in Article 28 of the VCLT is relevant to the inte rpretation of the covered agreements.  Second, the 
European Communities argues that the Appellate Body has qualified Article 28 of the VCLT as a 
"general principle of international law", with the result that the United States is mistaken in arguing 
that Article 28 can only be taken into account in the context of Article 31.3(c) of the VCLT.1477 
6.22 The principle of non-retroactivity embodied in  Article 28 of the VCLT has been recognized 
by the Appellate Body to be a "general principle of international law" relevant to the interpretation of 
obligations contained in the WTO Agreements in  many disputes.  The United States' comment 
appears to have given rise to a disagreement betwee n the parties as to the basis on which Article 28 of 
the VCLT may be applied by the Panel.  The Unite d States maintains that Article 28 can only be 
given effect as a rule of interpretation through Ar ticle 31.3(c) of the VCLT, while the European 
Communities appears to consider this approach to o narrow and suggests that Article 28 of the VCLT 
                                                      
1474 US, Request for Interim Review, para. 3. 
1475 US, Request for Interim Review, para. 3.  The Unite d States also suggests that the Panel may need 
to make conforming edits to the remaining paragraphs in this section, but does not specify where or what changes it would consider necessary or appropriate. 
1476 EC, Comments on US Request for Interim Review, p. 2. 
1477 EC, Comments on US Request for Interim Review, p. 2.  The European Communities cites to the 
Appellate Body Report in Panel Report,  Brazil – Measures Affecting Desiccated Coconut ("Brazil – Desiccated 
Coconut") , WT/DS22/R, adopted 20 March 1997, upheld by Appellate Body Report WT/DS22/AB/R, 
DSR 1997:I, 189, p. 15.  WT/DS316/R 
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  may be given effect as a general principle of interna tional law, independently of Article 31.3(c) of the 
VCLT.  In our view, it is unnecessary to engage in this debate, as neither party disputes that the 
interpretation of Article 5 of the SCM Agreement should be consistent with the principle of non-
retroactivity embodied in Article 28 of the VC LT.  We therefore have made revisions to 
paragraph 7.46 and footnote 1536 (paragraph number ing unchanged, now footnote 1829) to clarify 
that we interpret Article 5 of the SCM Agreement c onsistently with the principle of non-retroactivity 
embodied in Article 28 of the VCLT, in accordance w ith the approach taken by the Appellate Body in 
prior disputes.   
2. Paragraph 7.92 and footnote 1613 
6.23 The United States requests that the Panel remove  footnote 1613 of the Interim Report in its 
entirety.1478  According to the United States, footnote 1613 might be read as applying Article 30 of the 
VCLT when it is not a provision of the covered agr eements, and thus cannot be  applied to adjudicate 
rights and obligations of members in WTO disp ute settlement proceedings.  The United States 
considers that Article 30 of the VCLT could only be  relevant if it were being relied upon in order to 
apply a customary rule of interpretation reflected in  Article 31.3(c) of the VCLT.  The United States 
considers that footnote 1613 of the Interim Report does not purport to interpret anything in the WTO 
Agreement, and so the discussion of Article 30 in footnote 1613 of the Interim Report is not relevant 
to any application by the Panel of customary rules of  interpretation of public international law to the 
text of the WTO Agreement. 
6.24 The European Communities considers that the Un ited States' request to remove footnote 1613 
of the Interim Report is without merit and should be rejected.1479  The European Communities 
contends that the footnote appears in the context of  the Panel's interpretation of Article 23 of the DSU 
in paragraph 7.92 of the Interim Re port and that the United States is therefore wrong to assert that the 
footnote does not interpret anything in the text of the WTO Agreement.1480  Moreover, the European 
Communities asserts that conflict rules, such as th ose embodied in Article 30 of the VCLT, always 
apply in the context of international litigation.  Finally, the European Communities observes that if 
footnote 1613 of the Interim Report is removed, the text of 7.92 of the Interim Report would be 
deprived of reasoning that supports the Pa nel's conclusions in that paragraph. 
6.25 Our view, as expressed at the end of paragraph 7.92 of the Interim Report, is that in the 
absence of a reservation concerning the interpreta tion or application of Article 23 of the DSU, a 
Member cannot be considered to have "waived" it rights under Article 23 of the DSU to initiate a 
WTO dispute by means of an agreement that it entered into prior  to entry into force of the DSU.  This 
view is consistent with the prin ciple embodied in Article 30 of the VCLT, rather than an application 
of Article 30 of the VCLT by the Panel.  We ha ve revised footnote 1613 (now footnote 1906) to 
clarify our position in this regard.    
D. IDENTITY OF THE ALLEGED SUBSIDY RECIPIENT AND PASS -THROUGH , EXTINCTION AND 
EXTRACTION OF SUBSIDIES  
1. Paragraph 7.248 
6.26 The United States requests that the first sentence of paragraph 7.248 of the Interim Report be 
modified to remove any suggestion that reports of  the Appellate Body are binding except with respect 
                                                      
1478 US, Request for Interim Review, para. 4. 
1479 EC, Comments on US Request for Interim Review, p. 2. 
1480 EC, Comments on US Request for Interim Review, p. 2. WT/DS316/R 
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  to resolving the particular dispute between the parties to that dispute.1481  The United States also notes 
that, consistent with Article 17 of the DSU, it woul d be more accurate to refer to "reports" of the 
Appellate Body, rather than "d ecisions".  The United States identifies a number of references 
throughout the Interim Report to "decisions" of the A ppellate Body which it requests be modified to 
"reports".1482 
6.27 The European Communities does not agree with th e United States' request to modify the first 
sentence of paragraph 7.248 of the Interim Report.1483  According to the European Communities, the 
United States' request omits reports subsequent to Japan – Alcoholic Beverages II  in which the 
Appellate Body clarified its reasoning about the relevance of adopted Appellate Body reports in 
subsequent proceedings.  The European Commun ities considers that the current wording of 
paragraph 7.248 of the Interim Report properly refl ects the Appellate Body's position on this issue.1484 
6.28 The question of the relevance of Appellate Body reports is highly contentious among 
Members, and it is not necessary for us to address it in order to resolve the dispute before us.  The 
changes requested by the United States do not affect  or undermine our reasoning on the substantive 
issues before us.  We therefore have amende d paragraph 7.248 (numberi ng unchanged), and made 
conforming changes, both where identified by th e United States, and where identified by us, 
throughout the final report, to refer to Appella te Body "report" rather than "decision".   
2. Paragraph 7.275 and Footnote 1925 
6.29 The European Communities requests that the Pa nel revise footnote 1925 of the Interim Report 
in order to acknowledge the effect of the public offering of EADS shares on the ownership interests of 
the former partners in Airbus Industrie.1485  According to the Europ ean Communities, the Panel's 
statement, at footnote 1925 of the Interim Report,  that Dasa and SEPI effe ctively held the same 
proportional interests in Airbus Industrie, only thr ough EADS and the contractual partnership, ignores 
the effect of the public offering of EADS shares.  The European Communities proposes a 
modification of footnote 1925 of the Interim Repor t which it considers more accurately depicts the 
ownership structure of Airbus following the reor ganization of Airbus Industrie in 2001.   
6.30 The United States disputes the European Comm unities' assertion that footnote 1925 of the 
Interim Report ignores the effect of the public offering of EADS shares, referring to various 
paragraphs of the Interim Report which indicate that  the Panel was aware of the contractual relations 
between the various Airbus entities an d the public offering of EADS shares.1486  The United States 
submits that the details of the Airbus ownership st ructure that existed following the reorganization of 
Airbus Industrie ( i.e., the information that the European Co mmunities seeks to include in footnote 
1925 of the Interim Report) were not critical to the Panel's analysis because the new structure maintained the overall interests of DaimlerChrysler and the Spanish government in Airbus Industrie 
as a whole.  According to the United States, the Pa nel does not ascribe to the new ownership structure 
                                                     
 
1481 US, Request for Interim Review, para. 5. 
1482 US, Request for Interim Review, para. 6; referring to paras. 7.73, 7.75, 7.82, 7.86, 7.203, 7.212, 
7.225, 7.226, 7.233, 7.236, 7.239, 7.241, 7.250, 7.25 5, 7.1295, 7.1637, 7.1664, 7.1678, 7.1695, 7.1740, 7.1835 
and 7.2066 of the Interim Report (now paragraphs 7.73, 7.75, 7.82, 7.86, 7.203, 7.212, 7.225, 7.226, 7.233, 
7.236, 7.239, 7.241, 7.250, 7.255, 7.1305, 7.1648, 7.1675, 7.1689, 7.1706, 7.1751, 7.1846 and 7.2077). 
1483 EC, Comments on US Request for Interim Review, p. 2. 
1484 EC, Comments on US Request for Interim Review, p. 2. 
1485 EC, Request for Interim Review, p. 3. 
1486 US, Comments on EC Request for Interim Review, paras. 8 - 10.  WT/DS316/R 
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  of Airbus following the EADS transaction the sa me significance that the European Communities 
does.1487 
6.31 In our view, the modification proposed by the European Communities is unnecessarily 
complicated and confusing.  Paragraph 7.275 of the Interim Report explains why we rejected the 
European Communities' argument (described at pa ragraph 7.274 of the Interim Report) that as 
"minority shareholders" of EADS, DaimlerChrysler and the Spanish government would be unlikely to 
re-inject into EADS the cash that they had allegedly "extracted" prior to the transactions that led to the 
creation of EADS.  The point that is made in paragr aph 7.275 of the Interim Report is simply that it is 
inaccurate to portray DaimlerChrysler and the Span ish government as "minority shareholders" in the 
newly-created EADS when the EADS transactions were  structured in such a way as to preserve the 
status quo  among the former Airbus partners and both DaimlerChrysler and the Spanish government 
were part of the contractual partnership that contro lled EADS and Airbus.  However, it is possible that 
that footnote 1925 of the Interim Report could be unde rstood to suggest that DaimlerChrysler and the 
Spanish government held the same overall ownership interest in Airbus through EADS as they did 
through the Airbus Industrie partnership.  This  was not the case of course, owing to the public 
offering of approximately 30 percent of the EADS shares.  However, as the United States notes, the fact that DaimlerChrysler and the French government  may each have indirectly held only 24 percent 
of the shares in Airbus SAS following the EADS  transactions is immaterial, because through the 
EADS contractual partnership, DaimlerChrysler, the French government and the Spanish government 
jointly exercised voting rights with respect to 65.48 percent of the shares of EADS (and thus Airbus 
SAS).  For practical purposes, the nature of contro l that the former Airbus partners exercised over 
Airbus SAS through EADS was the same as the control that they had previously exercised through Airbus Industrie.  In light of the foregoing, we  have revised footnote 1925 (now footnote 2218) in 
order to more accurately set forth the facts. 
3. Section VII.E .1 Attachment:  Corporate History of Airbus, paragraph 2 
6.32 The European Communities requests the Panel to  change the statement that a GIE does not 
have as its goal the making  of profits, with the statement that a GIE does not have as its goal the 
retaining of profits.
1488  According to the European Communities, this modification more accurately 
reflects the fact that a GIE distributes profits to its members, and in that sense, may in fact have the 
goal of making profits, although it is to di stribute them, rather than retain them. 
6.33 The United States has not made any co mments in respect of this request. 
6.34 We have made the requested change.   
4. Section VII.E.1 Attachment:  Corporate History of Airbus, paragraph 3 
6.35 The European Communities notes its view that  certain transactions and changes are not 
reflected in the graph following paragraph 3 of th e Attachment in the Interim Report, specifically: 
(a) the 1989 acquisition of Deutsche Airbus by Daimler; 
(b) the 1999 merger of British Aerospace with Marconi Electric Systems to become BAe 
Systems; and 
                                                      
1487 US, Comments on EC Request for Interim Review, para. 10. 
1488 EC Request for Interim Review, p. 3. WT/DS316/R 
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  (c) the 1999 merger between Aérospatiale a nd Matra Hautes Technologies, to create 
Aérospatiale Matra.1489 
6.36 The United States notes that the Panel has in  fact recognized each of the above three 
corporate transactions in the Interim Report.1490  According to the United States, the graph following 
paragraph 3 of the Attachment in the Interim Report reflects the Panel's determination, inherent in its 
findings, that those specific corporate transactions, wh ich did not alter the ownership interests of the 
Airbus partners, were not relevant to its analysis.1491  The United States requests that the Panel decline 
the European Communities' request on the basi s that the request amounts to the European 
Communities' disagreement with the Panel's conclusi on as to the relevance of information proffered 
by the European Communities. 
6.37 We agree with the United States that each of th e specific corporate transactions is noted in the 
Interim Report, specifically at footnotes 1762, 17 61 and 1764 of the Interim Report (now footnotes 
2054, 2055 and 2057), and again at footnotes 2232, 2233 and 2235 of the Attachment, albeit they are not explicitly noted in the diagram following paragr aph 3.  Nonetheless, for the sake of clarity, we 
have added a reference to each of the transacti ons as part of the diagram following paragraph 3 
(numbering unchanged) of the Attachment. 
5. Section VII.E.1 Attachment:  Corporate History of Airbus, paragraph 6 
6.38 The European Communities requests that the Pane l cite to the source for the lower portion of 
the graph, below the box for EADS.
1492 
6.39 The United States submits that, if the Panel were  to consider that a specific citation for the 
source of the information in the lower part of the graph is necessary, paragraph 7.183 of the Interim 
Report and the sources cited therein would serve the purpose.1493 
6.40 We have made the change requested by the Eu ropean Communities.  However, we have not 
relied on paragraph 7.183 of the In terim Report, as suggested by the United States, but rather have 
reviewed the relevant submissions and exhi bits for the additional references.     
E. THE ALLEGED LA/MSF  MEASURE FOR THE A350 
1. Paragraph 7.300 
6.41 The European Communities considers that para graph 7.300 of the Interim Report does not 
properly reflect the arguments it made in respect of the United States' claim concerning the alleged 
LA/MSF commitment for the A350.  In particular , the European Communities recalls that its 
submissions referred to the alle ged A350 LA/MSF "commitment" in quotation marks.  Moreover, the 
European Communities asserts that the paragraphs of  its submissions cited in the Interim Report only 
referred to "financing for the A350" not LA/MSF fo r the A350.  Finally, the European Communities 
notes that the same paragraphs cited in the Interim Report also mention that "{n}ot a single Euro of 
MSF has been disbursed or scheduled for future di sbursement in support of A350 development".  The 
                                                      
1489 EC Request for Interim Review, p. 3. 
1490 US Comments on EC Request for Interim Review, pa ra. 11; referring to the following footnotes of 
the Interim Report: footnote 1762 (Daimler-Benz and Deutsche Airbus);  footnote 1761 (Aérospatiale and Matra 
Hautes Technologies) and footnote 1764 (British Aerospace and Marconi Electronic Systems). 
1491 US Comments on EC Request for Interim Review, para. 11, referring to paras. 7.199 and 7.275 of 
the Interim Report. 
1492 EC Request for Interim Review, p. 4. 
1493 US Comments on EC Request for Interim Review, para. 12.  WT/DS316/R 
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  European Communities asks that these details be refl ected in the characterisation of its arguments in 
paragraph 7.300 of the Interim Report.1494   
6.42 The United States considers that paragraph 7.300 of the Interim Report correctly reflects the 
arguments the European Communities advanced in r espect of its claim concerning the alleged A350 
LA/MSF measure.  The United States cites sever al passages from the European Communities' 
submissions, which it argues support the characteris ation of the European Communities' arguments 
found in paragraph 7.300 of the Interim Report.  Thus, the United States asks the Panel to dismiss the 
European Communities' request for modifications  to paragraph 7.300 of the Interim Report.1495   
6.43 The European Communities was not always consis tent in how it referred to the "commitment" 
in question and how it described the type of fi nancing being negotiated between Airbus and the 
relevant European Communities member States in respect of the A350.  For instance, in 
paragraph 132 of its second wr itten submission, the European Communities uses the word 
"commitment" both with and without quotation ma rks.  Moreover, while the European Communities 
refers in this paragraph to ne gotiations between Airbus and the relevant European Communities' 
member States on the "terms for fi nancing of the A350", it also refers to negotiations on the "terms of 
these agreements", citing a discussion in its first writt en submission about the terms and conditions of 
LA/MSF.  Similarly, in the same paragraph, the European Communities mentions "the price at which 
A350 MSF would be provided".   
6.44 In our view, it can reasonably be understood that in this paragraph, the European 
Communities described the type of financing be ing negotiated between Ai rbus and the French, 
German, Spanish and UK governments as "MSF", not unlike other LA/MSF "agreements" it 
described in its first written submission.  We ther efore decline the European Communities' request to 
amend paragraph 7.300 of the Inte rim Report by placing the word "commitment" in quotation marks, 
and by removing the reference to "LA/MSF" in the characterisation of its argument.   
6.45 On the other hand, we consider it appropriate to  make the additional change requested by the 
European Communities, to ensure completeness in presenting its arguments, and have revised 
paragraph 7.300 (numbering unchanged) to do so.   
2. Paragraph 7.307 
6.46 The European Communities asks the Panel to de lete the language in pa ragraph 7.307 of the 
Interim Report indicating that it had argued that financing in the form of LA/MSF  for the A350 was 
being negotiated with Airbus as of 20 July 2005.1496   
6.47 The United States observes that paragraph 7.307 of the Interim Report contains an expression 
of the Panel's own views, not a summary of the European Communities' argument.  Therefore, according to the United States, there is no basis fo r making the change requested by the European 
Communities.
1497   
6.48 Paragraph 7.307 of the Interim Report sets out our  findings of fact concerning the existence of 
the alleged A350 LA/MSF commitment measure.  As or iginally drafted, it might be understood to 
imply that the European Communities shares the Panel' s view that the facts before it demonstrate that 
"the EC member States had in principle agreed to  provide Airbus with financial assistance for the 
                                                      
1494 EC, Request for Interim Review, p. 4. 
1495 US, Comments on EC Request for Interim Review, paras. 13-16. 
1496 EC, Request for Interim Review, p. 4. 
1497 US, Comments on EC Request for Interim Review, para. 17. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  A350 in the form of LA/MSF on terms and conditions to be negotiated ."  Given the European 
Communities' argument about what it actually argued in this regard, we consider it appropriate to 
avoid implying that the European Communities agrees with the Panel's conclusion in this regard, and 
have revised paragraph 7.307 ( numbering unchanged)  accordingly. 
F. WHETHER EACH OF THE INDIVIDUAL GRANTS OF LA/MSF  FOR THE A300,  A310,  A320,  
A330/A340,  A330-200,  A340-500/600  AND A380  MODELS OF LCA  CONSTITUTES A SUBSIDY 
WITHIN THE MEANING OF ARTICLE  1 OF THE SCM A GREEMENT  
1. Paragraph 7.374 and footnote 2155 
6.49 The European Communities requests that the second sentence of paragraph 7.374 and 
footnote 2155 of the Interim Report be modified to more accurately reflect what it asserts is the fact 
that for two of the challenged LA/MSF contracts, re venues generated from aircraft sales were not the 
only means through which repayment of the respective loans was required.1498   
6.50 The United States argues that the two contractual provisions cited in footnote 2155 of the 
Interim Report, as understood by the Panel, describe "minor" mechanisms that supplemented, rather 
than supplanted, the basic levy-based repayment sch eme.  Therefore, according to the United States, 
even if one were to accept that those mechanisms may have existed for two of the LA/MSF contracts, 
the primary repayment mechanism h as always been per-aircraft levies.1499  The United States also 
argues that it is far from unambiguous that Article  6.5 of the German A380 contract provides for 
[***] .1500  Thus, the United States submits that th e European Communities' requests should be 
rejected.   
6.51 In addition, the United States requests that the words "in almost all cases" be deleted from the 
third sentence of paragraph 7.374 of the Interim Report in order to more accurately reflect what it asserts is the fact that the primary repayment mechanism under the challenged LA/MSF contracts has 
always been per-aircraft levies.
1501   
6.52 The European Communities argues that the two departures referenced in footnote 2155 of the 
Interim Report are not "minor", as the United States describes, but rather an integral part of the 
repayment schedules specified in the respective LA/M SF contracts.  Thus, according to the European 
Communities, making the changes to paragraph 7.37 4 of the Interim Report requested by the United 
States would result in an incomplete description of the repayment requirements under each of the 
relevant contracts.1502   
6.53 In order to set out the relevant characteris tics of the LA/MSF contracts in question more 
specifically, we have modified paragraph 7.374  and footnote 2155 (parag raph numbering unchanged, 
now footnote 2449). 
                                                      
1498 EC, Request for Interim Review, pp. 4-5. 
1499 Comments of the United States of America on the EC's Request for Review of Precise Aspects of 
the interim Report (hereinafter "US, Comment on EC, Re quest for Interim Review"), paras. 18-19, referring to 
Request by the United States of America for Review of Pr ecise Aspects of the Interim Report (hereinafter "US, 
Request for Interim Review"), para. 7. 
1500 US, Comment on EC, Request for Interim Review, paras. 20-22. 
1501 US, Request for Interim Review, para. 7; US , Comment on EC, Request for Interim Review, 
paras. 18-23.  
1502 Comments of the European Communities on the US Request for Review of Precise Aspects of the 
Panel's Interim Report (hereinafter "EC, Comments on US Request for Interim Review"), p.3.  WT/DS316/R 
 Page 199 
 
BCI deleted, as indicated [***] 
 
  2. Paragraph 7.375 
6.54 The United States requests that the phrase "as a general matter" be deleted from the 
penultimate sentence of paragraph 7.375 of the Inte rim Report.  The United States asserts that this 
language is superfluous and does not accurately refl ect what the United States demonstrated in its 
submissions.  In particular, the United States su bmits that it has shown that Airbus' repayment 
obligations under each of the LA/MSF contracts are de pendent on the success of the particular LCA 
project, not just "as a general matter".1503   
6.55 The European Communities argues that the ch ange requested by the United States would 
render the relevant sentence in paragraph 7.375 of  the Interim Report "simply incorrect" because it 
asserts that the facts contained in that paragraph demonstrate that Airbus repayment obligations are 
not "entirely" dependent on the success of the particular LCA project.1504  
6.56 We have revised the penultimate sentence of paragraph 7.375  (num bering unchanged) to 
more clearly reflect our views.  
3. Table 1 (following paragraph 7.380) and footnote 2172  
6.57 The European Communities requests that the sour ce of each of the figures contained in Table 
1 following paragraph 7.380 of the Interim Report be  identified, and asks the Panel to change its 
factual finding in respect of the amount of "financial contribution" associated with the challenged Spanish A380 LA/MSF contract, which is explained in original footnote 2172 of the Interim Report.  
The European Communities alleges that there is evidence before the Panel, including HSBI, which 
confirms that the appropriate amount of the financial contribution was EUR [***] million or at least 
that this was the "maximum" amount of funding associated with the Spanish A380 contract.
1505   
6.58 The United States argues that the European Comm unities' request should be rejected, because 
the European Communities failed to provide any evid ence in support of its factual assertion during the 
appropriate phase of this panel proceeding, including in response to a specific Panel question.  In any 
case, the United States submits that the other evidence, including HSBI, which the European 
Communities now refers to in support of its request , has not been demonstrated by the European 
Communities to more accurately represent the amount of Spanish LA/MSF for the A380.1506 
6.59 Turning first to the European Communities' requ est that the source of the figures contained in 
Table 1 be identified, we have made the requested modification in order to more clearly identify the 
source of each of the relevant values.  As a resu lt of our review of those sources, we have also 
corrected three of the figures in Table 1.   
6.60 As regards the European Communities' requ est concerning footnote 2172 of the Interim 
Report, we note that the Panel explicitly asked the European Communities, in Panel Question 259, to 
explain the differences between the amounts of "finan cial contribution" referred to in the Spanish 
A380 contract and in the European Communities' fi rst written submission.  The explanation provided 
by the European Communities in re sponse to that question was less  detailed and referred to fewer 
pieces of evidence than the explanation now given in  its request for interim review.  Even assuming 
we were willing to consider the newly cited evid ence, however, in our view, that evidence does not 
advance its cause any further.  In particular , we note that the European Communities places 
                                                      
1503 US, Request for Interim Review, para. 8. 
1504 EC, Comments on US Request for Interim Review, p. 3. 
1505 EC, Request for Interim Review, pp. 5-6.  
1506 US, Comment on EC, Request for Interim Review, paras. 24-26. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  considerable reliance on the amount of non-recurring  costs identified in the Airbus A380 business 
case, and argues that, in the light of other info rmation contained in the Spanish A380 LA/MSF 
contract, it is possible to conclude that the "finan cial contribution" associat ed with the Spanish A380 
contract was even less than the EUR [***] million figure it had initially asserted to be the correct 
amount in its first written submission.   Although we have been able to  verify all of the numbers the 
European Communities has referred to in its request for interim review, we note that the non-recurring 
cost figure the European Communities relies upon pre-dates  the Spanish A380 LA/MSF contract by 
approximately one year.1507  Absent a substantiated explanati on as to why reliance should be placed 
on cost information contained in Airbus A380 bu siness case, which pre-dates the Spanish A380 
contract by more than 12 months, we would in an y case reject the European Communities' argument 
in this regard.   
6.61 Therefore, we dismiss the European Communities'  request.  However, we have revised Table 
1 following paragraph 7.380 and footnotes 2171 and 2172 (paragraph numbering unchanged, now 
footnotes 2465 and 2484) so as to clearly identify that the EUR [***] million we have considered as 
being provided for the Spanish A380 LA/MSF is a "maximum" amount. 
4. Paragraph 7.407 
6.62 The United States asks that a footnote be added to the first sentence of paragraph 7.407 of the 
Interim Report explaining that it contests the view advanced by the European Communities that the 
rates of return of the LA/MSF contracts must be de termined by taking into account the "internal rate 
of return" ("IRRs").  The United States also request s that the we reflect its arguments regarding the 
lack of substantiation for the Eur opean Communities' IRR calculations.1508   
6.63 The European Communities considers that the additional references requested by the United 
States would be duplicative and confusing, noting that the United States' arguments concerning the relevance of royalty payments to the calculations of the IRRs are already reflected elsewhere in the 
Interim Report.  In addition, the European Communities submits it has substantiated the IRR 
calculations it has advanced in this dispute.
1509   
6.64 In order to fully reflect the United States' ar guments, we have modifi ed paragraph 7.407, and 
made a consequential change to footnote 2205 (p aragraph numbering unchanged,  now footnote 2518).   
5. Paragraph 7.409 
6.65 The United States submits that it did not argue, as it asserts is described in paragraph 7.409 of 
the Interim Report, that potential royalty payment oblig ations are "relevant" or "play only a marginal 
role" in determining the rate of return expect ed by the EC member State governments providing 
LA/MSF.  The United States requests that the last sentence of paragraph 7.409 of the Interim Report 
be replaced with proposed language it asserts more correctly describes its argument.1510   
6.66 The European Communities opposes the United St ates' request. The European Communities 
submits that it is inaccurate for the United States to  now argue that it "did not accept" that royalty 
payments "play only a marginal role" given that th is is precisely what the United States expert, Ellis, 
                                                      
1507 The A380 business case – Exhibit EC-362 (HSBI)  – is dated 8 December 2000.  The Spanish A380 
LA/MSF contract – Exhibit US-73 (BCI) – is dated 27 December 2001. 
1508 US, Request for Interim Review, paras. 9-10. 
1509 EC, Comments on US Request for Interim Review, pp. 3-4. 
1510 US, Request for Interim Review, paras. 11-13.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  stated to the Panel and precisely the element of th e Ellis statement that the United States chose to 
repeat verbatim in its second written submission.1511   
6.67 First, we note that paragraph 7.409 of the Interim Report does not say that the United States 
considers that royalty payment obligations are relevant  to the determination of the appropriate IRRs of 
the LA/MSF contracts.  Rather, it states that the United States does not consider " expectations of 
royalty payments to be irrelevant ".  Second, although the United States now submits that it did not 
argue that they play a "marginal role", this is not, in our view, what ca n reasonably be understood 
from its submissions.  For instance, when discussing royalty payments required under the UK A380 contract, the United States concluded that they were "essentially meaningless", not because the 
payment of royalties fell outside of the UK governme nt's expectations, but because according to the 
government's expectations, reflected by the deliver y schedule, there would be only a few sales that 
could actually generate such payments.
1512  Similarly, the United States submitted that "{e}ven for the 
other Launch Aid contracts at issue, royalties become due only after a number of deliveries that, according to Airbus' and the governments' own forecasts,  at best will be achieved only by the very end 
of the 17-year period described in the European Communities' ITR report as the life of a plane."
1513  
Thus, the United States did not negate the relevance of royalty payments to the governments' expected 
returns from LA/MSF.  Rather, the United States mini mized the importance of such payments to the 
overall expected return.  Thus, we do not consid er that paragraph 7.409 of the Interim Report 
erroneously describes the United States' argument.   
6.68 However, we recognize that in addition to ma king these statements, the United States has also 
observed that it was likely that a ma rket investor would not take such royalty payments into account, 
but instead look to recover its investment and make  a commercial return over a much shorter period of 
time.1514  Therefore, while we decline to make the ch anges requested by the United States, we have 
modified paragraph 7.409 (numbering unc hanged) so as to include the latter additional  perspective of 
the United States, which is not reflected in the interi m report.  We have also added a footnote to the 
end of paragraph 7.412 (numbering unchanged) to reflect a further consideration relevant to our 
evaluation of the effect of royalty payments on the IRR.   
6. Paragraph 7.416 
6.69 The European Communities asks the Panel to recons ider its findings in respect of the internal 
rate of return ("IRR") of the French A340-5 00/600 LA/MSF contract.  The European Communities 
explains that Articles 6.2 and 6.4 of this contract prescribe [***] – one intended to reimburse the 
principal loaned plus interest for the A340-500/600 project, [***] .  The European Communities notes 
that [***]  were taken into account and separately identif ied in the ITR Report, submitted as Exhibit 
EC-13 (BCI).  However, for the purpose of the calculations shown in Exhibit EC-597 (HSBI), the 
European Communities [***]  in order "to preserve space to demonstrate the alleged effect of 
taxation" on LA/MSF.  The European Communities s uggests that this explains why the Panel was 
unable to match the repayment values used to calculate the internal rate of return contained in Exhibit 
EC-597 (HSBI) with those derived from Article 6.2 of the A340-500/600 LA/MSF contract.  
According to the European Communities, [***]  must be taken into account in order to determine the 
IRR the French government expected to obtain from the A340-500/600 contract.  Finally, the European Communities observes th at, for the French A330-200 LA/MSF contract, the Panel accepted 
an IRR that was calculated taking into account  a similar repayment structure involving [***]  – one to 
repay the principal loaned plus interest for the A330-200 project, [***] .  The European Communities 
                                                     
 
1511 EC, Comments on US Request for Interim Review, pp. 4-5. 
1512 US, Answer to Panel Question 142. 
1513 US, Answer to Panel Question 142. 
1514 US, Answer to Panel Question 142. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  therefore asks the Panel to take a consistent approach in respect of  the French A340-500/600 contract 
and equally accept the internal rate of return calculated on the basis of the [***] contractually 
prescribed repayment streams.1515 
6.70 The United States recalls that in its answer to Panel Question 42 it had observed that:  
"{a}ccording to the French A340-500/600 La unch Aid contract, Airbus was required 
[***] ." 
Thus, the United States disputes the Eu ropean Communities' inclusion of the [***]  into its calculation 
of the IRR for LA/MSF provided for the A340-500/600, and asks the Panel to reject the European Communities' request.
1516   
 
6.71 In its first written submission, the European Co mmunities explained that in return for French 
government LA/MSF for the A330-200 and A340-500/600, Airbus was required to pay "a levy for the 
MSF (including interest) invested in the variant [***] ".1517  The IRR calculations relied upon by the 
European Communities for both LA/MSF measures were  first presented in the ITR Report, Exhibit 
EC-13 (BCI).  The ITR Report identified [***]  in the cash-outflows column  of its calculations for 
each LA/MSF measure, [***] .  The only contractual provision specifically referred to in these 
submissions was Article 6.4 of the French A340-500/600 contract.1518 
6.72 The European Communities was asked in Pane l Question 69 to explain how the "implicit" 
rates of return it had presented with its first written submission were calculated, "with reference to all 
of the relevant data used in their calculation".  In addition to the written response provided to that 
question, the European Communities presented E xhibit EC-597 (HSBI), which it described as 
measuring "the rate of return for the MSF cont racts covering the A320, A330/A340 basic, A330-200, 
A340-500/600, and A380".1519  For the French A330-200 and French A340-500/600 LA/MSF 
contracts, this Exhibit [***] , which was labelled "MSF repayments".  The European Communities' 
response did not explain how the IRR was specifically  determined for either of the French A330-200 
and French A340-500/600 LA/MSF contracts.  In th is respect, the European Communities' Answer to 
Panel Question 69 provided little, if any, additional insight into what was set out in its first written 
submission.   
6.73 In the Interim Report, we rejected the IRR calculated by the European Communities for the 
A340-500/600 because, on the basis of the inform ation contained in Exhibit EC-597 (HSBI), the 
repayment amounts used to determine the IRR we re greater than those derived from the actual 
LA/MSF contract, when read in the light of the sche dule of forecast deliveries.  In other words, we 
rejected the European Communities' inclusion of [***]  it argues were called for under the French 
A340-500/600 LA/MSF contract.  However, we accepted the IRR the European Communities 
calculated for the French A330-200 LA/MSF contract , even though this also appears to have been 
determined taking into account [***] . 
6.74 In light of the arguments in the European Communities' request for interim review, we have 
reconsidered our findings in respect of the IRRs  of these LA/MSF contracts.  We note that, even 
accepting the European Communities' explanations  and IRRs for both the French A330-200 and 
A340-500/600 LA/MSF contracts, our findings on wh ether such measures constitute subsidies do not 
                                                      
1515 EC, Request for Interim Review, pp. 6-7. 
1516 US, Comment on EC, Request for Interim Review, para. 27. 
1517 EC, FWS, paras. 335 and 336. 
1518 EC, FWS, footnote 250. 
1519 EC, Answer to Panel Question 69.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  change.  The only impact of accepting both IRR calculations would be on the amount of benefit 
associated with the French A340-500/600 contract.  However, as we never quantified this amount 
precisely, the difference of approximately 2 per centage points between the IRR proposed by the 
European Communities and that identified in th e Interim Report makes little difference.  Thus, 
ultimately, even accepting the entirety of the European Communities' submissions on the IRRs 
associated with these two LA/MSF measures, our fi ndings effectively remain the same.     
6.75 In view of the foregoing, we have modified the report by adding new paragraphs 7.416-7.421 
to describe and evaluate how th e European Communities determined  the IRRs for, primarily, the 
French A340-500/600 LA/MSF contract (and by impl ication the French A330-200 LA/MSF contract), 
concluding that, despite having some doubt as to th e appropriateness of the European Communities' 
methodology for determining the IRR (discussed belo w at paragraphs 7.412 to 7.414, we need not 
come to a firm conclusion on the question, as even accepting the entirety of the European 
Communities' arguments, the measures would nevert heless constitute subsidies for the purpose of 
Article 1.1 of the SCM Agreement.  We have  also made consequential amendments to 
paragraph 7.415 (numberi ng unchanged) and 7.1959 ( now paragraph 7.1970) and to Tables 5 and 7 
setting out our findings on the rates of return for the LA/MSF measures.   
7. Paragraph 7.426 
6.76 The European Communities requests the Pane l to insert footnotes next to each figure 
contained in Table 5 referring to the precise source of information used by the Panel to make its 
finding, as well as, where appropriate, an expl anation as to how the figure was calculated.1520   
6.77 The United States considers there to be no reason for the Panel to add references to sources 
underlying the findings set out in paragraph 7.426 of the Interim Report and Table 5.  In its view, the 
explanations already provided are detailed enough  to understand the basis of the Panel's findings.1521 
6.78 In order to more clearly explain our findings, and the sources for the figures referred to in 
Table 5, we have revised paragraph 7.426 (now paragraph 7.431) and Table 5.   
8. Paragraph 7.429 
6.79 The United States requests that the first sentence of paragraph 7.429 of the Interim Report be 
modified because, in its view, it incorrectly ch aracterizes the "dispute" between the parties on the 
question of the market interest rate benchmark for the challenged LA/MSF measures to be centred on 
the appropriate project-specific risk premium.  Th e United States submits that while the European 
Communities' objection to this issue related only to the value of the risk premium, the United States 
noted that the risk premium could not be considered  in isolation.  Specifically, the United States 
observes that it argued that the risk premium must  be considered together with the corporate 
borrowing rate, and that these together represent the hybrid-equity nature of LA/MSF.  Accordingly, 
the United States asks that the first sentence of para graph 7.429 of the Interim Report be modified to 
reflect this understanding of the parties' arguments.1522   
6.80 The European Communities considers the Panel' s characterisation of the "dispute" between 
the parties in the first sentence of paragraph 7.429 of the Interim Report to be accurate, and therefore 
asks the Panel to reject the United States' request.  The European Communities recalls that the parties 
agreed that a benchmark would properly include three components: the relevant risk-free rate, a 
                                                      
1520 EC, Request for Interim Review, p. 7.+ 
1521 US, Comment on EC, Request for Interim Review, paras. 28-30. 
1522 US, Request for Interim Review, para. 14.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  corporate risk premium and a project-specific risk premium.  The European Communities submits that 
the nature of the loans at issue – equity, debt or hybrid – was a central part of the disagreement 
between the parties as to the correct project-specific risk premium.1523 
6.81 The text in paragraph 7.429 of the Interim Re port with which the United States takes issue 
states that the dispute between the parties as to th e appropriate market interest rate benchmark "...is 
focused on only one aspect of the particular benchmar ks that have been proposed – the value of the 
project specific risk premium".  It is true that the parties were also in disagreement about whether 
LA/MSF was essentially a hybrid financing instrume nt or debt-like, and that the United States' 
proposed project-specific risk premium was advanced in the context of its view that LA/MSF was a 
hybrid financing instrument.  However, the Un ited States' submissions on these points, and the 
European Communities' difference of opinion, are reco rded in the paragraphs describing each parties' 
arguments on the appropriate project-specific risk premium.  Therefore, we do not consider it is necessary to make the modification requested by the United States.  Nevertheless, we have modified paragraph 7.429 (now paragr aph 7.434), in order to avoid creating the impression that the level of the 
project-specific risk premium was the only aspect of the benchmark issue on which the parties held 
differing views. 
9. Paragraphs 7.430 – 7.464 
6.82 The United States asks that, "in the interests of completeness", a footnote be added at the end 
of paragraph 7.457 of the Interi m Report reflecting the emphasis placed by the United States and its 
expert on the high-risk nature of aircraft deve lopment and the risk-shifting nature of LA/MSF.
1524   
6.83 The European Communities submits that the information the United States requests be 
included at the end of paragraph 7.457 of the Inte rim Report is already reflected in paragraphs 7.432 
and 7.433 of the Interim Report.  Accordingly, th e European Communities asks the Panel to reject the 
United States' request.1525   
6.84 The particular passage from the Ellis Report that the United States asks the Panel to insert in a 
footnote at the end of paragraph 7.457 of the Inte rim Report is already quoted in paragraph 7.433 
(now paragraph 7.438).  We therefore reject the United States' request.   
10. Paragraph 7.476   
6.85 The United States requests that paragraph 7.476 of the Interim Report be drafted so as to 
express the full range of reasons supporting the Panel's decision to reject the European Communities' project-specific risk premium.
1526   
6.86 The European Communities submits that the a dditional text requested by the United States 
serves no additional purpose not already met by paragraph 7.475 of the Interim Report, which according to the European Commun ities, already expresses the statemen ts the United States requests 
should be included in paragraph 7.476.  The Euro pean Communities therefor e objects to the United 
States' request.
1527   
                                                      
1523 EC, Comments on US Request for Interim Review, p.5. 
1524 US, Request for Interim Review, para. 15. 
1525 EC, Comments on US Request for Interim Review, pp.5-6. 
1526 US, Request for Interim Review, para. 16. 
1527 EC, Comments on US Request for Interim Review, p.6.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  6.87 We have amended paragr aph 7.476 (now paragraph 7.481) in order to more fully reflect the 
reasons underlying our rejection of the European Communities' project-speci fic risk premium.   
11. Paragraph 7.483 
6.88 The European Communities asks the Panel to in sert a footnote next to each figure shown in 
Table 7 explaining how it was calculated and citin g the specific source of information relied upon.1528   
6.89 The United States submits that the data containe d in Table 7 is adequately referenced, but 
considers that it may be useful to reflect in th e accompanying footnotes some additional information 
on the sources of the listed values.1529   
6.90 We have revised Table 7 and related footnotes w ith a view to providing a clearer and more 
precise understanding of how each figure was calculat ed and the information on which it was based.  
As a result of our review, certain figures in the table have also been revised.   
G. WHETHER LA/MSF  AS A PROGRAMME IS A SUBSIDY WITHIN THE MEANING OF ARTICLE  1 OF 
THE SCM A GREEMENT  
1. Paragraphs 7.495 and 7.508 
6.91 The United States argues that paragraphs 7.495 and 7.508 of the Interim Report incorrectly 
describe the argument it advanced in respect of th e alleged LA/MSF Programme as being premised on 
the alleged Programme having "normative value".  The United States asserts, however, that its 
analysis of whether the alleged LA/MSF Programme is a "measure" was premised on the ordinary meaning of the word "measure", in context and in the light of the object and purpose of the WTO 
Agreement.  The United States recalls that it also ar gued, "as a separate and distinct matter", that even 
assuming that the "test" the European Communities derives from Appellate Body Reports such as US 
– Zeroing(EC)  is appropriate, that "test" has been satis fied by the United States' description of the 
alleged LA/MSF Programme.  Accordingly, the Unite d States requests that paragraphs 7.495 and 
7.508 of the Interim Report be modified to more accu rately reflect the full scope of the United States' 
argument in respect of the alleged LA/MSF Programme, in particular as set out in the United States' 
answer to Panel Question 136.
1530   
6.92 The European Communities consid ers that paragraphs 7.495 and 7.508 of the Interim Report 
do not suggest that the United States' argument in respect of the alleged LA/MSF Programme was premised on it having "normative value".  Moreover,  it notes that paragraph 7.495 of the Interim 
Report expressly refers to the United States' answ er to Panel Question 136.  Thus, the European 
Communities opposes the United States request for m odifications to paragrap hs 7.495 and 7.508 of 
the Interim Report.
1531 
6.93 The United States' interim review request appears to rest on the view that the "test" set out in 
US – Zeroing(EC)  should not have been at the centre of the Panel's evaluation of its claim because it 
is a "test" relevant only in disputes where an unwr itten measure is challenged "as such".  The United 
States emphasizes that it did not challenge the alle ged LA/MSF Programme "as such", but rather as a 
"measure" that is opposable in WTO dispute settle ment proceedings.  Although the United States 
acknowledges that it also argued, "as a separate and distinct matter", that even assuming that the US – 
                                                      
1528 EC, Request for Interim Review, p.8. 
1529 US, Comment on EC, Request for Interim Review, paras. 31-32. 
1530 US, Request for Interim Review, para. 17.  
1531 EC, Comments on US Request for Interim Review, p6. WT/DS316/R 
Page 206 
 
BCI deleted, as indicated [***] 
 
  Zeroing(EC)  "test" were relevant, the LA/MSF Programme satisfied its criteria because it possessed 
inter alia  "normative value", it asserts that  this line of argument was not its primary position.  Rather 
the United States' characterizes this as its response  to the European Communities' arguments.   
6.94 In the Interim Report, we explicitly recognized  that the United States is not challenging the 
alleged LA/MSF Programme "as such", explaining th at, in evaluating the United States' claim, our 
first step taken was to assess whether the United States had established the existence  of the alleged 
LA/MSF Programme as a "measure".  Therefore, we did not treat the United States' complaint as an "as such" claim.  We did, however, apply the criteria in US – Zeroing(EC)  to evaluate the United 
States' claim, but only to determine whether the "measure" the United States characterised as having 
"normative value" actually exists.  In other words, we relied upon the "test" in US – Zeroing(EC)  as 
guidance for what must be established in order to demonstrate the existence of an unwritten measure 
with "normative value".  We did not rely upon this  "test" for the purpose of evaluating the merits of 
any "as such" claim.    
6.95 In its first written submission, the United Stat es concluded that in the light of the evidence 
introduced, "the specific content of {the}Launch Ai d program and the future conduct it will entail 
{was} clear".
1532  In other words, the United States expressed  the view in its first written submission 
that the evidence before the Panel clearly demons trated that the unwritten measure it was challenging 
unavoidably necessitated certain future conduct.   Mo reover, in its first oral statement, the United 
States confirmed that it was making a complain t against an unwritten LA/MSF Programme in 
response to the European Communities' suggestion to  the contrary, characterizing it as a measure that 
"creates expectations among th e public and among private acto rs" demonstrating that it has 
"normative value".1533  In its second oral statement, the United States asserted:  
"In the present dispute, we have shown that a measure that is not set forth in a single 
written instrument – the Launch Aid Program – is in fact a measure and in fact possesses the qualities the Appellate Body identified in US – Zeroing (EC) ".   
Neither of these oral statements was prefaced by  any explanation that the United States was only 
responding to the European Communities' counter-ar gument.  Later in its second oral statement and 
again in its answer to Panel Question 136, the Un ited States explained that it considered it was not 
necessary to show that the measure possessed "nor mative value" in order to show it existed as a 
"measure".  However, in light of its previous submis sions, it was not apparent that this was in fact the 
United States' primary  argument.  Nevertheless, both of the United States' lines of argument are 
recognized in the Interim Report, which addresses and rejects each one.   
 6.96 Thus, in light of the foregoing, we see no n eed to make the changes the United States 
requests, and therefore deny the United States' request.  However, in order to ensure that our views in 
this regard are clear, we have modified the f ootnotes to paragraphs 7.495, 7.508, 7.513 and 7.570 
(now paragraphs 7.500, 7.513, 7.518 and 7.575). 
2. Footnote 2469 
6.97 The European Communities asks the Panel to m odify footnote 2469 of the Interim Report so 
that it properly describes the repayment terms contai ned in Article 6.5 of the German A380 LA/MSF 
contract, as the European Co mmunities describes those terms.
1534   
                                                      
1532 US, FWS, para. 106. 
1533 US, FNCOS, para. 25. 
1534 EC, Request for Interim Review, p. 8.  WT/DS316/R 
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  6.98 The United States argues that Article 6.5 of  the German A380 LA/MSF contract does not 
unambiguously support the European Communities' read ing of that provision.  It therefore asks the 
Panel to remove any discussion of this provision from  footnote 2469 of the Interim Report or to bring 
it into conformity with the language used  in footnote 2155 of the Interim Report.1535   
6.99 We have revised footnote 2469 (now footnote 28 07), albeit not in the terms proposed by the 
European Communities, to bring it into conformity with the description of the same provision in footnote 2155 (now footnote 2449).  
3. Footnote 2473 
6.100  The United States requests that the last senten ce in footnote 2473 of the Interim Report be 
removed because it considers that there was no reason to  expect the United States to have been able to 
know that Airbus had not sought LA/MSF in respect  of certain models, given that the European 
Communities provided only one LA/MSF application,  which was for the German A380 contract.  
Moreover, the United States submits that had it obtained access to all the relevant documents, it would not likely have been able to establish the nega tive proposition that Airbus had not sought LA/MSF 
from the German, Spanish and UK governments for the A330-200.
1536   
6.101  The European Communities argues that the Un ited States misconstrues footnote 2473 of the 
Interim Report and Panel Question 3(a), on whic h it is based.  According to the European 
Communities, the Panel is entitled to assume that, ha ving introduced in its answer to Panel Question 
3(a) a distinction between instances in which Ai rbus sought LA/MSF and instances in which it did 
not, the United States considered that there were  indeed instances in which Airbus did not seek 
LA/MSF.  Accordingly, the European Communitie s opposes the United States' request, and suggests 
that at most, footnote 2473 of the Interim Report could be clarified by placing the Panel's view in the context of the United States' answer to Panel Question 3(a).
1537   
6.102  We have modified footnote 2473 (now footnote  2811) and moved it to the end of the first 
sentence of paragraph 7.522 (now pa ragraph 7.527) in order to clarify the meaning of the last sentence 
of that paragraph.   
4. Footnote 2478 
6.103  The European Communiti es asks the Panel to delete footnote 2478 of the Interim Report 
because it considers that it is "speculative" to asser t that the terms of any LA/MSF provided by the 
UK government for the A340-500/600 would have been "non-commercial".  The European 
Communities argues that footnote 2478 of the Interim Report refers to a measure that never existed, 
and according to the European Communities, the Panel should not make findings on non-existent 
measures.  In addition, the European Commun ities asserts that the proposed agreement was not 
finalised, implying that it cannot demonstrate the term s that would have been finally negotiated and 
agreed between the parties.  The European Commun ities also asserts that the final agreement might 
not have been concluded in 1998, a fact that would be relevant to identifying the appropriate market 
interest rate benchmark.1538   
6.104  The United States disagrees with the European  Communities' request.  According to the 
United States, the European Communities' request is  not only based on an incorrect understanding of 
                                                      
1535 US, Comment on EC, Request for Interim Review, para. 33. 
1536 US, Request for Interim Review, para. 18. 
1537 EC, Comments on US Request for Interim Review, pp.6-7. 
1538 EC, Request for Interim Review, p.8. WT/DS316/R 
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  the relevance of footnote 2478 of the Interim Report to  the Panel's analysis, but is itself based only on 
speculation.1539  
6.105  In our view, the European Communities has misunderstood footnote 2478.  The footnote does 
not indicate a view that any LA/MSF provided by the UK government for the A340-500/600 would 
have been "non-commercial", but rather simply that the UK government's LA/MSF proposal  or offer  
was "non-commercial" at the time it was made .  We therefore deny the European Communities' 
request.   
H. WHETHER LA/MSF  FOR THE A380,  A340-500/600  AND THE A330-200,  CONSTITUTES , IN 
EACH CASE , A PROHIBITED EXPORT SUBSIDY WITHIN THE MEANING OF ARTICLE  3 OF THE 
SCM A GREEMENT  
1. Paragraph 7.583, second sentence 
6.106  The European Communities asks the Panel to revi se the description of its argument set out in 
the second sentence of paragraph 7.583 of the In terim Report, by replacing the words "will actually" 
with "may".  The European Comm unities states that it does not argue that the export must occur in 
order for there to be a finding that a measure pr oviding for a subsidy contingent upon export exists.  
In addition, the European Communities submits that  it does not use the term "actually" in the manner 
advocated by the United States.1540   
6.107  The United States observes that the passage the European Communities requests be revised is 
taken verbatim from the European Communities' own second written submission.  Thus, the United 
States requests that the Panel decline the European  Communities' request to modify paragraph 7.583 
of the Interim Report.1541   
6.108  Although the European Communities now contends  that its argument on what constitutes an 
"anticipated" export should be understood to mean that  it holds the view that an "anticipated" export is 
an export that "may" take place in the future, the actual language used in the European Communities' 
submissions indicates that it argued that an "anticipated" export is one that " will" take place in the 
future, not one that " may" take place.1542  This view is reflected in the first sentence of 
paragraph 7.583 of the Interim Report, where the st atement in this regard made by the European 
Communities in its second written submission is quot ed.  Therefore, we reject the European 
Communities' request to replace the verb "will" with  "may" in the second sentence of paragraph 7.583 
of the Interim Report, because to do so would misrep resent what was explicitly stated in the European 
Communities' own submissions.   
6.109  The European Communities contends that it do es not use the word "actually" in the sense 
advocated by the United States, and for this r eason, this word should be removed from the second 
sentence of paragraph 7.583 of the Interim Report.   However, the second sentence of paragraph 7.583 
of the Interim Report does not suggest that the Eu ropean Communities considers the term "actually" 
in the same manner as the United St ates.  Rather it merely explai ns what we understand to be the 
                                                      
1539 US, Comment on EC, Request for Interim Review, paras. 34-37. 
1540 EC, Request for Interim Review, p.9. 
1541 US, Comment on EC, Request for Interim Review, paras. 38-40. 
1542 EC, SWS, paras. 235 ("...the term 'anticipated' (als o juxtaposed to the meaning of the term 'actual') 
means an export that has not yet taken place at the moment when the subsidy is deemed to exist, but will take 
place in the future.") and 238 ("an 'an ticipated' export is one that has not yet occurred at the moment when the 
subsidy is deemed to exist, and by definition is therefore envisaged to be one that will occur subsequently.") 
(Emphasis added).  WT/DS316/R 
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  European Communities' view of the meaning of "anticipated exportation or export earnings" in 
footnote 4 of the SCM Agreement.1543 
6.110  Our understanding of the European Communities' interpretation of the term "anticipated 
exportation or export earnings" as articulated in th e Interim Report was developed not only from the 
European Communities' explanations of wh at it considered this term to mean,1544 but also from the 
arguments it advanced to reject the United States' interpretation of the same language, particularly in 
paragraphs 233 to 235 of its second written submission: 
"Thus, the United States is interpreting the term 'actual' as if it means 'real' – that is, 
'actually' has taken place in the past or 'act ually' takes place in the future; whilst it is 
interpreting the term 'anticipated' (in juxta position to the term 'actual') as if it means 
'potential', so that, according to the Unite d States, whether or not the 'anticipated' 
export ever 'actually' takes place is irrelevant to the question of whether or not there is 
a subsidy contingent upon export performance.  Thus, for the United States, the 
required condition is not export, but 'the  anticipating of' export; this necessarily 
involves an enquiry into the hypothetical 'state  of mind' or 'intent' of a natural person 
whose thoughts are imputable to the defe nding Member; with mere anticipation or 
consideration being sufficient to  demonstrate contingency.  
The European Communities submits that, on any interpretation, including that 
advanced by the United States, the facts evidently do not support a finding of export 
contingency. 
However, quite apart from this factual poi nt, the European Communities additionally 
submits that the United States' arguments are also based on a legally erroneous interpretation of the term 'actual or an ticipated'. The correct interpretation, as 
indicated in the submissions of the European  Communities, is that the term 'actual' 
means an export that exists (that is, has al ready taken place) at the moment when the 
subsidy is deemed to exist within  the meaning of Article 1 of the SCM Agreement ; 
whilst the term 'anticipated' (also juxtapo sed to the meaning of the term 'actual') 
means an export that has not yet taken place at the moment when the subsidy is deemed to exist, but will take place in the future."
1545  
Nonetheless, we recognize that the European Comm unities did not use the adverb "actually" when 
explaining that it understood an "anticipated" export to be an export that is not a 'potential' export, but 
one that will take place in the future.  We th erefore have removed it from the second sentence of 
paragraph 7.583 (now  paragraph 7.588). 
 
                                                      
1543 In this regard, we note that Australia appears to have taken a similar view of the European 
Communities' argument.  See Australia, Third Party Oral St atement, 24 July 2007, para. 15. ("The fact that the 
grant of a subsidy is not the consequence of actual  exportation does not mean that the grant of a subsidy is not 
tied to export performance and therefore contingent upon export performance within the meaning of the SCM 
Agreement".) (Emphasis added.) 
1544 In addition to EC, SWS, paras. 235 and 238,  see also EC, SNCOS, paras. 126 ("Correctly 
interpreted, the term 'actual or anticipated' in footnote  4 simply confirms that the provision captures the whole 
range of possibilities, that is, exports that currently exist at the time of the initial grant (actual exports) as well as 
those that occur in the fu ture (anticipated exports) ") and 144 ("Furthermore, as the EC has already 
explained, and contrary to what the United States appears to believe, a measure may be a subsidy contingent 
upon export regardless of whether the export occurs before or after the initial grant "). (Emphasis added.) 
1545 EC, SWS, paras. 233 - 235 (Footnote omitted, emphasis added). WT/DS316/R 
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  2. Paragraph 7.625, third, fourth, fifth and fina l sentences; paragraph 7.626 first sentence; 
paragraph 7.627; and paragraph 7.628, fourth and fifth sentences 
6.111  The European Communities asks the Panel to  "more precisely and accurately" state its 
arguments concerning the interpretation of Article 3.1(a) and footnote 4 of the SCM Agreement in 
several sentences in paragraphs 7.625 to 7.628 of the Interim Report, and further requests that the 
Panel then re-consider the conclusions drawn from those arguments.  In particular, the European 
Communities asks the Panel to "more precisely and accurately" state its arguments in paragraphs 
7.625 of the Interim Report, third, fourth, fifth an d final sentences and 7.62 6 of the Interim Report, 
first sentence.  It indicates that "it cannot recogni ze its submissions" in paragraph 7.627 of the Interim 
Report, and asks the Panel to re-consider the stat ements made in paragraph 7.628 of the Interim 
Report, fourth and fifth sentences.  To this end,  the European Communities presents alternative text 
which it considers could be used to replace the text  it considers misrepresents or misunderstands its 
arguments.1546   
6.112  The United States asks that the Panel reject  the changes requested  by the European 
Communities.  The United States argues that to the extent that the Interim Report does not describe 
the European Communities' argument in terms that European Communities would prefer, the 
European Communities has only its own failure to present a single and coherent argument on export 
contingency to blame.  According to the United St ates, the Interim Report faithfully reflects the actual 
text of the European Communities' own submissi ons, often by quoting a nd citation to European 
Communities' submissions.  Moreover, the United States submits that the European Communities' 
requests to replace the Panel's understanding of its ar gument in several of the relevant passages with 
the verbatim language of Article 3.1(a)  of the SCM Agreement is tautological.1547     
6.113  In the Interim Report, we set out and evalua ted two characterisations of the European 
Communities' interpretation of Article 3.1(a) a nd footnote 4 of the SCM Agreement. One is the 
Panel's own, which the European Communities now ask s be revised (paragraphs 7.625 to 7.628 of the 
Interim Report).  The other is that put forward by the United States (paragraphs 7.632 and 7.633 of the 
Interim Report).  After carefully reviewing and r econsidering the European Communities' arguments 
concerning the interpretation of Article 3.1(a) a nd footnote 4 of the SCM Agreement, we deny the 
European Communities' requests to alter the descrip tion of its arguments in the manner requested.   
6.114  There are essentially two reasons for our decisi on.  First, subject to certain clarifying 
adjustments, the language used in the Interi m Report to describe the European Communities' 
submissions accurately reflects the core of its argumen ts in respect of the meaning of Article 3.1(a) 
and footnote 4 of the SCM Agreement as made in its  submissions.  Second, the alternative text the 
European Communities proposes in its request for inte rim review, for the most part, does not provide 
any additional insight into its interpretation of Artic le 3.1(a) and footnote 4, and would, in any case, 
alter the meaning of relevant passages of the Report in ways we consider would not accurately convey 
our understanding.    
6.115  In its first written submission, the European Communities argued that Article 3.1(a) and 
footnote 4 contain three "requirements" – "the required condition: actual or anticipated export 
performance, exportation or export earnings; the required  consequence: the grant of a subsidy; and the 
required contingent relationship (or conti ngency) between condition and consequence".1548  In its first 
non-confidential oral statement, the European Co mmunities argued that the United States had "failed 
                                                      
1546 EC, Request for Interim Review, pp.9-11. 
1547 US, Comment on EC, Request for Interim Review, paras. 38-52. 
1548 EC, FWS, para. 567.  The EC explained the three "requirements" in paragraphs 570-582.  EC, 
FNCOS, para. 73.  WT/DS316/R 
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  to demonstrate any of the requirements of Article 3.1(a) and footnote 4 of the SCM Agreement: the 
United States has not demonstrated any condition of  export performance; neither that the grant of a 
subsidy is the consequence of that condition being fulfilled; nor the required contingency".1549  
Similarly, in its answer to Panel Question 79, the European Communities recalled that "consistent 
with the case law, it distinguishes three elements of the prohibition on export subsidies: the required 
condition (export performance or expor tation or export earnings); the required consequence (the grant 
of a subsidy); and the required re lationship between the first two th ings (the required contingency)" 
and that "{i}n order to assess the United States claims , and to fully appreciate the arguments of the 
European Communities made in its first written submi ssion (and eventually also in its rebuttal), it is 
essential to keep the distinctions between these three elements constantly in mind".1550   
6.116  This presentation of the legal framework of Article  3.1(a) and footnote 4 is one that cannot be 
found in previous WTO dispute settlement proceedings  dealing with prohibited export subsidies.  In 
our view, it is a novel understanding of the elements  of Article 3.1(a) and footnote 4, and for this 
reason, we reject the modifications to paragr aph 7.625 of the Interim Report requested by the 
European Communities.  However, we have made  some modifications to this paragraph (now 
paragraph 7.630) in order to more precisely articulate the European Communities' arguments. 
6.117  The European Communities is also concerned a bout certain statements in paragraphs 7.627 
and 7.628 of the Interim Report which it considers i ndicate that it is arguing that "the existence of a 
subsidy contingent in fact upon export performance can only be demonstrated by adducing a 
document pursuant to which a recipient is legally required to satisfy a performance obligation that 
cannot be achieved without exports".  The Europ ean Communities submits that it never made this 
argument.1551     
6.118  Paragraph 7.627 of the Interim Report states that "according to the European Communities, 
contingency in fact upon anticipated export perform ance arises when the measure granting a subsidy 
legally requires the recipient to satisfy a perfo rmance condition that cannot be achieved without 
exports, irrespective of whether those exports (o r that performance) actually takes place".  In 
paragraph 7.628, we concluded that  "we see nothing in the ordinary meaning of the word 'contingent' 
to support the view that the required link betw een the anticipation of export performance and the 
granting of a subsidy can only be established by provi ng the existence of a legal obligation to achieve 
that anticipated performance."  Thus, in the Interi m Report, we did not indicate that the European 
Communities argued that it is necessary to adduce a document  pursuant to which a recipient is legally 
required to satisfy a performance obligation that cannot be achieved without export in order to 
establish that a subsidy is, in fact, granted conti ngent upon anticipated export performance.  Rather, 
the focus of the relevant paragraphs was our understanding of the circumstances the European 
Communities considered would show that a subsidy is granted contingent, in fact, upon anticipated 
export performance.  They did not address the type of evidence that could be used to demonstrate 
those circumstances.  
6.119  In this regard, we note that, in its second no n-confidential oral statement, the European 
Communities presented what it described as "a succinct and simple re-statement of how the European 
Communities sees the overall design and architecture of Ar ticle 3.1(a) and footnote 4", in particular at 
paragraphs 116-122.  The European Communities e xpressed the "hope{} that the Panel may return to 
this statement as a point of reference to guide it in its future deliberations".1552  The European 
Communities drew from the contents of this oral statement to answer Panel Question 175.  
                                                      
1549 EC, FNCOS, para. 68. 
1550 EC, Answer to Panel Question 79. 
1551 EC, Request for Interim review, pp. 10 and 11. 
1552 EC, SNCOS, para. 115. WT/DS316/R 
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  Paragraph 7.626 of the Interim Report quotes passag es from both submissions which are relevant for 
the purpose of understanding the European Communities'  interpretation of Article 3.1(a) and footnote 
4 of the SCM Agreement.   
6.120  In order to fully appreciate the European Commun ities' "re-statement" of its interpretation of 
Article 3.1(a) and footnote 4, it is important to understand the meaning it gives to "actual or 
anticipated" exports.  The European Communities submitted a detailed expositi on of its view on the 
meaning of this term in its second written submissi on, in particular at pa ragraphs 233, 235, 237-238 
and 244-245.  Based on that exposition, it is in our view clear that the European Communities is of the 
view that an "anticipated" export is not an export that  is "anticipated" in the sense that it is expected 
by a granting authority at the time of the granting of a subsidy.  Rather, according to the European 
Communities, an "anticipated" export is one that has not yet occurred but will take place in the future.   
6.121  We find it difficult to understand how it would ever  be possible to show, at the time of the 
granting of a subsidy, that an export that has not yet taken place will occur, if not by demonstrating 
the existence of an obligation or requirement to e xport at that very same moment.  This leads us to 
conclude that the European Communities must be argui ng that the grant of a subsidy that is contingent 
upon anticipated  export performance can only be demonstrated by showing that a subsidy has been 
granted pursuant to a measure requiring the recipient to satisfy a performance condition that cannot be 
achieved without exports, irrespective of whether those exports (or that performance) actually takes 
place.  Although rejecting this characterisation of its arguments in the Interim Report, the text 
proposed by the European Communities to replace the description of its arguments found in the 
Interim Report provides little, if any, clarification of how its views differ from the description in the 
Interim Report.1553  Moreover, we observe that in its own submissions the European Communities 
stated: 
"By arguing that the required condition is th e "anticipating of" exports – whether or 
not the "anticipated" export ever "actually"  (as that term is understood by the United 
States) takes place - the United States is ar guing that the requireme nt of contingency 
that is at the heart of the provision can be replaced by mere consideration – that is, 
consideration by the granting Member that exports might  occur in the future, rather 
than imposition by the granting Member of a requirement that the recipient export in 
order to obtain the subsidy ."1554 
"...the EC is saying that the measure enacting the initial grant must  provide that the 
subsidy is granted contingent  upon export, and that the measure must also provide 
that it is only export (whether in the past or in the future)  that completes the grant and 
triggers the right to receive or retain the funds unconditionally."1555 
                                                      
1553 For instance, the EC requested that we replace th e sentence "In other words, according to the EC, 
contingency in fact upon anticipated export performance arises when  the measure granting a subsidy legally 
requires  the recipient to satisfy a performance condition that cannot be achieved without exports, irrespective of 
whether those exports (or that performance) actually ta kes place" appearing in para graph 7.627 with "In other 
words, according to the EC, contingency in fact upon anticipated export performance arises when the facts 
demonstrate the existence of a measure granting a subsidy contingent upon export performance.  The EC 
requested similar modifications elsewhere in this paragr aph, and asked the Panel to take them into account in 
paragraph 7.628, where we evaluated the EC' argument.  However, merely replacing the characterisation of its 
argument with text that essentially repeats the languag e of Article 3.1(a) does little to clarify what the EC 
understands that provision to mean.   
1554 EC, SWS, para. 245 (emphasis added). 
1555 EC, SWS, para. 122 (emphasis added).  WT/DS316/R 
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  "To succeed, the United States had to cite a provision in the measure stating that if the 
condition referred to in Article 3.1( a) (export performance) is fulfilled  then the legal 
consequence referred to in Article 3.1(a)  (the grant of the subsidy) results".1556 
"The United States has "failed to de monstrate any of the requirements of 
Article 3.1(a) and footnote 4 of the SCM Agreement: the United States has not 
demonstrated any condition of export performan ce; neither that the grant of a subsidy 
is the consequence of that condition being fulfilled ; nor the required contingency".1557 
6.122  Having carefully reviewed the European Communiti es original arguments in this context, and 
taking as a whole its arguments on the meaning of  Article 3.1(a) and footnote 4 of the SCM 
Agreement, and in particular its interpretation of "anticipated" export performance, we can only 
understand its legal argument to express the view th at a subsidy will be contingent upon anticipated 
export performance only when the measure granting the subsid y requires the recipient to satisfy a 
performance condition that cannot be achieved withou t exports, irrespective of whether those exports, 
or that performance, actually takes place.  Thus , we believe we have correctly understood and 
accurately described the European Comm unities' arguments on this issue.   
6.123  For all of the above reasons, we deny the Eur opean Communities' request to make changes to 
paragraphs 7.626 to 7.628 of the Interim Report.  Ho wever, in the light of our reconsideration of its 
arguments, we have modified para graphs 7.625-7.631 (now paragra phs 7.630 – 7.637) in order to 
more clearly articulate our understanding of the European Communities' arguments. 
3. Paragraph 7.633 
6.124  The European Communities argues that the final sentence of paragraph 7.633 of the Interim 
Report, and consequently paragraph 7.636 of the Interim Report, are not an appropriate 
characterisation of its arguments.  In particular , the European Communitie s asserts that it "has 
repeatedly stated that a measure providing for a s ubsidy contingent upon expo rt is WTO-inconsistent 
whether or not exports occur, as the Panel itsel f records in para. 7.626 of the interim report".1558   
6.125  The United States notes that paragraphs 7.633 and 7.636 of the Interim Report accurately 
reflect the United States' understanding of the Eu ropean Communities' arguments.  Therefore, the 
United States argues that there is no reason to amend these paragraphs, and asks the Panel to reject the 
European Communities' request.1559 
6.126  As noted above,1560 the characterisation of the European Communities' arguments on the 
meaning of Article 3.1(a) and footnote 4 of the SC M Agreement set out and evaluated in paragraphs 
7.633 to 7.636 of the Interim Report was that advanced by the United States.  Th is is explicitly stated 
in the relevant passages.  To avoid any confusion, we have made some modifications to paragraphs 
7.633 and 7.636 (now paragraphs 7.6 39 and 7.642) reiterating this fact. 
4. Paragraph 7.645, second bullet point and pa ragraph 7.655, seventh bullet point 
6.127  The European Commun ities asserts that the United Kingdom government sought repayment 
of LA/MSF for the A380 over [***] deliveries, and not the [***] deliveries mentioned in 
                                                      
1556 EC, FWS, para. 591 (emphasis added). 
1557 EC, FNCOS, para. 68 (emphasis added). 
1558 EC, Request for Interim Review, p.11. 
1559 US, Comment on EC, Request for Interim Review, para. 53. 
1560 See paragraph 6.113 above. WT/DS316/R 
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  paragraph 7.645 of the Interim Re port, second bullet point, and paragr aph 7.655 of the Interim Report, 
seventh bullet point.  The European Communiti es requests that these passages be corrected 
accordingly.1561   
6.128  The United States does not oppose the European Communities' request, and proposes specific 
language which it considers could give eff ect to the European Communities' request.1562   
6.129  We have carefully reviewed the facts, and have revised the second bullet point of 
paragraph 7.645, and the seventh bullet point of pa ragraph 7.655 (now paragr aphs 7.651 and 7.661) to 
more clearly reflect the facts. 
5. Paragraph 7.655, fourth bullet point, items (h) and (i)  
6.130  The European Communities requests that additiona l text be inserted into paragraph 7.655 of 
the Interim Report, fourth bullet point, items (h) and (i) in order to ensure that the Report records its 
response to the United States' allegations con cerning the evidence identif ied in those passages.1563   
6.131  The United States submits that th e European Communities' request s seek to have reflected in 
items (h) and (i) of paragraph 7.655 of the Inte rim Report arguments that either do not, or do not 
entirely, match the matters discussed therein.  Ac cordingly, the United States asks that should the 
Panel make any modification to these passages of the Interim Report, it should mirror the limited 
focus of the matters set out in those passages.1564   
6.132  We have reviewed the European Communities' arguments and consider that much of the 
language it requests be inserted in the relevant passages does not constitute a specific  response to the 
precise evidence identified by the Un ited States, but rather a genera l response to the United States' 
reliance on this and other "additional" evidence overa ll.  Therefore, it does not belong in the passages 
the European Communities asks to modify.  Ne vertheless, we have included the European 
Communities' arguments in paragraph 7.655 (now paragraph 7. 661) in order to ensure that they are 
recorded in the Report, and have in addition modi fied paragraph 7.655 (now paragraph 7.661), fourth 
bullet point, item (i), so as to capture what we understand to be the European Communities' specific 
response to the evidence identified therein.   
6. Paragraphs 7.674 - 7.682 
6.133  The United States requests that, "in the interest of completeness", a footnote be added to the 
end of paragraph 7.673 of the Interim Report notin g the European Communities' alleged refusal to 
provide the French, Spanish, and UK A380 LA/MSF applications, and the Ge rman and Spanish A380 
project appraisals, as well as the absence of any e xplanation for the European Communities' alleged 
refusal.  The United States declares that it does not  understand the European Communities to dispute 
the fact that it did not provide these documents.1565   
6.134  The European Communities submits it is incorrect  to state that it "refused to provide" the 
French, Spanish and UK A380 LA/MSF applications because such documents were never requested 
by either the United States (in the Annex V process)  or the Panel.  Accordingly, the European 
Communities asks the Panel to not only reject the Un ited States' request, but also to revise footnotes 
                                                      
1561 EC, Request for Interim Review, p.11. 
1562 US, Comment on EC, Request for Interim Review, para. 54. 
1563 EC, Request for Interim Review, pp.11-12. 
1564 US, Comment on EC, Request for Interim Review, paras. 55-56. 
1565 US, Request for Review, para. 19.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  2745, 2760, 2816 and 2908 and paragraph 7.677 of the Interim Report, which record the United 
States' assertion that the European Communitie s "refused to provide" a particular LA/MSF 
application, with text it considers would provide a more even-handed account.  As regards the United 
States' comments concerning the "critical project ap praisals", the European Communities explains that 
Germany and Spain [***] .  The European Communities recalls th at in its response to Question 13(f) 
of the Facilitator during the Annex V process, it ex plained that it had provided all copies of "the 
available critical project appraisals".  Thus, the European Communities asks the Panel to reject the 
United States' request because it submits that it is inco rrect to assert that (i) it "failed to provide" the 
German and Spanish "critical project appraisal" doc uments for the A380, when there were no such 
documents available; and that (ii) it "offered no explanation" for not provi ding these documents, given 
that it noted in its answer to Question 13(f) of the Facilitator that it had provided all "available" 
copies.1566 
6.135  No questions posed during the Annex V process specifically  requested the European 
Communities to provide copies of the relevant LA /MSF applications.  Although it could be argued 
that the relevant A380 LA/MSF applications fell wi thin the scope of the information requested under 
the more general questions asked by the Facilitator,1567 in our view, such questions were too broad to 
conclude that the European Communities should have  realised that the United States was requesting it 
to provide copies of the A380 LA/MSF applications.  This is particularly so when such questions are 
considered in the context of the many specific que stions asked by the United States for particular 
documents.  In this light, the United States' a llegation that the European Communities failed to 
provide the LA/MSF application for the German A 380 contract, recorded in footnotes 2745, 2760 and 
2816, and paragraph 7.677 of the Interim Report, is  not entirely accurate.  While these passages of the 
Interim Report do not express any view on the part of the Panel as to whether the United States is 
correct, leaving them as they are may create the impression that the Panel agrees with the United 
States.  Thus, we have made several changes to  footnotes 2745, 2760 and 2816, and paragraph 7.677 
(now footnotes 3087, 3103, and 3163, and paragra ph 7.683) in order to clarify this point.   
6.136  On the other hand, the European Communities was specifically asked by the Facilitator to 
provide copies of "any 'critical project appraisals'", in Question 13(f).1568  The European Communities 
notes that in answering this question, it explicitly st ated that it had provided "a copy of the available 
critical project appraisals", which included th e French and UK government "critical project 
appraisals" for the A380.  However, it did not ex plain, as it has now in its  comments to the United 
States request for interim review, that the reason no German and Spanish "critical project appraisals" 
were provided was that these governments applied a "continuous" approach to critically appraising the 
projects.  Had the European Communities explained this in its answer to Question 13(f), the United 
States would have at least known that the German and Spanish "critical project appraisals" were 
recorded in various documents.  The United States co uld thereafter have asked the Panel to request the 
European Communities to produce these documents dur ing the course of the Panel proceeding.  In 
this light, we have modified footnotes 2901 and 2904 (now footnotes 3248 and 3251) to reflect the 
United States' concerns.         
                                                      
1566 EC, Comments on US Request for Interim Review, pp.7-9. 
1567 For instance, Question 23 reads: "Please provide information and documents that relate to Airbus 
member State support for the development and/or production of the A380, including but not limited to: (a) ... 
(b)".  EC, Answers to Questions by the Facilitator under Annex V, Exhibit US-5 (BCI). 
1568 Question 13(f) reads: "Please pr ovide information and documents that relate to the implementation 
and use of launch aid by Airbus, broken down by Airbus entity, Airbus member State, Airbus model, including, 
but not limited to: ... (f) all risk assessments performed with respect to that gove rnment support, including any 
"critical project appraisals".  EC, An swers to Questions by the Facilitator under Annex V, Exhibit US-5 (BCI). WT/DS316/R 
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  7. Paragraph 7.677 
6.137  The United States argues that the Panel's conclu sion in paragraph 7.677 of the Interim Report, 
that the UK A380 LA/MSF contract was concluded at least in part on the condition or because of the 
UK government's anticipation of exportation, does not reflect any consideration of the UK A380 
Project Appraisal or the related HSBI comments pr ovided by the United States.  The United States 
requests that paragraph 7.677 of the Interim Report be modified to reflect consideration of this 
evidence.1569   
6.138  The European Communities submits  that the HSBI comments the United States refers to in 
support of its request asserted that the UK A380 cr itical project appraisal established that the UK 
government anticipated  exportation or export earnings.  The European Communities submits that the 
United States provides no basis for the Panel to ta ke these comments into account for the purpose of 
the conclusion reached in paragraph 7.677 of the In terim Report, and therefore asks the Panel to reject 
the United States requested amendment.1570 
6.139  The United States' HSBI appendix to its firs t written submission raised the UK A380 critical 
project appraisal in order to support two of its assertions:  (i) that the UK government anticipated 
exports; and (ii) that the UK government contractually  "tied" repayment of LA/MSF to Airbus making 
a number of sales that must have necessarily invo lved exports.  The United States' reliance on the UK 
critical project appraisal in this regard is alread y noted and considered in paragraphs 7.645 (footnote 
2741) (anticipated exports), footnote 2813 and 7. 672 (footnote 2897) (export contingency) of the 
Interim Report.  Paragraph 7.677 of the Interi m Report evaluates the evidence and arguments the 
United States advanced that were "additional" to those already set out and addressed in the previous 
paragraphs of the Interim Report in respect of th e question of export contingency.  We therefore 
consider the changes requested by the United Stat es to be unnecessary and redundant, and decline to 
make them.   
8. Paragraph 7.679 
6.140  The United States submits that the first sentence of paragraph 7.679 of the Interim Report is 
incorrect when it states that "{t}he only other sp ecific piece of evidence the United States relies upon 
is the statement reportedly made by French Prim e Minister, Lionel Jospin in March 2000 ....".  The 
United States submits that this statement does not  reflect any consideration of the French A380 
Project Appraisal or the related HSBI comments provided by the United States in its first written 
submission.  The United States requests that paragr aph 7.679 of the Interim Report be modified to 
reflect consideration of this evidence.1571 
6.141    The European Communities contends that the HSBI comments the United States refers to in 
support of its request asserted that the French A380 critical project appraisal established that the French government anticipated  exportation or export earnings.  The European Communities notes that 
these comments have already been taken into account by the Panel at paragraphs 7.645-7.646 of the 
Interim Report.  Thus, the European Communities asks  the Panel to reject the United States' requested 
amendment.
1572 
6.142  The United States relies on the French government  critical project appraisal for the A380 in 
essentially the same way that it relies upon the UK gove rnment's critical project appraisal for the 
                                                      
1569 US, Request for Interim Review, para. 20. 
1570 EC Comment on US, Request for Interim Review, p.9. 
1571 US, Request for Interim Review, para. 21. 
1572 EC Comment on US, Request for Interim Review, p.9.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  A380, that is, to support two of its assertions:  (i) that the French government anticipated exports; and 
(ii) that the French government contractually "tied" repayment of LA/MSF to Airbus making a 
number of sales that must have necessarily involv ed exports.  The Interim Report notes and considers 
the United States' reliance on the French governme nt's critical project appraisal for the A380 in 
paragraphs 7.645 (footnote 2741) (anticip ated exports) and 7.672 (footnote 2897) (export 
contingency) of the Interim Report.  Moreover, th e particular paragraphs of its HSBI appendix the 
United States requests be reflected in paragraph 7. 679 of the Interim Report deal with the question 
whether the French government anticipated exports.  Ho wever, this is not what paragraph 7.679 of the 
Interim Report is about.  Paragra ph 7.679 of the Interim Report eval uates the evidence and arguments 
the United States advanced that were "additional"  to those already set out and addressed in the 
previous paragraphs of the Interim Report in respect  of the question of export contingency.  In this 
light, we decline to make the changes requested by the United States, as we did with respect to the 
United States' request concerning para graph 7.677 of the Interim Report.1573  However, we have 
modified paragraph 7.679 (now  paragraph 7.685) in order to clarify our views. 
9. Paragraphs 7.690-7.710 
6.143  The European Communities asks the Panel to evaluate the United States' in law export 
contingency claims before its in fact export c ontingency claims.  According to the European 
Communities, "one cannot measure indirect evidence against a standard without first having a precise 
and clear understanding of what that standard is.  In the present case, that precise and clear 
understanding would be the mean ing of in law contingency."1574   
6.144  The United States argues that the European Co mmunities has provided no explanation as to 
what aspects of the claims compel the Panel to fo llow its preferred order of analysis.  The United 
States recalls that, as the European Communiti es has recognized throughout these proceedings, the 
legal standard for de jure  and de facto  export contingency claims is th e same.  In its view, the Panel 
does not need to conduct an analysis of de jure  claims first in order to "understand" the standard it 
must apply to de facto claims.1575   
6.145  The European Communities' request  presupposes that the legal standard applicable to claims 
of in fact export contingency cannot be ascertained without first determining what the legal standard 
is for in law export contingency claims.  Howeve r, as we note in the Report, the legal standard 
applicable to in law and in fact export contingenc y claims under Article 3.1( a) of the SCM Agreement 
is the same.1576  The only difference between the two types of claims is the evidence that may be 
relied upon for the purpose of their substantiation.  Mo reover, we note that in other dispute settlement 
proceedings, panels faced with in fact export contingency claims ha ve not evaluated them by first 
determining what the legal standard is for in law export contingency and then assessing whether the 
facts before them satisfied this standard.  Indeed, gi ven that the legal standard is the same, it would in 
our view make little sense to do so.  We ther efore deny the European Communities' request. 
                                                      
1573 See paragraph 6.139 above. 
1574 EC, Request for Interim Review, p.12. 
1575 US, Comment on EC Request for Review, para. 57. 
1576 See below, paras. 7.696 - 7.701 (correspondi ng to paras. 7.690-7.695 of Interim Report). WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  I. WHETHER CERTAIN EUROPEAN INVESTMENT BANK LOANS TO AIRBUS ARE SPECIFIC 
SUBSIDIES WITHIN THE MEANING OF ARTICLES  1 AND 2 OF THE SCM A GREEMENT  
1. Paragraphs 7.744, 7.747, 7.781, 7.795, 7.814, 7.854, 7.856, 7.857, 7.862 and 7.875 
6.146  The European Communities argues that the Interi m Report incorrectly characterised the EIB's 
lending activities as "not-for-profit" in paragraphs 7. 744, 7.747, 7.781, 7.795, 7.814, 7.854, 7.856, 
7.857, 7.862 and 7.875 of the Interim Report.  A ccording to the European Communities, all of the 
evidence before the Panel only confirms that the EIB is "a not-for-profit institution".  In the view of 
the European Communities, nowhere in the evidence be fore the Panel was there any reference that the 
"lending activities" of the bank ha ve a "non-profit nature".  The European Communities argues that 
the Interim Report confuses the non-profit nature of the EIB as an institution with the nature of its 
lending activities .  Accordingly, it asks the Panel to rectif y this alleged error of assessment in the 
relevant paragraphs.1577   
6.147  The United States considers that the European  Communities' requests are based on a highly 
selective reading of the Interim Report and the releva nt evidence.   The United States points to various 
pieces of evidence reviewed by the Panel that it argu es show that the interest rates charged to EIB 
clients cover only the costs of EIB borrowing and op erations but do not provide for any profit, and 
which, when combined, lead the Panel to conclude  in paragraph 7.747 of the Interim Report that EIB 
lending is non-commercial.1578 
6.148  Our finding concerning whether the evidence about the nature and function of the EIB 
(beginning at paragraph 7.741 of the Interim Report)  demonstrates that the EIB's loans are provided at 
non-commercial interest rates, is set out in pa ragraph 7.747 of the Interim Report.  This 
paragraph does not draw any conclusion about whet her the EIB's lending activities are not-for-profit.  
Rather, it concludes that "... the evidence ... review ed on the nature of the EIB's lending activities 
(especially its non-profit-making nature) indirectly suppor ts the view that the rate of return it obtains 
on the loans it grants to borrowers (including those challenged by the United States in this dispute) is 
below the rate of return that would be demanded by  a commercial lender, ther eby conferring a benefit 
within the meaning of Article 1.1(b) of the SCM Ag reement."  Eight of the nine remaining paragraphs 
identified by the European Communiti es all refer to the findings made in  respect of the "nature of the 
EIB's lending activities" in paragraph 7.747 of the In terim Report, namely, that  the evidence before 
the Panel indirectly supports the view that the EIB's loans are provided at non-commercial interest 
rates.  Thus, contrary to the European Communities' view that all 10 of the cited paragraphs refer to 
the EIB's not-for-profit lending activities , only paragraph 7.744 of the Interim Report explicitly 
describes the EIB's lending activities as not-for-profit.     
6.149  While it is true that there is no eviden ce that explicitly characterises the EIB's lending 
activities  as not-for-profit, the evidence th at has been submitted, in our view, strongly suggests this to 
be the case.  In this regard, we note particularly Exhibits US-160 and US-151 (both referred to in the 
Interim Report).   In both exhibits, statements aut hored by the EIB indicate that as a "not-for-profit 
institution" it is able to pass on the benefits of its ability to borrow funds on the capital markets at 
AAA credit rating levels to its clients at "fine rates" .  The statements explain that the interest rates 
charged include only "a small margin {above its  borrowing cost} to cover operating expenses", 
namely, "administrative expenses and other costs".  Thus, in describing the level of interest charged 
on its client loans, the EIB makes no mention of an y profits.  On the contrary, the EIB's statements 
indicate that the interest rates charged to clients only cover costs.  This is cons istent with Article 19 of 
the EIB Statute, which provides that: 
                                                      
1577 EC, Request for Interim Review, pp.12-13. 
1578 US, Comment on EC, Request for Interim Review, paras. 58-60.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  "Interest rates on loans to be granted by the Bank and commission on guarantees shall 
be adjusted to conditions prevailing on the capital market and shall be calculated in 
such a way that the income therefrom shall enable the Bank to meet its obligations, to 
cover its expenses and to build up a reserve fund as provided for in Article 24 ."1579 
6.150  While the European Communities contests the ch aracterisation of the EIB's lending activities 
as "not-for-profit", it has not at any stage during these proceedings asserted that the EIB includes a 
profit margin in the interest rates charged on its clie nt loans.  Neither has the European Communities 
pointed to any evidence before us that could substantia te such an assertion.  It is true that in addition 
to needing to cover expenses, the EIB must, accordi ng to Article 19 of its Statute, also "build up a 
reserve fund".  The European Communities explained during the proceedings in this dispute that "{i}f 
the EIB's reserve is reduced (for ex ample as a result of loan losses and/or the use of funds sitting on 
EIB's reserve fund to finance a capita l increase) then the EIB may need to increase its interest rate in 
order to ensure compliance with its obligations unde r Article 24 of the EIB Statute which requires it to 
build up a 10% reserve fund".1580  Thus, in addition to covering its costs, the interest rates charged by 
the EIB on its loans may also contain a margin fo r its reserve fund.  However, even assuming, 
arguendo, that any such reserve fund margin could be  viewed as akin to a profit margin, it is clear 
from the European Communities' own description that it will not always be included in the interest 
rate charged by the EIB.      
6.151  In view of the foregoing, we deny the Europ ean Communities' request to amend paragraphs 
7.744, 7.747, 7.781, 7.795, 7.814, 7.854, 7.856, 7.857, 7.862 and 7.875 of the Interim Report.  
However, we have modified para graph 7.744 (now paragraph 7.750) , in order to more accurately 
reflect the evidence. 
2. Paragraph 7.753 and footnote 3041 
6.152  The European Communities requests that the l ast sentence in footnote 3041 of the Interim 
Report, where it contends the Panel "speculated" that the funds used to finance the 2002 loan to 
EADS might well have been sourced fro m the Eurodollar bond market, be deleted.1581   
6.153  The United States considers that the statement at  issue reflects an appropriate exercise of the 
Panel's discretion when evaluating the evidence and should therefore not be deleted as the European 
Communities requests.  Nevertheless the United States suggests that footnote 3041 of the Interim 
Report could be modified to clarify that the stat ement in the last sentence, while not based on 
evidence specifically on the point being made, is an  appropriate inference to draw from the evidence 
that is before the Panel.1582   
6.154  At paragraph 7.753 of the Interim Report, we  considered the relevance of the Eurodollar 
Bond Index relied upon by the United States for the pur pose of constructing its market interest rate 
benchmark for the 2002 loan to EADS.  Footnote 304 1 of the Interim Report reflects one aspect of our 
thinking with respect to that issue, and therefor e, we decline to make the change requested.  
3. Paragraphs 7.760 and 7.779 
6.155  The European Communities requests that referenc es to "project-specific" obligations and 
costs in paragraphs 7.760 and 7.779 of the Interi m Report be deleted.  According to the European 
                                                      
1579 Exhibit EC-157. 
1580 EC, Answer to Panel Question 179. 
1581 EC, Request for Interim Review, p.13. 
1582 US, Comment on EC, Request for Interim Review, paras. 61-65. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  Communities, its submissions on the obligations and co sts discussed in these paragraphs used the term 
"project-related".  Moreover, the European Communiti es argues that the word "specific" has a distinct 
meaning in the context of the SCM Agreement as a result of which the term used in the Interim 
Report may be misunderstood.1583   
6.156  The United States submits that the change in  terminology requested by the European 
Communities would not accurately reflect the nature of those obligations and costs and is therefore 
not warranted.  Accordingly, the United States asks the Panel to reject the proposed changes.1584 
6.157  We recognize that, overall the European Commun ities did not use the term "project-specific", 
but rather the term "project-related" in its su bmissions when describing the "additional" costs it 
argued are incurred in connection with EIB fina ncing.  However, in responding to Panel 
Question 176, the European Communities explained that  the costs associated with EIB financing were 
additional to those incurred with  bond financing instruments because the latter "were made for 
'general corporate purposes' and were not pr oject-specific".  Thus, although the European 
Communities generally described the costs at issue as "project-related", when comparing them to the 
costs associated with the bond inst ruments used by the United States to establish the proposed interest 
rate benchmark, the European Communities also indirec tly described them as "pro ject-specific" costs.  
In light of the foregoing, we have replaced the term "project-speci fic" with the term "project-related" 
in paragraphs 7.760 and 7.779 (now paragraphs 7.766 and 7.785), except where the former is used in 
the context of explaining the European Communities'  argument in respect of the costs associated with 
bond financing.   
4. Paragraphs 7.783, 7.791 and 7.793 
6.158  The European Communities does not agree with the conclusion expressed at paragraph 7.791 
of the Interim Report that one of the purposes of a commitment f ee is to compensate a lender for the 
risk that a borrower's credit rating will deteriorate betw een the time the interest rate is set in a loan 
contract and the disbursement of funds to that bor rower.  According to th e European Communities, 
the evidence before the Panel, and the position of the European Communities, only confirmed that a 
commitment fee is requested in return for tying up the capital of the lender and to compensate the 
lender for committing to a loan.  Thus, the European  Communities asserts that there is no connection 
between the commitment fee and the creditworthin ess evolution of the borrower.  In its view, a 
commitment fee has to do with the lender's liqui dity constraint, not the borrower's credit standing.1585   
6.159  The United States submits that there is no mer it to the European Communities' request.  The 
United States points out that both the NERA EIB Report and Brealey and Myers support the view that 
commitment fees are intended to compensate lenders for agreeing, at the time of the conclusion of a 
loan contract, to provide funding at a late r date on interest rate terms reflecting, inter alia , the credit 
worthiness of the borrower at the time the loan cont ract was concluded.  Thus, the United States 
suggests that should the Panel decide to make any changes to the relevant paragraphs, it should be 
only to remove any reference to the European  Communities' agreement with this proposition.1586 
6.160  During the proceedings in this dispute, when asked to elaborate its view on the meaning of 
"commitment fee", the European Communities drew  support from the same passage of the Brealey 
and Myers text relied upon by the United States.1587   This passage, which also informed our own 
                                                      
1583 EC, Request for Interim Review, p.13. 
1584 US, Comment on EC, Request for Interim Review, paras. 66-68. 
1585 EC, Request for Interim Review, p. 13. 
1586 US, Comment on EC, Request for Interim Review, paras. 69-72. 
1587 EC, Answer to Panel Question 179.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  understanding, explained that a commitment fee was an  extra cost charged by banks in exchange for 
which a borrower: 
"receives a valuable option: It has guaranteed  access to the bank's money at a fixed 
spread over the general level of interest ra tes.  This amounts to a put option, because 
the firm can sell its debt to the bank on fi xed terms even if its own creditworthiness 
deteriorates or the cost of credit rises ".  (emphasis added) 
As we understand it, this passage suggests that a co mmitment fee is not only related to the risk 
associated with a lender's "liquidity constraint" (" cost of credit"), as the European Communities now 
argues, but also the creditworthiness of the borrower.  Moreover, in explaining that a commitment fee 
is a cost "associated with commercial loans gua ranteeing the borrowing entities immediate access to a 
lending bank's money 'at a fixed spread over the ge neral level of interest rates'", the European 
Communities noted:   
"By contrast to the types of loans consid ered by Brealey, the challenged EIB loans 
extended under 'open-rate' contracts do not  guarantee the entities access to EIB funds 
at a fixed spread over a general level of inte rest.  This is true irrespective of whether 
or not the borrower's 'credit worthiness deteriorates' or 'cost of credit rises'. "1588   
6.161  Thus, while the European Communities argued th at commitment fees are ordinarily charged 
on commercial loans when a borrowi ng entity is offered "immediate access" to a loan "at a fixed 
spread over the general level of interest rates", it is less than clear, on the basis of the arguments 
advanced during the proceeding, that the European Communities did not consider such fees to, at least 
in part, compensate for the risk that the borrower's credit rating might deteriorate, in addition to the 
possibility that the cost of credit for the bank might increase.   
6.162  Nevertheless, as it has now clarif ied its argument in this rega rd, we have made changes to 
paragraphs 7.784, 7.791 and 7.793 (now paragraphs 7. 790, 7.797, and 7.799) to accurately reflect the 
European Communities' position.   Despite this cl arification, we have le ft unchanged our overall 
conclusion on the purpose of a commitment fee. 
5. Paragraphs 7.733-7.833 
6.163  The European Communities expres ses its disagreement with the benefit/benchmark analysis 
for the EIB loans contained in paragraphs 7.733 to 7.883 of the Interim Report.  The European 
Communities contends that the evidence it had a dvanced was wrongly dismissed, and that more 
credibility and weight was unjustifiably ascribed to the United States' proposed benchmarks.1589  
Apart from making this statement, the European Communities has neither identified any particular 
error in the Interim Report, nor asked for any speci fic changes to the text of any of the relevant 
paragraphs.   
6.164  The United States did not comment on this aspect  of the European Communities' request for 
interim review.   
6.165  Given that the weighing of evidence, including its credibility, is the task of the Panel, and in 
the absence of any substantiated arguments s upporting any specific requests from the European 
Communities, we consider that there is no need to make any changes in response to the European 
Communities' comments in this regard.  
                                                      
1588 EC, Answer to Panel Question 179 (emphasis added, footnotes omitted). 
1589 EC, Request for Interim Review, p.13. WT/DS316/R 
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  6. Paragraph 7.966 
6.166  The European Communities requests that the word "would", used twice in the last sentence of 
paragraph 7.966 of the Interim Report, be replaced with the word "may", in order to, in its view, 
ensure consistency between the analyses made in paragraphs 7.966 and 7.963 of the Interim 
Report.1590   
6.167  The United States considers that the European Communities' request appears to be premised 
on a misunderstanding of the Panel's reasoning.  According to the United States, the analyses set out in paragraphs 7.966 and 7.963 of the Interim Re port do not raise any ques tions of consistency.
1591  
6.168  We consider it useful to modify the explanati on in paragraph 7.966 of the Interim Report to 
avoid any confusion about our views.  To this end,  we have revised paragra ph 7.966 (now paragraphs 
7.792 – 7.793), albeit not in the terms proposed by the European Communities. 
7. Paragraphs 7.983-7.984 and 7.987-7.989 
6.169  The United States considers that the Panel coul d assist the positive resolution of this dispute 
by providing alternative findings that complete the specificity analysis under the assumption that, as 
the United States proposed, "disproportionately large amounts of subsidy" and "predominant use" 
should be examined in the light of the i2i Programme.1592   
6.170  The European Communities opposes the United St ates' request, noting that the Panel has 
already thoroughly addressed and assessed the United States' arguments and factual assertions on this 
issue.  The European Communities submits that b ased on that assessment, the Panel concludes that the 
i2i was not a "programme" and was not a correct basi s for the specificity analysis in the context of 
Article 2.1(c) of the SCM Agreement.1593  
6.171  The United States' contention that the i2i is the relevant "programme" for the purpose of 
performing a de facto specificity analysis under Article 2.1(c) of the SCM Agreement is described and 
evaluated in paragraphs 7.971 to 7.982 of the Inte rim Report.  Our conclusi on leave leaves little, if 
any, room for doubt that we rejected the United St ates' contention.  The Un ited States asserts that 
alternative findings would contribute to a positive reso lution of the dispute, but has not explained how 
such alternative findings would have this effect.1594  In light of the above, we consider there is no need 
to prepare alternative findings on this question, and we deny the United States' request that we do so. 
8. Paragraphs 7.983, 7.987 and 7.998 
6.172  The European Communities proposes the insertion of a new footnote in paragraphs 7.983, 
7.987 and 7.998 of the Interim Report to give mo re support to the observations made in those 
paragraphs.1595   
6.173  The United States considers that the language  proposed by the European Communities finds 
no support in the Panel's evaluation of specificity und er Article 2.1(c), nor the evidence on the record 
                                                      
1590 EC, Request for Interim Review, p.14. 
1591 US, Comment on EC, Request for Interim Review, paras. 73-76. 
1592 US, Request for Interim Review, para. 22. 
1593 EC, Comments on US Request for Interim Review, p.10. 
1594 Assuming the United States is concerned with the ability of the Appellate Body to "complete the 
analysis" were it to overturn the Panel's finding and consider that the i2i is the relevant "programme", there are, 
in our view, sufficient facts discussed in paragraphs 7.971 to 7.982 of the Interim Report to enable it to do so.   
1595 EC, Request for Interim Review, p.14.  WT/DS316/R 
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  or even Article 2.1(c) of the SCM Agreement.  Equally, the United States submits that the European 
Communities' own submissions do not provide sup port for the language it requests be added to 
paragraphs 7.983, 7.987 and 7.998 of the Interim Report.1596   
6.174  In our view, there is no need to add the proposed text to paragraphs 7.98 3, 7.987 and 7.998 of 
the Interim Report in order to strengthen the observa tions made therein, and we therefore deny the 
European Communities' request.     
9. Paragraph 7.996 
6.175  The European Communities asserts  that the funding amounts referred to in paragraph 7.996 
and footnote 3449 of the Interim Re port (citing Exhibits US-176 to US -181) refer to "signed" amounts 
of funding within the European Communities, rather than "disbursed amounts of funding".1597   
6.176  The United States argues that the European Communities has provided no evidence to support 
the assertions it now makes, and notes that it is not  entitled to introduce new evidence at the interim 
review stage of these proceedings.1598   
6.177  We agree with the United States that the European Communities' position is an assertion 
without supporting evidence.  Nevertheless, without  modifying the text of paragraph 7.996 (now 
paragraph 7.1003), we consider it useful to insert a footnote in the relevant passage to reflect the 
European Communities' assertion.   
J. WHETHER THE GERMAN , FRENCH , UK,  AND SPANISH GOVERNMENTS HAVE SUBSIDIZED 
AIRBUS THROUGH THE PROVISION OF INFRASTRUCTURE AND INFRASTRUCTURE -RELATED 
GRANTS  
1. Paragraphs 7.1012 and 7.1035  
6.178  The European Communities requests that the Pa nel amend its description of the European 
Communities' argument concerning the evaluation of general infrastructure in paragraphs 7.1012 and 
7.1035 of the Interim Report to more accurately reflect the European Communities' argument as 
presented, referring in this regard to paragra ph 340 of the European Communities' second written 
submission.1599    
6.179  The United States did not comment on the European Communities request in this regard.   
6.180  The change proposed by the European Comm unities would amend our paraphrasing of its 
argument to incorporate the wording actually u sed in the European Communities' second written 
submission, which is the source referred to in the re levant footnotes.  We therefore grant the European 
Communities' request, and have modified the relevant  text in both paragraphs 7.1012 and 7.1035 (now 
paragraphs 7.1019 and 7.1042, respectively).   
                                                      
1596 US, Comment on EC, Request for Interim Review, paras. 77-82. 
1597 EC, Request for Interim Review, p.14. 
1598 US, Comment on EC, Request for Interim Review, para. 83. 
1599 EC, Request for Interim Review, p. 15. WT/DS316/R 
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  2. Paragraph 7.1036 
6.181  The European Communities further requests, in  view of its comments on paragraphs 7.1012 
and 7.1035 of the Interim Report, that the Panel amend paragraph 7.1036 of  the Interim Report to 
delete the phrase "a proposition with wh ich both parties appear to agree".1600    
6.182  The United States asks that the Panel deny the Eu ropean Communities' request in this regard, 
asserting that nothing in the comments referred to  would support finding that the European 
Communities does not agree with the notion that there is no infrastructure that is inherently "general".
1601  Moreover, the United States notes that th e European Communities does not object to 
the final sentence of footnote 3529 of the Interim Re port which is appended to the phrase to which the 
European Communities objects.  That footnote notes the Panel's understanding that the European 
Communities is not arguing that certain types of infrastructure are general per se , and that the 
European Communities argues that three factors should be consid ered in determining whether 
infrastructure is "general", and that the type of  infrastructure is only one of those three.   
6.183  In our view, the mere fact that the European  Communities argues for a two-stage approach in 
determining whether limitations on the use of infrast ructure are relevant to the determination whether 
it is general does not demonstrate that it disagrees w ith the proposition that there is no infrastructure 
that is inherently general.  The European Communities points to no submission or argument it made during the proceedings which would demonstrate its disagreement with this proposition.  Moreover, 
the European Communities argues that the term "in frastructure" means "basic goods and services in a 
society which underpin its economic performance" and that "general infrastructure" is provided for 
the benefit of the public at large, where the rele vant good or service is accessible by the public at 
large, or where it "enables" members of the publ ic at large, thereby fulfilling a public policy 
objective.
1602  The European Communities argues that dete rmining whether infrastructure is "general" 
requires consideration of three factors: 
"(i) the substance of government action re lated to basic installations, facilities and 
services needed to support social as well as economic development; (ii) their public 
policy objective and (iii) their designation for public use by either being publicly accessible, by enabling access by members of the public at large, or by providing 
common goods to the public".
1603 
Based on the foregoing, its seems clear to us that  the European Communities did not argue that the 
nature  of infrastructure is determinative of whether it is  general.  Thus, we maintain our interpretation 
of the European Communities' position as appearing to agree with the proposition that there is no 
infrastructure that is inherently "general" per se , and deny the requested amendment. 
 
3. Paragraph 7.1044, footnote 3547 
6.184  The European Communities requests the Panel to amend its description of the facts 
concerning the upgrading of existing and building of new dykes in footnote 3547 to paragraph 7.1044 
of the Interim Report, to reflect the European Communities' factual assertions.1604   
6.185  The United States did not comment on this asp ect of the European Communities comments. 
                                                      
1600 EC, Request for Interim Review, pp. 15-16. 
1601 US, Comments on EC Request for Interim Review, paras. 84-88. 
1602 EC, FWS, para. 716. 
1603 EC, Answer to Panel Questions 90, 186 and 221; EC, FWS, para. 724. 
1604 EC, Request for Interim Review, p. 16.  WT/DS316/R 
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  6.186  The European Communities seeks to include, in the Panel's description of the factual 
background of the Mühlenberger Loch project, its  assertions that the upgrading of existing and 
building of new dykes around the existing Airbus f acility and the reclaimed land "were part of the 
federal and regional flood protecti on programme for the whole of the river Elbe for the period 2002-
2012. The programme, which was started in the early 1990s, required the authorities to make 
improvements to the existing dykes."1605  However, the European Comm unities cites no evidence in 
support of these assertions.  Paragraph 756 of the European Communities' first written submission, 
where these assertions are first made, cites Exhib its EC-545 and EC-549, albeit not as support for 
these specific assertions of fact.  In any event, ne ither of these documents refers to the federal and 
regional flood protection programme, or links the work undertaken in the Mühlenberger Loch area 
with any required improvements to flood protection in the area.  Indeed, both documents indicate that 
most, if not all, of the flood protection measures were necessary as a result of the land reclamation project.  Thus, while we do not doubt that the wo rk was undertaken in a manner consistent with the 
need for flood protection in the area and with the applicable standards, and that it was carried out 
consistently with the general flood protection programme, we see no basis for the conclusions 
proposed by the European Communities, and th erefore deny this aspect of its request.   
4. Paragraph 7.1059 
6.187  The European Communities requests that the Pa nel amend paragraph 7. 1059 of the Interim 
Report to add a footnote describing the Hamburg Real Estate Experts Committee and specifically  its independence and autonomy, asserting that this would be commensurate with the Panel's description 
of the United States' real estate experts in foot note 3560 to paragraph 7.1048 of the Interim Report.
1606   
6.188  The United States observes that it understands that the fact that the Panel did not include the 
European Communities' assertions in this regard refl ects that they were not relevant to the Panel's 
ultimate analysis.1607  The United States does not specifically  object to the European Communities' 
request, but requests that, should the Panel grant it, it should clearly indicate that these are the 
European Communities' arguments, not undisputed fact s, and refer in addition to the United States' 
counterarguments at paragraphs 365-37 1 of its second written submission.   
6.189  We grant the European Communities' requ est in part, by adding a footnote to 
paragraph 7.1059 (now paragra ph 7.1066) describing the functi on of the Experts Committee.  
However, we have not included the European Co mmunities' assertions as to the independence and 
autonomy of the Experts Committee, which the Unite d States specifically disputed, and as to which 
we made no findings.     
5. Paragraph 7.1061 
6.190  The European Communities requests the Pa nel to add a sentence at the end of 
paragraph 7.1061 of the Interim Report summa rizing the European Communities' argument 
concerning possible returns other than rent that jus tified Hamburg's investment in the creation of the 
land.1608   
6.191  The United States did not comment on this aspect of the European Communities' request. 
                                                      
1605 EC, Request for Interim Review, p. 16. 
1606 EC, Request for Interim Review, p. 16. 
1607 US, Comments on EC Request for Interim Review, para. 90. 
1608 EC, Request for Interim Review, p. 16. WT/DS316/R 
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  6.192  We have added a sentence to  paragraph 7.1061 (now para graph 7.1069) summarizing the 
European Communities' arguments in this regard , which were already partially reflected in 
paragraph 7.1055 of the Interim Re port (now paragraph 7.1062 below) , albeit in terms different from 
those proposed by the European Communities.     
6. Paragraph 7.1080 
6.193  The European Communities requests an amendment to paragraph 7.1080 of the Interim 
Report to more fully reflect the European Communitie s' argument that the amount the United States 
asserted Hamburg authorities invested in the creatio n of land at Mühlenberger Loch was an early 
estimate, and that the aggregate co sts were lower, to indicate speci fic evidence relied upon in this 
regard, with a footnote reference to Exhibit EC-548,  and to add a parenthetical indicating that these 
were the total costs foreseeable in 2006.1609   
6.194  The United States considers that the first part  of the European Communities' request is 
unnecessary, since the panel rejected the estimat e cited by the European Communities as not 
representing all the relevant costs.1610  The United States further requests that if the Panel grants the 
first part of the European Communities' request, it also include a more detailed explanation of the 
United States' argument and evidence relied upon in this regard.1611  Finally, the United States objects 
to the second part of the European Communities'  request, asserting that the assertion made by the 
European Communities is new, and that the Eu ropean Communities has offered no evidentiary 
support for it.   
6.195  We have modified paragraph 7.1080 (now paragraph 7.1088) to more fully reflect both 
parties' arguments, and the evidence relied upon by th em, albeit in different terms than suggested by 
either party.     
7. Paragraph 7.1087 
6.196  The European Communities requests that the Panel amend the second sentence of 
paragraph 7.1087 of the Interim Report to reflect  the "equal importance" the European Communities 
asserts it ascribed to the two aspects of its argument discussed in this paragraph.1612   
6.197  The United States objects to the European Comm unities' request, asserting that the sentence 
in question reflects the Panel's characterization of the extent of the European Communities' reliance 
on a particular argument, and that while the European Communities may not agree with that 
characterization, it has provided no explana tion for why that characterization is unfounded.1613  
6.198  The sentence which the European Communitie s seeks to amend clearly describes our 
understanding as to the extent of the European  Communities' reliance on the view that land 
reclamation is a government task.  As the Eur opean Communities has made no argument now, and 
refers to none made previously, that would s uggest that our understanding in this respect is 
unwarranted, we deny the European Communities' request.   
                                                      
1609 EC, Request for Interim Review, p. 16. 
1610 US, Comments on EC Request for Interim Review, para. 93. 
1611 US, Comments on EC Request for Interim Review, para. 94. 
1612 EC, Request for Interim Review, p. 17. 
1613 US, Comments on EC Request for Interim Review, para 98.  WT/DS316/R 
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  8. Paragraph 7.1086, footnote 3652 
6.199  The European Communities request s the Panel to amend footnote 3652 of the Interim Report 
to reflect the correct source, and supplement the text of the footnote to more fully reflect the European 
Communities' argument.1614   
6.200  The United States did not comment on this aspect  of the European Communities' comments. 
6.201  The European Communities is corre ct that the footnote as originally drafted cites the wrong 
source.  The text the European  Communities seeks to add to the footnote is based on the correct 
source which should have been cited, and therefor e reflects the European Communities' argument as 
originally presented.  We therefore grant the European Communities' request, and have amended 
footnote 3652 (now footnote 4004) to refer to th e correct source and adding additional text.   
9. Paragraph 7.1087, footnote 3655 
6.202  The European Communities requests that the Pa nel supplement footnote 3655 of the Interim 
Report to cite paragraphs 107 9-1089 of the European Communities' second written submission in 
addition to the cited reference.1615   
6.203  The United States objects to this request, asserting that the paragraphs to which the European 
Communities seeks to add a reference do not deal with the question whether land reclamation conferred a benefit within the meaning of Article 1. 1(a) of the SCM Agreement, but with the adverse 
effects caused by the provision of the infrastruct ure in question, noting the location of those 
paragraphs in the European Communities' second wr itten submission, and the location of the Panel's 
consideration of those paragr aphs in its Interim Report. 
6.204  The European Communities provides no justifi cation for its request.  The reference in 
footnote 3655 of the Interim Report is the specific source for the text quoted in paragraph 7.1087 of 
the Interim Report, to which the footnote is appe nded.  Moreover, we agree with the United States 
that the paragraphs referred to by the European  Communities do not address the question of benefit, 
which is the subject of this section of the Interim Report, and thus are not relevant to the Panel's 
analysis here.  We therefore deny the European Communities' request. 
10. Paragraph 7.1120 
6.205  The European Communities disagre es with the Panel's conclusion in paragraph 7.1120 of the 
Interim Report that the cost of the runaway extension was DM 40 million, arguing that it did not accept the amount of DM 40 million "as an accurate est imate, as the cost of the runway extension".  
The European Communities argues that  there is evidence on the record showing that the actual cost of 
the runway extension was much lower.  Conseque ntly, the European Communities requests the Panel 
to revisit the evidence in the record on this matter and concludes that the City of Bremen actually paid 
[***] or at least an amount not exceeding [***].
1616   
                                                      
1614 EC, Request for Interim Review, p. 17. 
1615 EC, Request for Interim Review, p. 17. 
1616 EC, Request for Interim Review, pp. 17-18. WT/DS316/R 
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  6.206  The United States objects to the European Commun ities' request in this regard, asserting that 
the statement that the parties do not disagree about  the accuracy of the DM 40 million figure as an 
estimate of the cost of the runway extension is correct as a matter of fact.1617 
6.207  Our conclusion in paragraph 7.1120 of the Interim Report was not that the European 
Communities accepted the amount of DM 40 million as the cost of the runway extension, but merely 
that that the European Communities did not dispute that this figure represented the planned expenditures, i.e., an accurate estimate of the cost of the runway extension as of the date of the 
estimate.  We continue to understand the European Communities not to dispute the accuracy of this 
figure as an estimate  at the time of the costs of the runway extension.  The European Communities 
argued, and maintains, that the estimate turned out to  be wrong, and that the actual cost of the runway 
extension was a different, lesser amount.  We cons idered those arguments, and concluded that the 
evidence presented by the European Communities di d not demonstrate what the actual costs of the 
runway extension alone were, distinct from other as pects of the project.  We therefore accepted the 
estimated amount, rather than the amount the Eur opean Communities asserted was the actual cost, for 
purposes of our analysis. 
6.208  In arguing that we should revise our findings in  paragraph 7.1120 of the Interim Report, the 
European reiterates its argument, which we reject ed in the Interim Report, relying on the same 
exhibits, and suggesting no further relevant analysis .  Taking the evidence proffered by the European 
Communities at face value, Exhibits EC-621 and EC-622 are, respectively, undated excerpts from 
(1) a budgetary plan showing amounts expensed  in 1988, amounts budgeted for 1989 and 1990, and 
amounts committed for 1990 and (2) an  overview from the City of Bremen showing actual payments 
for the "Relocation of the River Ochtun /extension of the runway" between 1987 and 1994.  Since the 
latter document does not distinguish between the am ounts spent for the extension of the runway, the 
measure at issue in this dispute, the amounts spent for the restoration of the runway and amounts spent on other aspects of this project, it is, in our view, insufficient to substantiate the European 
Communities' argument as to the actual cost of the runway extension.  And since the former document 
does not show the actual expenditures for the extensi on of the runway, but a combination of expensed 
amounts for 1988, budgeted amounts for 1989 and 1990, and commitments for 1990, it is similarly 
insufficient to substantiate the Eur opean Communities' argument as to the actual cost of the extension.  
Moreover, the figures in the columns labelled "co mmitments" "budgeted" and "expensed" in Exhibit 
EC-621 do not sum to the total in the note referring to the "total costs of the extension", and the 
figures in that note do not sum to the total referred to in the heading of the note as the total costs of the 
extension.  While the European Communities argu es that the evidence dem onstrates that the total 
amounts expended were less than the estimated amount , we simply cannot reach a conclusion as to the 
actual amount expended on the basis of the evidence befo re us.  We therefore conclude that nothing in 
the European Communities' argument as now formul ated, or the evidence relied upon, substantiates 
the amount of the actual expenditure on the runway  extension, and therefore deny the European 
Communities' request to revisit the ev idence and change our conclusion.   
6.209  However, we recognize that the phrase "accurate estimate" is not clear in context, given the 
European Communities' position that the actual costs were lower, implying that the estimate was not "accurate", since it turned out to be wrong.  Ther efore, we have modified paragraph 7.1120 (now 
paragraph 7.1128) to clarify its  meaning in this regard.   
11. Paragraph 7.1124 
6.210  The European Communities requests the Pa nel to modify the third sentence of 
paragraph 7.1124 of the Interim Report, to reflect  that it argued that "aircraft weight bears a 
                                                     
 
1617 US, Comments on EC Request for Interim Review, paras. 100-102.  WT/DS316/R 
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  relationship to use of the runway extension, for th e simple reason that heavier aircraft require longer 
runways".1618   
6.211  The United States objects to the European Communities' request, asserting, inter alia , that the 
cited European Communities' statement concerns th e need for longer runways in the abstract, and 
does not address the question whether heavier Airbus aircraft actually required the use of the extended 
Bremen runway.1619   
6.212  The point made in paragraph 7.1124 of the In terim Report is that the European Communities 
did not argue, and did not provide any evidence, that Airbus aircraft use the extended runway because  
they are heavier than other aircraft landing at Brem en airport.  On the other hand, the United States 
submitted evidence indicating that other aircraft, h eavier than Airbus aircraft using the extended 
runway, did not, barring emergencies, use the extende d runway.  Thus, we concluded that Airbus paid 
fees on the basis of aircraft weight – as did all other users of the Bremen airport – but that the fees paid by Airbus did not relate to the use of th e extended runway.  The European Communities does not 
now assert that it provided evidence that heavier ai rcraft require use of the extended runway, but 
merely that it argued that this was the case in ge neral.  Since this general proposition, even accepting 
it as true, does not demonstrate that Airbus paid f ees for the use of the extended runway, we see no 
basis for the European Communities' request.  We therefore deny the European Communities' request, 
but have modified paragraph 7.1124  (now paragraph 7.1131) to make our point more clearly.      
12. Paragraph 7.1131 
6.213  The European Communities requests the Pa nel to modify the first sentence of 
paragraph 7.1131 of the Interim Report by deleting the phrase "and particularly with the development 
and production of the A380 aircraft", asserting that the cited reference, EC, FWS, paragraph 916, 
while noting that Airbus France, Air France, SIDMI, CUS-Elyo, Exxon Mobil, STTS and 3R 
purchased land at the site, does not state that all of  these companies, at the Aéroconstellation site or 
otherwise, were engaged "particularly with  the development and production of the A380".
1620    
6.214  The United States considers that the statemen t in question is not properly understood as 
indicating that the companies that purchased the land were engaged particularly  with the development 
and production of the A380, but rather that the st atement reflects the Panel's understanding based on 
evidence submitted by the United States that, inter alia , the site was designed and built specifically 
for Airbus and related business, particul arly in connection with A380 production.1621  Accordingly, 
while the United States agrees with the European Communities' that th e reference to paragraph 916 of 
the European Communities' first written submi ssion may not sufficiently reference the facts 
underlying the Panel's statement, it suggests that ra ther than deleting the statement, which the United 
States considers factually correct as drafted, the Panel could reflect the United States' evidence in 
support of this statement in footnote 3741 of the Interim Report.    
6.215  We note in this regard that paragraph 7.1131 of  the Interim Report does not state that land in 
the ZAC Aéroconstellation was sold to companies "engaged  particularly with the development and 
production of the A380" but rather that the land w as sold to companies "involved in the aeronautical 
industry, and particularly with the developmen t and production of the A380 aircraft" (footnote 
omitted).  This statement reflects our understanding, based on, inter alia , evidence referred to by the 
United States in its Comments on the EC request fo r Interim Review, that the development of the 
                                                      
1618 EC, Request for Interim Review, p. 18, referring to EC, Answer to Panel Question 96, para. 257. 
1619 US, Comments on EC Request for Interim Review, para. 103.   
1620 EC, Request for Interim Review, pp. 18-19. 
1621 US, Comments on EC Request for Interim Review, para. 107. WT/DS316/R 
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  ZAC Aéroconstellation was undertaken to provide a su itable site for Airbus A380 final assembly line, 
and related businesses, i.e., companies involved in the aeronautical industry, and involved in the 
development and production of the A380.  We therefore deny the European Communities' request, but 
have modified paragraph 7.1131 ( now paragraph 7.1139) to more clearly explain our views.   
13. Paragraph 7.1167, footnote 3840 
6.216  The European Communities request s the Panel to delete the phrase "the production of A380 
aircraft" from the second sentence of footnote 3840 of the Interim Report, arguing that the cited reference, the European Communities' second confid ential oral statement at paragraph 31, does not 
state that all of the companies, at the Aéroconstellation site or ot herwise, were engaged in "the 
production of A380 aircraft".
1622   
6.217  The United States suggests that the European  Communities appears to misunderstand the 
statement in that footnote, which it considers to in dicate that, had the French authorities not done so, 
"Airbus could have created the EIG facilities itsel f because they are necessary for its A380 production 
activities and for those of the other companies pur chasing land in the ZAC that participate in the 
production of A380 aircraft."  The United States propo ses alternative text should the Panel agree with 
the United States' understanding and decide to modify the footnote.1623 
6.218  The European Communities seems to be of the vi ew that because we cited a reference, that 
reference must itself reflect the entirety of the statem ent in connection with which it is cited.  This is 
not the case here.  The source referenced in f ootnote 3840 of the Interi m Report, the European 
Communities' second confidential oral statement at para graph 31, is cited to reflect that the European 
Communities itself recognized that had the French authorities not created the EIG facilities, Airbus 
would have done so itself.  The remainder of the sentence reflects our view as to why Airbus would 
have done so – because those facilities were neces sary to its activities in the production of A380 
aircraft, and those of other companies also involved in production of that aircraft at the ZAC site.  Therefore, we deny the European Communities' re quest, but we have modified footnote 3840 (now 
footnote 4192) to more accurately reflect our views.   
14. Paragraph 7.1171 
6.219  The European Communities observes that paragr aph 7.1171 of the Interim Report states that 
the Aéroconstellation project "was undertaken to suit  Airbus' needs (…)", while at paragraphs 7.1131 
and 7.1169, and footnotes 3839  and 3840 of the Interim Report, th e Panel notes the project's utility for 
Airbus France as well as  the other companies purchasing land at the site, and requests that the Panel 
"adopt a consistent approach to this question".
1624   
6.220  The United States does not consider there to be any inconsistency in the passages referred to 
by the European Communities, and therefore asks the Panel to decline the European Communities' 
request.1625   
6.221  Paragraph 7.1171 of the Interim Report sets out our conclusion that the ZAC 
Aéroconstellation was not a measure of general infrast ructure, which rests on our consideration of the 
facts concerning its creation and provision, which in our view demonstrated that "the development of 
the ZAC Aéroconstellation was undertaken to suit Ai rbus' needs, and in particular its needs in 
                                                      
1622 EC, Request for Interim Review at p. 19. 
1623 US, Comments on EC Request for Interim Review, paras. 110-111. 
1624 EC, Request for Interim Review at p. 19. 
1625 US, Comments on EC Request for Interim Review, para. 114.  WT/DS316/R 
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  connection with the assembly and testing of A380 aircra ft."  This conclusion is not inconsistent with 
the other statements referred to by the Europ ean Communities, which merely reflect that other 
companies located at the site are also involved in the assembly and testing of A380 aircraft, and thus the development of the ZAC is useful to them in t hose activities, as well as in their other aeronautical 
industry activities at the site.  We therefore deny  the European Communities' request and make no 
changes.    
15. Paragraph 7.1193 
6.222  The European Communities requests the Pa nel to replace the first sentence of 
paragraph 7.1193 of the Interim Report with text quoted from the second sentence of the European 
Communities' first written submission at paragraph 73 9, which states "However, even if regional aid 
programmes were considered to limit access to the subsidy under Article 2.1(a) of the SCM 
Agreement to those enterprises located in the desi gnated area, such programmes could be non-specific 
within the meaning of Article 2.1(b) of the SC M Agreement".  The European Communities further 
requests, "for the same reason" that the Panel repl ace the reference to Article 2.2 at the end of the 
second sentence of paragraph 7.1193 of the Interi m Report by "Article 2.1(a)".  The European 
Communities notes that at paragraphs 896-907 (N ordenham) and 970-973 (July 2003 grant in 
Andalusia) of its first written submission, it explai ned its view that these regional aid grants are non-
specific under Article 2.1(b), and requests the Panel to reflect this in paragraph 7.1193 of the Interim 
Report.
1626 
6.223  The United States requests the Panel to reject the European Communities' request to amend 
paragraph 7.1193 of the Interim Report, arguing th at the requested change would not accurately 
reflect the European Communities' arguments as made.1627  The United States notes that the Panel did 
not cite only the second sentence of paragraph 739 of the European Communities' first written 
submission, but the paragraph as a whole, which in th e United States' view, taken in context, confirms 
that the Panel's description of the European Comm unities' argument is accurate.  The United States 
considers that no change is necessary, but proposes alternative text should the Panel decide to amend 
paragraph 7.1193 of the Interim Report.1628 
6.224  While the United States is correct that we did not rely on only the second sentence of the cited 
reference, and that therefore simply quoting that  sentence would not accurately reflect the European 
Communities' argument summarized in this paragraph,  we do consider that the summary as originally 
drafted may not fully reflect the European Communities' argument.  However, the European 
Communities' proposed text does not, in our view , accurately summarize the European Communities' 
argument in this regard.  We ther efore have made certain clarifying  changes to paragraph 7.1193 (now 
paragraph 7.1201), albeit in different terms from those proposed by the Eu ropean Communities.   
16. Paragraph 7.1227 and footnote 3920 
6.225  The European Communities requests that the Pane l reconsider the statement in footnote 3920 
of the Interim Report that:  
"Although the EC asserts that the progra mme under which the Andalusian grants 
were made was generally available throughout  Andalusia, the information before us 
supports the United States' assertions c oncerning the limitation to a "designated 
                                                      
1626 EC, Request for Interim Review, p. 19. 
1627 US, Comments on EC Request for Interim Review, paras. 116-118. 
1628 US, Comments on EC Request for Interim Review, para. 119. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  geographical region within the jurisdiction of the granting authority.  Exhibits US-
240, US-242." 
The European Communities considers this statem ent to be incorrect as a matter of fact.1629   T h e  
European Communities reviews eviden ce it submitted on this question, and requests the Panel to find 
that the July 2001 grant to Puerto Santa Maria and the July 2002 grant to Sevilla were not specific 
subsidies within the meaning of Article 2.2 of the SCM Agreement.    6.226  The United States opposes the European Commun ities' request, noting that the European 
Communities does not provide any new explanation or poi nt to other evidence in the record, but rather 
asks the Panel to review, de novo , the arguments and evidence before the Panel, on the basis that the 
European Communities disagrees with the Panel's conclusion, which the United States, referring to 
evidence and arguments it submitted, considers to be correct.
1630 
6.227  With respect to paragraph 7.1227 of the In terim Report, the European Communities notes 
that, in the case of the EUR 7.6 million grant from Castilla-La Mancha in March 2004, it had argued 
that this grant was made under a programme pr oviding funds throughout the granting authority, i.e., 
the government of Castilla-La Mancha, citing its fi rst written submission as paragraphs 979-981 and 
Exhibits EC-136 and EC-137.  The European Co mmunities further notes that the United States 
appears not to dispute this.1631  The European Communities considers that this should be reflected in 
this paragraph and the subsequent  analysis, and requests the Panel to find that the EUR 7.6 million 
grant from Castilla-La Mancha was not specific w ithin the meaning of Article 2.2 of the SCM 
Agreement.   
6.228  The United States opposes this aspect of the European Communities' request, again asserting 
that the European Communities asks the Panel to conduct a de novo  review of arguments and 
evidence it has already reviewed before coming to its conclusion.1632  The United States points out 
that the EUR 7.6 million Castilla-La Mancha gr ant is co-funded by the European Regional 
Development Fund, citing the second to last paragra ph of the preamble of Exhibit EC-136, and asserts 
that it is, as such, specific under Article 2.2 of the SCM Agreement, referring to arguments at 
paragraph 511 of its first written submission.  Th e United States notes that the European Communities 
has not disputed the participation of the European  Regional Development Fund in this grant, and 
therefore requests the Panel to reject the European  Communities' request to modify paragraph 7.1227 
of the Interim Report and its subsequent analysis.1633   
                                                      
1629 EC, Request for Interim Review, pp. 19-20. 
1630 US, Comments on EC Request for Interim Review, paras. 121-122. 
1631 EC, Request for Interim Review, p. 20.  The EC asserts in particular, that United States did not 
contest that the legal bases for the grant from Castilla-L a Mancha are the Decree 53/1998 and the Orden 25 July 
2002, and that under these the regional government may grant subsidies throughout the region of Castilla-La 
Mancha to companies active in all economic sectors.  EC, Request for Interim Review, p. 20, footnote 15.   
1632 US, Comments on EC Request for Interim Review, para. 123. 
1633 The United States also recalls that the EC had opportunity to clarify any aspect of the Castilla La 
Mancha grant, as it did with the other subsidies at issue in this dispute, in response to questions posed by the 
Annex V Facilitator.  The Facilitator asked the EC and the Airbus governments to provide numerous categories of information regarding each of the grants, including the reasons for approval of the grants, all agreements or 
other documents providing the legal basis for the grants, and whether the grant "was part of a broader support 
program run by the Spanish, Castilla-La Mancha or Andalusian government, as the case may be, and, if so, a complete description of each such pr ogram, including the terms and conditi ons for access to funding under such 
program." Question 76(f), Exhibit US-4 (BCI). The EC did not respond to these questions.  See Exhibit US-5 
(BCl).  US, Comments on EC Request for Interim Review, para. 123, footnote 60.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  6.229  Although the United States objects to the Panel reviewing de novo  the evidence on which its 
conclusions in the Interim Report were based, in our view , it is appropriate for us to do just that in the 
face of a request for interim review asserting a factua l error in the Interim Report.  We therefore have 
reconsidered the evidence and arguments pr esented by the parties in this regard.   
6.230  The European Communities, referring to its firs t written submission and supporting exhibits, 
maintains that the July 2001 gran t to Puerto Santa Maria and the July 2002 grant to Sevilla were both 
made under a scheme of the Andalusian government , and that the applications and disbursements 
were managed by the Consejería de Trabajo e Industria de la Junta de Andalucía .  The United States 
acknowledged that the government of Andalusia "pr ovided" the grant to Puerto Santa Maria, and 
"authorized" the grant to Sevilla.1634  Citing information submitted by the United States, Exhibits US-
240 and US-242, we originally concluded that these grants were provided as part of an Andalusian 
government development plan for a particular ge ographic region within Andalusia, the Bahía de 
Cadiz, and thus were limited to "enterprises locat ed within a designated geographical region within 
the jurisdiction of the granting authority".   
6.231  Having reconsidered the evidence, we are pers uaded that this conclusion was incorrect as a 
matter of fact.  Page 14,291 of Exhibit US-240, c ited by the United States, provides that the funds 
were granted "for a plan of acti on for the Bahía de Càdiz Centre ( Polígono Parque Industrial Bahía )".  
Having carefully considered the evidence again, we cannot conclude that the "Plan" referred to in 
Exhibit US-240 is an Andalusian government development plan for the Bahia de Cadiz.1635  It appears 
that the facts surrounding this grant were confounded with the facts surrounding the July 2003 grant 
to Puerto Real, which was made pursuant to a progr amme directed toward aiding development in the 
Bahia de Cadiz area, and which the European Co mmunities acknowledged is not generally available 
throughout Andalusia.1636   However, that programme did not come into effect until after the 
application for the July 2001 Puerto Santa Maria gran t had been made, and thus is not relevant to the 
question of specificity of that grant.  The Unite d States did not assert any other basis of specificity 
with respect to this grant.1637  In the absence of any other argumen ts or evidence of specificity, we 
have changed our conclusion, a nd determine that the 2001 grant to Puerto Santa Maria was not 
provided to an enterprise in a designated geograp hical region within the territory of the granting 
authority, and is therefore not specific under Article 2.2 of the SCM Agreement.   
6.232  Turning to the 2002 grant to Sevilla, we recall that this grant was co-financed by the 
government of Andalusia and the Eu ropean Regional Development Fund.1638  The United States 
asserted specificity on the basis that "subsidies under the European Regional Development Fund 
{ERDF} are necessarily limited to "certain ente rprises located within a designated geographical 
region within the jurisdiction of the granting authorit y," and thus are specific within the meaning of 
Article 2.2 of the SCM Agreement".1639  The European Communities did not dispute the fact that the 
grant was co-financed by the ERDF.  However, th e European Communities asserted that this grant 
was made under the same programme as the 2001 Pu erto Santa Maria grant, and asserted that it was 
similarly not limited to "certain enterprises located within a designated geographical region within the 
jurisdiction of the granting authority", that is, th e government of Andalusia.  As noted above, the 
                                                      
1634 US, FWS, para. 505-506. 
1635 Exhibit US-242, also originally cited in this regard, does not even mention the Bahia de Cadiz, 
since it concerns the 2002 grant to Sevilla, with respect to which the United States did not assert this basis of 
specificity, and is therefore irrelevant. 
1636 EC, FWS, paras. 970-971. 
1637 As noted above, in footnote 1635, Exhibit US-242, also originally cited in this regard, concerns the 
2002 grant to Sevilla, and is therefore irrelevant to the qu estion of specificity with respect to the grant to Puerto 
Santa Maria. 
1638 US, FWS, para. 506, Exhibit US-242. 
1639 US, FWS, para. 507. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  United States acknowledged that the government of  Andalusia authorized the grant to Sevilla.1640  The 
United States' assertion of specificity thus implies that the fact of co-financing makes the ERDF, in 
effect, the granting authority, within the meaning of  Article 2.2 of the SCM Agreement, with respect 
to the portion of this grant it financed, despite that the government of Andalusia administered the 
provision of the grant.  The European Communitie s did not address this implication of the United 
States' argument, and, as noted, did not dispute the fact of co-financing.   
6.233  In our view, it is reasonable to  conclude that, while "authorized" by the government of 
Anadalusia, in the sense that the government of Anad alusia processed the applications and handed out 
the funds, the ERDF may be considered a granting au thority within the meaning of Article 2.2 of the 
SCM Agreement for the 75 percent of this grant wh ich it financed.  As the United States noted, and 
the European Communities did not dispute, the purpose of the ERDF is "to provide investment in socially and economically challenged areas of Europe."
1641  Were we to accept the European 
Communities' position that this grant was not specifi c because it was authorized by the government of 
Andalusia under a progamme generally available in Andalusia, this would imply that European 
Communities' funds directed to particular regions in the European Communities, which can clearly be 
considered "designated geographical region{s} with in the jurisdiction of the {ERDF}", could be 
sheltered from a finding of specificity under Article 2. 2 by putting the administration of such grants in 
the hands of local governments.  In our view, such an outcome would create a loophole in the SCM Agreement disciplines on regional subsidies, ther eby undermining the object and purpose of that 
Agreement.  We therefore deny the European Comm unities' request that we find that this grant was 
not specific under Article 2.2 of the SCM Agreement.  
6.234  With respect to the 2004 grant to Castilla-L a Mancha, the sole basis for a finding of 
specificity asserted by the United States was the fa ct that the ERDF co-financed the grant, a fact 
which is not disputed by the European Communities.   For the reasons just discussed, we maintain our 
conclusion that this grant was specific and deny th e European Communities' request that we find that 
this grant was not specific under Article 2.2 of the SCM Agreement.   
6.235  In view of the above, we have amended para graph 7.1227 and footnote  3920 (now paragraphs 
7.1235 – 7.1237 and accompanying footnotes) to clar ify our views and conclusions concerning these 
grants.  In addition, we have made consequen tial conforming changes to paragraphs 7.1234 (now 
paragraph 7.1244), 8.1(b)(iv) and 8.3(c) (numbering unchanged) reflec ting our amended conclusions.   
K. W
HETHER THE GERMAN GOVERNMENT 'S TRANSFER OF ITS OWNERSHI P SHARE IN DEUTSCHE 
AIRBUS TO THE DAIMLER GROUP IS A SPECIFIC SUBSIDY TO AIRBUS  
1. Paragraph 7.1235 
6.236  The European Communities considers that the ph rase "various transactions" in the first 
sentence of paragraph 7.1235 of the Interim Report is imprecise and requests that the sentence be 
reworded.1642    
6.237  The United States has not made any comment in respect of this request.   
6.238  We have made the changes requested by Eu ropean Communities in paragraph 7.1235 (now 
paragraph 7.1245). 
                                                      
1640 US, FWS, para. 505-506. 
1641 US, FWS, para. 506, footnote 608, citing, e.g., UK Government ERDF website, Exhibit US-245. 
1642 EC, Request for Interim Review, p. 20.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  L. WHETHER THE GERMAN GOVERNMENT HAS SUBSIDIZED AIRBUS BY FORGIVING AT LEAST DM  
7.7 BILLION OF DEUTSCHE AIRBUS ' GOVERNMENT DEBT  
1. Paragraph 7.1302 and footnote 4060 
6.239  The European Communities requests the Panel to add to its summary of the European 
Communities' argument at the end of paragraph 7.1302  of the Interim Report to describe it fully.  In 
this regard, the European Communities suggests speci fic changes to paragraph 7.1302 of the Interim 
Report and the addition of a reference in  footnote 4060 of the Interim Report. 1643 
6.240  The United States has not made any comment in respect of this request. 
6.241  At paragraphs 297 – 301 of its Response to Panel Question 103, the European Communities 
explained the due process concerns that it alleges would arise if the United States were permitted to 
broaden the scope of the dispute to include a chal lenge to an element of the 1989 restructuring of 
Deutsche Airbus.  We recall that the European Co mmunities argued that the United States' argument, 
that the question whether the 1998 settlement could be  considered a settlement for fair market value 
should involve a consideration of the terms of the original debt obligation in 1989 (specifically, the 
interest rate that the original debt carried), was in  fact an attempt by the Un ited States to enlarge the 
scope of the dispute to challenge an element of the 1989 restructuring of Deutsche Airbus.  According 
to the European Communities, this constitutes a "new  claim against a different measure" to the 1998 
settlement that was not covered by the U.S. pane l request or addressed in the United States' First 
Written Submission.1644  At paragraphs 297-298 of its Respon se to Panel Question 103, the European 
Communities contended that it would be "serious ly prejudiced and injured in its rights, as a 
defendant" if it were required to defend itsel f against "such a new and complex" claim.1645  
Specifically, the European Commun ities stated that it had never understood the United States to be 
challenging the terms of the 1989 restructuring, noting that "the terms of reference of a panel are not a 
moving target that can be adjusted as the compla inant likes, and at the expense of the defending 
party."1646  In addition, the European Communities refe rs to the factual complexity of the 1989 
restructuring (including difficulties that arise from the fact that the measure occurred some 17 years 
previously), as well complex legal issues concerni ng the scope, meaning and temporal application of 
Article 6.1 of the SCM Agreement, and submitted that it cannot be expected to form a position on 
such issues overnight.1647     
6.242  We have revised paragraph 7.1302 (now paragr aph 7.1312) in order to more fully reflect 
European Communities' arguments as  outlined above.  However, we  have used different language 
from that proposed, in order to more closely refl ect the arguments actually made by the European 
Communities in paragraphs 297 – 298 of its Response to Panel Question 103.   
2. Paragraph 7.1304 
6.243  The European Communities requests an addition  to paragraph 7.1304 of the Interim Report 
describing the European Communities' responses to  the United States' arguments concerning the 
                                                      
1643 EC Request for Interim Review, pp. 20-22. 
1644 EC, Answer to Panel Question 103, para. 301. 
1645 EC Answer to Panel Question 103, para. 298. 
1646 EC Answer to Panel Question 103, para. 297 and footnote 179. 
1647 EC Answer to Panel Question 103, paras. 299 and 300. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  nature of the benefit conferred on Deutsche Ai rbus by the 1998 settlement.   The European 
Communities does not explain why it makes this request.1648   
6.244  The United States takes the view that the a dditions proposed by the European Communities 
do not accurately reflect the European Communities'  arguments as presented in paragraphs 245 and 
246 of its Second Oral Statement.1649  Indeed, the United States submits that much of what is reflected 
in the text proposed by the European Communities is  nowhere to be found in  the paragraphs of the 
European Communities' submissions to which the European Communities refers; i.e., paragraphs 245-
246 of European Communities' second non-confidential oral statement.1650 The United States 
therefore requests that, if the Panel decides to m odify paragraph 7.1304 of the Interim Report, it do so 
in a way that more accurately reflects the ar guments that the European Communities actually 
made.1651 1652 
6.245  Assuming that the reason for its request is th at the European Communities wishes to have 
additional elements of its arguments on this particular  issue reflected in the Report, we are of the view 
that the European Communities' proposed text does not accurately summarize the arguments that it 
made at paragraphs 245 – 246 of its second non-confidential oral statement, although it generally 
reflects those arguments.  Therefore, we have re vised paragraph 7.1304 (now  paragraph 7.1314) in 
different terms than those suggested by the Eu ropean Communities, to more fully reflect its 
arguments. 
3. Footnote 4074 
6.246  The European Communities considers that f ootnote 4074 of the Interim Report imprecisely 
identifies the scope of the United States' claims concerning elements of the 1989 restructuring and 
requests that the Panel modify it. 1653   
6.247  The United States has not made any comment in respect of this request. 
6.248  The European Communities' request appears to be related to the request that it makes to 
modify paragraph 7.1235 of the Interim Report1654 in order to clarify that the United States has 
challenged only two elements of the 1989 restruct uring of Deutsche Airbus.  While we do not 
consider that there is any reason to deny the Europ ean Communities' wish for clarity on this point, in 
our view the European Communities' suggested m odification incorrectly narrows the universe of 
transactions underlying the total DM 9.4 billion in  accumulated claims outstanding to the German 
government that are being challenged by the United St ates to the two particular elements of the 1989 
restructuring.  The United States has, in fact, cha llenged transactions other than those arising from the 
1989 restructuring that are also reflected in the DM  9.4 billion amount outstanding in 1998.  The first 
two sentences of paragraph 7.1310 of the Interim Report distinguish between two levels of potential 
                                                      
1648 EC Request for Interim Review, pp. 20-21. 
1649 US, Comments on EC Request for Interim Review, para. 124. 
1650 US, Comments on EC Request for Interim Review, para. 126. 
1651 US, Comments on EC Request for Interim Review, para. 126. 
1652 We note it may be that the United States mistakenly referred to the version of the European 
Communities' second non-confidential oral statement s ubmitted on 27 July 2007, which contained different 
paragraph numbering to the versions submitted on 14 November 2007 and 7 December 2007.  The relevant 
version of the European Communities' second non-co nfidential oral statement is that submitted on 
7 December 2007 , following a series of communications between the parties and the Panel between 7 August 
2007 and the submission of the revised version of th e European Communities' second non-confidential oral 
statement on 7 December 2007.  
1653 EC Request for Interim Review, p. 21. 
1654 See paragraphs 6.236 - 6.238 above.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  subsidies; namely, the original transactions be tween Deutsche Airbus and the German government, 
the principal amounts of which amounted to DM 9.4 billion by 1998, and the settlement of those claims in 1998 for a payment of DM 1.75 billion.  F ootnote 4074 of the Interim Report explains that 
some of the transactions that are part of the first le vel of transactions have in fact been challenged by 
the United States as subsidies in this dispute.  It further explains that elements of the 1989 
restructuring arrangement fall within this first leve l category of transactions.    The footnote also 
makes clear that the United States does not challe nge all of the transactions comprising the 1989 
restructuring, and thus, appears to address the Eu ropean Communities' concern.  In light of the 
foregoing, we have revised footnote 4074 (now f ootnote 4434) in order to make this point more 
clearly.   
M. W
HETHER THE EQUITY INFUSIONS THAT THE FRENCH GOVERNMENT PROVIDED TO 
AEROSPATIALE ARE SPECIFIC SUBSIDIES  
1. Paragraph 7.1315 
6.249  The European Communities request s that the Panel revise its findings that the initial FF 1.25 
billion capital contribution to Aérospatiale was made in 1987 (rather than 1988) and that the "second" 
capital contribution of FF 1.25 billion was made in 1988 (rather than 1989) to conclude that either: (i) 
the two contributions were made, respectively, in 19 88 and 1989; or (ii) as a matter of cash flow, both 
contributions were in 1988.1655  The European Communities contends that it correctly reported the 
capital contributions as taking place in 1988 and 1989 , as these were the years in which the respective 
contributions were approved by Aé rospatiale's Assemblée Générale and recorded as permanent capital 
by the company.1656  The European Communities asserts th at both contributions were actually 
received in 1988, should the Panel wish to reco rd the capital contributions on a cash basis.1657 
6.250  The United States requests that the Panel dec line the European Communities' request to 
modify its finding in paragraph 7.1315 of the Interim Report.1658  The United States notes that the 
arguments presented by the European Communities as to the timing of the capital contributions were 
considered and rejected by the Panel in paragra ph 7.1315 of the Interim Report, noting that in 
footnote 4083 of the Interim Report, the Panel refe rs to the paragraph of the European Communities' 
first written submission that cites to Exhibits EC -172 and EC-173.  The United States notes that the 
European Communities' only reference to Exhibit EC-746 in its submissions was in connection with 
its arguments concerning the benefit conferred by the capital contributions.1659  Moreover, the United 
States submits that this exhibit simply evidences a de cision by Aérospatiale's Assemblée Générale  to 
increase the capital of the company, reflecting one of the steps in the chain of events following  the 
capital contribution made by the French government in 1987, but not altering the underlying evidence that the French government made the capital contribution in 1987.
1660   
                                                      
1655 EC, Request for Interim Review, p. 21. 
1656 EC, Request for Interim Review, p. 21; referring to the following exhibits: Procès-Verbal de 
l’Assemblée Générale Extraordinaire du 27 avril 198 8, Exhibit EC-746 (BCI); Aérospatiale Comptes de 
l’Exercice 1988, Exhibit EC-172, p. 17; Rapport du Conseil D’Administration à l’Assemblée Générale 
Extraordinaire du 10 février 1989, Exhibit EC-747 (BCI); Aérospatiale Comptes de l’Exercice 1989, Exhibit 
EC-173, p. 43. 
1657 EC, Request for Interim Review, p. 22. 
1658 US, Comments on EC Request for Interim Review, para. 131. 
1659 US, Comments in EC Request for Interim Review, para. 129; referring to EC, SWS, para. 549.  In 
addition, we note that reference to  Exhibit EC-747 was made in the context of the European Communities’ 
arguments concerning the benefit conferred by the financial contributions; see EC, SWS, para. 548. 
1660 US, Comments on EC Request for Interim Review, para. 130. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  6.251  The fourth sentence of paragraph 7.1315 of the Interim Report states: "The exhibits to which 
the EC refers in support of its assertions that the relevant dates of the two capital contributions are 
1988 and 1989, rather than 1987 and 1988 as alleged by  the United States, actually record the capital 
contributions as having been made in 1987 and 1988. "  The exhibits in question, Exhibit EC-172, 
Aérospatiale Comptes de l'Exercice 1988   (at p. 32) and Exhibit EC-173, Aérospatiale Comptes de 
l'Exercice 1989   (at p. 43) are referred to in paragr aph 1132 of the European Communities' first 
written submission.  Exhibits EC-746 and EC-747, to  which the European Communities now refers in 
support of its arguments that the dates of the rele vant capital contributions were 1988 and 1989, refer 
to the actions of Aérospatiale, the recipient of th e capital contributions by the French government, to 
increase its outstanding share capital as a result of th e French government's financial contributions.  
There is no reason why the dates on which Aérosp atiale undertook this corporate action should be 
indicative of the dates on which the funds were actually provided to it.   In short, there is nothing in 
the two exhibits to which the European Communitie s now refers (Exhibits EC-746 and EC-747) that 
contradicts or calls into question our factual conclusions concerning the dates of the capital 
contributions by the French government based on E xhibits EC-172 and EC-173.  We therefore deny 
the European Communities' request.   
2. Paragraph 7.1332 and footnote 4125 
6.252  The European Communities requests that the Pane l delete footnote 4125 of the Interim Report 
in favour of a substantially expa nded description of evidence addressed  by the European Communities 
at paragraphs 1110-1124 and 1131-11 60 of its first written submissi on, paragraphs 531-541 of its 
second written submission, and in Exhibits EC-166,  EC-167 (BCI), EC-169 through EC-181, EC 184 
through EC-186 and EC-723 through EC-745.1661  In addition, the European Communities requests 
that, to fully reflect the arguments made and ev idence provided by the European Communities, the 
Panel add to paragraph 7.1332 of the Interim Report or elsewhere, a description of the evidence 
provided by the European Communities at pa ragraphs 545 through 5 50 of its second written 
submission.1662 
6.253  The United States has not made any comme nts in respect of these requests. 
6.254  The European Communities appears to object to what it considers to be the Panel's 
"relegation" of evidence it provided in support of  its arguments concerning future prospects for 
Aérospatiale and for the aerospace industry more generally to a one-sentence footnote.1663  However, 
the discussion of the European Communities' arguments in the paragraphs that follow 
paragraph 7.1332 of the Interim Report ( i.e., paragraphs 7.1333 through 7.1340 of the Interim Report) 
make extensive and detailed reference to the same sections of the European Communities' 
submissions that the European Communities now re quests be included in the substantially expanded 
discussion that it proposes.  The evidence referred to  at paragraphs 545 through 550 of the European 
Communities' second written submission indicates information relating to the condition and prospects 
of Aérospatiale that the French government w as legally entitled to receive in its capacity as a 
shareholder of the company.  This evidence appear s to have been submitted in order to demonstrate 
that the French government, as sole shareholder of  Aérospatiale, was closely informed about the 
business plans and prospects of the company.  In light of the foregoing, rather than the expanded 
discussion requested by the European Communities,  we have revised footnote 4125 (now footnote 
4485) to indicate that the evidence in question is  discussed further in paragraphs 7.1334 through 
7.1340, 7.1355, 7.1359 and 7.1363 (now paragraphs  7.1344 through 7.1350, 7.1365, 7.1369, and 
                                                      
1661 EC, Request for Interim Review, p. 22. 
1662 EC, Request for Interim Review, p. 22. 
1663 EC, Request for Interim Review, p. 22.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  7.1373), and have revised the footnotes in those para graphs to explicitly identify the exhibits to which 
the European Communities' refers in support of th e arguments described in those paragraphs.   
3. Paragraph 7.1336 
6.255  The European Communities requests that, to fu lly reflect the arguments made and evidence 
provided by the European Communities, the Panel in sert several sentences in a footnote at the end of 
paragraph 7.1336 of the Interim Report. 
6.256  The United States has not made any comment in respect of this request. 
6.257  We have revised footnote 4133 ( now footnote 4493) to more fully reflect the arguments of the 
European Communities.   
4.  Paragraph 7.1364 
6.258  The European Communities requests that the Pane l include a citation to the "very pessimistic 
statements made by management in  its annual reports about prospect s for recovery in the short to 
medium term" referred to in paragr aph 7.1364 of the Interim Report. 
6.259  The United States has submitted a list of eviden ce referred to in the submissions which the 
Panel might refer to in this regard.1664   
6.260  The pessimistic statements of Aérospatiale's  management in its annual reports that are 
referred to in paragraph 7.1364 of  the Interim Report are those that are specifically described in 
paragraph 7.1362 of the Interim Re port, and referenced in footnot es 4166, 4167, 4168 and 4169 of the 
Interim Report, which may have been inadvertently overlooked.  Given that we did, in fact, address 
the matters raised by the European Communities, we  deny the request, and make no changes in this 
regard. 
                                                      
1664 US, Comments on EC Request for Interim Review, paras. 132-133.  Specifically, the United States 
points to the following:  
- Message from Louis Gallois, the Chairman of Aérospa tiale, in Aérospatiale's 1993 Annual Report, that 
"Economic conditions will remain very difficult in 1994."  US, FWS, para. 603; Aérospatiale Annual 
Report 1993, Message from the Chairman, Exhibit US-300, p. 3/3. 
- Statement by Airbus management, as reflected in a press report, that there was a "poor outlook for 
military and civil sales for the next two years."  US, FWS, para. 603; France rules out Aérospatiale sell-
off, Flight International, 9 March 1994, Exhibit US-299. 
- Statement in the Aérospatiale Annual Report for 1994  that "An upturn in orders remains uncertain for 
1995, particularly new aircraft orders", Exhibit EC-293;  and that "The outlook was gloomy in the 
short-term due to the fragile financial health of airline customers.";  "Aérospatiale posts FFr 2.3bn 
loss", Financial Times, 26 March 1993, Exhibit US-295. 
- Statement from a 1994 report of the U.S. National Research Council to the effect that long-term 
optimism about the market for new commercial aircraft contrasts with considerable pessimism 
concerning the next several years, in which most obs ervers believe that sales will continue to decline 
from their 1992 peak for several more years, perhaps through 1996.  EC, FWS, para. 1119; National 
Research Council, High Stakes Aviation: U.S.-Japan Technology Linkages in Transport Aircraft, 1994, 
pp. 65-66, Exhibit EC-170. WT/DS316/R 
Page 240 
 
BCI deleted, as indicated [***] 
 
  N. WHETHER RESEARCH AND TECHNOLOGICA L DEVELOPMENT FUNDING THAT THE EUROPEAN 
COMMISSION AND THE MEMBER STATES PROVIDE TO AIRBUS ARE SPECIFIC SUBSIDIES  
1. Paragraph 7.1410 
6.261  The European Communities requests that a sentenc e be added to the end of paragraph 7.1410 
of the Interim Report, recalling that it had expr essed the view, in answering question 279 of the 
Facilitator during the Annex V process, that the Un ited States' claims against the PROFIT scheme 
were outside of the Panel's terms of reference.   
6.262  The United States did not comment on the European Communities' request.   
6.263  We have revised paragraph 7.1410 (now pa ragraph 7.1421) to record the European 
Communities' position. 
2. Paragraph 7.1413, third sentence and footnote 4292 
6.264  The European Communities notes th at the third sentence of paragraph 7.1413 of the Interim 
Report states that the European Communities did not provide information requested during the Annex V process "in respect of all of the alleged measur es" because it considered some of the challenged 
measures to be outside of the temporal scope of  the dispute.  The European Communities asks that 
this sentence be amended to more accurately reflect  what it asserts is the fact that it did not provide 
requested information during the A nnex V process in respect of only two of the challenged R&TD 
measures for the reason that it considered these to be  outside of the temporal scope of the dispute.
1665   
6.265  The United States did not comment on the European Communities' request.   
6.266  During the Annex V process, the European Comm unities refused to provide information in 
respect of five groups of R&TD measures: (i) grants made under the 2nd FP; (ii) loans provided under 
the PROFIT; (iii) the French government R&TD gr ants between 1986 and 1994; (iv) various R&TD 
measures relating to the A350; and (v) various alleged R&TD measures i nvolving German länder 
governments.1666  The United States in its first written submission pursued its claims only in respect of 
the first three groups of measures.  While the language  in used in paragraph 7.1413 is not inaccurate, 
we have revised that paragraph (now paragraph 7.1424) to be more precise by explicitly identifying 
the measures for which the European Communitie s refused to provide information during the 
Annex V process.  
3. Paragraphs 7.1419, 7.1425, 7.1431, 7.1437 and 7.1443 
6.267  The European Communities requests that the st atements contained in  paragraphs 7.1419, 
7.1425, 7.1431, 7.1437 and 7.1443 of the Interim Report indicating that it did not contest the publicly 
available information submitted by the United States  in Exhibits US-317, US-319, US- 314, US-322 
and US-324 be deleted.  The European Comm unities considers they wrongly suggest that the 
European Communities accepted that the publications  submitted by the United States give an accurate 
account of the projects in which Airbus participated .  The European Communiti es justifies its request 
by pointing to paragraph 1231 of its firs t written submission and Exhibit EC-194 (BCI).1667   
                                                      
1665 EC, Request for Interim Review, p.23. 
1666 EC, Answers to Questions by the Facilitator under Annex V, Exhibit US-5 (BCI). 
1667 EC, Request for Interim Review, p.23.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  6.268  The United States argues that the only disagreement reflected in paragraph 1231 of the 
European Communities' first written submission and Exhibit EC-194 (BCI) appears to be with the 
companies the European Communities considers to be "relevant", and not with the facts reflected in 
the evidence submitted by the United States and refe rred to in paragraphs 7.1419, 7.1425, 7.1431, 
7.1437 and 7.1443 of the Interim Report.1668   
6.269  In our view, paragraph 1231 of the European  Communities' first written submission and 
Exhibit EC-194 (BCI) do not specifically contest th e publicly available information submitted by the 
United States in Exhibits US-317, US-319, US-314, US-322 and US-324.  Rather the European Communities' submissions set out the European Communities' own account of the projects and the 
payments it considers were provided to the "relev ant" Airbus entities under the Second to Sixth EC 
Framework Programmes.
1669  In other words, the European Co mmunities' submissions do not contest 
that, for example, MBB received funding under the Second Framework Programme for the ASANCA 
project, as indicated in Exhibit US-317.  Rather, th ey reject the view that the "relevant" Airbus 
companies, as defined by the European Communities,  participated in and received funding under this 
project.  We therefore decline to make the chang es to paragraphs 7.1419, 7.1425, 7.1431, 7.1437 and 
7.1443 of the Interim Report requested by the Eur opean Communities.  However, in light of the 
European Communities comments, we have modified  paragraphs 7.1416, 7.1422, 7.1428, 7.1434 and 
7.1440 (now paragraphs 7.1427, 7.1433, 7.1439,  7.1445 and 7.1451), to ensure the European 
Communities' arguments are not misunderstood. 
4. Paragraphs 7.1416-7.1445 
6.270  The European Communities asserts that the proj ects identified in footnotes 4307, 4325, 4340, 
4356 and 4373 of the Interim Report do not relate to LCA, and for this reason they should be 
excluded from the findings concerning payments ma de to Airbus under the Second to Sixth EC 
Framework Agreements.  The European Commun ities asks the Panel to instead focus on the 
information contained in Exhibits EC-969, 970, 971, 972 and 993 (all BCI).1670   
6.271  The United States argues that the European Communities' request merely reasserts the 
argument that it made in response to Panel Question 277, and should for this reason alone be rejected.  
In addition, the United States argues that, like that  response, the European Communities' request does 
not point to any submission from European Comm unities discussing evidence before the Panel that 
would substantiate its assertion of non-relevance.  The United States ther efore asks the Panel to reject 
the European Communities' request.1671   
6.272  We recall that we asked the Europ ean Communities in question 277 to, inter alia , "provide a 
breakdown of all LCA-related projects" under each of  the EC Framework Programmes at issue.  In 
response, the European Communities first referre d to Exhibits EC-189 through EC-193 (all BCI), 
which it had already submitted, stating that the in formation contained therein was over-inclusive in 
the sense that it included "all projects in which the relevant companies have participated – whether or 
not they have been judged to be LCA relevant".  However, it did not explain which of projects listed 
in these exhibits were not "LCA relevant".  The European Communities then referred to Exhibits EC-
968 to EC-972 (all BCI), stating that these contained "payment information ... with regard to other 
                                                      
1668 US, Comment on EC, Request for Interim Review, paras. 134-136. 
1669 In Exhibit EC-194, the EC provided information for both "Airbus entities" (Airbus UK, Airbus 
France, Airbus Deutschland, Airbus Spain, Airbus S.A.S and the "Airbu s" operations of their predecessor 
companies) as well as "non-Airbus entities such as " (EADS Deutschland, GIE EADS CCR, GIE Airbus 
Industrie and BAE Systems). 
1670 EC, Request for Interim Review, p.23. 
1671 US, Comment on EC, Request for Interim Review, para. 137. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  entities ... detailing the EC contribution for each project and the amounts received by each of those 
entities".  Again, the European Communities did not specifically identify which of the projects listed 
were (or were not) "LCA relevant".  Comparing the two sets of Exhibits, we note that the only difference between them is that the latter disclo se funding paid to entities the European Communities 
does not consider to be "relevant" Airbus entities.  In other words, the same projects are identified in 
both sets of Exhibits.   
6.273  The European Communities asks th e Panel to rely upon Exhibits EC-969 through EC-972 and 
EC-993 for the purpose of identifying the relevant LC A-related projects.  However, these Exhibits list 
several projects the European Co mmunities now asserts were in fact not LCA-related, namely: 
EUROMESH and All Electric Aircraft (2
nd Framework Programme); BRAIN, 
CRASHWORTHINESS and IMAGES 2000 (3rd Framework Programme); ENHANCE, EDAVCOS, 
ELGAR, EUROSUP, ISAWARE and PROFOCE (4th Framework Programme); C-WAKE (5th 
Framework Programme); and TATEM and SMIST (6th Framework Programme).  The remaining 
projects listed in footnotes 4307, 4325, 4340, 4356  and 4373 of the Interim Report, and which the 
European Communities now asserts were not LCA re lated, cannot be found in Exhibits EC-189 to 
EC-193, even though the European Communities descri bed these latter Exhibits to be "over-inclusive" 
in the sense that they identified proj ects that were not LCA-related.   
6.274  Almost all of the projects identified in footnotes 4307, 4325, 4340, 4356 and 4373 of the 
Interim Report are listed in Exhibit EC-194 (BCI).  However, the European Communities did not refer 
to this Exhibit in its answer to Panel Question 277.  Moreover, in the introductory page of this 
Exhibit, the European Communities seeks to explai n the discrepancies between the lists contained in 
this Exhibit and the Exhibits submitted by the Un ited States.  However, the European Communities' 
explanation does not identify any of the listed projects as not being related to LCA.   
6.275  Thus, having carefully reviewed the European Communities' submissions, and in view of the 
above discussion, we deny the European Communitie s' request to revise footnotes 4307, 4325, 4340, 
4356 and 4373 of the Interim Report.   
5. Paragraphs 7.1425, 7.1427, 7.1430, 7.1431, 7.1433, 7.1442, 7.1443 and 7.1445 
6.276  The European Communities asserts that it subm itted the total amounts of funding received by 
"all relevant companies" and "all additional entities re quested by the Panel" under the Third, Fourth 
and Sixth EC Framework Programmes in Exhibits EC-193 (BCI), EC-969 (BCI), EC-970 (BCI), EC-
972 (BCI) and EC-993 (BCI).  The European Commun ities asserts that these Exhibits confirm that the 
contributions identified in footnotes 4324, 4325, 4326, 4340, 4341, 4372, 4373 and 4374 of the 
Interim Report were not actually made.  It therefore asks that the references to " inter alia " the 
BRAIN, IMAGES 2000, ENHANCE, EDAVCOS, ELGAR, EUROSUP, ISAWARE, PROFOCE, 
SMIST and TATEM projects be removed from these f ootnotes and, consequently, that an amendment 
be made to the relevant numbers of and values of projects and contributions identified in paragraphs 
7.1425, 7.1427, 7.1430-7.1433 and 7.1445 of the Interim Report.1672  
6.277  The United States argues that the European Comm unities' request is essentially a restatement 
of the argument it made in response to Panel Ques tion 277.  The United States recalls that in its 
comments on the European Communities' response to  this question, it noted that the European 
Communities had not disclosed amounts of funding provided to several Airbus entities in allegedly 64 of 145 R&TD projects funded through the Framewor k Programmes.  The United States notes that the 
                                                     
 
1672 EC, Request for Interim Review, pp.23-24.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  Interim Report at least partially agrees with its ass essment of the facts.  Accordingly, the United 
States asks the Panel to reject the European Communities' request.1673 
6.278  As explained in the Interim Report, the starting point of our findings on the values of 
contributions received by Airbus under the Third,  Fourth and Sixth EC Framework Programmes was 
the list of projects submitted by the United States in  Exhibits US-314, 317 an d 319.  These Exhibits 
contained synopses published by the European Co mmission of the aeronautics-related projects 
supported under each of the relevant EC Fram ework Programmes, listing for each project, the 
individual participants, endorsers, coordinators a nd partners.  The projects listed in footnotes 4324, 
4325, 4326, 4340, 4341, 4372, 4373 and 4374 of the Interim Report, which the European 
Communities requests be disregarded and deleted from the Interim Report, were identified in Exhibits 
US-314, 317 and 319; and in each case, one or more  Airbus entities were listed as a participant, 
endorser, coordinator and/or partner.  However,  the European Communities did not provide any 
details of any payments received by these Air bus entities under those programmes.  While the 
European Communities contends that these Airbus entities did not receive any contributions under the 
relevant projects, it has not explained why they we re listed in the publicly available project synopses 
authored by the European Commis sion.  In the absence of any substantiated explanation from the 
European Communities, the Interim Report treated each identified entity as being a beneficiary of 
R&TD funding provided under each relevant project.  Accordingly, we deny the European 
Communities' request to amend footnotes 4324, 432 5, 4326, 4340, 4341, 4372, 4373 and 4374 and 
paragraphs 7.1425, 7.1427, 7.1430-7.1433 a nd 7.1445 of the Interim Report.   
6. Paragraphs 7.1436, 7.1437 and 7.1439 
6.279  The European Communities explains that the c ontributions listed in Exhibits EC-968 to EC-
972 (all BCI) that were received by "BAE Systems" corresponds to all contributions received by all 
divisions of BAE Systems (including BAE (Operations) Ltd.), as they existed at the relevant time.  In 
particular, it notes that a grant of EUR [***] to BAE Systems for the C-Wake project under the Fifth 
Framework Programme appears in Exhibit EC-971 (BC I).  Accordingly, it asks that the reference to 
"C-Wake" be deleted from paragraph 7.1436 and fo otnotes 4356 and 4357 of the Interim Report, with 
a consequential amendment being made to the re levant numbers of proj ects and contributions 
identified in paragraphs 7.1437 and 7.1439 of the Interim Report.1674   
6.280  The United States asks the Panel to reject the European Communities' request for the same 
reasons it argues the Panel should reject th e European Communities' previous request.1675   
6.281  The European Communities' request relates to what is effectively a difference in how the 
European Communities has described the BAE co mpanies receiving funds under the Framework 
Programme ("BAE Systems") and how the relevant BAE company is named in the publicly available 
information ("BAE (Operations) Ltd").  We accept the European Communities' explanation and have 
modified our findings to reflect the amount for BAE (Operations) Ltd, which is  referred to in Exhibit 
EC-971 (BCI) as "BAE Systems". 
7. Paragraph 7.1461 
6.282  The European Communities submits that instead of attributing to Airbus the total amount of 
French government aeronautics research funding pr ovided to all recipients between 1986 and 1993, it 
would be more appropriate to "fill the perceived 'e videntiary gap'" concerning the amount of French 
                                                      
1673 US, Comment on EC, Request for Interim Review, paras. 138-139. 
1674 EC, Request for Interim Review, p.24. 
1675 US, Comment on EC, Request for Interim Review, paras. 138-139. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  government support provided to Air bus, by attributing to Airbus [***] of the total amount of funds 
provided to all recipients between these years.  This would represent the same proportion of the 
French government's total funding to aeronautics projects in the years 1994 to 2005 that was actually received by Airbus in those years, which the Eur opean Communities submits is confirmed in Exhibit 
EC-209 (BCI).
1676   
6.283  The United States did not comment on the European Communities' request. 
6.284  We recall that the European Communities was sp ecifically asked in Panel question 278 to 
provide a "break-down of all LCA-related projects funded by the French government between 1986 to 
1993".  The European Communities failed to do so because it said that neither the French government 
nor Airbus was able to locate the relevant cont racts.  Instead, the Eur opean Communities submitted 
that the proportion of total government funding that Airbus would have receive d would have been "far 
less" than the EUR 391 million alleged, citing the fact that Airbus had only received EUR [***] 
million out of the EUR 809 million provided to all recipients between 1994 to 2005 as supporting this 
conclusion.  At paragraph 7.146 1 of Interim Report we dismis sed the European Communities' 
response, observing, inter alia , that:  
"the explanation the EC has provided for its failure to submit the requested 
information and the approach it suggests might be adopted by the Panel in order to arrive at an appropriate R&TD figure are less than satisfactory. ... we recall that 
where a party refuses to supply information re quested by a panel, it is open to that 
panel to draw inferences from the full confi guration of facts that are before it.  " 
6.285  The European Communities now asks the Panel to re consider its findings and conclude that it 
would be appropriate to attribute to Airbus [***] of the total amount of funds provided to all 
recipients between 1986 and 1993, that is, [***] of EUR 391 million, instead of the entire amount.  
However, in making this request, the European Communities points to no facts that would suggest 
that the funding Airbus received during the releva nt period (1986-1993) re presented the same or a 
similar proportion of total funds granted to all reci pients as the proportion of total funding it actually 
received in the subsequent period (1994-2006).  Thus, the European Comm unities refers to no facts to 
support its view that it would be appropriate to allocate to Airbus [***] of total funds granted by the 
French government between 1986 and 1993 as opposed to  any other proportion that is less than 100%.  
We therefore deny the European Communities' request.      
8. Paragraph 7.1481 
6.286  The European Communities requests that paragra ph 7.1481 of the Interim Report be amended 
to reflect what it asserts was an argument "directly relevant to the benefit analysis" conducted in 
paragraph 7.1491 of the Interim Report, whic h made in paragraph 630 of its second written 
submission.
1677  
6.287   The United States did not comment on the European Communities' request.   
6.288  The focus of the European Communities' reque st is on the underlined statement in the 
following excerpt from paragraph 630 of the Eu ropean Communities' second written submission: 
"The European Communities confirms that the total amount of R&T support that has 
been committed  to Airbus SAS under the Luftfahrtforschungsprogramm  (LUFO) I to 
                                                      
1676 EC, Request for Interim Review, p.24. 
1677 EC, Request for Interim Review, p.24.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  III by 1 July 2005 for the period until 2007 is [***].{} However, there is no guarantee 
of funding to Airbus SAS . The amount disbursed  depends on the amount of eligible 
costs incurred by Airbus Germany." (underline added, footnote omitted). 
In our view, nothing in this statement can be reaso nably understood to be "directly relevant" to the 
question of benefit addressed in paragraph 7.1491 of the Interim Report.  Indeed, there is no 
indication at all in this paragraph that the stat ement now referred to by the European Communities 
was intended to articulate its views on the questi on of whether funding committed under the LuFo III 
programme, but not disbursed, confe rred any benefit of Airbus.  We therefore decline to make the 
requested changes. 
 
9. Paragraphs 7.1502, 1551 and 1552 
6.289  The European Communities asks that the refere nce to "...and the EC member States ... " be 
removed from paragraphs 7.1502, 7.1551 and 7.1552 of the Interim Report, noting in this regard that 
the EC Framework Programmes are funded solely from the EC budget and disbursed by the European 
Commission.1678   
6.290  The United States did not comment on the EC request.   
6.291  We have modified paragraphs  7.1502, 7.1551 and 7.1552 (now  paragraphs 7.1513, 7.1562 
and 7.1563) to delete the reference to  "...and the EC member States ... ". 
O. ADVERSE EFFECTS  
1. Paragraph 7.1610 
6.292  The European Communities requests the Pa nel to modify the second sentence of 
paragraph 7.1610 of the Interim Report to indicat e that BAe, a UK company, and not the United 
Kingdom, joined the Airbus consortium in 1979.  The European Communities also requests the Panel 
to modify the third sentence of this para graph by omitting the United Kingdom, because BAE 
Systems did not merge into EADS.   
6.293  The United States did not comment on this request.   
6.294  The European Communities is correct as a matter of fact with respect to both aspects of its 
request, and we therefore have modified paragraph 7.1610 (now paragraph 7.1621) to correctly reflect 
the facts. 
2. Paragraph 7.1664 
6.295  The United States requests that, in order to co rrectly reflect the cited panel report, the 
references to "subsidized product" in lines 10 an d 12 of paragraph 7.1664 of the Interim Report 
should both be modified to read "dumped product."1679   
6.296  The European Communities agrees with the United States' request.1680   
                                                      
1678 EC, Request for Interim Review, pp.24-25. 
1679 US, Request for Interim Review, para. 23. 
1680 EC, Comments US, Request for Interim Review, p. 11. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  6.297  The Panel report at issue concerned a US Depa rtment of Commerce inv estigation of alleged 
dumping, and therefore we have  made the requested changes to paragraph 7.1664 (now 
paragraph 7.1675), in order to correctly reflect the facts of that dispute.   
3. Paragraph 7.1693, footnote 4785 
6.298  The European Communities requests that the Panel amend footnote 4785 of the Interim 
Report to indicate that the last A300 was delivered in July 2007, whereas the last A310 was delivered 
in 1993, asserting that this change reflects more a ccurately the timing of the last deliveries of these 
aircraft, and requests a similar clarificati on in paragraph 7.1963 of the Interim Report.1681   
6.299  The United States did not comment on this request. 
6.300  The European Communities cites no source for the date of 1993 for the last delivery of the 
A310.  According to the Airclaims information su bmitted by the European Communities, there were 7 
orders for A310 aircraft in 1993 and 1995, and 9 A3 10 aircraft were delivered to customers between 
1994 and 1998.1682  Moreover, footnote 4785 and paragraph 7.1963 of the Interim Report do not refer 
to delivery dates, but rather to production dat es.  The European Communities gives no reason for 
proposing to change the reference to delivery dates,  rather than the production dates mentioned.  In 
the absence of any evidence to su pport the European Communities' assertion as to the last delivery 
date for the A310, which is contradicted by info rmation before the Panel, and the absence of any 
justification for consideration of the last delivery da te, rather than the last production date referred to 
by the Panel, we deny the European Communities' request.  
4. Paragraphs 7.1741-1747 
6.301  The United States notes that, as part of the assessment of whether imports of Boeing LCA 
were displaced in the EC market, paragraphs 7. 1742-7.1747 of the Interim Report reproduce data 
presented by the United States on the quantity of LC A deliveries.  However, the United States points 
out that, although the Panel noted, at paragraph 7.1729 of the Interim Report, that the United States also presented data on the value of LCA deliveries (as measured by list prices) in the EC market, the 
analysis at paragraph 7.1741 of the Interim Report does not reflect the consideration of this data, 
while paragraph 7.2103 of the Interim Report makes cl ear that the Panel did consider comparable data 
on market share measured by value in the c ontext of its material injury analysis.
1683  The United States 
reiterates its view, as explained during the proceeding, that "the similarity of estimated market shares 
by value and by volume suggests that the companie s are selling relatively similar mixes of high-value 
and low-value aircraft at any given time."1684  Accordingly, the United Stat es asserts that the similarity 
of the trends in market share whether measured by  quantity of aircraft or estimated value (at list 
prices) of aircraft corroborates the validity of the data on units delivered relied upon by the Panel and 
confirms that the Panel's analysis, which is based on units delivered, is not distorted by changes in the 
relative mix of high-value and low-value aircraft within the single LCA product category.  The United 
States suggests that the displacement analysis in the Interim Report would be strengthened by taking 
note of the market share data based on value.1685 
6.302  The European Communities agrees  with the United States on the need for alternative factual 
findings regarding market shares in the EC market , recalling its own request for alternative factual 
                                                      
1681 EC, Request for Interim Review, p. 25. 
1682 Exhibit EC-21. 
1683 US, Request for Interim Review, para. 24. 
1684 US, Request for Interim Review, para. 25, citing US, FWS, para. 734. 
1685 US, Request for Interim Review, para. 26.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  findings.1686  However, the European Communities consid ers that the Panel should make alternative 
factual findings on market shares based on value not only for the EC market, as requested by the United States, but also for the third country mark ets at issue in the dispute for specific product 
groupings, reiterating its view that such alternative factual findings would assist the Appellate Body in 
completing the analysis in the event it would reverse the Panel's findings.  To this end, the European 
Communities submitted, in its Comments on the United States' Request for Interim Review, a series 
of tables presenting market share data measured by value.  The European Communities explains the 
methodology it used in preparing those tables, and cites the sources of the data it presents.  The European Communities requests the Panel to make a lternative factual findings based on that data for 
all country markets at issue (i) covering all LCA and (ii) broken down by the LCA product groupings 
that the European Co mmunities suggested.   
6.303  With respect to the United States' request, we not e that in our analysis of displacement or 
impedance in the EC market, we focussed on deliv eries of LCA as the appropriate measure, as had 
been argued by the United States,  rather than on orders, as had been argued by the European 
Communities.
1687  The United States had submitted deliver y information based on both quantities of 
LCA delivered, and value as measured by list prices, in support of its asserti on that both Airbus and 
Boeing "are selling relatively similar mixes of hi gh-value and low-value aircraft at any given 
time."1688  This assertion was not disputed by the Eu ropean Communities.  Nor did the European 
Communities argue that the trends in market shar e measured by numbers of deliveries was distorted 
by changes in the relative mix of high-value and low-value LCA within the single like product 
considered in the Panel's analysis.  Therefore, we  did not find it necessary to, and did not, make any 
findings concerning market share in the EC market  on the basis of the value of LCA delivered.  
Moreover, as discussed elsewhere in the Interim Re port, the list prices of LCA are not an accurate 
measure of the price of LCA actually sold and delivered, and thus it is less than clear that market share value information, measured by list price of  LCA delivered, is particularly meaningful.  We 
therefore deny the United States' request.   
6.304  With respect to the European Communities' re quest, we deny it for the same reasons as 
discussed below in connection with our decision to deny the European Communities' other request in 
this regard.
1689   
5. Paragraphs 7.1762-7.1781 
6.305  The European Communities notes that the Interi m Report sets out market share developments 
between 2001 and 2006 in individual third country markets on an aggregate basis in paragraphs 
7.1762-7.1781 of the Interim Report.  The Euro pean Communities requests that the Panel make 
alternative findings with respect to market share developments in individual third country markets 
based on the  product groupings that it suggested dur ing the course of the proceedings.  The European 
Communities asserts that such alternative factual findings would enable the Appellate Body to 
complete the analysis were it to disagree with th e Panel's product-related findings.  The European 
Communities considers that its arguments should be  fully presented in the report in a fair and 
balanced manner, and submits that this necessitat es presentation of the data by product grouping in 
tabular form.  The European Communities also indi cates that it was unaware of criticisms stated by 
the Panel in the Interim Report concerning its pr esentation of data.  Specifically, the European 
Communities refers to the Panel's comments that (i) that the European Communities did not count 
deliveries of Boeing 747 aircraft, (ii) that the European Communities did not count deliveries of 
                                                      
1686 EC, Comments on US Request for Interim Review, pp. 25-30.  See paragraphs 6.305 - 6.314 below. 
1687 Interim Report at paragraphs 7.1734- 1739. 
1688 US, Request for Interim Review, para. 25, citing US, FWS, para. 734. 
1689 See below, beginning at paragraph 6.309 WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  Boeing 757 aircraft into the EC market and (iii) th at the European Communities treated deliveries to a 
leasing company as deliveries to the country of the leasing company and not as deliveries to the 
country of the operating airline.  the European Co mmunities notes that the Panel did not request it to 
present data in this form.   
6.306  The European Communities submitted, in its Request  for Review of the Interim Report, tables 
setting out market share developments in individua l country markets by product grouping, correcting 
for the Panel's criticisms described above, and asks th at the Panel use this data, or derive the same 
data itself from the record evidence, to (i) record the European Communities' arguments and (ii) make 
alternative factual findings regarding market shar e developments in the country markets at issue 
broken down by products.1690  The European Communities observe s that the source of the data it 
presents, Airclaims, has never been contested, and that  both parties, and the Pa nel, have relied on data 
from this source. 
6.307  The United States objects to the European Co mmunities' request, and asks that the Panel 
decline to incorporate the tables submitted by th e European Communities in the final report, and 
decline to make alternative factual findings based on these tables.1691  The United States contends that 
the Panel's criticisms of the European Communities'  counting methodology coul d not have come as a 
surprise to the European Communities, given th at these methodological issues were matters of 
contention between the parties.  The United States notes in this regard, for example, that the European 
Communities argued specifically that deliveries made through leasing companies should be excluded from the market share calculation,
1692 and that whether deliveries of the Boeing 747 were relevant to 
claims of displacement and impedance, or indeed any claims of serious prejudice at all, was addressed 
at length by both parties.1693  Thus, the United States considers that the Panel did not deny the 
European Communities a fair opportunity to present its case, but rather decided that the European 
Communities' methodological approach to presenting ai rcraft delivery data was not appropriate.   
6.308  The United States notes that, as the European Communities states, the data underlying the 
tables the European Communities has now presented is not in dispute and is on the record before the 
Panel.  In the United States' view, however, to pr esent that data tabulated according to one set of 
methodological assumptions rather than another is not simply to rearrange the evidence, but, in effect, 
to make an argument about the meaning of the eviden ce in a particular legal context.  In the United 
States' view, that the Panel rejected the European  Communities' arguments in the Interim Report does 
not entitle the European Communities to another opportu nity to reframe its ar guments at the interim 
review stage or to present its arguments in a differe nt way, in light of the Panel's decisions on the 
methodological issues.1694  The United States considers that to include the tables submitted by the 
European Communities with its Request for Interim Re view would imply, wrongly, that the European 
Communities made arguments with respect to Articl e 6.3(a) and 6.3(b) during the proceedings on the 
basis of that data, as presented in the newly-s ubmitted tables, which the European Communities did 
                                                      
1690 EC, Request for Interim Review, pp. 25-30.  While the paragraphs referred to in the EC's 
Comments set out the Panel's consideration of market share developments in individual third country markets, 
the EC also submitted newly tabulated data for the EC market, which the panel addressed at paragraphs 7.1727-7.1747 of the Interim Report, without any further discussion concerning that data in its Request for Interim 
Review. 
1691 US, Comments on EC Request for Interim Review, para. 140. 
1692 US, Comments on EC Request for Interim Review, para. 141, citing, e.g., EC, Answer to Panel 
Question 207, paras. 333-334, 350, 35 7-358, 364, 382, 389.  The United States disagreed.  US, Comments on 
EC Answer to Panel Question 207, paras. 275-277. 
1693 US, Comments on EC Request for Interim Review, para. 141, citing, e.g., EC, FWS, paras. 1670-
1757; U.S. SWS, paras. 654-656. 
1694 US, Comments on EC Request for Interim Review, para. 142.  WT/DS316/R 
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  not do.  Thus, the United States respectfully request s the Panel to reject the European Communities' 
request.1695 
6.309  While the European Communities characterizes th e presentation of market share data in the 
Interim Report as "reflect{ing} the arguments by the United States"1696, in fact it is clear that the 
presentation of market share data reflects our own conclusions as to the relevant subsidized and like 
product in this dispute.  Having concluded that the relevant subsidized and like product is all Airbus 
and all Boeing LCA, respectively,1697 we went on to examine the evid ence on the basis of that single 
product, as indicated in paragraph 7.1731 of the Inte rim Report.  We followed the same approach with 
respect to our consideration of market share in individual third country markets, as set out in 
paragraph 7.1749 of the Interim Report.  In consider ing the question of market share, we relied on the 
data presented by the United States, whose accuracy  was not disputed by the European Communities, 
as this data accorded with our own view of the re levant subsidized and like product, while the data 
presented by the European Communities did not.  The European Communities had submitted market 
share data broken down by the product groupings it asserted the Panel should find to be separate 
subsidized and like products in this dispute.  Having rejected that approach, the European 
Communities' data as presented was not suitable as a basis for our analysis of market share.  
Nonetheless, we reviewed the Eu ropean Communities' data, and concluded that "it provides an 
inaccurate and incomplete picture of LCA deliv eries to the EC market between 2001 and 2006", 
noting specific concerns with the European Communities' counting methodology in presenting the 
data in question.1698   
6.310  While the European Communities indicates that it was surprised by our criticisms concerning 
the data it presented, those criticisms did not relate  to the presentation of data on the basis of the 
product groupings advocated by the European Comm unities during the proceedings, but rather to the 
European Communities' counting methodology in  preparing the tables of data submitted.1699  
Moreover, some of these methodological issues were the subject of arguments from the parties, 
including extensive argument concerning whether th e Boeing 747 and Airbus A380 were relevant to 
the consideration of the United St ates' claims at all.  The Eur opean Communities argued throughout 
that the Panel should not consider the Boeing 747 to  be like any Airbus LCA, and should not consider 
the Airbus A380 to be like any Boeing LCA, view s disputed by the United States, and ultimately 
rejected by us in finding a single subsidized and a single like product.  Further, the European Communities suggested that deliveries by leasing co mpanies should not be included in calculating 
market share,
1700 while the United States took the opposing view.1701  For the European Communities 
                                                      
1695 US, Comments on EC Request for Interim Review, para. 143. 
1696 EC, Request for Interim Review, p. 25. 
1697 Interim Report, paras. 7.1639-7.1669. 
1698 Interim Report, para. 7.1745.  See also, Interim Report, para 7.1767, where we noted that "the data 
presented by the EC in respect of deliveries to thir d country markets presents the same concerns as the 
information it presented on deliveries to the EC market." 
1699 We note that we have spot-checked the newly-submitted figures on numbers of LCA delivered, and 
when aggregated to comport with our conclusions regarding subsidized and like product, they do not yield the 
same figures as the data on deliveries we relied on in the Interim Report.  The European Communities never 
disputed the figures on deliveries presented by the United States on which we relied.  In our consideration of the 
data as originally submitted by the European Communities, we undertook a similar exercise of aggregations.  
That exercise resulted in greater differences from the data submitted by the United States, on which we relied, 
than the aggregation of the newly-submitted data, but th e latter still shows differences.  Thus, in order to serve 
as the basis for factual findings, we believe the newly-subm itted data would have to be carefully examined in an 
effort to determine the reason(s) for these discrepancies.  That effort should, in our view, necessarily include the 
views of the United States, were we  to undertake such a task.   
1700 E.g., EC, Answer to Panel Question 207, paras. 333-334, 350, 357-358, 364, 382 and 389, 
1701 US, Comments on EC Answer to Panel Question 207, paras. 654-656.   WT/DS316/R 
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  to now submit data in which it includes deliver ies of the Boeing 747 and deliveries by leasing 
companies in its tabulation of deliveries to the differe nt markets being considered  is inconsistent with 
the positions it took throughout the proceedings.  In  our view, this demonstrates that the newly 
tabulated data does not, in fact, record the Eu ropean Communities' arguments as made during the 
proceeding.   
6.311  We agree with the United States that the presentatio n of data on the basis of a particular set of 
underlying assumptions is effectively the presentation of  an argument in a particular legal context, not 
simply a question of organizing data.  It is clear to us that the pr esentation of new arguments, which is 
what the European Communities' ne wly tabulated data effectively does, is not permissible at this 
interim review stage of the proceedings.  As th e European Communities itself argues in a different 
context, a party cannot change its arguments at this stage of the proceeding, nor is the Panel entitled to 
mischaracterise a party's arguments in its report.1702  It would, in our view, be entirely inappropriate 
for us to make alternative findings on the basis of these newly-submitted data, as any such findings 
would necessarily be based on evidence and arguments  not previously before us, and to which the 
United States has had only the most minimal opportunity to respond.  To include such newly-
submitted evidence, thereby allowing it to appear as if the arguments based on that evidence had been 
made during the proceeding, would in our view be unfair, and would deprive the United States of the 
due process to which it entitled in dispute settlement in  the WTO.  Thus, even were we inclined to 
make alternative findings on the basis of the product groupings asserted by the European 
Communities, at most such findings would involve co nsideration of the evidence originally put before 
the Panel by the European Communities, and not th ese newly-submitted tables.   However, we do not 
consider alternative findings on the question of mark et share developments on the basis of the product 
groupings proposed by the European Comm unities to be necessary in any event.1703   
6.312  The European Communities suggests that alte rnative findings would allow the Appellate 
Body to "complete the analysis" in the event it di sagreed with our product-re lated findings.  However, 
regardless of the evidence on which alternative finding s might be made, it is not clear to us, and the 
European Communities provides no elaboration, as to  how such findings would allow the Appellate 
Body to "complete the analysis".  Even were we to  make alternative findings with respect to market 
share developments on the basis of the product grou pings asserted by the European Communities, this 
would not allow for the independent resolution of the dispute by the Appellate Body.  Our finding of a 
single subsidized and like product is a fundamental pr emise of our entire analysis of serious prejudice, 
including the analysis of causation, and our overall findi ngs.  Thus, it is not apparent to us how, if at 
all, factual findings concerning market share for separate product groupings c ould be related to our 
findings regarding causation based on the premise of a single subsidized and like product.  We can see 
little to be gained from making such alternative findi ngs, as they would not be sufficient, in our view, 
to allow resolution of this dispute on the basis of the European Communities' view of distinct product 
categories.       
6.313  The question whether to consider LCA as a single subsidized and like product or to consider 
different products on the basis of the distinctions  argued by the European  Communities was a critical, 
and hotly disputed, issue in this dispute.  That we might decide that issue in line with the United 
States' position was clearly a possibility from the outset, one of which the European Communities 
must have been well aware.  That  the European Communities chose, d espite that possibility, to argue 
                                                      
1702 See, EC, Comments on US Request for Interim Review, p. 21. 
1703 We note that the most significant alternative findings we made concern the question of 
interpretation of the term "benefit" in the context of th e EC's pass-through argument, which is a matter of legal 
interpretation that has not previously been definitively addressed.  That is a very different matter from making 
alternative factual conclusions based on a legal argument that has been rejected by the Panel for reasons 
grounded in the text of the Agreement and previous dispute settlement reports.    WT/DS316/R 
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  its entire case on the basis of its own view of the appropriate subsidized and like products, that is, on 
the basis of multiple distinct subsidized a nd corresponding like products, rather than presenting 
arguments and evidence responding directly to the claims as formulated by the United States and the 
evidence it presented in support of those claims, re presents a strategic and tactical choice by the 
European Communities which it was entitled to make.  However, its exercise of this choice, and its 
presentation of evidence and argument based on its own view of the underlying issue of like and subsidized product does not, in our view, mean that, having rejected the European Communities' 
position, we are nonetheless required to make altern ative findings regarding the United States' claims 
of displacement and impedance as if we had decide d the product issues in line with the European 
Communities' position.   
6.314  For all of the foregoing reasons, we deny the Eu ropean Communities' requ est to include in the 
final report the newly presented tabulations of data on deliveries of LCA to the EC and third country 
markets,
1704 and decline to make alternative findings with  respect to market share on the basis of the 
product groupings put forward by the European Communities, either on the basis of the newly 
presented data, or on the basis of the originally-submitted evidence.   
6. Paragraph 7.1773 
6.315  The European Communities requests the Panel to amend the sixth sentence of 
paragraph 7.1773 of the Interim Report  to correct a misstatement.1705   
6.316  The United States did not comment on this request.   
6.317  The European Communities is correct, and we have therefore corrected paragraph 7.1773 
(now paragraph 7.1784) to reflect , as shown in Table 28, that Airbus' 100 percent market share in 
2004 reflects orders for two aircraft, not one aircraft as originally stated.   
7. Paragraph 7.1790 
6.318  The United States requests a modification of the penultimate sentence of paragraph 7.1790 of 
the Interim Report to more accurately reflect its position.1706  The United States recalls that it 
explained, in response to a question from the Panel, that 
"{W}hen the evidence demonstrates that a cu stomer, after making an "analytical and 
exhaustive review" of all {relevant} factors, found a difference in price that was 
significant enough to have a major impact on the outcome of the sale , the evidence 
demonstrates the existence of price undercutting within the meaning of Articles 6.3(c) and 6.5."
1707 
 
In other words, the United States asserts it did not contend that the simple fact that a customer chose one LCA model over another is sufficient evidence of  price undercutting.  Rather, the United States' 
argument was that when a customer monetizes all relevant factors, it is making a price comparison that, in the words of Article 6.5, is "made at th e same level of trade and at comparable times, due 
account being taken of any other factor affecting price comparability."
1708  If, having made this price 
                                                      
1704 As discussed above, for these same reasons, we deny the European Communities' request to include 
newly-presented tabulations of data on value of de liveries to the EC and third country markets.  See 
paragraphs 6.301 to 6.304. 
1705 EC, Request for Interim Review, p. 30. 
1706 US, Request for Interim Review, paras. 27-30. 
1707 US, Answer to Panel Question 235, para. 62 (emphasis added). 
1708 SCM Agreement, art. 6.5. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  comparison, it finds that one LCA model has a lower net price than a competing LCA model, all such 
factors having been taken into consideration, the Un ited States argued that the customer's analysis is 
relevant evidence of the existence of price underc utting within the meaning of Articles 6.3(c) and 
6.5.1709  The United States contends that the differe nce between its actual argument and the argument 
attributed to it in paragraph 7.1790 of the Inte rim Report is not immaterial.  Although one might 
conclude from the mere fact that a customer c hose one LCA model over a competing LCA model, the 
customer determined that the LCA model it chose offered better value , this would not – as the text in 
paragraph 7.1790 of the Interim Report would seem to suggest – necessarily mean that the chosen 
LCA model had a lower price .  According to the United States, airlines do not always make their 
decisions among competing LCA solely on the basis of  price, and therefore an airline's choice of one 
LCA model over another does not necessarily indicate price undercutting.  But where a customer specifically finds that, having taken all relevant fact ors into account, one LCA model is in fact offered 
at a lower price than another – and where such pr ice difference has a major impact on the outcome of 
the sale – then the customer's finding is relevant evidence of "significant pr ice undercutting," as that 
term is used in Articles 6.3(c) and 6.5 of the SCM Agreement.
1710   The United States therefore 
requests that the Panel revise the penultimate sentence  of paragraph 7.1790 of the Interim Report.   
 6.319  The European Communities did not comment on this request.   
6.320  Having reviewed the submissions cited by th e United States in support of its request, we 
consider that its proposed text does more accurately represent the thrust of its argument in this regard, 
and in the absence of any objection from the Europ ean Communities, we therefore have modified the 
penultimate sentence of paragraph 7.1790 (now paragraph 7.1801). 
8. Paragraph 7.1856 
6.321  The United States requests that the Panel amend the first sentence of paragraph 7.1856 of the 
Interim Report to more accurately reflect its argument.
1711  That sentence notes that the United States 
presented, "as evidence of the magnitude of the s ubsidy," a report by NERA Economic Consulting.  
The United States notes that, as stated elsewhere in  the Interim Report, the figures calculated by 
NERA represent an estimate of the additional debt burden, in 2006 dollars, that Airbus would have 
had to carry if it had obtaine d financing on commercial terms.1712  The United States considers that 
such a figure, while clearly relevant to the ques tion of whether the magnitude of the subsidies is 
sufficient to cause the alleged effects, does not n ecessarily represent the amount of the "benefit" of 
LA/MSF, as that term is used in Articles 1.1(b) a nd 14 of the SCM Agreement.  In the United States' 
view, while the use of the term "benefit" in conjunction with an explanation of the actual 
methodology used in the NERA quantification report, as in paragraph 7.1954 of the Interim Report, is 
not necessarily inappropriate, the use of the term "benefit" in paragraph 7.1856, without further 
explanation, could be misleading.   
6.322  The European Communities agrees with the Un ited States' request to replace the term 
"benefit" in the first sentence of paragraph 7.1856 of the Interim Report.1713  However, the European 
                                                      
1709 The United States also considered that, if the difference in price was significant enough to have a 
major impact on the outcome of the sale, then the pri ce undercutting would be “significant price undercutting” 
within the meaning of Article 6.3(c). 
1710 The United States notes that paragraph 8.1824 {sic} correctly summarizes the U.S. argument on 
this point.  US, Request for Interim Review, footnote 24.  We presume this to be a reference to paragraph 7-
1824 of the Interim Report. 
1711 US, Request for Interim Review, paras. 31-32. 
1712 US, Request for Interim Review, para. 31, citing Interim Report, para. 7.1937, footnote 5305. 
1713 EC, Comments on US Request for Interim Review, pp. 20-21.  WT/DS316/R 
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  Communities disagrees that the language proposed by the United States represents an accurate 
description of the way in which the United States and NERA have characterised these figures.  The European Communities maintains that  the Unite d States itself described NERA's figures as 
calculations "express{ing} [***] uniformly in current dollars"1714, and that NERA describes its 
figures as the "cumulative amount of cash that Airbus saves over time by paying less than 
market".1715  Moreover, the European Communities notes that in describing the relevance of these 
figures to its arguments, the United States stated that  "the relevant counterf actual for determining the 
effect of the subsidy is not to consider what the LCA market w ould be like if Airbus had launched all 
of its aircraft when it did and was an additional $178.2 billion in debt"1716, but rather that that these 
figures were evidence that Airbus could not have  launched its products as and when it did absent 
LA/MSF.1717  Thus, in the European Communities' vi ew, the United States did not frame the 
relevance of these figures in terms of "the net pr esent impact of LA/MSF on the balance sheet of 
Airbus" – i.e., the United States did not make the argument that it now asks the Panel to include in the 
description of the United States' arguments.  The European Communities asserts that the United States 
cannot change its arguments at this stage of the pr oceeding, nor is the Panel entitled to mischaracterise 
the United States' arguments in its report.  
6.323  While the United States asserts that the figures it presented based on the NERA report are 
relevant to the question whether the magnitude of the subsidies is sufficient to cause the alleged 
effects, it argues that they do not necessarily represen t the amount of the "benefit" of LA/MSF, as that 
term is used in Articles 1.1(b) and 14 of the SCM Agreement.  However, the NERA report states that  
"{t}he analysis performed in the Ellis Re port shows the existence of a benefit to 
Airbus under each provision of launch ai d, because in every case the benchmark 
commercial rate exceeded the stated launch  aid rate. That analysis, however, did not 
quantify the benefit in "dollar" terms nor s how the total benefit to Airbus over time. 
The purpose of this report is to do so."1718   
In introducing that report during the Panel's second meeting, the United States stated: 
  
"Because the ITR methodology does not accurately measure the full magnitude of the subsidy benefit, the economis ts at NERA Consulting have made an estimate of the 
total benefit to Airbus from Launch Aid".
1719 
Thus, it seems clear to us that, even if not a measure of  "benefit" as that term is used in Articles 1.1(b) 
and 14 of the SCM Agreement, the NERA calculations were intended as evidence of the benefit of the 
LA/MSF subsidies to Airbus, measured, as the United States put it, in terms of "the impact of Launch Aid on the present financial condition of Airbus".
1720   In light of the foregoing, we have modified the 
first sentence of paragraph 7.1856 (now paragraph 7.1867) to more closely reflect the United States' 
argument, albeit not in the terms suggested by either party.    
                                                     
 
1714 EC, Comments on US Request for Interim Review, pp. 20-21, citing, US, SWS, para. 612. 
1715 EC, Comments on US Request for Interim Review, pp. 20-21, citing, Exhibit US-606 (BCI).  
1716 EC, Comments on US Request for Interim Review, pp. 20-21, citing, US, SWS, para. 614 
(emphasis and underlining added). 
1717 EC, Comments on US Request for Interim Review, pp. 20-21, citing, US, SWS, para. 614. 
1718 NERA Economic consulting, Quantification of Benefit of Launch Aid  (24 May 2007), Exhibit US-
606 (BCI) 
1719 US, SWS, para. 611. 
1720 US, SWS, para. 612. WT/DS316/R 
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  9. Paragraph 7.1861 
6.324  The European Communities requests that the Pane l replace the term "benefit" in the last 
sentence of paragraph 7.1861 of the Interim Report with the term "effect" to properly reflect the 
European Communities' argument.1721   
6.325  The United States did not comment on this request.   
6.326  Although the European Communities cites no sour ce for its requested correction, we agree 
that, in context, the term "effect" is more appropr iate to reflect the European Communities' argument, 
and in the absence of any objection from the Unite d States, we grant the European Communities' 
request, and have made the requested change to  make the change to paragraph 7.1861 (now 
paragraph 7.1872).   
10. Paragraph 7.1863 
6.327  The United States requests that the Panel ame nd the second sentence of paragraph 7.1863 of 
the Interim Report to reflect the United States' view that the European Communities' benefit 
calculation methodology referred to does not accu rately reflect U.S. countervailing duty law.1722  The 
United States recalls its argument in this regard: 
"The EC tendentiously refers to the ITR approach as the "US/Boeing methodology," 
e.g., EC FWS para. 1588-1590, although it is in fact no such thing.  The United States 
does not endorse the erroneous benefit calculation and allocation methodologies 
developed by ITR; indeed, many of these e rrors are at direct variance with the CVD 
methodologies used by the EC and the United States.  Further, Boeing's 1997 
comments on the U.S. CVD regulations s ubmitted to the U.S. Department of 
Commerce, submitted by the EC as Exhibit EC-325, cannot plausibly be read to endorse the many errors in the ITR methodology."
1723 
 6.328  The European Communities asks the Panel to de ny the United States' request, and the United 
States' request with respect to paragraph 7.1 952 of the Interim Report, which the European 
Communities considers deals with  essentially the same issue.1724  The European Communities 
contends that it did, in fact, apply the Unite d States' CVD methodology, drawing on Boeing's 1997 
comments to the US Government concerning propo sed CVD regulations) for insights on applying the 
methodology to LCA and specifically to LA/MSF.  The European Communities notes that it identified 
the specific provisions of the United States' CVD regu lations applied in the ITR report, described the 
manner in which it applied Boeing's comments on tho se regulations and provided detailed worksheets 
showing its calculations.1725  In the European Communities' vi ew, the United States relies, in its 
request for interim review, on an unsubstantiated f ootnote to the US Answer to Panel Question 42, 
which the European Communities notes does not re fer to any United States' CVD regulation or 
practice that the European Communities allegedly fa iled to apply or allegedl y applied incorrectly.  
                                                      
1721 EC, Request for Interim Review, p. 30. 
1722 US, Request for Interim Review, para. 33. 
1723 US, Request for Interim Review, para. 33, citing, US, Answer to Panel Question 42, para. 250, 
footnote 313. 
1724 EC, Comments on US Request for Interim Review, p. 21. 
1725 EC, Comments on US Request for Interim Review, p. 21, citing, EC, SWS, paras. 948-950, 997-
1008.  ITR Subsidy Magnitude Report , 5 February 2007.  Exhibit EC-13 (BCI/HSBI).  ITR Response to US 
Assertions that ITR’s Method of Calculating the Magnitude of Subsidies is Flawed , 21 May 2007.  Exhibit EC-
660 (BCI/HSBI).  WT/DS316/R 
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  The European Communities also notes that the US  Response to Question 42 set out an alternative 
calculation for one grant of LA/MSF which assertedly  illustrated a correct "CVD-style", but without 
references to the United States' CVD regulations or  practice.  The European Communities disputed 
this calculation as containing various factual errors  regarding the grant of LA/MSF in question, and 
failing to follow United States' CVD regulations or practice.1726  Thus, in the European Communities' 
view, the United States has failed to substantiate its  assertions that the European Communities did not 
apply United States' CVD methodology, and the Panel should deny the United States' requests 
regarding paragraphs 7.1863 and 7.1952 of the Interim Report. 
6.329  While the European Communities is correct that  the United States did not cite to specific 
provisions of US law and regulations in disputin g the European Communities' arguments in this 
regard, the United States clearly disagreed with the European Communities' allocation methodology, 
which it asserted contained numerous errors, which the United States contended "are at direct variance 
with the CVD methodologies used by the Eur opean Communities and the United States."1727  T h e  
United States then went on at some length to give ex amples of these errors, in the course of which it is 
made clear that the United States ' interpretation of an appropria te allocation methodology under its 
own laws and regulations differs from that on wh ich the European Communities' calculations were 
based.   
6.330  Having found that there was no requirement to allocate the subsidies at issue in this dispute 
on a per-aircraft basis, we did not attempt to adj udicate the disagreement between the parties on the 
appropriateness of the allocations presented by the European Communities.  Thus, there is no finding 
as to the correct interpretation of US  law and regulation in this context.  In order to make explicit the 
parties' positions on this question, we have m odified the second sentence of paragraph 7.1863, and 
footnote 5166 (now paragraph 7.1874and footnote 5524), and made conforming modifications to 
paragraph 7.1952 (now  paragraph 7.1963)1728, to reflect that the European Communities relied on its 
own interpretation of United States' countervailing du ty law and regulations, which interpretation the 
United States did not accept as correct.   
11. Paragraph 7.1891 
6.331  The European Communities requests the Panel to clarify the context of the phrase "allegedly 
designated BCI" in the fourth sentence of paragrap h 7.1891 of the Interim Report. Specifically, the 
European Communities requests the Panel to indicate th at this phrase refers to the sources of the data 
that Dorman used in his cash-flow analysis, wh ich the European Communities contends the United 
States never disclosed.  According to the European  Communities, this failure made it impossible to 
assess the confidentiality designation of the data.1729 
6.332  The United States considers that the senten ce should be corrected, but not in the way 
suggested by the Eu ropean Communities.1730  According to the United States, the "cash flows" 
addressed in paragraph 7.1891 of the Interim Re port are the inflows of LA/MSF disbursements, and 
the outflows of LA/MSF repayments.  The simulatio n of the French A380, A340-500/600, and A330-
200 LA/MSF packages are based on the cash flows that Dr. Dorman "derived from documents 
                                                      
1726 EC, Comments on US Request for Interim Review, p. 21, citing, ITR Response to US Assertions 
that ITR’s Method of Calculating the Magnitude of Subsidies is Flawed , 21 May 2007, paras. 25-29.  Exhibit 
EC-660 (BCI/HSBI) 
1727 US, Answer to Panel Question 42, para. 250, footnote 313. 
1728 See below, paragraphs 6.340 - 6.345. 
1729 EC, Request for Interim Review, p. 30. 
1730 US, Comments on EC Request for Interim Review, para. 144. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  designated as BCI."1731  The United States contends that, although Dr. Dorman does not say so 
explicitly, the only possible documents "designa ted as BCI" that could contain confidential 
information related to these LA/MSF packages at the time his report was prepared, before any of the 
written submissions to the Panel, would be the documents provided by the European Communities 
during the Annex V process, which the United States provided to the Panel, together with the Dorman 
Report, with its first written submission.1732  Thus, the United States contends that the source of the 
information was provided and disclosed, allowing for any person with access to  the relevant BCI to 
examine and verify the cash flow data used by Dr . Dorman, and notes that the final two sentences of 
this paragraph of the Interim Report state that the Panel did precisely this.1733   
6.333  We have reviewed the Dorman report in this regard, and having reconsidered the description 
of how Dr. Dorman undertook to conduct his simu lation, it now seems clear that he relied on 
information drawn from LA/MSF contracts, designated BCI during the Annex V process, made available to him for purposes of preparing his report, and which the United States submitted with its first written submission.  Given that we have been able to confirm the United States' explanation of 
the source of the data, and that it was designated BCI, we deny the European Communities' request.  
However, we have modified para graph 7.1891 (now paragraph 7.1902) to clarify the facts.   
12. Paragraph 7.1893 
6.334  The European Communities requests that th e Panel modify the first sentence of 
paragraph 7.1893 of the Interim Repor t, so as to avoid the implication that the European Communities 
endorsed the Ellis benchmark as a market benchmar k, which the European Communities maintains it 
does not.
1734   
6.335  The United Stated did not comment on this request.   
6.336  While it is not apparent to us that the para graph as originally drafted gives rise to the 
implication that concerns the European Communities,  in order to alleviate those concerns, we have 
modified paragraph 7.1893 (now pa ragraph 7.1904) in order to clarify it, albeit in somewhat different 
terms than proposed by the European Communities.   
13. Paragraphs 7.1917-7.1918, 7.1919-7.1920, 7.1926-7.1927, and 7.1928 
6.337  The United States observes that, with respect to the business cases for the A340-500/600 and 
A330-200, the European Communities' "cash flow analysis" for the A320, and the A330/A340 launch 
documents provided by the European Communities,  these paragraphs of the Interim Report do not 
appear to reflect the Panel's consideration of the comments provided by the United States.1735  
Because the European Communities designated the information discussed in these paragraphs as 
HSBI, the United States' comments are necessarily la rgely HSBI as well.  The United States requests 
that the Panel's consideration of the United States ' comments with respect to each of these aspects be 
incorporated in the final report, although it makes no specific suggestions in this regard. 
                                                      
1731 US, Comments on EC Request for Interim Review, para. 145, citing, Dorman Report at 5 n.13 
(Exhibit US-70). 
1732 US, Comments on EC Request for Interim Review, pa ra. 145, citing, Exhibits US-35, US-36, US-
78, US-116. The United States notes that Dr. Dorman's use of the term, "designated as BCI", should be understood as referring specifically to documents that ha ve been "designated as BCI " within the meaning given 
to that term in this dispute. US, Comments on EC Request for Interim Review, footnote 77. 
1733 US, Comments on EC Request for Interim Review, para. 145. 
1734 EC, Request for Interim Review, p. 31. 
1735 US, Request for Interim Review, paras. 34 - 37, citing US, Comments on EC Answer to Panel 
Question 262 (HSBI Appendix), paras. 10-12, 7-9, 3 and 4-6.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  6.338  The European Communities expresses no view on these aspects of the United States' 
request.1736 
6.339  The submission referred to by the United States comments on and criticizes various aspects of 
the European Communities' arguments concerning th e evidence discussed in these paragraphs of the 
Interim Report.  That submission is designated as HSBI  almost in its entirety, and is not susceptible of 
meaningful non-confidential summary.  In the absence of any objection from the European 
Communities these aspects of the United  States' request, and given that we did, in fact, consider the 
United States' comments in making our decision, we have added footnote references to the relevant 
paragraphs of those comments to paragraphs 7.1917-7.1918, 7.1919-7.1920, 7.1926-7.1927, and 
7.1928 (now paragraphs 7.1928 - 7.1929, 7.1930 - 7. 1931, 7.1937 - 7.1938 and 7.1939) to reflect that 
consideration.     
14. Paragraph 7.1952 
6.340  The European Communities requests the Panel to add, at the end of paragraph 7.1952 of the 
Interim Report, a reference to the European Commun ities' calculation of the potential cash flow effect 
of the alleged subsidies, in order to proper ly reflect the European Communities' argument.1737 
6.341   The United States does not object to this request , but suggests an alternative formulation to 
that proposed by the European Communities in order to make clear  that any addition reflects the 
European Communities' argument, a nd not a conclusion of the Panel.1738   
6.342  We have no objection to expanding the summary  of the European Communities' argument in 
this respect, but agree that it should be clear that  the statement refers to European Communities' 
argument, and not a Panel conclusion.  We have  therefore modified paragraph 7.1952 (now 
paragraph 7.1963) to reflect the European Communitie s' argument, albeit in different terms than those 
proposed by the European Communities.   
6.343  The United States also requests a modification to paragraph 7.1952 of the Interim Report.1739  
As it noted in its comments with respect to paragr aph 7.1863 of the Interim Report, the United States 
considers the assertion that the Eu ropean Communities' benefit calc ulation methodology is based on 
"United States' law and regulations governing the calculation and allocation of subsidy amounts in 
countervailing duty investigations" to  be erroneous.  In the United St ates' view, the final report should 
reflect that this is merely an assertion by the European Communities, one that the United States 
strongly disputes.   
6.344  The European Communities objects to  this request, for the same reasons that it objected to the 
United States' request with respect to paragra ph 7.1863 of the Interim Report, discussed above.1740   
6.345  For the same reasons as discussed above at paragr aph 6.329 with respect  to paragraph 7.1863 
of the Interim Report, we have modified the second sentence of paragraph 7.1952 and footnote 5335 
(now paragraph 7.1963 and footnote 5701), in or der to make clear the disagreement between the 
parties on US law and regulations in the CVD context as relied on by the European Communities in 
this case. 
                                                      
1736 EC, Comments on US Request for Interim Review, p. 21. 
1737 EC, Request for Interim Review, p. 31.   
1738 US, Comments on EC Request for Interim Review, para. 147. 
1739 US, Request for Interim Review, para. 38. 
1740 EC, Comments on US Request for Interim Review, p. 21.  See paragraph 6.328, above. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  15. Paragraph 7.1954 
6.346  The European Communities requests the Panel to  delete the parenthetical describing the 
benchmark rates used in its calculation of the magnit ude of the subsidies in paragraph 7.1954 of the 
Interim Report.  The European Communities consid ers that this parenthetical suggests that the 
European Communities endorsed the United States' benchmark rates, which it did not.1741   
6.347  The United States objects to this request, noting that the statement does not suggest that the 
European Communities endorsed the relevant figures,  but merely reports the fact that ITR "used" 
those figures.  The United States considers th is an accurate statement which the European 
Communities does not dispute.1742  Moreover, the United States notes that this paragraph summarizes 
the United States' argument, which indicated th at the NERA and ITR reports used the same 
benchmark rates, which the United States considers an important point. 
6.348  In our view, the parenthetical phrase in questi on simply states the fact, which the European 
Communities does not dispute, that the ITR report "used" the Ellis Report benchmark rates in its calculations, a point made by the United States in its argument.  We do not consider that this 
statement of fact can be reasonably understood as implying that the European Communities endorsed 
those rates in any way.  We therefore deny the European Communities' request.   
6.349  The United States notes that, in assessing the Un ited States' arguments with respect to the 
magnitude of the subsidy, the Interim Report appear s not to reflect the United States' arguments based 
on the amount by which per-delivery repayments would have had to increase in order to repay 
LA/MSF at benchmark interest rates.
1743  According to the United States, the Panel does appear to 
have recognized elsewhere in its report (e.g., in  paragraph 7.1997 of the Interim Report) that 
repayments of LA/MSF would have  been greater if LA/MSF had b een provided on commercial terms, 
and states that this consideration would also seem to be relevant to the issue of the magnitude of the 
subsidy, although it makes no specific suggestions for action by the Panel. 
6.350  The European Communities did not comment on this aspect of the United States' request. 
6.351  Having considered the United States' co mments, we have added a footnote to 
paragraph 7.1954 (now pa ragraph 7.1965) to indicate that the United States presented arguments 
concerning the benefit from LA/MSF calculated on the basis of the amount by which each per-aircraft repayment would have to be increased in order to repay the LA/MSF at a commercial rate. 
16. Paragraph 7.1958 
6.352  The European Communities requests the Panel to modify its finding, in the second sentence 
of paragraph 7.1958 of the Interim Report, that th e European Communities focu sed on the interest rate 
differentials and failed to take into ac count the financial contribution at issue.
1744  The European 
Communities contends it discussed at length the prope r interest rates that should be applied to 
determine the amount and magnitude of any subsid y, and did take the principal amount of LA/MSF 
into account when calculating subsidy magnitudes.   The European Communities asserts that its 
calculations are based on the difference between (i) the amount of interest paid under the MSF 
                                                      
1741 The EC notes that it consistently described these rates as "inflated", "overstated" and "flawed".  EC, 
Request for Interim Review, p. 31, citing, e.g., EC, FWS, paras 551, 553 and 1590. 
1742 US, Comments on EC Request for Interim Review, para. 148. 
1743 US, Request for Interim Review, para. 39, citing, US, SNCOS, paras. 184-186; US, Comments on 
EC Answer to Panel Question 289, paras. 221-225. 
1744 EC, Request for Interim Review, p. 31.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  agreement and (ii) the amount of interest that woul d be paid at the benchmark rate, which calculations 
are a function of both the applicable inter est rates and the amount of loan principal.1745  Consequently, 
the European Communities requests th at the Panel delete paragraph 7.1958 of the Interim Report, 
save for the first sentence, and adapt the numbering of the issues addressed in subsequent paragraphs 
accordingly. 
6.353  The United States objects to the European Comm unities' request, asserting that the European 
Communities' objection misses the point that the Pane l develops in paragra ph 7.1958 of the Interim 
Report.1746  The United States notes that it is undisputed  that the ITR report contains purported values 
for the amount of the subsidy benefit in Euros, and not simply in basis points, but considers that the 
text the European Communities proposes to delete do es not suggest otherwise.  Rather, in the United 
States' view, the text proposed for deletion states th at an assessment of the magnitude of the subsidy 
for purposes of a serious prejudice analysis requires more than a simple calculation of the benefit, whether in Euros or in basis points, explaining that an  analysis of the nature and effects of the subsidy 
- such as whether the total amount of subsidized LA/MSF provided equals 1 percent or 100 percent of 
the total development costs - is also relevant to determining the magnitude of the subsidy's effects.
1747  
The United States maintains that, as it argued during th e dispute, one of the flaws in the ITR analysis 
is that it treats the subsidy as if it were a lump-sum grant disbursed in the year an aircraft model is 
launched, thus ignoring the effect  of the subsidy in, for example, shifting programme risk from Airbus 
to the governments and enabling aircraft launches that would not otherwise occur.1748  In the United 
States' view, this is the point that the Panel mak es in the paragraph 7.1958 of the Interim Report, and 
the point is correct.  The United States proposes that  the Panel modify the paragraph to clarify this 
point.    
6.354  We consider that the United States has correctly  understood the import of  paragraph 7.1958 of 
the Interim Report.  We therefore deny the Eu ropean Communities' request, and have modified 
paragraph 7.1958 (now paragraph 7.1969) to clarify our views.   
17. Paragraph 7.1961 
6.355  The European Communities requests that the Panel modify the EUR [***] million figure for 
the subsidy amount from the extension of the runway at Bremen airport referred to in 
paragraph 7.1961 of the Interim Report, so as to c onform it to paragraph 7.1120 of the Interim Report, 
where the Panel concluded that the subsidy amount was DM [***] million, or approximately EUR 
[***] million.  The European Communities further requ ests that, if the Panel accepts the European 
Communities' request for changes in paragraph 7.1120 of the Interim Report, it also modify 
paragraph 7.1961 of the Interim Report accordingly.1749   
6.356  The United States recalls that it objected to th e proposed changes to paragraph 7.1120 of the 
Interim Report, and therefore disagrees with this  aspect of the European  Communities' request.1750 
6.357  We have corrected paragraph 7.1961 (now para graph 7.1972) to conform to our finding set 
out in paragraph 7.1120 (now para graph 7.1128) that the amount of the financial contribution in 
                                                      
1745 EC, Request for Interim Review, p. 31, citing, EC, FWS, paras 1593-1595. ITR Subsidy Magnitude 
Report, exhibit EC-13 (HSBI and BCI). EC, SWS, para . 1012.  ITR Cash Flow Effect of Member State 
Financing, 20 May 2007, Exhibit EC-661 (BCI).    
1746 US, Comments on EC Request for Interim Review, para. 149. 
1747 US, Comments on EC Request for Interim Review, para. 150. 
1748 US, Comments on EC Request for Interim Review, para. 151, citing, e.g., US, SNCOS, paras. 182-
183. 
1749 EC, Request for Interim Review, p. 32. 
1750 US, Comments on EC Request for Interim Review, para. 153. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  connection with the Bremen airport runway extension was [***], and not "over EUR 40 million".  We 
do not see any reason to convert the amount stated in DM to an amount in EUR, and the European Communities has not suggested any.    
P. C
ONCLUSIONS AND RECOMMENDATION  
1. Paragraph 8.6   
6.358  The United States suggests that, for greater certainty, and in light of the Panel's findings 
reflected in paragraphs 7.169 through 7.177 of  the Interim Report, the recommendation in 
paragraph 8.6 of the Interim Report should be expressed in the active voice (as is the recommendation in paragraph 8.7 of the Interim Report).   
6.359  The European Communities did not comment on this request. 
6.360  A change to the active voice would more closel y track the text of Article 4.7 of the SCM 
Agreement, and would parallel the recommendation in pa ragraph 8.7 of the report.  In the absence of 
any objection from the European Co mmunities, we grant the United States' request, and have revised 
paragraph 8.6 (numbering unchanged) accordingly. 
Q. BCI/HSBI
 DESIGNATIONS  
1. Footnote 2158 and paragraph 7.410 
6.361  The European Communities requests that the list of contracts containing royalty provisions 
identified in footnote 2158 of the Interim Report and those referred to in paragraph 7.410 of the 
Interim Report should be placed in square brackets in  order to maintain cons istency with the Panel's 
square bracketing of the number of such cont racts in paragraph 7.374 of the Interim Report.1751   
6.362  The United States did not comment on the European Communities' request.   
6.363  We grant the European Communities' request and have modified footnote 2158 and 
paragraph 7.410 (now  footnote 2452, para graph numbering unchanged) accordingly. 
2. Paragraphs 7.426 and 7.483 (tables 5 and 7) 
6.364  The United States asks the Panel to remove th e square brackets from the interest rates 
identified in Tables 5 and 7 of the Interim Report for the Spanish A320 and A330/A340 LA/MSF 
contracts, because it considers the two interest rates to be information that is in the public domain.  
The United States points in particular to its paragr aph 223 of its first written submission, which cites 
Exhibit US-19.1752   
6.365  The European Communities did not comment on this request. 
6.366  The Spanish A320 and A330/A340 LA/MSF interest  rate information identified in Tables 5 
and 7 of the Interim Report comes from Exhib it EC-597 (HSBI), which contains the European 
Communities' IRR calculations using information that  is HSBI, in particular the forecast delivery 
schedule.  The European Communities' calculation is confirmed in the text of the contracts 
themselves, which are designated BCI.  Thus, the brack eted interest rates contained in Tables 5 and 7 
                                                      
1751 EC, Request for Interim Review, p.5. 
1752 US, Comment on EC, Request for Interim Review, para. 154.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  were not derived from the information contained in  Exhibit US-19, but from BCI.  Moreover, in 
revealing that Spanish government support for CA SA's involvement in the development of Airbus 
LCA was provided in the form of reimbursable adva nces at zero interest, the information in Exhibit 
US-19 does not explicitly refer to the Spanish A3 20 and A330/A340 LA/MSF contracts.  Rather, it 
refers to funding provided by the Spanish g overnment for Airbus LCA models pursuant to 
Intergovernmental Agreements entered into by th e Spanish government since 1969.  While it may be 
inferred from this information that the interest rate  information disclosed in Exhibit US-19 referred to 
the Spanish A320 and A330/A340 contracts, in th e absence of any explicit connection with these 
contracts, and given that the interest rates identified in Tables 5 and 7 were sourced from BCI, we 
have taken a cautious approach a nd deny the United States' request. 
3. Paragraph 7.1916 
6.367  The United States asserts that, in the text  immediately prior to footnote 5259 in 
paragraph 7.1916 of the Interim Re port, the bracketed text ("thus [***] ") is simply a conclusion 
drawn from publicly available information and is not BCI.1753   
6.368  The European Communities did not comment on this request. 
6.369  Given that the information originally brack eted pertains to the sales and financial 
performance of the A380, and that  the European Communities did no t object to the United States' 
view that this information is not BCI, we conclude  that the statement is not properly designated as 
BCI and have deleted the brackets from para graph 7.1916 (now paragraph 7.1927).   
4. Paragraph 7.1960 
6.370  The European Communities requests the Pa nel to bracket as BCI the amounts of [***]  and 
[***] as well as the figures [***] and [***]  in the second sentence of paragraph 7.1960 of the Interim 
Report.  The European Communities asserts that to  leave these figures would enable a reader to 
reverse-engineer the data designated BCI in the LA/MSF section of the report.1754   
6.371  The United States did not comment on this request.   
6.372  In order to ensure the confidentiality of in formation designated as BCI elsewhere in the 
report, by precluding calculations that would allow that information to be derived from information 
not designated as BCI, and in the absence of any objection from the United States, we grant the 
European Communities' request and have modified  paragraph 7.1960 (now paragraph 7.1971) to 
designate this information as BCI by enclosing it in brackets. 
 
                                                      
1753 US, Request for Interim Review, para. 55. 
1754 EC, Request for Interim Review, p. 31. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
   
VII. FINDINGS 
A. GENERAL INTRODUCTION  
7.1 The United States' complaint in this dispute alleges more than 300 separate instances of 
subsidization, over a period of almost forty years, by the European Communities1755 and four of its 
member States, France, Germany, Spain and the Unite d Kingdom, with respect to large civil aircraft 
("LCA") developed, produced and sold by the co mpany known today as Airbus SAS.  The measures 
that are the subject of the United States' complain t may be grouped into fi ve general categories: 
(i) "Launch Aid" or "member State Financing"; (ii) loans from the European Investment Bank; 
(iii) infrastructure and infrastructure-related gran ts; (iv) corporate restructuring measures; and 
(v) research and technological development funding.  The United States claims that each of the challenged measures is a specific subsidy within the meaning of Articles 1 and 2 of the SCM Agreement, and that the European Communities and the four member States, through the use of 
these subsidies, cause adverse effects to the United States' interests within the meaning of Articles 5 
and 6 of the SCM Agreement.  In addition, the United States claims that seven of the challenged 
"Launch Aid" or "member State Financing" measu res are prohibited export subsidies within the 
meaning of Article 3 of the SCM Agreement. 
7.2 On 6 October 2004, the United States request ed consultations with the European 
Communities and certain EC member States (Franc e, Germany, Spain and the United Kingdom) with 
regard to the challenged measures.
1756  The United States requested the establishment of this Panel on 
31 May 2005.1757  Following the 24 February 2006 submission of the report of the Designated 
Representative in the information-gathering pro cedure under Annex V of the SCM Agreement, the 
Panel temporarily set aside its time-table, recommencing its work in September 2006.   
7.3 This Report addresses the United States' claims in fo ur parts.  First, in parts VII.C and VII.D, 
we set forth our decision of 11 July 2007 with r espect to the European Communities' request for 
preliminary ruling of 25 October 2005 and address other preliminary matters.  Next, in part VII.E, we 
evaluate the United States' claims with respect to whether each of the challenged measures is a 
specific subsidy within the meaning of Articles 1 an d 2 of the SCM Agreement, and whether seven of 
those challenged measures are export subsidies.  Fina lly, with respect to those measures we find to be 
specific subsidies, we address in part VII.F the Un ited States' claims that the European Communities 
and the four member States, through the use of tho se subsidies, cause the clai med adverse effects to 
the United States' interests within the meaning of Articles 5 and 6 of the SCM Agreement.  We set 
forth our conclusions and recommendation in Section VIII. 
B. RELEVANT PRINCIPLES REGARDING STANDARD OF REVIEW , TREATY INTERPRETATION , AND 
BURDEN OF PROOF  
1. Standard of Review 
7.4 Article 11 of the DSU provides the standard for decision-making by WTO panels, requiring 
them to make an "objective assessment" of the ma tter, including an objective assessment of the facts, 
                                                      
1755 As previously noted, see footnote 1 above, on 1 December 2009, the Treaty of Lisbon amending the 
Treaty on European Union and the Treaty establishing the European Community  (done at Lisbon, 13 December 
2007) entered into force.  On 29  November 2009, the WTO received a Verbal Note (WT/L/779) from the 
Council of the European Union and the Commission of the European Communities stating that, by virtue of the Treaty of Lisbon, as of 1 December 2009, the Europe an Union replaces and succeeds the European Community. 
1756 WT/DS316/1, attached at Annex A. 
1757 WT/DS316/2, attached at Annex B.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  and the applicability of and conformity with the rele vant covered agreements, and to "make such other 
findings as will assist the DSB in making the recommenda tions or in giving the ruling provided for in 
the covered agreements."   
2. Relevant Principles of Treaty Interpretation 
7.5 With respect to the question of legal interpre tation, Article 3.2 of the DSU provides that 
Members recognise that the dispute settlement system serves to clarify the provisions of the covered 
agreements "in accordance with customary rules of  interpretation of public international law".  
Article 31.1 of the Vienna Convention on th e Law of Treaties ('Vienna Convention')",1758 which is 
generally accepted as such a customary rule, provides: 
"A treaty shall be interpreted in good faith  in accordance with the ordinary meaning 
to be given to the terms of the treaty in th eir context and in the light of its object and 
purpose." 
7.6 There is a considerable body of WTO case law dealing with the application of these 
provisions on treaty interpretation in  dispute settlement in the WTO.  It is clear that interpretation 
must be based above all on the text of the treaty,1759 but that the context of the treaty also plays a role.  
It is also well-established that these principles of  interpretation "neither require nor condone the 
imputation into a treaty of words that are not there or the importation into a treaty of concepts that were not intended."
1760  Furthermore, panels "mus t be guided by the rules of treaty interpretation set 
out in the Vienna Convention, and must not add to or diminish rights and obligations provided in the 
WTO Agreement."1761  
3. Burden of Proof 
7.7 While the parties have not generally raised burde n of proof as an issue, we have kept in mind 
the general principles applicable to burden of proo f in WTO dispute settlement, which require that a 
party claiming a violation of a provision of a WTO Agreement by another Member must assert and prove its claim.
1762  In this dispute, the United States, wh ich has challenged certain measures and their 
effects, thus bears the burden of demonstrating that  the disputed measures are specific subsidies, and 
in some cases export subsidies, and that throug h the use of those subsidies, the European 
Communities and certain member States cause adverse e ffects to the United States' interests.  It is 
generally for each party asserting a fact to provide proof thereof.1763  Therefore, it is also for the 
European Communities to provide evid ence for the facts which it asserts.  
7.8 We have also kept in mind that a prima facie  case is one which, in the absence of effective 
refutation by the other party, requires a panel, as a matter of law, to rule in favour of the party 
                                                      
1758 Done at Vienna, 23 May 1969, 1155 United Nations Treaty Series 331 (1980); 8 International 
Legal Materials  679 (1969). 
1759 Appellate Body Report, Japan – Taxes on Al coholic Beverages ("Japan – Alcoholic 
Beverages II "), WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, 
DSR 1996:I, 97, p. 11. 
1760 Appellate Body Report, India – Patent Protection for Pharmaceutical and Agricultural Chemical 
Products ("India – Patents (US) "), WT/DS50/AB/R, adopted 16 January 1998, DSR 1998:I, 9, para. 45. 
1761 Appellate Body Report, India – Patents (US) , para. 46. 
1762 Appellate Body Report, United States – Measure Affecting Imports of Woven Wool Shirts and 
Blouses from India ("US – Wool  Shirts and Blouses") , WT/DS33/AB/R and Corr. 1, adopted 23 May 1997, 
DSR 1997:I, 323, p. 337. 
1763 Appellate Body Report,  US – Wool  Shirts and Blouses , p. 337. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  presenting the prima facie  case.1764  Finally, we recall that the Appellate Body also stated that "{a} 
complaining party may not simply submit evidence a nd expect the panel to di vine from it a claim of 
WTO-inconsistency.  Nor may a complaining party si mply allege facts without relating them to its 
legal arguments."1765   
C. PRELIMINARY RULING1766 
1. Introduction 
7.9 On 6 October 2004, the United States requested  consultations with the Governments of 
Germany, France, the United Kingdom and Spain, a nd with the European Communities, pursuant to 
Articles 1 and 4 of the DSU, Article XXIII:1 of GATT 1994 and Articles 4, 7 and 30 of the 
SCM Agreement, with regard to measures affecting tr ade in large civil aircraft.  Pursuant to this 
request, the United States held consulta tions with the European Communities on 
4 November 2004.1767 
7.10 On 31 May 2005, the United States requested the establishment of a panel pursuant to 
Article 6 of the DSU, Article XXIII:2 of  GATT 1994 and Articles 4, 7 and 30 of the 
SCM Agreement.1768 
7.11 On 20 July 2005, the DSB established the Panel with the following terms of reference: 
"To examine, in the light of the relevant provisions of the covered agreements cited 
by the United States in document WT/DS316/2,  the matter referred to the DSB by the 
United States in that document, and to ma ke such findings as will assist the DSB in 
making the recommendations or in giving the rulings provided for in those 
agreements."1769 
7.12 On 25 October 2005, the European Communitie s submitted a request to the Panel for 
preliminary rulings addressing two distinct sets of issues. First, the European Communities asks the Panel to find that certain measures alleged by th e United States to constitute prohibited or actionable 
subsidies fall outside the 'temporal scope' of th ese proceedings.  Second, the European Communities 
asked the Panel to find that certain measures fall out side the Panel's terms of reference because the 
measures did not exist at the time of the establishmen t of the Panel, were not identified in the request 
for consultations, or were not identified in the re quest for the establishment of a panel in accordance 
with Article 6.2 of the DSU.
1770  
7.13 The first set of issues involves a considerati on of the temporal scope of application of 
Article 5 of the SCM Agreement and the relevance, if any, of the Agreement between the European 
Community and the Government of the United Stat es concerning the Application of the GATT 
Agreement on Trade in Civil Aircraft on Trade in Large Civil Aircraft  (the 1992 Agreement) to the 
                                                      
1764 Appellate Body Report, EC Measures Concerning Meat and Meat Products (Hormones) ("EC – 
Hormones") ,  WT/DS26/AB/R, WT/DS48/AB/R, adopted 13 February 1998, DSR 1998:I, 135, para. 104. 
1765 Appellate Body Report, United States – Measures Affecting the Cross-Border Supply of Gambling 
and Betting Services ("US – Gambling") , WT/DS285/AB/R, adopted 20 April 2005, DSR 2005:XII, 5663 
(Corr.1, DSR 2006:XII, 5475), para. 140. 
1766 Originally transmitted to the partie s and third parties on 11 July 2007. 
1767 WT/DS316/1;G/L/697; G/SCM/D62/1, 12 October 2004. 
1768 WT/DS316/2, 3 June 2005. 
1769 WT/DSB/M/194. 
1770 European Communities, Request for Preliminary Rulings, 25 October 2005, (hereinafter "EC, 
Original Request"), para. 8.  WT/DS316/R 
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  determination regarding measures which are properly w ithin the scope of this dispute.  We address 
these issues first, before turning to consider those related to the alle ged non-existence of the measures, 
alleged lack of consultations, and alleged failure to comply with Article 6.2 of the DSU. 
2. Issues relating to the temporal scope of this dispute 
(a) Background 
7.14 On 7 November 2006, the European Comm unities submitted an updated request for 
preliminary rulings, updating and partially replacing its request of 26 October 2005 in relation to its 
arguments concerning the 'temporal scope' of this dispute.1771  In its updated request, the European 
Communities submits that the measures included in the United States' Panel request which pre-date 
1 January 1995 (the effective date of the SCM Agreem ent) and/or 17 July 1992 (the effective date of 
the 1992 Agreement) fall outside the temporal scope of this dispute.   
7.15 As modified by the updated request for pr eliminary rulings, the European Communities 
requests the Panel to rule that: 
(a) all alleged prohibited and ac tionable subsidies granted by the European Communities 
before 1 January 1995 are excluded from th e temporal scope of the proceedings; and 
(b) any alleged government support committed prio r to 17 July 1992 is excluded from the 
temporal scope of the proceedings.   
7.16 On 22 December 2006, the Panel issued a communication, the relevant parts of which are set 
forth below: 
"1. After carefully considering the Par ties' and Third Party submissions and 
responses to written questions concerning the European Communities' preliminary 
ruling request to exclude certain challenged  measures from the temporal scope of this 
proceeding, the Panel informs the Parties as follows: 
2. The Panel understands that the European Communities, in the light of the 
content of the United States' First Writte n Submission, are no longer pursuing their 
claims regarding the temporal scope of Artic le 3 of the SCM Agreement.  Therefore, 
on the basis of the facts and arguments presented by the Parties to date, the Panel considers that, for the moment, it is not neces sary for it to rule on this aspect of the 
European Communities' request for a preliminary ruling. 
3. The Panel also understands that the European Communities has 
acknowledged that the alleged measures iden tified in paragraphs 34-36, 38, 39, 41, 
42, 44, 45, 49, 51, 53, 55 and 56 of the European Communities' response of 
8 December 2006 to Panel Question 3, fall en tirely or "partially" within the temporal 
scope of this proceeding; and that the European Communities' request for a preliminary ruling is, to this extent, limite d to the other alleged measures identified, 
in paragraphs 23-38, 40, 41, 43, 47, 48 , 50 and 54 of the European Communities' 
response of 8 December 2006 to Panel Question 3, as allegedly falling entirely or 
"partially" outside of the temporal scope of this proceeding. 
                                                     
 
1771 European Communities, Updated Request for Pre liminary Rulings, 7 November 2006, (hereinafter 
"EC, Updated Request"), para. 3. WT/DS316/R 
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  4. On the basis of the facts and arguments  that the Panel has thus far considered, 
and without prejudice to any views that it may develop during the course of this 
proceeding in the light of additional facts and arguments that may be introduced by 
the Parties and Third Parties, the Panel is not convinced by the European 
Communities' assertions that (i) as a genera l matter, "subsidies granted" or "brought 
into existence" prior to 1 January 1995, cannot  fall within the scope of Article 5 of the 
SCM Agreement; and (ii) "alleged gove rnment support committed prior to 
17 July 1992" is outside of the temporal scope of this proceeding, because of the 
Agreement between the European Community  and the Government of the United 
States concerning the Application of the GATT Agreement on Trade in Civil Aircraft 
on Trade in Large Civil Aircraft .  Furthermore, the Panel considers that it is not 
currently in a position to determine whethe r the measures identified in paragraphs 23-
38, 40, 41, 43, 47, 48, 50 and 54 of the European Communities' response of 8 December 2006 to Panel Question 3, fall out side of the scope of Article 5 of the 
SCM Agreement.  The Panel therefore invit es the Parties and Third Parties to proceed 
on the understanding that all of the alleged measures challenged by the United States 
continue to fall within the scope of this proceeding. 
5. The reasons for the Panel's view s on this aspect of the European 
Communities' request for a preliminary ruling will be disclosed to the Parties in due course."
1772 
7.17 We recall that in response to a question from the Panel concerning the temporal scope of 
application of the SCM Agreement, the European Communities confirmed that the measures that are 
alleged by the United States to be prohibited subs idies under Part II of the SCM Agreement (namely, 
the LA/MSF in respect of the Airbus A380, A340-500/600 and the A330-200) all came into existence after 1 January 1995.
1773  The Panel further notes that the United States has made no claims under 
Article 3 with respect to subsidies granted prior to  1 January 1995.  Therefore, it is not necessary for 
the Panel to address the European Communities' re quest for a preliminary ruling on the temporal 
scope of application of Part II of the SCM Agreement. 
7.18 Also in response to a question from the Pane l, the European Communities has accepted that 
certain of the measures challenged by the United St ates fall within the scope of Article 5 of the 
SCM Agreement because the sums were disbursed after 1 January 1995.1774  At issue, however, are 
the remaining challenged measures which the Europ ean Communities maintains are outside the scope 
of Article 5 of the SCM Agreement.  The Europ ean Communities requests the Panel to exclude these 
remaining measures from this dispute on the basis that , to the extent that th ey were 'granted' or 
'brought into existence' prior to 1 January 1995, th ey are outside the 'temporal scope' of Article 5 of 
the SCM Agreement.   
                                                      
1772 Panel Communication to the parties, 22 December 2006 (footnotes omitted). 
1773 European Communities, Answer to Panel Question 1 of 8 Decem ber 2006 (hereinafter "EC, 
Answer to Panel Question X of 8 December 2006"), paras.  4-6.  During the First Meeting of the Panel, the 
European Communities objected to the use by the United States of the term 'launch aid' to describe the provision 
by the member States of the European Communities of financing for large civil aircraft design and development to the Airbus companies.  The European Communities refers to such financing as 'member State Financing' 
(MSF).  For purposes of this Preliminary Ruling, we use the term LA/MSF to refer to the financing described by 
the United States as 'launch aid' and by the European Communities as 'MSF'.  This question is addressed further in the Panel's findings at paragraph 7.291. 
1774 EC, Answer to Panel Question 3 of 8 December 2006, paras. 22-57.  The measures in question are 
set forth in Section VII.C Attachment, following para. 7.158.  WT/DS316/R 
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  (b) Article 5 of the SCM Agreement 
(i) Arguments of the European Communities 
7.19 The European Communities submits that the tem poral scope of the SCM Agreement must be 
determined in accordance with Article 28 of the Vienna Convention on the Law of Treaties  (VCLT), 
which sets out the general rule that treat y provisions do not apply retroactively.1775  The European 
Communities' principal argument is that, consistent  with the principle of non-retroactivity embodied 
in Article 28 of the VCLT, Article 5 of the SCM Ag reement applies to subsidies that were granted 
after 1 January 1995, while subsidies granted prior to 1 January 1995 fall outside the temporal scope 
of Article 5.1776  
7.20 The European Communities contends that the focu s of the obligation contained in Article 5 of 
the SCM Agreement is on the conduct, or act of a Member in bringing about adverse effects through 
the use of subsidies.1777 The European Communities argues that, co nsistent with the principle of non-
retroactivity reflected in Article 28 of the VCLT,  in order to be subject to Article 5 of the 
SCM Agreement, a Member's conduct in bringing a bout adverse effects to the interests of other 
Members must have occurred after 1 January 1995.1778  The European Communities contends that the 
conduct or act of the Member to which Article 5 is addressed may be the "bringing into existence of a 
subsidy within the meaning of Article 1 of the SCM Agreement."1779  Therefore, according to the 
European Communities, Article 5 of the SC M Agreement does not apply to government conduct in  
bringing into existence  a subsidy if that conduct occurred prior to 1 January 1995.   
7.21 The European Communities notes that a subsidy within the meaning of Article 1.1 of the 
SCM Agreement consists of two elements; name ly, a financial contribution, which confers a 
benefit.1780 According to the European Communities, a subsidy is only is 'brought into existence' when 
the financial contribution has been made and  the benefit has been conferred.1781 For the European 
Communities, it is not sufficient to subject a Member  to the obligations of Article 5 that the adverse 
effects of a subsidy granted by a Member prior to 1 January 1995 are felt by Members subsequent to 
1 January 1995.  Nor is it sufficient to bring a subsidy within the scope of Article 5 that the 'benefit' of 
                                                      
1775 EC, Updated Request, paras. 10-13. 
1776 Consistent with this approach, the European Communities argues that LA/MSF committed and paid 
prior to 1 January 1995 is outside the temporal scope of Article 5 because the grants of LA/MSF constitute 
completed 'acts' for purposes of Article 28 of the VCLT .  The European Communities also argues that EIB loans 
to EADS and the Airbus companies which were provided in full prior to 1 January 1995 are outside the temporal 
scope of Article 5. In relation to the measures that the Un ited States has challenged as infrastructure subsidies, 
the European Communities argues that the extension of the runway at Bremen Airport, which occurred in 1988 
and 1989, falls outside the temporal scope of Article 5 because the 'financial contribution' ( i.e., the provision of 
the runway) was a completed act by 1 January 1995.  Subsidies alleged to have arisen out of certain share 
transfers and equity infusions relating to the Airb us companies are also, acc ording to the European 
Communities, outside the temporal scope of Article 5 to the extent that such transf ers or infusions took place 
before 1995, because at that point, they became comple ted 'acts'. In relation to research and development 
funding which the United States has challenged as involving actionable subsidies, the European Communities 
argues that grants or disbursements made after  1 January 1995 pursuant to programmes established prior to 
1 January 1995 are within  the temporal scope of Article 5, while gran ts or disbursements which were made prior 
to 1 January 1995 are outside the temporal scope of Article 5 and should be excluded from these proceedings.   
1777 EC, Updated Request, paras. 27-28.  Reiterated in the Second Written Submission of the European 
Communities, (hereinafter "EC, SWS"), para. 11. 
1778 EC, Updated Request, para. 27. 
1779 EC, Answer to Panel Question 2 of 8 December 2006, para. 18.  EC, SWS, para. 11 (emphasis 
added). 
1780 EC, SWS, para. 16. 
1781 EC, SWS, para. 16. WT/DS316/R 
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  the financial contribution was conf erred subsequent to 1 January 199 5 if the financial contribution 
was made prior to that date.1782 The consequence of this approach is that, in order to be subject to 
Article 5 of the SCM Agreemen t, the financial contribution and the benefit components of a subsidy 
(and obviously, the adverse effects) must take place subsequent  to 1 January 1995.1783  The European 
Communities characterises the obligation containe d in Article 5 in the following manner:  
"The drafters of the SCM Agreement creat ed the (negative) duty to abstain from 
granting new actionable subsidies after 1995.  Had they intended also to create an 
additional (positive) duty for Members to re vise all their pre-1995 subsidies because 
of their possible economic effect as 'conti nuing benefits' after 1995 they would have 
done so in Part IX on tr ansitional arrangements."1784  
7.22 The European Communities argues that for th e Panel to determine otherwise would be 
contrary to the non-retroactivity principle because it would effectively require Members to carry out 
full reviews of all individual subsidies that they  had granted prior to 1 January 1995 in order to 
determine whether "they could produce 'continuing be nefits' and could retroactively fall foul of 
Article 5 of the SCM Agreement."1785  
7.23 The European Communities submits that, alt hough the conduct of a Member in bringing a 
subsidy into existence may result in economic ef fects which continue after completion of that 
conduct, this circumstance does not transform what is properly characterised as a completed "act" for 
purposes of Article 28 of the VCLT into a "situation" which continues to exist.1786 The European 
Communities contends that a "situation" of a con tinuing character, for purposes of Article 28 of the 
VCLT "asks for more than bringing a subsidy in to existence pre-1995 with economic effects post-
1995."1787  The European Communities posits a subsidy programme involving recurring grants of 
subsidies as an example of a 'situation' of a continuing character in the field of subsidies.1788  T h e  
European Communities contrasts such programmes with  the one-off granting of a subsidy, which the 
European Communities contends would not fall within  the temporal scope of Article 5 if the conduct 
in question had occurred before 1 January 1995, ev en if the adverse effects caused by that conduct 
arise subsequent to that date.1789  
7.24 The European Communities considers that its interpretation of Article 5 is indirectly 
confirmed by paragraph 7 of A nnex IV of the SCM Agreement which sets forth the method for 
calculating the total ad valorem  subsidization of a product for purposes of the presumption of serious 
prejudice in Article 6.1(a).1790  The European Communities regards paragraph 7 of Annex IV as 
                                                      
1782 In other words, the European Communities argues that if a Member made a financial contribution 
before 1 January 1995, part or all of the benefits of which are conferred after 1 January 1995, this conduct would not, consistently with the principle of non-retroac tivity, be subject to Article 5 of the SCM Agreement.   
1783 EC, Updated Request, para. 30; EC, Answer to Panel Question 5 of 8 December 2006, para. 67. 
1784 EC, Answer to Panel Question 5 of 8 December 2006, para. 67. 
1785 EC, SWS, para. 17. 
1786 EC, Answer to Panel Question 2 of 8 December 2006, paras. 19 and 20.  See, also, Answer of the 
European Communities to Panel Question 57 (hereinafter "E C, Answer to Panel Question X"), paras. 5-8; EC, 
SWS, paras. 12 and 16. 
1787 EC, Answer to Panel Question 2 of 8 December 2006, para. 20. 
1788 EC, Answer to Panel Question 2 of 8 December 2006, para. 20; EC, Answer to Panel Question 57, 
paras. 6-7.  The European Communities argues theref ore that, post-1995 grants made pursuant to subsidy 
programmes which were established prior to 1 January 1995 would  be subject to Article 5 of the 
SCM Agreement because such grants effectively constitute new state conduct. 
1789 EC, Updated Request, para. 27. 
1790 EC, Updated Request, pa ra. 29; EC, Answer to Panel Questi on 5 of 8 December 2006, paras. 66-
67.  WT/DS316/R 
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  addressing an exceptional situation in which subsidie s granted prior to 1 January 1995 are included in 
the ad valorem  subsidization calculation, provided their be nefits are allocated to future production.1791  
According to the European Communities, if Artic le 5 had been intended generally to apply to 
subsidies granted prior to 1 January 1995, this specific exception would not have been necessary. 
7.25 The European Communities also argues that Artic le 5, in obligating Members not to cause 
adverse effects "through the use of any subsidy w ithin the meaning of Article 1" necessarily requires 
reference to the definition of 'subsidy' in Artic le 1 of the SCM Agreement and therefore excludes 
subsidies provided prior to 1 January 1995.  
(ii) Arguments of the United States 
7.26 As an initial matter, the United States notes that it is not a party to the VCLT.1792 However, 
the United States does not regard this circumstance  as problematic to the resolution of the issues 
raised by this request for preliminary rulings becau se it is not seeking to interpret Article 5 of the 
SCM Agreement in a retroactive manner.1793  The United States submits that Members undertook the 
obligation contained in Article 5 as of the date of entry into force of the WTO Agreement and that the 
relevant issue is how the Panel determines th e precise content of that obligation.   
7.27 The United States argues that the act, fact or s ituation that is the focus of the obligation 
contained in Article 5 of the SCM Agreement is the causing  of adverse effects to the interests of a 
Member through the use of subsidies and that this ac t, fact or situation of causing adverse effects to 
the United States through the use of the subsidy measu res at issue in this dispute has continued to 
exist after 1 January 1995.1794  The United States supports its construction of Article 5 of the 
SCM Agreement on the basis that the "positioning of  'through the use of' as a subordinate, modifying 
clause accords with the focus of the provision, which is the causation of adverse effects, and not on the grant of a subsidy."
1795  The United States contrasts the structur e of the obligation in Article 5 with 
the prohibition in Article 3.2 which, in providing that a Member "shall neither grant nor maintain" 
prohibited subsidies, focuses squarely on the grant or  maintenance of a prohibited subsidy, rather than 
on causing certain effects through the use of the subsidy.1796   
7.28 The United States notes that the term 'use' in Article 5 appears as a noun which names a fact 
or situation; namely, the 'act of using, fact of being used', rather than as a verb.1797  According to the 
United States, the term 'use' as it appears in Artic le 5 does not carry any temporal connotation to 
indicate that the obligation in Article 5 applies only at the time at which the subsidy is initially 
granted.1798 On the contrary, the United States contends that  Article 5, in focusing on the act, fact or 
situation of causing adverse effects  through the use of subsidies, reflects that there may be a lag 
                                                      
1791 EC, Updated Request, para. 29. 
1792 United States, Comments on EC, Answer to Panel Question 2 of 8 December 2006, ("US, 
Comments on EC, Answer to Panel Question X of 8 December 2006"), para. 2.  The United States notes that the European Communities itself is also not a party to the VCLT. 
1793 US, Comment on EC, Answer to Panel Question 2 of 8 December 2006, para. 2.   
1794 United States, Answer to Panel Question 2 of 8 D ecember 2006, (hereinafter "US, Answer to Panel 
Question X of 8 December 2006"), para. 1; US, Comments  on EC Answer to Panel Question 2 of 8 December 
2006, para. 6. 
1795 US, Answer to Panel Question 2 of 8 December 2006. 
1796 US, Answer to Panel Question 2 of 8 December 2006, para. 2, at footnote 1. 
1797 US, Answer to Panel Question 2 of 8 December 2006, para. 2. 
1798 US, Answer to Panel Question 2 of 8 December 2006, para. 2. WT/DS316/R 
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  between the initial commitment of a subsidy and the adverse effects it causes, and that the subsidy and 
the adverse effects caused thereby need not be contemporaneous.1799 
7.29 The United States submits that its interpretation of  Article 5 is consistent with Part III of the 
SCM Agreement generally, which it argues is addr essed to an ongoing 'situation' in which adverse 
effects are being caused over time th rough the use of subsidies, rather than the discrete 'act' of making 
a financial contribution.1800  In support, the United States notes that Article 6.4 provides that claims of 
displacement or impedance for purposes of Article 6.3(d) of the SCM Agreement are required to be 
examined 'over an appropriately representative peri od sufficient to demonstrate clear trends in the 
development of the market for the product concerne d, which, in normal circumstances, shall be at 
least one year.'  In addition, Article 6.3(d) requi res that the effects in question follow a consistent 
trend over a period when subsidies have been granted.1801  
7.30 The United States argues that the text of Article  5 of the SCM Agreement does not distinguish 
between subsidy measures that came into existence prior to 1 January 1995 and those that came into 
existence after 1 January 1995.1802 The United States contends that contextual support for this position 
can be found in the provisions of Article 28 dealing with transitional arrangeme nts.  According to the 
United States, Article 28.1, which conditionally exempts subsidy programme s established before 
1 January 1995 from Part II of the SCM Agreement fo r a three-year transition period, confirms that 
the only obligations in the SCM Agreement that did not apply to subsidy programmes established 
before 1 January 1995 were those of Part II.1803     
7.31 In response to the European Communities' argu ment that paragraph 7 of Annex IV of the 
SCM Agreement should be regarded as an exceptiona l circumstance where subsidies granted prior to 
1 January 1995 may be taken into account in de termining whether a subsidy has caused adverse 
effects for purposes of Article 5, the United Stat es argues that paragraph 7 of Annex IV actually 
confirms the United States' conclusion that the SCM Agreement does not exclude subsidy measures 
that came into existence prior to 1 January 1995 from its temporal scope.1804  The United States argues 
that this provision is not an 'exception' to a ge neral rule of non-retroactivity in Part III of the 
SCM Agreement; it simply sets out a methodology for determining which  subsidies granted prior to 
1 January 1995 should be taken into  account for purposes of Article 6.1.1805 
(iii) Arguments of Third Parties 
7.32 Australia observes that, in considering the app lication of Article 28 of the VCLT to Article 5 
of the SCM Agreement, the Panel may be called on to  determine whether "payments made prior to the 
entry into force of the SCM Agreem ent can be characterised as forming part of a 'situation' or subsidy 
continuum which continued to exist after entry into force of the SCM Agreement."1806  In this regard, 
Australia submits that the Panel should draw on the guidance provided by the Appellate Body on the 
                                                      
1799 US, Answer to Panel Question 2 of 8 December 2006, para. 3. 
1800 US, Comments on EC Answer to Panel Question 2 of 8 December 2006, para. 6. 
1801 US, Comments on EC Answer to Panel Question 2 of 8 December 2006, para. 6. 
1802 United States, Response to Updated Request for a Preliminary Ruling Submitted by the European 
Communities, 29 November 2006, (hereinafter "US,  Answer to EC, Updated Request"), para. 15. 
1803 US, Answer to Panel Question 8 of 8 December 2006, para. 20. 
1804 US, Answer to EC, Updated Request, para. 17. 
1805 US, Answer to Panel Question 6 of 8 December 2006, para. 14. 
1806 Third Party Submission of Australia, 7 May 2007, (hereinafter "Australia Third Party Submission") 
para. 24.  WT/DS316/R 
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  application of Article 28 of the VCLT to 'situations'.1807  Australia also notes that the SCM Agreement 
contains provisions which require an examin ation of a representative period for purposes of 
establishing the effects of subsidization, and that, depending on the nature of the subsidy granted, 
such effects may continue to exist through the ongoing conferral of a benefit to the subsidized 
product.1808 
7.33 Brazil argues that the relevant 'act' in the subs idies context is the provision of the subsidy by 
the government 'in the form of a financial contri bution conferring a benefit within the meaning of 
Article 1 of the SCM Agreement'.1809 According to Brazil, a single 'act' cannot constitute a 'situation' 
that continues over time "without more, such as th e continuing application of a WTO-inconsistent 
measure."1810  
7.34 Based on this approach, single grants made pr ior to 1 January 1995 would be excluded from 
the temporal scope of Article 5, while 'recu rring subsidies' and contributions made after 
1 January 1995 would fall within the scope of Ar ticle 5, even where they are made pursuant to 
commitments, decisions or actions taken prior to 1 January 1995.1811 Brazil supports this interpretation 
of Article 5 by noting that the obligation 'not to  cause adverse effects' contained in Article 5 is 
qualified by reference to the Me mber's 'use' of any subsidy referred to in paragraphs 1 and 2 of 
Article 1 .1812  In addition, Brazil argues that active verbs 'g rant,' 'maintain,' and 'use' suggest that the 
drafters intended that the SCM Agreement would cover only subsidies within the meaning of Article 1 
that were actually provided after 1 January 1995.1813   
7.35 Finally, Brazil considers that the absence of any transition provisions expressly according 
WTO Members the right to challenge pre- WTO subsidies under Parts II and III of the 
SCM Agreement further supports Brazil's interpre tation of the temporal scope of Article 5.1814 
7.36 Japan submits that the text of the SCM Agreement demonstrates that its drafters did not 
intend its disciplines to be limited only to subsidies granted on or after 1 January 1995.1815 In this 
regard, Japan notes that Article 28.1 of the SCM Agreement, by providing a three-year grace period 
during which Members could not challenge certa in subsidy programmes under Part II of the 
SCM Agreement "implies that Members could  challenge such pre-WTO programmes after the grace 
period had expired."1816  
                                                      
1807 Australia, Third Party Submission, para. 24.  Au stralia refers to the Appellate Body Report, Canada 
– Term of Patent Protection ("Canada – Patent Term "), WT/DS170/AB/R, adopted 12 October 2000, 
DSR 2000:X, 5093 in this regard. 
1808 Australia, Third Party Submission, para. 24.  The provisions of the SCM Agreement to which 
Australia refers are Article 6.3(d) and Article 6.4, discussed below. 
1809 Brazil, Third Party Comments regarding the Requ est for Preliminary Rulings by the European 
Communities, 5 December 2006, ("hereinafter Brazil, Third Party Comments"), para. 17. 
1810 Brazil, Third Party Comments, para. 13; Third Party Written Submission of Brazil, 7 May 2007, 
("hereinafter Brazil Third Party Submission"), para. 13. 
1811 Brazil, Third Party Comments, para. 18; Brazil, Third Party Submission, paras. 10-15. 
1812 Brazil, Third Party Comments, para. 19. 
1813 Brazil, Third Party Comments, para. 19; Brazil, Third Party Submission, para. 14. 
1814 Brazil, Third Party Comments, para. 19. 
1815 Third Participant Submission of Japan, 7 May 2007 (hereinafter "Japan Third Party Submission"), 
para. 4.  Brazil and Japan were the only Third Parties to  specifically address the question of the temporal scope 
of Article 5 of the SCM Agreement. 
1816 Japan Third Party Submission (emphasis in original).  The European Communities and the United 
States also addressed the significance of Article 28 and  Annex IV, paragraph 7 to the contextual interpretation 
of Article 5.  These arguments are considered below. WT/DS316/R 
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  7.37 Similarly, Japan notes that paragraph 7 of A nnex IV of the SCM Agreement recognizes that 
members may allocate benefits to future production arising from "subsidies granted prior to the date 
of entry into force of the WTO Agreement" that are being challenged under Part III of the SCM Agreement.   
7.38 Finally, Japan notes that the relevant provisi ons of the SCM Agreement in this dispute; 
namely, Articles 1, 5, 6 and 7, contain no temporal limitations, and contends that the absence of such 
limitations is significant, as the drafters expressly pr ovided for temporal limitations in other parts of 
the SCM Agreement, such as Article 27.
1817    
7.39 According to Japan, the relevant inquiry for th e Panel in the present dispute is to determine 
whether each alleged pre-1995 subsidy 'situation' had 'ceased to exist' prior to 1995, or whether it 
continued into 1995 or beyond.1818 Japan submits that, in conducting this analysis, the Panel should 
consider a subsidy situation to be ongoing "so lo ng as the benefit of that subsidy continues to 
exist."1819   
(iv) Responses of the Parties to the Arguments of Third Parties 
7.40 The United States argues that Brazil has erroneous ly equated the 'provision' of a subsidy to 
the making of a 'financial contribution' in dete rmining whether a subsidy was 'provided' before 
1 January 1995.  According to the United States, to the extent that it is even relevant to determine 
when a particular subsidy was 'provided' for purpo ses of the application of Article 5, the analysis 
cannot be limited to the point in time when the fi nancial contribution was made. The United States 
refers in support to the observation of the Appellate Body in US – Lead and Bismuth II  that the 
definition of subsidy in Article 1.1 does not address the time at which the 'financial contribution' 
and/or 'benefit' must be shown to exist.1820   
7.41 The United States also disputes Brazil's charact erization of the obligation contained in 
Article 5 of the SCM Agreement as essentially an obligation to avoid 'providing' certain subsidies.1821  
The United States contends that the obligation contai ned in Article 5 is rather, an obligation not to 
cause adverse effects  through the use of a subsidy; an obliga tion which the United States argues is of 
a fundamentally different nature to the obligation no t to 'grant' prohibited subsidies in Article 3.2.  
The United States contends that the provisions of  Parts II and III of the SCM Agreement "each apply 
in their own way upon the entry into force of the SCM Agreement, obliga ting Members henceforth 
not to grant or maintain a certain class of subsid ies and not to cause adverse effects through a broader 
group of subsidies."1822  According to the United States, th e absence of any transition provisions 
expressly according Members the right to challenge pre-WTO subsidies under Parts II and III of the 
SCM Agreement is "completely consistent with the di fferent character of the obligations in Parts II 
                                                      
1817 Japan Third Party Submission, para. 5.   
1818 Japan Third Party Submission, para. 6. 
1819 Japan Third Party Submission, para. 8. 
1820 United States, Comments on the Third Party Comme nts of Brazil, 18 December 2006 (hereinafter 
"US, Comments on the Third Party Comments of Brazil"), para. 5; referring to Appellate Body Report, United 
States – Imposition of Countervailing Duties on Certain Hot-Rolled Lead and Bismuth Carbon Steel Products 
Originating in the United Kingdom ("US – Lead and Bismuth II "), WT/DS138/AB/R, adopted 7 June 2000, 
DSR 2000:V, 2595, para. 60.  The United States notes that, in the US – Lead and Bismuth II  dispute, the alleged 
subsidies countervailed involved financial contributions (principally equity infusions) made by the British 
government during 1977-1978 and 1985-1986, the benefits of which were allocated by the USDOC over the 
subsequent 18 years.  No party to that dispute contested that a pre-1995 financial contribution resulting in post-1995 benefits could amount to an actionable subsidy under Part V of the SCM Agreement (at footnote 11). 
1821 US, Comments on the Third Party Comments of Brazil, para. 6. 
1822 US, Comments on the Third Party Comments of Brazil, para. 8.  WT/DS316/R 
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  and III and in no way suggests that the obligations must  be read in a way that is contrary to their 
express meaning."1823 
7.42 In response to Japan's comment s, the European Communities disagrees with what it regards 
as Japan's unsupported contention that individual s ubsidies could have been challenged during the 
grace period provided for subsidy programmes in Article 28.1.  According to the European 
Communities, there is no contrary intention expr essed in the SCM Agreement that the drafters 
intended to overcome the presumption of non-retroactivity for individual subsidies granted prior to 1 January 1995.
1824  
7.43 With respect to Japan's argument that express temporal scope limitations are contained in 
other provisions of the SCM Agreement, such as Article 27, the European Communities responds that 
Article 27 does not concern the question of specific temporal rules for past conduct, but exempts developing countries for a period after  entry into force of the SCM Agreement.  According to the 
European Communities, if subsidies provided prior to  1 January 1995 had been intended to be subject 
to Article 5, the exemption concerning special and differential treatment of developing countries 
contained in Article 27.3 would ha ve covered subsidies provided prior to 1 January 1995, when it did 
not.
1825 
(v) Evaluation by  the Panel 
7.44 We recall that Article 5 of the SCM Ag reement provides, in relevant part:  
"No Member should cause, through the use of any subsidy referred to in paragraphs 1 
and 2 of Article 1, adverse effects to the interests of other Members..."  
7.45 There is nothing in the text of Article 5 of th e SCM Agreement to indicate that the obligation 
it sets forth should operate in a retroactive manner.  We consider that Memb ers undertook to be bound 
by the obligation contained in Article 5 of the SCM Agreement as of 1 January 1995.  It is important 
to emphasize, however, that accepting to be bound by the obligation contained in Article 5 as of 1 January 1995 is not necessarily the same as  agreeing that only subsidies granted after 
1 January 1995 may be subject to adverse effect s claims under Part III of the SCM Agreement.  
Whether or not this is so depends on the conten t of the obligation contained in Article 5.   
7.46 Based on its ordinary meaning, Article 5 im poses an obligation on Members not to cause 
adverse effects to the interests of other Memb ers through the use of subsidies as defined in 
Article 1.
1826  As the United States observes, the predicat e of the sentence in Article 5 is to 'cause 
adverse effects to the interests of other Members' , while the phrase 'through the use of' is an adverbial 
phrase that describes the manner in which the Member should not cause the adverse effects.1827  
Article 5 thus comprises an obligation not to cause certain results through a sp ecific causal pathway, 
rather than an obligation not to engage in certain conduct.  This is reflected in the remedy envisaged 
for subsidies which have been dete rmined to have resulted in adverse effects within the meaning of 
Article 5: Members shall either withdraw the subsidy or shall take appropriate steps to remove the 
                                                      
1823 US, Comments on the Third Party Comments of Brazil. 
1824 EC, SWS, para. 14. 
1825 EC, SWS, para. 14. 
1826 We note that, in contrast to Artic le 5, Article 3 is formulated as a prohibition on the act of granting 
or maintaining export subsidies, as these subsidies are regarded as harmful per se .  Article 5 is directed towards 
the adverse effects which can be shown to have been caused by the use of subsidies by a Member, including by 
use of the narrow class of subsidies whose grant or maintenance is prohibited in Article 3. 
1827 US, Answer to Panel Question 2 of 8 December 2006, para. 2. WT/DS316/R 
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  adverse effects.1828  The Appellate Body has indicated in previous disputes that the principle codified 
in Article 28 of the VCLT is a general principle of international law that is relevant to the 
interpretation of the covered agreements.1829  In our view, it is the obligation not to cause, through the 
use of any subsidy referred to in pa ragraphs 1 and 2 of Article 1, a dverse effects to the interests of 
other Members, that is to be interp reted consistently with the principl e of non-retroactivity reflected in 
Article 28 of the VCLT.    
7.47 Article 28 of the VCLT, entitled 'Non-retroactivity of treaties' provides: 
"Unless a different intention appears from the treaty or is otherwise established, its 
provisions do not bind a party in relation to any act or fact which took place or any 
situation which ceased to exist before the da te of the entry into force of the treaty 
with respect to that party."1830   
7.48 In Canada – Patent Term , the Appellate Body explained the application of Article 28 of the 
VCLT in the following terms: 
"Article 28 of the Vienna Convention  covers not only any 'act', but also any 'fact' or 
'situation which ceased to exist'.  Articl e 28 establishes that, in the absence of a 
contrary intention, treaty provisions do not apply to 'any situation which ceased to 
exist' before the treaty's entry into force fo r a party to the treaty.  Logically, it seems 
to us that Article 28 also necessarily impli es that, absent a contrary intention, treaty 
obligations do apply to any 'situation' which has not ceased to exist – that is, to any 
situation that arose in the past, but continues to exist under the new treaty."1831 
7.49 As the above statement makes clear, the non-retro activity principle reflected in Article 28 of 
the VCLT distinguishes between discrete 'acts' and 'facts' on the one hand, and 'situations' on the 
other. It is not a violation of the non-retroactivity prin ciple for a treaty to apply to situations that are in 
existence when the treaty comes into force, even if they first arose at an earlier date.1832  
                                                      
1828 In contrast, where a Member is determined to have granted or maintained a prohibited subsidy 
contrary to Article 3, the remedy contained in Article 4 calls for the Member to withdraw the subsidy without delay. 
1829 Appellate Body Report, Brazil – Measures Affecting Desiccated Coconut ("Brazil – Desiccated 
Coconut "), WT/DS22/AB/R, adopted 20 March 1997, DSR 1997:I, 167, p. 14; Appellate Body Report, Canada – 
Patent Term , paras. 71-72; Appellate Body Report, EC – Hormones , para. 128; Appellate Body Report, 
European Communities – Trade Description of Sardines ("EC – Sardines "), WT/DS231/AB/R, adopted 
23 October 2002, DSR 2002:VIII, 3359, para. 200.   
1830 Article 28 of the VCLT has been described as refl ecting a general principle of international law, or 
according to the Panel in Brazil – Desiccated Coconut ,   "an accepted principle of cu stomary international law";  
Panel Report, Brazil – Measures Affecting Desiccated Coconut ("Brazil – Desiccated Coconut  "), WT/DS22/R, 
adopted 20 March 1997, as upheld by Appellate Body Report WT/DS22/AB/R, DSR 1997:I, 189, para. 279. We 
therefore see no need to co ncern ourselves with the question of whethe r the Article 28 itself is binding on the 
United States.  In any case, the United States does not appe ar to dispute the applicatio n of the principle, whether 
its source is in customary law, general principles or th e VCLT.  The Panel notes that the United States was the 
complaining party in Canada – Patent Term  in which the Appellate Body applied Article 28 of the VCLT to 
obligations under th e TRIPS Agreement. 
1831 Appellate Body Report, Canada – Patent Term , para. 72. 
1832 International Law Commission Commentary on the draft Vienna Convention, Yearbook of the ILC, 
1966, Vol. II, Comment 3 on draft Article 24, p. 212; referred to by the Appellate Body in Canada – Patent 
Term , para. 73.  WT/DS316/R 
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  7.50 We note that the dictionary definition of 'act' includes "a thing done; a deed".1833 When 
considering the manner in which Article 28 of the VCLT applied to provisions of the TRIPS 
Agreement, the Appellate Body in Canada – Patent Term , described the term 'act' (in the context of 
interpreting Article 70.1 of the TRIPS Ag reement) as "something that is 'done'".1834  By contrast, a 
'situation', for purposes of Article 28 of the VCLT has been defined as  "a set of circumstances; a state 
of affairs".1835  In Canada – Patent Term , the Appellate Body described the concept of 'situation' in 
Article 28 of the VCLT as suggesting "somethi ng that subsists and continues over time".1836   
7.51 Both the European Communities and the Un ited States agree that nothing in the 
SCM Agreement reveals an intention on the part of  the drafters to apply Article 5 (or any other 
provision of the SCM Agreement) to an "act or fact which took place or a situation which ceased to 
exist" prior to 1 January 1995.1837  Where they differ is over the characterisation of the obligation 
contained in Article 5 as addressing either the discrete 'act' of bringing a subsidy into existence, or the 
'situation' of causing adverse effects through the use of subsidies, for purposes of the non-retroactivity 
analysis.  The European Communities argues that, in the context of Article 5, the non-retroactivity 
principle applies to the 'act' of a Member in bri nging into existence a subsidy.  As this conduct is 
necessarily completed when the subsidy is brought in to existence, subsidies brought into existence 
prior to 1 January 1995 are 'completed acts' a nd are therefore outside the temporal scope of 
application of Article 5, even if the 'economic effe cts' of such subsidies may continue to be felt 
subsequently.1838  We do not agree.   
7.52 We consider that Article 5 addresses a set of circumstances or state of affairs ( i.e., a 
'situation') rather than specific acts of a Member.  Wh ile 'cause' is used as a verb in Article 5, it does 
not connote specific action on the part of a Member .  Rather, it describes a particular relationship 
between the antecedent conduct of a Member and subse quent events which ultimately are attributed to 
that Member.  To the extent that Article 5 involves 'acts' or conduct, they relate to the 'use' of the 
subsidy, and not the 'bringing into existence' or granting of the subsidy.  We consider that our 
characterisation of the obligation in Article 5 as a 'situa tion' rather than an 'act' is consistent with other 
provisions of Part III of the SCM Agreement ( e.g., Article 6.3(d) and Article 6.4) which require an 
examination of a representative period for the purpo ses of establishing the effects of subsidization.  
These provisions suggest that Part III generally is  concerned with a situation that subsists and 
continues over time, rather than with  specific acts performed by Members. 
7.53 The European Communities argues that, because the obligation in Article 5 relates to the use 
of a "subsidy referred to in para graphs 1 and 2 of Article 1", th e temporal scope of Article 5 
                                                      
1833 Shorter Oxford English Dictionary , 5th ed., Oxford, OUP 2002, p. 21. 
1834 Appellate Body Report, Canada – Patent Term , para. 58. 
1835 Shorter Oxford English Dictionary , 2002, p. 2852. 
1836 Appellate Body Report, Canada – Patent Term , para. 72.  The panel in that dispute had 
characterised the protection accorded to inventions by patents granted under a pre-1989 Canadian patent regime 
as a 'situation which has not ceased to exist' at the date of the applicati on of the TRIPS Agreement for Canada, 
and found that this situation could not be related to ' acts which occurred' before that date, and thereby brought 
within the scope of Article 70 .1 of the TRIPS Agreement. 
1837 EC, Updated Request, para. 13. 
1838 In this regard, the European Communities argues that a 'continuing situation' for purposes of the 
SCM Agreement is a subsidy programme involving recurri ng grants of subsidies.  Thus, for the European 
Communities, grants made subsequent to 1 January 1995, even if pursuant to a pre-1995 programme, would be 
subject to Article 5 of the SCM Agreement, while grants made prior to 1 January 1995 would not.  EC, Answer to Panel Question 57, paras. 6-7.  However, as we have  indicated, it is the obligation contained in Article 5 of 
the SCM Agreement that must be char acterised as either an 'act' or 's ituation' in order to be construed 
consistently with the non-retroactivity principle reflected in Article 28 of the VCLT. WT/DS316/R 
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  necessarily depends on the bringing into existence of such a 'subsidy'.1839  We understand the 
European Communities to be arguing that, through the definition of 'subsidy' in Article 1.1, the temporal scope of the obligation contained in Article  5 is limited to adverse effects caused through the 
use of financial contributions conf erring benefits that came into existence after 1 January 1995.  
7.54 Article 1.1 of the SCM Agreement provides as follows: 
"For the purpose of this Agreement, a subsidy shall be deemed to exist if: 
(a)(1) there is a financial contribution by a government or any public body within 
the territory of a Member (referred to  in this Agreement as "government"), i.e., 
where: 
(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 incentives 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; 
    o r  
 (a)(2) there is any form of income or price support in the sense of Article XVI of GATT 
1994; 
    a n d  
 
 (b) a benefit is thereby conferred."
1840 
 7.55 We do not read the reference in Article 5 to th e definition of 'subsidy' in Article 1 as limiting 
the application of the SCM Agreement to financ ial contributions made and benefits conferred 
subsequent to 1 January 1995.  Article 1.1 sets fort h the circumstances in which a 'subsidy' is 'deemed 
to exist' for purposes of the SCM Agreement.  It  does not impose on Members an obligation to which 
the non-retroactivity principle reflected in Article 28 of the VCLT could apply.   
7.56 We recall further that 'subsidy' in Artic le 1.1 of the SCM Agreement is a compound 
definition.  As the Appellate Body observed in Brazil – Aircraft , the issues and respective definitions 
of 'financial contribution' and 'benefit' are separate legal elements in Article 1.1, which together 
                                                     
 
1839 EC, SWS, paras. 18 and 19.  Brazil makes a similar argument in its Third Party Comments at 
para. 19. 
1840 Footnote omitted.  WT/DS316/R 
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  determine whether a 'subsidy' exists.1841  In US – Lead and Bismuth II , the Appellate Body rejected an 
argument that the use of the present tense of the verb 'is conferred' in Article 1.1(b) of the 
SCM Agreement indicated that an investigating aut hority must demonstrate the existence of 'benefit' 
only at the time the 'financial contribution' is made .  In rejecting this argument, the Appellate Body 
observed in particular that "Article 1.1 does not address the time at which the 'financial contribution' 
and/or the 'benefit' must be shown to exist."1842 
7.57 In addition, there are significant contextual f actors that militate against the interpretation of 
Article 5 advocated by the European Communities.  Specifically, paragraph 7 of Annex IV to the 
SCM Agreement indicates that the drafters did not regard the temporal scope of Part III of the 
SCM Agreement as confined to financial contribu tions made, or subsidies otherwise brought into 
existence, after 1 January 1995.  We recall that paragraph 7 of Annex IV to the SCM Agreement, 
which sets forth the method for calculating the total ad valorem  subsidization of a product for 
purposes of the presumption of serious prejudice in Article 6.1(a) of the SCM Agreement, required 
that certain subsidies granted prior to 1 January 1995 be included in the total ad valorem  subsidization 
calculation.  Paragraph 7 of Annex IV provided: 
"Subsidies granted prior to the date of en try into force of the WTO Agreement, the 
benefits of which are allocated to future production, shall be included in the overall 
rate of subsidization." 
This is an express textual recognition that the 'adverse effects' that are the subject of Article 5 can be 
'caused' through the use of subsidies granted prior to  1 January 1995, at least to the extent that the 
benefits of such subsidies can be allocated to the period subsequent to 1 January 1995.  Although 
Article 6.1 and Annex IV have now expired (pursuant to the provisions of Article 31 of the 
SCM Agreement), they did form part of the orig inal framework for determining when a Member 
could be considered to have caused 'adverse effects' ( i.e., serious prejudice to the interests of another 
Member) through the use of a subsidy for purposes of  Article 5.1(c), and thus provide an important 
indication of the intended scope of Article 5.1843  
 7.58 The European Communities argues that paragra ph 7 of Annex IV should be regarded as an 
exception which proves the general rule that only post-1995 subsidies can be subject to adverse 
effects claims.  According to the European Comm unities, paragraph 7 of Annex IV concerned the 
'allocation' of a subsidy to 'future production'; a c oncept which it contends is "different from the idea 
that a pre-1995 subsidy 'continues to confer a be nefit' post-1995." The European Communities argues 
that paragraph 7 of Annex IV provided a valuation rule "in the narrow circumstance that any benefits 
incurred in relation to {pre-WTO} subsidies are allocated to future production" ,
1844 and in this sense, 
the relevant conduct for purposes of determining the temporal scope of paragr aph 7 of Annex IV is 
                                                      
1841 Appellate Body Report, Brazil – Export Financing Programme for Aircraft ("Brazil – Aircraft "), 
WT/DS46/AB/R, adopted 20 August 1999, DSR 1999:III, 1161, para. 157. 
1842 Appellate Body Report, US – Lead and Bismuth II , para. 60. 
1843 We recall that the Panel in US – Upland Cotton  noted that provisions of the SCM Agreement that 
have lapsed may nevertheless be useful in understanding the overall architecture of the SCM Agreement with 
respect to the different types of subsidies it sought and seeks to address; Panel Report, United States – Subsidies 
on Upland Cotton ("US – 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, para. 7.907 (footnote 1086).  A similar 
view was expressed in the Decision by th e Arbitrator, Decision by the Arbitrator, United States – Tax Treatment 
for "Foreign Sales Corporations" – Recourse to Arbitratio n by the United States under Article 22.6 of the DSU and 
Article 4.11 of the SCM Agreement  ("US – FSC (Article 22.6 – US) "), WT/DS108/ARB, 30 August 2002, 
DSR 2002:VI, 2517, footnote 66. 
1844 EC, SWS, para. 21. WT/DS316/R 
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  the allocation of the subsidy to future production.1845  The European Communities contends that if 
Part III of the SCM Agreement had been intended to  apply generally to subsidies granted prior to 
1 January 1995 "irrespective of their benefit allocati on", a provision such as paragraph 7 of Annex IV 
would have been unnecessary and redundant.1846  The European Communities therefore considers that 
Annex IV and Article 6.1(a) are unique and excep tional provisions of the SCM Agreement which 
include specific rules on the quantification of a subsidy which are normally found in Part V.1847 
7.59 We do not agree.  Paragraph 7 of Annex IV recognises that a subsidy granted prior 
1 January 1995 may, in certain circumstances ( i.e., where its benefits are allocated to future 
production) be relevant to the serious prejudice determ ination in Article 5(c) and thus, may give rise 
to adverse effects under Article 5. Its significance to the present dispute is as a rebuttal of the 
European Communities' core argument that Article 5 was intended to apply only to subsidies brought 
into existence subsequent to 1 January 1995.  Pa ragraph 7 of Annex IV is a clear indication that 
subsidies granted prior to the entry into force of  the SCM Agreement are considered subject to the 
obligation concerning adverse effects contained in Article 5.   
7.60 Moreover, we disagree with the European Co mmunities that the purpose of paragraph 7 of 
Annex IV was to set forth exceptional circumstanc es that would be deemed to constitute serious 
prejudice for purposes of the adverse effects determin ation in Article 5.  We can conceive of no 
plausible reason why the drafters would provide that serious prejudice could be presumed  on the basis 
of pre-1995 subsidies while precluding the possibility that serious prejudice arising from pre-1995 subsidies could be affirmatively demonstrated
.  We consider that the role of Annex IV was to specify 
an agreed methodology for the total ad valorem  calculation contemplated by Article 6.1(a).  
Paragraph 7 of Annex IV set forth how pre-1995 subsidies were to be included in that calculation.  In 
this context, we consider paragra ph 7 of Annex IV to be indicative of, rather than an exception to, the 
drafters' intentions regarding the subsidies that w ould be subject to the obligations of Part III.   
7.61 As regards the contextual significance of Article  28.1 of the SCM Agreement to the temporal 
scope of Article 5, the European Communities argu es that the fact that Article 28.1(b) grants 
Members a transitional period of three years in which to bring their existing subsidy programmes  into 
conformity with the SCM Agreement, "shows a fortiori that individual cases of subsidization before 
1995 are not covered by the SCM Agreement at all."1848   
7.62 According to the United States, Article 28.1 of  the SCM Agreement makes clear that subsidy 
programmes established before the date of entry into force of the SCM Agreement are subject to the 
SCM Agreement; however, it grants Members a wi ndow of three years to bring inconsistent 
programmes into conformity with the obligations of Part II.1849  The United States contends that the 
necessary implication of this temporary exemption of  inconsistent measures from the obligations of 
Part II  of the SCM Agreement, is that such programmes are otherwise subject to Part I and to Parts III 
through XI.1850 
                                                      
1845 EC, SWS, para. 22. 
1846 EC, Updated Request, para. 29. 
1847 EC, SWS, para. 22. 
1848 EC, Updated Request, para. 25.  See, also, EC, Answer to Panel Question 8 of 8 December 2006, 
para. 77. 
1849 Japan makes a similar argument in its Third Party Submission, 7 May 2007, para. 4. 
1850 US, Answer to EC, Updated Request, para. 16.  WT/DS316/R 
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  7.63 We recall that Article 28 provides: 
"28.1 Subsidy programmes which have been established within the territory of any 
Member before the date on which such a Member signed the WTO Agreement and which are inconsistent with the prov isions of this Agreement shall be: 
 (a) notified to the Committee not later than 90 days after the date of 
entry into force of the WTO Ag reement for such Member; and 
 (b) brought into conformity with the provisions of this Agreement within 
three years of the date of entry into fo rce of the WTO Agreement for such Member 
and until then shall not be subject to Part II. 
28.2 No Member shall extend the scope of  any such programme, nor shall such a 
programme be renewed upon its expiry."   
We do not consider Article 28.1 to be of contextual  assistance in deciding whether subsidies granted 
prior to 1 January 1995 may be subject to the obligations of Article 5.  The wording of 
Article 28.1(b), particularly the final phrase " until then  shall not be subject to Part II," indicates that 
the three year period during which Members were required to bring their WT O-inconsistent measures 
into conformity with the SCM Agreement opera ted only as a temporary exemption from the 
application of the provisions of Part II.
1851   In other words, it may be inferred from Article 28 that 
WTO-inconsistent subsidy programmes , established prior to 1 January 1995 and continuing in effect 
after that date, were generally in tended to fall within the temporal scope of Part II, subject to the 
three-year grace period granted by Article 28.1.  If such subsidy programmes were generally intended 
to fall within the temporal scope of th e SCM Agreement for purposes of Part II ( i.e., as regards the 
prohibition on the granting or maintaining of prohib ited export subsidies) then, in the absence of any 
contrary intention expressed in the text or implie d from the structure of the SCM Agreement, they 
would likewise fall within the temporal sc ope of Part III of the SCM Agreement ( i.e., for purposes of 
the obligation not to cause, through the use of subs idies, adverse effects to the interests of other 
Members).  Thus, Article 28.1 suggests that subsi dy programmes established prior to 1 January 1995 
and maintained subsequent to this date are subject  to Part III - it does not tell us whether subsidies 
granted by Members prior to 1 January 1995 are subject to Part III.  7.64 Based on the foregoing, we construe the obligation contained in Article 5 of the 
SCM Agreement as an obligation not to cause adver se effects to the interests of other Members 
through the use of subsidies as defined in Artic le 1.  For purposes of the application of the non-
retroactivity principle reflected in Article 28 of the VCLT, we characterise Article 5 as addressing a 'situation'; namely, causing adverse effects through the use of subsidies. Consistent with Article 28 of 
the VCLT, Article 5 applies to any such "situation"  which exists as of the effective date of the 
SCM Agreement, even if that situa tion arose as a result of the granting of  a subsidy prior to that date.  
In other words, our interpretation of the temporal scope of application of Article 5 is based on the 
ordinary meaning of the terms of Article 5 in their context and in the light of the object and purpose of 
the SCM Agreement.  In this regard, we note in par ticular that paragraph 7 of  Annex IV demonstrates 
that subsidies granted prior to 1 January 1995 were  considered relevant to the serious prejudice 
determination in Article 5(c) a nd thus, could give rise to adverse effects under Article 5.   
                                                     
 
1851 Part II of the SCM Agreement relates to prohib ited export subsidies.  Article 3.2, which is 
contained in Part II of the SCM Agreement, prohibits Members from granting or maintaining export subsidies referred to in Article 3.1.  Article 4.7 provides that, shou ld a panel find that a Member has granted or maintained 
a prohibited export subsidy in contra vention of Article 3.2, it shall re commend that the subsidizing Member 
withdraw the subsidy without delay. WT/DS316/R 
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  7.65 In conclusion, we therefore reject the Europ ean Communities' request for a preliminary ruling 
that all alleged prohibited and actionable subsidi es granted by the European Communities prior to 
1 January 1995 be excluded from the temporal scope of these proceedings.   
(c) Relevance of the 1992 Agreement Between the European Communities and the United States 
to the Temporal Scope of These Proceedings 
(i) Introduction 
7.66 In its updated request for preliminary rulings , the European Communities asks the Panel to 
rule that any alleged government support committed prior to 17 July 1992, the effective date of the 
1992 Agreement, is excluded from the temporal sc ope of these proceedings.  In support of this 
request, the European Communities advances various  arguments regarding the relevance of the 
1992 Agreement to the rights and obligations of the par ties in this dispute. In this Preliminary Ruling, 
we address only those which relate to the Eur opean Communities' claims regarding the temporal 
scope of Article 5 of the SCM Agreement made in  its request and updated request for preliminary 
rulings. These arguments concern the relevance of Articles 2 and 10 of the 1992 Agreement to the 
question whether alleged governme nt support committed prior to the effective date of the 
1992 Agreement is outside the temporal scope of a pplication of Article 5 of the SCM Agreement, and 
should therefore be excluded from these proceedi ngs. We do not address in this Preliminary Ruling 
the European Communities' 'defence' that Article 4 of the 1992 Agreement constitutes the appropriate 
'benchmark' for the assessment of LA/MSF under the SCM Agreement.1852 Nor do we consider the 
European Communities' arguments that Article 4 of the 1992 Agreement is relevant to the questions 
of the existence of a subsidy under Article 1 of the SCM Agreement, and th e causation of adverse 
effects under Article 5 of the SCM Agreement.1853 
7.67 However, before turning to consider the Eur opean Communities' arguments, we consider it 
useful to provide a brief description of the provi sions of the 1992 Agreement.  The 1992 Agreement 
was concluded by the United States and the European Communities on 17 July 1992.1854  It had been 
negotiated against a background of  differences between the Euro pean Communities and the United 
States over support measures to their respective large civil aircraft industries.1855  In the preamble to 
the 1992 Agreement, the parties recognised the need  to promote a more favourable environment for 
international trade in large civil aircraft and to  reduce trade tensions in the area.  They also 
acknowledged that the disciplines in the GATT Agre ement on Trade in Civil Aircraft should be 
strengthened with a view to progressively reduci ng the role of government  support.  The parties 
expressed their agreement as being in pursuit of their common goal of preventing trade distortions 
resulting from direct or indirect government support for the development and production of large civil 
                                                      
1852 First Written Submission of the European Communities (hereinafter "EC, FWS"), paras. 394-404.   
1853 EC, SWS, paras. 148-157. 
1854 On 6 October 2004, the United States notified the European Communities that it was abrogating the 
1992 Agreement ; Note verbale No. 55 of the US mission to  the EU to the General Secretariat of the Council of 
the EU, 6 October 2004.  However, the European Communities considers that the 1992 Agreement is still in 
force between the parties.  We need not resolve this  issue in order to decide the European Communities' 
preliminary ruling request, and therefore express no views on it. 
1855 One manifestation of these differences was the United States' challenge to an exchange rate 
guarantee Agreement between the German Government and Deutsche Airbus as an export subsidy inconsistent with Article 9 of the Agreement on Interpretation and Application of Articles VI, XVI, and XXIII of the General 
Agreement on Tariffs and Trade  (the "Tokyo Round Subsidies Code").  On 4 March 1992, a GATT Panel 
concluded that the exchange rate guarantee scheme resulted in a subsidy granted on exports and that the scheme was prohibited by Article 9 of the Tokyo Round Subsidies Code, as an export subsidy covered by Item (j) of the 
Illustrative List. GATT Panel Report, German Exchange Rate Scheme for Deutsche Airbus , SCM /142, 
4 March 1992, unadopted.  WT/DS316/R 
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  aircraft, introducing greater disciplines on such  support, and encouraging the adoption of such 
disciplines multilaterally within the GATT.  The fift h recital to the preamble noted the parties': 
"{I}ntention to act without prejudice to their rights and obligations under the GATT 
and under other multilateral Agreements negotiated under the auspices of the 
GATT..."  
In Article 1, the parties agreed to act in conformi ty with the interpretative note to Article 4 of the 
GATT Aircraft Agreement on Trade in Civil Aircraft .  Article 2 of the 1992 Agreement, entitled 'Prior 
government commitments' specified the following:  
"Government support to current large civil aircraft programmes, committed prior to 
the date of entry into force of this Agreemen t, is not subject to the provisions of this 
Agreement except as otherwise provided belo w.  The terms and conditions on which 
support is granted shall not be modified  in such a manner as to render it more 
favourable to the recipients: however, de minimis  modifications shall not be deemed 
inconsistent with this provision." 
7.68 Article 3 imposed a prohibition on the grant of direct government support to both existing and 
future large civil aircraft programmes "other than  what has already been firmly committed for the 
production of large civil aircraft."  Article 4 est ablished qualitative and quantitative parameters for the 
provision of support for the development of new large civil aircraft programmes or derivative 
programmes.  Article 5 set limitations for the pr ovision of indirect government support and Article 6 
restricted the parties from assuming liability fo r specific loans made available by aircraft 
manufacturers to airlines, other than through offici al export credit financing consistent with OECD 
guidelines.  Article 7 excluded equity infusions fro m the scope of the 1992 Agreement.  Article 8 was 
a transparency provision which required the parties to regularly and systematically exchange all 
public information of a kind governments make av ailable to their respective national elected 
assemblies relating to matters covered by the 1992 Agre ement.  Article 8.2 provided that, in relation 
to prior government commitments for large civil ai rcraft programmes described in Article 2, the 
parties shall separately provide a complete list of  such commitments already disbursed or committed, 
and shall each notify the other part y of any changes which render the terms and conditions of such 
support commitments more favourable to the recipi ent.  Article 9 permitted a party, in certain 
unforeseen, exceptional circumstances, and subject to the fulfilment of certain conditions, to derogate 
temporarily from the disciplines laid  down in the 1992 Agreement.  
7.69 Article 10 of the 1992 Agreement provided as follows: 
"Avoidance of trade conflicts and litigation 10.1 Parties shall seek to avoid any trade conflict on matters covered by the 
present Agreement.
(3) 
10.2 They will not self-initiate action under their national trade laws with respect 
to government supports granted in conform ity with this Agreement for as long as this 
Agreement is in force.  However, nothing in this paragraph shall prevent a Party from 
abrogating this Agreement on grounds of non-compliance by the other Party. 
10.3 In order to avoid trade conflict they will strongly encourage private parties to 
request the use of the provisions of Article 11 to resolve any disputes on matters 
covered by this Agreement.  If, however, private petitioners request that action be 
taken under national laws on matters covered by this Agreement, the petitioners' WT/DS316/R 
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  government will immediately inform the other Party and offer to enter into 
consultations in accordance with Article 11.  The Party against whom such action is brought shall have the right either to susp end the application of some or all of the 
provisions of the present Agreement or to terminate the Agreement 15 days after the 
conclusion of consultations. 
10.4 In the conduct of any investigations of trade allegations concerning products 
covered by this Agreement that have been  initiated under national trade laws as the 
result of private petitions, Parties shall, c onsistent with their law take account of 
representations concerning compliance w ith the terms of this Agreement. 
______________________ 
(3) Action with respect to 'matters covered by  the present Agreement' refers to trade 
actions relating to direct and indirect  government support as defined by this 
Agreement.  It does not include actions relating to dumping, intellectual property 
protection, or anti-trust or competition laws." 
(ii) Arguments of the European Communities 
7.70 The European Communities argues that, without  prejudice to its arguments regarding the 
temporal scope of the SCM Agreement, the Europ ean Communities and the United States have agreed 
to limit the temporal scope of the SCM Agreement inter se  in relation to pre-1992 government 
support measures for large civil aircraft.  Accordin g to the European Communities, this agreement 
between the parties as to the temporal scope of  disputes related to the application of the 
SCM Agreement to measures of support to large civil aircraft is embodied in the 1992 Agreement.1856 
The 1992 Agreement as 'applicable law'    
7.71 The European Communities argues that, in its exam ination of the matter referred to it in this 
dispute, the Panel should directly apply the provisions of the 1992 Agreement.1857   The European 
Communities contends that Article 2 of the 1992 Agreement constitutes an agreement between the 
European Communities and the United States to 'gra ndfather' all government support to large civil 
aircraft programmes committed prior to the entry into force of the 1992 Agreement.  The effect of this 
'grandfathering' provision is, according to the Europ ean Communities, that all such support is deemed 
to be compatible with the 1979 Agreement on Civil Aircraft  and the Tokyo Round Subsidies Code.  
Moreover, the European Communities argues that, by  continuing to apply the 1992 Agreement after 
the entry into force of the SCM Agreement on 1 Janua ry 1995, the parties ther eby also deemed such 
measures to be compatible with that subsequent Ag reement, and consequently, have agreed that such 
measures would not be challenged in WT O dispute settlement proceedings.   
The 1992 Agreement as a "relevant rule of interna tional law" applicable to the interpretation  
of the SCM Agreement   
7.72 The European Communities also  argues that the Panel should take into account the 
1992 Agreement in its interpretation of the SCM Ag reement as a "relevant rule of international law 
                                                      
1856 EC, Updated Request, paras. 36 and 37. 
1857 This broader argument regarding the significance of the 1992 Agreement to the determination of 
the present dispute was made by the European Communitie s in its Updated Request, at paras. 34-71 and was 
reiterated by the European Communities in its Answer  to Panel Question 9 of 8 December 2006, para. 79.  WT/DS316/R 
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  applicable in the relations between the parties".1858  Specifically, the European Communities argues 
that the 1992 Agreement can be used to interpret an 'outer temporal scope' for this dispute, applicable 
between the United States and EC.1859 In this regard, the European  Communities argues that the 1992 
Agreement, as an agreement between the United St ates and the European Communities not to re-open 
their settled dispute on pre-1992 measures of support to the large civil aircraft industry, 'informs' the 
interpretation of the SCM Agreement.1860 
7.73 The European Communities points to Article 31( 3)(c) of the VCLT as the basis on which the 
Panel may use the 1992 Agreement in order to interpre t an outer temporal scope for this dispute.  The 
European Communities submits that the 1992 Agreemen t, as a bilateral agreement between the United 
States and the European Communities, is a relevant  rule of international law applicable in the 
relations between the parties within Article 31(3)(c ) because the term 'parties' in Article 31(3)(c) of 
the VCLT should be taken to refer to parties to the pa rticular dispute only, rather than parties to the 
Agreement being interpreted (in this case, the SCM Agreement).1861 The European Communities 
disagrees with the view expressed by the panel in EC – Biotech , that Article 31(3)(c) of the VCLT 
requires that the rules of international law to  be taken into account in interpreting the WTO 
Agreements at issue are those applicable in the relations between the WTO Members, rather than 
those Members that are parties to the dispute in question.1862  The European Communities refers the 
Panel to the reports of the Appellate Body in US – Shrimp , US – FSCs  and EC – Computer Equipment 
in support of its contention that the term 'parties' in  the text of Article 31(3)(c) of the VCLT refers to 
the parties to the particular dispute only,  and not the entire membership of the WTO.1863 In this regard, 
the European Communities also refers the Panel to the Report of the Study Group of the International 
Law Commission on Fragmentation of International Law, the International Law Commission's Commentaries on the Draft Articles on the Law of Treaties, and the practice of other international bodies.
1864   
The 1992 Agreement as giving rise to an estoppel against the United States   
7.74 In addition, the European Communities argu es that the 1992 Agreement was part of a 
'mutually agreed solution' to a dispute between the European Communities and the United States over 
                                                      
1858 EC, Original Request, paras. 122-146.  We note that, although Section IV of this request was 
updated and replaced by the European Communities' Up dated Request for Prelimin ary Rulings (pursuant to 
para. 3 of EC, Updated Request) which did not contain the argument made in the original request that the 1992 Agreement is a "relevant rule of international law"  applicable in the relations between the parties within 
the meaning of Article 31(3)(c) of the VCLT, the Europ ean Communities has clarified in its Answers to the 
Panel's questions that it intended to retain the argument  based on Article 31(3)(c) of the VCLT as a narrower 
and alternative claim to the broader argument as to the applicability of the 1992 Agreement which it advanced in 
the Updated Request for Preliminary Rulings, in the event that the Panel were to reject the broader claim: EC, Answer to Panel Question 9 of 8 December 2006, paras. 78 and 79.  The European Communities also reiterated 
the argument based on Article 31(3)(c) of the VCLT in its FWS, paras. 95, 134, 150, in its non-confidential 
opening statement at the first meeting with the Panel, (hereinafter, "EC, FNCOS"), para. 24 and in its second 
written submission, paras. 42-68. 
1859 EC, Original Request, para. 151. 
1860 EC, Original Request, para. 152. 
1861 EC, Original Request, paras. 127-129; EC, Answer to Panel Question 10 of 8 December 2006, 
paras. 81-87. 
1862 EC, Answer to Panel Question 10 of 8 December 2006, para. 81; Panel Report, European 
Communities – Measures Affecting the Approval and Ma rketing of Biotech Produc ts ("EC – Approval and 
Marketing of Biotech Products") , WT/DS291/R, WT/DS292/R, WT/DS293/R, Add.1 to Add.9, and Corr.1, 
adopted 21 November 2006, DSR 2006:III-VIII, para. 7.68. 
1863 EC, Original Request, paras. 127-128; EC, Answer to Panel Question 10 of 8 December 2006, 
para. 82. 
1864 EC, Answer to Panel Question 10 of 8 December 2006, paras. 83-85. WT/DS316/R 
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  support to large civil aircraft.1865  According to the European Co mmunities, the mutually agreed 
solution between the parties involved an agreement,  embodied in Article 10.1 of the 1992 Agreement, 
to avoid trade conflicts on matters covered by the 1992 Agreement ( i.e., government measures of 
support to large civil aircraft committed subsequent to 17 July 1992) and an agreement, embodied in 
Article 2, to 'grandfather' government measur es of support committed prior to 17 July 1992.1866  The 
European Communities contends that the mutually  agreed solution evidenced by the 1992 Agreement 
"must at least give rise to an estoppel preventing a party to such an agreement from reneging on its 
terms."1867  The European Communities contends that the parties, through their conduct, continued to 
apply the 1992 Agreement after the entry into for ce of the SCM Agreement by continuing to measure 
their respective measures of support to large ci vil aircraft against the benchmarks of the 
1992 Agreement rather than against the SCM Agreement.1868  The European Communities states: 
"It would run against a fundamental prin ciple of fairness and good faith if the 
United States were allowed to first enc ourage the European Communities to adopt 
certain MSF practices as being compa tible with the 1992 Agreement and then 
challenge these very same practices as being incompatible with the 
SCM Agreement."1869 
7.75 In response to a question from the Panel con cerning the legal basis on which we may apply 
the principle of estoppel in the present dispute,  the European Communities submits that in EC – 
Export Subsidies on Sugar , the Appellate Body accepted that it is reasonable to analyse the good faith 
obligation contained in Article 3.10 of the DSU in li ght of the general international law principle of 
estoppel.1870  The European Communities submits that, based on the reports of the panels in Argentina 
– Poultry Anti-Dumping Duties1871 and Guatemala – Cement II,1872 the principle of estoppel applies in 
the context of WTO dispute settlement proceedin gs where (i) there is a clear and unambiguous 
statement of fact; (ii) that statement was made voluntarily, unconditionally and is authorised by one party; and (iii) is relied on in  good faith by another party.
1873  
7.76 The European Communities argues that the United States collaborated in the conclusion and 
implementation of the 1992 Agreement as the practical  way in which the legality of support to large 
civil aircraft would be determined between the par ties.  According to the European Communities, the 
United States should not now be permitted to cha llenge as prohibited or actionable subsidies under the 
                                                      
1865 EC, FNCOS, para. 25; EC, SWS, paras. 39-41. 
1866 EC, SWS, para. 39. 
1867 EC, FNCOS, para. 25. In addition, the European Communities argues that, through the 1992 
Agreement, the parties agreed upon certain benchmarks for government support for large civil aircraft going 
forward, however, as we have indicated, this Preliminar y Ruling addresses only the is sue of the relevance of the 
1992 Agreement to the tempor al scope of this dispute. 
1868 EC, Answer to Panel Question 60, para. 35. 
1869 EC, Answer to Panel Question 60, para. 35. 
1870 EC, Answer to Panel Question 59, para. 22.  Th e European Communities c ontends therefore that 
the mutually agreed solution embodied in the 1992 Agreement gives rise to estoppel under Article 3.10 of the 
DSU; EC, SWS, para. 41. 
1871 Panel Report, Argentina – Definitive Anti-Dumping Duties on Poultry from Brazil ("Argentina – 
Poultry Anti-Dumping Duties "), WT/DS241/R, adopted 19 May 2003, DSR 2003:V, 1727, para. 7.38. 
1872 Panel Report, Guatemala – Definitive Anti-Dumping Measures on Grey Portland Cement from 
Mexico ("Guatemala – Cement II "), WT/DS156/R, adopted 17 November 2000, DSR 2000:XI, 5295, 
paras. 7.71-7.72. 
1873 EC, Answer to Panel Question 60, para. 23.  WT/DS316/R 
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  SCM Agreement the very same measures in which it "acquiesced and, indeed, actively contributed to 
(if not encouraged)".1874  
(iii) Arguments of the United States 
7.77 The United States makes several arguments in  response to the European Communities' 
arguments regarding the relevance of the 1992 Agreement to the present dispute.   
The 1992 Agreement as 'applicable law'    
7.78 First, the United States argues that there is no express provision in the SCM Agreement 
establishing its temporal scope of application, and no legal basis for the Panel to use the 
1992 Agreement to impute a temporal  scope into the SCM Agreement.1875  In this regard, the 
United States notes that the covered Agreements whic h it cited in its request for the establishment of a 
panel include the DSU, the GATT 1994, and the SCM Agreement.  Further, the United States notes that the definition of 'covered Agreements' in Artic le 1.1 of the DSU; namely, Agreements listed in 
Appendix 1 to the DSU, is a closed list which does not include the 1992 Agreement and that the 
1992 Agreement is also not one of the instru ments included within GATT 1994 according to the 
GATT incorporation clause.  Thus, according to the United States, it is the SCM Agreement and the 
GATT 1994, and not the 1992 Agreement, that contain the relevant obligations of the parties to this dispute.
1876  The United States argues that, where the dr afters of the SCM Agreement intended to 
exclude a particular matter from its disciplines, or  qualify the disciplines applicable to a particular 
matter, they did so explicitly.1877 The United States notes that there is no exemption, qualification or 
safe harbor with respect to the challenged measur es in this dispute which were provided prior to 
1992.1878 The United States draws contextual support fo r this position from footnotes 15, 16 and 24 of 
the SCM Agreement, which carve out civil aircraft  from the 'deemed' serious prejudice provision in 
Article 6.1 of the SCM Agreement and the 'non-acti onable' subsidy provision in Article 8.2 of the 
SCM Agreement.  According to the United States, these specific carve-outs relating to civil aircraft 
confirm that, in other respects, the SCM Agre ement applies to civil aircraft subsidies.1879   
7.79 The United States also points to Article 32 of the SCM Agreement in support of its contention 
that the 1992 Agreement does not establish an outer te mporal scope for this dispute.  Article 32.2 of 
the SCM Agreement requires that reservations to  the SCM Agreement obtain the consent of the 
Members.  The United States notes that the Europ ean Communities neither sought a reservation with 
respect to the alleged subsidies granted to Airbus prior to 17 July 1992, nor did the United States (or 
any other Member) consent to any such reservation.1880 The United States notes that there is nothing 
in the SCM Agreement to indicate that Article 32.5,  which obliges each Member to take all necessary 
steps to ensure the conformity of its laws, re gulations and administrative procedures with the 
provisions of the SCM Agreement, does not apply to  the alleged subsidy measures granted to Airbus 
prior to 17 July 1992, or to matters a ddressed by the 1992 Agreement in general.1881   
                                                      
1874 EC, FNCOS, para. 26. 
1875 US, Answer to EC, Updated Request, paras. 31, 34-40, 41-45. 
1876 US, Answer to EC, Updated Request, para. 30. 
1877 US, Answer to EC, Updated Request, para. 35.  The United States refers to the following 
provisions of the SCM Agreement in this regard: Articles 3.1, 5. 6.9 and 7.1; Article 8; Articles 27.2 and 27.3; 
Article 29 and the second paragraph of item (k) in Annex I. 
1878 US, Answer to EC, Updated Request, para. 35. 
1879 US, Answer to EC, Updated Request, para. 36. 
1880 US, Answer to EC, Updated Request, para. 38. 
1881 US, Answer to EC, Updated Request, para. 39. WT/DS316/R 
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  7.80 The United States also notes that, to the extent that Article 1.2 of the DSU provides for its 
rules and procedures to apply subject to such sp ecial or additional rules and procedures on dispute 
settlement as are contained in the covered Agreements or identified in Appendix 2 to the DSU, neither 
Article 1.2 of the DSU, nor Appendix 2, makes any reference to the 1992 Agreement or to the alleged 
subsidy measures granted to Airbus prior to 17 July 1992.1882 
7.81 Further, the United States contends that accep tance of the European Communities' argument 
that the 1992 Agreement constitutes applicable law in this dispute would effectively mean, either that 
the SCM Agreement can be interpreted different ly as between the Europ ean Communities and the 
United States than as between other Members, or that the interpretation of the SCM Agreement 
depends not on what Members had negotiated in th at Agreement, but on the terms of a separate 
bilateral Agreement between two Members.1883  According to the United States, neither of these 
outcomes can be supported. 
The 1992 Agreement as a "relevant rule of interna tional law" applicable to the interpretation 
of the SCM Agreement   
7.82 The United States argues that the 1992 Agreemen t does not constitute a relevant rule of 
international law 'applicable in the relations between the parties' within the meaning of 
Article 31(3)(c) .  The United States agrees with the views expressed by the panel in EC – Biotech,  
that Article 31(3)(c) of the VCLT should be interp reted as requiring consideration of those rules of 
international law which are applicable in the relati ons between all parties to the treaty which is being 
interpreted.1884  As the 1992 Agreement is not applicable in  the relations between all parties to the 
SCM Agreement, the United States argues that Artic le 31(3)(c) of the VCLT does not provide a basis 
for it to be taken into consideration by th e Panel when interpreting the SCM Agreement.1885  T h e  
United States submits that none of the Appellate Bo dy reports cited by the European Communities in 
relation to the interpretation of Article 31(3)(c) of the VCLT suggests that the term 'parties' in 
Article 31(3)(c) refers to parties to the particular  dispute only, and not all of the Members of the 
WTO.1886 
The 1992 Agreement as giving rise to an estoppel against the United States  
7.83 The United States submits that the Panel should reject the European Communities' arguments 
regarding estoppel as having "absolutely no  basis in the covered Agreements."1887 The United States 
notes that Article 3.10 of the DSU does not use the term 'estoppel' and submits that the provision does not even implicitly support the European Communities' argument that the principle of estoppel can be 
grounded in the 'good faith' obligation embodied in Article 3.10.
1888  The United States also 
challenges the European Communities' reliance on the panel and Appellate Body reports in EC – 
                                                      
1882 US, Answer to EC, Updated Request, para. 40. 
1883 US, Answer to EC, Updated Request, para. 45. 
1884 United States, Answer to the Request for a Preliminary Ruling submitted by the European 
Communities, 15 November 2006 (hereina fter "US, Answer to EC, Original Request"), para. 98.  Panel Report, 
EC – Approval and Marketing of Biotech Products , paras. 7.68-7.70. United States, Answer to Panel Question 1, 
(hereinafter "US, Answer to Panel Question X"), paras. 2-3.;  US, Comments on EC, Answer to Panel Question 10 of 8 December 2006,  para. 54 
1885 US, Comment on EC Answer to Panel Question 10, paras. 50-56; US, Answer to Panel Question 1, 
para. 2. 
1886 US, Answer to Panel Question 1, para. 13. 
1887 Second Written Submission of the United Stat es (hereinafter, "US,  SWS"), para. 37. 
1888 US, SWS, para. 38.  WT/DS316/R 
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  Export Subsidies on Sugar  in support of its estoppel argument.  According to the United States, these 
reports actually undermine the European Communities' position.1889   
7.84 In addition, the United States argues that the European Communities' estoppel argument 
should fail on its own terms, as the 1992 Agreem ent does not constitute a 'clear and unambiguous 
statement of fact' that the measures covered by th at Agreement would not be subject to WTO dispute 
settlement.1890  The United States argues that, contrary to  the European Communities' assertions, the 
text of the 1992 Agreement actually confirms that pre-1992 subsidies are not immune from challenge 
under the SCM Agreement.1891  Moreover, the United States argues that the fifth recital in the 
preamble to the 1992 Agreement confirms that the United States and th e European Communities 
expressly reserved their rights under the GATT wh en they entered into the 1992 Agreement.1892  
7.85 According to the United States, Article 2 of the 1992 Agreement simply provides that the 
provisions of the 1992 Agreement do not apply to government support committed prior to 
17 July 1992, not that such support was deemed to be consistent with the 1979 Agreement on Trade in 
Civil Aircraft  or the Tokyo Round Subsidies Code, or that pre-1992 subsidies are exempted from the 
GATT/WTO disciplines.1893   The United States considers that the commitment of the parties in 
Article 10.1 to seek to avoid trade conflict on matte rs covered by the 1992 Agreement relates to the 
self-initiation of actions under national trade laws, as is made clear by Article 10.2.1894  
(iv) Arguments  of Third Parties  
7.86 Australia considers that, on the issue whether the 1992 Agreement may constitute applicable 
law to this dispute, the Panel should take full acco unt of the statement of the Appellate Body at 
paragraph 56 of its report in Mexico – Taxes on Soft Drinks  that the DSU operates in relation to 
covered Agreements only.1895  In this regard, Australia notes that the 1992 Agreement is not a  
covered Agreement under the DSU.  In addition, Australia does not consider that the rules of 
international law contained in the 1992 Agreement, which are only app licable in the relations between 
a subset of parties to the SCM Agreement, can be taken into account under Article 31(3)(c) of the 
VCLT in interpreting the SCM Agreement.1896  Australia urges the Panel to approach the question of 
the application of Article 31(3)(c) of the VCLT to  the SCM Agreement with "a degree of caution", 
given its "potentially significant systemic implications for the WTO dispute settlement system."1897 
7.87 Brazil disagrees with the European Communities th at the 1992 Agreement is relevant to this 
dispute.1898  Moreover, Brazil considers that Article 6.1 of the 1979 Agreement on Trade in Civil 
Aircraft  does not authorize the Panel to apply a less re strictive standard for government support in the 
civil aircraft sector.  Brazil considers that the 199 2 Agreement does not qualify as a "relevant rule of 
                                                      
1889 US, SWS, para. 38. 
1890 US, SWS, para. 45. 
1891 US, Answer to EC, Updated Request, para. 46. 
1892 US, Answer to EC, Updated Request, para. 47. 
1893 US, Answer to EC, Updated Request, para. 48. 
1894 US, Answer to EC, Updated Request, para. 49. 
1895 Australia, Third Party Submission, paras. 8 and 9.  The statement in question is: "We see no basis 
in the DSU for panels and the Appellate Body to adjudicate non-WTO disputes.  Article 3.2 of the DSU states 
that the WTO dispute settlement system 'serves to preserve the rights and obligations of Members under the 
covered Agreements , and to clarify the existing provisions of those Agreements .' (emphasis added)." 
1896 Australia, Third Party Submission, para. 15. 
1897 Australia, Third Party Submission, para. 15. 
1898 Brazil, Third Party Submission, para. 4. WT/DS316/R 
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  international law applicable in the relations between  the parties" within Article 31(3)(c) of the VCLT 
because it is not binding on all of the parties to the SCM Agreement.1899 
(v) Evaluation by the Panel 
The 'application' of the 1992 Agreement  
7.88 We recall that Article 3.2 of the DSU provides that the WTO dispute settlement system 
"serves to preserve the rights and obligations of Members under the covered Agreements , and to 
clarify the existing provisions of those Agreements ."1900  The jurisdiction of a panel is established by 
that panel's terms of reference, whic h are governed by Article 7 of the DSU.1901 In the present dispute, 
the Panel's terms of reference are: 
"To examine, in the light of the relevant provisions of the covered Agreements cited 
by the United States in document WT/DS316/2,  the matter referred to the DSB by the 
United States in that document, and to ma ke such findings as will assist the DSB in 
making the recommendations or in giving the rulings provided for in those Agreements." 
7.89 Article 7.2 of the DSU requires panels to "a ddress the relevant provisions in any covered 
Agreement or Agreements cited by the parties to the dispute." The 'covered Agreements' cited by the 
United States in document WT/DS316/2 include th e DSU, the GATT 1994 and the SCM Agreement.  
As the 1992 Agreement is not a covered Agre ement cited by the United States in document 
WT/DS316/2, or contained in the list of covered Agr eements in Appendix 1 to the DSU, or one of the 
instruments included in the GATT 1994, we do not ha ve jurisdiction to determine of the rights and 
obligations of the parties under the 1992 Agreement. 
7.90 However, the European Communities argues that, although the 1992 Agreement is not a 
covered Agreement, and a determination of the rights and obligations of the parties under the 
1992 Agreement is therefore beyond the jurisdiction of the Panel, the 1992 Agreement may nevertheless constitute law that  the Panel may apply in order to resolve the 
claims under the covered Agreements.
1902    
7.91 Whether presented as the direct application of wh at the European Communities contends is an 
agreement to 'grandfather' support measures to large civil aircraft committed prior to 17 July 1992, or 
as a rule relevant to the 'interpretation' of a modifi ed temporal scope of application of Article 5 of the 
SCM Agreement for disputes between the parties con cerning support measures to large civil aircraft, 
the European Communities is effectively inviting th e Panel to find that the United States agreed, in 
the 1992 Agreement, to waive its rights under the WT O Agreements to challenge certain measures in 
WTO dispute settlement proceedings.1903 In essence, we are confronted with the question whether it is 
possible for a Member to have waived its rights unde r the WTO Agreements in an agreement which it 
                                                      
1899 Brazil, Third Party Submission, para. 4. 
1900 Emphasis added.   
1901 Appellate Body Report, India – Patents (US) , para. 92. 
1902 The European Communities notes the distinction between jurisdiction and applicable law; arguing 
that although this Panel does not have jurisdiction to adjudicate a dispute between the parties under the 1992 Agreement, whether as a preliminary question or as part of a broader dispute, it may nonetheless examine the 
1992 Agreement as part of the law applicable to its re solution of the claims under the covered Agreements: EC, 
SWS, paras. 80-84. 
1903 The estoppel claim is si milarly a claim that the United States should, in light of the waiver of its 
rights under the WTO Agreements and the detrimental reliance of the European Communities on such waiver, 
be prevented from reasserting those rights.  WT/DS316/R 
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  entered into prior  to entering into the WTO Agreements, a nd if so, whether and on what basis a WTO 
panel could enforce such a waiver.1904 
7.92 We recall that Article 23 of the DSU states that Members shall  have recourse to the rules and 
procedures of the DSU when they "seek the redress of a violation of obligations or other nullification 
or impairment of benefits under th e covered Agreements."  As the A ppellate Body has stated, the fact 
that a Member may initiate a WTO dispute whenever it considers that any benefits accruing to it are 
being impaired by measures taken by anothe r Member implies that that Member is entitled  to a ruling 
by a WTO panel.1905  Assuming, for the sake of argument, that a Member can waive its rights under 
the WTO Agreements pursuant to a non-WTO Agreemen t, we cannot conceive that a Member can be 
considered to have waived such rights by means of an agreement which it entered into prior  to 
entering into the WTO Agreements.  The SCM Agreem ent, which came into effect on 1 January 1995, 
does not make any reference to the antecedent 1992 Agreement, and as the United States points out, 
the European Communities has not ma de any reservations regarding th e application or interpretation 
of the SCM Agreement.1906 
7.93 The European Communities argues that the 'c ontinued application' of the 1992 Agreement 
after the entry into force of the SCM Agreement evidences the parties' intention to apply the 
provisions of the 1992 Agreement (particularly Article 2 which, according to the European 
Communities, deems all pre-1992 support measures to be compatible with the Tokyo Round 
Subsidies Code) to the SCM Agreement.   We consider that the fact that the parties may have 
continued to engage in the exchanges of informa tion required under Article 8 of the 1992 Agreement 
subsequent to the entry into force of the SCM Ag reement, and that the United States had refrained 
from initiating a complaint against the European Co mmunities concerning the compatibility of certain 
EC measures with the SCM Agreemen t, is insufficient to constitute a subsequent Agreement between 
the European Communities and the United Stat es which modifies the application of the 
SCM Agreement between them.  
7.94 Even if it were somehow possible to find that a Member had prospectively waived certain of 
its rights under the WTO Agreements in a prior Agreement in the manner contended for by the 
European Communities (a contention which we reject ), and assuming such waiver were enforceable 
in WTO dispute settlement (an issue which we need  not and do not decide), any such waiver would 
need to be clear and unambiguous.  Here we come to  the fundamental weakness of all of the European 
Communities' arguments regarding the relevance of the 1992 Agreement to the present dispute:  we 
are simply unable to construe the 1992 Agreemen t, and Article 2 in particular, as constituting an 
agreement that the parties would not challenge su pport measures to large civil aircraft committed 
prior to 17 July 1992 in subsequent WTO dispute settlement proceedings.  
                                                      
1904 As noted above, see footnote 1854, the parties disagree wh ether the 1992 Agr eement is in force 
between them, an issue we need not resolve and do not address. 
1905 Appellate Body Report, Mexico – Tax Measures on Soft Drinks and Other Beverages ("Mexico – 
Taxes on Soft Drinks "), WT/DS308/AB/R, adopted 24 March 2006, DSR 2006:I, 3, para. 52. 
1906 Moreover, we note that Article 30(3) of the VCLT provides that, when all of the parties to an 
earlier treaty are also parties also to the later Agreement but the earlier treaty is not suspended in operation, the 
earlier treaty applies only to the extent that its provisions are compatible with those of the later treaty .  This is 
also consistent with  our view that, even if the 19 92 Agreement could be consid ered a bilateral Agreement 
expressly modifying the application of the GATT/Tokyo Round subsidies rules in the way for which the 
European Communities contends, it precedes  the SCM Agreement, and in the absence of any provision in the 
SCM Agreement to the effect that the SCM Agreement is subject to, or not to be considered incompatible with, 
the 1992 Agreement, the SCM Agr eement would prevail over the 1992 Agreement to the extent of any 
inconsistency between them. WT/DS316/R 
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  7.95 We understand Article 2 of the 1992 Agreemen t as drawing a line between new support 
measures for large civil aircraft, which would be  subject to the limitations agreed in the 1992 
Agreement, and previously existing commitments, which would not be subject to the limitations 
agreed in the 1992 Agreement and therefore did not need to be modified to conform to the 
requirements of Articles 3 through 7 of the 1992 Agre ement, but equally could not be modified to 
provide even greater benefits to the recipients. In other words, we construe Article 2 of the 
1992 Agreement as providing that, with the exception of the notification obligation contained in Article 8.2, the relevant measures of support committed prior to the effective date of the 
1992 Agreement were to be outside  the scope of the 1992 Agreement.
  Moreover, the context of 
Article 2 suggests that the parties in fact inte nded to preserve their rights to challenge pre-1992 
measures for inconsistency with the GATT/WTO subsid ies disciplines. We note in particular that the 
fifth preambular paragraph of the recitals indicated  that the 1992 Agreement was intended to operate 
without prejudice to the parties' rights and obligations under the GAT T and other multilateral 
Agreements negotiated under the au spices of the GATT, which would include the SCM Agreement.  
7.96 The European Communities contends that, while the fifth paragraph of the recitals may be 
read as preserving the right of either side to challenge both pre-1992 and post-1992 measures as being 
inconsistent with the parties' GA TT-related rights and obligations, th is is qualified once the preamble 
is read in the context of the rest of the 1992 Agreement.1907  Specifically, the European Communities 
contends that the obligation of the parties in Article  10.1 to 'seek to avoid' trade conflict, preserved the 
parties' rights to avail themselves of GATT dispute settlement only in respect to the 'matters covered 
by the present Agreement ' ( i.e., support measures committed after 17 July 1992), because Article 2 
made clear that support measures committed prio r to 1992 were outside the scope of the 
1992 Agreement (because "Article 2 of the 19 92 Agreement already contained the negotiated 
settlement between the parties on pre-1992 governmental support measures")1908.  We are not 
persuaded by this argument.  We consider it unc onvincing because it depends on the prior acceptance 
of the very issue that it ultimately seeks to establish ( i.e., that Article 2 deemed pre-1992 measures to 
be compatible with the GATT/WTO subsidies rule s).  Moreover, we disagree with the European 
Communities that Article 10 of the 1992 Agreement re lated to GATT/WTO dispute settlement at all.  
We note that, in Article 10.1 of the 1992 Agreement,  the parties agreed to "seek to avoid any trade 
conflict" on "matters covered by the present Agreement".1909  It is clear from Articles 10.2 through 
10.4, however, that the obligation to "avoid any tr ade conflict" in Article 10.1 related to action by 
government or private parties under national trade laws , not GATT/WTO dispute settlement 
proceedings.  For example, in Article 10.2, the part ies agreed not to 'self-initiate' action under their 
national trade laws with respect to government supports granted in conformity with the 1992 
Agreement.  Article 10.3 concerned the parties' conduct in the event that private parties petitioned for 
specific action under national trade laws, and Articl e 10.4 dealt with the conduct of the parties in 
investigations which, notwithstanding Articl es 10.1 through 10.3, were nonetheless initiated under 
national trade laws.1910     
7.97 The object and purpose of the 1992 Agreement al so fails to support an interpretation of 
Article 2 as an agreement to 'grandfather' pre- 1992 measures of support to large civil aircraft for 
purposes of the GATT/WTO subsidies rules.  Whil e the object and purpose of the 1992 Agreement 
                                                      
1907 EC, Original Request, paras. 139-142. 
1908 EC, Original Request, paras. 141-142. 
1909 The footnote to Article 10.1 defines the latter phase as "trade actions relating to direct and indirect 
government support as defined by this Agreement ". 
1910 Thus, Article 10.1 does not even preclude national trade law actions, much less GATT trade actions 
or WTO dispute settlement.  It is merely an obligation to 'seek to avoid' trade conflicts on a particular subject, 
which the parties discharge by taking certain actions (and refraining from taking others, i.e., self-initiation) in 
the context of investigations and other actions initiated under their respective national trade laws.  WT/DS316/R 
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  appears to have been to establis h agreed (reduced) levels of govern mental support measures to large 
civil aircraft in an effort to reduce trade tensions  between the parties, the 1992 Agreement is silent on 
the status under the GATT and the Tokyo Round Subsidies Code of governmental supports 
committed prior to 17 July 1992 and we find no evidence that the object and purpose of the 
1992 Agreement was additionally to grandfather meas ures of support to large civil aircraft committed 
prior to 17 July 1992 for purposes of GATT/WTO disciplines.  
7.98 In conclusion, we consider that there is no b asis for directly applying the provisions of the 
1992 Agreement to determine a particular temporal scope for this dispute in the manner for which the 
European Communities contends.  Moreover, we do not consider that the 1992 Agreement contains 
any agreement that the parties would not invoke th eir rights under the WTO Agreements to challenge 
support measures to large civil aircraft  committed prior to 17 July 1992.  
The 1992 Agreement as a relevant rule of interna tional law applicable to the interpretation of 
the SCM Agreement.  
7.99 The European Communities argu es that the Panel should take the 1992 Agreement into 
consideration in its interpretation of the temporal  scope of application of the SCM Agreement for 
purposes of this dispute.  The European Comm unities argues that Article 31(3)(c) of the VCLT 
provides a basis for us to do so, because the 1992 Agreement constitutes a relevant rule of 
international law applicable in the relations be tween the parties.  Although presented as an argument 
relating to the 'interpretation' of the SCM Agreem ent, the European Communities has not specifically 
indicated how the 1992 Agreement should influence our interpretation of the actual terms in Article 5 
of the SCM Agreement, other than to argue that we  should 'interpret' a particular temporal scope of 
application of the SCM Agreement for this disput e because the parties agreed in Article 2 of the 
1992 Agreement to exclude pre-1992 measures from GATT/WTO dispute settlement proceedings.  In 
reality, this is an argument that a particular group of measures ( i.e., support measures for large civil 
aircraft committed by either of the parties prio r to 17 July 1992) should be excluded from the 
disciplines of the SCM Agreement based on the 1992 Agreement, rather than an argument about the 
interpretation of provisions of the SCM Agreement, or of specific terms within those provisions.   
7.100  It is not necessary for us to determine whether,  for purposes of Article 31(3)(c) of the VCLT, 
the 1992 Agreement constitutes applicable law between the parties that we must take into account in 
interpreting the SCM Agreement.1911  Even if it were (and we emphasize that on this issue we express 
no view), as we have previously indicated, we do not agree with the European Communities that the 
1992 Agreement constitutes an agreement between th e parties to 'grandfather' pre-1992 measures of 
support for large civil aircraft for the pur poses of subsequent GATT/WTO proceedings.1912  
                                                      
1911 In EC – Approval and Marketing of Biotech Products , the European Communities argued that 
provisions of the Convention on Biological Diversity  and the 2000 Cartagena Protocol on Biosafety to the 
Convention on Biodiversity  informed the meaning and effect of va rious provisions in the SPS Agreement and 
the GATT 1994.  The Panel rej ected this argument because not  all of the parties to the dispute  were parties to 
the conventions in question.  That situation is different fr om the one before this Panel, where both parties to the 
dispute are parties to the 1992 Ag reement.  We note that, in EC – Approval and Marketing of Biotech Products,  
the Panel expressed the view (at para. 7.68 and footnote 243)  that the term 'the parties'  in Article 31(3)(c) of the 
VCLT suggests that the rules of international law to be taken into account in interpreting the WTO Agreements 
at issue in a dispute are those whic h are applicable in the relations between the WTO Members  (and not merely 
the parties to the dispute).  Panel Report, EC – Approval and Marketing of Biotech Products,  para. 7.68 and 
footnote 243. 
1912 We recall that Article 2 of the 1992 Agreement provides: 
"Government support to current larg e civil aircraft programmes, committ ed prior to the date of entry 
into force of this Agreement, is not subject to the pr ovisions of this Agreement except as otherwise provided 
below.  The terms and conditions on which support is granted shall not be modified in such a manner as to WT/DS316/R 
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  Consequently, even if we were to interpret the temporal scope of the SCM Agreement 'taking into 
account' the 1992 Agreement pursuant to Article 31( 3)(c) of the VCLT, there is nothing in the 
1992 Agreement that would lead us to 'interpret' the SCM Agreement as not applying to measures of 
support to large civil aircraft committed by  the parties prior to 17 July 1992.   
The 1992 Agreement gives rise to an estoppel preventing consideration of measures of 
support provided prior to the effec tive date of the 1992 Agreement  
7.101  The European Communities also argues that the conclusion and implementation of the 
1992 Agreement between the European Commun ities and the United States, in which the 
United States agreed to the European Communities provi ding a certain level and type of support to its 
large civil aircraft industry, "must at least give rise to an estoppel" preventing the United States from 
subsequently challenging such support in WTO dis pute settlement proceedings.  In response to a 
question from the Panel concerning the basis on which we are to apply the principle of estoppel in 
WTO dispute settlement proceedings, the European  Communities argues that the good faith obligation 
contained in Article 3.10 of the DSU, can reasonably be analysed "in the light of the general 
international law principle of estoppel ."1913 
7.102  In the present dispute, the European Commun ities argues that, based on the established case 
law of previous panels,1914 the principle of estoppel applies in WTO dispute settlement proceedings 
where: (i) there is a clear and unambiguous statement of fact; (ii) that statement was made voluntarily, 
unconditionally and is authorized by one party; (iii)  and is relied on in good faith by another party.1915   
7.103  The European Communities argues that Article  2 of the 1992 Agreement "constitutes the 
definitive settlement on any outstanding controve rsy between the European Union and the United 
States over {pre-1992 government support to the LCA industry}."1916 According to the European 
Communities, "by grandfathering pre-1992 measures in  Article 2 of the 1992 Agreement read in 
                                                                                                                                                                     
render it more favourable to the recipients: however, de minimis  modifications shall not be deemed inconsistent 
with this provision." 
1913 The European Communities refers to the statement in the Panel Reports, European Communities – 
Export Subsidies on Sugar, Complaint by Australia ("EC – Export Subsidies on Sugar (Australia)") , WT/DS265/R, 
adopted 19 May 2005, as modified by Appellate Body Report WT/DS265/AB/R, WT/DS266/AB/R, 
WT/DS283/AB/R, DSR 2005:XIII, 6499, para. 7.74, Panel Report, European Communities – Export Subsidies on 
Sugar, Complaint by Brazil ("EC – Export Subsidies on Sugar(Brazil)"), WT/DS266/R, adopted 19 May 2005, as 
modified by Appellate Body Report WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R, DSR 2005:XIV, 
6793 and Panel Report, European Communities – Export Subsidies on Sugar, Complaint by Thailand ("EC – 
Export Subsidies on Sugar(Thailand)") , WT/DS283/R, adopted 19 May 2005, as modified by Appellate Body 
Report WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R, DSR 2005:XIV, 7071), and subsequently 
confirmed in the Appellate Body Report, European Communities – Export Subsidies on Sugar ("EC – Export 
Subsidies on Sugar "), WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R, adopted 19 May 2005, DSR 
2005:XIII, 6365, para. 312, that the principle of good faith em bodied in Article 3.10 of the DSU applies to the 
initiation (as well as conduct and implementation) of dispute settlement proceedings.  According to the European Communities, a Member therefore acts inconsisten tly with Article 3.10 of the DSU if it requests the 
establishment of a panel in violation of the principle of good faith.  EC, Answer to Panel Question 59, para. 21. 
1914 Citing the panel reports in Argentina – Poultry Anti-Dumping Duties , para. 7.38 and Guatemala – 
Cement II , para. 7.71-7.72.  In our view, these panels did not establish that the principle of estoppel applies in 
WTO dispute settlement proceedings; rather, the respective panels proceeded on the basis that, even if arguendo  
a principle of estoppel in the terms contended for did ex ist, it was not established on the specific facts of the 
case. 
1915 EC, Answer to Panel Question 59, para. 23. 
1916 EC, Answer to Panel Question 59, para. 27.  WT/DS316/R 
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  conjunction with Article 10 ( e contrario ) the United States made a clear and unambiguous statement 
that it will not attack these measures anymore."1917   
7.104  However, as already discussed, we do not consider that Article 2 of the 1992 Agreement can 
be interpreted as an agreement between the parti es that pre-1992 support measures are deemed to be 
compatible with the GATT/WTO subs idies disciplines, or that the pa rties thereby waived their rights 
to challenge pre-1992 measures as being inconsis tent with those disciplines.  Even assuming 
arguendo  that the Panel were to accept the European  Communities' submission s as to the basis for 
applying the principle of estoppel in the context of WTO dispute settlement (on which we express no 
view), we would also reject the European Commun ities' request for preliminary rulings on this ground 
because we consider that Article 2 falls far short of  being a "clear and unambiguous statement" in the 
sense required by the first element of the European  Communities' own definition of the principle of 
estoppel.  We also note that, although the European  Communities asserts that it has complied with its 
obligations under the 1992 Agreement concerning the le vel of support it has provided to its large civil 
aircraft industry, it has not identified any behavi our that would amount to detrimental reliance on the 
alleged representation made by the United States.  
7.105  In conclusion, we reject the European Commun ities' request for a preliminary ruling that any 
alleged government support committed prior to 17 July 1992 is exclude d from the temporal scope of 
these proceedings. 
3. Non-Temporal Scope Issues 
(a) Background 
7.106  As part of its 26 October 2005 request for pr eliminary rulings, the European Communities 
asked the Panel to rule that alleged subsidies to support the Airbus A350, along with five other 
alleged subsidy measures, are outside  the Panel's terms of reference.1918  In addition to LA/MSF for 
the A350, the alleged subsidy measures the subject of this request for preliminary rulings are: (i) EIB 
financing to Aérospatiale for the Super Transporte urs; (ii) funding from the French government for 
civil aeronautics-related R&D projects in which Air bus participated; (iii) the provision by certain 
enumerated German, French and UK research institu tions of civil aeronauti cs R&D-related goods or 
services to Airbus; (iv) financial contributions to  develop, expand, and upgrade facilities and other 
infrastructure for the Airbus companies in certain locations in Germany, France, Spain and the United 
Kingdom; and (v) the assumption of debt by the Spanis h government on behalf of the Spanish Airbus 
company, CASA.1919   
7.107  The European Communities purports to identify three general flaws in the United States' 
request for the establishment of a panel.  First, the European Communities as serts that the measures 
concerning LA/MSF for the A350 are outside the Panel' s terms of refere nce because they did not exist 
at the time of the request for the establishment of a panel.1920  Second, the European Communities 
argues that LA/MSF for the A350 and various othe r measures were not subj ect to consultations.1921  
Finally, the European Communities argues that th e United States' descriptions of certain of the 
                                                      
1917 EC, Answer to Panel Question 59, para. 28. 
1918 EC, Original Request, para. 8. 
1919 This Preliminary Ruling does not address the Eu ropean Communities' objection that the argument 
made by the United States in its Opening Oral Statemen t that Deutsche Airbus recei ved a benefit from the 1998 
debt settlement, on the basis that the fair value of the German Government's claims "already embedded a 
substantial benefit to Deutsche Airbus in the form of an interest rate of zero", constitutes a new claim that falls 
outside the Panel's terms of reference. 
1920 EC, Original Request, para. 12. 
1921 EC, Original Request, paras. 12 and 36. WT/DS316/R 
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  measures in the panel request failed to satisfy th e requirements of Article 6.2 of the DSU to identify 
the specific measures at issue.1922       
(b) Support for the Airbus A350 
(i) Arguments of the European Communities 
7.108  The European Communiti es claims that the LA /MSF measures for the Airbus A350 identified 
by the United States in Section (1) of its panel request fall outside the Panel's terms of reference 
because these measures did not exist at th e time of the establishment of the Panel.1923    
7.109  The European Communities recalls that in EC – Chicken Cuts , the Appellate Body confirmed 
that "{t}he term 'specific measures at issue' in Arti cle 6.2 suggests that, as a general rule, the measures 
included in a panel's terms of reference must be measures that are in existence at the time of the 
establishment of the panel."1924  The European Communities al so notes that the Panel in US – Upland 
Cotton  excluded from its terms of reference a measure th at was not yet in existence at the date when 
the panel request was submitted to the DSB, even though the measure had come into existence by the 
time that the panel was established.1925  
7.110  According to the European Communities, Airbus ' shareholders approved the industrial launch 
of the A350 on 7 October 2005.1926  The European Communities c ontends therefore, that no 
government measures relating to the financing of the A350 existed at the time of the establishment of 
this Panel by the DSB on 20 July 2005.1927 
(ii) Arguments of the United States 
7.111  The United States argues that the existence or non-existence of the challenged measures is a 
question of fact that is not an appropriate issue for a preliminary ruling.1928   
7.112  The United States notes that in EC – Chicken Cuts , the Panel examined the complainants' and 
respondents' arguments on the issue of the existenc e of the measure and reached its decision in its 
final report, not in a preliminary ruling.1929  The United States submits that a more relevant report for 
present purposes is the Panel report in the EC – Biotech  dispute.  In that dispute, the existence or non-
existence of the challenged measure was one of the central issues that the parties addressed over the 
course of the proceeding, and the Panel reached its de cisions on the issue in its final report after fully 
developing the factual record during the proceeding.1930 
                                                      
1922 EC, Original Request, para. 52. 
1923 EC, Original Request, para. 29.  The European Communities also contends that launch aid for the 
A350 was not identified in the request for consultations, paras. 22-23. 
1924 Appellate Body Report, European  Communities – Customs Classification of Frozen Boneless 
Chicken Cuts ("EC – Chicken Cuts "), WT/DS269/AB/R, WT/DS286/AB/R, adopted 27 September 2005, and 
Corr.1, DSR 2005:XIX, 9157, para. 156. 
1925 EC, Original Request, para. 20.   
1926 EC, Original Request, para. 21, 
1927 EC, Original Request, para. 21. 
1928 US, Answer to EC, Original Request, para. 26. 
1929 US, Answer to EC, Original Request,  para. 26. 
1930 The United States recalls that, despite the European Communities' denials regarding the existence 
of the measure in that dispute, the Panel in that di spute found that the facts demonstrated the European 
Communities did, in fact, maintain a de facto  moratorium.    WT/DS316/R 
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  7.113  Moreover, the United States contends that the measures relating to LA/MSF for the A350 do 
exist, and that they existed at the ti me of the establishment of this Panel.1931  The United States argues 
that, while it is true that Airbus' shareholde rs approved the industria l launch of the A350 on 
7 October 2005, Airbus typically ensur es that LA/MSF measures are committed before  it decides on 
the industrial launch of an aircraft, as the measures are an important part of the financing that makes 
the launch possible.1932  According to the United States, LCA ma nufacturers make at least two 'launch' 
decisions when deciding to develop a new model of LC A.  In addition to the 'industrial' launch (when 
the manufacturer confirms its decision to begin development of the model), there is also an earlier 'commercial' launch, the purpose of which is to determine whether there are enough potential 
customers for the new aircraft to merit an indu strial launch.  The United States notes that the 
'commercial' launch of the A350 took place on 10 December 2004; more than seven months prior to the establishment of this Panel.
1933 
7.114  The United States also points to facts which it contends contradict the European 
Communities' assertion that no government measures re lating to the financing of the A350 existed on 
7 October 2005; namely, media comments from the CE O of Airbus on the day of the industrial launch 
"confirming that Airbus had  in fact already received {LA/MSF} commitments from all four 
governments, and that the commitments were 'leg ally binding'"; EADS's 2005 financial statements 
which state that certain EU countries had alread y committed to fund the development of the A350 
commercial aircraft programme; and a stat ement by the German Economics Minister 
in December 2004, confirming that state subsidie s for the A350 were already included in  the 
budget.1934  The United States contends that, prior to the date of establishment of the Panel, the Airbus 
governments had made a legally binding commitment to provide LA/MSF for the A350, and that this 
commitment to make a financial contribution, as a ' potential direct transfer of funds', is a subsidy 
capable of being challenged in WTO dispute settlement.1935 
7.115  The United States also questions the Europ ean Communities' refusal to respond to the 
Facilitator's specific request for information and doc uments relating to LA/MSF for the A350 as part 
of the Annex V process in this dispute.1936  The United States contends that it would have been 
relatively simple for the European Communities to ha ve stated that no such measures existed, rather 
than refusing to provide information about them.  Th e United States considers that, by so refusing, the 
European Communities "appears to concede that the measures do in fact exist."1937 
(iii) Evaluation by the Panel 
7.116  We do not understand there to be a dispute ove r the question whether measures included in a 
panel's terms of reference must be in existence at the time of the establishment of the panel.1938  What 
                                                      
1931 US, Answer to EC, Original Request, paras. 31-38.   
1932 US, Answer to EC, Original Request, para. 31 . Therefore, according to  the United States, the 
significance of the industrial launch of the A350 on 7 October 2005 is that it demonstrates that LA/MSF measures for the A350 were in place prior
 to that date, not subsequently 
1933 US, Answer to EC, Original Request, para. 32, footnote 12. By way of example, the United States 
notes that the UK government's contract for LA/MSF for the A380 was dated 12 March 2000, some nine months prior to the industrial launch of th e A380 in December 2000; at para. 34. 
1934 US, Answer to EC, Original Request, para. 31. The European Communities contends that the 
evidence provided by the United States does not establish the existence of LA/MSF to the A350; EC, FWS, paras. 345-360. 
1935 US, Answer to Panel Question 2, paras. 15-18.   
1936 US, Answer to EC, Original Request, para. 36. 
1937 US, Answer to EC, Original Request, para. 36. 
1938 We recall that the Appellate Body has indicated that the term "specific measures at issue" in 
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  the parties do dispute is the factual issue of whet her or not LA/MSF for the A350 was in existence at 
the time of the establishment of this Panel. 
7.117  We consider that the issue of whether or not th ere were any 'measures' in existence regarding 
LA/MSF for the A350 at the time of the establishment of the Panel is a disputed question of fact in 
this case.  Both parties have presented evidence a nd argument on this issue in the written submissions, 
which we will be required to assess in order to resolve this issue.1939  We agree with the United States 
that, where the existence or non-existence of a challe nged measure is a disputed question of fact, it is 
not an appropriate matter for determination in a pre liminary ruling.  We therefore reject the European 
Communities' request for a preliminary ruling on whether or not LA/MSF for the A350 falls within 
the scope of our terms of reference on the grounds th at the measure allegedly did not exist at the time 
of the establishment of the Panel. 
(c) Measures Allegedly Not Previous ly Subject to Consultations 
(i) Arguments of the European Communities 
7.118  Alternatively, and in addition to its argument  concerning the non-existence of the measure, 
the European Communities argues that the LA/M SF measures for the A350 should be excluded from 
the Panel's terms of reference because they have not been subject to consultations, as required by 
Articles 4.4 and 6.2 of the DSU.1940  
7.119  The European Communities also requests that we exclude other measures from our terms of 
reference on the same grounds.  These measures re late to: financing to Aérospatiale Super 
Transporteurs as described in Section (2)(f) of the United States' panel request; funding from the 
French government for civil aeronautics-related R&D projects in which Airbus participated (Section 
(6)(e) of the United States' panel request); and th e provision by certain enumerated German, French 
and UK research institutions of civil aeronautics R&D -related goods and services to Airbus (Section 
(6)(f) of the United States' panel request).1941  
7.120  The European Communities argues that only measur es that have been subject to consultations 
can properly be included in a request for the establishm ent of a panel.  In support of this contention, 
the European Communities refers the Panel to  statements of the Appellate Body in US – Upland 
Cotton  and EC - Chicken Cuts .1942  Relying on the Appellate Body Report in US - Upland Cotton , the 
European Communities argues that even though there does not have  to be a "precise and exact 
identity" between the scope of the consultations a nd the request for the establishment of a panel, the 
complaining party cannot include additional measur es in its panel request and thereby "expand the 
scope of the dispute".1943 
                                                                                                                                                                     
must be measures that are in existence at the time of the establishment of the panel; Appellate Body Report, EC 
– Chicken Cuts , para. 156. 
1939 We recall that, in Korea –Alcoholic Beverages , the Panel considered that the issue before it was 
"one that requires a weighing of evidence" and "{a}s such  it is not an issue appropriate for a preliminary ruling 
in this case."  Panel Report, Korea – Taxes on Alcoholic Beverages ("Korea –Alcoholic Beverages") , 
WT/DS75/R, WT/DS84/R, adopted 17 February 1999, as modified by Appellate Body Report, WT/DS75/AB/R, WT/DS84/AB/R, DSR 1999:I, 44, para. 10.16. 
1940 EC, Original Request, para. 12. 
1941 EC, Original Request, paras. 88-89. 
1942 EC, Original Request, paras. 31-32; citing the Appellate Body, US – Upland Cotton, para. 293 and 
Appellate Body, EC – Chicken Cuts, para. 156 (footnote 315). 
1943 Appellate Body Report,  US – Upland Cotton , para. 293.  WT/DS316/R 
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  (ii) Arguments of the United States 
7.121  The United States contends that it is well establis hed that it is the panel request, and not the 
consultation request, that establishes a panel's terms of reference.1944  The United States also notes that 
the Appellate Body has said that it does not believe  "Articles 4 and 6 of the DSU . . . require a precise 
and exact identity  between the specific measures that were the subject of consultations and the 
specific measures identified in th e request for the establishment of  a panel," provided that the 
"essence" of the challenged measures had not changed.1945  
7.122  In relation to LA/MSF for the A350, the United States notes that its panel request specifically 
refers to LA/MSF for the A350.  The United States also contends that, contrary to the European 
Communities' assertions, it did ask questions about LA/MSF for the A350 during the initial round of 
consultations on 4 November 2004, and that during the second round of consultations on 
23 March 2006, it provided the European Commun ities with written questions concerning LA/MSF 
for the A350, which th e European Communities refused to answer.1946    Moreover, the United States 
argues that, in its first written submission, it has established a prima facie  case that the LA/MSF 
which the Airbus governments have  committed to provide for the A 350 is the same in its essential 
respects to all of the LA/MSF they provide to Airbus.1947 
7.123  The United States has indicated that it does not in tend to pursue its claim with respect to the 
1997 EIB loan to Aérospatiale for the Super Tr ansporteurs programme owing to the European 
Communities' confirmation that this loan was neve r drawn by Aérospatiale.  However, the United 
States is still pursuing its claim in relation to a 1993 EIB loan to Aérospatiale for the Super 
Transporteurs programme.1948  As regards the challenge to this measure the United States notes that its 
panel request refers specifically to financing from th e EIB to Aérospatiale Super Transporteurs, that 
its request for consultations made specific refere nce to the provision by the EIB "to the Airbus 
companies" of "research and development and other loans on preferential terms, including financing for the A320, the A321, the A330/A340, and the A380," and that its request for consultations also lists 
financing by the EIB "to the Airbus companies" fo r "large civil aircraft design, development, and 
other purposes" before then listing sp ecific examples of such financing.
1949  According to the United 
States, the 'essence' of the challenged measures; na mely, subsidized loans from the EIB to the Airbus 
companies for the development of Airbus aircraft, is  the same in both the consultation request and the 
panel request.1950  The United States also contends that it raised the issue of the EIB's loans for 
Aérospatiale Super Transporteurs during the c onsultations with the European Communities on 
4 November 2004.1951  Moreover, the United States contends th at its Statement of Available Evidence 
included a reference to a portion of the EIB webs ite entitled "Loans activity, Breakdown by Sector – 
                                                      
1944 US, Answer to EC, Original Request, para. 39, referring to Appellate Body Report, US – Upland 
Cotton , para. 293. 
1945 US, Answer to EC, Original Request, para. 39, citing Appellate Body Report,  US – Upland Cotton , 
para. 285 (emphasis in original); Appellate Body Report, Mexico – Definitive Anti-Dump ing Measures on Beef 
and Rice, Complaint with Respect to Rice ("Mexico – Anti-Dumping Measures on Rice "), WT/DS295/AB/R, 
adopted 20 December 2005, DSR 2005:XXII, 10853, para. 137, citing Appellate Body Report,  Brazil – Aircraft , 
para. 132. 
1946 US, Answer to EC, Original Request, para. 37. 
1947 US, Answer to EC, Original Request, para. 39. 
1948 US, Answer to Panel Question 12, para. 80, an d First Written Submission of the United States 
(hereinafter "US, FWS"), para. 407. 
1949 US, Answer to EC, Original Request, para. 72. 
1950 US, Answer to EC, Original Request, para. 72. 
1951 US, Answer to EC, Original Request, para. 73. WT/DS316/R 
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  Industry" in which all loans to Airbus companies,  including two loans for the Aérospatiale Super 
Transporteur project, are listed.1952  
7.124  As regards the provision by certain enumerated  German, French and UK research institutions 
of civil aeronautics R&D-related goods or services to  Airbus (Section (6)(f) of the panel request), the 
United States advises that, although it considers its pa nel request in respect of the measures described 
in Section (6)(f) of its panel request to conform with  the requirements of Article 6.2 of the DSU, it has 
decided not to pursue its claims with respect to these  measures in this dispute.  Accordingly, there is 
no need for the Panel to address the European Communities' arguments concerning the measures 
described in Section (6)(f) of the panel request.1953 
(iii) Evaluation by the Panel 
7.125  We recall that Article 4.4 of the DSU reads in relevant part: 
"Any request for consultations sha ll be submitted in writing and shall give the reasons for the request, 
including identification of the measures at issu e and an indication of the legal basis for the 
complaint." 
 
Article 6.2 of the DSU provides:  
"The request for the establishment of a pane l shall be made in writing.  It shall 
indicate whether consultations were held, identify the specific measures at issue and 
provide a brief summary of the legal basis of the complaint sufficient to present the 
problem clearly.  In case the applicant re quests the establishment of a panel with 
other than standard terms of reference, th e written request shall include the proposed 
text of special terms of reference." 
7.126  We recall that the Appellate Body has stated that Articles 4 and 6 of the DSU "set forth a 
process by which a complaining party must request consultations, and consul tations must be held, 
before a matter may be referred to the DSB for the establishment of a panel".
1954   It is well established 
that Articles 4 and 6 of the DSU do not "require a precise and exact identity   between the specific 
measures that were the subject of consultations a nd the specific measures iden tified in the request for 
the establishment of a panel."1955 In this regard, we recall that Ar ticle 4.4 of the DSU requires only 
that the request for consultations must identif y "the measures at issue", as opposed to the " specific  
measures at issue" as required by Article 6. 2 of the DSU.  As the Appellate Body in Brazil - Aircraft  
stated: 
"We do not believe, however, that Articles 4 a nd 6 of the DSU, or paragraphs 1 to 4 
of Article 4 of the SCM Agreement, require a precise and exact identity  between the 
specific measures that were the subject of  consultations and the specific measures 
identified in the request for the establishment  of a panel. As stated by the Panel, 
'{o}ne purpose of consultations, as set forth in Article 4.3 of the SCM Agreement, is 
to 'clarify the facts of the situation', and it can be expected that information obtained 
                                                      
1952 US, Answer to EC, Original Request, para. 74. 
1953 US, Answer to EC, Original Request, para. 75. 
1954 Appellate Body Report, Brazil – Aircraft , para. 131. 
1955 Appellate Body Report,  Brazil – Aircraft , para. 132.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  during the course of consultations may enable  the complainant to focus the scope of 
the matter with respect to which it seeks establishment of a panel."1956 
We are also mindful of the Appellate Body's statement in US – Upland Cotton : 
 
"We also note that Article 4.2 of the DS U calls on a WTO Member that receives a 
request for consultations to 'accord sympathe tic consideration to and afford adequate 
opportunity for consultation regarding any re presentations made by another Member'.  
As long as the complaining party doe s not expand the scope of the dispute , we 
hesitate to impose too rigid a standard for the 'precise and exact identity' between the 
scope of consultations and the request for the establishment of a panel, as this would 
substitute the request for consultations for the panel request.  According to Article 7 
of the DSU, it is the request for the estab lishment of a panel that governs its terms of 
reference, unless the parties agree otherwise."1957  
Finally, we recall that in US – Upland Cotton , the Appellate Body indicated that a panel's 
determination of the scope of the consultations should be limited to an analysis of the request for 
consultations.1958 
 7.127  With these considerations in mind, we now tu rn to examine the text of the consultation 
request and the panel request in order to determin e whether there is a sufficient degree of identity 
between the measures that were the subject of cons ultations and the specific measures identified in the 
request for the establishment of the panel to warra nt a conclusion that the challenged measures were 
subject to consultations as required by Article 4 of the DSU.   
Launch aid for the Airbus A350 (Section (1) of the panel request)
 
7.128  The sections of the consultation request pertaining to LA/MSF read: 
"The provision by the member States of fi nancing for large civil aircraft design and 
development to the Airbus companies (her einafter "launch aid"). This financing 
provides benefits to the recipient compan ies including financing for projects that 
would otherwise not be commercially feasible.  The non-commercial terms of the financing include no interest or interest  at below-market rates and a conditional 
repayment obligation that is tied to the success of the aircraft model being financed; if a model is not successful, some or a ll of the financing is forgiven.… 
The subsidies in question include those re lating to Airbus models A300, A310, A320 
family, A330/340, A330-200, A340-5 00/600, and most recently the A380."
1959  
The section of the United States' panel request pert aining to LA/MSF in respect of the A350 reads: 
 
"The provision by the member States of fi nancing for large civil aircraft design and 
development to the Airbus companies (herei nafter "launch aid").  This financing 
                                                      
1956 Appellate Body Report, Brazil – Aircraft , para. 132. In this connection, we recall that the Panel on 
Brazil - Aircraft stated (at para. 7.9) "...to limit the scope of the panel proceedings  to the identical matter with 
respect to which consultations were held could undermine the effectiveness of the panel process." 
1957 Appellate Body Report, US – Upland Cotton , para. 293 (footnotes omitted, emphasis added). 
1958 Appellate Body Report, US – Upland Cotton , para. 287. 
1959 European Communities and Certain Member States – Measures Affecting Trade in Large Civil 
Aircraft , Request for Consultations by the United Stat es, WT/DS316/1-G/L/697-G/SCM/D62/1 (12 October 
2004) (footnotes omitted) (hereina fter "US, Consultation Request"). WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  provides benefits to the recipient compan ies including financing for projects that 
would otherwise not be commercially feasible.  The non-commercial terms of the financing may include no interest or inter est at below-market rates and a repayment 
obligation that is tied to sales.  If the aircraft is not successful, some or all of the 
financing need not be repaid.  Specific examples of the financing at issue include: 
(a) French financing for the Airbus A300 , A310, A320, A330/340, A330-200, A340-
500/600, A380 and A350; 
(b) German financing for the Airbus A300,  A310, A320, A330/340, A380 and A350; 
(c) United Kingdom financing for the Airbus A300, A310, A320, A330/340, A330-200, 
A340-500/600, A380 and A350; and 
(d) Spanish financing for the Airbus A300, A310, A320, A330/340, A330-200, A340-
500/600, A380 and A350."
1960 
7.129  We consider that there is a sufficient identit y between the measures described in the request 
for consultations and the specific measures as descri bed in the panel request.  We note that the 
consultation request indicates that the measures in qu estion 'include' LA/MSF relating to the aircraft 
models specified therein. The consultation request th erefore indicates that the alleged subsidies to the 
specific aircraft models are part of a class or cate gory of measures identified as 'launch aid' for large 
civil aircraft design and development to the Airbus companies.  In the panel request, the United States 
provides particular examples of the specific measures it identifies as 'launch aid' for large civil aircraft 
design and development to the Airbus companies.  We do not consider that the United States has 
'broadened the scope of the dispute' by including in the panel request 'launch aid' for the A350 as one 
of the examples of the specific measures that are d escribed in the same terms in both the consultations 
and panel requests.  We consider that the essence of  the challenged measures; namely, 'launch aid' for 
large civil aircraft design and development to the Airbus companies, is the same in both requests. 
EIB financing to Aérospatiale for the Supe r Transporteurs (Section (2)(e) of the panel 
request).  
7.130  The section of the United States' consultation re quest dealing specifically with EIB financing 
refers to: 
"The provision by the EC and the member States, through the European Investment 
Bank ("EIB"), to the Airbus companies, including Airbus' parent company EADS, of research and development and other loans on  preferential terms, including financing 
for the A320, the A321, the A330/340, and the A380."
1961 
Section (2)(e) of the United States' panel request, pertaining to EIB financing to Aérospatiale Super 
Transporteurs reads:  
"(2)  In addition to launch aid, the pr ovision by the EC and the member States, 
through the European Investment Bank ("EIB"), to the Airbus companies, of 
                                                     
 
1960 European Communities and Certain Member States – Measures Affecting Trade in Large Civil 
Aircraft , Request for the Establishment of a Panel by the United States, WT/DS316/2 (3 June 2005) (footnotes 
omitted), (hereinafter "US, Panel Request"). 
1961 US, Consultation Request.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  financing for large civil aircraft design, development, and other purposes.  Specific 
examples of the financing at issue include: ...  
  (e)  Financing to Aérosp atiale Super Transporteurs;"
1962 
 
7.131  In our view, the United States has not "broadened  the scope of the dispute" by specifying EIB 
financing to Aérospatiale Super Transporteurs in the panel request.  We note that the consultation 
request specifically refers to the provision by the EIB "to the Airbus companies" of "research and 
development and other loans on preferential terms, including  financing for the A320, the A321, the 
A330/A340, and the A380".  The panel request al so lists financing by the EIB "to the Airbus 
companies" for "large civil aircraft design, de velopment, and other purposes" and then provides 
specific examples of the financing at issue.  We consider that the essence of the challenged measures; 
namely, subsidized loans from th e EIB to the Airbus companies for the development of Airbus 
aircraft (which category includes Aérospatiale Super Transporteurs), is the same in both requests.   
Funding from the French government for civil aeronautics-related R&D projects in which 
Airbus participated (Section (6)(e) of the panel request).  
7.132  Section (6)(e) of the United States' panel request refers to: 
"The provision by the EC and the member States of financial contributions for 
aeronautics-related research, development,  and demonstration ("R&D"), undertaken 
by Airbus, whether alone or with others, or in any other way to the benefit of Airbus, 
including:  … 
(e) Funding from the French government, including regional and local 
authorities, since 1986 for civil aeronautics-related R&D projects in which Airbus participated."
1963 
7.133  The European Communities argu es that the measures described in Section (6)(e) are not 
included in the consultation request.1964  
7.134  We recall, however, that there is a section of the request for consultations dealing specifically 
with funding for civil aeronautics-related R&D projects in the following terms: 
"The provision by the EC and member Stat es of research and development loans and 
grants in support of large civil aircraft de velopment.  These loans and grants directly 
benefit the Airbus companies."1965 
7.135  We consider that the specific measures identifie d in Section (6)(e) of the United States' panel 
request fall within the scope of this description of  the measure in the request for consultations.   
                                                      
1962 US, Panel Request. 
1963 US, Panel Request. 
1964 EC, Original Request, para. 73. 
1965 US, Consultation Request. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  Provision by certain enumerated German, Fren ch and UK research institutions of civil 
aeronautics R&D-related goods and services to Airbus (Section (6)(f) of the United States' 
panel request).  
7.136  The United States advises that it has decided not  to pursue its claims with respect to these 
measures in this dispute.1966 Accordingly, there is no need for us to address the European 
Communities' objections to these measures. 
7.137  In conclusion, for the reasons stated above, we  reject the European Communities' request for 
a preliminary ruling that the measures identified in Se ctions (1), (2)(e) and (6)(e) of the United States' 
panel request be excluded from our terms of reference on the grounds that they were not subject to 
consultations. 
(d) Measures Allegedly not Adequately Identified in the Panel Request  
(i) Arguments of the European Communities 
7.138  The European Communities challenges a numbe r of other measures as being outside the 
Panel's terms of reference on the grounds that, in its request for the establishment of a panel, the 
United States described these measures in an ove rly broad, ambiguous or overly inclusive manner.1967  
According to the European Comm unities, the United States has thereby failed to comply with the 
basic obligation under Article 6.2 of the DSU to iden tify the 'specific measures at issue' in its request 
for the establishment of a panel.1968  
7.139  Where a measure is not explicitly identified in the text of a request for the establishment of a 
panel, the European Communities contends that WT O jurisprudence has estab lished that there must 
be a description of the specific measures at issue in the panel request that effectively  achieves the same 
result.1969 According to the European Communities, the complainant is under a duty to identify, with 
sufficient precision, the 'specific measures at issue' in its panel request, and a respondent is not 
required to engage in research or guesswork in de termining what the specific measures are supposed 
to be, particularly in complex cases potentially involving numerous measures.1970  M o r e o v e r ,  t h e  
European Communities argues that wi th respect to programmes and sch emes subject to the disciplines 
of the SCM Agreement, WTO jurisprudence indicat es that broad descriptions of measures at issue 
"may be acceptable as long as the group of measures in question has clearly been limited by some 
restricting or specifying reference(s)  which, in light of the circumstances of the case , nonetheless 
enable the 'specific measures at  issue' to be ascertained."1971  According to the European 
Communities, depending on the specific circumstances and type of measure, "other specifying 
elements may be necessary, such as the nature of th e financial contribution, the amount thereof or the 
                                                      
1966 US, Answer to EC, Original Request, para. 75. 
1967 EC, Original Request, para. 36. 
1968 EC, Original Request, para. 36. 
1969 EC, Original Request, para. 45; citing Panel Report, Canada – Measures Relating to Exports of 
Wheat and Treatment of Imported Grain ("Canada – Wheat Exports and Grain Imports "), WT/DS276/R, 
adopted 27 September 2004, upheld by Appellate Body Report, WT/DS276/AB/R, adopted 27 September 2004, 
DSR 2004:VI, 2739, para. 6.10, (subpara. 20 of the preliminary ruling reproduced therein). 
1970 EC, Original Request, para, 47. 
1971 EC, Original Request, para. 48.  The European Co mmunities cites the following reports in support: 
Appellate Body Report, United States – Countervailing Duties on Certain Corrosion-Resistant Carbon Steel 
Flat Products from Germany ("US – Carbon Steel "), WT/DS213/AB/R and Corr.1 , adopted 19 December 2002, 
DSR 2002:IX, 3779, para. 127; Panel Report, Canada – Wheat Exports and Grain Imports , para. 6.10, 
subpara. 20 of the preliminary ruling reproduced therein; Panel Report, US – Upland Cotton , para. 7.123-7.128.  WT/DS316/R 
 Page 303 
 
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  date on which it was provided, the purpose of the grant, or the recipient."1972 The European 
Communities notes that the inclusion or non-inclusion of a measure in the panel's terms of reference 
must be demonstrated " on the face  (text) of the panel request."1973  
(ii) Arguments of the United States 
7.140  The United States argues that its panel request identifies the specific measures at issue in 
accordance with Article 6.2 of the DSU.   
7.141  According to the United States, the Appellate Body report in US – Carbon Steel  made clear 
that a panel reviewing a panel request under Article 6.2 must consider the panel request as a whole, 
and may take into account the attendant circumstances.1974  Such  'attendant circumstances' are the 
circumstances surrounding the filing of the pane l request, such as the consultation request, the 
consultations, the Statement of Available Evidence, the DSB's consideration of the panel requests and 
such other facts.1975  The United States also argues that the European Communities has not been 
prejudiced in any way by the description of the measures in the panel request.1976  Specifically, the 
United States points to the fact that the European  Communities received a first set of questions from 
the facilitator in the Annex V process on 7 October 2005, following an earlier exchange of draft 
questions on 23 September 2005.  The United States contends that, given the level of detail in the 
questions, and the fact that its first written submi ssion was not due until February 2007, the European 
Communities cannot seriously assert that it has been unable to begin preparing its defence.1977  
7.142  The United States also refers to the procedural history of this dispute as indicating that the 
European Communities' request for preliminary ru lings "had nothing to do with addressing alleged 
shortcomings in the US panel request, and everyt hing to do with increasing the complexity of the 
matter, avoiding the need to provi de information on the challenged measures in the Annex V process, 
and forcing delay."1978 The United States also raises the Eur opean Communities' refusal to provide 
details of its concerns regarding the lack of speci ficity in the United States' panel request when the 
request was considered by the DSB as demonstrating that the European Commun ities' approach to its 
concerns regarding the United States' panel requ est is "strikingly different from the approach 
suggested by the Appellate Body and prior panels."1979   Finally, the United States points to the fact 
                                                      
1972 EC, Original Request, para. 50. 
1973 EC, Original Request, para. 51; citing the Panel Report, US – Upland Cotton , para. 7.123-7.128; 
7.137-7.144; 7.145-7.152; 7.172-7. 181; and Appellate Body Report, EC – Export Subsidies on Sugar , 
paras. 145-156, particularly para. 154. 
1974 US, Answer to EC, Original Request, para. 45; referring to Appellate Body Report, US - Carbon 
Steel,  paras. 128-133. 
1975 US, Answer to EC, Original Request, para. 60; citing Panel Report, United States – Safeguard 
Measures on Imports of Fresh, Chilled or Frozen  Lamb Meat from New Zealand and Australia ("US – Lamb "), 
WT/DS177/R, WT/DS178/R, adopted 16 May 2001, as m odified by Appellate Body Report, WT/DS177/AB/R, 
WT/DS178/AB/R, DSR 2001:IX, 4107, para. 5.32. 
1976 US, Answer to EC, Original Request, para. 41. 
1977 US, Answer to EC, Original Request, para. 78. 
1978 Specifically, the United States refers to th e further consultations which were held on 
23 March 2006 and the second request for the establishment of a panel in this dispute which it filed on 
10 April 2006.  The United States contends that, since th e time at which the United States filed the second panel 
request that ultimately led to the composition of a panel in DS347, the European Communities has fully understood the nature of the United States' case and has b een able to prepare its defe nce in this dispute. US, 
Answer to EC, Original Request, para. 79. 
1979 US, Answer to EC, Original Request, para. 82; referring to the Appellate Body Report, 
United States – Tax Treatment for "Foreign Sales Corporations" ("US – FSC "), WT/DS108/AB/R, adopted 
20 March 2000, DSR 2000:III, 1619, para. 166, and Panel Report, Canada – Wheat Exports and Grain Imports , 
para. 6.10, subpara. 65. WT/DS316/R 
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  that it consented to the European  Communities receiving extended time during which to prepare its 
first written submission (12 weeks compared to the two to three weeks proposed in the DSU) as 
demonstrating the lack of prejudice to the EC.1980 
(iii) Evaluation by the Panel 
7.143  A panel's terms of reference are based on the request for establishment of a panel.  We recall 
that, when faced with an issue relating to the scope of its terms of reference, a panel is required to 
scrutinize carefully the request fo r establishment of a panel to ensure its compliance with both the 
letter and the spirit of Article 6.2 of the DSU.1981  Article 6.2 of the DSU provides: 
"The request for the establishment of a pane l shall be made in writing.  It shall 
indicate whether consultations were held, identify the specific measures at issue  and 
provide a brief summary of the legal basis of the complaint sufficient to present the 
problem clearly . In case the applicant requests the establishment of a panel with other 
than standard terms of reference, the writte n request shall include the proposed text of 
special terms of reference."1982 
7.144  We recall that the requirement of precision in the request for establishment of a panel flows 
from the two essential purposes of the terms of reference; namely, to define the scope of the dispute, and to serve the due process objective of notifying th e parties and third parties of the nature of a 
complainant's case.
1983  Compliance with the requirements of Article 6.2 must be determined on the 
merits of each case, after a consideration of the pa nel request as a whole, and in light of attendant 
circumstances.1984  Moreover, such compliance must be dem onstrated on the face of the request for 
establishment of a panel, and defects in the request for the establishment of a panel cannot be cured in 
the subsequent submissions of the parties during the panel proceedings.1985   
7.145  In the sections that follow, we set forth the specific measure contained in the United States' 
panel request which the European Communities cha llenges on the basis that it fails to meet the 
requirements of Article 6.2 of the DSU, followe d by the arguments advanced by the European 
Communities and the United States, respectively, in relation to the specific measure.  Finally, we set 
out our analysis, based on the foregoing principles, and our conclusion with respect to each specific 
measure.  
Funding from the French government for civ il aeronautics-related R&D projects in which 
Airbus participated (Section (6)(e) of the United States' panel request)  
7.146  Section (6)(e) of the panel request refers to: 
"The provision by the EC and the member States of financial contributions for 
aeronautics-related research, development,  and demonstration ("R&D"), undertaken 
                                                      
1980 US, Answer to EC, Original Request, para. 80. 
1981 Appellate Body Report, US – Carbon Steel , para. 126; Appellate Body Report, European 
Communities – Regime for the Importa tion, Sale and Distri bution of Bananas ("EC – Bananas III "), 
WT/DS27/AB/R, adopted 25 September 1997, DSR 1997:II, 591, para. 142. 
1982 Emphasis added. 
1983 Appellate Body Report, US – Carbon Steel , para. 126. 
1984 Appellate Body Report, US – Carbon Steel , para. 127.  "Attendant circumstances" that a panel may 
examine when evaluating a panel request include the cons ultations that were held concerning the measure and 
the DSB's consideration of the requests for a panel and the establishment of the Panel; Panel Report, US – 
Lamb , para. 5.32. 
1985 Appellate Body Report, US – Carbon Steel , para. 127.  WT/DS316/R 
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  by Airbus, whether alone or with others, or in any other way to the benefit of Airbus, 
including:   ... 
 (e) Funding from the French government, including regional and local 
authorities, since 1986 for civil aeronautics-related R&D projects in which Airbus 
participated." 
7.147  The European Communities argues that the phrase 'research, development, and demonstration' 
used by the United States in its pane l request is unclear and overly broad.1986  The reference to 
'funding' could, in the European Communities' view, relate to any funding ever provided by French 
authorities.1987  According to the European Communities, 'funding' by the 'French government, 
including regional and local authorities' could c over any of the hundreds, if not thousands, of 
authorities in France.  The European Communi ties submits that the failure to specify which  
governmental institutions or authorities are of pa rticular concern creates unacceptable uncertainty, 
especially in larger countries with complex admi nistrations and wide ne tworks of sub-national 
authorities.1988  The European Communities argues that it is  impossible for it to know which alleged 
actions taken by which French authorities over the past 20 years the United States is interested in 
pursuing.1989 
7.148  The United States disputes the European Communities' conten tion that the phrase 'funding for 
civil aeronautics-related R&D projects  in which Airbus participated' could be understood to mean 'any 
funding ever provided by French authorities'.  The Un ited States contends that it used the same term; 
namely, 'funding for civil aeronautics-related R&D pr ojects in which Airbus participated' to describe 
the European Communities, German, UK and Spanish R&D measures, in Section (6)(a) through (d) of 
its panel request and notes that the European Co mmunities has not raised concerns over compliance 
with Article 6.2 in that context, nor has the European Communities explained why the term was 
sufficiently clear with respect to the Europ ean Communities, German, United Kingdom and Spain 
R&D measures, and unclear and broad with respect to the French R&D measures.1990 
7.149  The United States also raises attendant circ umstances surrounding the filing of its Panel 
request.  In this regard, the United States contends that it raised the issue of French R&D subsidies 
during consultations and provided the European Co mmunities with five specific written questions 
about French funding for R&D projects related to civ il aircraft in which Airbus participated between 
1986 and 2003.1991  The United States notes that the Statement of Available Evidence appended to its 
consultation request included several documents addressing French government funding for R&D for 
civil aircraft projects, including funding to Airbus.1992  In addition, the United States notes that, when 
the United States' panel request was first on the ag enda of the DSB, the United States made specific 
reference to the nature of the R&D s ubsidies in its statement to the DSB.1993  
                                                      
1986 EC, Original Request, para. 57. 
1987 EC, Original Request, para. 57. 
1988 EC, Original Request, para. 59. 
1989 EC, Original Request, para. 61. 
1990 US, Answer to EC, Original Request, para. 63.  We note that in its first written submission, the 
European Communities responded that in Sections (6)(a) through (d) of the panel request, the United States has 
included additional specifying elements, such as th e name of the R&D programme, which the European 
Communities claims helped it to identify the specific measures at issue; EC, FWS, para. 183. 
1991 US, Answer to EC, Original Request, para. 64. 
1992 US, Answer to EC, Original Request, para. 64. 
1993 US, Answer to EC, Original Request, para. 65; Minutes of Meeting held in the Centre William 
Rappard, 13 June 2005, WT/DSB/M/191, 28 June 2005, para. 3. WT/DS316/R 
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  7.150  In the Panel's view, Section (6)(e) of the panel request, considered as a whole and in light of 
attendant circumstances, identifies the measures at issue in a manner sufficient to present the problem 
clearly.  We do not consider that the reference to  funding for "civil aeronautics-related R&D projects 
in which Airbus participated" can be read as covering any funding ever provided by French 
authorities.  In addition, while the terms "funding " by "the French government, including regional and 
local authorities" might, if read in isolation, c over "hundreds if not thousa nds of 'authorities' in 
France", we do not consider that funding for "civ il aeronautics-related R&D projects in which Airbus 
participated" can be so broadly construed, especially  when considered in the light of the attendant 
circumstances described in the arguments of the United States.1994  
Financial contributions to deve lop, expand, and upgrade facilities and other infrastructure for 
the Airbus companies in certain locations in German, France, Spain and the United Kingdom 
(Section (3) of the United States' panel request).  
7.151  Section (3) of the United States' panel request reads: 
"The provision by the EC and the member States of financial contributions to 
develop, expand, and upgrade facilities and other infrastructure for the Airbus 
companies.  Specific instances include public  investments by German authorities in 
Hamburg, Nordenham, Bremen, and Varel, by French authorities in the Toulouse region, by UK authorities at Broughton, and by Spanish authorities at numerous locations in Spain (such as Puerto Real, Illescas, Puerto de Santa Maria, and La Rinconada)." 
7.152  The European Communities challenges the descrip tions of "public investments by French 
authorities in the Toulouse region", and "public in vestments" by "German authorities in Hamburg, 
Nordenham, Bremen, and Varel"; by "UK author ities at Broughton" and "by Spanish authorities at 
numerous locations in Spain (such as Puerto Real, Illescas, Puerto de Santa Maria, and La Rinconada)" as insufficiently clear in light of the fact that local administrations undertake an immense 
number of infrastructure measures of varying scale and scope each year and the specification of the 
United States' claim is insufficient to enable the European Communities to identify the specific 
measures the United States seeks to challenge.  
7.153  The United States contends that the European Communities' assertion that the description of 
the measures in Section (3) of the United States pane l request is insufficient under Article 6.2 of the 
DSU is not credible, particularly in light of the attendant circumstances.
1995  The United States gives 
the example of the public investments by German  authorities in Hamburg: According to the United 
States, the measure in question is the expenditure  by Hamburg of approximately EUR 751 million to 
develop land and expand facilities at Airbus' Hamburg production facility.1996 The United States notes 
that it listed this measure in its consultation request, it submitted two written questions on the 
Hamburg project in advance of the consultations  between the parties on 4 November 2004 and it 
discussed the measure at length with the Eu ropean Communities during the consultations.1997  T h e  
United States notes that it appended to its consulta tion request no fewer than nine different Hamburg 
government documents describing the Hamburg infrastructure project in detail.1998  I n  a ddi t i o n,  t h e  
United States notes that, at the first DSB meeting at which the United States panel request was on the 
agenda, the US representative made specific reference to the City of Hamburg spending 
                                                      
1994 US, Answer to EC, Original Request, paras. 64-67. 
1995 US, Answer to EC, Original Request, para. 56. 
1996 US, Answer to EC, Original Request, para. 56. 
1997 US, Answer to EC, Original Request, para. 56. 
1998 US, Answer to EC, Original Request, para. 56.  WT/DS316/R 
 Page 307 
 
BCI deleted, as indicated [***] 
 
  EUR 751 million to fill in a protected wetland on the River Elbe to create additional land for Airbus's 
use at its production cite in Hamburg.1999 
7.154  With respect to the other alleged infrastructur e subsidies, the United States notes that it 
submitted specific written questions about the No rdenham, Varel, Bremen, Toulouse, Broughton, 
Wales, Illescas, Puerto de Santa Maria, Puerto Real and La Rinconada measures to the European 
Communities in advance of the c onsultations on 26 October 2004.2000  The United States notes that it 
also included documents about these other infrastru cture subsidies in the Statement of Available 
Evidence appended to its request for consultations.2001 
7.155  In the Panel's view, the 'public investments' re ferred to in Section (3) of the panel request 
relate to the development, expansion and upgrading of facilities and other infrastructure for the Airbus 
companies.  Infrastructure ' for the Airbus companies' is clearly narr ower than infrastructure that might 
in some way benefit  the Airbus companies.  For example, contrary to the European Communities' 
suggestion, we do not consider that it is plausible to read the reference to  "infrastructure for the 
Airbus companies" as potentially covering insigni ficant infrastructure measures such as a new stop 
sign near an Airbus company plant.  Moreover, we  consider that this section of the panel request, 
when considered in the light of attendant circum stances, identifies the measures at issue in a manner 
sufficient to present the problem clearly. 
The assumption of debt by the Spanish government  on behalf of the Spanish Airbus company 
CASA (Section (4) of the United States' panel request).  
7.156  The United States advises that, although it consid ers its request under this section consistent 
with the requirements of Article 6.2 of the DSU, it ha s decided not to pursue its claims with respect to 
these measures.  Accordingly, there is no need fo r the Panel to address the European Communities' 
contentions on these measures.2002  
The provision by certain enumerated German, French, and UK research institutions of civil 
aeronautics R&D-related goods or services to Airbus (Section (6)(f) of the United States'  
panel request).  
7.157  The United States advises that, although it cons iders its panel request in respect of these 
measures to conform with the requirements of Article 6.2 of the DSU, it has decided not to pursue its 
claims with respect to th ese measures in this dispute.2003 Accordingly, there is no need for us to 
address the European Communities'  objections to these measures. 
                                                      
1999 US, Answer to EC, Original Request, para. 57; referring to WT/DSB/M/191, 28 June 2005, para. 3. 
2000 US, Answer to EC, Original Request, para. 59.  The United States contends that neither the 
European Communities, France, German, Spain nor the United Kingdom expressed confusion about the nature 
of the measures at issue at that time. 
2001 US, Answer to EC, Original Request, para. 59. 
2002 US, Answer to EC, Original Request, para. 75. 
2003 US, Answer to EC, Original Request, para. 75. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  7.158  In conclusion, for the reasons stated above, we  reject the European Communities' request for 
a preliminary ruling that the measures identified in Sections (6)(e) and (3) of the United States' panel 
request be excluded from our term s of reference on the grounds that the descriptions of these 
measures fail to meet the requirements of Article 6.2 of the DSU. 
 
  
   WT/DS316/R
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BCI deleted, as indicated [***] Section VII.C Attachment: Annex A to the Preliminary Ruling of the Panel 
 
Measures which the European Communities Agrees  Are Subject  
to Article 5 of the SCM Agreement  
because they came into ex istence after 1 January 1995  
 
Nature of Measure 
 Alleged amount of financial 
contribution Details of Existence 
MSF for A330/A3402004 
   
Germany 
  DM 126.8 million and DM 
66.7 million  
 Disbursed in 1995 and 1996, respectively. 
France €75.93 million and €21.518 million Disbursed in 1995 and 1996, respectively. 
 
Spain €19.28 million Disbursed in 1995. 
 
EIB Loans    
EIB loan to EADS for R&D related to th e Airbus A380  €700 million Granted in 20022005 
EIB loan to Aérospatiale for Super Transporteur program (Super  
Transporteur A) 1993 €112,614,303 Some disbursements were made in 1996.  
EIB loan to Aérospatiale for Super Transporteur program (Super  
Transporteur B) 1997  €38,098,547 EC says this loan was never drawn on and was 
therefore cancelled.
2006 
Infrastructure    
Alleged infrastructure support provided by the City of Hamburg to 
Airbus Deutschland   EC concedes this is within the temporal scope of 
the SCM Agreement (see EC, Response to Panel Questions of 8 December 2006 on Preliminary Ruling Request by the European Communities, 
para. 42). 
                                                      
2004 Based on EC, Answer to Panel Questi ons of 8 December 1996, paras. 22-38. 
2005 The European Communities concedes that this loan is within the temporal scope of the SCM Agreement: see EC, Answer to Panel Questions of 8 December 1996, 
para. 39. 
2006 EC, Answer to Panel Questions of 8 December 1996, para. 40.  It remains however, within the temporal scope of the dispute, eve n on the European Communities' 
definition. 
  
  WT/DS316/R 
Page 310 
BCI deleted, as indicated [***] Nature of Measure 
 Alleged amount of financial 
contribution Details of Existence 
 
Alleged infrastructure support provided by French authorities by 
creating the AéroConstellation Industrial Site in Toulouse   EC concedes this is within the temporal scope of 
the SCM Agreement (see EC, Response to Panel Questions of 8 December 2006 on Preliminary 
Ruling Request by the European Communities, 
para. 44).  
Grant by German Land of Lower Sa xony for Airbus's Nordenham Site 
(US, FWS, para.488 ) 
 €6 million Grant approved in June 2002. 
 EC concedes within temporal scope: see EC, Response to Panel Questions of 8 December 
2006 on Preliminary Ruling Request by the 
European Communities, para. 45   
Grant by Welsh Assembly to BAE Systems for Airbus's Broughton, Wales facility ( US, FWS, para 490 ) 
 £19.5 million Announcement made 24 September 2000. 
 EC concedes within temporal scope: see EC, 
Response to Panel Questions of 8 December 
2006 on Preliminary Ruling Request by the European Communities, para. 45  
Regional grants by Spanish Government to EADS-CASA's Sevilla and La Rinconada Facilities (US, FWS, para 494 ) €2.2 million to EADS-CASA in 
Sevilla   
€814,000 to EADS-CASA at La 
Rinconada  Announced April 2001. 
 EC concedes within temporal scope: see EC, 
Response to Panel Questions of 8 December 
2006 on Preliminary Ruling Request by the European Communities, para. 45.  
Spanish government grant to Air bus España for Airbus España's 
Toledo Facility (US, FWS, para 496 ) 
 €37.9 million Approved March 2003. 
 EC concedes within temporal scope: see EC, 
Response to Panel Questions of 8 December 
2006 on Preliminary Ruling Request by the European Communities, para. 45.   
   WT/DS316/R
 Page 311
BCI deleted, as indicated [***] Nature of Measure 
 Alleged amount of financial 
contribution Details of Existence 
Regional grant by Spanish Government for EADS-CASA's La 
Rinconada Facility ( US, FWS, para 498 )  
 €43.1 million Order approving grant issued July 2003. 
 
EC concedes within temporal scope: see EC, 
Response to Panel Questions of 8 December 2006 on Preliminary Ruling Request by the European Communities, para. 45.  
Grant by Spanish Government for EADS-CASA's Puerto de Santa Maria Plant ( US, FWS, para 500 ) 
 €5.9 million Order approving grant issued July 2003. 
 
EC concedes within temporal scope: see EC, 
Response to Panel Questions of 8 December 2006 on Preliminary Ruling Request by the European Communities, para. 45.  
Grant by Spanish Government for E ADS/Airbus España's Puerto Real 
Facility ( US, FWS, para 502 ) 
 
 €13.1 million Order approving grant issued July 2003. 
 
EC concedes within temporal scope: see EC, 
Response to Panel Questions of 8 December 2006 on Preliminary Ruling Request by the European Communities, para. 45.  
Grant by Government of Andalusia for EADS-CASA's Puerto de Santa Maria Plant ( US, FWS, para 504 ) 
 
 €8.6 million Grant provided July 2001. 
 EC concedes within temporal scope: see EC, 
Response to Panel Questions of 8 December 
2006 on Preliminary Ruling Request by the European Communities, para. 45.  
Grant by Andalusian Government for EADS-CASA's Sevilla facility (US, FWS, para 506 ) 
 
 €35.7 million Grant authorized July 2002. 
 EC concedes within temporal scope: see EC, 
Response to Panel Questions of 8 December 
2006 on Preliminary Ruling Request by the European Communities, para. 45.   
  WT/DS316/R 
Page 312 
BCI deleted, as indicated [***] Nature of Measure 
 Alleged amount of financial 
contribution Details of Existence 
Grant by Andalusian Government for EADS/Airbus España's Puerto 
Real Facility ( US, FWS, para 508 ) 
 
 €17.5 million Grant authorized in July 2003. 
 
EC concedes within temporal scope: see EC, 
Response to Panel Questions of 8 December 2006 on Preliminary Ruling Request by the European Communities, para. 45.  
Grant by Government of Castilla-L a Mancha for Airbus España's 
Illescas Facility ( US, FWS, para 510 ) 
 
 €7.6 million Grant approved March 2004. 
 
EC concedes within temporal scope: see EC, 
Response to Panel Questions of 8 December 1996 on Preliminary Ruling Request by the European Communities, para. 45  
Alleged Forgiveness of Debt of Deutsche Airbus by German 
Government  (US, FWS, para. 515 et seq) Forgiveness of DM7.7 billion in debt 
owed by Deutsche Airbus Decision taken in 1998. 
 
EC concedes within temporal scope: see EC, 
Response to Panel Questions of 8 December 1996 on Preliminary Ruling Request by the European Communities, para. 46.  
French Government's transfer of its 45.76% share in Dassault to 
Aérospatiale  (US, FWS, para. 607 et seq ) Translated into equity infusion of 
FF5.28 billion  Transfer effected December 1998. 
 EC concedes within temporal scope: see EC, 
Response to Panel Questions of 8 December 
1996 on Preliminary Ruling Request by the European Communities, para. 49.  
R&D Funding    
Alleged measures of support under the Fourth Framework Program At least €195.3 b illion EC concedes within temporal scope: see E C, 
Response to Panel Questions of 8 December 1996 on Preliminary Ruling Request by the 
European Communities, para. 51. 
  
   WT/DS316/R
 Page 313
BCI deleted, as indicated [***] Nature of Measure 
 Alleged amount of financial 
contribution Details of Existence 
Alleged measures of support under the Fifth Framework Program 
 €509 million EC concedes within temporal scope: see EC, 
Response to Panel Questions of 8 December 
1996 on Preliminary Ruling Request by the 
European Communities, para. 51.  
Alleged measures of support under the Sixth Framework Program  €450 million EC concedes within temporal scope: see EC, 
Response to Panel Questions of 8 December 1996 on Preliminary Ruling Request by the European Communities, para. 51. 
 
German government civil aeronauti cs R&D grants under Aeronautics 
Research Programs: LuFo 1, LuFo 2 and LuFo 3. 
(US, FWS, para 663 ) €217 million 1995-2007 
EC concedes within temporal scope: see EC, 
Response to Panel Questions of 8 December 1996 on Preliminary Ruling Request by the European Communities, para. 52.  
Länder R&D Grants ( US, FWS, para. 667)  
 €44 million All are post 1995 
 
EC says that Airbus did not benefit from any 
R&T funding from Bavaria, but concedes that the claims themselves fall within the temporal scope: see EC, Response to Panel Questions of 8 December 1996 on Preliminary Ruling Request by the European Communities, para. 53. 
 
French Government R&D Funding ( US, FWS, para 678 ) €262 million Grants between 1995 and 2005 
 EC says that the French R&D funding from 1995 to 2005 is properly before the Panel: see EC, Response to Panel Questions of 8 December 1996 on Preliminary Ruling Request by the 
European Communities, para. 54  
  
  WT/DS316/R 
Page 314 
BCI deleted, as indicated [***] Nature of Measure 
 Alleged amount of financial 
contribution Details of Existence 
UK R&D ( US, FWS, para 686) 
- CARAD program 
-TP program (established 2004)  
£28 million disbursed since 1992 
£5.5 million committed since 2004 EC says any disbursements made post 1 January 
1995 under these programs are within the 
temporal scope of Article 5: see EC, Response to 
Panel Questions of 8 December 1996 on Preliminary Ruling Request by the European Communities, para. 55.  
Spanish authorities' R&D Funding programs ( US, FWS, para 692 et 
seq) 
- PTA (1993-2003) 
- PROFIT (2000-2003; 2004-2007) Airbus alleged to have received PTA 
I loans between 1993 and 1998 and 
PTA II loans between 1999 and 
2003.  Airbus alleged to have received €1.5 million under PROFIT I 
 EC says that payments under these programs 
occurring after 1 January 1995 are within 
temporal scope: See EC, Response to Panel 
Questions of 8 December 1996 on Preliminary Ruling Request by the European Communities, para. 56.    
    WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  D. OTHER PRELIMINARY MATTERS  
1. Requests for Enhanced Third Party Rights 
7.159  On 9 November 2005, Brazil submitted a request fo r enhanced third party rights in this panel 
proceeding; similar requests were received from Canada on 23 November 2005 and from Korea on 
13 October 2006.  After careful consideration of th is issue in light of all comments received from 
parties and third parties, on 23 October 2006 we inform ed the parties and third parties of our decision 
declining to grant enhanced third party rights to an y third party.  We indicated in our communication 
of that date that we would issue our reasons in due course.  We set out the reasons for our decision 
below.   
(a) Arguments of the Parties and Third Parties  
7.160  Brazil seeks "enhanced" third party rights in this  proceeding, including specifically, the rights 
to: 1) attend the entirety of all substantive meeti ngs of the Panel with the Parties; 2) present oral 
statements and oral observations at the substantive m eetings of the Panel with the Parties; 3) receive 
copies of all submissions to the Panel, including an swers to the questions posed by the Panel or the 
parties; and 4) review and comment on the interim Pa nel Report, in particular the summary of Brazil's 
arguments in the draft descriptive part of the Panel report.2007   
7.161  Brazil argues that it has a significant economic intere st in this dispute because it is the fourth 
largest aircraft manufacturer in the world.  Brazil dr aws attention to the unique nature of the aircraft 
industry, which develops a few product types at very high costs.  According to Brazil, the impact of 
WTO-inconsistent subsidies on aircraft manufacturers is  greater than that of subsidies given to other 
sectors.  Brazil notes that it was a party to three prior dispute settlement proceedings in the WTO 
involving subsidies in the aircraft sector, and submit s that it has concerns regarding the interpretation 
of certain provisions of the SCM Agreement as app lied to the aircraft sector. Brazil considers that 
fundamental fairness requires that it be granted enha nced third party rights in this dispute because 
absent such rights it cannot fully present its views to the Panel.  In Brazil's view, the systemic 
implications of the outcome of the dispute for de veloping countries should also be considered.  
Finally, Brazil argues that granting of the enhanced  rights it is seeking in this case will not blur the 
line between the rights of parties and those of third parties.   
7.162  Canada considers that, if the Panel chooses to grant enhanced third pa rty rights to Brazil, 
fundamental fairness dictates that the same e nhanced rights should be granted to Canada.2008  Canada 
asserts that, like Brazil, it has a significant economic in terest in the aircraft sector, and notes that it 
was a party to the same three previous dispute se ttlement proceedings concerning subsidies in the 
aircraft sector as Brazil.  To the extent that this Panel's findings may ha ve consequences for the 
development and production of civil aircraft, they ar e just as likely to have a significant impact on 
Canada's aircraft sector as Brazil's. Moreover Canada asserts that, like Brazil, it has interests and perspectives on the WTO disciplines governing the civil ai rcraft sector that are distinct from those of 
the United States and the European Communities.  
7.163  Korea has no objection to Panel's granting Brazil and Canada the requested rights given their 
substantial commercial and systemic interests, but contends that should the Panel decide to grant 
enhanced third party rights to Brazil and Canada the same rights should be accorded to Korea and 
other third parties, as a matter of due process.
2009  Korea is concerned that differentiated application of 
third party rights could result in discrimination am ongst third parties, which would adversely affect 
                                                      
2007 Letter from Brazil to the Panel, dated 9 November 2005, para. 12. 
2008 Letter from Canada to the Panel, dated 23 November 2005. 
2009 Letter from Korea to the Panel, dated 13 October 2006. WT/DS316/R 
Page 316  
BCI deleted, as indicated [***] 
 
  the integrity of the WTO dispute settlement syst em.  Korea asserts that it has strong economic 
interests in the aircraft sector, and that therefore, the outcome of this case could have implications for Korea.  Moreover, Korea asserts that it also has a signi ficant systemic interest in this dispute, as it has 
been, and is currently, involved, as a primary pa rty, in several WTO disputes on subsidies.  
7.164  Both parties ask the Panel to de ny the requests for enhanced thir d party rights.  The European 
Communities asserts that enhanced third party rights ar e justified only in very special circumstances, 
and maintains that this case does not present su ch circumstances as to warrant their grant.
2010 The 
European Communities disagrees with Brazil's a ssertion that Brazil has a significant economic 
interest in these proceedings and that past panels have granted enhanced th ird party rights in such 
circumstances.  In the European Communities' vi ew past panel proceedings show that a third 
party may be granted enhanced rights only if the impugned measure had a direct economic impact  
upon it. This is not the case with Brazil in the dis pute at hand, since it is neither benefiting from any 
EC measure nor operating a similar scheme.  A gene ral "economic interest" is simply not enough.  
Second, the European Communities as serts that the grant of enhanced third party rights to Brazil 
would disturb the rights of other third parties. As a matter of due process, it is appropriate to provide 
the same procedural rights to all third parties in th is dispute. Yet, only Canada, which expressly made 
its request conditional upon the Panel's decision to  grant enhanced third party rights to Brazil2011, had 
requested enhanced third party rights in this case and there is no reason to grant such rights.  Third, 
the European Communities points out that enhanced third party rights are closely connected to the 
issue of access to highly confidential information.2012  Given that Canada made its request conditional 
upon Brazil's request, the European Communities request s the Panel to refuse the grant of enhanced 
third party rights to Canada as well. 
7.165  The United States asserts that none of the rational es that existed for previous panels to grant  
enhanced third party rights exist in this case.2013  The effect of the disputed measures cannot be an 
issue, as the dispute does not cover the aircraft sect or as a whole, but is limited to subsidies provided 
for the development and production of large civil airc raft, namely, passenger aircraft with more than 
100 seats and analogous air freighters.  The aircraft  producers in Brazil and Canada produce regional 
jets, which are both smaller than large civil aircraft  and have a shorter range.  There is no claim that 
the economic benefits of the measures derive from an in ternational agreement, or that there is relevant 
past practice in the aircraft sector.  And, Brazil and Canada are entirely ordinary third parties; they are not complaining parties in a dispute regarding the measures covered by this dispute. Brazil does not 
claim to apply measures similar to the disputed measures and, in fact, emphasizes the differences 
between its situation and the situations of the European Communities and the United States.  Thus, 
Brazil has no direct economic interest in the outcome of the dispute, and its trade policy interest is no 
different from that of any other Member that has a stake in the analysis of Members' rights and 
obligations under the SCM Agreement.  As such, th ere is no reason for the Panel to grant the requests 
for enhanced third party rights.  The United Stat es also notes that the European Communities has 
indicated its willingness to allow public viewing of the reading of oral statements, and that both the 
European Communities and the United States have  a practice of making their WTO submissions 
publicly available.  Therefore, there is little need  to enhance third parties rights to attend panel 
meetings or receive submissions.  Finally, the Un ited States notes the admonition to guard against an 
                                                     
 
2010 Letter from the European Communities, dated 29 September 2006. 
2011 At the time the European Communities filed its submission in this regard, Korea had not yet made 
its request.  The European Communities did not seek to f ile any subsequent additional comments on this matter.   
2012 At the time the European Comm unities filed its submission in this regard, we had not yet adopted 
procedures for the handling of confidential information in this dispute.  The procedures ultimately adopted, 
which are attached to our Report at Annex E, contain provisions governing third party rights with respect to 
such information. 
2013 Letter from the United States, dated 29 September 2006, para. 18.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  inappropriate blurring of the distinction drawn in  the DSU between parties and third parties, and 
asserts that granting Brazil's request would be inconsistent with that principle.   
(b) Evaluation by the Panel 
7.166  The DSU establishes the rights of third parties in  panel proceedings in paragraphs 2 and 3 of 
Article 10 of the DSU and paragraph 6 of Appendi x 3 to the DSU.  Under these provisions, third 
parties have the right to receive the submissions ma de by the parties up to the first meeting of the 
panel, to make submissions to the panel, to presen t their views during a session of the first substantive 
meeting of the panel set aside for that purpose, and to be present during the entirety of such a session.
2014   It is well-established that panels have the discretion to grant additional rights to third 
parties, subject to the requirements of due process  and the need to guard against an inappropriate 
blurring of the distinction drawn in the DSU between the rights of parties and those of third parties.
2015  However, all third parties in a panel pro ceeding may be presumed to have a "substantial 
interest" in the matter before the panel2016, and additional third party rights have so far been granted in 
panel proceedings for specific reasons only.2017  Previous panels have gr anted enhanced third party 
rights on the basis of, inter alia , the significant economic effect of the measures at issue on certain 
third parties2018, the importance of trade in the produc t at issue to certain third parties2019, the 
significant trade policy impact that the outcome of  the case could have on third parties maintaining 
measures similar to the measures at issue2020, at least one of the parties agreeing that enhanced third 
                                                      
2014 We also note that, in accordance with Article 10.4 of the DSU, nothing precludes a Member 
participating as a third party in a panel proceeding from requesting the establishment of another panel to 
examine the measures at issue.   
2015 Panel Report, EC – Export Subsidies on Sugar (Australia) ,  Panel Report, EC – Export Subsidies on 
Sugar (Brazil), Panel Report, EC – Export Subsidies on Sugar (Thailand) , para. 2.7; Panel Report, US – Upland 
Cotton , para. 9; Panel Report, European Communities – Conditions for the Granting of Tariff Preferences to 
Developing Countries ("EC – Tariff Preferences "), WT/DS246/R, adopted 20 April 2004, as modified by 
Appellate Body Report WT/DS/246/AB/R, DSR 2004:III, 1009, Annex A, para. 7; Appellate Body Report, 
United States – Anti-Dumping Act of 1916 ("US – 1916 Act "), WT/DS136/AB/R, WT/DS162/AB/R, adopted 
26 September 2000, DSR 2000:X, 4793, para. 150; Panel Report, United States – Anti-Dumping Act of 1916, 
Complaint by the European Communities  ("US – 1916 Act (EC) "), WT/DS136/R and Corr.1, adopted 
26 September 2000, as upheld by Appellate Body Report WT/DS136/AB/R, WT/DS162/AB/R, DSR 2000:X, 
4593, Panel Report, United States – Anti-Dumping Act of 1916, Complaint by Japan  ("US – 1916 Act (Japan) ") 
WT/DS162/R and Add.1, adopted 26 September 2000, as upheld by Appellate Body Report WT/DS136/AB/R, 
WT/DS162/AB/R, DSR 2000:X, 4831,para. 6.32; Appellate Body Report, EC – Hormones , para. 154; Panel 
Report, European Communities – Regime for the Importation,  Sale and Distribution of  Bananas, Complaint by 
Ecuador ("EC – Bananas III (Ecuador) "), WT/DS27/R/ECU, adopted 25 September 1997, as modified by 
Appellate Body Report WT/DS27/AB/R, DSR 1997:III, 1085, Panel Report, European Communities – Regime for 
the Importation, Sale and Distribution of Bananas, Complaint by Guatemala and Honduras ("EC – Bananas III 
(Guatemala and Honduras) "), WT/DS27/R/GTM, WT/DS27/R/HND, adopted 25 September 1997, as modified by 
Appellate Body Report WT/DS27/AB/R, DSR 1997:II, 695, Panel Report, European Communities – Regime for 
the Importation, Sale and Distribution of Bananas, Complaint by Mexico ("EC – Bananas III (Mexico) "), 
WT/DS27/R/MEX, adopted 25 September 1997, as m odified by Appellate Body Report WT/DS27/AB/R, 
DSR 1997:II, 803, Panel Report, European Communities – Regime for the Importation, Sale and Distribution of 
Bananas, Complaint by the United States ("EC – Bananas III (US) "), WT/DS27/R/USA, adopted 
25 September 1997, as modified by Appellate Body Report WT/DS27/AB/R, DSR 1997:II, 943, para. 7.9. 
2016 Article 10.2 of the DSU  indicates that the term "third party" is used throughout the DSU  to refer to 
a Member that has "a substantial interest" in a matter be fore a panel, and which has notified its interest to the 
DSB. 
2017 Panel Reports, US – 1916 Act , para. 6.33.   
2018 Panel Reports, EC – Bananas III , para. 7.8; Panel Report, EC – Tariff Preferences , Annex A, 
para. 7.  See, also, Panel Reports, EC – Export Subsidies on Sugar , para. 2.5.   
2019 Panel Reports, EC – Export Subsidies on Sugar , para. 2.5. 
2020 Panel Report, EC – Tariff Preferences , Annex A, para. 7. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  party rights should be granted
2021, claims that the measures at issue derived from an international 
treaty to which certain third parties were parties2022, third parties having previously been granted 
enhanced rights in related panel proceedings2023, and certain practical considerations arising from a 
third party's involvement as a pa rty in a parallel panel proceeding.2024 
7.167  In this case, Brazil has not presented us with an y similar reasons in support of its request for 
enhanced third party rights.  As noted, the re quests of Canada and Korea are conditional upon the 
granting of Brazil's request, and do not contain any ad ditional arguments in support of those requests.  
While we accept that Brazil, and Canada, have an in terest in the aircraft sector, we consider this 
interest to be insufficient to justify granting enhanced third party rights.2025  Neither manufactures 
large civil aircraft, and neither has claimed that it has any trade interests in large civil aircraft, for 
instance as a supplier to producers of large civil aircra ft.  Brazil has not claimed that regional aircraft 
produced in Brazil compete with large civil aircraft, or that it maintains any measures similar to those 
at issue in this dispute.  To the contrary, Braz il claims that it does not confer subsidies for the 
development and production of new aircraft products.2026  While Brazil has been a party, either as 
complainant or defendant, in several WTO disputes involving the aircraft sector, these disputes 
involved a product – regional aircraft – and measures that are not at issue in this dispute.  Brazil has 
not explained how, in the light of the foregoing, th e measures at issue have a significant economic or 
trade policy effect on Brazil.  While we accept that  Brazil has a general systemic interest in the 
interpretation of the SCM Agreement, this does not  differentiate Brazil fro m any other WTO Member, 
whether appearing as a third party in this dispute or not.  Finally, both parties agree that enhanced 
third party rights are not warranted in this case.  
7.168  We therefore decline Brazil's request for "enha nced" third party rights in these proceedings, 
and the requests of Canada and Korea.2027 
                                                      
2021 Panel Reports, EC – Bananas III , para. 7.8. 
2022 Panel Reports, EC – Bananas III , para. 7.8. 
2023 Panel Reports, EC – Bananas III , para. 7.8. 
2024 Panel Report, EC Measures Concerning Meat and Meat Products (Hormones), Complaint by Canada 
("EC – Hormones (Canada) "), WT/DS48/R/CAN, adopted 13 February 1998, as modified by Appellate Body 
Report WT/DS26/AB/R, WT/DS48/AB/R, DSR 1998:II, 235, para. 8.17. 
2025 Brazil notes that it is a manufacturer of aircraft , albeit not the LCA at issue in this dispute, and 
submits that it has a significant economic interest in "the  aircraft sector" (Letter from Brazil to the Panel, dated 
9 November 2005, para. 6), that any findings concerning the relevant provisions of the SCM Agreement "in relation to the aircraft sector" are necessarily of direct and substantial economic interest to Brazil ( IbId. , para. 6), 
that trade-distorting subsidies in "the aircraft sector" ar e considerably greater than the impact of similar policies 
on other industries ( IbId. , para. 7), and that the interpretation of the SCM Agreement "as applied to the aircraft 
sector" may affect the way Brazil and other Members appl y the relevant disciplines of the SCM Agreement to 
the "civil aircraft sector" ( IbId. , para. 8).  Canada makes similar claims.  Letter from Canada to the Panel, dated 
23 November 2005.  Korea makes a general claim of "stron g economic interests in the aircraft sector", although 
it does not assert that it has any LCA manufacturing op erations.  Letter from Ko rea to the Panel, dated 
13 October 2006. 
2026 Letter from Brazil to the Panel, dated 9 November 2005, para. 7. 
2027 Brazil has requested the Panel to grant it the "enh anced" third party right "to review and comment 
on the interim Panel Report, in particul ar the summary of Brazil' s arguments in the draft descriptive part of the 
Panel report".  In EC – Bananas III , the panel referred to the "normal practice" of permitting third parties to 
review the draft of the summary of their arguments in the descriptive pa rt of the report (Panel Reports, EC – 
Bananas III , para. 7.9).  Insofar as Brazil is merely requesti ng the Panel to permit Brazil to review and comment 
on the summary of its arguments contained in any descriptive sections of the Panel's draft report, the Panel sees 
no reason to depart from the normal practice in WTO panel proceedings.  We note that, while both the 
United States and the European Communities oppose Brazil's request for "enhanced" third party rights, the United States considers that "the ability to comment on th e description of its arguments in the draft descriptive  WT/DS316/R 
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  2. Decision on Proper Respondent 
7.169  The Panel takes note of the letter from the European Communities dated 23 May 2008, in 
which the European Communities requ ests that the Panel "decide, prior to the issuance of an interim 
report, who is the proper respondent in this dispute".2028   The Panel notes that this request brings 
before it once more a matter that first arose in 2005 during the Annex V process for gathering 
information, and was raised before the Panel as we ll at that time.  The European Communities states 
that it "has consistently pointed out that the onl y proper respondent in this case is the European 
Communities, which represents itself in these proceedi ngs (and it is not therefore correct to speak of 
the European Communities 'repr esenting' its member States)."2029  The European Communities is 
"concerned that the identity of the respondent, and ev entually the identity of the entity to which any 
recommendations might or might not be addressed, could give rise to significant legal ambiguity, 
potentially adverse to the  inter ests of the European Communities."2030   
7.170  We recall that on 12 October 2004, the United Stat es filed a request for consultations "with 
the Governments of Germany, France, the Unite d Kingdom, and Spain (the "member States"), and 
with the European Communities ("EC"), ... with rega rd to measures affecting trade in large civil 
aircraft."2031  The subsequent request for establishment of  this Panel noted that "The United States 
held consultations with the European Commun ities and the member States on 4 November 2004.  
These consultations provided some helpful clarifi cations, but unfortunately did not resolve the 
dispute."2032  The claims set forth in that request concern, inter alia , alleged subsidies provided by the 
governments of Germany, France, Spain and the United Kingdom, and by the EC. 
7.171  When questions concerning the role of the memb er States in this dispute first arose in the 
Annex V process, the United States noted that its panel request  
"was directed to all four individual member States in their own right as Members of 
the WTO, and the EC has insisted on repr esenting their interests in the dispute to 
date. ...  If the EC is unable to represen t the member States in this Annex V 
proceeding, the United States requests the F acilitator to direct questions concerning 
member State measures (as well as any further correspondence and submissions concerning these measures) directly to the member States, which, it should be recalled, are WTO Members in their own right."
2033   
The European Communities responded that it "has neve r said that it "represents" its member States 
but takes full responsibility in these proceedings for the actions of its member States and will to the 
best of its ability provide documents that are prope rly requested wherever they may be located..." and 
went on to request that the term "and certain me mber states" be dropped from the name of the case.2034     
 7.172  On 23 November 2005, the European Communities submitted a request to the Panel, asking 
that this dispute be designated "European Comm unities – Measures Affecting Trade in Large Civil 
                                                                                                                                                                    
 
part of the report" is "a right routinely provided to third parties, not an "enhanced right"." (Letter from the 
United States to the Panel, dated 29 September 2006, footnote 20).   
2028 Letter from the European Communities, 23 May 2008. 
2029 Id. 
2030 Id. 
2031 US, Consultations Request. 
2032 US, Panel Request. 
2033 Letter from the United States, 3 October 2005. 
2034 Letter from the European Communities, 6 October 2005 WT/DS316/R 
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  Aircraft (DS316)" to reflect that the Eu ropean Communities "was the only respondent".
2035  I n  
response, the United States reiterated that it had:  
"requested consultations, and the establishm ent of a Panel, with respect to the 
governments of Germany, France, Spain, and the United Kingdom, in addition to the 
EC.  Therefore, all five WTO Members are properly respondents in this dispute.  
While the EC is representing the interests of the member States in the dispute, that 
representation does not change their legal status as respondents".2036   
The United States further noted that although it had "addressed its submissions in a way that has 
respected the EC's wish that it serve as the repres entative of the member St ates, {it} repeatedly made 
clear during the Annex V process that the US questions  were directed to the member States as well as 
the EC."  In response, the Eur opean Communities stated that it:  
 
"is entirely false to claim that the Eur opean Communities "represents" its member 
States in this dispute or that these member States have the status of respondents.  The 
violations that are alleged by the United States all relate to matters for which the 
European Communities bears responsib ility in the WTO and the European 
Communities is therefore the only proper respondent."2037    
The European Communities went on to state that it would "fully understand if the Panel did not wish 
to take a position on this matter immediately, esp ecially since this may not be necessary for the 
purposes of resolving the dispute."2038  The Panel did not take any action with respect to the European 
Communities' request. 
 7.173  Since this exchange of views in 2005, as well as prior to it, the European Communities has 
made all submissions and communications in this di spute to the Panel.  Representatives of the EC 
member States in question (France, Germany, Spai n, and the United Kingdom) appeared before the 
Panel at the two meetings it held with the parties, and the meeting it held with third parties, but did 
not speak or make any submissions.
2039  In addition to representatives of the European Communities 
and outside advisors, representatives of these four member States have been designated as "Approved Persons" with access to Business Confidential Inform ation and Highly Sensitiv e Business Information 
submitted in this dispute, in accordance with the pr ocedures adopted by the Panel in this regard.  
Individuals designated as "Approved Persons" have c ontacted the Secretariat to arrange access to the 
confidential information submitted in this dispute in accordance with the applicable procedures, but 
have made no substantive submissions  or representations at any time to the Panel.  Thus, it is clear to 
us that, whatever the interests of the four  member St ates in this dispute, they have taken no actions to 
make those interests known to the Panel directly.
2040   
7.174  On 23 May 2008, as noted above, the European Communities requested that the Panel resolve 
the "outstanding issue" of "who is the proper respondent in this dispute."2041  Fundamentally, in our 
                                                      
2035 Letter from the European Communities, 23 November 2005. 
2036 Letter from the United States, 9 December 2005. 
2037 Letter from the European Communities, 13 December 2005 
2038 Id. 
2039 For example, the "EC Delegation list" provided to the Panel before the first meeting identifies 
representatives of France, Germany, Spain and the United Kingdom, as well as representatives of other member 
States of the European Communities who also appeared at that meeting. 
2040 Of course, what their role may be in the contex t of preparations for thes e proceedings is unknown 
to us.  However, we do not consider this of any relevance to the question before us, but rather a purely internal 
matter between the European Communities and the governments of its member States France, Germany, Spain, 
and the United Kingdom.   
2041 Letter from the European Communities, 23 May 2008.  WT/DS316/R 
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  view, there is no issue to be resolved.  Th e United States requested consultations and the 
establishment of this Panel asserting claims concerning, inter alia , alleged subsidies provided by the 
European Communities and by the governments of each of four EC member States, France, Germany, 
Spain, and the United Kingdom, which subsidies allege dly cause adverse effects to the interests of the 
United States.  Each of these five is, in its own ri ght, a Member of the WTO, with all the rights and 
obligations pertaining to such membership, includin g the obligation to respond to claims made against 
it by another WTO Member.2042  The Dispute Settlement Body established this Panel on the basis of 
the United States' request, establishing our terms of reference, which thus encompass claims against 
the five Members of the WTO identified by the United States in its request.  The fact that four of 
those Members are member States of the European Communities, wh ich is itself a Member of the 
WTO, does not affect their individual status as Members of the WTO against whom another Member, the United States, has brought claims of violatio n of various provisions of the WTO Agreements.  
Whether these four WTO Members choose to appear and actively defend their interests before the 
Panel separate from the actions of the European  Communities is a matter entirely within their 
discretion, subject to the obligations of their stat us as member States of the European Communities.  
However, those obligations do not affect their status in this dispute.   
7.175  We note that the European Communities informed the Panel, on 8 July 2008, that "the four 
member States referred to by th e United States share the European Communities' view that they are 
not the proper parties to this dispute – and have acted in reliance on this fact".
2043  The views of the 
four member States, and of the European Communities,  in this regard, do not change our conclusions.  
Nor does the fact, asserted by th e European Communities, that Fr ance, Germany, Spain the United 
Kingdom "acted in reliance" on their own, and/or th e European Communities' view as to their status.  
As Members of the WTO, identified as having violated various provisions of the WTO Agreements in the requests for consultations and for establishment of this Panel, they ar e respondents in this dispute.  
The European Communities has indicated to this Pane l that "the violations that are alleged by the 
United States all relate to matters for which th e European Communities bears responsibility in the 
WTO..."
2044  However, it does not follow from this, as the European Communities asserts, that it is the 
only "proper respondent."2045  Whatever responsibility the Eu ropean Communities bears for the 
actions of its member States does not diminish th eir rights and obligations as WTO Members, but is 
rather an internal matter concerning the relations  between the European Communities and its member 
States. 
7.176  That the member States against whom the United States has made claims have chosen not to 
participate in this dispute directly by making oral  and written submissions does not affect their rights 
or status as respondent parties to this dispute.  Si milarly, the fact that the European Communities has 
made all submissions in this dispute does not affect the rights and status of the four member States as 
                                                      
2042 We recognize that Article IX:1 of the Marra kesh Agreement establishes limitations on the 
cumulative number of votes of the European Communities  and its member States, in the event a matter is 
decided by a vote of WTO Members.  This provision does not, in our view, have any relevance to our 
conclusions here. 
2043 Comments by the European Communities on Comments by the United States on the Panel and 
Appellate Body Reports in US – Upland Cotton (Article 21.5 – Brazil ), 8 July 2008, para. 94. Brazil) . We note 
the suggestion of the United States that we disregard this portion of the European Communities' submission as "not within the scope of the comments that the Panel invited."   Letter from the United States, 9 July 2008.  
While this is strictly speaking true, we nonetheless ta ke note of these comments, as well as the subsequent 
letters regarding this matter submitted by both parties.  We are not inclined to disregard any relevant 
submissions on a matter which requires some action or decision from us.  To do so would, in our view, be 
inconsistent with our obligations in resolving this dispute.   
2044 Letter from the European Communities, 13 December 2005. 
2045 Id. WT/DS316/R 
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  respondent parties to this dispute.
2046  The manner of any WTO Member's participation in dispute 
settlement is up to it to decide.  We need not and do not decide whether the European Communities 
"represents" the member States in this dispute in some formal sense.  Nor does the title given to the 
dispute have any legal significance with respect to  the rights and obligations of Members against 
whom claims are made, or with respect to their individual or direct participation in the dispute.2047   
7.177  Finally, we note the statement by  the European Communities that,  
"{s}hould the Panel, in spite of the position of the four member Sates and the 
arguments of the European Communities, nevertheless decide to address recommendations to those four member States, it follows logically that they would be 
entitled to defend their interests individually, inter alia , by commenting on the 
                                                     
 
2046 Thus, for instance, the four member States may, if  they wish, comment on the interim report of the 
Panel when it is issued.  To date, the Panel has not communicated directly with the member States, acting on the understanding that the European Communities was transm itting the Panel's communications to them insofar as 
necessary and relevant, was coordinating their participation in this dispute, and was communicating their 
concerns to the Panel.  Should this not be the case, the member States are free to re quest that the Panel provide 
copies of the interim report directly to their representatives, mindful of the limitations imposed by the special 
procedures for confidential information in this case.   As noted above, how a WTO Member chooses to 
participate in WTO dispute settlement is, from the perspe ctive of the WTO Agreements, a matter entirely within 
its own discretion, although of course, it may be subject to non-WTO obligations such as those that may exist 
between the European Communities and its member States.   
2047 In this context, we note that there is no consis tent practice in the titles of disputes concerning 
measures taken by the European Communities and/or one or more of its member States.  It is not unusual for a 
dispute to name only the European Communities, despite the fact that the claims concern a measure of a single member State, while other disputes name only the member State concerned, yet organs of the European 
Communities participate actively in the dispute.  See, e.g. , DS7 - European Communities — Trade Description 
of Scallops  (concerning a French measure, mutually agreed solution communicated by Canada and the European 
Commission) ; Denmark – Measures Affecting the Enfor cement of Intellectual Property Rights (concerning 
Denmark's alleged failure to make provisional measures available in the context of civil proceedings involving 
intellectual property rights, mutually agreed solution communicated by the United States, Denmark and the European Commission); DS86 - Sweden – Measures Affecting the Enfor cement of Intellectual Property Rights  
(concerning Sweden's alleged failure to  make provisional measures available in the context of civil proceedings 
involving intellectual property rights, mutually-agr eed solution communicated by the United States, the 
European Commission and Sweden); DS124 - European Communities — Enforcement of Intellectual Property 
Rights for Motion Pictures and Television Programs (concerning lack of enforcem ent of intellectual property 
rights by Greece, mutually agreed solution communicat ed by the United States a nd the European Commission); 
DS125 - Greece – Enforcement of Intellectual Property Right s for Motion Pictures and Television Programs 
(mutually agreed solution communicat ed by the United States, Greece and the European Commission); DS135 - 
European Communities — Measures Affecting Asbestos and Asbestos-Containing Products; (concerning 
measures imposed by France, submissions made by the European Communities) Belgium – Administration of 
Measures Establishing Customs Duties for Rice (mutually agreed solution notified by United States and the 
European Commission); DS291 - European Communities — Measures Affecting the Approval and Marketing of 
Biotech Products, Panel Report, (concerning measures taken by the European Communities and by its member 
States affecting imports of agricultural and food impor ts, submissions made by the European Communities); 
DS301 - European Communities — Measures Affecting Trade in Commercial Vessels (concerning certain 
measures taken by the European Communities and by its member States, submissions made by the European 
Communities). 
We are unaware of any dispute involving claims against the European Communities and one or more of 
its member States in which the member State has made submissions and representations separate from or in 
addition to those made by the European Communities.  We are also unaware of an y case in which a question 
such as the one before us was raised.  WT/DS316/R 
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  interim report.  In addition, France and Spain would request to receive the interim 
report in French and Spanish, respectively".2048   
Whatever may be the extent of the right of a WTO Member to participate in dispute settlement in its 
preferred WTO working language, in our view, this is not a right that can be exercised in this dispute 
at this late stage of the proceedings.  As not ed above, the European Communities has made all 
submissions and representations throughout this proceeding, both during the Annex V process, and 
before this Panel.  All such subm issions and representati ons have been in English – there have been 
no requests for translation, and there were no requests for interpretation at any of the Panel's meetings 
with the parties and third parties.  The Panel h as communicated with the parties and third parties 
exclusively in English.  To provide the interi m report in all three WTO working languages would 
significantly delay these proceedings, which, due to the number and complexity of the claims, and the 
volume of materials submitted, have already gone on for much longer than  is the norm in WTO 
dispute settlement.  We consider this situ ation to be analogous to that addressed in United States – 
Continued Dumping and Subsidy Offset Act of 2000 ,2049 where the Appellate Body found that the right 
to issuance of separate panel reports, which is expl icitly provided for in Article 9.2 of the DSU, was 
not unqualified, and concluded that the Panel in that  case did not act inconsistently with Article 9.2 in 
denying a request for separate reports that was not made in a timely manner.2050  Similarly, we 
consider that the request made by the European Co mmunities in this case is not timely.  In addition, 
we note that the request made by the European  Communities in this case does not concern a right 
explicitly provided for in the DSU or any other prov ision of the WTO Agreements, and is in any event 
conditional on whether we address recommendations to th e member States involved in this dispute, a 
decision that will be known only when we have co mpleted our decision-making process.  Moreover, 
the Members whose right to defend their interests would assertedly be served by receiving our interim report in translation have not previously participated  directly in this dispute, and even now have not 
made any requests directly to the Panel.  In light  of the foregoing, we therefore deny the European 
Communities' conditional request for translat ed versions of the interim report.   
 E. W
HETHER THE CHALLENGED MEASURES ARE SPE CIFIC SUBSIDIES WITHIN THE MEANING OF 
ARTICLES  1 AND 2 OF THE SCM A GREEMENT  
1. Identity of the Alleged Subsidy Recipient and pass-through, extinction and extraction of 
Subsidies 
(a) Introduction 
7.178  The European Communities submits that the Unite d States' claim of adverse effects in this 
dispute cannot be sustained because the United States has failed to demonstrate that Airbus SAS, the 
legal entity responsible for the development and ma nufacture of Airbus LCA since 2001, benefited or 
continues to benefit from a large number of the a lleged subsidies that are the focus of the United 
States' complaint.2051  The European Communities raises three lines of argument in support of this 
submission. 
7.179  First, the European Communities argues that the United States h as failed to establish that the 
alleged benefits conferred by various financia l contributions received by entities other than 
                                                      
2048 Comments by the European Communities on Comments by the United States on the Panel and 
Appellate Body Reports in US – Upland Cotton (Article 21.5 – Brazil ), 8 July 2008, para. 95.   
2049 Appellate Body Report, United States – Continued Dumping and Subsidy Offset Act of 2000 ("US – 
Offset Act (Byrd Amendment) "), WT/DS217/AB/R, WT/DS234/AB/R, adopted 27 January 2003, DSR 2003:I, 375. 
2050 Id., para. 314.   
2051 EC, FWS, paras. 42, 161-162, 194; EC, FNCO S, paras. 28-32; European Communities, non-
confidential oral statement at the second meeting with  the Panel (hereinafter "EC SNCOS"), paras. 50-76. WT/DS316/R 
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  Airbus SAS and its subsidiaries prior to 2001 "passed  through" to Airbus SAS.  According to the 
European Communities, it is for the United States to affirmatively demonstrate, as part of its prima 
facie  case, how the benefit conferred by such financia l contributions "passed through" to Airbus SAS.  
The European Communities contends that, absent this demonstration, none of the financial 
contributions at issue can be considered to have  conferred a benefit on Airbus SAS and they should 
therefore be excluded from the Panel's adverse effects analysis.  
7.180  Second, the European Communities submits that certain transactions involving the shares of 
the Airbus partner, Aérospatiale, the parent compan y of  Airbus SAS, European Aeronautic Defence 
and Space Company EADS N.V. (EADS), and Airbus SAS, have "extinguished" any benefits that 
could be said to have accrued to Airbus SAS in r espect of subsidies received by entities other than 
Airbus SAS and its subsidiaries.
2052 
7.181  Third, the European Communities asserts that tw o particular transactions in which "cash" was 
paid to shareholders of certain Airbus partners  in connection with the consolidation of Airbus 
Industrie under EADS in 2000 "extracted" a correspondi ng portion of the benefit conferred by alleged 
financial contributions provided to those specific Airbus partners, thereby also "extinguishing" a 
portion of any subsidies that Airbus SAS could currently enjoy.  The European Communities argues that it is also possible to regard the cash "ext ractions" as withdrawals of subsidies pursuant to 
Articles 4.7 and 7.8 of the SCM Agreement. 
7.182  Before turning to evaluate these three lines of ar gument, we believe it is useful to describe the 
forms of industrial organization used by the various  Airbus partners since the constitution of Airbus 
Industrie in 1970 to develop a nd manufacture Airbus LCA.   
7.183  Prior to 2001, no single legal entity produced th e family of Airbus LCA as a "product", or for 
that matter, any of the individual Airbus LCA that are the subject of this dispute.  The family of 
Airbus LCA was produced by a consortium of French, German, Spanish and (from 1979) United 
Kingdom aerospace companies (the Airbus partners), operating in a form of partnership arrangement 
through the French entity, Airbus GIE.
2053  The Airbus Industrie consortium was originally established 
in 1970 between the French aerospace manufacturer, Aérospatiale  Société Nationale Industrielle 
(Aérospatiale)2054 and the German aerospace manufacturer, Deutsche Airbus GmbH (Deutsche 
Airbus).2055  The Spanish aerospace manufacturer, Cons trucciones Aeronáuticas S.A. (CASA) became 
                                                      
2052 EC, SNCOS, para. 56. 
2053 Airbus Industrie GIE was regist ered under French law as a " Groupement d'intérêt économique " 
(GIE) which is a French legal framework that allows its members to carry out collectively certain economic 
activities while maintaining their separate legal identities, and which does not have as its goal the retaining of 
profits.  A GIE has a separate legal personality from its members, although in other respects, it resembles a 
partnership.  For example, the sharing of Airbus Industrie's  profits and losses among the Airbus partners is based on their membership rights ; see  GATT Panel Report, German Exchange Rate Scheme for Deutsche 
Airbus  ("EEC – Airbus "), 4 March 1992, unadopted, SCM/142, para. 2.6.   
2054 Aérospatiale was founded in 197 0 through the merger of three French aeros pace companies, Sud 
Aviation, Nord Aviation and Société d'Etudes et de Réalisation d'Engins Balistiques.  It was owned directly and 
indirectly by the French government until its merger  with Matra Hautes Technologies in 1998 to form 
Aérospatiale-Matra S.A. (Aérospatiale-Matra).  The Fr ench government sold a portion of its shares in 
Aérospatiale-Matra in a public offering in 1999.  In 20 00, Aérospatiale-Matra joined  with Dasa and CASA to 
form EADS.  In connection with the formation of Airbus SAS in 2001, the LCA business of Aérospatiale-Matra was transferred to an Airbus SAS subsidiary, Airbus France SAS.  Therefore, from 1998 until its liquidation in 
2001, the French Airbus partner was Aérospatiale-Matra; EC, FWS, paras. 52-53.    
2055 Deutsche Airbus was founded in 1967 to assume work for the development of a European 
widebody aircraft that had originally begun in 1965 as a joint venture among five German companies: Blohm-
Hamburger Flugzebau GmbH, Messerschmitt AG, Vereinigte Flugtechnische Werke (VFW), Siebel and 
Dornier.  By 1969, the first three of these companie s had merged to form Messerschmitt-Bölkow-Blohm GmbH 
(MBB); Exhibit EC-26.  MBB originally held 60 percent of the interests in Deutsche  Airbus, with Dornier and  WT/DS316/R 
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  a member of the consortium in 1971.2056 British Aerospace Corporation, a United Kingdom aerospace 
manufacturer, subsequently joined the consortium in 1979.2057  Through this partnership arrangement, 
the Airbus partners in France, Germany, Spain and the United Kingdom produced specific parts of 
Airbus LCA, which were then assembled in France by Aérospatiale.2058  The entity Airbus GIE did 
not carry out any production activities; rather, it coordinated the production efforts of the Airbus 
partners, allocated revenues and profits to each of the partners and assumed responsibility for areas 
such as marketing, sales, aircraft delivery and cu stomer service.  In 2000, the Airbus partners 
consolidated their LCA-related activities under EA DS.  This consolidation involved each of the 
French, German and Spanish Airbus partners pl acing their Airbus-related design, engineering, 
manufacturing and production assets and activities (including their corresponding membership 
interests in Airbus Industrie GIE) into legal entitie s that would become wholly owned subsidiaries of 
the newly formed EADS, in return  for shares in EADS representing the agreed values of the Airbus 
partners' corresponding contributions.2059  In 2001, EADS and BAE Systems placed their Airbus-
related assets and operati ons and their membership rights in Airbus GIE under the common control of 
a newly-created holding company, Airbus SAS.2060  Finally, in 2006, EADS purchased BAE Systems' 
                                                                                                                                                                     
VFW each holding 20 percent.  MBB took over VFW in 1981. Prior to Daimler-Benz AG acquiring control of 
MBB in 1989, the German federal states of Bavaria, Hamburg and Bremen held 52.3 percent of the capital stock of MBB; Monopolkommission, Zusammenschlussvorhaben der Daimle r Benz AG mit der Messerschmitt-
Bolkow-Blohm GmbH, Sondergutachten 18, 1989 (hereinafter " Monopolkommssion Report"), Exhibit US-30, 
para. 138. In late 1989, as part of the German government's plans to restructure Deutsche Airbus, Daimler-Benz A.G. acquired control of MBB by merg ing its subsidiary Deutsche Aerosp ace AG (Dasa) with MBB. Deutsche 
Airbus has been a wholly owned subsidiary of Dasa sin ce 1992.  In 2000, Dasa merged with Aérospatiale-Matra 
and CASA to form EADS.  In 2001, EADS transferred Dasa's LCA operations to an Airbus SAS subsidiary, Airbus Deutschland GmbH; EC, FWS, paras. 54-56. 
2056 CASA was founded in 1923 and was Spain's la rgest aerospace and defence manufacturer.  CASA 
was 99 percent owned by Sociedad Estatal de Participaciones Industriales (SEPI), a Spanish government 
holding company entrusted with the management and privatisation of certain Spanish government controlled 
companies.  In 2000, CASA was merged into the E ADS structure.  In 2001, CASA's LCA activities were 
transferred to an Airbus SAS subsidiary, Airbus España SL; EC, FWS, paras. 57-58. 
2057 British Aerospace Corporation was fo rmed in 1977 as a Crown corp oration without shares, wholly 
owned by the United Kingdom government.  Its formation was the result of the merger of the United Kingdom aerospace companies Hawker Siddeley Aviation Ltd, Ha wker Siddeley Dynamics Ltd, Scottish Aviation Ltd 
and the British Aircraft Corporation (Holdings) Ltd. In 1981, the assets  and business of the British Aerospace 
Corporation were transferred to the newly incorporated British Aero space PLC, a United Kingdom public 
limited company.  The United Kingdo m government sold 51.57 percent of  its shares in British Aerospace PLC 
in a public offering in 1981 and, subject to retaining a share to ensure that the company remained under 
United Kingdom control, sold the re mainder of its shares in British Ae rospace PLC in 1985 .  In 1999, British 
Aerospace PLC merged with Marconi Electronic Systems to become BAE Systems PLC (BAE Systems).  In 
2001, BAE Systems placed its LCA business into Airbus  UK Limited in exchange for a 20 percent share in 
Airbus SAS. EC, FWS, paras. 59-61. 
2058 By 1999, Aérospatiale was the partner responsible for flight control systems, cockpits, power plant 
integration, ground and flight testing, complex structural sections, equipped subassemblies and technical 
publications.  Dasa produced the major fuselage sections containing hydraulic equipment, secondary flight control systems, wing assemblies and commercial furnishing, as well as equipping the wings furnished by BAE 
Systems.  Dasa also carried out final assembly of A321  and A319 aircraft, as well as some cabin outfitting and 
customization of the cabins of the A300/A310 and the A320 family.  BAE Systems was the partner in charge of 
the wings for the entire Airbus product line, and equipped wings for the A320 family by installing hydraulic, 
electrical and environmental control system hardware.  CASA's role in the Airbus consortium was to produce the carbon fibre horizo ntal tails used in all Airbus aircraft, includ ing integrated fuel tanks.  CASA also designed 
fuselage panels and interior panels for the A320 family and produced nose and landing gear doors for the 
A300/A310 family and passenger doors for the A330/A340 family ; see  Aérospatiale-Matra Offering 
Memorandum, 25 May 1999, Exhibit EC-53, pp. 90-91. 
2059 These subsidiaries are Airbus France S.A.S., Airbus Deutschland GmbH and Airbus España SL. 
2060 Airbus SAS, a société par actions simplifiée  (a joint stock or limited liability company) 
incorporated under French law, was created in 2001 in order to hold all of the LCA-related design, engineering, WT/DS316/R 
Page 326  
BCI deleted, as indicated [***] 
 
  20 percent interest in Airbus SAS, and Airbus SAS became a wholly-owned subsidiary of EADS.  A  
history of the Airbus Industrie consortium and the legal steps through which the LCA operations 
conducted by the Airbus partners through Airbus I ndustrie were consolidated under EADS, and then 
reorganized under Airbus SAS (as a wholly-own ed subsidiary of EADS) is set forth in 
Section VII.E.1  Attachment, following para. 7.289.     
7.184  In the evaluation that follows, we use the term  "Airbus Industrie" to refer to the Airbus 
consortium as it operate d between 1970 and 2001; i.e., each of the four Airbus partners: Aérospatiale 
(subsequently Aérospatiale Matra), Deutsche Airbus,
2061 CASA, and British Aerospace (subsequently 
BAE Systems), and Airbus GIE collectively .  Where we refer to the Airbus GIE as an entity distinct 
from the Airbus partners, we use the term "Airbus GIE".  
(b) "Pass-through" 
(i) Arguments of the Parties 
European Communities  
7.185  According to the European Co mmunities, the United States has failed to establish that many 
of the alleged subsidies "in fact benefit the only EC producer of LCA, Airbus SAS".2062  T h e  
European Communities contends that "the United States posits claims against "Airbus", which it 
defines as Airbus SAS, a company whic h has existed only since July 2001".2063  According to the 
European Communities, as Airbus SAS has existed only since 2001, subsidies allegedly granted prior 
to that date cannot possibly have been grante d to Airbus SAS.  The European Communities 
acknowledges the possibility that subsidies provi ded to predecessor producers of LCA in the 
European Communities (and their related companies) , and to companies related to Airbus SAS, might  
provide a relevant benefit to Airbus SAS; howev er, the European Communities contends that this 
must be affirmatively demonstrated.2064  The European Communities ar gues that the United States has 
failed to make a prima facie  case because it has not shown that alleged subsidies provided to the 
Airbus LCA operations of the Airbus partners, or to Airbus GIE prior to 2001 "passed through" to 
Airbus SAS when the Airbus partners restructured  their relationships to one another and established 
Airbus SAS in 2001.  The European Communities alle ges that the United States has therefore failed to 
make a prima facie  case in respect of the following claims: 
(a) "Launch Aid"/"member State Financing" granted to the following entities: Airbus 
France S.A.S. (in respect of the A380); Airbus Deutschland GmbH (in respect of the A380); EADS Airbus S.L. (in respect of the A380); BAE Systems (in respect of the 
A380); Aérospatiale (in respect of the A340-500/600); CASA (in respect of the 
A340-500/600); and Aérospatiale (in respect of the A330-200);
2065 
                                                                                                                                                                     
manufacturing and production activities of the former Airbus Industrie consortium located in France, Germany, 
Spain and the United Kingdom (organized into French, German, Spanish and British operating subsidiaries) and 
all of their membership interests of the Airbus partners in Airbus GIE. 
2061 Deutsche Airbus AG was a subsidiary of MBB un til MBB's merger with Daimler Benz's subsidiary 
Deutsche Aerospace AG (Dasa) in 1992, after which it wa s an indirect subsidiary of Daimler-Benz. Although 
Dasa was originally founded as Deutsche Aersopace AG in 1989, its name was changed to Daimler-Benz 
Aerospace AG in 1995, and then to DaimlerChrysler Aero space AG in 1998 (following  the merger of Daimler-
Benz AG with Chrysler Corporation).  We refer to this entity as "Dasa" throughout this report. 
2062 EC, FNCOS, para. 28. 
2063 EC, FWS, para. 194. 
2064 EC, FNCOS, para. 31. 
2065 EC, FNCOS, para. 67  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  (b) Loans for the development of new models of Airbus LCA provided by the European 
Investment Bank (EIB) to various Ai rbus partners between 1988 and 1993;2066    
(c) Research and technological development (R &TD) support provided to "Airbus" and 
"Airbus research consortia" under the Europ ean Communities' Second, Third, Fourth, 
Fifth and Sixth Framework Programmes, wh ere the participant entities were entities 
other than Airbus SAS and its subsidiaries;2067 
(d) R&TD support provided by the German fe deral government and by the governments 
of Bavaria, Hamburg and Bremen to entities other than Airbus Germany, as the relevant subsidiary of Airbus SAS;
2068 
(e) R&TD funding provided by the French government between 1986 to 2005 to entities 
other than Airbus France as the only relevant subsidiary of Airbus SAS;2069 
(f) Capital increases made by the French State in Aérospatiale between 1987 and 1994 
and the French State's transfer of its inter est in Dassault Aviation to Aérospatiale in 
1998;2070 and 
(g) The 1998 settlement of outstanding payment ob ligations of Deutsche Airbus to the 
Federal German government, the 1989 KfW i nvestment in Deutsche Airbus, and the 
1992 transfer of KfW's interest in Deutsche Airbus to MBB.2071 
7.186  The European Communities argues that the Unite d States has the burden of establishing, as 
part of its prima facie  case, that alleged subsidies granted to  the recipients pursuant to the above-
referenced transactions "currently  benefit Airbus SAS or have an y causal connection to the adverse 
effects alleged by the United States."2072  According to the European Communities, this requirement 
follows from the obligation contained in Article 5 of  the SCM Agreement, not to cause adverse effects 
to the interests of other Members.  The European  Communities contends that the "adverse effects" 
which are the focus of Articles 5 and 6 are defined as particular types of competitive harm that are the effect of the subsidy  and which are transmitted through a recipient company's products .
2073  According 
to the European Communities, this explains why the Appellate Body has stated that a prerequisite to 
finding causation is that the challenged subsidy do es, in fact, benefit the product identified by the 
complaining Member as subsidized.2074  In the context of the present dispute, the European 
Communities argues that the United States is thus re quired to establish (i) that the alleged subsidies 
                                                      
2066 EC, FWS, paras. 1056-1059.  The EIB loans in question are those provided to: Aérospatiale in 
1993 for the Super Transporteur programme; Aérospatiale in 1988 and 1992 for production of the A330/340; 
British Aerospace in 1988 and 1989 for the A320; British Aerospace in 1990 and 1991 fo r the A330/340; CASA 
in 1989 and 1990 for the A320 and A330/340; and Airbus GIE in 1990 for the A321. 
2067 The European Communities requests the Panel to disregard grants made to entities other than 
Airbus SAS, Airbus Germany, Airbus France, Airbus Spain and Airbus UK under each of the Second, Third, 
Fourth, Fifth and Sixth Framework Programmes; EC, FWS, paras. 1233-1242. 
2068 EC, FWS, paras. 1253 - 1272. 
2069 EC, FWS, para. 1276. 
2070 EC, FWS, para. 1109. 
2071 EC, FWS, paras. 1172-1173, 1203 and 1212. 
2072 EC, FWS, para. 194; EC, SWS, para. 89. 
2073 EC, Answer to Panel Question 121, para. 375. 
2074 EC, Answer to Panel Question 121, para. 375, referring to Appellate Body Report, US – Upland 
Cotton , para. 472. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  are provided, or "passed through" to Airbus SAS,  as the entity presently developing, producing and 
selling LCA, and (ii) that the challenged measur es benefit the particular subsidized products.
2075 
United States  
7.187  The United States argues that the concept of "pass-through" does not apply to the particular 
circumstances at issue in this dis pute.  According to the United Stat es, "pass-through" is a concept that 
applies, for example, in the countervailing duty co ntext, where the focus is on establishing the precise 
ad valorem  rate of subsidization benefiting the recipi ent so that an offsetting or "countervailing" 
duty may be imposed on imports of the recipient's products.2076  The United States also considers the 
concept of pass-through to apply in the context of  a claim under Part III of the SCM Agreement in 
circumstances where a subsidy is provided directly  to an entity that does not produce (and is not 
related to an entity that produces) the product alleged to be involved in causing adverse effects.  In 
such a case, it would be necessary to show that the subsidy "passed through" to the producer of the 
product at issue, in order to demonstrate that the product at issue is a "subsidized product".2077 
7.188  According to the United States, the only b asis on which the European Communities argues 
that "pass-through" is required to be demonstrated in  the present dispute is that the legal form through 
which Airbus LCA were produced was restructur ed from a consortium to a company limited by 
shares.2078  The United States contends that there is not hing in the text of Article 5 that requires a 
complaining Member to show that subsidies provided to producers of the product at issue continue to 
benefit (or "pass through" to) a new corporate entity established by the restructuring and rationalization by the recipient producers of their existing legal relationship.
2079     
7.189  The United States argues that, for purposes of dete rmining the existence of a subsidy within 
the meaning of Article 1 of the SCM Agreement, "not hing changed" with the creation of Airbus SAS. 
The subsidies that had been provided to the Airbus  partners as members of the Airbus Industrie 
consortium benefit the development and production of various Airbus LCA models which continue to 
be produced and sold by Airbus SAS.2080 According to the United States, the reorganization in 2000 
of the Airbus LCA activities of the four Air bus partners and Airbus GIE under EADS, and the 
subsequent integration of those activities under Airbus SAS in 2001, does not necessitate a "pass-
through" analysis. 
(ii) Evaluation by the Panel 
7.190  In its request for the establishment of a Pane l, the United States challenges certain measures 
provided "to the Airbus companies", which it defines to include:  
"Airbus SAS, its predecessor Airbus GIE and current and predecessor affiliated 
companies, including each person or entity that  directly, or indirectly through one or 
more intermediaries or relati onships, controls or controlled, or is or was controlled 
by, or is or was under common control with Airbus SAS or Airbus GIE, such as parent companies, sibling companies and subsidiaries, including Airbus Deutschland 
GmbH, Airbus España SL, Airbus France S.A.S., Airbus UK Limited, European 
Defence and Space Company ("EADS"), and BAE Systems."
2081 
                                                      
2075 EC, FWS, para. 1172; EC, FNCOS, para. 116; EC, Answer to Panel Question 121, para. 375. 
2076 US, Answer to Panel Question 16, para. 110. 
2077 US, Answer to Panel Question 16, para. 111. 
2078 US, Answer to Panel Question 16, para. 112. 
2079 US, Answer to Panel Question 16, para. 114. 
2080 US, Answer to Panel Question 16, para. 118. 
2081 WT/DS316/2, 3 June 2005.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  7.191  In its submissions, the United States indicates that it uses the term "Airbus" to refer 
"interchangeably to the various Airbus companies."2082 Thus, we disagree with the European 
Communities that the "United States posits cl aims against "Airbus", which it defines as 
Airbus SAS".2083  It is clear from the United States' panel re quest that the United States' claims in this 
dispute relate to measures provided "to the Airbus companies", by which it means not only 
Airbus SAS, but also "its predecessor Airbus GI E and current and predecessor affiliated companies" 
of both Airbus SAS and Airbus GIE.  
7.192  The United States presents its clai ms on the basis that the "subsidi zed product" at issue in this 
dispute is the family of Airbus LCA.2084  We consider that the "producer" of this subsidized product 
prior to 2001 was the consortium Airbus Industrie; i.e., each of  the Airbus partners and their 
respective affiliates, and Airbus GIE.  We base this conclusion on the fact that, between 1970 and 
2001, Airbus LCA were produced by a consortium of European aerospace manufacturers (the Airbus partners) whose LCA activities were integrated through Airbus GIE.
2085  In other words, each of the 
Airbus partners was, through its participation in the Airbus Industrie consortium, a manufacturer of 
Airbus LCA.  Based on the foregoing, we cons ider that, for purposes of our analysis of the 
United States' claims in this dispute, a financia l contribution provided to any Airbus partner or 
affiliated entity, or to Airbus GIE, in relation to the development and/or production of an Airbus LCA, 
potentially confers a benefit on the Airbus Industrie  consortium, as the "producer" of Airbus LCA.  
Indeed, we do not understand the European Communities to contend otherwise.    
7.193  The European Communities argues, however, th at the United States must demonstrate that 
financial contributions which conferred a be nefit on the Airbus Industrie consortium ( i.e., financial 
contributions provided to any of the Airbus pa rtners, their affiliates or to Airbus GIE) currently  
benefit Airbus SAS .    According to the European Communiti es, "there is a threshold requirement for 
the complaining Member to establish that the producers  alleged to be the source of the adverse effects 
actually enjoy a subsidy."2086 The European Communities argues, th erefore, that the United States 
must establish that the alleged subsidies that we re provided to the Airbus Industrie consortium 
"passed through" to Airbus SAS, the only entity that  currently produces Airbus LCA in the European 
Communities.  We have already rejected the Eu ropean Communities' attempt to characterize the 
United States' claims as confined to subsidies th at were granted to Airbus SAS, rather than 
Airbus SAS and its predecessor Airbus GIE and their respective affiliated companies.  It will, of 
course, be necessary for us to be satisfied that any subsidies which we may find to exist, do in fact 
subsidize Airbus LCA, in order to find that the ef fects of such subsidies are the various forms of 
adverse effects alleged.  Howeve r, we do not consider that Artic les 5 and 6 of the SCM Agreement 
require that causation be demonstr ated through the type of "pass-through" analysis that has been 
applied by panels in the specific context of Part V of the SCM Agreement.  Nor do we consider that a 
"pass-through" analysis is necessary in the circum stances at issue here; namely, where the direct 
recipient of the financial contribution is the produ cer of the subsidized product.            
7.194  The question whether it is necessary to conduc t a "pass-through" analysis in WTO law has 
previously arisen in situations where a financial c ontribution is provided to an entity in respect of a 
product but the "benefit" is a lleged to be conferred on an unrelated entity  producing a different 
product .  Article VI:3 of the GATT and footnote 36 of Article 10 of the SCM Agreement have been 
held to require an investigating authority in a countervailing duty investig ation to conduct a pass-
through analysis where the recipient of the subsidy is not the producer of the product under 
investigation, but a producer of  a product upstream in the produ ction process of the product under 
                                                      
2082 US, FWS, para. 44. 
2083 EC, FWS, para. 194. 
2084 See, Section VII.F.4 of this Report. 
2085 EC, FWS, para. 45. 
2086 EC, SNCOS, para. 20 (emphasis added). WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  investigation.
2087  The dispute in US – Softwood Lumber IV  concerned countervailing duties levied by 
the United States on imports of softwood lumber, including remanufactured lumber, from Canada to offset subsidies granted to timber harvesters  in relation to the harvesting of timber ( i.e., the input into 
the production of lumber).  The Appellate Body uphe ld the panel's findings that Article 10 of the 
SCM Agreement and Article VI:3 of the GA TT required the USDOC to conduct a pass-through 
analysis in circumstances in which a subsidy is received by a producer of an input product and the 
imported product subject to the countervailing duty investigation is  a different, downstream product 
produced by an unrelated producer using the subsidized input.
2088  We note that the source of the 
obligation to conduct a pass-through analysis in US – Softwood Lumber IV  is Article VI:3 of the 
GATT and Article 10 of the SCM Agreement, provisions  of Part V of the SCM Agreement, which are 
not directly relevant to our consideration of  the United States' claims in this dispute.2089  
7.195  More recently, in Mexico – Olive Oil , another dispute involving the provisions of Part V of 
the SCM Agreement, the panel rejected an argum ent that whenever there is any arm's length 
transaction between unrelated companies in the chain of production of an imported product subject to 
a countervailing duty investigation, a p ass-through analysis must be conducted.2090  The panel in 
Mexico – Olive Oil  noted that, given that the Appellate Body in US – Softwood Lumber IV  found that 
where an input product and a further manufactured product are both covered by the definition of the 
product subject to the countervailing duty in vestigation, a pass-through analysis is not required, even 
if the producers of the respective products are unrelated  and operating at arm's length, then a fortiori, 
the mere existence of an arm's length tran saction between firms involving the product under 
investigation somewhere between the receipt of th e subsidy and the export of the merchandise should 
not, by itself, give rise to an obligation to conduct a pass-through analysis under Article VI:3 of the 
GATT 1994 and Article 10 of the SCM Agreement.2091   
7.196  In US – Upland Cotton , a dispute involving the provisions of Part III of the SCM Agreement, 
the panel rejected the United States' argument that Brazil was required to establish the precise extent 
to which United States subsidies provided in resp ect of "upland cotton" production were actually 
"passed through" to the exporter, after "upland cotton" been processed and sold, before being 
traded.2092  The panel considered that, given the text ual differences between Parts III and V of the 
SCM Agreement, "pass-through" principles deve loped in the context of Part V of the 
SCM Agreement were not directly applicable to the panel's examination of serious prejudice under 
Articles 5(c) and 6.3(c) of the SCM Agreement.2093  The Appellate Body found that the panel had not 
                                                      
2087 GATT Panel Report, United States – Countervailing Duties on Fresh, Chilled and Frozen Pork 
from Canada ("US – Canadian Pork "), adopted 11 July 1991, BISD 38S/30; Panel Report, United States – Final 
Countervailing Duty Determination with Respect to Certain Softwood Lumber from Canada  ("US – Softwood 
Lumber IV "), WT/DS257/R and Corr.1, adopted 17 February 2004, as modified by Appellate Body Report, 
WT/DS257/AB/R, DSR 2004:II, 641. 
2088 Appellate Body Report, United States – Final Countervailing Duty Determination with Respect to 
Certain Softwood Lumber from Canada  ("US – Softwood Lumber IV "), WT/DS257/AB/R, adopted 17 February 
2004, DSR 2004:II, 571, para. 167.  The Appellate Body reversed the Panel's finding that USDOC's failure to conduct a pass-through analysis in re spect of arm's length sales of lumber by tenured harvesters/sawmills to 
unrelated remanufacturers was inconsistent with Article s 10 and 32.1 of the SCM Agreement and Article VI:3 
of the GATT 1994. 
2089 See, also , Panel Report, Mexico – Definitive Countervailing Measures on Olive Oil from the 
European Communities ("Mexico – Olive Oil "), WT/DS341/R, adopted 21 October 2008, para. 7.142. 
2090 Panel Report, Mexico – Olive Oil , para. 7.143. 
2091 Panel Report, Mexico – Olive Oil , para. 7.143.  The panel also cons idered that it is not necessary to 
identify the particular recipient or r ecipients of the benefit, and the particular manner in which the subsidy is 
bestowed, in order to determine that a "benefit" has been conferred, and therefore that a subsidy exists within the 
meaning of Article 1.1(b); para. 7.152.     
2092 Panel Report, US – Upland Cotton , para. 7.1180. 
2093 Panel Report, US – Upland Cotton , para. 7.1181.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  erred in its assessment of the amount of the subsidies for the purpose of its analysis under 
Article 6.3(c) of the SCM Agreement.2094  The Appellate Body said: 
"As we have already noted, the requirement  in Article VI:3 of the GATT 1994 and 
Article 19.4 of the SCM Agreement that c ountervailing duties on a product be limited 
to the amount of the subsidy accruing to that product finds no parallel in the 
provisions on actionable subsidies and pe rtinent remedies under Part III of the 
SCM Agreement.  Therefore, the need for a "pass-through" analysis under Part V of 
the SCM Agreement is not critical for an assessment of significant price suppression under Article 6.3(c) in Part III of th e SCM Agreement.  Nevertheless, we 
acknowledge that the "subsidized product" must be properly identified for purposes 
of significant price suppression under Article 6.3(c) of the SCM Agreement.  And if the challenged payments do not, in fact, s ubsidize that product, this may undermine 
the conclusion that the effect of the subsidy is significant suppression of prices of that product in the relevant market."
2095 
7.197  We understand the Appellate Body to mean th at, in order to demonstrate causation under 
Article 6 (in that dispute, that the effect of a subsidy which had been found to exist was significant 
price suppression within the meaning of Article 6. 3(c)), it is necessary to link the subsidy to the 
product alleged to be involved in causing the serious  prejudice.  In situations where a subsidy is 
provided directly to an entity that does not produce, and is not related to an entity that produces, the 
product alleged to be involved in causing the seri ous prejudice, a complaining party will need to 
demonstrate how such a product is in fact, subs idized, for purposes of the causation analysis under 
Article 6.   
7.198  In arguing that "subsidies paid to entities that no longer exist, much less manufacture and sell 
LCA, cannot be assumed to benefit Airbus SAS" , the European Communities essentially asks the 
Panel to treat the Airbus Industrie consortium (and the various legal entities which comprised the 
consortium), as a different producer of Airbus LCA from Airbus SAS.  We are unable to do so.  
7.199  We acknowledge that the change in legal organization of the producer of Airbus LCA, from a 
groupement d'intérêt économique  to a société par actions simplifiée  is legally significant as a matter 
of corporate law.  The legal rights and obligations of the Airbus partners (and their respective owners) 
changed from those of aerospace manufacturers and members of a consortium, to those of 
shareholders of a publicly listed company (EADS) wh ich, through its subsidiary Airbus SAS, owned 
the LCA-related assets and conducted the LCA-related activities of the former Airbus partners and 
Airbus GIE.    However, based on the economic realities of the production of Airbus LCA, we consider the Airbus Industrie consortium ( i.e., each of the Airbus partners, their respective affiliates 
and Airbus GIE) to be the same producer  of Airbus LCA as Airbus SAS. In this regard, we recall that, 
in response to a question from the Panel, the Euro pean Communities indicated that all of the LCA 
operating assets and all of the LCA design, manufact uring and marketing activities of the former 
Airbus partners and Airbus GIE were gr ouped in Airbus SAS and its subsidiaries.
2096  Moreover, in 
granting merger clearance to the proposed combin ation of Aérospatiale-Matra, Dasa and CASA to 
form EADS, the European Commission expressed th e view that there was no indication that the 
operation would affect the quality or nature of control  of Airbus Industrie, nor would it have any 
impact on the work share distribution between the Airbus partners.2097   
                                                      
2094 Appellate Body Report, US – Upland Cotton , para. 473. 
2095 Appellate Body Report, US – Upland Cotton , para. 472. 
2096 EC, Answer to Panel Question 81, para. 165. 
2097 European Commission, Merger Procedure Article 6(2) Decision, Case No. COMP/M.1745 – 
EADS, 11 May 2000, Exhibit US-479, para. 16. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  7.200  In other words, for purposes of our analysis of the United States' claims under Articles 5 and 
6 of the SCM Agreement, we do not consider that  the changes to the corporate structure of the 
producer of Airbus LCA are such as to require the United States to demonstrate, as part of its prima 
facie  case, the "pass-through" to the entity Airbus  SAS of benefits conferred by financial 
contributions that had been provided to the Airbus  Industrie consortium.  If we find that any of the 
alleged financial contributions provi ded to the Airbus Industrie cons ortium conferred a benefit within 
the meaning of Article 1.1(b), and thus constitute subs idies, we would be satisfied that those subsidies 
do, in fact, subsidize Airbus LCA for purposes of our  adverse effects analysis under Articles 5 and 6. 
7.201  We now turn to the European Communities' ar guments that various transactions nonetheless 
had the effect of "extinguishing" a portion of any a lleged subsidies that we may otherwise find to have 
been bestowed on Airbus SAS.  
(c) Extinction of benefit 
(i) Arguments of the parties 
European Communities
 
7.202  The European Communities contends that, quite apart from the issue which it identifies as 
"pass-through", it has demonstrated that "most" of th e alleged subsidies at issue in this dispute "have 
been extinguished, repaid, withdrawn or extracted in a series of arm's length, fair market value 
transactions" with the result that Airbus SAS does not "currently enjoy subsidies that could cause the 
adverse effects alleged by the United States."2098  
7.203  According to the European Communities, WT O panels and the Appellate Body have 
consistently made clear that any benefit that may ha ve been conferred by a financial contribution (and 
therefore a subsidy which is deemed to exist) is presumptively "extinguished" for purposes of the 
SCM Agreement when the recipient firm (or segments thereof) is sold at "arm's-length" and for "fair 
market value".2099   In this regard, the European Communiti es refers to the reports of the panels and 
Appellate Body in US – Lead and Bismuth II  and US – Countervailing Measures on Certain EC 
Products  as establishing the "principle" that the sale of a company at arm's-length and for fair market 
value presumptively "removes any benefit of prior subsidies" to the purchaser of that company.2100  
Although the above-referenced cases arose out of  countervailing duty dete rminations challenged 
under Part V of the SCM Agreement, the Euro pean Communities argues that the "extinction 
principle" enunciated in those cases is  based on the definition of "subsidy" in Article 1.1, and that it is 
therefore as relevant to Part III of the SCM Agreement as it is to Part V.2101  While also 
acknowledging that the aforementioned cases involve d the privatization of formerly state-owned 
                                                      
2098 EC, FWS, paras. 196-197; SWS, para. 90. 
2099 EC, FWS, para. 198.  According to the European  Communities, this "principle" is "rooted in the 
"benefit to the recipient" principle" and is part of the definition of "subsidy" in Article 1.1.; EC, SNCOS, para. 59; Answer to Panel Question 197, para. 222. 
2100 EC, FWS, paras. 198-202; Answer to Panel Question 197, para. 223; Panel Report, United States – 
Imposition of Countervailing Duties on Certain Hot-Rolled Lead and Bismuth Carbon Steel Products 
Originating in the United Kingdom ("US – Lead and Bismuth II "), WT/DS138/R and Corr.2, adopted 
7 June 2000, upheld by Appellate Body Report, WT/DS138/AB/R, DSR 2000:VI, 2623; Panel Report, United States – Countervailing Measures Concerning Cert ain Products from the European Communities ("US – 
Countervailing Measures on Certain EC Products "), WT/DS212/R, adopted 8 January 2003, as modified by 
Appellate Body Report, WT/DS212/AB/R, DSR 2003:I, 73; Panel Report, United States – Countervailing 
Measures Concerning Certain Products from the Europe an Communities, Recourse to Article 21.5 of the DSU 
by the European Communities ("US – Countervailing Mea sures on Certain EC Products (Article 21.5 – 
European Communities) "), WT/DS212/RW, adopted 27 September 2005. 
2101 EC, Answer to Panel Question 197, para. 222.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  enterprises, the European Communities contends that a statement of the Appellate Body in US – 
Countervailing Measures on Certain EC Products  extends the application of the principle to private-
to-private sales.2102   
7.204  Based on the "extinction" principle that the European Communities argues was established in 
the aforementioned cases, and the asserted extension of that principle to private-to-private sales, the 
European Communities argues that (i ) the French State's sale of shares in Aérospatiale-Matra through 
a public offering in 2000; (ii) the combination of the LCA-related assets and activities of the Airbus partners to form EADS and the public offering of EADS shares in 2000; (iii) market sales of EADS shares by various EADS shareholders (including  the French State) between 2001 and 2006; and (iv) 
the sale by BAE Systems of its interest in Airbus SAS to EADS in 2006, each effectively 
"extinguished" a portion of any subsidies currently en joyed by Airbus SAS.  The specific transactions 
which the European Communities alleges have resu lted in the "extinction" of a portion of any 
subsidies to Airbus SAS are set forth below:
2103 
 
Date Transaction Percentage  Sold Percentage of 
benefit extinguished 
1999 and 2000  Alleged privatization of Aérospatiale through 
combination of Aérospatiale with Matra Hautes Technologies to form Aérospatiale-Matra and the sale by the French State of a portion of its shares in Aérospatiale Matra to the public  50% 50 % of benefit to 
Aérospatiale extinguished 
2000 
 Combination of Aérospatiale-Matra, Dasa and 
CASA to form EADS and the public offering 
of EADS shares2104 
 16.42% 16.42 % of benefit to 
EADS extinguished 
2001 
 Sales by both Lagardère and the French State 
of their respective direct shareholdings in EADS on the market  3% 3 % of benefit to 
EADS extinguished 
2004  Hedged forward sale by DaimlerChrysler of its 
direct shareholdings in EADS 2.75% 2.20 % of benefit to 
Airbus SAS extinguished 
2006 Irrevocable forward sale by DaimlerChrysler of 
indirect EADS shareholding 
 7.5% 6 % of benefit to 
Airbus SAS 
extinguished (80% of 7.5%) 
2006 Issuance by Lagardère of mandatory 
exchangeable bonds (convertible into its 2.5% (2007) 
2.5% (2008) 6 % of benefit to 
Airbus SAS 
                                                      
2102 EC, FWS, paras. 213-215; Answer to Panel Question 197, para. 223.  The European Communities 
also contends that th e compliance Panel in US – Countervailing Measures on Certain EC Products (Article 21.5 
– European Communities ) established the principle that a partial (rather than full) sale of a company may 
remove a corresponding part of the subsidy; EC, FWS, paras. 216-219; Panel Report, US – Countervailing 
Measures on Certain EC Products (Article 21.5 – European Communities) , at paras. 7.88-7.176. 
2103 EC, Answer to Panel Question 111, para. 316. 
2104 The combination of the French, German and Spanish Airbus partners to form EADS was preceded 
by the "extraction" of cash by DaimlerChrysler (as the owner of Dasa) and the Spanish government (as the 
owner of CASA). The European Communities argues that  these "cash extractions" extinguished (or constituted 
repayment of) a portion of the benefits of subsidies received by Dasa and CASA, respectively.  The "extraction" arguments are considered separately  in Section VII.E.1(e) below. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  indirect EADS shareholding on specified dates) 
 2.5% (2009) extinguished (80% of 
7.5%) 
2006 Exercise of put option and sale by BAE 
Systems of its 20 % interest in Airbus SAS to EADS 
 20 % 20 % of benefit to 
Airbus SAS extinguished 
   
United States  
7.205  According to the United States, the European Communities' "extinction" argument is built on 
a flawed attempt to analogize the aforementioned transactions to the transactions at issue in US – 
Lead and Bismuth II  and US – Countervailing Measures on Certain EC Products . The United States 
argues that the transactions identified by the Eu ropean Communities as "extinguishing" a portion of 
the benefit of any subsidies currently enjoyed by Ai rbus SAS lack some or all of the features that 
were essential to the findings regard ing subsidy extinction in those cases.2105  The United States notes 
that US – Lead and Bismuth II  and US – Countervailing Measures on Certain EC Products  dealt with 
the effects of full privatizations on the extent to which subsidies granted to enterprises prior to their 
privatization may be countervailed under Part V of the SCM Agreement.2106 According to the United 
States, an essential feature of the privatization tran sactions at issue in those disputes was that they 
involved the transfer of all or substantially all of th e state's interest in an entity to a buyer at arm's 
length and for fair market value, includi ng a complete transfer of control.  
7.206  Second, the United States argues that the European Communities fails to address the 
significance of the fact that the cases on which it relies for the "principle" of extinction involved 
reviews of countervailing duty determinations by an investigating authority under Part V of the 
SCM Agreement.2107  According to the United States, the European Communities has failed to take 
account of the differences between the nature of  the inquiry in a countervailing duty dispute under 
Part V of the SCM Agreement and a dispute under Part III of the SCM Agreement.2108   
7.207  Specifically, the United States notes that an i nvestigating authority in a countervailing duty 
proceeding is required to determine whether a counter vailable subsidy exists a nd, if so, the amount of 
subsidy to be offset through countervailing duties.  By contrast, a panel in a dispute under Part III of 
the SCM Agreement is required to determine whet her the respondent Member, through the use of 
subsidies, has caused adverse effects to the interests of a complaining Member.2109 The United States 
contends that, even if a transaction may ( arguendo ) result in a previously provided subsidy no longer 
being countervailable for purposes of Part V of the SCM Agreement, this does not necessarily mean 
that it is no longer capable of causing adver se effects under Part III of the SCM Agreement.2110 
7.208  The United States further submits that the Eu ropean Communities' arguments regarding the 
"extinction" and "extraction" of the alleged subsidies are completely irrelevant to the United States' 
causation argument.2111  According to the United States, its  causation case is essentially that the 
alleged subsidies in this dispute (namely, LA/MSF,  together with other subsidies) distort the LCA 
market by (i) permitting the launch of LCA models that could not otherwise have been launched; 
(ii) enabling Airbus to invest in multiple LCA launc hes more quickly than it otherwise could; and (iii) 
                                                      
2105 US, Answer to Panel Question 56, para. 321. 
2106 US, Answer to Panel Question 16, para. 121. 
2107 US, Answer to Panel Question 56, para. 322. 
2108 US, Answer to Panel Question 56, para. 323. 
2109 US, Answer to Panel Question 56, para. 342. 
2110 US, Answer to Panel Question 56, para. 343. 
2111 US, Answer to Panel Question 169, para. 221.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  enabling Airbus to use its limited funds to reduce prices for already launched LCA models.2112 
Therefore, according to the United States, at any given moment, the impact of the alleged subsidies 
includes both (i) the existence of Airbus LCA models  that would not have been launched in the past 
without the alleged subsidies; and (ii) the present im pact of subsidies that are currently being provided 
for the development of new Airbus LCA models on th e financial constraints currently experienced by 
Airbus as a whole.2113 
7.209  Finally, the United States argues that the Eu ropean Communities has failed to demonstrate 
that the specific transactions which it contends "e xtinguished" a portion of prior subsidies to the 
Airbus partners and Airbus SAS were sales of shar es that occurred at arm's length and for fair market 
value.2114 
(ii) Arguments of Third Parties 
Australia  
7.210  Australia argues that the elements for establishi ng the existence of "benefit" are the same in 
the context of Part III and Part V of the SCM Agreement and that both Parts III and V rely on the 
continuing existence of benefit as the basis fo r establishing the further element of injury.2115 
Consequently, Australia contends that the rebutta ble presumption that a privatization on arm's-length 
terms and for fair market value results in the extinguishment of benefit, as recognized by the 
Appellate Body in US – Countervailing Measures on Certain EC Products , in the context of Part V of 
the SCM Agreement, likewise applies to the existence of benefit under Part III of the 
SCM Agreement.2116  Australia also argues that the question whether a subsidy is partially or 
completely extinguished upon the sale of shares in  a subsidized entity depends on the nature and 
consequences of that sale.2117 
Brazil  
7.211  According to Brazil, the panel and Appellate Body findings in US – Countervailing Measures 
on Certain EC Products  relate to the existence of a benefit for purposes of finding subsidization under 
Article 1.1 and applying countervailing duties unde r Part V of the SCM Agreement.  Because the 
identification of the "subsidized product" (including the existence of benefit under Article 1.1) is also 
a necessary first step in an analysis of serious prejudice under Part III, Brazil contends that past 
                                                      
2112 US, Answer to Panel Question 169, para. 222. 
2113 US, Answer to Panel Question 169, para. 222.  The United States also argues that the 2006 
transactions, and DaimlerChrysler' s 2004 hedged forward arra ngement, which could not take place until 2007, 
occurred after the establishment of this Panel and therefore can have no bearing on the resolution of this dispute; 
US, SWS, paras. 529-530. 
2114 In relation to this issue, the United States argues (i) that several of the transactions in question are 
not actual sales of shares; (ii) that several of the transactions were sales for between one percent and 
9.95 percent of the entities concerned, and therefore involve d significantly less that "all or substantially all" of 
the shares in the relevant entities; (iii) that none of the transactions resulted in the seller no longer having any 
controlling interest in the relevant companies; and (v ) that several of the transactions occurred after the 
establishment of this Panel and therefore have no bearing on the resolution of this dispute; US, SWS, paras. 529-
536. 
2115 Australia Answers to Third Party Questions, 10 September 2007, at 2.  Australia notes that the only 
real difference between Parts III and V is that nothing in Part III calls for a precise quantification or allocation of 
the benefit of the subsidy. 
2116 Australia Answers to Third Party Questions, 10 September 2007, at 2. 
2117 Australia Answers to Third Party Questions, 10 September 2007, at 2.  In this regard, Australia 
contends that the Panel will need to examine all relevant  facts, including provisions made in loan contracts 
between the governments and Airbus SAS in relation to th e transfer obligations to successor entities; Australia, 
Third Party Submission, 7 May 2007, para. 57. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  interpretations of Article 1.1 in re lation to determining subsidization w ould appear to be applicable in 
the context of any disputes under the SCM Agreement,  including those relating to prohibited subsidies 
under Part II and actionable subsidies under Part III.
2118   
7.212  Brazil argues that the relevant transactions cited by the European Communities are not 
privatizations and thus do not appear to raise the presumption that the benefit of prior subsidies was 
extinguished.2119 Brazil also notes that the reports of  the panel and Appellate Body in US – Lead and 
Bismuth II  and US – Countervailing Measures on Certain EC Products  addressed the question 
whether privatization of the recipient extinguished  the benefit for purposes of imposing countervailing 
duties under Part V of the SCM Agreement.  Braz il contends that Part V of the SCM Agreement 
requires the calculation of the precise amount of the subsidy in order to ensure that countervailing 
duties are not levied in excess of the amount of the subsidy under Article 19.4 of the 
SCM Agreement, while precise quantification of th e amount of the subsidy is not required in cases 
under Parts II and III of the SCM Agreement.2120  According to Brazil, given the absence of any 
requirement to precisely quantify the subsidy, and given the absence of any de minimis provision 
under Parts II and III of the SCM Agreement, a "par tial" extinguishment of the benefit would still 
mean that the recipient is benefiting from the subsidi es, albeit arguably to a lesser extent.  Therefore, 
even assuming arguendo that partial share transfers may extin guish a portion of the benefit to the 
recipient in certain circumstances, such a finding should not affect the Pane l's findings regarding the 
existence of benefit.2121   
Japan  
7.213  Japan submits that the Panel should closely examine whether the Eu ropean Communities has 
demonstrated that the privatizations have been acco mplished at arm's length and for fair market value, 
and that any alleged benefits have in fact been extinguished, based on the specific facts of the case.2122  
Japan argues that there is no basis in  the SCM Agreement, in the applicab le jurisprudence, or in logic, 
for the proposition that a partial transfer of a fi rm should not be subject to the same rebuttable 
presumption of extinguishment as set forth by the Appellate Body in US – Countervailing Measures  
on Certain EC Products .2123 
(iii) Evaluation by the Panel 
7.214  The European Communities argues that most of the alleged subsidies which the 
Panel may find to exist have been "extinguished" by a series of allegedly arm's length, fair market 
value transactions involving changes in ownership of  Aérospatiale, or EADS, with the result that 
"Airbus SAS does not currently enjoy  subsidies that could cause the adverse effects alleged by the 
United States."2124 This argument raises a threshold ques tion; namely, whether a subsidy which is 
found to exist must additionally be found to confer  a present, or continuing, benefit on the recipient 
firm producing the subsidized product in order for th at subsidy to be potentially capable of causing 
adverse effects for purposes of Article 5 of the SCM Agreement.       
                                                      
2118 Brazil Answers to Third Party Questions, 10 September 2007, para. 5. 
2119 Brazil Answers to Third Party Questions, 10 September 2007, para. 7. 
2120 Brazil Answers to Third Party Questions, 10 Se ptember 2007, paras. 6-7; Third Party Written 
Submission, para. 37. 
2121 Brazil Answers to Third Party Questions, 10 September 2007, para. 7. 
2122 Japan Third Party Submission, para. 19. 
2123 Japan Third Party Submission, para. 22, citing the Panel Report in US – Countervailing Measures 
on Certain EC Products (Article 21.5 – European Communities) , paras. 7.130-7.158. 
2124 EC, SWS, para. 90.  Emphasis added.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  7.215  We recall that Article 5 of the SCM Ag reement provides, in relevant part: 
"No Member should cause, through the use of any subsidy referred to in paragraphs 
1 and 2 of Article 1 , adverse effects to the interests of other Members, i.e.….."2125 
The concept of "adverse effects" under Article 5 of the SCM Agreement is concerned with effects to 
the "interests of other Members".  Paragraphs (a), (b) and (c) of Article 5, describe these effects as: 
 
(i) "injury to the domestic industry of another Member; 
(ii) nullification or impairment of benefits accruing directly or indirectly to other 
Members under GATT 1994 in particular th e benefits of concessions bound under 
Article II of GATT 1994; 
(iii) serious prejudice to the interests of another Member."2126 
Article 6.3 provides that serious prejudice in the sense of paragraph (c) of Article 5 may arise in any 
case where one or several of the following apply:  
(a) "the effect of the subsidy is to displ ace or impede the imports of a like product of 
another Member into the market of the subsidizing Member; 
(b) the effect of the subsidy is to displace or impede the exports of a like product of 
another Member from a third country market; 
(c) the effect of the subsidy is a significant price undercutting by the subsidized product 
as compared with the price of a like product of another Member in the same market 
or significant price suppression, price depression or lost sales in the same market; 
(d) the effect of the subsidy is an increase in  the world market share of the subsidizing 
Member in a particular subsidized primary product or commodity as compared to the 
average share it had during the previous period of three years and this increase 
follows a consistent trend over a period when subsidies have been granted." 
7.216  Implicit in the European Communities' argument is the assumption that a "subsidy referred to 
in paragraphs 1 and 2 of Article 1" can only cause adverse effects pursuant to Article 5 if it can be 
shown to presently  confer a "benefit" on a recipient.  This  assumption appears to rest on an analogy 
with the countervailing duty context, in which a Member's right to impose countervailing duties on a 
product is limited to the amount  of the subsidy accruing to that product. The European Communities 
argues that the present existence of the benefit co nferred by a financial contribution is likewise a 
prerequisite to a determination that a Member has caused, through the use of a subsidy, adverse 
effects to the interests of another Member pursuant to Article 5 of the SCM Agreement.   
7.217  We do not agree.  In order to make a successf ul claim under Article 5 of the SCM Agreement, 
a complaining Member must establish that a Memb er has caused, through the use of any subsidy 
referred to in paragraphs 1 and 2 of Article 1, one or more of the enumerated adverse effects to the 
interests of another Member.  One element of a complaining Member's adverse effects claim will therefore be establishing the existence of a "subsidy re ferred to in paragraphs  1 and 2 of Article 1". 
We note the following statement by the Appellate Body in Canada – Aircraft  regarding the definition 
of "subsidy" in Article 1.1 and the meaning of the term "benefit" in Article 1.1(b):  
                                                     
 
2125 Emphasis added. 
2126 Footnotes omitted. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  "The definition of "subsidy" in Article 1. 1 has two discrete elements: "a financial 
contribution by a government or any pub lic body" and "a benefit is thereby 
conferred".  The first element of this definition is concerned with whether the 
government made a "financial contribution", as that term is defined in Article 1.1(a).  
The focus of the first element is on the action of the government in making the 
"financial contribution".  That being so, it seems to us logical that the second element 
in Article 1.1 is concerned with the "benef it… conferred" on the recipient by that 
governmental action.  Thus, subparagraphs  (a) and (b) of Article 1.1 define a 
"subsidy" by reference, first, to the acti on of the granting authority and, second, to 
what was conferred on the recipient....   
We also believe 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 contribution" makes the recipi ent "better off" than it would otherwise 
have been, absent that contribution.  In our view, the marketplace provides an 
appropriate basis for comparison in determining whether a "benefit" has been 
"conferred", because the trade-distorting potential of a "financial contribution" can be 
identified by determining whether the recipi ent has received a "financial contribution" 
on terms more favourable than those ava ilable to the recipient in the market."
2127 
7.218  Article 1.1 is phrased in the present tense; i.e., a subsidy "shall be deemed to exist" where 
there "is a financial contribution" and "a benefit is  thereby conferred".  The grammatical construction 
of Article 1.1 suggests that the "financial contribu tion" and the "benefit" come into existence at the 
same time.  This construction is supported by the ad verb "thereby", the ordinary meaning of which is 
"by that means".2128 As the Appellate Body in Canada – Aircraft  made clear, the focus of the inquiry 
into the existence of a "benefit" pursuant to Article  1.1(b) is whether the financial contribution places 
the recipient in a more advantageous position than  would have been the case but for the financial 
contribution.  We therefore have difficulty un derstanding the coherence of a concept such as 
"continuing benefit" within the legal framework of Article 1 of the SCM Agreement.  To the extent 
that a concept such as "continui ng benefit" relates to how the effect of a subsidy is to be analyzed over 
time, we consider this to be an aspect of the cau sation analysis to be undertaken pursuant to Articles 5 
and 6 of the SCM Agreement and part of the assessm ent of the "effects" of a subsidy under those 
provisions.  If a financial contribution is provided on  better terms than would have been available  in 
the market, a benefit is "thereby" conferred, a subsid y is deemed to exist, and there is the possibility, 
which the complaining Member may proceed to estab lish, that the "use" of this subsidy has caused 
adverse effects to the interests of other Members. 
7.219  The European Communities' concept of "continuing  benefit" appears to conflate the concepts 
of "benefit", which relates to the terms on which a financial contribution was provided compared with 
a market benchmark, and "effects" which relate to the impact of the subsidy in the marketplace at a 
point in time which is typically subsequent to th e time when the subsidy was granted.  We note the 
observations of the panel in US – Upland Cotton  on this interpretational error:  
"The concept of "benefit" is a definiti onal element of a subsidy pursuant to 
Article 1.1(b) of the SCM Agreement.  Inas much as we are not required to calculate 
an amount of "benefit", we cannot logically be  required to conduct any sort of precise 
                                                      
2127 Appellate Body Report, Canada – Measures Affecting the Export of Civilian Aircraft ("Canada – 
Aircraft") , WT/DS70/AB/R, adopted 20 August 1999,  DSR 1999:III, 1377, paras. 156-157. 
2128 The New Shorter Oxford English Dictionary  defines "thereby" as "by that means, as a result of that; 
through that"; New Shorter Oxford English Dictionary , Oxford University Press, Oxford, 1999, p. 3275.  Black's 
Law Dictionary  defines "thereby" as "by that means; in consequence of that"; Black's Law Dictionary , Sixth 
Edition, West Publishing Co., St. Paul, 1990, p. 1478.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  "expensing" of the "benefit".  Moreover, we see no textual basis for reading the 
different terms – "benefit" and "adverse effects"/"serious prejudice" – synonymously.  
Were we to discern an identity between the c oncept of "benefit" to a recipient and the 
concept of "adverse effects" to another Member's interests, we would effectively reduce the provisions of Part III to redundancy.   As a treaty interpreter, the Panel is 
precluded from doing so." 
2129 
7.220  We also recall the different context in wh ich investigating authorities are required to 
demonstrate the existence, during the relevant period of investigation or review , of a continued benefit 
from a prior financial contribution, pursuant to Pa rt V of the SCM Agreement.  This requirement 
arises from Article VI:3 of the GATT and Article 10 of the SCM Agreement which permit offsetting, 
through countervailing duties, no more than the ad valorem  amount of the subsidy determined to have 
been granted on the manufacture or production of a product .2130  In addition, Articles 19.4 and 21.1 
limit the imposition of countervailing duties to the amount of the subsidy found to exist, calculated in 
terms of the subsidization per un it of the subsidized and exported product .  The provisions of Part V 
of the SCM Agreement thus give rise to a pragmatic need to link a subsidy to imported products  in 
order to assess the effect of the subsidized imports.  As the panel in US – Upland Cotton  observed:   
"In view of the contrast in the text, c ontext, legal nature and rationale of the 
provisions in Part III of the SCM Agreemen t relating to a multilateral assessment as 
to whether a Member is causing, through the use of any subsidy, "adverse effects" in the form of "serious prejudice to the interests of another Member" and Part V of the Agreement relating to obligations of  a Member in conducting unilateral 
countervailing duty investigati ons, we decline to transpo se directly the quantitative 
focus and more detailed methodological obliga tions of Part V into the provisions of 
Part III of the SCM Agreement."
2131 
7.221  As we have explained, we do not suggest that , under Article 5 of the SCM Agreement, it is 
unnecessary to link a subsidy provided to a recipient to  a particular product or products in order to 
demonstrate that a Member has caused, through the use of that subsidy, the asserted adverse effects to 
the interests of the complaining Member.2132  However, this does not mean that a complaining 
Member is required to establish that the "benefit" to the recipient is "current" or "continuing" in order 
to establish that link and demonstrate that use of  that subsidy has caused adverse effects to the 
complaining Member's interests.2133  There may well be circumstances where, given the nature of the 
subsidy, the passage of time between its receipt and the alleged adverse effects, the recipient's position 
in the market and exogenous market considerations, it is difficult to demonstrate more than a tenuous 
causal link between the subsidy and the alleged adverse ef fects.  However, this is an inherent part of 
the causation analysis to be undertaken pursuant to  Articles 5 and 6, and does not entail an obligation 
to demonstrate the "continuity of benefit"  of a previously granted subsidy.   
                                                      
2129 Panel Report, US – Upland Cotton , para. 7.1179 (footnotes omitted). 
2130 Article VI:3 of the GATT and footnote 36 of Ar ticle 10 of the SCM Agreement provide that the 
term "countervailing duty": 
"{S}hall be understood to mean a special duty levied for the purpose of offsetting any bounty or 
subsidy bestowed, directly, or indirectly, upon the manufacture, production or export of any merchandise". 
2131 Panel Report, US – Upland Cotton , para. 7.1177. 
2132 See, paras. 7.194 - 7.200. 
2133 In this regard, we recall that the panel in US – Upland Cotton  regarded the fact that the legal and 
regulatory provisions governing the payment of many of the subsidies at issue in that dispute had expired as immaterial to its serious prejudice analysis; Panel Report, US – Upland Cotton , para. 7.1201.  See, also, Panel 
Report, Indonesia – Certain Measures Affecting the Automobile Industry ("Indonesia – Autos") , 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, para. 14.206. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  7.222  We conclude that, provided the United States, as the complaining Member, establishes (i) the 
provision of a financial contributi on in accordance with Article 1.1(a)(1); (ii) which thereby confers a 
benefit, within the meaning of Article 1.1(b) an d (iii) specificity, in acco rdance with Article 2, a 
subsidy that is actionable under Part III of the SC M Agreement will be "deemed to exist", and the 
United States will successfully ma ke out a claim under Article 5; pr ovided it is able to demonstrate 
that the European Communities a nd certain member States have caused, through the use of that 
subsidy, adverse effects to the interests of the Un ited States. We can find nothing in Article 5 of the 
SCM Agreement that would require the United States to  establish additionally that all or part of the 
"benefit" found to have been conferred by the provi sion of a financial contribution continues to exist, 
or presently exists.         
7.223  We therefore dismiss the European Communities' arguments that particul ar alleged subsidies 
have been extinguished through a series of arm's le ngth, fair market value transactions as unfounded, 
resting as they do upon a flawed interpretation of Article 5 of the SCM Agreement.   
(d) Alternative findings 
7.224  We consider that the foregoing findings are suffi cient to resolve this issue.  Nonetheless, and 
in the interest of ensuring a positive resolution of th is dispute in the event the foregoing findings are 
reversed on appeal, we consider it appropriate to make alternative findings on the European 
Communities' arguments that, in the context of a claim under Part III of the SCM Agreement, the 
existence of a benefit conferred by a financial c ontribution provided to a recipient is presumptively 
extinguished by the subsequent sale of the recipient to  an arm's-length purchaser for fair market value.   
7.225  The European Communities asks us to interpre t Article 5 as requiring a complaining Member 
to establish not only the existence of a subsidy pur suant to Article 1.1 of the SCM Agreement, but 
also that the financial contribution confers a "pre sent" or "continuing" benefit on the recipient, as a 
prerequisite to demonstrating that a Member has caused, through the use of that subsidy, adverse 
effects to the interests of another Member.  Had we accepted the European Communities' view, then it 
would be necessary for us to address the European  Communities' arguments that it is possible to 
derive from the prior panel a nd Appellate Body reports in US – Lead and Bismuth II  and US – 
Countervailing Measures on Certain EC Products  the principle that sale of a producer on arm's-length 
terms and for fair market value presumptively rem oves the benefit of any prior subsidies to the 
purchaser of that producer.  We would also have to consider the European Communities' argument 
that application of this principle to certain tran sactions involving changes in ownership of the Airbus 
partners, EADS and Airbus SAS results in the "extinction" of a portion of any subsidies to 
Airbus SAS.  We consider these questions , in the alternative, below.     
7.226  The disputes in US – Lead and Bismuth II  and US – Countervailing Measures on Certain EC 
Products involved the WTO-consistency of countervaili ng duties imposed or maintained by the 
United States on products imported from formerly st ate-owned producers to offset subsidies received 
by those producers prior to their privatization.  The European Communities ar gues that the reports of 
the panels and Appellate Body in these cases establis h the "principle" that "the sale of a company at 
arm's length and for fair market value removes any benefit of prior subsidies to the buyer."2134   
7.227  According to the United States, the panel in US – Countervailing Measures on Certain EC 
Products  found that a subsidy may be extinguished as th e result of a sale of the subsidized entity 
where (i) the sale is at arm's length and for fair market value, and (ii) the sale involves all or  
substantially all of the subsidized entity  and results in a relinquishment of any controlling interest  the 
seller had in the entity.2135  The United States contends that none of the transactions identified by the 
                                                      
2134 EC, Answer to Panel Question 197, para. 223. 
2135 US, Answer to Panel Question 168, para. 203.  WT/DS316/R 
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  European Communities satisfies this second require ment, and that the European Communities, in 
purporting to apply the principle enunciated by the pa nel in that dispute, is actually formulating a new 
principle in which it is only necessary to satisfy the requirements in (i) above in order for a subsidy to 
be extinguished.   
7.228  The European Communities, for its part, argu es that the United States has confused the 
principle enunciated in US – Countervailing Measures on Certain EC Products  with the facts to 
which that principle was applied in that dispute.2136  The European Communities rejects the United 
States' assertion that the "Airbus governments" nevert heless retain controlling interests in Airbus SAS 
sufficient to enable them to exert control over the company.2137  According to the European 
Communities, the transactions that it has identified (w hich are set forth in paragraph 7.204 of this 
Report) cumulatively  have resulted in the transfer to private owners of 79.26 percent of Airbus SAS, 
with the result that none of Aérospatiale-Matra , Dasa, CASA nor BAE Systems today produces LCA 
or has a "controlling interest" in Airbus SAS.2138   The European Communities argues that the Panel 
Report in US – Countervailing Measures on Certain EC  Products (Article  21.5 – European 
Communities)  extends the "principle of extinguishment" fro m single event changes of control to cover 
graduated sales undertaken in tranches over a period of time.2139   
7.229  Before beginning our evaluation of the European  Communities' arguments, we set forth below 
our understanding of the issues in dispute and conc lusions of the panels and Appellate Body in the 
two cases on which the European Communities relies.   
7.230  In US – Lead and Bismuth II , the panel found that the changes in ownership of the subsidized, 
state-owned producer which lead to the creation of  the privatized producers should have caused the 
USDOC to examine whether the production of leaded bars by those privatized producers, and not the 
state-owned producer, was subsidized.2140  It therefore found that the countervailing duties imposed 
pursuant to the USDOC's 1995, 1996 and 1997 administrative reviews were not in accordance with 
Articles 19.1, 19.4 and 21.2 of the SCM Agreemen t, Article VI:3 of the GATT 1994 and the object 
and purpose of countervailing duties as expressed in f ootnote 36 to Article 10 of the SCM Agreement, 
and were therefore incons istent with Article 10.2141 
7.231  On appeal, the United States argued that subsidies are bestowed on production, and that a 
mere change in ownership of the recipient of a fi nancial contribution does not have an automatic or 
immediate effect on production.  Rather, legal succes sorship to a subsidized producer is sufficient to 
maintain the connection between the subsidies and th e recipient.  The Appellate Body rejected this 
                                                      
2136 EC, Comments on US Answer to Panel Question 168, para. 313. 
2137 US, Answer to Panel Question 168, paras. 216- 217. The European Communities notes that neither 
the United Kingdom nor German governments hold any shares in EADS or Airbus SAS, while the French and Spanish governments own minority stakes in EADS (15.2 percent and 5.54 percent, respectively), and can 
hardly be said to be in a position to exert control over EADS or Airbus SAS; European Communities, 
Comments on US, Answer to Panel Question 168, paras. 322-323. 
2138 EC, Comments on US, Answer Question 168, para. 320. 
2139 Panel Report, US – Countervailing Measures on Certai n EC Products (Article 21.5 – European 
Communities) , paras. 7.119, 7.175. 
2140 Panel Report, US – Lead and Bismuth II , para. 6.70. The subsidies countervailed were equity 
infusions made by the British government to a state-owned entity, British Steel Corporation (BSC) between 
1977 and 1986.  BSC was privatized in 1988 and shares  of the newly formed entity, British Steel plc (BSplc), 
were sold in a public offering that was agreed to be at  arm's length, for fair market value and consistent with 
commercial considerations.  The countervailing duty dete rminations were made against United Engineering 
Steels Limited (UES), an entity that was originally a joint venture between BSC and a privately-owned entity, 
and in 1995, became a wholly-owned subsidiary of BSplc.  UES was renamed British Steel Engineering Steels 
(BSES) in 1995. 
2141 Panel Report, US – Lead and Bismuth II , para. 6.86.   WT/DS316/R 
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  argument, and affirmed the panel's finding that, given the changes in ownership leading to the 
creation of the privatized producers, in order to determine whether any subsidy was bestowed on 
production by these entities, it was necessary under Artic le 21.2 of the SCM Agreement to determine, 
based on information relating to the changes in owne rship, whether a "benefit" accrued to each of the 
privatized producers.
2142  The Appellate Body also found that, given the panel's factual findings that 
the privatized producers had each paid fair mark et value for the productive assets and goodwill they 
acquired from the state-owned producer, there was no error in the panel's conclusion that, in the 
specific circumstances of the case, the "financial contributions" that had been bestowed on the state-
owned producer between 1977 and 1986 could not be de emed to confer a "benefit" on the privatized 
producers.2143 
7.232  In US – Countervailing Measures on Certain EC Products , the panel considered the WTO-
consistency of 12 countervailing dut y determinations against impor ts of certain steel products 
originating in the EC.2144  The European Communities challenged the application by the USDOC of 
two different methodologies to determine whether non-recurring subsidies granted to state-owned 
recipients prior to their change in ownership (thr ough privatization) remained countervailable against 
imports from the privatized producer.2145  The panel noted that the changes of ownership in question 
concerned privatizations of state-owned companies,  and that the privatizations involved full changes 
of ownership, in the sense that the governments had so ld all, or substantially all, of their ownership 
interests and no longer had any controlling interests in the privatized producers.2146  
7.233  The United States argued that the relevant "recipient" for purposes of determining the 
existence of a "benefit" following a change in owners hip is the legal person that received the financial 
contribution.  According to the United States, if the privatized producer can properly be considered 
the successor entity to the state-owned producer, the benefit of subsidies conferred on the latter should 
be regarded as passed-through to the former.2147 The United States argued that there was no reason 
why payment of fair market value for shares in the legal entity that was the recipient of the subsidy 
should be regarded as "extinguishing" the benefit of any subsidy conferred on the recipient legal 
entity.  The United States based this argument on what  it considered to be the fundamental distinction 
in corporate law between a company and its owne rs, a distinction which it contended was supported 
by the Appellate Body's reports in Canada – Aircraft  and US – Lead and Bismuth II .2148 
7.234  The panel held that privatization at arm's length and for fair market value rebuts any 
presumption that the benefit from prior financial cont ributions (or subsidization) continues to accrue 
to the privatized producer.2149  According to the panel, where subsidization improves a company's 
profitability, it thereby improves its ability to generate  returns for its shareholders.  In this sense, the 
panel could see no distinction between the advantage or benefit conferred by a financial contribution 
                                                      
2142 Appellate Body Report, US – Lead and Bismuth II , para. 62. 
2143 Appellate Body Report, US – Lead and Bismuth II , para. 68. 
2144 Panel Report, US – Countervailing Measures on Certain EC Products , para. 2.1. 
2145 The methodologies were (i) the "gamma" methodology, under which the USDOC determines the 
extent (if any) to which the privatization transaction pr ice can be considered to have repaid unamortized pre-
privatization subsidies, and countervails the remainder; and (ii) the "same person" methodology, under which the USDOC first determines whether the state-owned prod ucer and the privatized pr oducer are distinct legal 
persons and if not, the benefit of the subsidy granted to the pre-privatization producer is presumed to reside in 
the post-privatization producer. 
2146 Panel Report, US – Countervailing Measures on Certain EC Products , para. 2.3. 
2147 The United States argued that money taken out of the new owner's pocket should not be considered 
as coming out of the company, potentially eliminating subsidies that reside in that company; Panel Report, US – 
Countervailing Measures on Certain EC Products , para. 7.49. 
2148 Panel Report, US – Countervailing Measures on Certain EC Products , paras. 7.35-7.36. 
2149 Panel Report, US – Countervailing Measures on Certain EC Products , para. 7.82.  WT/DS316/R 
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  provided to the company, and the benefit ther eby enjoyed by the company's shareholders.2150  T h e  
panel therefore rejected the relevance of the legal distinction between a company and its shareholders 
for purposes of determining the existence of bene fit under the SCM Agreement.  According to the 
panel: 
"The concept of benefit is independent of the legal business structure established 
pursuant to national corporate law.  This is so because the SCM Agreement is 
concerned with identified adverse trade e ffects of subsidization on the domestic 
industry producing the like product.  The pr oduction and export of goods is done by a 
producer for the purpose of generating an ec onomic benefit to its owners.  When the 
existence of a subsidy improves the ability of a producer to produce and export a good, it necessarily impacts on its profitability, and, therefore, on the rate of return to 
shareholders."
2151 
7.235  On appeal, the United States argued that the pane l's determination that the "recipient" of a 
benefit should be regarded as the company and its ow ners together contradicted the Appellate Body's 
findings in Canada – Aircraft  and US – Lead and Bismuth II , which, according to the United States, 
established that the recipient of a subsidy cannot be both the legal person and its shareholders.  
Therefore, the United States argued, the sale of the shares of the recipient-producer can never 
extinguish the benefit of financial contributions provided to that producer because the producer and its 
shareholders are different persons.  
7.236  The Appellate Body stated that the Unite d States had misconstrued its reports in Canada – 
Aircraft  and US – Lead and Bismuth II .2152  The Appellate Body explained that when, in Canada – 
Aircraft ,2153 it had described the "recipient" of a benefit as a "person, natural or legal, or a group of 
persons" it had not excluded the possibility that a "recipient" could include both a "firm" ( i.e., forms 
of business organizations including corporate associat ions, partnerships, limited  liability partnerships, 
unincorporated entities) and its owner ( i.e., including shareholders, member s, proprietors, partners and 
all other holders of equity interests in the releva nt business organization).  According to the Appellate 
Body: 
"In sum, the legal distinction between firm s and their owners that may be recognized 
in a domestic legal context is not necessarily  relevant, and certainly not conclusive, 
for the purpose of determining whether a "b enefit" exists under the SCM Agreement, 
because a financial contribution bestowed on those investing in a firm may confer a 
                                                      
2150 Panel Report, US – Countervailing Measures on Certain EC Products , para. 7.51.  As we discuss in 
7.241, we are unable to agree with the panel on this issu e.  Although an owner may indirectly "benefit" in a 
financial sense from its investment in a subsidized producer, we do not consider that this indirect "benefit" to an 
owner of a subsidized producer is the same as the "benefit" conferred by the provision of a financial 
contribution to the subsidized producer on better than market terms.     
2151 Panel Report, US – Countervailing Measures on Certain EC Products , para. 7.50. 
2152 Appellate Body Report, United States – Countervailing Measures Concerning Certain Products 
from the European Communities (US – Countervailing Measures on Certain EC Products),  WT/DS212/AB/R, 
adopted 8 January 2003, DSR 2003:I, 5, para. 115. 
2153 Appellate Body Report, Canada – Aircraft , para. 154.  The Appellate Body also noted that its 
statements in US – Lead and Bismuth II  were made in the context of responding to the United States' arguments 
in that dispute that the analysis of th e existence of a "benefit" should be on "legal or natural persons" and not on 
"productive operations"; Appellate Body Report, US – Countervailing Measures on Certain EC Products , 
para. 110. WT/DS316/R 
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  benefit "upon the manufacture, production or  export of any merchandise, as provided 
for in paragraph 3 of Article VI of GATT 1994.""
2154 
7.237  However, the Appellate Body also considered that the panel had gone too far in asserting that, 
for purposes of the benefit determination, no dist inction should be made between a firm and its 
owners.  The Appellate Body noted  that the panel should have conf ined its findings to the specific 
circumstances before it, which involved  one kind of change in ownership ( i.e., a privatization at arm's 
length and for fair market value where the government  transfers all or substantially all the property 
and retains no controlling interest in th e firm) and only one kind of benefit ( i.e., a benefit conferred by 
a non-recurring financial contribution to a stat e-owned enterprise before privatization).2155  T h e  
Appellate Body also disagreed with the panel's findi ng that a privatization at arm's length and for fair 
market value necessarily always extinguished any benefit accruing to the privatized producer from 
prior financial contributions.2156 Specifically, the Appellate Body disputed the implication that a 
benefit could never continue to ex ist for a new owner following a priv atization at arm's length and for 
fair market value.2157  
7.238  In short, while the Appellate Body recognized, in  the context of a dispute under Part V of the 
SCM Agreement, that there was a "rebuttable presump tion" that a benefit ceases to exist following the 
privatization of a subsidized producer at  arm's-length and for fair market value,2158 the Appellate Body 
explicitly confined its analysis and findings (as we ll as those of the panel) to the specific facts and 
circumstances before it: 
"As we explained, the "core legal questi on" before the Pane l was to determine 
whether a "benefit", within the meaning of  the SCM Agreement, continues to exist 
following privatization at arm's length and for fair market value.  In considering this 
core legal question, the Panel examined a very precise set of facts and circumstances, 
namely, a benefit resulting from a prior non-recurring financial contribution bestowed 
on a state-owned enterprise where, following a privatization at arm's length and for 
fair market value, the government transfer s all or substantially all the property and 
retains no "controlling interest in the pr ivatized producer."  The Panel did not 
examine other situations, for instance, s ituations where a "benefit" is conferred 
through recurring financial contributions, or where the seller retains a controlling 
interest in the firm following its change in ownership.  The Panel had to consider only 
one kind of change in ownership (that is, a privatization at arm's length and for fair 
market value where the government transfers all or substantially all the property and 
retains no controlling interest in the firm ) and only one kind of benefit (that is, a 
benefit originating from a non-recurring financial contribution bestowed to the state-
                                                      
2154 Appellate Body Report, US – Countervailing Measures on Certain EC Products , para. 115 
(footnote omitted). 
2155 Appellate Body Report, US – Countervailing Measures on Certain EC Products , paras. 116-117.  
The Appellate Body was concerned that the panel's overly broad finding that a firm and its owners are, for all 
purposes of the SCM Agreement, virtually the same, could be interpreted as entitling investigating authorities to 
assume, in all cases that, where a subsidy is bestowed on a firm indirectly ( i.e., by providing a financial 
contribution to a firm's owners), the firm will receive a "benefit" equivalent to the full amount of the financial 
contribution, irrespective of the means and conditions imposed by a government for the provision of that 
financial contribution to owners of a firm; at para. 118. 
2156 Appellate Body Report, US – Countervailing Measures on Certain EC Products , para. 121, 
2157 Appellate Body Report, US – Countervailing Measures on Certain EC Products , para. 121.  The 
Appellate Body considered that this is because market c onditions may be such that the actual exchange value of 
the continuing benefit of past non-recurring financial c ontributions bestowed on a state-owned enterprise are not 
in fact reflected in the ma rket price; at para. 122. 
2158 Appellate Body Report, US – Countervailing Measures on Certain EC Products , para. 127.  WT/DS316/R 
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  owned enterprise before privatization).  Th e Panel should have confined its findings 
to those specific circumstances."2159    
7.239  Returning to the issues in the dispute before  us, we recall that the European Communities 
asks us to recognize, on the basis of the reports di scussed above, the existence of  a "principle" that the 
sale of a producer at arm's-length and for fair ma rket value presumptively extinguishes the "benefit" 
conferred by any financial contribut ions previously provided to that producer.  In light of the 
Appellate Body's clear indication that the panel's findings in US – Countervailing Measures on 
Certain EC Products  should be confined to the "very precise se t of facts and circumstances" at issue 
in that dispute, we do not consider that it  would be appropriate for us to do so.  
7.240  Moreover, for reasons that we will proceed to  explain, we are unable to agree with the 
reasoning underlying the panel's decision in US – Countervailing Measures on Certain EC Products  
and are likewise unable to find specific support for that  reasoning in the Appellate Body's report.  As 
we see it, the panel's assessment of the post-p rivatization "benefit" conferred by financial 
contributions provided to a state-owned pr oducer prior to its privatization in US – Countervailing 
Measures on Certain EC Products  was based on two core legal considerations.  The first was that the 
privatized firm and its new owners together  should be considered to be the "recipient" of the benefit 
to be assessed.2160 The second was that the relevant inqui ry for assessing the "benefit" to this 
"recipient" ( i.e., the privatized firm and its new owners, c onsidered together) is to ask what this 
recipient "gets for free"; i.e., the value of any subsidy that the new owners of the privatized firm 
cannot be considered to have "pai d for" in the fair market price.2161   
7.241  As to the first consideration, the panel appeared to explain its assessment of "benefit" from 
the perspective that the relevant "recipient" co mprised the privatized firm and its new owners 
together , on the basis that (i) the value of a company is  based on its ability to generate returns for its 
shareholders, and (ii) when a subsidy improves th e profitability of a company, it thus improves the 
rate of return to its shareholders.2162  However, we can find nothing in  the Appellate Body's reports in 
Canada – Aircraft  or in US – Lead and Bismuth II  to support the panel's contention that a firm and its 
owners must necessarily  together be considered the "recipient"  for purposes of evaluating the effect of 
a change of ownership of a firm  on the existence of subsidies previously granted to that firm.2163 A 
firm's general economic interests ma y be aligned with those of many other actors, but this does not 
mean that such other actors, along with the firm, should necessarily  be considered to be the recipient 
for purposes of determining  the benefit conferred by  a financial contribution provided to the firm.  
For example,  if we assume that a subsidy improves a firm's profitability, which in turn enhances its 
ability to meet its debt obligations (thereby lowering its risk of defa ulting on its debt obligations), the 
firm's unsecured creditors might also be said to "benefit" from a subsidy granted to a firm.  If a 
general alignment of economic interests between a firm and its owners were a sufficient basis for 
concluding that the benefit conferred by a financial contribution provided to a firm be necessarily  
assessed from the perspective of the firm and its owne rs together, as the recipient, then it would seem 
to follow that the general alignment of economic in terests between a firm and its creditors (or any 
other actors whose economic interests are aligned with the firm) should likewise be relevant to 
assessing the benefit conferred by a financial contribu tion provided to a firm.  In our view, nothing in 
the SCM Agreement or reports of th e Appellate Body suggests that th is would be appropriate.     
                                                      
2159 Appellate Body Report, US – Countervailing Measures on Certain EC Products , para. 117. 
2160 Panel Report, US – Countervailing Measures on Certain EC Products , para. 7.54.  We note that the 
panel in US – Lead and Bismuth II  adopted a similar approach to the identity between a company and its owners 
in the context of determining the existence of "benefit" under Article 1.1(b); Panel Report, US – Lead and 
Bismuth II , para. 6.82. 
2161 Panel Report, US – Countervailing Measures on Certain EC Products , para. 7.72. 
2162 Panel Report, US – Countervailing Measures on Certain EC Products , para. 7.51. 
2163 Moreover, the Appellate Body in US – Countervailing Measures on Certain EC Products  explicitly 
did not support this contention; at paras. 116-117.   WT/DS316/R 
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  7.242  As to the second consideration; namely, that the "benefit" is to be measured according to what 
the subsidized producer and its new owners, considered together, "get for free", the panel explained: 
"When a state-owned company/producer r eceives subsidies from the government, the 
advantage conferred by the subsidy should be  reflected in the fair market value (sale 
price) of the state-owned enterprise to be pr ivatized.  Thus, if upon privatization, fair 
market value is paid for all productive asset s, goodwill, etc. employed by the state-
owned producer, the Panel fails to see how the subsidies bestowed to the state-owned producer could subsequently be considered to still confer a "benefit" on the privatised 
producer (in the sense of the company togeth er with its owners) who has paid fair 
market value for all the shares and assets, reflecting, we must assume, the value of 
past subsidization."
2164 
7.243  In our view, the fact that the purchaser of a s ubsidized producer pays fair market value to 
acquire that producer indicates that the acquisition transaction itself was not on terms more advantageous than those that would have been  available to the purchaser on the market for 
comparable investment opportunities, and therefore did not involve a (new) subsidy to the purchaser.  
However, we fail to see the relevance of the fact th at a purchaser of a subsidized producer pays fair 
market value to acquire that producer to the questio n of the continued existence of a benefit conferred 
by the original provision of a financial contributio n to the subsidized producer.  The panel indicates 
that the new owner, having effectively "paid for" th e benefit of any financia l contribution previously 
provided to the producer would, as a profit-maximi zer, ultimately recoup its investment in the 
privatized producer by obtaining a "market return" on the entirety of its investment in the privatized 
producer.
2165  We do not see why the fact that new owners may cause a previously subsidized 
producer to compete in a market-oriented manner should necessarily eliminate the benefit which that 
producer may nonetheless enjoy from prior financial contributions that were provided on non-market 
terms.  Much will depend on the nature of the pr ior subsidization and the markets in which the 
producer competes.  Indeed, the fact that "the owne rs' investment in the privatized company will be 
recouped  through the privatized company providing its owners a market return on the full amount of 
their investment" suggests that the "benefit" confe rred by prior financial contributions is ultimately 
not in fact "paid for" by the new owner. 
7.244  In this regard, in assessing the existence of benef it on the basis of what a particular "recipient" 
can be said to "get for free", the panel appears to us to conflate the two different financial 
contributions (the financial contribution original ly provided to the producer and the financial 
contribution involved in the sale of an interest in that firm to the new owner) and the two relevant 
markets according to which the benefit conferred by  the respective financial contributions is to be 
assessed.  As the Appellate Body has indicated, a fina ncial contribution will only confer a "benefit" if 
it is provided on terms that are more advantageous th an those that would have been available in the 
market.2166  Article 14 of the SCM Agreement provides gui dance as to how the relevant market should 
be identified.2167  It is clear from the terms of Article 14 that the "relevant market" is related to the 
type of the financial contribution under consideration.2168  A conclusion that, on a change in 
                                                      
2164 Panel Report, US – Countervailing Measures on Certain EC Products , para. 7.72. 
2165 Panel Report, US – Countervailing Measures on Certain EC Products , para. 7.60.   
2166 Appellate Body Report, Canada – Aircraft , para. 149. 
2167 Appellate Body Report, Japan – Countervailing Duties on Dy namic Random Access Memories from 
Korea ("Japan – DRAMs (Korea)") , WT/DS336/AB/R and Corr.1, adopt ed 17 December 2007, para. 173. 
2168 For example, Article 14(b) provides that a financial contribution in the form of a loan shall not be 
considered as conferring a benefit on the recipient firm unless there is a difference between the amount that the 
firm receiving the loan pays on the governmen t loan and the amount the firm would pay on a comparable 
commercial loan  which the firm could actually obtain on the market .  In other words, the terms of Article 14(b) 
suggest that the relevant "market" for assessing whethe r a benefit was conferred by a financial contribution in 
the form of a loan is a commercial loan market.    WT/DS316/R 
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  ownership of a subsidized producer, the "benefit" conf erred by previous financial contributions is to 
be re-evaluated on the basis of whether the new owner acquired the producer on arm's length terms 
and for fair market value, appears to us to invol ve a re-evaluation of the benefit conferred by the 
original financial contribution provided to the produc er based on a  different market that is unrelated 
to that financial contribution; i.e., the market in which the new owners compete, with other potential 
investors, to acquire the producer.   It is not cl ear to us why, simply as a result of a change of 
ownership of the producer, the "relevant market " for re-assessing the benefit conferred by earlier 
financial contributions to a producer, whatever their original form and the original market 
benchmarks, should become the market of potential investors in the producer's equity securities or 
assets.2169 The approach adopted by the panel in US – Countervailing Measures on Certain EC 
Products  to determining the benefit in such circumstances  therefore appears to us to be at odds with 
the approach to benefit contemplated in Article 14 of the SCM Agreement.      
7.245  The United States argues that the consequen ce of accepting the Eu ropean Communities' 
argument would be the constant extinction of subs idies provided to publicly traded corporations, 
opening a major loophole in the SCM Agreement that Members could not possibly have 
contemplated.2170 The European Communities notes that it h as not claimed that public trading in 
EADS shares has reduced the amount of any subsidy;  it has instead, confined its extinction arguments 
to "significant sales by government, industry or in stitutional shareholders, analogous to the kinds of 
sales which have already been found to exti nguish or reduce benefit from past financial 
contributions."2171  The European Communities argues that th e question whether sales of shares in a 
publicly traded corporation will reduce the amount of "benefit" conferred on that corporation for 
purposes of the SCM Agreement will depend on factors such as: whether the price of the shares fully 
reflects the residual value of any subsidy; whether the sellers and purchasers form part of an economic 
unit with the corporation or are revenue seeking in vestors; whether the sellers completely exit the 
corporation or continue to shar e ownership of the economic unit; and whether the former or new 
owners have other economic activities to which the benefit could be transferred.2172     
7.246  We agree with the United States that, if one acc epts the "principle" for which the European 
Communities argues; namely, that the sale of a pro ducer at arm's-length and for fair market value 
presumptively removes any benefit conferred by fina ncial contributions previously provided to that 
producer, there is no meaningful basis for dis tinguishing the transactions which the European 
Communities alleges have resulted in the extinction of  a portion of the benefit conferred by financial 
contributions provided to the various Airbus-relate d entities in this dispute, on the one hand, from 
daily trading in the shares of a subsidized producer, on the other.2173  Recognition of a principle 
according to which changes in the underlying owners hip of a subsidized producer automatically or 
presumptively eliminate the benefit conferred by prio r financial contributions to that producer where 
                                                      
2169 We are therefore unable to agree with the panel in US – Countervailing Measures on Certain EC 
Products  that the market conditions under which privatizations occur "serve as a benchmark for assessing the 
benefit to the privatized producer, as envisaged by Article 14."; para. 7.72. 
2170 US, Comments on EC Answer to Panel Question 197, para. 177.  The implications of re-evaluating 
the existence of "benefit" in  the case of a partial change in ownership were discussed by the United States and 
the European Communities in US – Countervailing Duties on Certain EC Products , however, the panel in that 
case did not consider it necessary to  address the issue; Panel Report, US – Countervailing Duties on Certain EC 
Products , para. 7.62. 
2171 EC, Answer to Panel Question 197, para. 225.     
2172 EC, Answer to Panel Question 197, para. 225.  The European Communities notes that the Panel is 
not called upon to solve all possible problems or to promulgate general rules on these matters. 
2173 US, Answer to Panel Question 168, para. 214.  A lthough the United States had raised the issue of 
changes in ownership of publicly traded corporations before the panel in US – Countervailing Measures on 
Certain EC Products , the panel considered it unnecessary to addr ess the issue because all of the challenged 
determinations before it involved sales by a government of all or substantially all of their ownership interests in the relevant subsidized producers; at para. 7.62. WT/DS316/R 
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  the new owners can be said to have acquired their interest in the producer on arm's-length terms and 
for fair market value would, in our view, poten tially eviscerate the subsidies disciplines of the 
SCM Agreement.  This is particularly evident wh ere the subsidized producer is a corporation whose 
shares are publicly traded.   
7.247  For the foregoing reasons, we are unable to agr ee with the reasoning adopted by the panel in 
US – Countervailing Measures on Certain EC Products .  Moreover, we do not consider that the 
reasoning of the panel in this respect was endorsed  by the Appellate Body, beyond the specific facts 
and circumstances that were before it; namely, "a benefit resulting from a prior non-recurring 
financial contribution bestowed on a state-owned en terprise where, following a privatization at arm's 
length and for fair market value, the government tr ansfers all or substantially all the property and 
retains no "controlling interest in the privatized producer.""
2174   
7.248  Therefore, in the context of these alternative findi ngs, to the extent that prior reports of the 
Appellate Body support the conclusion that, in a dispute under Part III of the SCM Agreement, 
changes in the ownership of a subsidized producer  give rise to a rebuttable presumption that the 
benefit conferred by prior subsidies is extinguished , we consider that this would only be where 
(i) benefits resulting from a prior non-recurring financ ial contribution, (ii) are bestowed on a state-
owned enterprise, and (iii) following a privatization at  arm's length and for fair market value, (iv) the 
government transfers all or substantially all the pr operty and retains no controlling interest in the 
privatized producer.   
7.249  The European Communities does not argue that th e transactions that it alleges have resulted 
in the "extinction" of subsidies bestowed on Airbus  SAS fulfil all of the above criteria.  For example, 
the European Communities does not argue, much less demonstrate, that the transactions in question 
(with the exception of the stock exchange sales of EADS shares) were on arm's length terms.2175  
More significantly, none of the transactions in ques tion involved transfers by a government of all or 
substantially all of a state-owned producer, including a complete relinquishment of control.   It is clear 
that the public offerings of shares in Aérospatiale -Matra and EADS were not transactions in which the 
governments in question retained "no contro lling interest in the privatized producer."2176  
7.250  We are unable to agree with the European Co mmunities' argument that the compliance Panel 
in US – Countervailing Measures on Certain EC Products (Article 21.5 – EC)  extended the extinction 
"principle" to "graduated and partial sales undertaken in tranches rather than single-event changes of 
                                                      
2174 Appellate Body Report, US – Countervailing Measures on Certain EC Products , para. 117; Panel 
Report, US – Countervailing Measures on Certain EC Products , para. 7.62.   
2175 The concept of "arm's length" is not defined in the SCM Agreement.  However, the compliance 
panel in  US – Countervailing Measures on Certain EC Products (Article 21.5 – EC)  considered various 
dictionary definitions of the term, all of which highlighted the independence of parties in arm's length 
transactions; paras. 7.133-7.134. We are not persuaded, on the basis of the evidence presented to us, that any of 
the transactions to which the European Communities refers  in paragraph 7.204 (other than the stock exchange 
sales of EADS shares) were "a rm's length" transactions.   
2176 Although the French government sold a portion of its  shares in Aérospatiale-Matra to the public in 
1999, it retained (directly or indirectly) a shareholding  of approximately 48 percent.  Moreover, the French 
government exercised control over Aérospatiale-Matra  through a shareholders' agreement with Lagardère 
(which held 33 percent of the shares of Aérospatiale-Matra immediately after the public offering) in addition to holding a so-called "Golden Share" ( action spécifique ) giving it special veto rights.  Similarly, the French 
government and DaimlerChrysler continued to control the operations of Airbus Industrie following the public 
offering of shares in the newly formed EADS in 2000.  Immediately following the public offering of shares in EADS, 60 percent of the sh are capital of EADS was held in equal proportions by SOGEADE (in which the 
French state held a 50 percent interest) and DaimlerChrysler, which jointly controlled EADS through a 
contractual partnership, in which the Spanish government (through SEPI) also exercised voting rights; EADS Offering Memorandum, Exhibit EC-24, p. 132.     WT/DS316/R 
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  control".2177  We recall that the compliance Panel in  US – Countervailing Measures on Certain EC 
Products (Article 21.5 – EC)  considered the consistency of the USDOC's new privatization 
methodology and its application to three sunset revi ew re-determinations with Article VI:3 of GATT 
1994 and Articles 10, 14, 19.4, 21.1 and 21.3 of the SCM Agreement. One of the privatizations at 
issue was the French government's privatization of  Usinor, which occurred in incremental stages over 
a three year period through four types of share offerings to four different classes of purchasers.2178  
The USDOC had separately considered the sales transactions pertaining to the four different 
categories of share offerings, and applied its ne w privatization methodology to each of the four 
categories of share offerings in order to evaluate whether the sales transactions in each share offering 
occurred at arm's-length and for fair market valu e.  In response to the European Communities' 
argument that the original panel had discussed the arm's length and fair market value factors in the 
context of the privatization of a firm as a whole,  the compliance panel found that there was nothing in 
the original panel's report that would require an i nvestigating authority to examine the conditions of a 
privatization by looking at the company as a whole .2179  The compliance panel concluded that it did 
not consider the USDOC's segmented analysis of  the French government's privatization to be 
unreasonable given the circumstances of the privatization and found that it was applied in a transparent manner.
2180  We are unable to find anything in the compliance panel's reasoning or report 
that purports to extend or modify the express hol ding of the Appellate Body by suggesting that 
transactions in which a government transfers less than all of substantially all of the privatized 
producer or retains a controlling interest in the privatized producer are presumed to extinguish the 
benefit conferred by financial contri butions provided to that producer.2181   
                                                      
2177 EC, SNCOS, para. 59. 
2178 US – Countervailing Measures on Certain EC Products (Article 21.5 – EC) , paras. 7.107. The 
offerings were to each of the followi ng groups (i) French resident na tionals and European Communities or 
European Economic Area nationals in France; (ii) current and qualifying former employees of Usinor 
throughout the world; (iii) stable shareholders comp rising various institutional investors, both public and 
private; and (iv) the general public in the French and international financial markets. The USDOC had determined that the Usinor privatization was at arm's length and for fair market value with the exception of the 
employee/former employee offering, which constituted 5.16 percent of the sale.   
2179 US – Countervailing Measures on Certain EC Products (Article 21.5 – EC) , paras. 7.117-7.118.   
2180 US – Countervailing Measures on Certain EC Products (Article 21.5 – EC) , paras. 7.119, 7.122.   
2181 We note that the reasoning of the panel in US – Countervailing Measures on Certain EC Products 
itself does not support the extension of the "extinction" principle for which the European Communities contends to cases of partial, rather than full,  changes of ownership of a subsidized producer. We recall that the panel's 
analysis was based on the following legal conclusions: First, the benefit conferred by a financial contribution 
provided to the subsidized firm (which translates into increased profitability) is commensurate with the benefit conferred by that financial contribution on the  subsidized firm's owners (in the form of improved returns on the 
investment in the subsidized firm), so the existence of "benefit" should be based on an assessment of the benefit 
to the "recipient" (in the sense of the owners of  the subsidized firm and the subsidized firm together ); and 
second, the new owner of the subsidized firm has effectivel y paid for the value of the subsidy as part of the fair 
market price paid, so there can be no "benefit" remaining in the "recipient" owner-firm unit.  The second 
conclusion can only be valid where there has b een a complete sale of a subsidized firm; i.e., where new owners 
replace  old owners.  This is because, in the case of a "p artial" sale of a firm, the "recipient" in the above 
analytical framework would, presumably, be the subsidized producer plus the new owner plus the existing 
(selling) owner, as this existing owner would continue to  be an owner (although with a reduced interest in the 
firm) following the transaction.  From  the perspective of this "recipient" owner-firm unit, there would be no 
change in the net benefit when a new owner purchases a pa rt of a firm for fair market value because the fair 
market value paid by the new owner for its interest in the firm (a sum which would include a proportionate 
value of the subsidization) is paid to the selling owner and thus remains with the "recipient" owner-firm unit.  
Where there is a new issuance of shares in a subsidized fi rm, rather than the sale by an owner of less than all of 
its equity in a producer, the fair market value of the equity interests paid by new subscribers (a sum which, 
according to the analytical frame work adopted by the panel in US – Countervailing Measures on Certain EC 
Products , includes a proportionate value of the subsidization) is paid to the firm, and thus also remains with the 
"recipient" owner-firm unit. WT/DS316/R 
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  7.251  Moreover, certain of the transactions identifie d by the European Communities at paragraph 
7.204 were not transfers of ownership interests by a government, but by private persons.  The 
European Communities contends that the "extinction"  principle applies equally in the case of private-
to-private sales.  In particular, the European Comm unities refers to a statement by the Appellate Body 
in US – Countervailing Measures on Certain EC Products  that the fact that a sale is a privatization 
weakens  the conclusion that the benefit of prior subsidies is always extinguished, noting that while a 
conclusion that a benefit has been extinguished "may  be defensible in the context of transactions 
between two private parties taking place in reasonabl y competitive markets", it should not give rise to 
an irrebutable presumption in the context of a privatization.
2182  According to the European 
Communities, the Appellate Body's statement suggests th at in private-to-private sales, where it is less 
likely that the sale price could be influenced by th e seller's intervention in the market, an arm's-length 
sale for fair market value can be irrebutably presumed to extinguish the benefit of prior subsidies.   
7.252  We do not consider that this can be what the Appellate Body intended.  As we have already 
discussed, a principle that subsidies bestowed on a producer are extinguished whenever there is a 
change in ownership of the producer would poten tially eviscerate the subsidies disciplines of the 
SCM Agreement.  Moreover, we have difficulty u nderstanding, in the abstract, how a government's 
capacity to influence the market in which the sale of the subsidi zed producer occurs impacts the 
question of the continued existence of the "benefit"  conferred by a financial contribution previously 
provided to that producer.  The former pertains to  the question whether the sale transaction is actually 
for "fair market value" and thus whether any fi nancial contribution provided by the transaction in 
which the government sold its interest in the subs idized producer conferred a benefit on the purchaser.  
7.253  What arguably distinguishes privatizations fro m private-to-private sales, however, is the 
implications of a change from state to private ownership.  As the panel in US – Countervailing 
Measures on Certain EC Products  observed, a privatization is a ve ry particular and complex change 
in ownership, which involves a fundamental tran sformation of a government-owned and controlled 
entity into a privately-owne d, market-oriented company.2183  Following a privatization, there is no 
longer an identity (in a legal or economic sense) be tween the authority bestowing the subsidy on the 
producer, the owner of the subsidized producer and the subsidized producer itself.   
7.254  It may even be possible to characterize a priva tization as the "realization" by a Member of the 
market value of its "investments" in a partic ular enterprise.  We note that the panel in US – 
Countervailing Duties on Certain European Communities Products , recognized the unique nature of 
privatizations in this regard: 
"Furthermore, since the fair market value paid to the state-owned producer is deemed 
to include ( de facto ) the value of the advantage or benefit already received, the Panel 
considers that the privatization transaction for fair market value includes the repayment to the government of the subsidy as valued by the mark et at the time of 
privatization." 
2184  
7.255  We would, therefore, reject the European Co mmunities' argument that the reports of the 
panels and Appellate Body in US – Lead and Bismuth II  and US – Countervailing Duties on Certain 
European Communities Products  established a "principle" that an arm's-length, fair market value sale 
of all or part of a subsidized producer, whethe r by a government or private owner, presumptively 
extinguishes the benefit (or a portion thereof) conferre d by prior financial contributions provided to 
that entity.  Accordingly, we consider that there is no basis for finding that the transactions specified 
                                                      
2182 Appellate Body Report, US – Countervailing Duties on Certain EC Products, para. 124.     
2183 Panel Report, US – Countervailing Duties on Certain EC  Products , para. 7.60. 
2184 Panel Report, US – Countervailing Duties on Certain EC Products , para. 7.72.  WT/DS316/R 
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  in paragraph 7.204 of this Report extinguish or  otherwise reduce the "benefit" to Airbus SAS 
conferred by financial contributions provided  to Airbus Industrie or Airbus SAS.  
7.256  We now turn to the European Communities' rela ted argument, that the "extraction" of cash 
from a subsidy recipient can, in certain circumst ances, "extinguish" a portion of the "benefit" 
conferred by financial contributions  previously provided to the recipient, and the additional argument 
that such "extractions" nonetheless amount to the wi thdrawal of a subsidy pursuant to Articles 4.7 and 
7.8 of the SCM Agreement.  
(e) Extraction of benefit and withdrawal of subsidies 
(i) Introduction 
7.257  The European Communities argues that two trans actions that occurred in conjunction with the 
formation of EADS in 2000 had the effect of "e xtracting" or removing a portion of the benefit 
conferred by any financial contri butions that may have been provided to Dasa and CASA.  The 
European Communities also argues that the cash "extracted" as a r esult of these two transactions can 
be regarded as "withdrawals" of the equivalent va lue of previously provided subsidies for purposes of 
Articles 4.7 and 7.8 of the SCM Agreement. 
7.258  The transactions that involved the so-called "cash extractions" are (i) the retention by 
DaimlerChrysler, as shareholder of Dasa, of cash and cash equivalents immediately prior to the transfer by Dasa of its LCA-related assets and activities to EADS;
2185 and (ii) the retention by SEPI 
(as the shareholder of CASA) of cash and cash equi valents immediately prior to CASA's combination 
in EADS.2186  The so-called "extractions" formed part of the series of transactions leading to the 
combination of Aérospatiale-Matra, Dasa and CASA in 2000 to form EADS and were a consequence 
of the Airbus partners' agreement that the activ ities of Aérospatiale-Matra, Dasa and CASA in the 
aeronautics, space and defence sectors would be contri buted to EADS in return for shares representing 
agreed proportions of interests in EADS.2187 By way of background, the European Communities 
explains that the transactions occurred because the "value" of Dasa's LCA-related assets and 
                                                      
2185 The United States challenges the accuracy of the European Communities' assertion that the Dasa 
"cash extraction" amounted to EUR [***] ; US, Comments on EC's Answer to Panel Question 200, para. 207. 
The United States notes that the EADS Offering Memorandum states that, as part of the implementation of the 
agreements regarding the creation of EADS, "Dasa cash and cash equivalents"  of EUR 1,749 million were to be 
"retained by DaimlerChrysler"; Exhibit EC-24, pp. F-12 (Note G) and F-79.  According to the United States, the 
figure of EUR [***]  appears to be based on a description in the EADS Offering Memorandum of the internal 
reorganization of Dasa in which all of the assets and lia bilities of Dasa, other than certain excluded assets, were 
contributed to a Dasa subsidiary which Dasa would then contribute to EADS.  One group of "excluded assets" 
(i.e., assets retained by Dasa ) was "a cash amount of Euro 3,133 million"; Exhibit EC-24, p. 142. 
2186 According to the EADS Offering Memorandum, SEPI extracted an amount of EUR 340 million 
from CASA "by way of distribution of reserves and reduc tion of capital".   The cash extraction corresponding to 
CASA's shareholders other than SEPI amounted to EUR 2.45 million; EADS Offering Memorandum, dated 
9 July 2000, Exhibit EC-24, p. 143. 
2187 The legal steps through which the LCA operations conducted by the Airbus partners through 
Airbus Industrie were consolidated under EADS and then reorganized under Airbus SAS are set forth in  
Section VII.E.1 Attachment, following para. 7.289.  Although the European Communities refers to the 
"contribution of Dasa to EADS", the evidence before us indicates that the entity Dasa was not itself contributed 
to EADS.  Dasa remained a subs idiary of DaimlerChrysler and a shareholder  of EADS; EADS Offering 
Memorandum, dated 9 July 2000, Exhibit EC-24, p. 143.  Prior to the EADS combination, the LCA-related 
assets and activities of Dasa were reorganized into various subsidiaries, including (i) a subsidiary called 
DaimlerChrysler Aerospace Beteiligungs GmbH, which held 99.99 percent of the shar es in DaimlerChrysler 
Aerospace Airbus GmbH, which in turn held 37.9 percent of the membership rights in Airbus GIE; and (ii) a 
subsidiary called EADS Deutschla nd GmbH, to which various other assets and liabilities of Dasa were 
contributed.  These Dasa subsidiaries were then contributed to EADS.   WT/DS316/R 
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  activities, and of CASA, each as contributed to EADS , needed to reflect the corresponding percentage 
interests that DaimlerChysler and the Spanish government were to hold in EADS.
2188 As a result, 
DaimlerChrysler (as the shareholder of Dasa) and SEPI (as the shareholder of CASA) retained cash 
and cash equivalents of Dasa and CASA, respectively,  so that the adjusted values of the Dasa and 
CASA contributions to EADS reflected the respecti ve proportionate interests of DaimlerChrysler and 
the Spanish government in EADS ( i.e., 37.3 percent and 6.2 percent) that had been agreed upon by the 
Airbus partners.    
(ii) Arguments of the Parties 
European Communities  
7.259  The European Communities submits that an econom ically analogous situation to one in which 
the benefit or advantage conferred by a financial contribution is "extinguished" by the arm's-length, 
fair market value purchase of a subsidized producer , is where cash is "extracted" from a subsidized 
producer "in a manner that ensures that it is no longer used to advantage production in the industry at issue".
2189 In support of this argument, the European Communities submits that the decisions of the 
panels and Appellate Body in the US – Lead and Bismuth II  and US – Countervailing Measures on 
Certain EC Products  are founded on "economic common sense – that a company's value reflects the 
residual value of any subsidies it may have received"2190 and that, based on this proposition, where the 
residual value of a subsidy is removed from a compan y, the value of that subsidy is correspondingly 
reduced.2191  According to the European Communities: 
"In economic terms, the position of the entity from which cash is extracted is no 
longer improved in any sense by the prior subsidization.  As such, it no longer enjoys 
the enhanced ability to compete or to generate  returns for its shareholders.  Consistent 
with economic common sense, such 'cash ex traction' from a recipient such that it no 
longer enjoys prior advantage, is necessarily also a form of elimination of benefit within the meaning of the SCM Agreement."
2192 
7.260  The European Communities argues that the tr ansactions in which cash from Dasa and CASA 
was "extracted" by their respective shareholders (DaimlerChysler and SEPI) prior to the contribution 
of Dasa and CASA to EADS, "reduce any subsidy benefits in CASA and Dasa up to the full amount 
of the extraction".2193  According to the European Communities,  it is appropriate to regard those 
transactions as involving "value drawn away" from those entities and therefore cash retained by the 
shareholders of those entities for activities unrelat ed to LCA production. Specifically, the European 
Communities argues that (i) the extraction by DaimlerChrysler of [***]  from Dasa, by way of the 
retention of cash and cash equivalents;2194and (ii) the extraction by SEPI (the entity through which the 
Spanish government held its stake in CASA) of EUR 342 million from CASA, by way of distribution 
of reserves and reduction of capital,2195 reduced by a corresponding amount any subsidy "benefit" that 
Dasa and CASA, respectively, may have enjoyed as of July 2000.2196 
                                                      
2188 EC, FWS, paras. 253-254.         
2189 EC, FWS, para. 224. 
2190 EC, Answer to Panel Question 112, para. 317. 
2191 EC, Answer to Panel Question 112, para. 317. 
2192 EC, FWS, para. 225. 
2193 EC, FWS, para. 263. 
2194 As previously indicated, the United States considers the relevant amount to be only 
EUR 1,749 million; US, Comments on European Communities' Answer to Panel Question 200, para. 207. 
2195 A further EUR 2.4 million was retained and distributed to CASA's shareholders other than SEPI. 
2196 EC, FWS, para. 255.  WT/DS316/R 
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  7.261  The European Communities contends that, prio r to these transactions, DaimlerChrysler was 
the sole shareholder of Dasa, and the Spanish government (through its holding company SEPI) was 
the sole shareholder of CASA. According to th e European Communities, following the transactions, 
DaimlerChrysler and SEPI effectively became mi nority owners of the assets of Dasa and CASA 
respectively, because their interest s in those assets came to be held indirectly through their 
shareholding in EADS, which (from 2001 onwards) held interests in Airbus SAS, which in turn, held 
the interests in the LCA-related assets and activities of Dasa and CASA (as Airbus Deutschland and Airbus España, respectively).
2197  The European Communities cont ends that DaimlerChrysler and 
SEPI thus "had a strong disincentive to re-inject the extracted cash into EADS, because doing so 
would require that they share it with each other a nd all other EADS shareholders, rather than keeping 
it to themselves."2198 
7.262  In addition, the European Communities argues that  the repayment or "extraction" of a subsidy 
constitutes a withdrawal of a subsidy for purposes of  Articles 4.7 and 7.8 of the SCM Agreement.  
The European Communities contends that, although the Dasa cash extraction did not "repay" to the 
German government subsidies that had been provi ded to Dasa or Deutsche Airbus by the German 
government or other German government granting aut horities, the "benefit" of those subsidies has, 
nonetheless, been removed or taken away. The Eur opean Communities argues that such removal or 
taking away, while not a "repayment" as such, is a form of "withdrawal" of a subsidy under Articles 4.7 and 7.8 of the SCM Agreement.
2199   
7.263  On the other hand, the European Commun ities argues that the CASA "extraction" is clearly a 
repayment to the Spanish government of previously  conferred subsidies and therefore constitutes a 
withdrawal of those subsidies pursuant to Articles 4.7 and 7.8.2200  The European Communities 
contends that it does not matter whether the Span ish government specifically received the cash from 
CASA as the "repayment" of prior alleged subsidies as such ( i.e., in its capacity as grantor of those 
alleged subsides), or as a distribution of dividends ( i.e., in its capacity as a shareholder of CASA).  
According to the European Comm unities, "drawing subsidized va lue away from CASA still amounts 
to withdrawal of prior subsidies, because it amounts to "removing" or "taking away" the incremental contribution of alleged prior subsidies to the value of the company."
2201 
United States   
7.264  The United States argues that the European Commun ities' "extraction" theory is inconsistent 
with one of the basic tenets of the decisi ons of the panels a nd Appellate Body in US – Lead and 
Bismuth II  and US – Countervailing Measures on Certain EC Products , which is that subsidized 
entities and shareholders should ordinarily be cons idered as a single "recipient" for purposes of the 
SCM Agreement.  The United States contends that th e European Communities' argument that cash is 
removed from the subsidized entity when it is paid  to that entity's shareholder shows that the 
European Communities is actually treating the subsid ized entity and its shareholder as distinct from 
each other.2202  The United States contends that the European Communities' "unsubstantiated 
assertion" that the Spanish government and DaimlerC hrysler would have a strong disincentive, as 
minority shareholders in EADS, to re-inject the extr acted cash into EADS is insufficient justification 
for breaking the shareholder-company unit for purp oses of this aspect of the subsidy analysis.2203  
Moreover, the United States argues that accepting th e European Communities' argument would make 
                                                      
2197 EC, Answer to Panel Question 199, para. 242. 
2198 EC, Answer to Panel Question 199, paras. 241-243. 
2199 EC, Answer to Panel Question 200, para. 247. 
2200 EC, SNCOS, para. 6. 
2201 EC, Answer to Panel Question 200, para. 251. 
2202 US, Comments on EC Answer to Panel Question 199, para. 197. 
2203 US, Comments on EC Answer to Panel Question 199, para. 203. WT/DS316/R 
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  it a relatively simple matter to artificially "extr act" subsidies in connection with a non-arm's length 
sale of a company in which the selling shareholder retains a controlling interest.  This would be 
accomplished by the shareholder attributing more cas h to the subsidized entity before "extracting" 
it.
2204 
7.265  The United States also disputes the European Communities' assertion that the transfer of 
funds or other assets by the recipient of a subsidy to an entity other than the granting authority can 
constitute the "withdrawal" of the subsidy for pur poses of the SCM Agreement.  According to the 
United States, Articles 4.7 and 7.8 are not drafted in the passive voice; they do not require merely that the subsidies shall be withdrawn.  Rather, they require that the subsidizing Member  withdraw the 
subsidy in the sense that the "Member must affirm atively do something by "remov{ing}" or "taking 
away" the subsidy."
2205 
(iii) Evaluation by the Panel 
Cash "extractions" and the extinction of bene fits conferred by prior financial contributions  
7.266  The European Communities' argument that th e "extraction" of cash from Dasa and CASA 
prior to the contribution of those entities to EADS  extinguished a portion of the benefit conferred on 
Airbus SAS by financial contributions provided to those entities rests on the same approach to Article 5 of the SCM Agreement as the European Co mmunities' extinction argument; namely, that in 
order for a subsidy to be potentially capable of  causing adverse effects within the meaning of 
Article 5, a complaining Member must have demons trated that a subsidy which is found to exist 
additionally confers a present or "continuing" benefit on a recipient.  We have already indicated that 
we reject this approach to evaluating clai ms of adverse effects under Article 5 of the 
SCM Agreement.
2206  We consider our findings in this re gard sufficient to resolve the issue.  
Nonetheless, and in the interest of ensuring a posit ive resolution of this dispute in the event our 
findings are reversed on appeal, we consider it appropriate to make alternative findings on the 
European Communities' arguments that, in th e context of a claim under Part III of the 
SCM Agreement, the existence of a benefit conf erred by a financial c ontribution provided to a 
recipient may, under certain conditions, be extinguished  by a demonstration that the residual value of 
prior subsidization has been "extracted " from the subsidized  recipient.   
7.267  Accordingly, we set forth below our alternative findings on the basis of an interpretation of 
Article 5 that would require a complaining Member  to establish not only the existence of a subsidy 
pursuant to Article 1.1 of the SCM Agreement, but  also that the financial contribution confers a 
"present" or "continuing" benefit on the recipient, as  a prerequisite to demonstrating that a Member 
has caused, through the use of that subsidy, adverse effects to the interests of another Member.   
Alternative finding on cash "extractions"   
7.268  We therefore consider whether the cash and cash  equivalents retained by DaimlerChrysler 
and SEPI, the parent companies of Dasa and CASA, r espectively, prior to the combination of Dasa's 
                                                      
2204 US, Comments on EC Answer to Panel Question 199, para. 199.  The United States also notes that 
the European Communities' extraction theory offers no re ason why the value of the subsidies should be assumed 
to have been extracted (on a Euro for Euro basis) when ca sh is transferred to the shar eholder.  The United States 
notes that the European Communities' argument implicitly assumes that each Euro of cash extracted by 
DaimlerChrysler and CASA eliminates a Euro's worth of LCA subsidies, even though the value of Dasa and 
CASA prior to their contributions to EADS included more than the alleged subsidies they received ( e.g., 
retained earnings, non-subsidized contributions to capita l, appreciated assets); US, Comments on EC Answer to 
Panel Question 199, paras. 200-202. 
2205 US, Answer to Panel Question 222, para. 292. 
2206 See, paras. 7.194 - 7.200.  WT/DS316/R 
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  aerospace-related assets and activities, and the shares of CASA, in EADS, can be considered to have 
"removed the incremental contributi on of alleged prior subsidies to the value of" Dasa and CASA, and 
can be regarded as "extinguishing" the benefit to Airbus SAS conferred by prior financial 
contributions provided to Dasa and CASA.   
7.269  The European Communities does not argue that every time cash leaves a company for reasons 
other than expenditure on production ( e.g., through payments of divide nds to shareholders) it is 
appropriate to consider the benef it of prior financial contributions to that company to have been 
correspondingly diminished.  Indeed, the European  Communities posits that there are circumstances 
in which a cash extraction would not  remove the benefit of a subsidy; namely, where the cash 
distribution would have occurred in the absence of the subsidy, or where the distribution constitutes 
nothing more than a "transfer of resources between a company and its sole owner, forming an economic entity", especially where the owner does not have other businesses to which the benefit 
could be transferred.
2207   
7.270  While agreeing with the United States that mone y that is simply moved from the company to 
the owner's pocket has not really left the comp any-shareholder unit, the European Communities 
observes that the Appellate Body in US – Countervailing Measures on Certain EC Products  had 
rejected the panel's conclusion that, for pur poses of the benefit determination under the 
SCM Agreement, no distinction should be drawn between a company and its owners.2208 According to 
the European Communities, there may be instances where a shareholder's interest in a company 
changes to such an extent that, although it rema ins a shareholder, an extraction of cash from the 
company in favour of the shareholder "effectiv ely moves the money beyond the reach of the 
"company-shareholder unit.""2209  
7.271  We understand the European Communities to argue that, in order for a cash disbursement to 
reduce the benefit of prior financial contributions to  a company, (i) there must be a causal relationship 
of some sort between the cash "extraction" and the subsidy and (ii) the "extraction" must effectively 
move the money beyond the reach of the "company-shareholder unit".2210 We have difficulty 
accepting the proposition that a cash disbursement by a company reduces the benefit conferred by prior financial contributions to that company in the circumstances descr ibed by the European 
Communities.  However, even if we were to accept, arguendo , that the benefit conferred by prior 
financial contributions could be reduced or eliminat ed by "extractions" of cash in the circumstances 
suggested by the European Communities, we do not consider that the Dasa and CASA "extractions" 
fall within those circumstances, and we would ther efore reject the European Communities' arguments 
in any case.      
7.272  The European Communities argues, in accordan ce with the two requirements it posits as 
relevant to determining when subs idy benefits will be extinguished by  cash "extractions" that: (i) the 
incremental value of Dasa and CASA depended on th e alleged subsidies (and could not have been 
extracted in the absence of those alleged subsidi es); and (ii) the cash was removed from the company-
shareholder unit in both cases because the intere sts of both DaimlerChrysler and the Spanish 
government in EADS following the combination were as minority shareholders in a larger entity (in 
which they could be presumed to have a "strong disi ncentive" to re-inject the extracted cash).    
7.273  However, the European Communities has not pr ovided any evidence to substantiate its 
assertion that the incremental value of Dasa and CASA  could not have been extracted in the absence 
of the alleged subsidies.  We are unconvinced by  the European Communities' argument that, when 
                                                     
 
2207 EC, Answer to Panel Question 198, para. 236. 
2208 EC, Answer to Panel Question 199, para. 240.   
2209 EC, Answer to Panel Question 199, para. 241. 
2210 EC, Answer to Panel Question 199, para. 241. WT/DS316/R 
Page 356  
BCI deleted, as indicated [***] 
 
  cash was withdrawn from those entities in advance of their contribution to EADS, the payments 
"served necessarily to extract from the company any value it otherwise may have enjoyed, ensuring 
that any financial contribution at issue assuredly no  longer conferred a benefit within the meaning of 
Article 1.1 of the SCM Agreement."
2211  As the United States observes, this reasoning assumes that 
the "extracted" cash represented the subsidies prev iously provided to Dasa and CASA, rather than 
contributions to a company's cash position from other (non-subsidized) sources.2212 
7.274  As regards the second criterion, the European  Communities argues that DaimlerChrysler and 
the Spanish government extracted the cash from Dasa  and CASA while each was the sole shareholder 
of the relevant entity.2213  Moreover, the European Communities argues that after extracting the cash, 
DaimlerChrysler and the Spanish government each sold the remaining assets of Dasa and CASA to 
EADS and "were no longer the sole shareholders of those assets".2214  The European Communities 
contends that as minority shareholders of EADS (with DaimlerChrysler owni ng 30 percent of EADS 
and the Spanish government owning 5.5 percen t of EADS), DaimlerChrysler and the Spanish 
government had a "strong disincentive to re-inject  the extracted cash into  EADS, because doing so 
would require that they share it with each other a nd all other EADS shareholders, rather than keeping 
it to themselves."2215   
7.275  We consider this to be an incomplete and inaccurate assessment of the economic realities of 
the two transactions. Although the European Co mmunities characterizes DaimlerChrysler as a 
"minority shareholder" in EADS following the co ntribution of Dasa's aerospace-related assets and 
activities to EADS, DaimlerChrysler and a grouping of  the French government, Lagardère and French 
financial institutions were to jointly control EADS  through a contractual partnership, to which the 
Spanish government, through SEPI, was also a party.2216  The former "owners" of the aeronautics-
related assets and activities of Dasa and CASA ( i.e., DaimlerChrysler and the Spanish government, 
respectively), were to jointly control the ne w "owner" of those assets and activities (EADS and 
subsequently Airbus SAS) through the EADS cont ractual partnership, to which both Dasa and SEPI 
were parties.2217 Although the EADS transaction altered the legal ownership of the aeronautics-related 
assets and activities of Dasa and CASA, it was structur ed so as to maintain the overall interests of 
DaimlerChrysler and th e Spanish government in Airbus Industrie as a whole .2218  Therefore, 
considered from the perspective of the economic un it engaged in the production of Airbus LCA, we 
reject as a factual matter the assertion that the cash "extractions" by DaimlerChrysler and the Spanish 
government moved the cash out of the "company-shareholder unit".   
                                                      
2211 EC, Answer to Panel Question 112, para. 320. 
2212 US, SWS, para. 542. 
2213 As a factual matter, the evidence presented to us indicates that the Spanish government was not the 
sole shareholder of CASA.  At the time of the EADS tr ansaction, Dasa owned 0.71 percent of the shares in 
Casa, which it contributed to EADS; EADS Offering Memorandum, 9 July 2000, Exhibit EC-24, page. 142. 
2214 EC, Answer to Panel Question 199, para. 242.  We assume that the European Communities uses the 
term "assets" in a general sense to refer to the LCA- related assets and operations of Dasa and CASA.  The 
evidence before us indicates that th e Spanish government exchanged its shares in CASA (not assets of CASA) 
for shares in EADS, while Dasa (rather than DaimlerC hrysler) contributed shares in Dasa's reorganized 
subsidiaries and Dasa's shareholding in CASA to EADS in exchange for shares in EADS; EADS Offering 
Memorandum, 9 July 2000, Exhibit EC-24, page. 140. 
2215 EC, Answer to Panel Question 199, para. 243. 
2216 EADS Offering Memorandum, 9 July 2000, Exhibit EC-24, pp. 132-133. 
2217 See,  Section VII.E.1 Attachment, following para. 7.289. 
2218 Rather than holding and exercising their membership  interests in Airbus Industrie directly through 
subsidiaries such as Dasa and CASA, DaimlerChrysle r (through Dasa) and the Spanish government (through 
SEPI) were members of a contractual partnership that exercised voting rights in respect of 65.48 percent of the outstanding shares of EADS.  As a practical matter, the nature of control that DaimlerChrysler and the Spanish 
government exercised over the LCA activities of Airbus  through EADS was substantially the same as the 
control that they had previously exercised over the LCA activities of Airbus as members of the Airbus Industrie 
consortium.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  7.276  Thus, even assuming arguendo  that a cash disbursement by a subsidy recipient could 
potentially reduce the benefit conferred by prior fina ncial contributions to that recipient under the 
conditions specified by the European Communities,  we do not consider that the Dasa and CASA 
"extractions" satisfy those conditions. As a resu lt, we would ultimately reject the European 
Communities' "extraction" arguments even if we were to accept the European Communities' more 
general arguments as to the conditions under whic h the benefit conferred by prior financial 
contributions provided to a subsidized producer could be reduced  or eliminated by "extracting" cash 
from that producer.   
7.277  It is not necessary for us to decide on the mer its of the European Communities' more general 
arguments as to whether, and if so, the conditio ns under which, the benefit conferred by prior 
financial contributions provided to a subsidized prod ucer could be considered to have been reduced or 
eliminated by "extracting" cash from that entity.  However, we make the final observation that in US – 
Countervailing Measures on Certain EC Products , the Appellate Body acknow ledged that a financial 
contribution provided to the owners of a firm ma y nonetheless confer a benefit upon the manufacture, 
production or export of any merchandise, as pr ovided for in Article VI:3 of the GATT 1994.2219 This 
being so, it is difficult to see how a firm could eliminate a subsidy simply by transferring funds to its owners.
2220   
Cash "extractions" and the "withdrawal" of subs idies within the meaning of Articles 4.7 and 
7.8 of the SCM Agreement  
7.278  We now consider whether the cash and cash e quivalents retained by DaimlerChrysler and 
SEPI, respectively, prior to the combination of Dasa 's aerospace-related assets  and activities, and the 
shares of CASA, in EADS, can be treated as being e quivalent to the "withdrawal" of  subsidies to 
Dasa or CASA within the meaning of Articles 4.7 and 7.8 of the SCM Agreement.2221 
7.279  In relation to the so-called "extraction" of  cash from Dasa which the European Communities 
contends is equivalent to the withdrawal of a subs idy, we note that the cash and cash equivalents were 
retained by DaimlerChrysler ( i.e., Dasa), and were not transferre d to the German government.  The 
European Communities indicates that it is not arguing  that the cash "extraction" by DaimlerChrysler 
constitutes the "repayment" of subsidies grante d to Dasa and Deutsche Airbus by the granting 
authority; i.e., the German government.2222  However, the European Communities contends that there 
are circumstances in which the transfer of funds or  other assets by the recipient of a subsidy to an 
entity other than the granting authority  could nevertheless constitute "withdrawal" of the subsidy for 
purposes of the SCM Agreement.2223  Such circumstances would include, the European Communities 
contends, distributions of cash from a previously-subs idized firm to the owners of that firm, provided 
the transfer results in the removal of the "incre mental value contributed to the recipient by the 
subsidy."2224 
7.280  According to the United States, "withdrawal " of a subsidy requires the subsidizing Member  to 
affirmatively act to remove or take away the s ubsidy.  The United States notes that, although the Panel 
in Australia – Automotive Leather II (Article 21.5 – US)  found that repayment of a subsidy by the 
recipient was one way to "effectuate withdrawal of the subsidy by a subsidizing Member", the 
                                                      
2219 Appellate Body Report, US – Countervailing Measures on Certain EC Products , para. 115. 
2220 In this regard, the United States observes, correctly in our view, that to find that subsidies are 
"extracted" by a transfer of money from a subsidized fi rm to its owner would be to create opportunities for the 
laundering of subsidies; US, SWS, para. 549. 
2221 EC, FWS, paras. 253-254; EC, Answer to Panel Question 200, paras. 248-249. 
2222 European Communities, confidential oral statement at the second meeting with the Panel 
("EC, SCOS"), para. 5. 
2223 EC, Answer to Panel Question 222, para. 558. 
2224 EC, Answer to Panel Question 222, para. 559. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  "repayment" in question was a payment back to  the granting government, with the government 
providing nothing in return.
2225  The United States notes also that its interpretation of "withdraw" for 
purposes of Article 4.7 and 7.8 does not exclude other ways in which Members may come into compliance with the SCM Agreem ent; for example, under 7.8 of the SCM Agreement, a Member 
whose use of subsidies has been found to cause adve rse effects may also "take appropriate steps to 
remove the adverse effects."  In addition, the Unite d States contends that the sale of a subsidized 
entity at arm's length for fair market value involving a ll or substantially all of the entity could result in 
the "extinction" of subsides, and thus be a situa tion which would "obviate the need for a Member to 
take further action to come into complia nce with its SCM Agreement obligations."
2226 
7.281  The "withdrawal" of a subsidy is the remedy  envisaged by Article 4.7 (in relation to 
prohibited subsidies) and one of two possible re medies available under Article 7.8 (in relation to 
actionable subsidies).  In Australia – Automotive Leather II (Article 21.5 – US ), the Panel found that a 
recommendation to "withdraw the subsidy" provided fo r in Article 4.7 of the SCM Agreement is not 
limited to prospective action, and may enco mpass repayment of the prohibited subsidy.2227 
7.282  In Brazil – Aircraft (Art. 21.5 – Canada) , the Appellate Body analysed the meaning of the  
term "withdraw" in Article 4.7 of the SCM Agreement as follows: 
"{W}e observe first that this word has been  defined as "remove", or "take away", and 
as "to take away what has been enjoyed; to  take from."  This definition suggests that 
"withdrawal" of a subsidy, under Article 4.7 of the SCM Agreement, refers to the "removal" or "taking away" of that subsidy.
2228 
In Australia – Automotive Leather II (Article 21.5 – US) , the Panel determined that the ordinary 
meaning of "withdraw the subsidy" in Article 4.7 could encompass "taking away" or "removing" the financial contribution that had been fou nd to give rise to a prohibited subsidy.
2229 
 7.283  We do not consider it necessary to address in detail the United States' arguments as to 
situations that would constitute the "withdrawal" of  a subsidy for purposes of Articles 4.7 and 7.8 of 
the SCM Agreement.  We are not persuaded by  the European Communities' contention that a 
"withdrawal" of a subsidy could arise where a previously subsidized firm distributes cash to its owners provided  the transfer results in the removal of the "incremental value contributed to the 
recipient by the subsidy".   In any case, we do not consider that, as a factual matter, the Dasa cash "extraction" can be said to have "removed the in cremental value" of subsidies granted to Dasa and 
therefore Airbus Industrie.  As discussed earlier,  given the circumstances surrounding the contribution 
of the LCA-related assets and activities of Dasa to  EADS, and more particularly, the relationship 
between DaimlerChrysler, Dasa and Airbus Industrie prior to the "extraction", and DaimlerChrysler, 
Dasa, and EADS, immediately following the "extr action" and EADS contributions, we can see no 
basis for concluding that the "incremental value" of  any subsidy granted to Dasa and therefore Airbus 
Industrie was removed by the cash "extraction". 
                                                     
 
2225 US, Answer to Panel Question 222, para. 293. 
2226 US, Answer to Panel Question 222, para. 292, footnote 382. 
2227 Panel Report, Australia – Subsidies Provided to Producers and Exporters of Automotive Leather, 
Recourse to Article 21.5 of the DSU by the United States ("Australia – Automotive Leather II (Article 21.5 – US) "), 
WT/DS126/RW and Corr.1, adopted 11 February 2000, DSR 2000:III, 1189, para. 6.39. 
2228 Appellate Body Report, Brazil – Export Financing Programme fo r Aircraft – Recourse by Canada to 
Article 21.5 of the DSU ("Brazil – Aircraft (Article 21.5 – Canada)") , WT/DS46/AB/RW, adopted 4 August 2000, 
DSR 2000:VIII, 4067, para. 45. 
2229 Panel Report, Australia – Subsidies Provided to Producers and Exporters of Automotive Leather 
("Australia – Automotive Leather II") , WT/DS126/R, adopted 16 June 1999, DSR 1999:III, 951 , para. 6.27.  WT/DS316/R 
 Page 359 
 
BCI deleted, as indicated [***] 
 
  7.284  We also reject the European Communities' withdr awal argument as regards the cash and cash 
equivalents retained by SEPI (as shareholder of CA SA) prior to the contribution of CASA to EADS.  
The European Communities has acknowledged that a tran sfer of funds to a granting authority by the 
recipient of a subsidy should not  be considered to be the "repayment" or withdrawal of a subsidy 
where: (i) "a granting authority provides something of  equal value in exchange for cash or other assets 
from the recipient of a subsidy"; or (ii) the granti ng authority owns the subsidized entity and has not 
"left the company-shareholder unit".2230   We consider that the CASA cash extraction clearly falls 
within both of the specific circumstances that the Eu ropean Communities has itself identified as not  
resulting in the withdrawal of a subsidy fo r purposes of Articles 4.7 or 7.8.     
7.285  First, the so-called "extraction" of  EUR 340 million from CASA was made by SEPI in return 
for a reduction in the equity of CASA (in order to value CASA appropriately for purposes of its 
combination into EADS).  In other words, the Spanish government (through SEPI) "provided something of equal value" ( i.e., the reduction of capital in its subs idiary CASA) in exchange for the 
cash from CASA.  Second, based on the circumstan ces of the consolidation of the French, German 
and Spanish Airbus partners under EADS (in whic h SEPI continued to exercise the same control 
through the contractual partnershi p controlling EADS as it did through its membership interest in 
Airbus GIE held by CASA) we do not regard th e "extracted" cash as having "left the company-
shareholder unit" in any economically meaningful sense. 
(f) Conclusion 
7.286  In summary, for purposes of our assessment of the United States' claims under Article 5 of the 
SCM Agreement, we consider Airbus SAS to be the same producer of Airbus LCA as the consortium 
Airbus Industrie.  We do not consider it necessary for the United States to affirmatively demonstrate 
the "pass-through" to Airbus SAS of the benefit conf erred by financial contributions that had been 
provided to Airbus Industrie (incl uding the Airbus partners and Air bus GIE and their affiliates) prior 
to 2001 in order to make out a prima facie  case under Article 5 of the SCM Agreement.   
7.287  Nor do we consider it necessary for the United States to demonstrate the "continuity" of 
benefits conferred by prior financ ial contributions provided to Airbus Industrie or Airbus SAS as a 
prerequisite to establishing that the European Communities has caused, through the use of a subsidy 
referred to in paragraphs 1 and 2 of Article 1, adverse effects to the interests of the United States, 
pursuant to Article 5 of the SCM Agreement.   
7.288  We therefore reject the European Communities' arguments (i) that the benefits conferred by 
certain financial contributions provi ded to Airbus Industrie or Airbus SAS have been extinguished by 
the series of allegedly arm's-length, fair market valu e transactions set forth in paragraph 7.204 of this 
Report; and (ii)  that the so-calle d "extractions" of cash and cash equivalents of Dasa and of CASA, 
by DaimlerChrysler and SEPI, respectively, effect ively extinguished a portion of the benefits 
previously conferred by financial contributions  that had been provided to Dasa and CASA.  
7.289  Finally, we reject the European Communities'  argument that the retention of cash and cash 
equivalents of Dasa and CASA, by DaimlerChrysler and SEPI, respectively, constituted a "withdrawal" or "repayment" of subsidies previously  provided to those entities within the meaning of 
Articles 4.7 and 7.8 of the SCM Agreement. 
                                                     
 
2230 EC, Answer to Panel Question 222, para. 560. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  SECTION VII.E.1 ATTACHMENT:  CORPORATE HISTORY OF AIRBUS 
 
1. The Airbus Industrie  consortium: 1970 - 2000
2231 
 1. From its inception in 1970 until the creation of Airbus SAS in 2001, the "Airbus companies" 
were organized as a consortium of national European aerospace manufacturers. The Airbus consortium (Airbus Industrie) was originally established in 1970 as a  Groupement d'intérêt 
économique  (Airbus GIE) between the French aerospace manufacturer, Aérospatiale  Société 
Nationale Industrielle (Aérospatiale)
2232 and the German aerospace manufacturer, Deutsche Airbus 
GmbH (Deutsche Airbus).2233  The Spanish aerospace manufacturer, Construcciones Aeronáuticas 
S.A. (CASA) became a member of Airbus Industrie in 1971.2234 British Aerospace Corporation, a 
United Kingdom aerospace manufacturer, sub sequently joined the consortium in 1979.2235   
 2. Airbus Industrie was registered under French law as a " Groupement d'intérêt économique " 
(GIE) which is a French legal framework that allo ws its members to carry out collectively certain 
                                                     
 
2231 For purposes of the following discussion, the term "Airbus Industrie" refers to the Airbus 
consortium; i.e., Airbus GIE and the Airbus partners collectivel y.  Where we refer to the legal entity Airbus 
GIE, separately from the Airbus partners, we use the term "Airbus GIE". 
2232 Aérospatiale was founded in 197 0 through the merger of three French aeros pace companies, Sud 
Aviation, Nord Aviation and Société d'Etudes et de Réalisation d'Engins Balistiques.  It was owned directly and indirectly by the French government until its merger  with Matra Hautes Technologies in 1998 to form 
Aérospatiale-Matra S.A. (Aérospatiale-Matra).   The French government sold a portion of its shares in 
Aérospatiale-Matra in a public offering in 1999.  In 20 00, Aérospatiale-Matra joined  with Dasa and CASA to 
form EADS.  In connection with the formation of Airbus SAS in 2001, the LCA business of Aérospatiale-Matra 
was transferred to an Airbus SAS subsidiary, Airbus France SAS.  Therefore, from 1998 until its liquidation in 
2001, the French Airbus partner was Aérospatiale-Matra S.A. (Aérospatiale-Matra); EC, FWS, paras. 52-53. 
2233 Deutsche Airbus was founded in 1967 to assume work for the development of a European 
widebody aircraft that had originally begun in 1965 as a joint venture among five German companies: Blohm-Hamburger Flugzebau GmbH, Messerschmitt AG, Vereinigte Flugtechnische Werke (VFW), Siebel and 
Dornier.  By 1969, the first three of these companie s had merged to form Messerschmitt-Bölkow-Blohm GmbH 
(MBB); Exhibit EC-26.  MBB originally held 60 percent of the interests in Deutsche  Airbus, with Dornier and 
VFW each holding 20 percent.  MBB took over VFW in 1 981.  Prior to Daimler-Benz AG acquiring control of 
MBB in 1989, the German federal states of Bavaria, Hamburg and Bremen held 52.3 percent of the capital stock 
of MBB; Monopolkommssion Report, Exhibit US-30, para. 138. In late 1989, as part of the German 
government's plans to restructure Deutsche Airbus, Daimler-Benz A.G. acquired control of MBB by merging its 
subsidiary Deutsche Aerospace AG (Dasa) with MBB. Deutsche Airbus has been a wholly owned subsidiary of 
Dasa since 1992.  In 2000, Dasa merged with Aérospatiale-Matra and CASA to form EADS.  In 2001, EADS transferred Dasa's LCA operations to an Airbus SAS subsidiary, Airbus Deutschland GmbH; EC, FWS, 
paras. 54-56. 
2234 CASA was founded in 1923 and was Spain's la rgest aerospace and defence manufacturer.  CASA 
was 99 percent owned by Sociedad Estatal de Participaciones Industriales (SEPI), a Spanish government 
holding company entrusted with the management and privatisation of certain Spanish government controlled 
companies.  In 2000, CASA was merged into the E ADS structure.  In 2001, CASA's LCA activities were 
transferred to an Airbus SAS subsidiary, Airbus España SL; EC, FWS, paras. 57-58. 
2235 British Aerospace Corporation was fo rmed in 1977 as a Crown corp oration without shares, wholly 
owned by the United Kingdom government.  Its formation was the result of the merger of the United Kingdom 
aerospace companies Hawker Siddeley Aviation Ltd, Ha wker Siddeley Dynamics Ltd, Scottish Aviation Ltd 
and the British Aircraft Corporation (Holdings) Ltd. In 1981, the assets  and business of the British Aerospace 
Corporation were transferred to the newly incorporat ed British Aerospace PLC, a United Kingdom publicly 
limited company.  The United Kingdo m government sold 51.57 percent of  its shares in British Aerospace PLC 
in a public offering in 1981 and, subject to retaining a share to ensure that the company remained under United Kingdom control, sold the remainder of its shares in British Aerospace PLC in 1985.  In 1999, British 
Aerospace PLC merged with Marconi Electronic Systems to become BAE Systems PLC (BAE Systems).  In 
2001, BAE Systems placed its LCA business into Airbus  UK Limited in exchange for a 20 percent share in 
Airbus SAS; EC, FWS, paras. 59-61.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  economic activities while maintaining their separate legal identities, and which does not have as its 
goal the retaining of profits.  A GIE has a separ ate legal personality from its members, although in 
other respects, it resembles a partnership.  For exampl e, the sharing of Airbus Industrie's  profits and 
losses among the Airbus partners is based on their membership rights.2236  Through this partnership 
arrangement, the Airbus partners in France, Germany, Spain and the United Kingdom produced 
specific parts of Airbus LCA, which were then assembled in France by Aérospatiale.2237  The entity 
Airbus GIE did not carry out any production activities;  rather, it coordinated the production efforts of 
the Airbus partners, allocated revenues and profits  to each of the partners and assumed responsibility 
for areas such as marketing, sales, aircra ft delivery and customer service.   
 
3. Between 1979 and 2000, the four members of Ai rbus Industrie (hereafter,  the Airbus partners) 
held the following interests in the Airbus Industrie  consortium (directly or indirectly, through various 
entities incorporated in the jurisdictions of the Ai rbus partners):  Aérospatiale (37.9 percent); 
Deutsche Airbus AG (37.9 percent); CASA (4.2 percent); and British Aerospace PLC (20 percent).2238  
The structure of Airbus GIE from 1979 until 2000  is illustrated in the diagram below.  
 
 
Corporate structure of Airbus  Industrie from 1979 to 20002239 
 
 
 
    
 
     
                                                     
 
2236 See, GATT Panel Report, German Exchange Rate Scheme for Deutsche Airbus  ("EEC – Airbus "), 
4 March 1992, unadopted, SCM /142, para. 2.6. 
2237 By 1999, Aérospatiale was the partner responsible for flight control systems, cockpits, power plant 
integration, ground and flight testing, complex structural sections, equipped subassemblies and technical 
publications.  DASA produced the major fuselage sections containing hydraulic equipment, secondary flight control systems, wing assemblies and commercial furnishing, as well as equipping the wings furnished by BAE 
Systems.  DASA also carried out final assembly of A321  and A319 aircraft, as well as some cabin outfitting and 
customization of the cabins of the A300/A310 and the A320 family.  BAE Systems was the partner in charge of the wings for the entire Airbus product line, and equipped wings for the A320 family by installing hydraulic, 
electrical and environmental control system hardware.  CASA's role in the Airbus consortium was to produce 
the carbon fibre horizo ntal tails used in all Airbus aircraft, includ ing integrated fuel tanks.  CASA also designed 
fuselage panels and interior panels for the A320 family and produced nose and landing gear doors for the 
A300/A310 family and passenger doors for the A330/A340 family ; see  Aérospatiale-Matra Offering 
Memorandum, 25 May 1999, Exhibit EC-53, pp. 90-91. 
2238 Two other European aerospace comp anies, Fokker and Belairbus, pa rticipated in certain Airbus 
programmes as associated manuf acturers, although they did not become partners in Airbus GIE. 
2239 In 1998, Aérospatiale merged with Matra Hautes  Technologies to form Aérospatiale-Matra S.A.; 
see footnote 2054.  In 1989, Daimler-Benz acquired control of Deutsche Airbus' parent company, MBB; see 
footnote 2055.  In 1999, British Aerospace merged with Marconi Electronic Systems to become BAE Systems; 
see footnote 2057. Aérospatiale 
37.9% Deutsche Airbus 
37.9% CASA 
4.2% British Aerospace 
20% 
 
Airbus GIE WT/DS316/R 
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  2.   Consolidation of the activities of the Airbus partners under EADS in 2000 
 
4. In July 2000, the French, German and Spanis h Airbus partners merged their activities in the 
aeronautic, space and defence sectors by contributing all of the shares of the subsidiaries of 
Aérospatiale-Matra and Dasa, respectively, and al l of the shares of CASA, to the newly formed 
European Aeronautic Defence and Space Company EADS N.V. (EADS), a public limited liability 
company ( naamloze vennootschap ) organized under the laws of the Netherlands.
2240 Prior to these 
contributions, Aérospatiale-Matra  and Dasa had each conducted in ternal reorganizations of the 
subsidiaries in which they held the assets and lia bilities related to their Airbus-related and non-
Airbus-related activities.2241  The contributions were made in exch ange for shares in EADS issued in 
proportion to the relative values of the respective contributions of Aérospatiale-Matra, Dasa and 
SEPI.2242 Immediately following these transactions, approxima tely 60 percent of the share capital of 
EADS was held in equal proportions  by DaimlerChrysler and SOGEADE,2243 which jointly controlled 
EADS through a Dutch law contractual partnership.2244   
 
5. Immediately following these transactions, EADS owned all of the subsidiaries of 
Aérospatiale-Matra and Dasa that had previously conducted the Airbus-related design, engineering, 
manufacturing and production activities located in France and Germany, and all of the shares of former Spanish Airbus partner, CASA.  EADS also  held (through its subsidiaries) the membership 
interests in Airbus GIE that had previously been held by Aérospatiale-Matra, Dasa and CASA.  EADS 
in turn, was controlled, through a contractual partne rship, by the former owners of Aérospatiale-
Matra, Dasa and CASA. BAE Systems continued to  hold its 20 percent interest in Airbus GIE. 
 
                                                     
 
2240 Shares of EADS are listed on the Paris, Frankfurt and Spanish Stock Exchanges.   
2241 Aérospatiale Matra Airbus was the Aérospatiale-Mat ra subsidiary which held Aérospatiale Matra's  
Airbus-related assets and liabilities, including its 37.9 percent membership interest in Airbus GIE.  Other Aérospatiale-Matra subsidiaries held assets that were no t related to Aérospatiale-Matra's LCA activities, such as 
Aérospatiale-Matra's helicopter, defen ce, space transport, satellite and tel ecommunications businesses.  Dasa's 
Airbus-related activities had been grouped into a subsidiary called DaimlerChrysler Aerospace Airbus Beteiligungs GmbH, which held a 99.99 percent of the shares of DaimlerChrysler Aerospace Airbus GmbH, 
which in turn held a 37.9 percent membership interest in Airbus GIE.  Dasa separately  held a direct 0.71 percent 
interest in CASA, which it also contributed to EADS pursuant to the combination transactions.  Assets and 
liabilities relating to activities other than the Airbus-related activities were grouped into other Dasa subsidiaries, 
with the exception of (i) liabilities relating to Dornier airc raft; (ii) all claims and liabilities relating to the Fokker 
group; (iii) Dasa AG's participating interests in MT U, Temic Telefunken microelectronic GmbH and debis 
AirFinance B.V.; and (iv) a cash amount of Euro 3,133 million; EADS Offering Memorandum, 9 July 2000, 
Exhibit EC-24, pp. 140-144. 
2242 Aérospatiale-Matra was subsequently wound up, so  that the EADS shares issued to Aérospatiale-
Matra were distributed by Aérospatiale-Matra to its ow n shareholders simultaneously with the liquidation of 
Aérospatiale-Matra on the basis of one EADS share for every one Aérospatiale-Matra  share.  Simultaneously 
with these transactions, EADS issued shares, and the French government, Lagardère and the French financial 
institutions BNP PARIBAS and AXA sold  EADS shares, in a public offering; EADS Offering Memorandum, 
9 July 2000, Exhibit EC-24, pp. 140-144. 
2243 Société de gestion de l'aéronautique, de la défense et de l'éspace (SOGEADE) is a French 
partnership limited by shares ( société en commandite par actions ). SOGEADE is 50 percent owned by the 
French government (through a French government-owned holding company, Société de Gestion de Participations Aéronautique (SOGE PA)) and 50 percent owned by Lagardère Group; EADS Offering 
Memorandum, 9 July 2000, Exhibit EC-24, pp. 137-138.   
2244 SEPI's voting rights in respect of its 5.48 percent interest in EADS were also exercised through this 
contractual partnership; EADS Offering Memorandum, 9 July 2000, Exhibit EC-24, p. 132.  WT/DS316/R 
 Page 363 
 
BCI deleted, as indicated [***] 
 
  6. The ownership structure of EADS, and of th e former Airbus partners and Airbus GIE, 
immediately following these transactions is represented below.2245 
  
 
                                                     
 
2245 EADS Offering Memorandum, 9 July 2000, Exhibit EC-24, p. 132.  The portion of the diagram 
illustrating the ownership interests in Airbus GIE is comp iled from information presented in the EADS Offering 
Memorandum, 9 July 2000, Exhibit EC-24, at pp. 38, 65, 74, 141 and 142. Daimler 
Chrysler
 
Public 
BAE Systems 93.83% French 
State Lagardère BNP PARIBAS 
and AXA Spanish 
State 
Désirade 
SOGEADE SEPI Dasa SOGEPA 
Contractual 
Partnership 
 
EADS 
Aérospatiale 
Matra Airbus DaimlerChrysler 
Aerospace Airbus 
Beteili gungsCASA 
DaimlerChrysler 
Aerospace Airbus
 
Airbus GIE 50% 
1.14% 74% 
 
50% 
30% 26% 
5.48% 
65.48% 30% 
2.73% 
30.65% 
37.9% 99.9% 
37.9% 4.2% 20% WT/DS316/R 
Page 364  
BCI deleted, as indicated [***] 
 
  3. Termination of Airbus Industr ie and integration of the activities of Airbus Industrie in 
Airbus SAS in 2001 
 
7. In 2001, EADS and BAE Systems placed their Airbus-related design, engineering, 
manufacturing and production activities located in France, Germany, Spain and the United Kingdom 
(organized into French, German, Spanish and Britis h operational companies, respectively), and all of 
their membership rights in Airbus GIE, under the common control of a newly-created holding company, Airbus SAS, a société par actions simplifiée  under French law. EADS held an 80 percent 
interest in Airbus SAS (and had effective contro l over its operations) while BAE Systems, with the 
remaining 20 percent interest, enjoyed specific minority rights. Finally, in October 2006, EADS 
purchased BAE Systems' 20 percent interest in Air bus SAS, so that Airbus SAS became a wholly 
owned subsidiary of EADS.  
Corporate structure of Airbus SAS from 2001 to 2006
 
 
 
 
Corporate structure of  Airbus SAS since 2006  
 
  
EADS  
BAE Systems
Airbus SAS 80%   20%
 
Airbus 
France 
SAS  
Airbus 
Deutschland 
GmbH  
Airbus 
España 
SL  
Airbus  
UK 
Limited 
 
EADS 
 
Airbus 
France 
SAS  
Airbus 
Deutschland 
GmbH  
Airbus 
España 
SL  
Airbus  
UK 
Limited  
Airbus SAS 100% WT/DS316/R 
 Page 365 
 
BCI deleted, as indicated [***] 
 
  2. Launch Aid / member State Financing 
(a) Introduction 
7.290  The United States challenges a form of LCA de velopment funding, which it calls "Launch 
Aid" ("LA"), allegedly provided by four member States of the European Communities  to Airbus over 
a period of 37 years from 1969 to 2006.  According to the United States, LA is a form of highly 
preferential financing that amounts to a specific subs idy within the meaning of Articles 1 and 2 of the 
SCM Agreement.  The United States challenges the a lleged provision of LA for the development of 
seven different models and three variants of Ai rbus LCA, as well as an alleged LA Programme 
implemented by the same EC member States.  The alleged product-specific LA measures that are the 
subject of the United States' complaint are:  
(i) LA for the A300, as evidenced by inter alia, the - 
Agreement of 29 May 1969 between the Govern ment of the Republic of France and the 
Government of the Federal Republic of German y regarding the realization of the Airbus 
A-300-B ("1969 A300 Agreement");2246  
 
Agreement of 23 December 1971 between the Gove rnments of the Spanish State, the French 
Republic, the Federal Republic of Germany, a nd the Kingdom of the Netherlands concerning 
the realization of the Airbus A300B ("1971 A300 Agreement");2247 
 
(ii) LA for the A310, as evidenced by inter alia, the - 
Agreement between the Governments of the Federal Republic of Germany, the French 
Republic, the United Kingdom of Great Britain and Northern Ireland, and Spain concerning 
the Airbus programme (the "1981 A310 Agreement");2248 
 
(iii) LA for the A320, as evidenced by inter alia, the - 
                                                      
2246 Exhibit US-11. 
2247 Exhibit EC-992 (BCI).  Other documents evidencing LA/MSF for the A300 include: (i) 29 separate 
Agreements, Protocols and Conventions, and amendments thereto, between the French government and 
Aérospatiale, Exhibit EC-603 (BCI); and (ii) 16 separate Contracts and amendments thereto, between the Spanish government and Construcciones Aeronáuticas S. A., Exhibit EC-605 (BCI).  Initially, the European 
Communities submitted a series of (German language) contr acts, and amendments thereto, entered into between 
the German government and Deutsche Airbus GmbH, in respect of LA/MSF granted for the A300.  Because of 
the amount of time the European Communities alleged it would take to translate all 661 pp. of these documents 
into English, the Eu ropean Communities with drew its original submission and replaced it with a shorter "model 
contract".  EC Letter to the Panel of 15 May 2007.  We understand the contract contained in this new Exhibit (EC-601 (BCI)) to be representative of the German  LA/MSF contracts for the A300, including relevant 
amendments. 
2248 Exhibit EC-942 (BCI).  Other documents evidencing LA/MSF for the A310 include: (i) 10 separate 
Protocols and Conventions between the French government and Aérospatiale, Exhibit EC-604 (BCI); and (ii) 
eight separate Contracts and amendments thereto, between the Spanish government and Construcciones Aeronáuticas S.A., Exhibit EC-606 (BCI).  Initially, the European Communities submitted a series of (German 
language) contracts, and amendments thereto, entered into between the German government and Deutsche 
Airbus GmbH, in respect of LA/MSF granted for the A3 10.  Because of the amount  of time the European 
Communities alleged it would take to translate all 357 pp. of these documents into English, the European 
Communities withdrew its original submission and replaced it with a shorter "model contract".  EC Letter to the 
Panel of 15 May 2007.  We understand the contract contained in this new Exhibit (EC-602 (BCI)) to be representative of the German LA/MSF contracts for the A310, including relevant amendments. WT/DS316/R 
Page 366  
BCI deleted, as indicated [***] 
 
  Final Contract for the termination and liquida tion of the cooperation agreements between the 
Ministry of Industry, Trade and Tourism and Construcciones Aeronáuticas, S.A. relating to 
the provision of repayable funds for the financ ing of development costs for the Airbus A320, 
1 September 1992 ("Spanish 1992 A320 contract");
2249 
 
Memorandum of Understandi ng between  the French State and Aérospatiale Société Nationale 
Industrielle concerning the development of th e Airbus A320, 8 July 1987 ("French A320 
contract");2250 
 
Allocation Contract between the Federal Repub lic of Germany and Deutsche Airbus GmbH 
for the implementation of the A320 developm ent programme, 11 December 1985 ("German 
A320 contract");2251  
 Agreement A28B/385 of 21 March 1985 between H.M. Secretary of State for Defence and 
British Aerospace PLC for Launch Aid for the A320 Work Programme,  ("UK A320 
contract");
2252  
 Agreement between the Governments of the French Republic, the Federal Republic of 
Germany, the United Kingdom of Great Britain and Northern Ireland, the Kingdom of Spain 
and the Kingdom of Belgium concerning the programme Airbus A320, done in Bonn on 
6 February 1991 ("1991 A320 Agreement");
2253 
 
(iv) LA for the A330/A340, as evidenced by inter alia, the -  
Cooperation Agreement between the Ministry of  Industry and Construcciones Aeronáuticas, 
S.A. relating to the provision of a repayabl e, interest-free advance for the financing of 
development costs for the Airbus A330/A 340, 1 June 1988 ("Spanish 1988 A330/A340 
contract");2254 
 Agreement AE12B/75 between the Secretary of State for Defence and British Aerospace PLC 
governing the investment by H M Government  in the United Kingdom workshare of the 
Programme to Launch the A330 and A340 Ai rcraft, 1988 ("UK A330/A340 contract");
2255 
 
Memorandum of Understanding between the St ate and Aérospatiale concerning the 
programme A330/340, 26 March 1993 ("French A330/A340 contract");2256 
                                                      
2249 Exhibit EC-93 (BCI).  One of several earlier contracts entered into for the same purpose and 
referred to in this Exhibit was: Contrato de colaboración entre el Ministerio de Industria y Energía y 
Construcciones Aeronáuticas, S.A. para la aportacion de un anticipo reintegrable sin interes, con destino a la financiación de los gastos de desarrollo del nuevo avión Airbus A20, 28 February 1984 (hereinafter "Spanish 
1984 A320 contract"), Exhibit EC-946 (BCI). 
2250 Exhibit EC-83 (BCI), as amended on the same day by Avenant au Protocole d'Accord entre l'État 
Français et l'Aérospatiale Société Nationale Industrielle concernant le développement de l'Airbus A320, 
8 July 1987, Exhibit EC-945 (BCI). 
2251 Exhibit EC-95 (BCI). (Original German la nguage title: Zuwendungsvertrag zwischen der 
Bundesrepublik Deutschland vertreten durch den Bundesminister für Wirtschaft und der Deutsche Airbus 
GmbH zur Verwirklichung des Entwicklungsp rogramms AIRBUS A 320,  11 December 1985). 
2252 Exhibit EC-94 (BCI). 
2253 Exhibit US-16 
2254 Exhibit EC-84 (BCI), supplemented by a second contract: Contrato de colaboración entre el 
Ministerio de Industria y Energía y Construcciones Aeronáuticas, S.A. para la aportacion de un anticipo 
reintegrable sin interes, con destino a la financiación de los gastos de desarrollo del Airbus A330/A340, 
30 July 1990 (hereinafter "Spanish 1990 A330/A340 contract"), Exhibit EC-947 (BCI). 
2255 Exhibit EC-86 (BCI).  WT/DS316/R 
 Page 367 
 
BCI deleted, as indicated [***] 
 
   
Agreement between the Governments of the French Republic, the Federal Republic of 
Germany, the United Kingdom of Great Britain and Northern Ireland, the Kingdom of Spain 
and the Kingdom of Belgium concerning the program AIRBUS A330/A340 signed in Madrid 
on 26 July 1995 ("1995 A330/A340 Agreement");2257 
 
(v) LA for the A330-200, as evidenced by inter alia, the - 
Agreement between the signatory authority of  the agreement acting on behalf and for the 
account of the State, on the one hand, and Aé rospatiale, on the other hand, concerning the 
development of the Airbus A330-200, 28 N ovember 1996 ("French A330-200 contract");2258 
 
(vi) LA for the A340-500/600, as evidenced by inter alia, the - 
Memorandum of Understanding between the Stat e and Aérospatiale concerning the program 
A340-500 and A340-600, 15 January 1999 ("French A340-500/600 contract"),2259 
 
Framework Cooperation Agreement between the Ministry of Industry and Energy and the 
company Construcciones Aeronáuticas S.A. on financing the participation of the said 
company in the development of the progr am Airbus A 340-500 and A 340-600 ("Spanish 
A340-500/600 contract");2260 
 
(vii) LA for the A380, as evidenced by inter alia, the - 
Agreement (of 20 March 2002) between the aerona utical program service (SPAé) as signatory 
authority of the agreement acting on behalf and for the account of the State, on the one hand, 
and the company Airbus France, on the other hand ("French A380 contract"),2261 
 
Loan Contract between the Federal Republic of  Germany, represented by the Federal Ministry 
of Economics and Technology, and Airbus De utschland GmbH ("German A380 contract"),2262 
 Cooperation Agreement between the Ministry of Science and Technology (MCYT) and the 
company EADS Airbus S.L. on financing the participation of the said company in the development of the Airbus A-380 family  program ("Spanish A380 contract"),
2263 
 
                                                                                                                                                                     
2256 Exhibit EC-96 (BCI), which took into account payments made to Aérospatiale under three previous 
Conventions, including Convention No. 8890024 dated 9 December 1988, Exhibit EC-948 (BCI).   
2257 Exhibit US-28 (BCI).  Although asked to provide a copy of the German LA/MSF contract for the 
A330/A340 in Panel Question 253, the European Communities did not do so.  The European Communities 
instead referred the Panel to another document, Exhibit EC-887 (HSBI), which it asserts incorporated the same 
"repayment provisions" as the requested contract.  Thus, the European Communities does not contest, and 
indeed, its Answer to the Panel's question recognizes, that the German government entered into a LA/MSF 
contract with Deutsche Airbus GmbH for the A330/A340. 
2258 Exhibit US-78 (BCI), also evidenced by Protocole d'Accord Entre L'État et Aérospatiale relatif au 
programme Airbus A330-200, 23 D ecember 1996, Exhibit EC-90 (BCI). 
2259 Exhibits US-35 (BCI) and EC-91 (BCI), also evidenced by Convention (du 29 Décembre 1998) 
entre l'autorité signataire de la convention agissant au nom et pour le compte de l'Etat, d'une part, et 
Aérospatiale (hereinafter "French A340-500/600 convention"), Exhibit US-36 (BCI). 
2260 Exhibit US-37 (BCI); Exhibit EC-87 (BCI). 
2261 Exhibit US-116 (BCI). 
2262 Exhibit US-72 (BCI). 
2263 Exhibit US-73 (BCI). WT/DS316/R 
Page 368  
BCI deleted, as indicated [***] 
 
  Agreement of 12 March 2000 between the Secret ary of State for Trade and Industry; BAE 
Systems (Operations) Limited; and British Aerospace Public Limited Company ("UK A380 contract");
2264 and 
 
(viii) LA for the A350.2265 
7.291  The European Communities contests the United States' claims of subsidization on various 
grounds.  In doing so, it asks the Panel not to refe r to the challenged measures as "Launch Aid".  
According to the European Communities, the term "Launch Aid" is "sugges tive and oversimplifying" 
and should therefore be replaced with what it cons iders is a more neutral term – "member State 
Financing" ("MSF").2266  We have decided that for the purpo se of evaluating the United States' claims, 
it is not necessary for us to take a view on th e appropriateness of using one or other of the 
nomenclatures advanced by the parties.  Thus, in th e analysis that follows we refer to the challenged 
measures as "LA/MSF" or, when referring to a specifi c contract or measure, we use the relevant short 
titles, e.g., the "UK A380 contract" or the "A380 contract". 
7.292  The parties' submissions on the question whether the challenged LA/MSF measures amount 
to specific subsidies give rise to two matters that we  believe it is useful to resolve before proceeding 
to decide the merits of the United States' compla int under the provisions of the SCM Agreement.   
7.293  The first matter relates to the question whether an alleged LA/MSF measure for the A350 
existed at the time this panel was established.  As noted in our preliminary ru ling, we see this issue as 
involving a disputed question of fact that should be resolved in the context of our evaluation of the 
substance of the United States' claims.2267  Thus, in the sections that follow, we begin our assessment 
of the United States' complaint by first turning to examine whether the alleged LA/MSF measure for 
the A350 existed at the time of the establishment of this panel, and whether any such measure 
amounts to a subsidy within the meaning of Article 1 of the SCM Agreement. 
7.294  The second matter relates to another issue that wa s also, in part, addressed in our preliminary 
ruling, namely, the question whether it is appropriate  to evaluate the legitimacy of LA/MSF contracts 
concluded prior to 1995 under the rules of the SC M Agreement.  In our preliminary ruling, we 
rejected two of the arguments advanced by the Euro pean Communities in the c ontext of this question, 
in particular, the submissions that LA/MSF me asures pre-dating the entry into force of the 
SCM Agreement cannot be evaluated in terms of their compliance with th e SCM Agreement because 
they: (i) do not fall within the temporal scope of  Article 5 of the SCM Agreement; and (ii) were 
"grandfathered" under the 1992 Agreement.2268  A third argument, that was not advanced in the 
European Communities' request for a preliminary ruling, is taken up after our assessment of the 
question relating to the alleged LA/MSF measure for the A350.  This argument concerns the 
relevance of the 1979 Tokyo Round Subsidies a nd Countervailing Measures Code to our assessment 
of the legality of a number of LA/MSF meas ures pre-dating the entry into force of the 
SCM Agreement. 
7.295  Thereafter, and with a view to evaluating the me rits of the United States' claims on a measure-
by-measure basis, we turn to examine the parties'  arguments in respect of the extent to which the 
challenged LA/MSF measures are specific subsidies within the meaning of Articles 1 and 2 of the SCM Agreement.   
                                                     
 
2264 Exhibit US-79 (BCI). 
2265 The evidence the United States contends demonstrat es the existence of a LA  contract for the A350 
is described and evaluated in the following section of this report. 
2266 EC, FWS, para. 289. 
2267 See, Section VII.C.2 above. 
2268 See, paras. 7.98 - 7.105 above.  WT/DS316/R 
 Page 369 
 
BCI deleted, as indicated [***] 
 
  (b) The alleged LA/MSF Measure for the A350  
7.296  Airbus launched the newest of its mode ls of LCA, the A350, in December 2004.2269  Press 
reports described the A350 as a "long-range, fuel-effici ent version of Airbus' A330 airliner and a rival 
to the {Boeing} 7E7" ( i.e., the Boeing 787).2270  The development cost of the A350 was initially 
budgeted at approximately EUR 4 billion.2271  On 1 December 2006, just over one year after the 
industrial launch of the A350,2272 Airbus launched a redesigned versi on of the A350.  This new model 
of LCA was called the A350XWB, and like the A350,  it was designed to be a long-range, fuel-
efficient aircraft (featuring advanced technol ogies such as a "Carbon Fibre Reinforced Plastic 
panelled fuselage") intended to compete with Boeing's 777 and 787.2273  Press reports indicated that 
the A350XWB would cost Airbus approximately EUR 10 billion.2274 
7.297  The United States argues that, prior to the estab lishment of this panel, the French, German, 
Spanish and UK governments had each individually agreed to support the development of the A350 
by lending Airbus "at least" USD 1,700 million in the form of LA/MSF.2275  The United States 
characterizes LA/MSF as a particular form of long- term preferential financing granted to Airbus by 
the above-mentioned four EC member State govern ments for the development of each new Airbus 
model of LCA on unsecured, back-loaded, success- dependent and below-market interest rate 
repayment terms.2276  The United States claims that the alleged A350 LA/MSF measure amounts to a 
specific subsidy within the meaning of Articles 1 and 2 of the SCM Agreement. 
7.298  To substantiate its assertions in respect of the alleged A350 LA/MSF measure, the United 
States relies upon numerous press Articles and statements attributed to Airbus, the European 
Commission and government Ministers and officials re ported in publicly available media sources, as 
well as a copy of the German government's "Feder al Budget Plan" for 2005 and EADS' Financial 
Statements.  These include the following examples: 
a report published by Bloomberg on 3 Dece mber 2004, quoting the German Economy 
and Labour Minister, Wolfgang Clement, as responding to a question asking "whether 
state subsidies for the Airbus A350 are alr eady included in the budget" by answering 
"'Yes, of course."'2277 
                                                      
2269 EC, FWS, footnotes 57 and 58. 
2270 Laurence Frost, Airbus Plans New Rival to Boeing's “Dreamliner” , Associated Press & Local Wire 
(23 November 2004) Exhibit US-132. 
2271 See, e.g, Bundeshaushaltsplan (Federal Budget Plan) 2005, Budget Plan 09 (Economics Ministry), 
Chapter 02, Part 09, Item 870 93-634, Exhibit US-17MM; and Jean-Michel Belot and Tim Hepher, Airbus A350 
Unleashes New War with Boeing , Reuters (10 December 2004) Exhibit US-139. 
2272 The industrial launch of the A350 took place on 7 October 2005.  The commercial launch took 
place on 4 December 2004.  See, e.g., Jean-Michel Belot and Tim Hepher, Airbus A350 Unleashes New War 
with Boeing , Reuters (10 December 2004) Exhibit US-139; and Robert Wall, Airbus Gets Go-Ahead for A350 , 
Aviation Week & Space Technology (9 October, 2005) Exhibit US-47. 
2273 See, e.g., EC, FWS, para. 88. 
2274 See, e.g., Ross Tieman, Airbus finds Pounds 6.7bn for wide-body jet , The Evening Standard, 
(1 December 2006) Exhibit EC-671 
2275 In particular, the United States alleges th at the German government committed at least 
EUR 390 million and possibly as much as EUR 650 million; the Spanish government at least EUR 110 million and possibly as much as EUR 130 million; and the UK government at least GBP 379 million.  The United States 
asserts that the French government had also entered into a loan commitment, but that it had not publicly 
disclosed the amount. US, FWS, para. 305. 
2276 US, FWS, para. 306.  A more detailed exposition of the United States' description of LA/MSF is 
provide in paras. 7.329-7.331 of this Report. 
2277 Claudia Rach, Germany's Clement Comments on Regulator Law, Subsidies, EADS , Bloomberg 
(3 December 2004), Exhibit US-446. WT/DS316/R 
Page 370  
BCI deleted, as indicated [***] 
 
  a report published by AFX News Limited  on 13 April 2005 quoting France's Transport 
Minister, Gilles de Robien, as saying that the French government was "again studying ... the A350 project within the framework of reimbursable loans";
2278 
a report published by Agence France Press on 19 May 2005 quoting European 
Commission spokeswoman, Francoise Le Bail, as stating that in the context of the 
A350 that "the launch investment is WTO lega l and as things currently stand it is part 
of the commercial landscape for aircraft development in the EU";2279 
a report in the 7 October 2005 edition of The Associated Press – Business News  that 
Airbus CEO, Gustav Humbert, had stated that "Airbus has received 'legally binding' 
pledges of government aid to develop its new A350 plane";2280 
a report in the 9 October 2005 edition of Aviation Week  that "{a}ll four 'Airbus 
governments' – Britain, France, Germany and Spain – have set aside funds for such 
loans and expressed backing fo r the project in writing";2281 
a report in the 21 October 2005 edition of Cinco Días  that "El Ministerio de Industria 
español condicionó la financiación del desarrollo del A-350 con 110 millones de 
euros a que ...";2282 
a statement found in EADS' 2005 "Financial Statements and Corporate Governance" 
indicating that "certain EU countries have  already committed to fund the development 
of the A350 commercial aircraft program";2283 
an entry in the 2005 German "Federal Budge t Plan" ("Bundeshaushaltsplan") making 
a EUR 650 million provision for the A350 project;2284 
a report in the 11 April 2006 edition of Flight International  indicating that the UK 
Trade and Industry Secretary had reiterated that the UK government was "keen to do launch investment for the A350, as we did for the A380";
2285 
a report in the 6 July 2006 edition of the Daily Post  (North Wales) recounting that 
"{t}he UK government has already said it will give £379m in repayable loans for the 
                                                      
2278 France's Robien sees little risk for Airbus if subsidies case goes to WTO , AFX News, 
FinanzNachrichten.de (13 April 2005) Exhibit US-138. 
2279 EU backs new Airbus aid request, despite US opposition , Agence France Presse (19 May 2005) 
Exhibit US-60. 
2280 Airbus says government aid pledges are 'legally binding', Associated Press  (7 October 2005) 
Exhibit US-48. 
2281 Robert Wall, Airbus Gets Go-Ahead for A350 , Aviation Week & Space Technology 
(9 October 2005) Exhibit US-47. 
2282 Antonio Ruiz del Árbol, Germany wants to steal part of Spain's manufacturing rights for the A-
350, Cinco Días (21 October 2005) Exhibit US-135. 
2283 EADS Financial Statements and Corporate Governance (2005), Registration Document - Part 1, 
Risk Factors, Availability of Government Financing, at 11, Exhibit US-77 
2284 Bundeshaushaltsplan (Federal Budget Plan) 2005, Budget Plan 09 (Economics Ministry), Chapter 
02, Part 09, Item 870 93-634, Exhibit US-17MM. 
2285 Murdo Morrison, EADS vows UK Airbus jobs secure , Flight International (11 April 2006) Exhibit 
US-134.  WT/DS316/R 
 Page 371 
 
BCI deleted, as indicated [***] 
 
  A350 carbon composite wing work at the Welsh site and more may be needed with a 
major redesign of the jet on the cards";2286 
a report in the 19 April 2006 edition of Cinco Días  that "{t}he {Spanish} 
Government will have to increase its invest ment in the plane's development costs in 
amount up to 130 million euros";2287  
a report in the 5 October 2006 edition of Reuters  Update  that "France has agreed to 
pay aid for the development costs of Airbus's  A350 aircraft but will not pay anything 
immediately ...";2288 and  
a report published by AFP on 9 March 2007 quoting Airbus Chief Executive, Louis 
Gallois, as stating that "{w}e are not putting away refundable launch investment".2289 
7.299  The United States recalls that the European Co mmunities refused to provide any information 
or documents on the alleged LA/MSF measure for the A350 during consultations or in response to the 
Facilitator's questions during the Annex V Process.  It describes this refusal  as an attempt by the 
European Communities to shield its measure from panel review.2290  Nevertheless, the United States 
asserts that the publicly available information it has presented is sufficient to establish the existence of 
a challengeable measure for the A350 in the form of a "financial contribution" that "confers a benefit" 
upon Airbus, thereby constituting a subsidy within the meaning of Article 1.1 of the SCM Agreement.  
In particular, the United States submits that each of the alleged commitments to provide LA/MSF for 
the A350 is a "potential direct transfer of funds", within the meaning of Article 1.1(a)(1)(i) of the 
SCM Agreement,2291 which "confers a benefit" because: (i ) "the very moment that the Airbus 
governments commit the Launch Aid, Airbus knows it will receive below-market financing for at 
least 33 percent of its development costs ... {and it} can then take that knowledge into account in its 
pricing decisions"; (ii) the commitment to provi de LA/MSF "demonstrates to customers that the 
Airbus product line will be further extended"; and (iii) it "affects the perceptions of credit rating 
agencies, assuring them that a source of financial support is readily available".2292 
                                                      
2286 David Jones, Give Airbus Cash to Beat the Spanish , Daily Post (North Wales) (6 July 2006) 
Exhibit US-133. 
2287 Antonio Ruiz del Árbol, The changes in the A350 design will cost Spain 130 million , Cinco Días 
(19 April 2006) Exhibit US-136.  Other Articles and evidence referred to by the United States included: Airbus 
CEO:  7E7 rival would have more seats , Reuters (28 Sept. 2004) Exhibit US-131; Laurence Frost, Airbus Plans 
New Rival to Boeing's “Dreamliner” , Associated Press & Local Wire  (23 November 2004) Exhibit US-132; 
Robert Wall, A350 Faces Busy Time Until Industrial Launch , Aviation Week & Space Technology 
(20 June 2005) Exhibit US-83; Kevin Done and Peter Spiegel, EADS firm on launch aid for the A350 , Financial 
Times (14 Sept. 2005) Exhibit US-84;  Jean-Michel Belot and Tim Hepher, Airbus A350 Unleashes New War 
with Boeing , Reuters (10 December 2004) Exhibit US-139; Ro bert Wall, Michael Mech am and Andy Nativi, 
Counterattack; Airbus fights back.  The manufacturer re defines A350, eyes 100-plus orders at Paris air show , 
Aviation Week & Space Technology (23 May 2005) Exhibit US-140; Scott Hamilton, A350 Redesign Threatens 
Boeing 777; Boeing prepares 787 for Challenge , Leeham Co. LLP, at 1 (6 June 2006) Exhibit US-141; Jane 
Wardell, Emirates airlines is looking at revamped Airbus A350XWB and Boeing Dreamliner , Associated Press 
(17 May 2006) Exhibit US-142; Andrea Rothman, Airbus to Spend $12 Billion to Develop A350 Jet, People Say 
(Update 1) , Bloomberg (3 November 2006) Exhibit US-143; and Communiqué text, Airbus Ministerial meeting 
at Farnborough International (17 July 2006), reprinted in UK House of Commons Hansard Written Answers 
(24 July 2006) (pt. 1989, Column 1014W) Exhibit US-63. 
2288 France clears A350 aid, no immediate payment , Reuters (5 October 2005) Exhibit US-137. 
2289 AFP, Airbus weighing up state-backed loans for A350: Gallois  (9 March 2007) Exhibit US-449 
2290 US, Answer to EC Preliminary Ruling Request, para. 40. 
2291 US, Answer to Panel Questions 2 and 4. 
2292 US, Answer to Panel Question 2. WT/DS316/R 
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  7.300  The European Communities rejects the United St ates' claim, arguing that no commitment of 
the kind alleged to exist by the United States was in  place at the time of the establishment of this 
panel.  At most, the European Communities submit s that the only commitment that existed at the 
relevant time was a gene ral in principle agreement to negotiate the terms of LA/MSF for the A350.
2293  
However, the European Communities emphasizes that no interest rates, repayment schedules or other 
terms were ever actually agreed or comm itted and no funding contracts ever concluded.2294  
Furthermore, the European Communities asserts that  not a single EUR of LA/MSF has been disbursed 
or scheduled for future disbursement in support of A350 development.  Absent any agreement on the 
"price" at which A350 LA/MSF would be provided, the European Communities argues that "there is 
no basis for asserting that this hypothetical funding could have conferred a benefit".2295 
7.301  A "subsidy" is defined in Article 1.1 of th e SCM Agreement by reference to two discrete 
elements: a "financial contribution by a government or any public body within the territory of a Member" (Article 1.1(a)(1)) and the conf erral of a "benefit" (Article 1.1(b)).
2296  It follows that in 
order for the United States' claim of subsidization to  succeed, it must in the first instance establish that 
each of the alleged LA/MSF commitments for the A350 existed in the form of a "financial 
contribution" at the time that this panel was established, that is on 20 July 2005.2297  Second, the 
United States must show that any such financial c ontribution "confers a benefit" upon Airbus.  Thus, 
we start our evaluation of the United States' cl aim by reviewing the definition of "financial 
contribution" contained in Article 1.1(a)(1 )(i) of the SCM Agreement, which reads:  
"For the purpose of this Agreement, a subsidy shall be deemed to exist if: 
(a)(1) there is a financial contribution by a government or any public body within 
the territory of a Member (referred to  in this Agreement as "government"), i.e., 
where:  
(i) a government practice that involves a direct transfer of funds 
(e.g., grants, loans, and equity infu sion), potential direct transfers of 
funds or liabilities (e.g., loan guarantees)". 
7.302  The United States considers that each the allege d financing commitments made by the four 
EC member State governments amounts to a "potential di rect transfer{} of funds".  Article 1.1(a)(1)(i) 
                                                      
2293 EC, FWS, para. 358; EC, SWS, para. 132. 
2294 EC, FWS, para. 358. 
2295 EC, SWS, para. 132 and footnote 111. 
2296 It is also defined as "any form of income or price support in the sense of Article XVI of GATT 
1994" (Article 1.1(a)(2)) that confer s a "benefit" (Article 1.1(b)).   
2297 In EC – Chicken Cuts , the Appellate Body stated that "{t}he term 'specific measures at issue' in 
Article 6.2 suggests that, as a general rule, the measures included in a panel's terms of reference must be 
measures that are in existence at th e time of the establishment of the panel.  However, measures enacted 
subsequent to the establishment of the panel may, in cer tain limited circumstances, fall within a panel's terms of 
reference."  Appellate Body Report, EC – Chicken Cuts , para. 156.  We do not understand there to be any 
disagreement between the parties on the relevance of the general principle pronounced by the Appellate Body to 
the present set of circumstances.  Indeed, the United St ates' claim against the alle ged A350 measure involves 
arguments and factual circumstances that  are distinctly different from those that confronted the Appellate Body 
in EC – Chicken Cuts , which focussed on the question whether two subsequent measures taken by the European 
Communities amended two original measures that fell clearly  within the panel's terms of reference.  Appellate 
Body Report, EC – Chicken Cuts , para. 158.  Similarly, in Chile – Price Band System , an original measure was 
found to have been merely amended by a subsequent meas ure in such a way that did not change "its essence", 
thereby bringing the subsequent measure (adopted after the establishment of the panel) within the panel's terms 
of reference.  Appellate Body Report, Chile – Price Band System and Safeguard Measures Relating to Certain 
Agricultural Products ("Chile – Price Band System "), WT/DS207/AB/R, adopted 23 October 2002, 
DSR 2002:VIII, 3045 (Corr.1, DSR 2006:XII, 5473), para. 139.    WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  defines a financial contribution as including "pot ential direct transfers of funds or liabilities ( e.g., loan 
guarantees)".  The explicit identification of "loan guarantees" as an example of "potential direct transfers of funds or liabilities" is instructive for the purpose of understanding the types of measures 
that may constitute "potential direct transfers of  funds or liabilities".  A loan guarantee may be 
described as a legally binding promise to repay th e outstanding balance of a loan when the loan 
recipient defaults on its repayments.  Thus, it is th e promise to repay an outstanding loan in the event 
of default that is the financial contribution ( i.e., the potential direct transfer of funds), not the funds 
that may be transferred in the futu re in the event of default.   
7.303  Article 14(c) of the SCM Agreement establis hes guidelines for calculating the amount of a 
subsidy in terms of the benefit conferred by a loan guarantee for the purpose of countervailing duty 
investigations.  Although not intended to define the circumstances when a loan guarantee will confer a 
benefit in disputes involving Part III of the SCM Agreement, Article 14(c) does provide useful 
context for the present analysis.  This provision  describes the benefit of a loan guarantee as the 
difference in the amount that a recipient pays for a loan guaranteed by the government and a 
comparable commercial loan absent the loan guarantee: 
"a loan guarantee by a government shall not  be considered as conferring a benefit, 
unless there is a difference between the amount  that the firm receiving the guarantee 
pays on a loan guaranteed by the government and the amount that the firm would pay on a comparable commercial loan absent the government guarantee.  In this case the 
benefit shall be the difference betw een these two amounts adjusted for any 
differences in fees;" 
7.304  In our view, the fact that a loan guarantee will confer a benefit on a recipient when it enables 
that recipient to obtain the guaranteed loan at a below market price implies that the benefit of a 
potential direct transfer of funds arises from the mere existence  of an obligation to make a direct 
transfer of funds in the event of default.  Thus, when assessing whether a transaction involves a 
"potential direct transfer{} of funds", the focus should be on the existence of a government practice 
that involves an obligation to make a direct transfer of funds which, in and of itself , is claimed and 
capable of conferring a benefit on the recipient that is separate and independent from the benefit that might be conferred from any future transfer of funds.  This can be cont rasted with financial 
contributions in the form of direct transfers of f unds, which will result in a be nefit being conferred on 
a recipient when there is a government practice that involves a direct transfer of funds. 
7.305  We recall that the United States considers that  the alleged LA/MSF commitment for the A350 
"confers a benefit" because (i) "the very mome nt that the Airbus governments commit the Launch 
Aid, Airbus knows it will receive below-market fina ncing for at least 33 percent of its development 
costs ... {and it} can then take that knowledge in to account in its pricing decisions"; (ii) the 
commitment to provide LA/MSF "demonstrates to cu stomers that the Airbus product line will be 
further extended"; and (iii) it "affects the perceptio ns of credit rating agencies, assuring them that a 
source of financial support is readily available".
2298  In other words, the United States considers that it 
is the commitment to provide the alleged LA/MSF, and not th e LA/MSF itself, which confers a benefit 
upon Airbus.2299  As we see it, such a commitment (if it could be established as a matter of fact) might 
                                                      
2298 US, Answer to Panel Question 2. 
2299 We note that, in its FWS, the United States' focus appeared to be on the alleged benefit accruing to 
Airbus from an actual grant of LA /MSF for the A350, as opposed to the benefit associated with a commitment to 
provide the alleged LA/MSF.  US, FWS, paras. 308 and 309,  where it states and refers to examples it contends 
demonstrate that "Airbus officials have already confirme d that the A350 Launch Aid will confer a benefit on 
Airbus".  However, the United States clarified its positio n in its answers to Panel Questions 2 and 4, indicating 
that its complaint, including its arguments in respect of benefit, was focused on the alleged commitment  to 
provide LA/MSF on the same essential terms an d conditions as previous  grants of LA/MSF. WT/DS316/R 
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  well amount to a potential direct transfer of fu nds in terms of Article 1.1(a)(1)(i) of the 
SCM Agreement.  However, the facts advanced by the United States do not persuade us that a 
commitment to provide LA/MSF for the A350 on the terms and conditions  asserted by the 
United States actually existed at the relevant time. 
7.306  The evidence submitted by the United States to s upport its claim includes no letters of intent, 
loan contracts or other legally binding documents  attesting to the alleged commitments or their 
content.  Although one of the media reports the United States relies upon quotes Airbus' then CEO as stating in October 2005 that it had received "'legally binding' pledges of government aid to develop its 
new A350 plane", the same report also quoted the Ai rbus CEO as adding that "the details of this 
support should be and will be negotiated throughout  the next two months".
2300  Likewise, the evidence 
relating to the provision made in the German government's 2005 budget plan suggests that it had 
made a commitment to support the development of the A350 with LA/MSF.  However, it also makes 
clear that the precise terms and conditions of the fina ncing were subject to negotiation, stating that the 
maximum "amount of the loan ... under discussion " at the time would be 33% of the "assumed" total 
development costs.2301  We believe the message conveyed th rough the entry found in EADS' 2005 
Financial Statements and Corporat e Governance document indicating that "certain EU countries have 
already committed to fund the development of the A350 commercial aircraft program" should be 
understood in the same vein.2302  In other words, at some point during 2005 (which the European 
Communities appears to accept pre-dated the establishm ent of this panel), the relevant EC member 
State governments each agreed to support the deve lopment of the A350, but the precise details and 
content of this support were still to be finalised in  October 2005 and remained subject to negotiations.  
This is consistent with other ev idence we have reviewed such as  the report in the 9 October 2005 
edition of Aviation Week  that "{a}ll four 'Airbus governments'  – Britain, France, Germany and Spain 
– have set aside funds for such loans and expressed backing for the project in writing".2303  Thus, 
although a commitment on the part of the relevant EC member States to support the development of 
the A350 appears to have existed prior to 20 July 2005, the precise details and content  of this support 
remained to be settled. 
7.307  We recall that it is not merely an alleged co mmitment to provide government support of any 
kind that is the subject of the United States' compla int, but a commitment to provide a specific sum of 
money through LA/MSF granted for the developmen t of Airbus LCA on unsecured, back-loaded, 
success-dependent and below-market interest rate repa yment terms.  To substantiate its assertion that 
it was LA/MSF of this kind that was committed by the EC member State governments, the 
United States advances evidence of reports and statem ents describing the support being considered as 
"reimbursable loans"2304, "launch investment"2305, "loans"2306, "repayable loans"2307 or "refundable 
                                                      
2300 Exhibit US-48. 
2301 Exhibit US-17MM (English translation, emphasis added). 
2302 Exhibit US-77. 
2303 Robert Wall, Airbus Gets Go-Ahead for A350 , Aviation Week & Space Technology 
(9 October 2005) Exhibit US-47.  While  the industrial launch of the A350  took place on 7 October 2005, Airbus 
was reported on 10 December 2004 to have already "won approval from its sh areholders" to seek orders for the 
A350; and on 23 May 2005, it was reported that Airbus Chief Commercial Officer, John Leahy, had said that 
orders for the A350 would be approaching 200 by the end of 2005.  The commercial launch of the A350 had 
therefore taken place well in advance of  20 July 2005, implying that all of  the relevant EC member States 
governments were aware of Airbus' intentions and therefore in a position to provide commitments of in principle financial support before the establishment of th is panel.  Jean-Michel Belot and Tim Hepher, Airbus A350 
Unleashes New War with Boeing , Reuters (10 December 2004) Exhibit US -139.  Robert Wall, Michael Mecham 
and Andy Nativi, Counterattack; Airbus fights back.   The manufacturer redefines A350, eyes 100-plus orders at 
Paris air show , Aviation Week & Space Technology  (23 May 2005) Exhibit US-140. 
2304 Exhibit US-138. 
2305 Exhibits US-60 and US-134. 
2306 Exhibit US-47.  WT/DS316/R 
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  launch investment".2308  In addition, it is apparent that th e United States relies upon the arguments and 
evidence it has presented in respect of LA/MSF provided for Airbus' other models of LCA.2309  
However, in our view, this evidence is not enough to establish that, as a matter of fact , prior to 
20 July 2005 the EC member States had committed to providing Airbus with the funding amounts 
identified by the United States on unsecured, b ack-loaded, success-dependent and below-market 
interest rate repayment terms.  At most, the facts th at are before us at most demonstrate that the EC 
member States had in principle agreed to provide Ai rbus with financial assistance for the A350 in the 
form of LA/MSF on terms and conditions to be negotiated .  
7.308  As we explain in more detail in the following Sections of our Report,2310 although the other 
instances of LA/MSF challenged by the United Stat es in this proceeding share a number of key 
features, their terms and conditions are not identical.  Moreover, there is nothing inherent in the nature 
of LA/MSF that renders it a form of financing that will always  involve below-market interest rates.  
Indeed, for each of the individual grants of LA/MSF challenged by the United States for models of LCA other than the A350, the United States has presented a considerable volume of argument and 
evidence to support its claims on a measure-by-measure  basis.  The United States has not simply 
suggested that all such grants of LA/MSF involve be low-market interest rates by their very nature.
2311  
It follows that a commitment to provide LA/MSF on terms and conditions subject to negotiation, cannot be automatically equated, as a matter of fact , with a commitment to provide long-term 
financing on unsecured, back-loaded, success-depende nt and below-market interest rate repayment 
terms.  This implies that not only has the Unite d States misunderstood the commitments made by the 
EC member State governments prior to 20 July 2005, but also that the commitments actually made 
could not have conferred the first of the three be nefits alleged by the United States, namely, the 
assurance that Airbus "will receive below-market fina ncing for at least 33 percent of its development 
costs".
2312  Obviously, in the absence of knowing the precise interest rate terms applicable on 
whatever LA/MSF was finally agreed, Airbus could not  have known with certainty that it would have 
obtained below-market interest rate financing at the time of the commitments.  Indeed, on the basis of 
the evidence before us, there is nothing to suggest th at Airbus could have even been certain that the 
negotiations on the provision of LA /MSF would have been fruitful.2313  In our view, a commitment to 
provide LA/MSF on undisclosed interest rate term s cannot, alone, confer a benefit of the kind the 
United States asserts to exist.  
                                                                                                                                                                     
2307 Exhibit US-133. 
2308 Exhibit US-449. 
2309 We address the United States' claims of subsidiza tion in respect of each of  the individual LA/MSF 
grants for all models of Airbus LCA preceding the A350 in the next section of our Report. 
2310 See, paras. 7.372, 7.375 and 7.525 below. 
2311 The United States has, however, argued that the European Communities applies a LA/MSF 
Programme (that involves the granting of long-term loans to Airbus for the development of each new model of 
LCA on unsecured, backloaded, success-dependent and below market interest rate terms) and that the existence 
of this alleged Programme amounts to a subsidy.  We address this claim below at paras. 7.498 et seq . 
2312 In addition, we question whether mere knowledge that a loan will be issued at below-market 
interest rates is sufficient to establish that a commitmen t to provide the loan confers a benefit for the purpose of 
Article 1.1(b) of the SCM Agreement. 
2313 In this regard, we note it was reported on 1 December 2006 that Airbus was "expected" to obtain 
financing for the A350XWB (which replaced the A350 project) without accessing LA/MSF.  Ross Tieman, 
Airbus finds Pounds 6.7bn for wide-body jet , The Evening Standard, (1 D ecember 2006) Exhibit EC-671.  
Moreover, the European Communities ha s argued that British Aerospace did no t avail itself of LA/MSF offered 
by the UK government for the A340-500 /600 because of the "restrictive" num ber of aircraft sales over which 
UK authorities demanded repayment.  Instead, British Aerosp ace chose to finance its share of the work tasks for 
this derivative model of LCA by taking out a loan with a private bank. See, e.g., EC, FWS, paras. 474 and 505-
506.   WT/DS316/R 
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  7.309  The United States considers that the commitment to provide LA/MSF also conferred a benefit 
upon Airbus, within the meaning of Article 1.1(b) , because it "demonstrates to customers that the 
Airbus product line will be further extended"; and it "affects the perceptions of credit rating agencies, 
assuring them that a source of financial support is readily available".  We have doubts about whether 
such effects, even if they could be substantia ted, demonstrate that the commitment to provide 
LA/MSF for the A350, subject to negotiation , conferred a benefit.   
7.310  Article 1.1(b) of the SCM Agreement does not de fine the notion of "benefit".  However, it is 
well established that a "financial contribution" will confer a "benefit" upon a recipient when it places 
that recipient in a more advantageous position comp ared with the position of that recipient in the 
absence of the "financial contribution".
2314  In Canada – Aircraft , both the panel and the Appellate 
Body considered that the basis for making this co mparison was the market.  Thus, the panel observed 
that: 
"a financial contribution will only confer a 'benefit', i.e., an advantage, if it is 
provided on terms that are more advantage ous than those that would have been 
available to the recipient on the market".2315 
7.311  Similarly, the Appellate Body explained that: 
"the marketplace provides an appropriate basis for comparison in determining 
whether a 'benefit' has been 'conferred', because the trade distorting potential of a 
'financial contribution' can be identified by determining whether the recipient has received a 'financial contribution' on terms more favourable than those available to 
the recipient on the market."
2316  
7.312  Thus, when examining whether the commitment to provide Airbus with LA/MSF on terms to 
be negotiated conferred a benefit, a comparison mu st be made between Airbus' situation with the 
commitment, and the situation that Airbus would have faced in the absen ce of the commitment.  
Although we can accept that it is highly probable that a commitment on the part of the EC member 
State governments to finance the development of  the A350 on terms and conditions subject to 
negotiation signals "to customers that the Air bus product line will be further extended", the 
United States has not explained why such a demonstra tion might not also be probable in the light of a 
comparable financing commitment from the market.  In this regard, we note that the United States 
does not suggest that Airbus could not have obtaine d financing for the A350 from the market.  Indeed, 
as we have already noted in footnote 2313, a D ecember 2006 press Article reported that at the time 
Airbus was "expected" to obtain financing for the A350XWB (which was to replace the A350) 
without accessing LA/MSF.2317  
7.313  With respect to the perception of credit ra ting agencies, the United States has presented 
evidence in the form of a report published by Fitc h Ratings agency in November 2006 which states 
that "launch aid {for the A350XWB} would be view ed favourably from a credit perspective".  The 
first point to note about this statement is that it refe rs to "launch aid", without any explanation.  It is 
                                                      
2314 Panel Report, Canada – Measures Affecting the Export of Civilian Aircraft ("Canada – Aircraft "), 
WT/DS70/R, adopted 20 August 1999, as upheld by Appellate Body Report WT/DS70/AB/R, DSR 1999:IV, 1443 
para. 9.112, cited with approval in Appellate Body Report, Canada – Aircraft , para. 149. 
2315 Panel Report, Canada – Aircraft , para. 9.112; Appellate Body Report, Canada – Aircraft , 
paras. 157-158. 
2316 Appellate Body Report, Canada – Aircraft , para. 157. 
2317 In addition, we note that a 15 November 2006 report by FitchRatings indicates that Airbus was 
considering issuing "hybrid bonds" in order to finance the A350XWB project.  Fitch Ratings, Special Report – 
Diverging Flight Paths: Boeing and Airbus, Large Commercial Aircraft Update , 15 November 2006, p. 6.  
Exhibit US-451.  WT/DS316/R 
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  therefore less than clear that Fitch Ratings is  referring to a commitment to provide LA/MSF, subject 
to negotiation .  In any case, in the same paragraph, Fitc h Ratings reserves its view on the credit rating 
effect of another form of financ ing apparently being considered by  Airbus at the time (hybrid bonds) 
because of a lack of information about the particular  structure and amount of any such bonds.  In other 
words, Fitch Ratings does not automatically discount the possibility that market financing (in the form 
of hybrid bonds) for the purpose of funding the development of the A350 might also have had a 
positive effect on EADS' credit rating. 
7.314  Thus, in conclusion, after carefully reviewi ng the evidence and arguments advanced by the 
parties, we are not convinced that a clear a nd identifiable commitment to provide LA/MSF on the 
terms and conditions specified by the United States exis ted on the date of establishment of this panel.  
While the evidence we have examined  does suggest that an in principle commitment on the part of the 
four EC member State governments to support th e development of the A350 through LA/MSF did 
exist, this commitment did not take the form  of LA/MSF on backloaded, success-dependent and 
below market interest rate repayment terms, as the United States alleges, but rather LA/MSF on terms 
and conditions subject to negotiation.  The United St ates has therefore failed to demonstrate that the 
LA/MSF measure it challenges existed at the time of the establishment of this panel.  Moreover, for 
the reasons we have outlined above, we consider that the commitments which did exist, did not confer 
any of the benefits the United States asserts were enjoyed by Airbus.  Accordingly, we dismiss the 
United States' complaint against the alleged USD 1,700 million LA/MSF measure for the A350. 
(c) Consistency of LA/MSF with th e 1979 Tokyo Round Subsidi es and Countervailing Measures 
Code 
(i) Arguments of the Parties 
European Communities  
7.315  The European Communities submits that, pursuant to the inter-temporal rules of international 
law, a fact can only be properly assessed in the light of the law contemporaneous to it.2318  It follows, 
according to the European Commun ities, that the legality of the LA/MSF contracts for the A320 and 
A330/A340, which were concluded between 1985 and 1993, must be de termined in the light of the 
international subsidy disciplines in force at the time of their conclusion, namely, the 1979 Tokyo 
Round Subsidies and Countervailing Measures Code  ("Tokyo Round Subsidies Code").  The 
European Communities maintains that the same inter-temporal rule is reflected in Articles 14(a) and 
14(b) of the SCM Agreement, which it argues require that the existence and amount of subsidies must 
be established on an ex-ante  basis, not an ex-post  basis.  In particular, the European Communities 
notes that Article 14(a) prescribes that the govern ment provision of equity  capital shall not be 
considered to confer a benefit unless the investment decision can be regarded as inconsistent with the 
usual investment practice at the time the decision is made , not at the time the investment decision is 
reviewed in dispute settlement proceedings.  Simi larly, the European Communities observes that the 
assessment envisaged under Article 14(b) requires a comparison between the cost of a government 
loan to a recipient and the cost of a comparable commercial loan at the time the government loan is 
granted .2319  Thus, the European Communities contends that should any of the relevant LA/MSF 
                                                      
2318 EC, Answer to Panel Question 61; EC, SWS, para. 145, referring in both cases to the 
pronouncement of Judge Huber in the Island of Palmas Arbitration that "{a} juridical fact  must be appreciated 
in the light of the law contemporary with it, and not of the law in force at the time when a dispute with regard to 
it arises or falls to be settled", 2 R. Int'l Arb. Awards (1928) 829 at 845. Exhibit EC-672. 
2319 EC, Answer to Panel Question 61. (Emphasis added). WT/DS316/R 
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  measures "fall into the temporal scope of the SCM Agreement", they s hould "at least be assessed 
against the standards of the Tokyo Round Subsidies Code".
2320 
7.316  The European Communities recalls that the Tokyo Round Subsidies Code did not explicitly 
define a subsidy.  However, the European Co mmunities argues that guidance for understanding the 
types of measures that amounted to subsidies at the relevant time could be found in the "Illustrative 
List of Export Subsidies" contained in Code's Annex.  In particular, the European Communities 
asserts that the general principle that could be draw n from the "Illustrative List" was that, at the time 
of the conclusion of the LA/MSF contracts for the A320 and A330/A340, a subsidy was limited to measures involving a cost to the granting government.
2321  The European Communities argues that 
such a measure cannot be found in the LA/MSF c ontracts for the A320 and A330/A340, which it 
contends were agreed on terms that secured retu rns to the governments that were not "manifestly 
inadequate" to cover their costs.2322  Thus, according to the Eur opean Communities, the LA/MSF 
contracts for the A320 and A330/A340 complied with the relevant international subsidy disciplines 
that were in force at the time of their conclusion. 
7.317  The European Communities submits that the To kyo Round Subsidies Code remains in effect 
between the parties and is applicable to the assess ment of the existence of subsidies in the civil 
aircraft sector granted prior to 1 January 1995 becau se of the cross-reference to Articles 8.3 and 8.4 of 
the Code that is found in Article 6.1 of the 1979 Agreement on Trade in Civil Aircraft.2323  Moreover, 
although the European Communities recognizes that the Tokyo Round Subsidies Code is not a "covered agreement", the European Communities argues that it is nevertheless relevant to the present 
dispute because it falls within the scope of the "agr eements" that parties are entitled to cite under the 
terms of Article 7.2 of the DSU.
2324  In any case, according to the European Communities, if the only 
international agreements that could be prope rly brought before a panel were the "covered 
agreements", all of the disputes in which the Appe llate Body has referred to  non-covered agreements 
would have been erroneously decided.2325   
United States  
7.318  The United States submits that there is no le gitimate basis for the European Communities' 
assertion that the Panel must evaluate the relevant LA/MSF measures under the terms of the Tokyo Round Subsidies Code.  The United States recalls that th e Panel's task in this dispute is defined by its 
terms of reference, and that these require the Panel to  examine the United States' claims in the light of 
the "covered agreements" cited in the panel request, which do not include the Tokyo Round Subsidies 
Code.
2326   
7.319  According to the United States, the "covered agreements" provide not only the basis for 
seizing the WTO dispute settlement system, but also the basis for resolving disputes.  Thus, compliance with any non-covered agreement cannot be  the subject of a panel's work in a dispute 
under the DSU.  The United States maintains that this  principle is expressed in Articles 7.1 and 11 of 
the DSU, which direct the Panel to resolve the matt er before it on the basis of the relevant "covered 
agreements", not non-covered agreements.
2327  Moreover, the United States notes that it is panel 
findings and recommendations under the "covered agre ements" that are envisaged under Articles 3.2, 
                                                      
2320 EC, Answer to Panel Question 61. 
2321 EC, FWS, para. 384. 
2322 EC, FWS, para. 388. 
2323 EC, SWS, paras. 143-144. 
2324 EC, SWS, para. 146. 
2325 EC, SWS, para. 146. 
2326 US, FCOS, paras. 30-31; US, SWS, paras. 27-34. 
2327 US, SWS, para. 30.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  3.4 and 19.1 of the DSU, not findings and recomme ndations in respect of non-covered agreements.2328  
Finally, the United States notes that the only place in the DSU that recognizes the relevance of non-
covered agreements for the purpose of dispute settle ment is Article 3.11.  This provision stipulates 
that disputes for which consultation requests were made under the "GATT 1947 or any other 
predecessor agreement to the covere d agreements" must be resolved  through application of "the 
relevant dispute settlement rules and procedures in e ffect immediately prior to the date of entry into 
force of the WTO Agreement".2329  According to the United States , the absence of any reference to 
non-covered agreements or "predecessor agreements" elsewhere in the DSU (apart from Article 8.1, 
which refers to "predecessor agreements" in the context of describing pers ons "well qualified" to 
serve on panels), confirms that such agreements are not relevant other than in the circumstances 
referred to in Article 3.11.2330 
(ii) Evaluation by the Panel 
7.320  The European Communities maintains that, pursuant to the inter-temporal rules of 
international law, the LA/MSF contracts for the A320 and A330/A340 cannot be assessed for 
compliance with the SCM Agreement, but must inst ead be measured against the standards of the 
Tokyo Round Subsidies Code, the international le gal framework it asserts was in force when the 
challenged measures were adopted.  When consid ered in this light, the European Communities 
contends that the LA/MSF contracts were in full c onformity with the obligations on the European 
Communities and the relevant member States at the time of their conclusion.  Thus, the European 
Communities asks the Panel to dismiss the United Stat es' complaint.  On the other hand, the United 
States argues that the European Communities' reque st finds no support in the DSU, which it submits 
makes clear that a panel can only rule on the cons istency of challenged measures with the provisions 
of the WTO covered agreements.  Because the To kyo Round Subsidies Code is not a WTO covered 
agreement, the United States contends that there is no legal basis for any eval uation of the consistency 
of the relevant LA/MSF measures with the provisions of the Code. 
7.321  The main question that is raised by the Eur opean Communities' defence is whether, in our 
evaluation of the United States' claims, we must, pur suant to the inter-temporal rules of international 
law, apply international subsidy di sciplines that were in force at the time of the conclusion of the 
challenged contracts (the Tokyo Round Subsidies Code), or apply the rules in existence at the time of 
the present dispute (the SCM Agreement). 
7.322  As we understand it, the doctrine of inter-tempor al application of international law, as it was 
pronounced in the Island of Palmas Arbitration , has two elements: first, that acts should be judged in 
the light of the law contemporary with their creation; and second, that rights acquired in a valid manner according to the law contemporaneous with th eir creation may be lost if not maintained in 
accordance with changes in international law.
2331  Although doubts have been expressed about the 
status of the second element as a principle of international law,2332 the first element, which is the 
                                                      
2328 US, SWS, para. 31. 
2329 US, SWS, para. 32. 
2330 US, SWS, para. 32. 
2331 Island of Palmas Arbitration , 2 R. of Int'l Arb. Awards (1928) 829, 845.  The doctrine, in one or 
more of its manifestations, also appears to have been applied in e.g., The Grisbadarna Case, 11 R. Int'l Arb. 
Awards 155 (1909); The North Atlantic Coast Fisheries Case, 11 R. Int'l Arb. Awards 167 (1910); The 
Fisheries Case , (United Kingdom v Norway), ICJ Reports 1951, p. 116; The Minquiers and Encrehos case , ICJ 
Reports 1953, p. 47; and The Aegean Sea Continental Shelf Case , ICJ Reports 1978, p. 3. 
2332 See, e.g., A. D'Amato, International Law, Intertemporal Problems  in Encyclopaedia of Public 
International Law, 1992, pp. 1234-1236 at 1235; and P. C. Jessup, The Palmas Island Arbitration , (1928) 22 
AJIL pp. 735-752, p. 740. WT/DS316/R 
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  foundation of the European Communities' argument , appears to have obtained wide acceptance.
2333  
However, in the circumstances of  the present case, we find the Eu ropean Communities' reliance on 
this aspect of the doctrine to be misguided. 
7.323  We recall that in our preliminary ruling, we concluded that Article 5 of the SCM Agreement 
establishes an obligation on Members not to cause adverse effects to the interests of other Members 
through the use of subsidies.  In doing so, we di smissed the European Communities' contention that 
Article 5 does not apply to subsidies granted prior to 1 January 1995.  In this light, the European 
Communities' reliance on the doctrine is misconceived.2334  The very fact that Article 5 addresses 
adverse effects caused by the use of subsidies, whic h may have been granted prior to 1 January 1995, 
means that such measures must necessarily fall with in the scope of the SCM Agreement and therefore 
be assessed on the basis of the rules of that agreem ent.  In other words, because Article 5 of the 
SCM Agreement applies to pre-1995 subsidies that cau se adverse effects after entry into force of the 
WTO Agreement, the doctrine of inter-temporal app lication of international law cannot operate to 
preclude the application of the SCM Agreement to such subsidies. 
7.324  We are also not convinced by the European Communities' argument that the Tokyo Round 
Subsidies Code is relevant to the panel's evaluati on of the United States' claims because, even though 
it is not a WTO covered agreement, it nevertheless fa lls within the scope of the "agreements" referred 
to in Article 7.2 of the DSU.  In the first inst ance, we recall that the Tokyo Round Subsidies Code was 
terminated one year after the entr y into force of the SCM Agreement.2335  Second, it is clear to us that 
the word "agreements" in Article 7.2, which is  joined to the words "covered agreement" that 
immediately precede it by the conjunction "or", refers to the plural of a "covered agreement".  
Therefore, it should not, as the European Communities suggests, be understood as referring to international agreements that are not WTO covered agreements.  As we have already noted in our 
preliminary ruling, Article 7.2 does not give us juri sdiction to determine the rights and obligations of 
the parties under non-covered agreements for th e purpose of the recommendations or rulings 
envisaged under Article 11 of the DSU.
2336  Such recommendations or rulings must relate to the 
parties' rights and obligations under the WTO covere d agreements, not the rights and obligations of 
parties under international agreements that are not  WTO covered agreements.  Additional support for 
this view is found in Articles 3.2, 3.4 and 19.1 of the DSU, which, as noted by the United States, also envisage panel findings and recommendations in respect of WTO covered agreements, not non-
covered agreements.  There is therefore no le gal basis to support the European Communities' 
contention that, in the context of the present disput e, the challenged measures must be evaluated under 
the terms of the Tokyo Round Subsidies Code.
2337 
                                                      
2333 See, e.g., T.O. Elias, The Doctrine of Intertemporal Law , (1980) 74 AJIL 2 pp 285-307; A. 
D'Amato, International Law, Intertemporal Problems  in Encyclopaedia of Public International Law, 1992, 
pp. 1234-1236 at 1235; I. Brownlie, Principles of Public International Law , 5th Ed. 1998, pp. 126-128. 
2334 See, para. 7.64-7.65 above. 
2335 See, Article 3, Decision on the Transitional Co-Existence of the Agreement on Interpretation and 
Application of Articles VI, XVI and XXIII of the Gene ral Agreement on Tariffs and Trade and the Marrakesh 
Agreement Establishing the World Trade Organization , adopted by the GATT Committee on Subsidies and 
Countervailing Measures on 8 December 1994 ( SCM /186); subsequently taken note of in the WTO Committee 
on Subsidies and Countervailing Measures at its meeting of 22 February 1995 (G/ SCM /M/1). 
2336 See, 7.89 - 7.105 above. 
2337 In reaching this conclusion, we are not saying that non-covered agreements cannot be relied upon 
for the purpose of interpreting the rights and obliga tions of parties under the WTO covered agreements.  ( See, 
e.g., Appellate Body Report, EC – Chicken Cuts , paras. 195-199, where the Harmonized System was used as 
context for interpreting the European Communities' Schedul e of tariff commitments.)  However, in the present 
instance, the European Communities is not asking us to use the Tokyo Round Subsidies Code as interpretative context for one or more provisions of a WTO covered agreement.  Rather, it considers that the Panel should  WT/DS316/R 
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  7.325  Accordingly, for all of the above reasons, we dismiss the European Communities' submission 
that the LA/MSF contracts for the A320 and A 330/A340 cannot be assessed for compliance with 
Article 5 of the SCM Agreement, but must instead be examined in the light of the 1979 Tokyo Round Subsidies Code. 
(d) Whether each of the individual grants of LA/MSF for the A300, A310, A320, A330/A340, 
A330-200, A340-500/600 and A380 models of LCA constitut es a subsidy within the meaning 
of Article 1 of the SCM Agreement 
(i) Arguments of the Parties 
United States
 
7.326  The United States asserts that the governments of France, Germany, Spain and the UK have 
provided LA/MSF to Airbus for each new model and major derivative of Airbus LCA developed 
since 1969 – in particular, the A300, A310, A320, A330/A340,2338 A330-200, A340-500/6002339 and 
A380.  The United States describes LA/MSF as a highly preferential form of loan financing that the 
EC member States designed and use to offset the co sts and risks associated with the development of 
Airbus LCA.  It submits that the "face value" of the combined amount of funding made available to 
Airbus through LA/MSF between 1969 a nd 2002 is approximately USD 15 billion.2340  According to 
the United States, each one of the challenged LA/MSF grants evidences a "financial contribution" that 
confers a "benefit" on Airbus, and therefore amounts to  a subsidy, within the meaning of Article 1.1 
of the SCM Agreement. 
Financial Contribution 
7.327  The United States argues that each of the individual LA/MSF contracts involves a financial 
contribution in the form of a direct transfer of funds  or a potential direct transfer of funds, within the 
meaning of Article 1.1(a)(1)(i) of the SCM Agreement.2341  Specifically, the United States argues that 
the LA/MSF contracts for the A300, A310, A320, A330/340, A330-200 and the A340-500/600 
constitute direct transfers of funds inasmuch as the funding amounts foreseen under those contracts 
have today been disbursed.2342  As regards the LA/MSF contracts for the A380, the United States 
contends that these contracts evidence both direct tran sfers of funds and, to the extent that certain 
committed funding amounts have yet to be disbursed, potential direct transfers of funds.2343 
                                                                                                                                                                     
apply the substantive disciplines of the Tokyo Round Subsidies Code in order to determine the legality of the 
challenged measures for the purpose of this dispute. 
2338 The European Communities has explained that the notwithstanding the different characteristics and 
market profile of the A330 and A340, the basic versions of these LCA models are sometimes referred to 
collectively as the "A330/A340", refl ecting the fact that they were launched at the same time.  EC, FWS, 
footnote 53. 
2339 The European Communities points out that the A340 -500/600 are in fact two different variants of 
the A340.  However, because of their similarities, they are often referred to collec tively as "A340-500/600".  
EC, FWS, footnote 53. 
2340 US, FWS, paras. 81 and 89; United States, non-con fidentical oral statement at the first meeting 
with the Panel, (hereinafter "US, FNCOS"), para. 5; US, SWS, para. 1. 
2341 US, FWS, paras. 109, 173, 214, 236, 244, 254, 266, 274, 283 and 291. 
2342 US, Answer to Panel Question 4. 
2343 US, Answer to Panel Question 4. WT/DS316/R 
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  Benefit 
7.328  Recalling certain observations of the Appellate Body in Canada – Aircraft  and US – Lead and 
Bismuth II ,
2344 the United States submits that a financial contribution will confer a benefit on a 
recipient, within the meaning of Article 1.1(b) of the SCM Agreement, when provided on terms better 
than those available to the same recipient in the market.  The United States asserts that the financial 
contributions made available through the LA/MSF c ontracts confer a benefit on Airbus because they 
involve loans at interest rates that are substantially below what the market would demand for financing with similar characteristics. 
7.329  The particular loan characteristics that are the focus of the United States' allegations are what 
it describes as the success-dependent, unsecured and b ack-loaded repayment terms that can be found 
in each of the challenged LA/MSF contracts.  The Un ited States argues that these particular features 
of LA/MSF transfer a large part of the "substantial risks"
2345 or "extremely high risks"2346 associated 
with LCA development from Airbus to the EC member States; a transfer of risks which it contends is not properly accounted for in the level of interest  rates charged for this type of financing. 
7.330  The United States explains that, under the LA/M SF contracts, Airbus is required to make 
repayments through a levy on each delivery of the fi nanced product.  This levy is established as a 
fixed amount per aircraft over a specified number of  deliveries.  For example, a government providing 
EUR 1 billion for a new aircraft model might require Ai rbus to repay the financing, plus any return on 
the financing, via levies on the first 400 deliveries of  the aircraft in question. Full repayment of the 
loan is therefore dependent on Airbus making 400 sales.  However, according to the United States, 
because each loan is success-dependent and unsecu red, the government has no recourse to obtain 
repayment if the expected 400 deliveries fail to mate rialize.  Repayment is entirely dependent on the 
success of the particular LCA model to which the funding applies.
2347  The United States argues that 
this means that Airbus receives financing with th e obvious benefit of no down-side risk.  In other 
words, when Airbus launches a new aircraft programme, it knows from the outset that it is the 
government – and not itself – that is assuming the risk that the project will not generate enough sales 
to repay the government funds.  If actual sales are less than expected, Airbus has no obligation to 
repay the government money.2348 
7.331  Likewise, the United States argues that the LA /MSF lender governments assume a large part 
of the risks associated with LCA development by back-loading loan repayments.  According to the 
United States, the EC member States back-load LA/MSF repayments in the following three ways: 
(i) by tying repayments to aircraft delivery; (ii)  by allowing Airbus to make relatively small levy 
repayments on early deliveries of aircraft and progr essively larger repayments on later deliveries; and 
(iii) by sometimes foregoing levies entirely on an in itial tranche of deliveries.  The United States 
argues that the effect of such repayment terms is to initially remove, and then subsequently minimize, 
the debt service burden on Airbus in the early year s of its LCA programmes when costs are still high 
and revenues from first deliveries – typically highly di scounted – are relatively low.  In other words, 
the effect of back-loaded repayment terms is to delay repayment to a moment in the LCA business 
cycle that best suits Airbus' competitive needs.2349 
                                                      
2344 US, FWS, para. 110, citing Appellate Body Report, Canada – Aircraft , para. 153 and Appellate 
Body Report, US – Lead and Bismuth II , para. 68. 
2345 US, FWS, para. 137. 
2346 US, FNCOS, para. 6. 
2347 US, FWS, para. 117. 
2348 US, FWS, para. 121. 
2349 US, FWS, paras. 125-128.  WT/DS316/R 
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  7.332  The United States presents a simulation it ar gues quantifies the effect of the success-
dependent and back-loaded repa yment terms of LA/MSF on the profitability of LCA programmes.2350  
The United States argues that the results of this simu lation demonstrate the extent to which such terms 
alter the risk/reward trade-off faced by an airc raft manufacturer by transforming net present value 
losses for an aircraft programme in scenarios in which fewer than the forecast number of deliveries 
are achieved, into net present value profits for the same programme.  The United States maintains that 
the same simulation shows that, even in cases wh ere the programme remains loss-making, LA/MSF 
significantly reduces the magnitude of the net presen t value loss suffered as a consequence of the 
failed programme.2351  Furthermore, the United States submits that the simulation also indicates that 
the net present value of an aircraft progra mme supported by LA/MSF rises as repayments are 
increasingly back-loaded (both in terms of minimum numbers of deliveries before repayment obligations commence, and in terms of the "pro gressivity" of the repayment schedule).  Thus, 
according to the United States, the further repayment is pushed out in time, the greater the commercial 
and financial benefit to Airbus.
2352 
7.333  Relying upon the conclusions reached in two studies commissioned from NERA Economic 
Consulting,2353 the United States contends that the rates of  return that a commercial investor would 
demand for project-specific loans with success-de pendent, unsecured, back-loaded repayment terms 
comparable to those contained in the challenge d LA/MSF contracts, would be well above what it 
asserts were the rates of return associated with each  of the challenged measures.  In particular, the 
United States submits that the interest rate di fferentials between the ch allenged LA/MSF measures 
and comparable market financing fall within the range of [***] and 24.52 percentage points.2354  
According to the United States, the European Comm unities' own market interest rate benchmarks 
arrive at the same conclusion, identifying only marginally smaller interest rate differentials.2355 
7.334  The United States finds support for its view that the challenged LA/MSF measures confer a 
benefit on Airbus in the Canada – Aircraft  dispute, where, the United States submits, financing that 
was virtually identical to LA/MSF was found to confer a benefit because of the non-commercial 
interest rates charged to the recipient.2356  Moreover, the United States argues that both Airbus and the 
Airbus governments have conceded that LA/MSF confer s a benefit.  For instance, the United States 
identifies a line in [***] .2357  The United States also quotes a number of government statements that it 
suggests explain the advantages of LA/MSF to Airbus.2358  Finally, the United States contends that the 
view that LA/MSF confers a benefit upon Airbus is also substantiated by a series of EC State Aid 
                                                      
2350 Gary J. Dorman, The Effect of Launch Aid on the Economics of Commercial Airplane Programs, 
6 November 2006 (hereinafter "Dorman Report") , Exhibit US-70 (BCI).  Dr. Dorman is Senior Vice President 
and Chair of NERA's Global Anti-Trust Practice.  His educational credentials include a PhD in Economics, 
University of California, Berkeley, an d a BA, with High Distinction and High Honours in economics, University 
of Michigan.   
2351 US, FWS, para. 123. 
2352 US, FWS, para. 135. 
2353 NERA Economic Consulting (Dr David M. Ellis , Artur J. Bonifaciuk and Dr James Jordan), 
Economic Assessment of the Benefit of Launch Aid , 10 November 2006, (herinafter "Ellis Report"), Exhibits 
US-80 (BCI) and US-80 (HSBI), an d NERA Economic Consulting, Answer to Whitelaw Report , 24 May 2007, 
(hereinafter "Ellis Answer to Whitelaw"), Exhibit US-534 (HSBI) and US-534a (BCI). 
2354 US, FWS, paras. 116-147 (LA/MSF generally); 178-185 (A300/A310); 195-205 (A320); 219-228 
(A330/A340); 237-240 (A330-200); 245-250 and 255-257 (A340-500/600); and 267-270, 275-279, 284-287, 
292-296 (A380). 
2355 US, FNCOS, paras. 15-16; US, SWS, paras. 72-77, referring to Exhibit US-448, p. 2. 
2356 US, FWS, paras. 148-151, referring to the up-front provision of funds to Bombardier for aircraft 
development under the Technology Partnerships Canada pr ogramme and the panel's finding in that case that, as 
a general matter, Canada did not "seek a commercial rate of return on its contributions".  Panel Report, 
Canada – Aircraft , paras. 9.313-315. 
2357 US, FWS, para. 152, citing a [***] .  Exhibit US-68. 
2358 US, FWS, paras. 154-156. WT/DS316/R 
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  decisions, which reviewed funding provided by the French and Spanish governments, respectively, to 
CASA and Aérospatiale for ai rcraft development projects.
2359 
European Communities  
7.335  The European Communities rejects the United Stat es' claim that each of the disputed LA/MSF 
measures amounts to a subsidy within the meaning of Article 1 of the SCM Agreement.  However, in 
doing so, it does not contest the United States' alle gations in respect of LA/MSF being a "financial 
contribution", within the meaning of Article 1.1(a)(1 )(i) of the SCM Agreement.  Rather, the focus of 
the European Communities' rejection of the Unite d States' complaint against the challenged LA/MSF 
measures is the question whether each confers a "b enefit" upon its recipient, within the meaning of 
Article 1.1(b) of the SCM Agreement.  In this  context, the European Communities has advanced 
several lines of defence. 
Benefit 
Article 4 of the 1992 Agreement 
7.336  The European Communities submits that the assessment of whether LA/MSF measures 
concluded after the entry into force of the SCM Ag reement confer a "benefit" must be informed by 
Article 4 of the 1992 Agreement .  According to the European Communities, Article 4 of the 1992 
Agreement established the partie s' agreed benchmark for levels  of acceptable government LCA 
development support at the time the rele vant LA/MSF contracts were concluded.2360  The European 
Communities maintains that this alleged benchmark must be taken into account as relevant context 
when interpreting the notion of "benefit" under Article 1.1(b) of the SCM Agreement,2361 because it 
considers the 1992 Agreement to be an instrument containing rules of international law applicable 
between the parties, within the meaning of Article 31(3)(c) of the VCLT.2362   Thus, the European 
Communities argues that any financial contributi ons provided through the post-1995 LA/MSF 
measures may be found to have conferred a "benefit" on Airbus only if incompatible with Article 4 of 
the 1992 Agreement.  In this regard, the European  Communities alleges that each of the challenged 
LA/MSF measures complied with the terms of dom estic support established under Article 4 of the 
1992 Agreement, and therefore did not confer a benefit upon Airbus, within the meaning of 
Article 1.1(b) of the SCM Agreement.2363 
"Reasonableness of repayment forecasts" 
7.337  According to the European Communities, the Appellate Body in US – Countervailing 
Measures on Certain EC Products explained that "fair" market transactions are not always the 
appropriate benchmarks for the purpose of est ablishing the existence of subsidies under the 
SCM Agreement.  Quoting from the Appellate Body 's ruling, the European Communities argues that 
in particular situations, it is necessary when cons idering whether a financial contribution confers a 
benefit to take account of "the ability of govern ments to obtain certain results from markets by 
                                                      
2359 US, FWS, paras. 158-163, referring to Decision 97/807/EC of 30 April 1997, OJ (1997) L 331/10, 
Aid granted by Spain to the Aerospace Company Construcciones Aeronáuticas, SA , (Spanish government 
funding for development of a new 70/80 seat turboprop aircraft), Exhibit US-81; Press Release, The Commission 
Approves a French R&D Scheme for the Aeronautics Sector , IP/96/665 of 18 July 1996, (French government 
funding for Aérospatiale's development of the A330-200),  Exhibit US-89; and Letter from Karel Van Miert to 
Hubert Vedrine, Reimbursable Advance to Aérospatiale for the Airbus A340-500/600 Program , Aid No. 
N369/98, (French government funding for Aérospatiale's development of the A340-500/600), Exhibit US-3. 
2360 EC, FWS, paras. 395-404; EC, SWS, paras. 148-150. 
2361 EC, FWS, paras. 398, 399 and 441. 
2362 EC, FWS, paras. 131-150. 
2363 EC, FWS, paras. 405-441.  WT/DS316/R 
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  shaping the circumstances and conditions in which markets operate" and to remember that markets 
can be "severely affected" by government policies.2364  Because of the LCA industry's alleged close 
association with heavy government inte rvention and international regulation,2365 the European 
Communities suggests that it is a sector where consid erations of the kind expressed by the Appellate 
Body need to be taken into account when eval uating whether government support in the form of 
LA/MSF amounts to subsidization under the SCM Agreement.  Thus, the European Communities 
submits that the appropriate methodology for de termining whether LA/MSF for the A330-200, A340-
500/600 and A380 confers a "benefit", within the mean ing of Article 1.1(b) of the SCM Agreement, 
should not involve assessing whether each of the cha llenged contracts conforms to "'perfect' market 
conditions".2366  Rather, the European Communities argues th at this determination should be made by 
testing the reasonableness of the forecast number  of sales over which repayments are intended to 
secure the rate of return agreed to  in each of the relevant contracts.2367   
7.338  The European Communities finds "indirect" support for its view that the reasonableness of the 
repayment forecasts is the "decisive factor"2368 for determining whether LA/MSF constitutes a subsidy 
in footnote 16 of the SCM Agreement.  Although a ttached to an expired provision (Article 6.1), the 
European Communities considers that it provid es relevant context for understanding whether 
LA/MSF amounts to a subsidy within the meaning of Ar ticle 1 of the SCM Agreement.  In particular, 
the European Communities argues that the text of f ootnote 16 envisages a situation where there is less 
than full repayment of a royalty-based financing in strument – a situation where actual sales fall below 
the level of forecast sales.  According to the European Communities, footnote 16 provides that the 
failure to achieve the sales fo recast envisaged under a royalty-based financing instrument ( i.e., less 
than full repayment of royalty-based financing)  cannot in itself be deemed to cause serious 
prejudice.2369  By implication, the European Communities submits, it follows that when actual sales 
match or exceed the level of forecast sales under a ro yalty-based financing instrument, there can be no 
finding of serious prejudice.2370  The European Communities maintain s that this result represents a 
recognition by the drafters of the SCM Agreement that the relevant test for determining whether 
LA/MSF constitutes a subsidy is the reas onableness of the repayment forecast.2371  Thus, to the extent 
that a repayment forecast is reasonable, the Eu ropean Communities argues that full repayment of 
LA/MSF will be achieved, thereby generating its ta rgeted rate of return.  It is only when the 
repayment forecast is not a reasonable one that, acc ording to the European Communities, a benefit 
will be conferred.2372   
                                                      
2364 EC, FWS, para. 445, referring to Appellate Body Report, US – Countervailing Measures on 
Certain EC Products , paras. 123-124. 
2365 The European Communities maintains that this is reflected not only in the alleged "billions of 
dollars" of government support (allegedly including royalty-based financing) enjoyed by Boeing, the only other 
credible producer of LCA, but also in Article 6.1 of the 1979 Trade in Civil Aircraft Agreement , which reads: 
"They { i.e., the Signatories} shall take into account the speci al factors which apply in the aircraft sector, in 
particular the widespread governmenta l support in this area, their intern ational economic interests, and the 
desire of producers of all signatories to participate in the expansion of the world civil aircraft market." EC, 
FWS, paras. 444-447. 
2366 EC, FWS, para. 447; EC, Answer to Panel Question 73; EC, SNCOS, para. 86. 
2367 EC, FWS, paras. 442-478; EC Answers to Panel Questions 62 and 63; EC, SWS, paras. 151-157.  
The European Communities asks the Panel to treat this argu ment as equally relevant to showing that certain pre-
1995 LA/MSF measures (specifically , the A320 and A330/A340 contracts) were not subsidies within the 
meaning of the SCM Agreement, should it dismiss the European Communities' specific defences advanced in relation to these measures based on the temporal scop e of the SCM Agreement and the relevance of the Tokyo 
Round Subsidies Code.  EC, Answer to Panel Question 62. 
2368 EC, FWS, para. 455; EC Answers to Panel Questions 62 and 63. 
2369 EC, FWS, para. 451. 
2370 EC, FWS, para. 452. 
2371 EC, FWS, paras. 455-456; EC, Answer to Panel Question 63. 
2372 EC, FWS, para. 455.   WT/DS316/R 
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  7.339  In the European Communities' view, the United States shares its interpretation of Article 1, 
citing the following extract from a communication made by the United States to the WTO Negotiating Group on Rules on 19 March 2003 as support for the proposition that the United States considers LA/MSF would be a subsidy only if the market fo recasts on which repayment obligations are based 
are not reasonable: 
"As to the definition of subsidy, more e xplicit rules are needed as to royalty-based 
schemes.  These programmes provide governme nt funds with a repayment obligation 
based on future sales.  Similar to the granti ng of government loans or the government 
purchase of equity, these schemes need to be  judged against a market or commercial 
standard.  Obviously, if royalty-based fi nancing is based on assumptions and sales 
projections that would be rejected by the market a benefit has been bestowed."
2373  
7.340  The European Communities asserts that all of  the LA/MSF granted for the A330-200, A340-
500/600 and A380 was provided on the basis of "very prudent" sales forecasts, with full repayment of 
principal plus interest, set at least 25 basis point s above the government cost of funds, being required 
from a number of sales that was less than Airbus' expectations over a maximum of 17 years 
(consistent with Article 4 of the 1992 Agreement).2374  The European Communities explains that 
while the Airbus business case informed and set the out er limits of the returns expected by the EC 
member States over the life of each aircraft,2375 it was not automatically reflected in the terms of the 
contracts.  Moreover, the European Communities ma intains that because Airbus had to fund 67% of 
the A330-200, A340-500/600 and A380 projects itself, its busin ess case for each of these LCA 
projects was "realistic and sober", implying that the EC member States' forecasts were "conservative" 
and intended to ensure faster repayment.2376  This allowed the EC member State governments to 
"agree to a structure of levies and repayment sche dules that ensures adequate recoupement of ... 
contributions plus a real return at rates which would not be rejected at the market".2377 
"Alternative Legal Argument" 
7.341  In a final set of submissions, the European Communities presents what it characterizes as an 
"alternative legal argument", that it asks the Panel to c onsider in the event that it were to dismiss all of 
its other arguments on the question whether LA/MSF amounts to a subsidy.2378  Pursuant to this 
"alternative" argument, the Europ ean Communities proceeds on the "hyp othesis" that the Panel were 
to find that the market provides the appropriate  benchmark for determining the existence of a 
"benefit" under Article 1.1(b) of the SCM Agreemen t.  In this context, the European Communities 
argues that the financing provided under th e challenged LA/MSF measures does not involve 
subsidization within the meaning of the SCM Agreemen t because the cost of such financing to Airbus 
was at least the same, if not greater, than the cost of similar financing available on the market.2379 
7.342  The European Communities describes LA/MSF as repayable, project-specific debt financing 
granted to Airbus for the purpose of developing LC A.  According to the European Communities, the 
terms and conditions of the challe nged LA/MSF contracts vary consider ably, both within and between 
the relevant EC member States, depending upon the particular Airbus LCA project supported.2380  
                                                      
2373 EC, FWS, paras. 457-458; and EC, SNCOS, para. 80, both submissions quoting Subsidies 
Disciplines Requiring Clarification and Improvement , Communication from the United States dated 
19 March 2003, TN/RL/W/78, p. 5. 
2374 EC, FWS, para. 467; EC, SWS, para. 157; EC, SNCOS, para. 84; EC, SCOS, paras. 46-56. 
2375 EC, FWS, paras. 465 and 469. 
2376 EC, FWS, para. 464-477; EC, SCOS, paras. 46-56. 
2377 EC, SWS, para. 157; EC, SNCOS, paras. 80-86. 
2378 EC, Answer to Panel Question 67. 
2379 EC, FWS, paras. 479-553; EC, SWS, paras. 158-214; EC, Answer to Panel Question 170. 
2380 EC, FWS, paras. 291, 302.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  However, it recognizes that in general, a number of si milarities can be identified in terms of the type 
or form of financing provided under each contract.  For instance, the European Communities explains that repayments under each of the LA/MSF contracts are,  in general, linked to aircraft deliveries in the 
sense that they are made through the application of graduated, per-aircraft, levies that increase over 
the course of the repayment period.
2381  Moreover, the European Comm unities asserts that for certain 
LA/MSF contracts, royalty payments are required on ce the full amounts of principal and interest have 
been amortized through the operation of the per-a ircraft repayment levies.  Thus, the European 
Communities explains that through the operation of per-aircraft levies and/or royalties, the repayment 
mechanism established in the LA/MSF contract s does not depend upon Airbus making profits but 
relies on there being a sufficient number of deliveries of the financed LCA. 
7.343  The European Communities recognizes that these features of LA/MSF result in member 
States assuming a portion of the risk that would otherwise fall on the aircraft manufacturer.  However, the European Communities notes that, in contrast  to the manufacturers themselves, the lender 
governments do not face the risks associated with s ecuring profitable sales in a competitive market.  
In other words, instead of the risk of a return  dependent on profits, the lenders of LA/MSF face only 
the risk that the borrower will fail to build and de liver a sufficient number of aircraft to repay the 
agreed principal and interest.  The European Communities describes this as "development risk" and 
"market risk", and argues that it is no different fro m the type of risk faced by Airbus "risk-sharing 
suppliers".
2382 
7.344  The European Communities presents its own economic studies, addressing all but the 
LA/MSF contracts for the A300 and A310, which it c ontends dismiss the conclusions reached in the 
studies presented by the United States.  The European Communities argues that the studies 
commissioned from Professor Robert Whitelaw of Ne w York University's Stern School of Business 
and International Trade Resources LLC,2383 show that the United States both underestimates the rate 
of return associated with each instance of financing and inflates the appropriate market interest rate 
benchmarks for loans comparable to LA/MSF.2384  According to the European Communities, the 
effective rate of return associated with each  of the challenged measures should be properly 
determined as a function of the delivery forecasts contained in Airbus' business case as well as taxation, considerations which together did not play a role in the calculations of the rates of return 
advanced by the United States.
2385  Moreover, the European Commun ities asserts that the appropriate 
market interest rate benchmark for all LA/MSF contracts should apply a project-specific risk premium 
derived from "risk-sharing supplier" contracts for the A380 that is less than half the value used by the 
United States.2386  Nevertheless, the European Commun ities recognizes that even accepting the 
entirety of the conclusions reached in the economic  studies it has presented, the effective rates of 
return associated with the LA/MSF contracts are, in most cases, below the market benchmark for 
comparable financing.  However, it argues that when the costs associated  with the public policy 
                                                      
2381 EC, FWS, paras. 319-321. 
2382 EC, FWS, paras. 303-307. 
2383 Robert Whitelaw, Economic Assessment of member State Financing , 3 February 2007 (hereinafter 
"Whitelaw Report"), Exhibit EC-11 (BCI/HSBI); Robert Whitelaw, Rebuttal Report , 24 May 2007 (hereinafter 
"Whitelaw Rebuttal Report"), Exhibit EC-656 ( BCI/HSBI); International Trade Resources LLC, Calculating 
Magnitude of the Subsidies Provided to the Recipient Entities , 5 February 2007 (hereinafter "ITR Report"), 
Exhibit EC-13 (BCI/HSBI); International Trade Resources LLC, Answer to US Assertions that ITR's Method of 
Calculating the Magnitude of Subsidies is Flawed , 21 May 2007 (hereinafter "ITR Report (Answer)"), Exhibits 
EC-660 (BCI/  HSBI); and Inte rnational Trade Resources LLC, Updated Subsidy Magnitude and Cash-Flow 
Calculations , 12 July 2007) (hereinafter "ITR Report (Update"), Exhibit EC-839 (BCI). 
2384 EC, FWS, paras. 487-498; EC, SWS, paras. 168- 198; EC, SNCOS, paras. 88-111.  The European 
Communities argues that the same methodological errors exist in resp ect of the benchmark rates of return 
calculated for the LA/MSF contracts relating to the A3 00 and A310.  EC, Answer to Panel Question 77. 
2385 EC, FWS, paras. 482, 536-547. 
2386 EC, FWS, paras. 481, 483-535. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  obligations of each contract are taken into account, th e difference between the effective rates of return 
and market interest rate benchmarks set out  in its own economic studies is eliminated.
2387  Thus, the 
European Communities concludes that any financ ial contributions made through the challenged 
LA/MSF measures do not confer a "benefit" on Airbus, within the meaning of Article 1.1(b) of the 
SCM Agreement. 
(ii) Arguments of Third Parties 
Australia  
7.345  Australia agrees with Br azil that other Airbus risk sharing suppliers are not appropriate as an 
element in determining a commercial benchmark for assessing benefit because the terms for risk-
sharing suppliers may be distorted by the govern ment finance contributed for the underlying 
project.2388 
7.346  Australia rejects Korea's argument about market failure situations.  The major implication of 
accepting Korea's statement for Australia, is to allo w different standards for establishing subsidisation 
within narrowly defined goods markets that have been  distorted by widespread market intervention.  
Therefore, Australia does not agr ee that because a market is distorted, a government measure may not 
constitute a financial contri bution conferring a benefit. 2389 
7.347  Australia contends that the Panel should avoid r eading additional requirements into the text of 
Article 14(b) and defining the market too narrowl y.  Article 14(b) establishes benefit based on a 
"comparable commercial loan" actually obtainable on th e market.  It further contends that in the 
narrowly defined market of LCA production in Eu rope, government intervention has distorted the 
terms and conditions of loans available to Airbus co mpanies, so that most transactions are not purely 
commercial.  However, Australia argues that it ma y be possible to find comparable commercial loans 
in the market for engineering projects involving long term, high-risk loans for large amounts of capital and that operate on a commercial basis.   Australia specifically refers to the Panel Report in 
Japan – DRAMs (Korea) which provides some guidance on the evidentiary standard for determining 
the existence of "benefit" in circumstances wher e there are no comparable commercial loans which 
could actually be obtained on the market.
2390 
Brazil  
7.348  Brazil first observes that in this proceedi ng, the European Commun ities refused to consent 
to three requests by the United States to in itiate the procedures under Annex V of the 
SCM Agreement, and that it also failed to respond fully to questions and "follow-up" questions from 
the Annex V Facilitator.  This, according to Brazil, severely prejudiced the rights of third parties to 
protect their interests in this proceeding wi thin the meaning of Article 10 of the DSU.2391 
7.349  Brazil submits that in the interest of the ti mely and efficient resolution of disputes and 
consistent with the text of Annex V, Members s hould consent to the initiation of Annex V procedures 
and should fully cooperate in providing requested in formation, particularly because information about 
subsidies is often only available to the subsidizi ng Members. Thus, Brazil encourages the Panel to use 
                                                      
2387 EC, SWS, paras. 162-167; EC, Answer to Panel Question 170. 
2388 Australia, Answers to Third Party Panel Questions, para.1 . 
2389 Australia, Answer to Third Party Panel Questions, para.2 . 
2390 Australia, Answer to Third Party Panel Questions, para. 3 referring to Panel Report, Japan – 
Countervailing Duties on Dynamic Random Access Memories fr om Korea ("Japan – DRAMs (Korea)") , 
WT/DS336/R, adopted 17 December 2007, as modifi ed by Appellate Body Report WT/DS336/AB/R, 
para 7.276. 
2391 Brazil, Third Party Submission, para. 6.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  its discretion under paragraph 7 of Annex V of the SCM Agreement to draw adverse inferences where 
appropriate and thereby adopt effec tive sanctions to ensure that Anne x V remains an effective tool for 
the resolution of disputes under the SCM Agreement. 2392 
7.350  Brazil submits that, through "LA/MSF", Airbus governments provide below-market interest 
rates loans for the development of new Airbus aircraft or new models  of existing aircraft.2393  It 
contends that the repayment of principal (and possi bly repayment of interest) on the LA/MSF loans is 
contingent on the successful sale of a specified number of the finished aircraft. 2394   
7.351  Brazil submits that repayment schedules fo r LA/MSF are back-loaded by the Airbus 
governments, which assume Airbus's risks by a llowing smaller levy paym ents on earlier deliveries 
and progressively larger payments on later deliverie s.  In some cases, the Airbus governments have 
allowed Airbus to forego levies entirely on an initial tranche of deliveries. This, according to Brazil, 
minimizes the debt service during the early years of  Airbus's programmes. In addition, Brazil argues 
that the tie between repayments and deliveries results  in a significant lag between the granting of the 
LA/MSF and the first repayment.  Thus, LA/MSF conf ers a "grace period" to the beneficiary during 
the crucial and costly stages of development.  Mo reover, if the expected delivery schedule slips and 
further repayment is pushed out in time, the comme rcial and financial benefits to Airbus increase.2395   
7.352  Brazil asserts that LA/MSF is a subsidy that is particularly distortive to competition2396 
because it shifts the up-front expense and commercial risk of developing new aircraft to taxpayers, 
allowing its beneficiary to move more aggressively  forward on investment and production decisions 
that would otherwise be abandoned or postponed,  and to offer discounted commercial terms to 
customers. 2397  
7.353  Brazil rejects the European Communities' conten tion that the special characteristics of the 
LCA industry justify subsidies inconsistent with a Member's WTO obligations.  It asserts that 
LA/MSF is not a necessary condition for participa tion in the aircraft market and should not be 
sanctioned when it violates the SCM Agreement.2398    Instead, Brazil acknowledges that an aircraft 
that is developed with assistance provided by LA /MSF would not necessarily, in the counterfactual 
situation, be introduced in the market without th e subsidy, because the aircraft market without the 
existence of LA/MSF would not be the same as the market which is severely distorted by this type of 
subsidy.2399 
7.354  Brazil agrees with the United States that a benef it corresponds to some form of advantage and 
that it can be identified by determining whether th e recipient has received a financial contribution on 
terms more favourable than those available to the recipient in the commercial market.2400  However, 
Brazil  finds no support in the SCM Agreement for the European Communities' proposition that 
                                                      
2392 Brazil, Third Party Submission, para. 5 and 7. 
2393 Brazil, Third Party Submission, paras. 26-27. 
2394 Brazil, Third Party Submission, para. 32. US, FWS, paras. 129-135. 
2395 US, FWS, paras. 129-135. 
2396 Brazil, Third Party Submission, paras. 26-27. 
2397 Brazil, Third Party Submission, para. 27. 
2398 Brazil generally observes that subsidies are not a requirement for the development and launch of 
new aircraft, even if a producer is located in a develo ping country.  By way of an example, it notes that, to 
finance the design and development of its 70-118 seat family of aircraft, EMBRAER did not rely on government support, but funded the USD 1 billion in development costs w ith an initial public offering of stock, contributions 
from risk-sharing partners, and its retained earnings.  Brazil, Third Party Submission, para. 28. 
2399 Brazil, Third Party Submission, para. 28. 
2400 US, FWS, para. 110. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  assessment of benefit be based solely on the reasonableness of sales forecasts.
2401  Brazil considers 
that the European Communities' proposition that th e recipient does not receive any benefit because 
"his repayment obligations (...) provide the government with sufficient guarantees of return", does not 
address the correct standard to determine the existence of a benefit. 2402 
7.355  According to Brazil, the Panel should find that  LA/MSF confers a benefit if the terms and 
conditions on which it is provided, are more favourable than available in the commercial market, or if 
no such aid would, in fact, be available in the commercial market.2403  For Brazil, the terms set out in 
Article 4 of the 1992 Agreement may give an indica tion of the cost to the granting government only, 
but cannot be taken as context for the interpretati on of the term "benefit" in Article 1 of the 
SCM Agreement.  In addition, Brazil finds nothing in the text of Article 4 (like Article 14 of the 
SCM Agreement, for example) that could, according to the WTO jurisprudence, have a bearing on the 
interpretation of the term "benefit".2404  
7.356  Brazil maintains that the terms and cond itions of LA/MSF are not comparable to 
commercially available financing2405 because they do not reflect the risks associated with the 
development of new aircraft, particularly the risk s in deciding whether to launch a new aircraft 
family.2406  In fact, Brazil considers that the United States has presented a prima facie  case that 
LA/MSF granted without any interest obligation c onfers a benefit on Airbus.  Specifically, Brazil 
argues that LA/MSF confers a benefit because the Ai rbus governments do not require Airbus to pay a 
commercial rate of interest giving due consideration to the credit risk  of Airbus, the development risk, 
i.e., the risk that Airbus will fail in its attempt to  design and build the new aircraft, and the market 
risk, i.e., the risk that Airbus will fail to deliver en ough completed aircraft to repay principal and 
interest.  Given the nature of LA/MSF, the comme rcial benchmark, according to Brazil, should take 
into consideration the risks inherent in the devel opment and marketing of new aircraft, the nature of 
the LA/MSF (including its success-dependent and b ack-loaded features and lack of security), the 
relevant interest rates (including the nature of a ny obligation to pay interest), the fact that credit 
ratings are affected by the expectation of con tinuing government support, and any other preferential 
features, including the waiver of normal fees.2407   
7.357  Brazil further argues that when the LA/MSF does re quire the payment of interest or royalties, 
that aid confers a benefit on Airbus.  Brazil consid ers that the additional statements by officials from 
                                                      
2401 Brazil, Third Party Submission, para. 29 citing to the European Communities Oral Statement, 
para. 61. 
2402 Brazil, Third Party Submission, para. 29 citing to the European Communities Oral Statement, 
para. 61. For Brazil, "sufficient guarantees of return" for a government may not be – and most likely are not – sufficient guarantees of return for an institution co nstrained by market disciplines. Brazil, Third Party 
Submission, paras. 26-27. 
2403 Brazil, Third Party Submission, para. 29. 
2404 Brazil, Third Party Submission, para. 30.  To this end, Brazil relies on the Appellate Body finding 
in Canada  – Aircraft,  that Article 14 of the SCM Agreement  provides relevant context for determining whether 
a benefit was conferred within the meaning of Article 1.1(b) of the SCM Agreement.  Appellate Body Report, 
Canada  – Aircraft I, paras. 153, 155, and 158.  Brazil al so agrees with the Panel's finding in Canada  – Aircraft I  
that a financial contribution in the form of LA/MSF confers a benefit if the provider of such aid "neither seeks nor earns a commercial rate of return."  Panel Report, Canada-Aircraft , para. 9.314. 
2405 Brazil, Third Party Submission, para. 29. 
2406 Brazil notes that the development of LCA is ri sky and expensive, requiring significant up-front 
investments to be undertaken with returns contingent on sa les far in the future.  Moreover, there is a risk that the 
predicted manufacturing costs, performance criteria, and sale s prices will not be achieved.  If the project fails, 
the initial up-front investments or non-recurring costs are lost.  Brazil, Third Party Submission, para. 31. 
2407 Brazil, Third Party Submission, para. 34.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  member States of the European Communities and by Airbus further demonstrate that LA/MSF confers 
a benefit on Airbus.2408 
7.358  Brazil takes issue with Korea's argument that in  determining what is the appropriate market 
benchmark against which to measure whether a give n financial contribution confers benefit, "it is 
necessary to acknowledge that under particular circ umstances, the general market may encounter a 
systematic failure or {that} an undistorted commercia l market does not exist in a particular sector".2409  
It contends that market failure occurs where, fo r example, a market cannot operate because the goods 
or services cannot be provided on a commercial basis or  where the market, left to its own, yields an 
allocation of resources that is sub- optimal.  It explains, relying on th e general economic theory, that in 
the former situation, the government takes on the ro le of provider of the goods or services involved, 
and, in the letter, the private sector may provi de the goods or services, with the government 
intervening as regulator to ensure th at resource allocation becomes optimal.2410  
7.359  Brazil maintains that there is no "market failure" in the aircraft industry, and points that the 
parties do not allege it either.  Thus, even if the existence of "market failure" has any relevance under 
the SCM Agreement as Korea posits, the Panel does not  need to address the possible implications of 
this issue in the present dispute.   
7.360  In Brazil's view, the existence of a benefit s hould be determined based on a comparison of the 
financial contribution to a comparable benchmark av ailable in the commercial market, normally of the 
subsidizing Member.  Where a comparable commercia l benchmark, does not exist, for example, the 
domestic market may be so distorted by governme nt intervention that an objective, comparable 
commercial benchmark is not available, this, accord ing to Brazil, should not be prejudicial for the 
recipient of the challenged financial contribution (and should not, in and of itself, lead to an 
affirmative benefit determination). Rather, unde r these circumstances, a panel may rely on a 
reasonable and unbiased estimate of a comparable commercial benchmark, including based on a benchmark available in th e international market.
 2411 
Canada  
7.361  Canada rejects the Brazil's argument that subsid ies for the underlying project distort the terms 
and conditions for risk-sharing suppliers such that  they cannot be considered appropriate as an 
element in determining a commercial benchmark for assessing the question of benefit with respect to LA/MSF, as this approach is not supported by the te xt of the SCM Agreement.  If followed, it would 
leave WTO Members with little, if any, guidance as to how they should benchmark public sector 
financing if they wish to ensure it does not provide a subsidy.  Canada recalls that a similar argument 
was advanced by the United States in US – Softwood Lumber IV , that the term "market conditions" as 
used in Article 14(d) necessarily implies a mark et undistorted by the government's financial 
contribution.  In that dispute the Appellate Body stated:  "
In our view, the United States' approach 
goes too far.  We agree with the Panel that "{t}he text of Article 14 (d) {of the} SCM Agreement 
does not qualify in any way the 'market' conditions which are to be used as the benchmark … 
                                                      
2408 Brazil, Third Party Submission, para. 35 referring to US, FWS, paras. 152-157. 
2409 In its Third Party Submission, Korea argues that when a panel is confronted with the factual 
circumstances of market failure, "the benchmark to determine whether a government action at that particular 
time confers a benefit should be different from one that is  based on the action of a private investor operating in a 
normal and fully functional market. ... {and}  As a result, a government measure may not constitute a financial 
contribution conferring a benefit in that pa rticular context, as it might otherwise do."   Korea, Third Party 
Submission, para. 63. 
2410 Brazil, Answer to Third Party Panel Question 2, para. 1 referring to Brian R. Binger and Elizabeth 
Hoffman, Microeconomics With Calculus (Glenview: Illi nois, 1988), p. 542 (stating that "competitive markets 
do not allocate externalities and public goods efficiently"). 
2411 Brazil, Answer to Third Party Panel Question 2, para. 2-4. WT/DS316/R 
Page 392  
BCI deleted, as indicated [***] 
 
  {a}s such, the text does not explicitly refer to a 'pure' market, to a market 'undistorted by 
government intervention', or to a 'fair market value'."2412 
Korea  
7.362  Korea relies on the Appellate Body report in Canada – Aircraft,  and the Panel report in Brazil 
– Aircraft in arguing that, in order to demonstrate that a contribution confers a benefit, the 
contribution must be (1) provided to the recipien t (2) on terms more advantageous than (3) those 
available on the market.  All three criteria mu st be fulfilled separately and individually. 2413 With 
regard to the first element, Korea considers that a benefit exists only where an enterprise targeted by 
an investigation is the actual beneficiary.  It considers that the second element requires a detailed 
inquiry, which would include examination of the ci rcumstances under which a financial contribution 
is provided.  With regard to the third element, Korea generally considers that the commercial market 
will provide an appropriate benc hmark for the comparison of the terms available for a certain 
investment or transaction, unless, as acknowledged by the Appellate Body in US – Certain Products 
from the EC , in particular circumstances, the general ma rket encounters a systematic failure, or an 
undistorted commercial market does not exist in a particular sector. 2414 
7.363  Korea argues that in determining what is the appropriate market benchmark against which to 
measure whether a given financial contribution co nfers benefit, it is necessary to acknowledge that 
under particular circumstances, the general market may encounter a systematic failure or that an 
undistorted commercial market does not exist in a par ticular sector. It asserts that when a panel is 
confronted with such factual circumstances, the benchmark to determine whether a government action 
at that particular time confers a benefit should be different from one that is based on the action of a 
private investor operating in a normal and fully functional market. As a result, a government 
measure may not constitute a financia l contribution conferring a benefit in that particular context, as it 
might otherwise do.2415  
7.364  Accordingly, Korea argues that the United Stat es cannot plainly state that a benefit is 
conferred, rather the Panel should closely ex amine whether the United States has established a prima 
facie  case as to three criteria set forth by the Appellate Body in Canada – Aircraft. 2416 
(iii) Evaluation by the Panel 
7.365  As we have previously noted, a "subsidy" is de fined in Article 1.1 of the SCM Agreement by 
reference to two discrete elements: a "financial contribution by a government or any public body within the territory of a Member" (Article 1.1(a)(1)) and the conferral of a "benefit" 
(Article 1.1(b)).
2417  Although the United States has addressed both elements of this definition in 
presenting its complaint, the European Communi ties has focused its defence entirely upon the 
question whether LA/MSF confers a "benefit".  Thus, the European Communities has not contested the United States' allegation that each of the challenged LA/MSF measures involves a "financial 
contribution" within the meaning of Article 1.1(a)(1)(i) of the SCM Agreement. 
7.366  We are mindful that pursuant to Article 11 of th e DSU, we are required to make an objective 
assessment of the matter identified in our terms of reference.  This includes assessing whether the 
                                                     
 
2412 Canada, Answer to Third Party Panel Questions, para. 1-2, referring to Appellate Body Report, US 
– Softwood Lumber IV , para 87. 
2413 Korea, Third Party Submission, para. 54-58. 
2414 Korea, Third Party Submission, para. 62. 
2415 Korea, Third Party Submission, para. 63. 
2416 Korea, Third Party Submission, para. 66. 
2417 It is also defined as "any form of income or price support in the sense of Article XVI of GATT 
1994" (Article 1.1(a)(2)) that confer s a "benefit" (Article 1.1(b)).    WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  United States has presented a prima facie  case demonstrating that the challenged LA/MSF measures 
are subsidies within the meaning of the SCM Ag reement, irrespective of whether the European 
Communities contests any one or more of the United States' allegations.2418  Thus, we begin our 
evaluation of the merits of the United States' co mplaint by examining whether it has established a 
prima facie case that the challenged LA/MSF measures are "financial contributions".  In this context, 
we recall that "a prima facie case is one which, in the absence of effective refutation by the defending 
party, requires a panel, as a matter of law, to rule in favour of the complaining party presenting the prima facie case".
2419  Thereafter, we examine whether the Un ited States has demonstrated that each 
of the "financial contributions" we find to exis t confers a "benefit" on the recipients, within the 
meaning of Article 1.1(b) of the SCM Agreement.  However, before embarking upon this evaluation, 
we believe it is useful to first provide a brief overview of the economic and competitive context in 
which LCA are developed as well as the key features of LA/MSF.2420 
Overview of LCA Development and Key Features of LA/MSF  
7.367  Both parties agree that an outstanding feature of  LCA development is that significant start-up 
costs must be incurred a long time before revenues fr om the projects associated with those costs are 
generated.2421  Consequently, bringing a new LCA model to market requires long-term planning and 
advance assessment of a wide variety of factors, in cluding future manufacturing needs, market trends, 
customer demand and prices.  This means that at the time a decision is taken to develop a new LCA model and to incur start-up costs, the eventual succe ss of the project remains subject to a high degree 
of uncertainty.  According to th e European Communities, the fortun es of a new LCA project may be 
affected by unexpected market slow-downs, e xogenous price movements of complementary goods 
(e.g., fuel), exchange rate fluctuations, political de velopments, terrorist attacks, war and other security 
issues and even human health risks such as SARS.
2422  Thus, the development of LCA is an endeavour 
that requires "huge up-front investments"2423 and a commitment of "tremendous resources"2424 in the 
face of a business environment that is shaped by factors "whose ve ry foreseeability is impossible by 
definition".2425  The European Communities asserts that these "unique" features of the LCA industry 
have made it susceptible to a high degree of gove rnment intervention both in terms of financial 
support and international regulation.  Indeed, th e European Communities suggests that given the 
nature of the LCA industry, such levels of gove rnment intervention "may even be considered 
natural".2426 
7.368  At present, the worldwide market for LCA is  divided between essentially two manufacturers 
– Airbus and Boeing.2427  This effective duopoly has existe d since 1997 when Boeing merged with 
                                                      
2418 See, Panel Report, United States – Anti-Dumping Measure on Shrimp from Ecuador ("US – Shrimp 
(Ecuador) "), WT/DS335/R, adopted on 20 February 2007, paras. 7.1-7.11. 
2419 Appellate Body Report, EC – Hormones , para. 104, citing Appellate Body Report, US – Wool Shirts 
and Blouses , p.14. 
2420 A more detailed exposition of the LCA industry's economic and competitive landscape is set out at 
paras. 7.367-7.372 and in Section VII.F of this Report, where we evaluate the United States' claims of adverse 
effects under Article 5 of the SCM Agreement. 
2421 US, FWS, paras. 112-115; EC, FWS, paras. 27-32; Dorman Report, Exhibit US-70 (BCI), pp. 1-2. 
Airbus launched the A380 on 19 December 2000 and made its first delivery on 15 October 2007. 
2422 EC, FWS, paras. 28 and 32. 
2423 US, FWS, para. 112. 
2424 EC, FWS, para. 31. 
2425 EC, FWS, para. 30. 
2426 EC, FWS, para. 33. 
2427 The United States asserts that although limited LCA production has continued in Russia, Russian 
LCA producers do not seriously compete with Airbus and Boeing for sales outside of the former Soviet bloc, leaving Airbus and Boeing as the only credible competitors operating in the LCA market. US, FWS, para. 711, WT/DS316/R 
Page 394  
BCI deleted, as indicated [***] 
 
  McDonnell Douglas, one of two other United States ' companies active in the manufacture of LCA 
over the past 30 years.
2428 
7.369  As we have previously noted, Ai rbus has existed, in one corporate form or another, as a single 
economic entity active in the LCA business for over 35 years.2429  Since its establishment in 1970, the 
governments of France, Germany, Spain and the UK have to varying degrees entered into LA/MSF 
agreements with Airbus for the purpose of funding the development of six new models of LCA (the 
A300, A310, A320, A330, A340 and A380) as well as three variants (the A330-200 and A340-500/600).
2430  The proportion of development costs fina nced through LA/MSF has diminished over 
the years, from close to 100% for the early projects (the A300 and A310)2431 down to a maximum of 
33% of development costs for LCA projects financed  after the entry into force of the 1992 Agreement 
(the A330-200, A340-500/600 and A380).2432   
7.370  Initially, funding for Airbus' first LCA models  (the A300 and A310 – respectively launched in 
1969 and 19782433) was contracted at the inter-governmental  level through a series of agreements 
between participating EC member States.2434  These first inter-governmental agreements not only 
expressed the relevant EC member States' commi tment to fund the development of the A300 and 
A310, but also some of the key terms and conditions attached to the provision of financing, such as 
the amount of funds to be disbursed and the mode of repayment.2435  Separate contracts implementing 
the agreements, in the context of one or more different aspects or phases of the two LCA projects, 
were entered into at the national level between each financing EC member State and the Airbus 
"associated manufacturer" locat ed within its territory.2436  Similarly, LA/MSF for the A320 and 
                                                                                                                                                                     
footnote 875.  A more detailed description of the conditions of competition in the LCA market and the 
competitive positions of Airbus and Boeing is set out in Section VII.F of this Report.   
2428 Apart from McDonnell Douglas, the only other credible United States' manufacturer of LCA was 
Lockheed, which abandoned its LCA activities in 1981.  US, FWS, para. 711. 
2429 See, Section VII.E.1(a), para. 7.183 and Attachment to Section VII.E.1 of this Report, following 
para. 7.289 above. 
2430 Other variants of Airbus LCA models that we understand are not the subj ect of the United States' 
complaint against LA/MSF include the A318, A319 and A321. 
2431 The French and Spanish governments funded approximately 100%, and the German government 
90%, of the development costs of the A300 and A310 (basic versions).  The same three governments funded 
between 64% and 85% of the development costs of the derivatives of these two models of LCA.  EC, Answer to 
Panel Question 254.  See, also , ITC Hearing, Inv-No. 332-332, Global Competitiveness of US Advanced 
Technology Manufacturing Industries: Large Civil Aircraft , testimony of Michel D echelotte, Director of 
International Affairs, Airbus G. I.E., at 208 (15 April 1993), lines 11, 12 and 20-23, Exhibit US-46; 1997 Sénat 
Report, at 63, 68, Exhibit US-18; and Boletín Oficial de las Cortes Generales, Congreso de los Diputados, Cuenta General del Estado de 1992, Serie A, Núm. 34, at 122 (13 January 1997), Exhibit US-19. 
2432 See, e.g., French A330-200 contract, Article 3, Exhibit EC-90 (BCI); French A340-500/600 
contract, Article 3, Exhibit EC-91 (BCI); French A380 contract, Article 3, Exhibit EC-92 (BCI); German A380 contract, Article 5.3, Exhibit EC-85 (BCI); Spanish A340-500/600 contract, Preamble, Recital 9, Clause 2, 
Exhibit EC-87 (BCI); Spanish A380 contract, Preamble, Recital 4, Clause 2, Exhibit EC-88 (BCI); UK A380 
contract, Clause 5.6, Exhibit EC-89 (BCI). 
2433 US, FWS, paras. 169-171; EC, FWS, para. 76. 
2434 1969 A300 Agreement, Exhibit US-11; 1971 A300 Agreement, Exhibit EC-992 (BCI); 1981 A310 
Agreement, Exhibit EC-942 (BCI).   
2435 1969 A300 Agreement, Articles 6 and 7, Exhibit US-11; 1971 A300 Agreement, Exhibit EC-992 
(BCI); 1981 A310 Agreement, Articles 8 and 9, Exhibit EC-942 (BCI). A more detailed description of the provisions found in these Agreements is set out at paras. 7.533 - 7.554 below. 
2436 In Answer to Panel Question 78 asking it to s ubmit copies of the LA/MSF contracts for the A300 
and the A310, the European Communities submitted copies of: (i) 29 separate Agreements, Protocols and Conventions, and amendments thereto, between the French  government and Aérospatiale relating to the A300, 
Exhibit EC-603 (BCI), and 10 separate Protocols and Conventions between the same parties relating to the 
A310, Exhibit EC-604 (BCI); (ii) two "model contracts" evidencing th e German government's provision of 
LA/MSF to Deutsche Airbus GmbH for the A300, Exhibit EC-601 (BCI), and the A310, Exhibit EC-602 (BCI);  WT/DS316/R 
 Page 395 
 
BCI deleted, as indicated [***] 
 
  A330/A340 projects, respectiv ely launched in 1984 and 1987,2437 was agreed between the 
participating governments,2438 and implemented at the national level through separate contracts 
between each relevant EC member State and the Ai rbus "associated manufacturer" located within its 
territory.2439  However, unlike the inter-governmental ag reements for the A300 and A310, the inter-
governmental agreements for the A320 and A330/A34 0 were less prescriptive.  For instance, they did 
not specify precise repayment terms, leaving these to  be determined through the individual contracts 
negotiated at the national level.2440 
7.371  No inter-governmental agreements  were concluded in the contex t of the LA/MSF provided by 
the governments of France and Spain for the A330-200 and A340-500/600 projects (respectively 
launched in 1995 and 19972441), nor in the context of the LA/MSF provided by the governments of 
France, Germany, Spain and the UK for the A380 (launched in 2000).2442  Instead, for these projects it 
appears that the EC member States entered into se parate national-level contracts, setting forth all 
relevant terms and conditions, w ith Aérospatiale and CASA (in respect of the A330-200 and A340-
500/600 projects) and with Airbus France, Airbus  Deutschland GmbH, EADS Airbus S.L. (Spain), 
BAE Systems (Operations) Ltd and British Aerospace PLC (in respect of the A380).2443 
                                                                                                                                                                     
and (iii) 16 separate Contracts and amendments theret o, between the Spanish government and Construcciones 
Aeronáuticas S.A. relating to the A300, Exhibit EC-605 (BCI), and eight separate Contracts between the same 
parties relating to the A310, Exhibit EC-606 (BCI).  We note that some of the national-level contracts were 
entered into, and involved the transfer of funding to Airbus, before the formal launch of the respective LCA 
models or conclusion of the relevant inter-governmental agreement. 
2437 US, FWS, paras. 189 and 211; EC, FWS, paras. 79, 82 and 84. 
2438 1991 A320 Agreement, Exhibit US-16; 1995 A330/A340 Agreement, Exhibit US-28 (BCI). 
2439 The national-level contracts include: the French A320 contract, Exhibit EC-83 (BCI); the German 
A320 contract, Exhibit EC-95 (BCI); the 1992 Spanish A320 contract, Exhibit EC-93 (BCI); the UK A320 
contract, Exhibit EC-94 (BCI); the French A330/A340 contract, Exhibit EC-96 (BCI); the 1988 Spanish 1988 
A330/A340 contract, Exhibit EC-84 (BCI); and the UK A330/A340 contract, Exhibit EC-86 (BCI).  As we have previously noted (footnote 2257 above), the European Communities has recognized that the German 
government entered into a LA/MSF contract with Deutsche Airbus GmbH for the A330/A340 project.  
Although asked by the Panel to submit a copy of this contract (Panel Question 253), the European Communities did not do so.  In addition, we note that in at least one instance – French LA/MSF for the A320 – funding was 
provided to Airbus for "preliminary work" undertaken in the context of the A320 before it was actually launched 
and prior to the conclusion of the relevant inter-governmental agreement.   
2440 See, 1991 A320 Agreement, Articulo 8, Exhibit US-16; 1995 A330/A340 Agreement, Articulo 8, 
Exhibit US-28 (BCI). 
2441 US, FWS, paras. 234 and 243; Exhibit EC-597 (HSBI). 
2442 US, FWS, para. 260; EC, FWS, para. 85.  The Un ited States suggests that  the four EC member 
States financing the A380 entered into an inter-governmental agreement concerning the A380 in June 2003 – the 
Agreement of 16th June 2003 signed at Paris-Le Bourget between the Ministers of the Four Principal Airbus 
Countries and Airbus, Exhibit US-122 (BCI).  US, FWS, paras. 271, 280, 288 and 297.  However, we note that 
the Agreement cited by the United States does not deal with the A380 project in the same way that previous 
inter-governmental agreements specifically addressed the development of Airbus' predecessor LCA models.  To begin with, Airbus is a party to the 2003 Agreement, whereas it was not party to the previous inter-
governmental agreements.  Moreover, no specific obligation to fund Airbus  projects is actually undertaken by 
the governments.  The recitals of the Agreement only express the governments' "willingness ... to continue to 
provide support to Airbus such as launch investment, research and technology investment and aircraft export 
sales financing".  The same recitals also reveal Airbus' "willingness to provide information to {the 
governments}  for the purpose of enabling them to formulate policy relating to Airbus and to ensure that 
obligations incurred when support is provided are met".  Thus, we do not consider it appropriate to characterize 
the 2003 Agreement as an "inter- governmental agreem ent" of the same kind as the inter-governmental 
agreements that existed in  respect of the previous models of Airbus LCA. See, further, paras. 7.549 - 7.554 
below. 
2443 French A330-200 contract, Exhibit US-78 (BCI); French A340-500/600 contract, Exhibits US-
35 (BCI) and EC-91 (BCI); French A340-500/600 convention, Exhibit US-36 (BCI); and Spanish A340-WT/DS316/R 
Page 396  
BCI deleted, as indicated [***] 
 
  7.372  Thus, in summary, the contractual framewor k of the challenged LA/MSF measures takes 
essentially two forms: (i) inter-governmental agre ements implemented th rough individual national-
level contracts or other legal instruments entered into by each relevant EC member State government 
in favour of the Airbus entity located in its territory ; or (ii) individual contracts between each relevant 
EC member State government and the Airbus entity located in its territory.  Although the terms and 
conditions of each of the legal instruments maki ng up the contractual framework of the challenged 
LA/MSF measures can vary significantly, we agree w ith the parties that numerous similarities in the 
type and form of financing can be found.
2444 
7.373  In terms of the disbursement of funds, the contr acts that are before us appear to envisage two 
mechanisms.  First, in many cases, funds are transfer red in advance of actual development costs being 
incurred, usually on the basis of projected expenditu re.  When funds are disbursed in advance, costs 
actually incurred may be subsequently audited or reviewed by the governments and the funding 
amounts adjusted to ensure that total borrowing do es not exceed the level of development costs it was 
agreed would be financed.2445  Second, disbursements up to the agreed amounts may be made after 
actual costs have been incurred.2446 
7.374  Repayment of LA/MSF takes essentially the same form under each contract.2447  In almost all 
cases, Airbus is required to reimburse all funding cont ributions, plus any interest at the agreed rate, 
exclusively from revenues generated by deliv eries of the LCA model that is financed.2448  S u c h  
repayments are made in the form of per-aircr aft levies and follow a pre-established repayment 
schedule.2449  Usually, repayments start with the delivery  of the first aircraft.  However, in some 
instances, repayment begins only after Airbus has made a specified number of aircraft deliveries.2450  
                                                                                                                                                                     
500/600 contract, Exhibits US-37 (BCI) and EC-87 (BCI); French A380 contract, Exhibit US-116 (BCI); 
German A380 contract, Exhibit US-72 (BCI); Spanish A380 contract, Exhibit US-73 (BCI); and UK A380 
contract, Exhibit US-79 (BCI).  In 1999, British Aerospace merged with Marconi Electronic Systems to become 
BAE Systems, see footnote 2057. 
2444 US, FWS, paras. 116-136; EC, FWS, paras. 291, 308-327. 
2445 EC, FWS, paras. 316-318.  See, in particular, French A380 contract, Article 3 and Annex 4; 
German A380 contract, Articles 4.2, 4.3 and 5.3; Spanis h A380 contract, Tercera an d Quinta Clausula; French 
A340-500/600 contract, Article 4 and Annex 4; Spanish A340-500/600 contract, Segunda and Tercera Clausula; French A330-200 contract, Article 4 and Annex 4; French A330/A340 contract, Article 4; Spanish 1988 
A330/A340 contract, Clausula 4; French A320 contract, Article 3; Spanish 1992 A320 contract, Primera 
Clausula.  The European Communities asserts that the same disbursement mechanism was applied in respect of the French A300 and A310 LA/MSF contracts; the German A330/A340, A320, A310 and A300 LA/MSF 
contracts; and the Spanish A300 and A310 LA/MSF contracts.  EC, Answer to Panel Questions 255 and 256.   
2446 UK A380 contract, Article 5; UK A330/A340 contract, Article 2.2; and UK A320 contract, 
Article 2.2. 
2447 US, FWS, paras. 116-136, 173-177 (A300/A310), 190-194 (A320), 214-218 (A330/A340), 236 
(A330-200), 244-245 and 254-255 (A340-500/600); and 266-267, 275, 284 and 292 (A380).  EC, FWS, paras. 319-323. 
2448 French A380 contract, Annexe 2, Article 6; German A380 contract, Article 7; Spanish A380 
contract, Septima Clausula; UK A380 contract, Article 8, Schedule 3; French A340-500/600 contract, Article 6; Spanish A340-500/600 contract, Quinta Clausula; French A330-200 contract, Article 6; 1995 A330/A340 
Agreement, Articulo 8; 1991 A320 Agreement, Articulo 8; 1981 A310 Agreement, Article 9; and 1969 A300 
Agreement, Article 7.  The German government's re payment claims in respect of LA/MSF provided for the 
A300, A310, A320 and A330/A340 were [***]  under a Settlement Agreement that was negotiated in 1989 
between the German government, Daimler Benz, MBB and Deutsche Airbus.  As we read it, this Settlement 
Agreement [***]  the German government's outstandi ng repayment claims at the time [***] . Article 12,  EC-
887 (BCI) and Articles 14(1) and 14(2), EC-887 (HSBI).   
2449 In addition to repayment through progressive  per-aircraft levies, the UK A320 contract [***] . 
2450 Spanish A380 contract, [***] ; UK A380 contract, [***] .  In addition, we note that one of the 
Spanish A330/A340 contracts required repayments to the Spanish government [***] .  Spanish 1990 A330/A340 
contract, Article 5, Exhibit EC-947 (BCI).  Evidence before  us suggests that this was also the case in respect of 
the Spanish A320 contract.  See, Boletín Oficial de las cortes Generales, Congreso de los Diputados, Cuenta  WT/DS316/R 
 Page 397 
 
BCI deleted, as indicated [***] 
 
  Although the amount of the per-aircraft levies varies be tween the different contracts, it appears in all 
cases to be graduated, such that repayment am ounts at the beginning of the repayment period are 
lower than at the end.2451  In addition, for [***]  of the contracts, royalty payments on a per-aircraft 
basis are called for on deliveries made in excess of  the number needed to secure repayment of the 
disbursed principal plus any interest.2452 
7.375  LA/MSF is provided without any guarantee of repayment in the event that Airbus fails to 
make the number of deliveries needed to reimburse the full amount of financing obtained from the EC 
member States.  In other words, the scheduled repayments are not secured by any lien on Airbus assets nor are they guaranteed by any third party.   The European Communities points out that the 
governments' claims on revenues generated from the delivery of LCA are, in some cases, guaranteed 
by one of the companies forming part of the Airbus economic entity.
2453  However, notwithstanding 
this form of guarantee there is no obligation on Airbus (or any company forming part of the Airbus economic entity) to fully (and sometimes even par tially) repay LA/MSF in the event that the delivery 
targets stipulated in the contractual repayment schedules are not achieved.
2454  Thus, we agree with the 
United States that Airbus' obligation to fully re pay the loans provided under the challenged LA/MSF 
measures is entirely dependent upon the success of th e particular LCA project.  The fact that it is 
possible, under certain contracts,2455 for Airbus to make voluntary repayments notwithstanding the 
number of sales achieved, does not, in our view, alter this conclusion. 
Do the Challenged Measures involve a "Financial Contribution"?  
7.376  The United States argues that each of the cha llenged LA/MSF measures involves a "financial 
contribution" in the form of either a direct transfer  of funds or both direct and potential direct transfers 
of funds, within the meaning of Article 1.1(a)(1 )(i) of the SCM Agreement.  In particular, the 
United States argues that the LA/MSF contracts for the A300, A310, A320, A330/340, A330-200 and the A340-500/600 constitute direct transfers of funds inasmuch  as the funding amounts foreseen 
under those contracts have been disbursed as of the date of the establishment of this panel.
2456  As far 
as the LA/MSF contracts for the A380 are concerned,  the United States contends that these measures 
evidence both direct transfers of funds and, to the extent th at certain committed funding amounts have 
yet to be disbursed, potential direct transfers of funds.2457 The United States has submitted various 
pieces of evidence it argues substantiate these assertions.2458  As we have already observed, the 
                                                                                                                                                                     
General del Estado de 1992 , 13 January 1997, p.122, Exhibit US-19; Spanish A320 contract, Clausula Segunda, 
Exhibit EC-93 (BCI). 
2451 French A380 contract, Annex 2, Article 6; German A380 contract, [***] ; Spanish A380 contract, 
Septima Clausula; UK A380 contract, Schedule 3; French A340-500/600 contract, Article 6; French A330-200 contract, Article 6; French A330/A340 contract, Article 6; UK A330/A340 contract, Article 2.4; French A320 
contract, Article 5; German A320 co ntract, Article 18; UK A320 contract, [***] ; 1981 A310 Agreement, 
Article 9; and 1969 A300 Agreement,  Article 7.  The European Communities asserts that a similar graduated 
repayment structure was applied in respect of the Spanish A340-500/600, A330/A340 and A320 LA/MSF 
contracts.  EC, Answer to Panel Question 250; ITR Report, Exhibit EC-597 (HSBI).  As regards the German 
A330/A340 contract, the European Communities has submitted information which suggests that repayments were graduated.  Settlement Agreement, Article 14(2), Exhibit EC-887 (HSBI). 
2452 [***] . 
2453 German A380 contract, [***] ; UK A380 contract, [***] . EC, Answer to Panel Question 65. 
2454 However, we recall that under th e UK A320 contract, Airbus was [***] ; and that pursuant to the 
German A380 contract, it appears that Airbus was [***] . 
2455 German A380 contract, Article 8; Spanish A 380 contract, Septima Clausula; UK A380 contract, 
Article 5.9 and Schedule 3, paragraph 9. 
2456 US, Answer to Panel Question 4. 
2457 US, Answer to Panel Question 4. 
2458 US, FWS, paras. 173-177 (A300/A310), 190-194 (A320), 214-218 (A330/A340), 236 (A330-200), 
244 and 253 (A340-500/600),  266, 274, 283 and 291 (A380), citing inter alia, German Federal Budget 1980, 
Budget Plan 09 (Economics Ministry), Part 02, Chapter 09, Line Item 892 91 - 634, comment to title group 09, WT/DS316/R 
Page 398  
BCI deleted, as indicated [***] 
 
  European Communities does not dispute the United St ates' contention that the challenged measures 
involve "financial contributions".  Moreover, we  note that the evidence the European Communities 
relies upon for the purpose of establishing the amounts of funding provided under several of the challenged measures is identical to that submitted by the United States.
2459 
7.377  On the basis of the arguments and evidence that both parties have presented, it appears to us 
that all of the funds committed under the A300,  A310, A320, A330/A340, A330-200, A340-500/600 
and the UK A380 contracts have already been provided to  Airbus.  To this extent, we believe there is 
no doubt that, as the United States argues, these measures involved direct transfers of funds, and 
therefore, the provision of a "financial contribution by a government or any public body", within the 
meaning of Article 1.1(a)(1)(i) of the SCM Agreement.   
7.378  However, we note that not all of the funds committed under the French, German and Spanish 
A380 contracts have been paid out.  In particular , the French A380 contract envisages that certain 
specific funding amounts would be transferred to Airbus [***] .2460  Similarly, the German and 
Spanish A380 contracts both provide for [***] .2461  In all three cases, the outstanding instalments 
reflect the expected development co sts of the A380 at the time of the conclusion of the contracts, 
subject to [***]  in the year of disbursement.2462  In other words, the outs tanding instalments represent 
a part of the total (and maximum) amount of fundi ng that it was agreed and planned would be 
transferred to Airbus for the A380 project.  Thus , although the payments under the three contracts 
have not all been made, it is clear that it was envisaged that the specified funding amounts would be 
transferred and that Airbus maintains a contractual right to receive them at a predetermined moment 
in the future so long as it continues to develop the A380.   
7.379  The United States argues that the French, Germ an and Spanish A380 contracts exhibit the 
characteristics of both direct transfers of funds (to the extent that  funds committed have already been 
disbursed) and potential direct transfers of funds (to the extent that a commitment exists for funds to 
be disbursed in the future).  However, in our vi ew, although a number of the disbursements have not 
yet been effected, it is more appropriate to char acterize the relevant LA/MSF contracts as direct 
transfers of funds (and in particular "loans") w ithin the meaning of Article 1.1(a)(1)(i) of the 
SCM Agreement.  On the basis of the facts that ar e before us, it is apparent that the undisbursed 
                                                                                                                                                                     
Exhibit US-17N; German Federal Budget 1987, Budget Plan 09 (Economics Ministry), Part 02, Chapter 09, 
Line Item 892 91-634, comment to Chapter 09 through Federal Budget 1996 Exhibits US-17U through US-17DD; Bundesregierung, 12
th Subsidy Report (1987-1990), at 108, Finanzhilfe 63, and all subsequent Subsidy 
reports until the 16th (1995-1998) Exhibits US-91H through -91L; BT-Drs. 12/1080, at 46 Exhibit US-26; 
Monopolkommission, at 71, para 118, table 11 Exhibit US-30; 1997 French Senate Report, at 67-68 Exhibit US-18; Collin (Yvon), Senate Report No. 89, Commission des Finances, Projet de Loi de Finances pour 2000, Tome 
III, Annexe No. 25, Équipment, Transport et Logement: III. - Transports: Transport Aérien et Météorologie et 
Aviation Civile, at 83 Exhibit US-33; Airbus, Cuadernos CDTI, Centro para el Desarollo Tecnológico Industrial (CDTI) (prepared by the State Secretariat of Industry, Mi nistry of Science and Technology), July 1993 (at 91, et 
seq.) Exhibit US-54; Boletin Oficial de las Cortes Generales, Congreso de los Diputados, Contestaciones del 
Gobierno, Serie D, Núm. 547, at 153 (5 June 2003) Exhibit US-27; Balance del Segundo Año del Ministerio de Ciencia y Technología, at 29 (June 2002) Exhibit US-96;  House of Lords written answers for 25 February 1997 
and 19 March 1997 (question to Mr. Greg Knight) Exhibits US-97 and US-98; Memorandum submitted by the 
Department of Trade and Industry, Appendix 1, Annex 2 Exhibit US-99; House of Lords written answers for 25 
February 1997 Exhibit US-97; Britain Plans Airbus Aid , N.Y. Times, at D16 (15 May 1987) Exhibit US-110; 
and British Agree on Launch Aid for A330/A340 , Aviation Week & Space Technology, at 33 (18 May 1987) 
Exhibit US-111. 
2459 See, e.g., EC, FWS, paras. 364-366 (A300 and A310) and 369-379 (A320). 
2460 French A380 contract, Annexe 3.  Exhibit US-116 (BCI). 
2461 German A380 contract, clause 4.2; and BT-Drs. 14/10002, at 3.  Exhibits US-72 (BCI) and US-124 
(English translations).  Spanish A380 contra ct, Tercera Clausula.  Exhibit US-73 (BCI). 
2462 French A380 contract, Article 3; German A380 contract, clause 4.2-4.3; Spanish A380 contract, 
Tercera Clausula.  WT/DS316/R 
 Page 399 
 
BCI deleted, as indicated [***] 
 
  funding amounts formed part of the total amount of  principal that it was envisaged under the French, 
German and Spanish A380 contracts would be directly transferred (loa ned) to Airbus over a set period 
of time, as agreed and planned when the respective contracts were concluded.  In this sense, the 
relevant A380 LA/MSF contracts can be contrasted with an open line of credit.  A line of credit is not 
an ex ante  agreement about the disbursement of specifi c funding amounts at a pre-determined moment 
in the future, but rather a lending facility in the form of a promise on the part of a lender to make funding available (in possibly one or more instalme nts) to a borrower in the event it is requested.
2463  
Thus, irrespective of whether all of the funds co mmitted under the French, German and Spanish A380 
contracts have been paid out, it is in our view clear  from the particular facts that are before us that 
each of the LA/MSF contracts evidences the existe nce of a "government practice {that} involves a 
direct transfer of funds" in amounts and at moments agreed and planned at the conclusion of each contract.
2464  Therefore, we find that the French, German  and Spanish A380 contracts are "financial 
contributions", within the meaning of Ar ticle 1.1(a)(1)(i) of the SCM Agreement. 
7.380  In terms of the amount of the relevant "financi al contributions", there is very little difference 
between the parties' positions,2465 which we summarize in the following table: 
                                                      
2463 One such example is the EUR 700 million credit line granted by the European Investment Bank to 
EADS in 2002.  The salient features of this particular credit line are described further at paras. 7.730 - 7.738, where we examine the United States' claim that it amounted to a subsidy within the meaning of Article 1 of the 
SCM Agreement. 
2464 We note that this finding is consistent with how the European Communities has itself treated the 
undisbursed funding amounts under the French, German and Spanish A380 contracts for the purpose of 
determining the internal rate of return of each contract.  See, paras. 7.404-7.406 below; and Exhibit EC-
597 (HSBI).   
2465 See, e.g., US, FWS, paras. 175-177, 191-194, 215-218, 234, 244, 253, 265, 272, 282 and 290; US, 
Answer to Panel Question 226; EC, FWS, paras. 332-337, 364-366, 369-372 and 375-378; EC, Answer to Panel 
Question 258.   WT/DS316/R 
Page 400  
BCI deleted, as indicated [***] 
 
  Table 1 – Approximate amount of funding prov ided for under the challenged LA/MSF measures
 
 
Amount (Millions) Aircraft 
Model France Germany Spain UK 
A300 FF 3,0122466 Ptas 3,8292468 - 
A310 FF 3,1802469 DM 2,4002467 
Ptas 7,8082470 - 
A320 FF 4,1332471 DM 1,3302472 Ptas 10,8002473 GBP 2502474 
A330/A340 FF 7,8002475 DM 2,9302476 Ptas 29,4002477 GBP 4472478 
A330-200 FF 3302479 - - - 
A340-500/600 FF 2,1102480 - Ptas 11,3482481 - 
A380 EUR [***]2482 EUR [***]2483 EUR [***]2484 GBP [***]2485 
                                                      
2466 US, FWS, para. 176; 1997 Senate Report , at 67, Exhibit US-18; EC, FWS, para. 365. 
2467 Amount for both the A300 and A310. US, FWS, para. 175; Sundergutachten der 
Monopolkommission , table 11, Exhibit US-30; EC, FWS, para. 364. 
2468 US, FWS, para. 177; Airbus, Cuadernos CDTI, Centro para el Desarollo Tecnológico Industrial 
(CDTI)  July 1993, at 91, Exhibit US-54; EC, FWS, para. 366. 
2469 US, FWS, para. 176; 1997 Senate Report , at 67, Exhibit US-18; EC, FWS, para. 365. 
2470 US, FWS, para. 177; Airbus, Cuadernos CDTI, Centro para el Desarollo Tecnológico Industrial 
(CDTI)  July 1993, at 91, Exhibit US-54; EC, FWS, para. 366. 
2471 US, FWS, para. 192; 1997 Senate Report , at 68, Exhibit US-18; US, Answer  to Panel Question 226; EC, FWS, 
para. 370; EC, Answer to Panel Question 258; Exhibit EC-949 (BCI).  
2472 US, FWS, footnote 194; Sundergutachten der Monopolkommission , table 11, Exhibit US-30; US, 
Answer to Panel Question 226; EC, FWS, para. 369; EC, Answer to Panel Question 258; Exhibit EC-949 (BCI). 
2473 US, FWS, para. 193; Airbus, Cuadernos CDTI, Centro para el Desarollo Tecnológico Industrial 
(CDTI)  July 1993, at 91, Exhibit US-54; US, Answer to Panel Question 226; EC, FWS, para. 371; EC, Answer 
to Panel Question 258; Exhibit EC-949 (BCI). 
2474 US, FWS, para. 194; House of Lords written answers for 25 February and 19 March 1997  (Question to Mr 
Greg Knight), Exhibits US-97 and US-98; Memorandum submitted by the Department of Trade and Industry , Exhibit US-
99; UK A320 contract, Article 2.1.1, Exhibi t EC-94 (BCI); EC, FWS, para. 372; EC, Answer to Panel Question 258; Exhibit 
EC-949 (BCI).  
2475 US, FWS, para. 217; 1997 Senate Report , at 67, Exhibit US-18; US, Answer to Panel Question 
226; EC, FWS, para. 376; EC, Answer to Panel Question 258; Exhibit EC-949 (BCI). 
2476 US, FWS, para. 215; Bundesregierung, 12th Subsidy Report (1987-1990) , and all subsequent 
Subsidy reports until the 16th (1995-1998) Exhibits US-91H to 91L; US, Answer to Panel Question 226; EC, 
FWS, para. 375; EC, Answer to Panel Question 258; Exhibit EC-949 (BCI). 
2477 US, FWS, para. 217; US, Answer to Panel Question 226; EC, FWS, para. 177; EC, Answer to 
Panel Question 258; Exhibit EC-949 (BCI). 
2478 US, FWS, para. 218; House of Lords written answers for 25 February and 19 March 1997  
(Question to Mr Greg Knight), Exhibits US-97 and US-98; US, Answer to Panel Question 226; EC, FWS, para. 
378; EC, Answer to Panel Question 258; Exhibit EC-949 (BCI). 
2479 US, FWS, para. 234; 1997 Senate Report , at 67, Exhibit US-18; French A330-200 contract, 
Article 4.2, Exhibit US-78 (BCI); US, Answer to Panel Question 226; Exhibit EC-949 (BCI). 
2480 US, FWS, para. 244; French A340-500/600 contract, Artic le 4, Exhibits US-35 (BCI) and EC-91 (BCI); 
Exhibit EC-949 (BCI).  
2481 US, FWS, para. 253; Spanish A340-500/600 contract, Segunda Clausula, Exhibits US-37 (BCI) and 
EC-87 (BCI); US, Answer to Panel Question 226; Exhibit EC-949 (BCI). 
2482 US, FWS, para. 265; French A380 contract, Article 2, Exhibit US-116 (BCI); EC, FWS, para. 339; 
Exhibit EC-949 (BCI). 
2483 US, FWS, para. 273; German A380 contract, preamble, Exhibit US-72 (BCI); Exhibit US-124; EC, 
FWS, para. 339; Exhibit EC-949 (BCI). 
2484 The European Communities asserts that the actual amount of the "financial contribution" provided 
for under the Spanish A380 contract was only EUR [***] .  EC, Answer to Panel Question 259.  According to 
the European Communities, the maximum amount of EUR [***]  set out in the Spanish A380 contract was set on 
the basis of: (i) a development cost estimate that was greater than the actual estimate assessed by Airbus GIE 
after conclusion of the contract; and (ii) an expected share in the develo pment costs for CASA that was greater 
than what was allegedly agreed subs equently.  However, in making these factual assertions, the European  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
   
7.381  We next turn to consider whether the above "f inancial contributions" confer a "benefit" upon 
Airbus, within the meaning of Article 1.1(b) of the SCM Agreement. 
Do the Challenged Measures confer a "benefit"?  
7.382  We recall that Article 1.1(b) of the SCM Agre ement does not define the notion of "benefit".  
However, it is well established that a "financial contribution" will confer a "benefit" upon a recipient 
when it places that recipient in a more advantag eous position compared with the position of that 
recipient in the absence of th e "financial contribution".2486  In Canada – Aircraft , both the panel and 
the Appellate Body considered that the basis for making this comparison was the market.  Thus, the 
panel opined that: 
"a financial contribution will only confer a 'benefit', i.e., an advantage, if it is 
provided on terms that are more advantage ous than those that would have been 
available to the recipient on the market".2487 
Similarly, the Appellate Body explained that: 
 
"the marketplace provides an appropriate basis for comparison in determining whether a 'benefit' has been 'conferred', because the trade distorting potential of a 
'financial contribution' can be identified by determining whether the recipient has received a 'financial contribution' on terms more favourable than those available to the recipient on the market."
2488 
7.383  In essence, the United States' argues that each of the "financial contributions" made available 
through the challenged LA/MSF measures confers a "benefit" on Airbus, within the meaning of 
Article 1.1(b) of the SCM Agreement, because each w as provided on interest rate terms that are more 
advantageous than would otherwise be the case if  financing on the same or similar terms and 
conditions had been sought by Ai rbus from a market lender.  In other words, the United States 
contends that LA/MSF confers a "benefit" because ma rket lenders faced with a request to finance 
Airbus LCA projects on the same or similar te rms and conditions as LA/M SF would demand that 
Airbus pay a higher rate of interest than did the EC member State governments. 
7.384  The European Communities has presented sever al lines of defence to the United States' 
allegations.  In the first instance, the European Communities rejects the view that the appropriate 
standard against which to measure whether LA/MSF c onfers a "benefit" may be found in the interest 
rates associated with market financing on the same  or similar terms and conditions as LA/MSF.  For 
all LA/MSF measures post-dating the entry into  force of the 1992 Agreement, the European 
Communities argues that the question of "benefit" should be resolved by testing whether each relevant 
LA/MSF contract involves government support that is consistent with Article 4 of the 1992 
Agreement .  In addition, for all instances of LA/MSF challenged by the United States, with the 
exception of LA/MSF for the A300 and A310, th e European Communities submits that the 
                                                                                                                                                                     
Communities refers to no evidence that supports its stated  position.  Therefore, we have no choice but to reject 
the European Communities' factual assertion and rely on the maximum amount of funding actually prescribed in 
the Spanish A380 contract. 
2485 US, FWS, para. 290; UK A380 contract, Article 5, Exhibit US-79 (BCI);  Exhibit EC-949 (BCI). 
2486 Panel Report, Canada – Aircraft , para. 9.112, cited with approval in Appellate Body Report, 
Canada – Aircraft , para. 149. 
2487 Panel Report, Canada – Aircraft , para. 9.112; Appellate Body Report, Canada – Aircraft , 
paras. 157-158. 
2488 Appellate Body Report, Canada – Aircraft , para. 157. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  reasonableness of the repayment forecasts used to  establish the repayment terms of each contract 
should be the focus of our "benefit" analysis.   
7.385  Second, and in the alternative, the European  Communities contends that, assuming the market 
is the appropriate benchmark against which to measure whether LA/MSF confers a "benefit", the 
interest rates advanced by the United States for this purpose overestimate the rates of interest 
associated with market financing that is compar able with LA/MSF.  According to the European 
Communities, when the full cost of LA/MSF is comp ared with appropriate market interest rate 
benchmarks, the challenged LA/MSF measures do not confer a "benefit" upon Airbus. 
Article 4 of the 1992 Agreement 
7.386  For LA/MSF measures adopted after the en try into force of the 1992 Agreement  
(17 July 1992), the European Communities contends that the notion of "benefit" under Article 1.1(b) 
must be interpreted in the light of Article 4 of the 1992 Agreement .  According to the European 
Communities, the 1992 Agreement is an instrument containing relevant rule s of international law 
applicable between the parties, within the meaning of Article 31(3)(c) of the VCLT, and therefore 
must be taken into account in the present dispute as relevant context when interpreting the notion of 
"benefit" under Article 1.1(b) of the SCM Agreement.
2489  The European Communities characterizes 
Article 4 of the 1992 Agreement as a rule prescribi ng the extent to which the United States and the 
European Communities agreed that  "development support" could be legitimately provided to their 
domestic LCA manufacturers.  The European Commun ities contends that this rule "influences in 
particular the interpretation of the appropriate benchmark when determin ing whether a financial 
contribution has conferred a benefit on the recipient".2490  To this end, the European Communities 
argues that compliance with th e "development support" standards established under Article 4 is 
dispositive of the question whether LA/MSF provid ed to Airbus after 17 July 1992 conferred a 
"benefit", within the meaning of Article 1.1(b) of the SCM Agreement.2491 
7.387  Article 4 of the 1992 Agreement  reads as follows: 
"4.1. Government shall provide support fo r the development of a new large civil 
aircraft programme only where a critical project appraisal, based on conservative assumptions, has established that there is a reasonable expectation of recoupment, 
within 17 years from the date of first disbursement of such support, of all costs as defined in Article 6(2) of the Aircra ft Agreement, including repayment of 
governments supports on the terms and conditions specified below. 
4.2. As of entry into force of this Ag reement, direct government support committed 
by a Party for the development of a new large civil aircraft programme or derivative shall not exceed: 
(a) 25 % of that programme's total development costs as estimated at 
the time of commitment (or of actual development costs whichever is 
lower); royalty payments on this tranche shall be set at the time of 
commitment of the development support so as to repay this support at 
an interest rate no less than the cost of borrowing to the government within no more than 17 years from first disbursement; plus 
                                                     
 
2489 A more detailed description of the European Communities' arguments in this regard is set out in our 
preliminary ruling, at paras. 7.70 - 7.76 above. 
2490 EC, FWS, para. 399. 
2491 EC, FWS, paras. 394-441.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  (b) 8 % of that programme's total development cost as estimated at 
the time of commitment (or of actual development costs, whichever is lower); royalty payments on this tr anche shall be set at the time of 
commitment of the development support so as to repay such support 
at an interest rate no less than  the cost of borrowing to the 
government plus 1 % within no more than 17 years from disbursement. 
These calculations shall be made on the basis of the forecast of 
aircraft deliveries in the critical project appraisal. 
4.3. Royalty payments per aircraft shall be calculated at the time of commitment of 
the development support to be repaid on the following basis: 
(a) 20 % of aggregate payments calculated in accordance with 
Article 4.2 is payable on the basis of the delivery of a number of aircraft corresponding to 40 % of forecast deliveries; 
(b) 70 % of aggregate payments  calculated in accordance with 
Article 4.2 is payable on the basis of the delivery of a number of aircraft corresponding to 85% of forecast deliveries."
2492 
7.388  Although the European Communities argues that Ar ticle 4 serves as relevant context for the 
interpretation of the notion of "benefit", it has not explained exactly how it informs the meaning that 
must be given to this term.  Rather, a large part  of the European Communities' submissions on this 
subject are devoted to demonstrati ng that the post-1992 LA/MSF measures comply with the terms of 
Article 4 of the 1992 Agreement.2493  In this light, it is not entirely clear to us how the European 
Communities believes the meaning of the word "benefit" in Article 1.1(b) of the SCM Agreement is 
informed by Article 4 of the 1992 Agreement.   
7.389  As we have previously noted, Article 4 est ablishes a set of qualitative and quantitative 
parameters for the provision of support for the development of new LCA or derivative 
programmes.2494 It identifies the dividing line that was agreed between the United States and the 
European Communities for acceptable and prohibited "development support" under that Agreement.  
It contains no definition of a "subsidy" nor does it  make any reference to the notion of "benefit".  
Thus, we see nothing in the language of Article 4 to suggest that it informs the meaning of 
Article 1.1(b) of the SCM Agreement.  Moreover, we cannot simply assume, on the basis of the 
arguments presented by the European Communities,  that "development support" measures taken in 
compliance with Article 4 of the 1992 Agreement do not have the characteristics of "financial 
contributions" that confer a "benefit", within the meaning of Article 1.1 of the SCM Agreement.  
Thus, even assuming that the 1992 Agreement were an instrument containing relevant rules of 
international law applicable between the parties, wi thin the meaning of Article 31(3)(c) of the VCLT 
(and once again, we emphasize that on this question, we express no view),2495 we are not convinced 
that Article 4 of that Agreement provides any guida nce on how to interpret the concept of "benefit" 
under Article 1.1(b) of the SCM Agreement.  Cons equently, we dismiss the European Communities' 
                                                      
2492 Agreement between the European  Economic Community and the Government of the United States 
of America concerning the Applicatio n of the GATT Agreement on Trade in Civil Aircraft on Trade in Large 
Civil Aircraft, Official Journal of the European Communities  of 17.10.1992, No. L 301, p. 32, EC, Request for 
Preliminary Ruling, 26 October 2005, Exhibit EC -4 (submitted with Request Preliminary Ruling). 
2493 EC, FWS, paras. 405-441. 
2494 See, para. 7.68 above. 
2495 See, para. 7.100 above. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  argument that the benchmark to be applied wh en assessing whether LA/MSF confers a "benefit" 
should, in effect, be Article 4 of the 1992 Agreement. 
"Reasonableness of the repayment forecasts" 
7.390  The European Communities asserts that the "decisive factor" for determining whether 
LA/MSF measures for the A330-200, A340-500/600 and the A380 confer a benefit is the 
reasonableness of the repayment forecasts.  Alt hough, initially, the European Communities advanced 
this argument in respect of only the LA/MSF measures for the A330-200, A340-500/600 and the A380, it subsequently declared that it could be  of equal relevance to  certain pre-1995 LA/MSF 
measures (specifically, the A320 and A330/A340 contract s) if the Panel were to reject its specific 
defences advanced in relation to these measures ba sed on the temporal scope of the SCM Agreement 
and the relevance of the Tokyo Round Subsidies Code.
2496  Because we have dismissed these two 
defences, the following evaluation should be understood as addressing the European Communities' 
arguments as they relate to all of these measure s, namely, LA/MSF for the A320, A330/A340, A330-
200, A340-500/600 and the A380.   
7.391  The European Communities contends that the reasonableness of the repayment forecasts used 
to establish the repayment terms in each of the ch allenged LA/MSF contracts is the most relevant 
benchmark for assessing the question of benefit because it has a direct impact on the extent to which 
repayments will be made.  Thus, if the repayment terms of LA/MSF are based on a reasonable forecast of LCA sales, it is more likely that it will be repaid in full, and consequently, that the target rate of return will be achieved.  It is only when the repayment for ecast is not a reasonable one – that 
is, unreasonably optimistic, spreading repayment ove r an unreasonably large number of sales, and 
thereby delaying the point at which the target rate  of return is achieved – that a benefit will be 
conferred.
2497  According to the European Communities, this  view is indirectly supported by footnote 
16 of the SCM Agreement, which it argues suggests that the drafters of the SCM Agreement were 
aware of the fact that royalty-based financing in  the LCA sector needs to be assessed against the 
reasonableness of the sales forecast used to establi sh its terms of repayment.  Thus, the European 
Communities submits that the reasonableness of th e repayment forecast contained in the LA/MSF 
contracts should be "at the heart of any legal assessment [***]  under the SCM Agreement".2498 
7.392  The United States disputes the European Communitie s' contentions.  In the view of the United 
States, the argument that the reasonableness of repa yment forecasts is the appropriate benchmark for 
determining whether LA/MSF confers a benefit ignor es the fact that a subsidy may exist irrespective 
of the reasonableness of a government's expectations about the number of sales needed to secure full 
repayment of LA/MSF.  In particular, the United States  argues that if the rate of return obtained by the 
government for the financing of an LCA project is set at, for example, its own borrowing rate, a LA/MSF recipient will receive an advantage notwith standing the fact that the repayment terms may 
be based on a reasonable estimate of the number of sales needed to achieve full repayment of that 
LA/MSF.
2499  Moreover, according to the United States, footnote 16 of the SCM Agreement does not 
support the European Communities' argument.  In its vi ew, if anything, the very fact that the drafters 
of the SCM Agreement saw a need to clarify that a particular circumstance involving the 
implementation of royalty-based fi nancing "does not in itself" cons titute deemed serious prejudice, 
suggests that they presumed the provision of LA/MSF confers a benefit and therefore constitutes a 
                                                      
2496 EC, Answer to Panel Question 62. 
2497 EC, FWS, paras. 442-463; EC, SWS, paras. 151-157. 
2498 EC, Answer to Panel Question 63. 
2499 US, FNCOS, para. 40; US, SWS, para. 57.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  subsidy.  The United States considers that there w ould have been no need to  make the clarification 
otherwise.2500 
7.393  The United States also notes that footnote 16 is no longer in effect, and in any case that it 
"explicitly deals not with 'benefit' but with one cat egory of adverse effects – serious prejudice – and 
then only 'for the purposes of this subparagraph'".2501  Thus, the United States argues that any 
relevance of footnote 16 is limited to the specifi c context in which it is found – the question of 
"serious prejudice" under Article 6.1(d) of the SCM Agreement.  Had the drafters of footnote 16 also 
intended it to be relevant to the question of "ben efit", the United States submits that they could have 
easily included a footnote to Article 1.1(b) of the SCM Agreement making that point.2502  However, 
the drafters did not; and according to the United St ates, the European Commun ities' interpretation of 
the lack of any footnote or cross-reference am ounts to a "distortion of customary rules of 
interpretation of international law".2503 
7.394  Finally, the United States rejects the Eu ropean Communities' assertion that its 
Communication to the Negotiating Group on Rules in March 2003 indicates that it supports the 
European Communities' interpretation of Article  1.  The United States explains that the 
Communication did not purport to identify the "only"  circumstance in which royalty-based financing 
would bestow a benefit, but rather, only one such ci rcumstance where that result would be "obvious".  
Moreover, the United States notes that its statemen t referred to "assumptions and sales projections", 
which it explains encompass "the very factors the EC  ignores: the rate of return and other key terms" 
of LA/MSF.2504 
7.395  We believe it is useful to start our evalua tion of the European Communities' defence by 
examining the text of footnote 16 in the immediate cont ext in which it appears, that is, in the light of 
Article 6.1(d) of the SCM Agreemen t.  The relevant language reads: 
"6.1 Serious prejudice in the sense paragrap h (c) of Article 5 shall be deemed to 
exist in the case of: 
... 
(d) direct forgiveness of debt, i.e., forgiveness of government-held debt, and 
grants to cover debt repayment.16 
16  Members recognize that where royalty- based financing for a civil aircraft 
programme is not being fully repaid due to  the level of actual sales falling below the 
level of forecast sales, this does not in itself constitute serious prejudice for the 
purposes of this subparagraph." 
Thus, Article 6.1(d) identifies one form of gove rnment action that is deemed to cause serious 
prejudice within the meaning of Article 5(c) – direct  debt forgiveness.  Although the legal effect of 
this provision, including footnote 16, has lapsed, we  do not preclude that it could nevertheless be 
useful to understanding the different types of measures that the SCM Agreement was intended to 
address.2505 
 
                                                      
2500 US, SWS, para. 62. 
2501 US, FNCOS, para. 38. 
2502 US, FNCOS, para. 38. 
2503 US, SWS, para. 59. 
2504 US, SWS, para. 61. 
2505 We recall that we have already noted that paragraph 7 of Annex IV of the SCM Agreement (which 
like Article 6.1(d) is no longer in fo rce) provides an important indication of the intended scope of Article 5.  See, 
para. 7.64 above. WT/DS316/R 
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  7.396  When read together with Article 6.1(d), f ootnote 16 indicates a recognition on the part of 
Members that, in the context of royalty-based financ ing for civil aircraft programmes, the mere fact 
that actual aircraft sales may fall below the level of forecast sales cannot, in itself, be taken as 
evidence of direct debt forgiveness, and therefore cannot be deemed to cause serious prejudice for the 
purposes of Article 6.1(d).  In other words, the f act that royalty-based financing for civil aircraft 
programmes may not be fully repaid because of a shortfall in actual aircraft sales compared with sales forecasts is not, on its own, enough to characterise lo wer than expected levels of royalty payments as 
a form of direct debt forgiveness that must be deem ed to cause serious prejudice.  To the extent that 
the effect of footnote 16 is expressly limited to th e purposes of Article 6.1(d) – that is, determining 
whether direct debt forgiveness can be deemed to cause serious prejudice – it is clear that it was not 
intended to inform the meaning of "benefit" under Ar ticle 1.1(b).  This is confirmed by the absence of 
any cross-reference to footnote 16 (or any other text) qualifying the language of Ar ticle 1.1(b).  In this 
regard, we note that elsewhere in the SCM Agre ement, where Members considered it was necessary 
to modify the language of a particular obligation to account for civil aircraft, they did so by inserting 
appropriate footnotes.
2506   
7.397  At most, we consider that the language of footnote 16 may be read to imply that when actual 
aircraft sales do not fall below the level of forecast  sales under a royalty-based financing instrument 
(i.e., the situation the European Communities sugg ests evidences the existence of a "reasonable 
repayment forecast"), it would be inaccurate to char acterise that instrument as providing for direct 
forgiveness of debt.  However, this is not the same as saying that all instances of royalty-based 
financing granted on the basis of a "reasonable repaym ent forecast" do not confer a benefit within the 
meaning of Article 1.1(b) of the SCM Agreement.  In our view, a reasonable repayment forecast, in 
the terms advanced by th e European Communities – i.e., a reasonable number of sales over which a 
market lender could expect full repaymen t of loaned principal plus interest2507 – cannot alone be 
determinative of whether a royalty-based financing instrument (in this case LA/MSF2508) confers a 
benefit for the purpose of the SCM Agreem ent.  While we can accept that an unreasonable repayment 
forecast may signal that a loan confers a benefit,2509 we do not believe the opp osite will necessarily be 
the case when LA/MSF is grounded on a reasonable repayment forecast.  This is because the number 
of sales over which full repayment is expected says little, if anything, about the appropriateness of the 
rate of return that will be achieved by the lender.   
7.398  As we see it, the rate of return attached to  a LA/MSF contract may be viewed as the "price" 
the contractual parties agreed to pay/receive fo r the particular rights and obligations established 
thereunder, including those defined by the repayment schedule.  Therefore, the rate of return earned 
on each LA/MSF contract represents not only the envi saged financial gain for the lender (the EC 
member State governments), but also the apparent fina ncial cost for Airbus.  Bearing in mind that it is 
now well established that the question of benefit un der Article 1.1(b) of the SCM Agreement should 
be resolved by comparing the situation of the reci pient of a financial cont ribution with and without 
                                                      
2506 The SCM Agreement contains two other footnotes that refer to civil aircraft – footnotes 15 and 24.  
Footnote 15 reads: "Since it is anticipated that civil airc raft will be subject to specific multilateral rules, the 
threshold in this subparagraph does not apply to civil aircraft."  Footnote 24 reads:  "Since it is anticipated that 
civil aircraft will be subject to specific multilateral rules, the provisions of this subparagraph do not apply to that 
product."  Together with footnote 16, these are th e only parts of the SCM Agreement that make specific 
reference to civil aircraft.   
2507 EC, Answer to Panel Question 73. 
2508 We note that neither party has distinguished th e challenged LA/MSF measures from "royalty-based 
financing" falling within the scope of footnote 16.  Howe ver, strictly speaking, not all of the LA/MSF contracts 
at issue in this dispute envisage the payment of "royalties" in the sense that we have described at para. 7.374 above, and analysed in more detail at paras. 7.410 below et seq . 
2509 For instance, where full repaymen t is expected over an unrealisti cally high number of LCA sales, 
such that no market lender would be willing to agree to make a loan on the same or similar repayment conditions.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  that contribution,2510 we believe that it makes sense to fo cus the assessment of whether LA/MSF 
confers a benefit on whether the rate of return of the challenged measures is lower than the rate of 
return that would be sought by a market lende r for financing on the same or similar terms and 
conditions, taking into account a comparable schedule of  repayment.  So, for example if a government 
LA/MSF contract envisaged a zero rate of return on the basis of a reasonable repayment forecast, it 
would obviously confer a benefit, if in the absence  of the zero-interest loan, Airbus could only obtain 
the same or similar financing from a market  lender at a rate of interest of 3%. 
7.399  However, the European Communities submits that  in the context of LA/MSF, the question of 
benefit should not be determined through a strict co mparison of LA/MSF rates of return with the rates 
of return attached to comparable market financing instruments.  As we understand it, under this line of 
argument, the European Communities cons iders reliance on a "'perfect' market"2511 benchmark for this 
purpose would be inappropriate because of the h eavy government intervention and international 
regulation it alleges is found in the LCA industry.   The European Communities draws support for its 
position from certain observations ma de by the Appellate Body in US – Countervailing Measures on 
Certain EC Products , which the European Communities argues stand for the proposition that "fair" 
market transactions may not always be the mo st appropriate benchmarks for the purpose of 
establishing the existence of subsidies under the SCM Agreement, particularly where the market for 
those transactions has been distorted by government action.2512  According to the European 
Communities, the LCA industry is one sector of the economy where the Appellate Body's observations find considerable relevance.   
7.400  We are not persuaded by the European Communities' arguments on this point.  Even 
assuming that the particular observations of th e Appellate Body relied upon by the European 
Communities were directly applicable to the present factual circumstances,
2513 the European 
Communities has provided no evidence or explanatio n of how alleged government intervention in the 
LCA industry distorts the behaviour of market lenders  such that it renders the rate of return they 
would ask for financing comparable to LA/MSF an inappropriate benchmark upon which to base a 
benefit analysis.  While we recognize that the LCA industry has particular features that sets it apart 
from many other industrial sectors,2514 in the absence of clear arguments and evidence of government 
action distorting non-government loan market s, we cannot accept the European Communities' 
assertion that the "reasonableness of repayment forecast s" used to construct LA/MSF contracts is the 
"decisive factor"2515 for determining whether a LA/MSF contr act confers a benefit and constitutes a 
subsidy under the SCM Agreement.  We therefor e dismiss the European Communities' contention. 
7.401  Having closely reviewed and considered the ar guments and evidence submitted by the parties, 
we believe that it is appropriate to resolve the question whether LA/MSF confers a benefit by 
                                                      
2510 See, paras. 7.310-7.312 and 7.382. 
2511 EC, Answer to Panel Question 73. 
2512 EC, FWS, para. 445, referring to Appellate Body Report, US – Countervailing Measures on 
Certain EC Products , paras. 123-124. 
2513 The particular observations at issue were made by the Appellate Body in US – Countervailing 
Measures on Certain EC Products  in the context of a case where, as we have already explained,  the "core legal 
question" before the panel was whether the benefit re sulting from a prior non-recurring financial contribution 
bestowed on a state-owned enterprise continued to exist following its privatization at arm's length and at fair 
market value, the government having transferred all or substantially all property and controlling interest.  
Appellate Body Report, para. 117.  Given this "very narrow set of facts and circumstances", it is not apparent to 
us that the guidance of the Appellate Body the European Communities relies upon is as directly relevant to the 
question we are faced with under the present set of arguments ( i.e., whether the rate of return for comparable 
market financing is an appropriate benchmark for determining whether LA/MSF confers a benefit) as the 
European Communities contends. 
2514 See, paras. 7.367-7.368 and paras. 7.1883 - 7.1893. 
2515 EC, Answers to Panel Questions 62 and 63. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  examining whether the cost of the challenged LA/MSF contracts to Airbus is less than the cost that 
Airbus would be faced with if it sought financ ing on the same or similar terms and conditions as 
LA/MSF from the market.  We therefore begin our be nefit analysis by examining whether the rate of 
return obtained by the relevant EC member State governments when providing LA/MSF is less than 
the rate of return that would be asked by a mark et-based lender for financing on the same or similar 
terms and conditions as each provision of LA/MSF.  It is to this question that we next turn our 
attention. 
Whether the Rates of Return of the LA/MSF Measures are less than the Rates of 
Return of comparable Market-Based Financing 
7.402  The parties have made extensive arguments a nd submitted much detailed evidence, including 
expert studies and reports, on the question whether the rates of return obtained by the EC member State governments for the provision of LA/MSF are le ss than the rates of return that would be 
required by a market lender for financing on the sam e or similar terms and conditions as LA/MSF.  In 
doing so, they have presented two very different perspectives and conclusions. 
LA/MSF Rates of Return 
7.403  In its first written submission, the United St ates identified what it considers to be the 
"actual"2516 rates of return that each EC member St ate government expected to obtain from each 
provision of LA/MSF in the event that it was fully repaid.  The United States explains that in a 
number of instances, it derived these rates from information contained in the LA/MSF contracts themselves.  However, where the United States did not have access to the relevant LA/MSF contracts, it estimated the rates of return on the basis of information obtained during the Annex V process or 
information publicly available.
2517  As we understand it, the United States did not factor potential 
royalty payments foreseen under any of the contract s into its calculations.  The rates of return 
advanced by the United States are the following:2518  
                                                      
2516 The United States argues that "its determination of the benefit conferred by Launch Aid relies on a 
comparison between a market benchmark and the actual  interest rates set out in the Launch Aid contracts". US, 
SWS, para. 121. (Underline added). 
2517 The United States recalls that during the Annex V process, the European Communities refused to 
provide any information at all, including copies of th e LA/MSF contracts, in respect of the challenged A300, 
A310, A320 and A330/A340 LCA projects.  The United Stat es argues that the logical inference that should be 
drawn from this failure to provide information, in the light of paragraph 7 of  Annex V of the SCM Agreement, 
is that the missing contracts would de monstrate that each grant of LA/MSF is  a subsidy.  US, FWS, paras. 167-
168.  We note that the European Communities subsequently  submitted copies of what it considered to be all of 
the relevant contracts and business cases as Exhibits to its first written submission and in Answer to Panel 
Questions 78, 246, 248, 249, 252 and 262. 
2518 Ellis Report, Table 4, p. 25. Exhibit US-80 (BCI).  WT/DS316/R 
 Page 409 
 
BCI deleted, as indicated [***] 
 
  Table 2 – LA/MSF rates of return proposed by the United States  
 
 Aircraft 
Model France Germany Spain UK 
A300 0% 0% 0% - 
A310 0% 0% 0% - 
A320 0% or below 
market 0% or below 
market 0% [***] 
A330/A340 [[HSBI]] 0% 0% [***] 
A330-200 [[HSBI]] - - - 
A340-500/600 [***] - [***] - 
A380 [***] [***] [***] [***] 
 
7.404  The European Communities rejects the rates of  return established by the United States, 
arguing that they underestimate the actual returns an ticipated by the EC member State governments.  
In the European Communities' view, the rates of return that the EC member State governments 
expected to obtain from each of the challenged LA /MSF measures must be determined taking into 
account the contractual repayment terms, including an y anticipated royalty payments that would be 
due over the life of the financed aircraft, a nd, where relevant, the effects of taxation.2519  The 
European Communities describes this as the "implicit rate of return" of each of the LA/MSF contracts 
– i.e., the percentage rate of return the EC member State governments anticipated from the projected 
LA/MSF cash-flows at the time the LA/MSF contracts were concluded.2520  The European 
Communities calculated an "implicit rate of retu rn" for each of the A320, A330/A340, A330-200, 
A340-500/600 and A380 LA/MSF contracts.2521 
Implicit Rates of Return  Before Taxation  
7.405  The European Communities explains that the firs t step in arriving at the "implicit rates of 
return" of the LA/MSF measures involves determini ng each contract's internal rate of return 
("IRR").2522  The European Communities calculated an IRR for each of the challenged LA/MSF 
contracts (with the exception of the A300 and A310 c ontracts) by identifying the interest rate that sets 
at zero the net present value ("NPV") of actual or anticipated LA/MSF receipts2523 (i.e., LA/MSF-
inflows) and expected repayments (includi ng any lump sum payments and royalties) ( i.e., LA/MSF-
outflows) on the basis of the aircraft delivery for ecasts contained in the relevant Airbus business case. 
7.406  In particular, for LA/MSF contracts that did not foresee the payment of royalties,2524 the 
European Communities identified the IRR as the disc ount rate that set the NPV of all programmed 
                                                      
2519 EC, FWS, paras. 537-541; EC, Answer to Panel Question 69; EC, Comment on United States 
Answer to Panel Question 142. 
2520 EC, Answer to Panel Question 69. 
2521 ITR LLC Report, pp. 4-5, Exhibits EC-13 (BCI) and EC-13 (HSBI); and Table presented in Exhibit 
EC-597 (HSBI).  The European Communities has not submit ted any calculation of the rates of return associated 
with the challenged A300 and A310 LA/MSF measures. 
2522 EC, Answer to Panel Question 69. 
2523 The European Communities appears to have relied upon what it asserts were the actual LA/MSF 
receipts in respect of th e UK A320 contract ( [***] ), the UK A330/A340 contract ( [***] ) and the Spanish A380 
contract ( [***] ).  Compare Exhibit EC-597 (HSBI) with Exhibits EC-94 (BCI), EC-86 (BCI) and US-73 (BCI).  
In the case of the two UK contracts, [***] , and in any case the European Communities appears to have taken 
account of the slight variances by adju sting the repayment schedules applied in its analyses.  However, in the 
case of the Spanish A380 contract, we  consider the difference to be signi ficant and recall that the European 
Communities has failed to substantiate its assertion that the amount originally provided for under the relevant 
contract [***]  was not in fact transferred to Airbus.  See, footnote 2484. 
2524 The LA/MSF contracts that do not  contain any royalty provisions are the [***]. WT/DS316/R 
Page 410  
BCI deleted, as indicated [***] 
 
  disbursements over time and all repayments at ze ro, taking into account the number and timing of 
deliveries projected in the relevant Airbus bus iness case.  Essentially the same methodology was 
applied to those measures containing royalty provisions,
2525 with the only difference being that the 
value of royalty payments anticipated in the light of the number, timing and (for some contracts) the 
forecast prices of deliveries2526 projected by Airbus in its busin ess case were taken into account.  For 
instance, the European Communities explains that the UK A330/A340 contract requires full 
repayment of LA/MSF contributions [***].2527  However, according to the European Communities, 
the Airbus business case for this aircraft projects fe wer than this number of deliveries over the entire 
life of the aircraft.2528  In this light, the European Comm unities calculated the IRR for the UK 
A330/A340 contract on the basis of the total repa yments (including royalties) anticipated over the 
number and timing of aircraft deliveries projected in the Airbus business case.2529  On this basis, the 
European Communities determined the following IRRs:2530 
Table 3 – LA/MSF implicit rates of return before taxation proposed by the EC  
 
Alleged LA/MSF Rates of Return Before Taxation (EC) Aircraft 
Model France Germany Spain UK 
A320 [***] [***] [***] [***] 
A330/A340 [***] [***] [***] [***] 
A330-200 [***] - - - 
A340-500/600 [***] - [***] - 
A380 [***] [***] [***] [***] 
 
7.407  Although the United States contests the European Communities' view that the rates of return 
expected by member States from each of the challenged LA/MSF measures must be determined 
taking into account the IRR for each LA/MSF contract,2531 we do not understand the United States to 
contest the general NPV of cash-flows methodolog y applied by the European Communities to 
determine these IRRs.  Indeed, where it had access  to information on LA/MSF disbursements and 
repayments, the United States appears to have reli ed upon a similar methodology to derive the values 
of the interest rates it submits were actually  charged by the EC member States for LA/MSF.2532  
Moreover, we note that the United States has itself id entified the same rates of return as the European 
Communities for the Spanish A320, A330/A340 and A380 contracts.  Nevertheless, the United States 
does take issue with at least two particular aspec ts of the European Communities' calculation.  The 
first is its reliance on projected aircraft deliveries,  as opposed to actual deliveries, in order to establish 
                                                      
2525 The LA/MSF contracts that re quire royalty payments are the [***].  Although royalty payments are 
envisaged under the [***], the IRR determined by the European Co mmunities for these contracts did not take 
any such payments into account because they were due [***] .   
2526 Under the French A330/A340, A330-200, A340-500/600 and A380 contracts, the value [***] is 
calculated on the basis of [***] .  The European Communities explains that it used the [***] .  EC, Answer to 
Panel Question 247.   
2527 UK A330/A340 contract, Articles 2.4.1-2.4.5. 
2528 The precise number was designated by the European Communities as HSBI.  See, Exhibits EC-
775 (HSBI) and EC-944 (HSBI). 
2529 EC, Answer to Panel Question 69. 
2530 ITR LLC Report, pp. 4-5, Exhibit EC-13 (BCI); and Table presented in Exhibit EC-597 (HSBI). 
We recall that the European Communities did not undertake any such calculation for the A300 and A310 LA/MSF measures. 
2531 US, SWS, paras. 120-130; US, Comments on EC Answer to Panel Question 249. 
2532 The Ellis Report explains that the interest rate identified for the UK A320 contract was calculated 
on the basis of "disbursements and repayments until the end of 1999"; the UK A330/A340 contract on the basis 
of "available disbursements, repayments and delivery data "; and the UK A380 contract on the basis of "initially 
estimated delivery schedule disclosed in association wi th the Launch Aid Agreements and interest rates as 
defined" in the contract. Ellis Report, p.26, Exhibit US-80 (BCI).  WT/DS316/R 
 Page 411 
 
BCI deleted, as indicated [***] 
 
  the amount and timing of LA/MSF repayments; and the second is the European Communities' 
consideration of royalty payments.2533  
7.408  To the extent that the IRRs determined by the European Comm unities are based on the 
number, timing and (for some contracts) the forecast prices of deliveries projected in the relevant 
Airbus business case, they are entirely dependent upo n the credibility of the Airbus business plan, and 
therefore inherently contain an element of specu lation.  Thus, as the United States appears to note,2534 
the IRRs calculated by the European Communities do not result from an absolute legal obligation on 
Airbus to make repayments over a set period of time at a given interest rate.  Rather, they are based on a repayment obligation that is conditional upon Airbus' business plan actually being met.   
7.409  As regards the European Communities' consideration of royalty payments,
2535 the United 
States argues that the royalties for eseen under the LA/MSF contracts are [***]  – between [***]  – and 
are due only after a large number of deliveries have been made.  Because of what the United States argues is "the very substantial uncertainty attached to any royalties due this far out into the future and 
depending entirely on Airbus successfully selling mo re planes than the sp ecified royalty-based 
thresholds",
2536 it contends that royalty payment expectations  must have played only a marginal role, 
at most, in the government lenders' financing decisions.2537  Thus, the United States does not argue 
that royalty payment expectations are irrelevant, but merely that they must play only a marginal role 
in determining the rate of return that the EC me mber State governments anticipated at the moment of 
concluding the LA/MSF contracts.  Moreover, for th e United States, a commercial investor would be 
unlikely to take into account the prospects of any such potential royalty returns, but would instead 
look to recover its investment and make a comme rcial return over a much  shorter period of time.2538 
7.410  Royalty payments were factored into the Eu ropean Communities' IRR calculations for the 
[***]  contracts, the [***] contracts, and the [***]  contract.  As we understand it, the royalties foreseen 
under these contracts represent a share in the reve nues generated from sales of the financed LCA, 
after the full amount of LA/MSF has been repaid.  In our view, the fact that such payments were 
expressly provided for in these contracts indicates that the EC member State governments to some 
degree anticipated they could enhance the rate of return that would otherwise be achieved on their 
LA/MSF investment.  However, exactly how much the EC member State governments expected their 
returns to improve depends upon the number and timi ng of aircraft deliveries they anticipated would 
attract the specified royalty payments. 
                                                      
2533 The United States also asserts that the European Communities has not properly substantiated its 
calculations because it: (i) failed to disclose the calcula tions on which its alternative rates were based and the 
underlying data; (ii) redacted the delivery schedules used  in its calculations; and (iii) refused to provide the 
underlying business cases.  According to the United States, such information would have been essential for the 
United States and the Panel to critically examine its cal culations.  US, FNCOS, paras. 56-57; US, Comments on 
EC Answer to Panel Question 249.  We recall that the European Communities submitted copies of what it 
considered to be all of the relevant contracts and busi ness cases as Exhibits to its FWS and in its Answer to 
Panel Questions 78, 246, 248, 249, 252 and 262.  While we consider that the information submitted by the 
European Communities to support its calculations of the I RR should have been presented in its entirety with the 
European Communities' first written submission, when the European Communities first revealed its analysis on 
the LA/MSF rates of return; and although the information the European Communities submitted throughout this 
proceeding was not as complete as we would have liked, overall it was sufficient to permit us to verify and 
evaluate the European Communities' assertions in respect of the appropriate IRRs.  See, paras. 7.408 - 7.424. 
2534 US, Answer to Panel Question 42. 
2535 In the sense we have described at para. 7.374. 
2536 US, SWS, para. 122.  See also, US, comments on EC Answer to Panel Question 249 ("the [***]  
play only a very minor role in the overall re turn that the government may have expected"). 
2537 US, SWS, paras. 121-123; US, Answer to Panel Question 142; US Comment to EC, Answer to 
Panel Question 249. 
2538 US, Answer to Panel Question 142. WT/DS316/R 
Page 412  
BCI deleted, as indicated [***] 
 
  7.411  The European Communities argues th at the answer to this question lies in the aircraft delivery 
forecast that the Airbus business case predicts woul d be achieved over the life of the particular LCA 
project.
2539  This is because, according to the Europ ean Communities, Airbus' business case delivery 
forecasts informed the parties' repayment expectati ons in respect of each of the relevant LA/MSF 
measures, an assertion the European Communities cons iders can be substantiated by comparing the 
IRR calculated for the UK A320 and A330/A340 c ontracts on the basis of the Airbus delivery 
forecasts (as we understand it, not in cluding royalty payments), with the rate of return actually 
specified in those contracts.  The European  Communities explains that both the UK A320 and 
A330/A340 contracts explicitly envisage a rate of re turn to the UK government, after full repayment 
of its LA/MSF contributions, of [***] .  When the per-aircraft levies specified under these contracts 
are considered in the light of the delivery forecast s contained in the relevant Airbus business cases, 
the European Communities argues that the resulting IRRs are virtually identical.2540   
7.412  As we see it, even if the European Comm unities were correct in its factual assertion,2541 the 
extent to which the repayment terms of the LA/M SF contracts were set by reference to Airbus' 
business case delivery forecasts is not the only fact or that must be taken into account when 
considering whether royalty payments should form part  of the actual rate of return anticipated by the 
EC member State governments.  Another important fact or to consider is the credibility of the Airbus 
business case.  Because of the graduated levy-b ased and success-dependent nature of LA/MSF 
repayments, Airbus has an economic incentive to stre tch the life of each aircraft project as much as 
possible.  The greater the number of sales over which principal repayments and royalties must be 
paid, the less likely it is that Airbus will have to  make those payments if the business plan estimates 
prove to be optimistic.  Thus, although ostensibly required by th e terms of the LA/MSF agreements, 
royalty payments may never be made if attached to a number of aircraft sales, which although 
identified in the business plan that  formed the basis of the parties' expectations on concluding the 
LA/MSF contracts, cannot realistically ever be achieved.2542 
7.413  The European Communities argues that the Airbus business case is the product of "an 
exhaustive internal analysis of the programme's t echnical and commercial prospects" and "relies on a 
host of conservative assumptions and methodologies".2543  In addition, because Airbus has had to find 
its own sources of funding for the majority (67%) of LCA development costs since the entry into force of the 1992 Agreement, the European Co mmunities submits that its business case delivery 
forecasts have been, by definition, "realistic and sober".
2544  So much so that they have been "often 
                                                      
2539 EC, FWS, paras. 537-541; EC, Answer to Panel Questions 68 and 69. 
2540 EC, FWS, para. 549; EC, Answer to Panel Question 69, where it asserts that the IRRs would be 
[***] and [***], respectively. 
2541 We note that apart from the question whether th e EC member States actua lly relied upon the Airbus 
business cases when developing their own repayment expectations, it is not entirely clear to us that the schedule 
of forecast deliveries used by the European Communities in its calculati ons, Exhibit EC-597 (HSBI), matched 
the information on projected deliveries contained in th e Airbus business cases submitted for the A330-200 and 
the A330/A340.  The A330/A340 business case identified the same number of to tal forecast deliveries over the 
same years as Exhibit EC-597 (HSBI), but differed in respect of the numbers of deliveries expected in individual years.  The business case for the A330-200 id entified a slightly lower number of total forecast 
deliveries, and did not contain a delivery forecast for indi vidual years.  Compare Exhi bits EC-597 (HSBI) with 
EC-775 (HSBI), EC-776 (HSBI), EC-944 (HSBI) and EC-956 (HSBI).  Nevertheless, for the purpose of the 
present analysis, we have assumed that the schedules of  forecast deliveries used by  the European  Communities 
are approximately accurate and th erefore reasonably reliable. 
2542 Moreover, for certain contracts, the payment of royalties is limited in time, meaning that even a 
delay in meeting the business plan sales objectives could result in Airbus not having to make any royalty 
payments.  For instance, Airbus' obligation to pay ro yalties under the French and German A380 contracts is 
limited in time to [***] .  German A380 contract, Section 10.1, Ex hibit US-72 (BCI); French A380 contract, 
Article 7.3, Exhibit US-75 (BCI). 
2543 EC, FWS, para. 466. 
2544 EC, FWS, paras. 465 and 467.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  met, and indeed exceeded."2545  Nevertheless, the European Communities does not suggest that 
Airbus' business case delivery forecasts are infallible .  Indeed, the European Communities recognizes 
that forecasts are, by their very nature, "informe d judgements about how events that have not yet 
occurred will unfold in the future", and therefore not always reliable.2546   
7.414  In our view, the further in time the events that are the subject of a forecast are anticipated to 
take place, the more likely it is that one or more in tervening events may impede their fulfilment.  In 
the specific context of the LCA industry, where,  as the European Commun ities notes, the business 
environment is shaped by factors "whose very  foreseeablity is impossible by definition",2547 the 
element of uncertainty that is attached to aircraft  delivery forecasts that sometimes projected events 
over multiple decades2548 cannot be ignored.  In this regard, we note that like the IRRs determined for 
contracts that did not provide for royalties, the I RRs established on the basis of royalty payments are 
inherently speculative and depend upon achieving th e number, timing and (for some contracts) the 
forecast prices of deliveries projected in the releva nt Airbus business case.  Thus, while we recognize 
that the inclusion of royalty payment provisions in to the LA/MSF contracts is itself evidence of a 
certain expectation that royalties would be paid, we ne vertheless consider that the IRRs established by 
the European Communities, taking royalty payments  into account, could only represent, at most, the 
outer limit of what the EC member State government s could have reasonably expected at the time of 
concluding the contracts.   
7.415  Subject to this understanding, and notwithsta nding certain deficiencies in the evidence the 
European Communities has presented to substantiate its submissions,2549 we believe that for the 
purpose of the present analysis all but two of the IRRs established by the European Communities may 
serve as reasonable proxies for the maximum rates of return that the EC member State governments 
could have reasonably anticipated when enteri ng into the LA/MSF agreements.  The two IRRs 
calculated by the European Communities that we cannot accept are those it determined for the 
Spanish A340-500/600 contract, and the French A330/ A340 contract.  Before setting out our reasons 
for rejecting these IRRs, we first address an add itional criticism the United States has advanced in 
respect of the European Communities calculation of the IRR for the French A340-500/600 contract. 
7.416  In its first written submission, the European Co mmunities explained that in return for French 
government LA/MSF funding for the A340-500/600, Air bus was required to pay "a levy for the MSF 
(including interest) invested in the variant [***] ".2550  The European Communities' IRR calculations 
for this LA/MSF measure identified [***]  in the cash-outflows column of its calculations, [***] .2551  
In other words, the European Communities took [***]  into account when identifying the IRR for the 
French A340-500/600 LA/MSF contract – [***] .  The United States argu es that the European 
Communities' inclusion of the [***]  repayment stream in its calculations of the IRR for the A340-
500/600, instead of the IRR for the A330/A340, is erroneous.2552  We disagree. 
7.417  That revenues from the sale of derivatives of the A330/A340 would [***]  French LA/MSF 
for this aircraft is provided for in Article 6.2 of the French A330/A340 contract.  This provision 
                                                      
2545 EC, FWS, para. 467.  For instance, as of 31  December 2006 Airbus had sold approximately 3000 
A320 aircraft, well above the original business case projections.  EC, FWS, para. 331. 
2546 EC, FWS, para. 467. 
2547 EC, FWS, para. 30. 
2548 For instance, the delivery forecas t used in the business case for the A380 projected events over 
multiple decades.  Ex hibit EC-362 (HSBI). 
2549 See above, footnotes 2533 and 2541. 
2550 EC, FWS, para. 336. 
2551 Exhibit EC-13 (BCI). 
2552 US, Answer to Panel Question 42. WT/DS316/R 
Page 414  
BCI deleted, as indicated [***] 
 
  prescribes that for each [***]  Airbus must make a repayment equivalent to [***] .
2553  Article 6.4 of 
the French A340-500/600 contract recalls this obligation2554 and identifies the [***] .2555  Thus, reading 
the provisions of the French A340-500/600 and A330/A340 LA/MSF contracts together, it can be inferred that [***]  were envisaged under the French A340-500/600 contract – [***] . Although the 
[***]  repayment stream was formally intended to [***] , it was not specifically known how much this 
repayment would be, if any, at the time that the French A330/A340 LA/MSF contract was concluded.  
As already noted, Article 6.2 of the French A330/A340 contract sets out [***] . Thus, the French 
A330/A340 contract does not specify precisely how much the [***]  would be, making such 
repayment entirely speculative at the time the contract was concluded.  It follows that the government 
of France could not have had a clear expectati on of how much any derivative aircraft would 
contribute to the return it received for the A330/A 340 contract when it was concluded.  Indeed, no 
consideration of the amount of any expected cont ribution to repayment of the A330/A340 contract 
from sales of the A340-500/600 derivative can be  found in the A330/A340 cash-flow analysis.
2556 
7.418  In our view, it would be incorrect to include the repayment amounts foreseen only in 1998 
(when the French A340-500/600 contract was concl uded) in the calculation of the IRR expected by 
the French government on the A330/A340 contract at the time it was concluded in 1993 .  We are 
therefore not persuaded by the United States' argument that the [***]  repayment stream envisaged 
under the A340-500/600 contract shoul d form part of the calculation of the returns associated with the 
French A330/A340 contract.  While we can see the merit of this position for the purpose of 
determining the IRR associated with  the French A330/A340 contract at the time of the conclusion of 
the A340-500/600 LA/MSF contract, we consider that it would not make sense when identifying the 
IRR expected by the French government at the time of the conclusion of the A330/A340 LA/MSF 
contract.  
7.419  The [***]  prescribed in Article 6.4 of the French A340-500/600 contract was not formally 
earmarked to repay the principal lo aned under that contract.  However,  the funds were clearly a return 
for the French government that was specifically pr ovided for in the A340-500/600 financing contract.  
In other words, it was agreed at the time the loan cont ract was concluded that the French government 
would receive [***] .  In our view, it could be argued that , in practice, a market-based lender in a 
similar situation to the French government would have included [***]  into its calculation of the 
overall return  it expected from its participation in the A340-500/600 project at the time of the 
conclusion of the loan contract.  However, it could equally be argued that because the [***]  was not 
strictly intended to be used to repay the funding provided for the A340-500/600 project, a market-
based lender would not have taken it into account wh en calculating the returns it expected to achieve 
from that specific loan  at the time of the conclusion of the contract.   
7.420  For present purposes, it is not necessary for us to  come to a definitive conclusion about which 
of these two arguments should prevail, because in ei ther case, our findings in respect of whether the 
French A340-500/600 LA/MSF measure amounts to a subsidy would not change.  Moreover, had the 
United States raised the same cr iticism in respect of the European  Communities' calculation of the 
IRR for the French A330-200 contract, (which we  note was also based on cash-outflows derived from 
[***]2557 ), we would have come to the same conclu sion for the same reasons.  Thus, while not 
rejecting the IRRs calculated by the European Communities for the French A330-200 and A340-500/600 LA/MSF contracts, we will take them into account in the evaluation that follows bearing in 
mind the views we have expressed about their appropriateness in the preceding paragraphs.  
                                                     
 
2553 Article 6.2 [***].  The A340-500/600 is not listed in Annexes 1 and 1 bis of this contract.  Exhibit 
EC-96 (BCI). 
2554 Article 6.4 [***]  Exhibit EC-91 (BCI). 
2555 Article 6.4 [***]  Exhibit EC-91 (BCI). 
2556 Exhibit EC-944 (HSBI). 
2557 EC, FWS, para. 335; Exhibit EC-13 (BCI).  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  7.421  We next set out our reasons for rejecting th e IRRs the European Communities calculated for 
the French A330/A340 and Spanish A340-500/600 LA/MSF contracts. 
7.422  When determining the IRR for the French A330/A340 contract, the European Communities 
used the repayment schedule set out in the 1988 contract submitted as Exhibit EC-948 (BCI).  
However, Articles 1 and 6 of this contract i ndicate that its repayment terms were provisional.2558  The 
final repayment provisions for the French A 330/A340 LA/MSF contract were established in a 
Protocole d'Accord concluded in 1993, which the European Communities submitted as Exhibit 
EC-96 (BCI).  The schedule of repayment that was finally agreed involved an initial repayment levy 
that was about 50% lower than the one used by the European Communities in its calculations.  For 
this reason, we cannot accept the IRR advanced by  the European Communities and instead rely upon 
the interest rate submitted by the United States, whic h represents the rate of return specified in a 1997 
Note prepared by the French Direction des Progr ammes Aéronautiques Civils, without taking into 
account possible royalty payments.2559  We note that this interest ra te is marginally above the IRR 
calculated by the European Communities in Exhibit EC-597 (HSBI). 
7.423  Finally, as regards the Spanish A340-500/600 co ntract, the European Communities explains 
that it calculated an IRR of [***]  for this contract by using the methodology it asserts was applied in 
the contract.  In particular, the European Communities identified the relevant [***]  and added to this 
[***] .2560  Thus, contrary to what the Europ ean Communities has previously stated,2561 the IRR of the 
Spanish A340-500/600 contract it relies upon was not determined by identifying the IRR that set the NPV of anticipated LA/MSF inflows and outflows at zero, but rather it was calculated on the basis of 
an interest rate formula which the European Co mmunities asserts was applied in the contract.  The 
relevant interest rate formula reads: 
[***]
2562 
7.424  When averaged over the entire amount of the lo an, it is our understanding that this formula 
results in an overall interest ra te that is equivalent to the [***] .  The United States seems to contend 
that the application of this formul a results in an interest rate of [***] .2563  On the other hand, relying 
on estimates of the cost of Spanish government borrowing at the time of the launch of the A340-
500/600 in the Ellis Report, the Europe an Communities arrives at an IRR of [***] .2564  In our view, 
both parties' submissions are inappropriate.  We note that the Spanish A340-500/600 contract was 
concluded on 28 December 1998, therefore the relevant  government cost of borrowing should be that 
which existed in 1998, not 1997 when the A340-500/600 was launched.2565  The Ellis Report 
estimates this to have been 4.83%.2566  Adding a premium of [***]  to this figure results in an interest 
                                                      
2558 Exhibit EC-948 (BCI), Article 1 ("The terms relatin g to this financing are of a provisional nature") 
and Article 6 ("Reimbursement shall be obtained by [***] ). 
2559 Exhibit EC-HSBI-0001143,  p. 25, submitted during the A nnex V proceedings; cited by the 
United States in the Ellis Report, Exhibit US-80 (HSBI). 
2560 EC, Answers to Panel Questions 249 and 251. 
2561 EC, Answer to Panel Question 69. 
2562 Spanish A340-5007600 contract, Quinta Clausula, Exhibit EC-87 (BCI). 
2563 Ellis Report, Table 5, Exhibit US-80 (BCI). 
2564 EC, Answer to Panel Question 249. 
2565 We note that the first disbursement covered by the Spanish A340-500/600 contract  was made in 
1998. Tercera Clausula, Spanish A340-500/600 contract .  In the absence of clear contractual language 
supporting the European Communities' pos ition, it is difficult to accept that the Spanish government agreed on 
28 December 1998 to provide LA/MSF fo r the A340-500/600 at an interest ra te calculated on the basis of its 
cost of borrowing in the previous year.  The European Communities has provided no particular justification for 
its approach. 
2566 Ellis Report, Exhibit 3, Exhibit US-80 (BCI).  On the other hand, the Spanish government's cost of 
borrowing for 1997 that was used by the European Communities was estimated in the Ellis Report to be 6.40%. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  rate of only [***] , more than 150 basis points below the inte rest rate advanced by the European 
Communities; and approximately 30 basis points above the rate advanced by the United States.  Thus, on the basis of our own assessment of the facts, we cannot accept the IRR submitted by the European 
Communities, nor the interest rate advanced by the United States.  In our view, the appropriate 
interest rate to use for the Spanish A340-500/600 contract is [***] .    
Implicit Rates of Return After Taxation
  
7.425  The European Communities argues that the effects of taxation on both LA/MSF contributions 
and repayments must be taken into account when ar riving at the "implicit rate of return" associated 
with all instances of LA/MSF that preceded devel opment of the A380.  The European Communities 
explains that prior to the launch of the A380, the EC member State governments classified LA/MSF 
as taxable income.  According to the European Co mmunities, this meant that the EC member State 
governments not only received interest repayments on the principal of their LA/MSF contributions, 
but also that they received an additional return  through taxation.  Conversely, the European 
Communities argues that this increased the cost of LA/MSF to Airbus and "considerably" decreased 
the amount of available funds to dedicate to aircraft  development.  Thus, in arriving at the "implicit 
rate of return" for the LA/MSF contracts pre-dati ng the A380, the European Communities argues that 
the diminished LA/MSF receipts for Airbus, and th e increased returns to the governments must be 
taken into account.2567  Accordingly, the European Commun ities determined the following "implicit 
rates of return", adjusted for tax effects: 
Table 4 – LA/MSF implicit rates of return after taxation proposed by the EC  
 
 Aircraft 
Model     
A320 [***] [***] [***] [***] 
A330/A340 [***] [***] [***] [***] 
A330-200 [***] - - - 
A340-500/600 [***] - [***] - 
A380 [***] [***] [***] [***] 
 
7.426  The United States argues that the European Co mmunities' submission on taxation effects is 
seriously flawed for both factual and legal reasons.2568  From a factual perspective, the United States 
argues that the European Communiti es has failed to substantiate its assertion with any real evidence, 
characterizing its answer to the Panel's specific requ est for evidence of the alleged taxation effects as 
a "non-response".  As a legal matter, the United Stat es contends that taxation effects have no bearing 
on whether a financial contribution c onfers a benefit, because the standard that must be applied is the 
market.  In this regard, the United States explains th at market-based lenders set interest rates without 
regard to taxes that recipients may subsequently  pay to their governments.  Moreover, the United 
States contends that the EC member State governme nts could not be aware of the precise tax effects 
of LA/MSF because factors affecting future levels of taxation, such as depreciation and the carrying 
forward of losses from prior years, could not be known at the time the LA/MSF contracts are concluded.  Therefore, according to the United Stat es, it would be inappropriate to adjust the actual 
LA/MSF rates of return upwards to account for the effects of taxation.  The United States considers 
that this conclusion is also supported by the Eu ropean Communities' own practice of not taking 
taxation effects into account when conducting CVD inv estigations.  To this end, the United States 
                                                     
 
2567 EC, FWS, paras. 542-545; EC, Answer to Panel Questions 69 and 71; EC, Comment on the United 
States Answer to Panel Question 141. 
2568 US, SWS, paras. 124-131; US, Answer to Panel Question 141.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  cites the following passage from the EU Commis sion's findings in a 2004 CVD case explaining why 
taxation effects should be disregarded: 
"According to the information available, it can indeed not be excluded that these 
grants, at a later stage, may increase a company's overall tax liability.  However, this 
would be a future event, and will depend on many factors, most of which are 
influenced by commercial decisions made by  the company itself.  Such factors do not 
only relate to pricing and sales issues, but  also concern other issues that determine 
overall tax liability, such as decisions concerning depreciation rates, the carrying forward of losses and many other factors.  All these decisions influence the tax 
bracket that will finally be applied to the company in a specific tax year.  It is 
therefore not possible to determine exactly  to what extent benefits obtained from 
DEPB sales have contributed to the applicable tax rate ".2569 
7.427  The implication of the European Communities'  argument is that the EC member State 
governments (and Airbus) knew at the time they entered into the LA/MSF contracts that part of the 
disbursed principal would be returned to the governments through taxation, thereby effectively 
diminishing the amount of funds available to Airbus .  However, there is little, if any, evidence that 
demonstrates that this was the case.  First, the Eu ropean Communities has point ed to no clause in any 
of the relevant LA/MSF contracts to indicate th at the EC member State governments and Airbus 
contemplated the effect of taxation on the costs of  the LA/MSF arrangements.  Moreover, had Airbus 
believed taxation to be a genuine i ssue, one would expect that it would have been highlighted in the 
one document addressing the aircrafts' commercial vi ability – the Airbus business case.  However, the 
European Communities has pointed to no such con cern being expressed in any of the Airbus business 
cases that have been submitted.   
7.428  Second, in response to the Panel's request th at it provide evidence of the alleged taxation 
requirements and payment by Airbus,2570 the European Communities furnished the taxation rates 
allegedly applied in the EC member States at the ti me of the relevant contracts and a statement from 
an Airbus executive responsible for taxation matters confirming that Airbus paid all corporate taxes 
"that were due" in the relevant tax periods.2571  In our view, this is insufficient to demonstrate that 
Airbus paid all of the taxes on the amounts of LA/MSF  which the European Communities argues were 
subject to taxation.  In other words, the European  Communities has not substantiated its assertion that 
the relevant tax rates were applied directly to the amounts of LA/MSF at issue , and that Airbus made a 
corresponding tax payment.  In any case, even ac knowledging that corporate taxes were paid by 
Airbus, we understand that they were of a general nature and not specifically attached to LA/MSF.  
Thus, we agree with the United States2572 that the extent to which the LA/MSF amounts received had 
any impact on Airbus' tax burden cannot be determined  through the straightforward application of the 
corporate tax rates in force at the time of the relevant LA/MSF contributions.  Although it may well 
be that some part of the funds received throug h LA/MSF measures would return to the EC member 
State governments through the effect of general co rporate taxation, identifying this amount would 
seem to be a more complicated endeavour than im plied by the methodology used by the European 
Communities to derive the tax-adjusted "implied rates of return". 
                                                      
2569 Council Regulation (EC) No. 74/2004 of 13 January 2004 imposing a definitive countervailing duty 
on imports of cotton-type bed linen in India , recital 50, (emphasis added by the United States), Exhibit US-538, 
referred to in US, SWS, para. 129. 
2570 Panel Question 71. 
2571 See, also , EC, Comments on the United States Answer to Panel Question 142,and Exhibit EC-
658 (BCI). 
2572 US, SWS, para. 129. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  7.429  Finally, even if we were to understand th e European Communities' argument on taxation 
effects differently, that is, as the argument that  the taxation of income generated through economic 
activity facilitated by LA/MSF must be taken into acc ount, we would also reject it.  In our view, there 
is no basis in the SCM Agreement to support the view  that the amount of a financial contribution may 
be reduced for any tax payments made to th e government on income generated from economic 
activity that is facilitated by that financial contribution. 
7.430  We are therefore not convinced by the argument  that the taxation effects described by the 
European Communities should be taken into account in setting the "implicit rate of return" for the 
relevant LA/MSF contracts pre-dati ng the A380.  Consequently, we re ject the tax-adjusted "implicit 
rates of return" determined by the European Comm unities, and find that they cannot be relied upon to 
identify the actual rates of return associat ed with the challenged LA/MSF measures.   
7.431  In the light of the foregoing, the LA/MSF interest  rates that we will consider in the remainder 
of our benefit analysis, and which we be lieve may serve as reasonable proxies for the maximum  rates 
of return that the EC member State governments c ould have reasonably anticip ated when entering into 
the LA/MSF agreements, are the following: 
Table 5 – LA/MSF Rates of Return
2573 
 
 Aircraft 
Model France Germany Spain UK 
A3002574 0% 0% 0% - 
A3102575 0% 0% 0% - 
A320 [***] [***] [***] [***] 
A330/A340 [[HSBI]]2575 [***] [***] [***] 
A330-200 [***] - - - 
A340-500/600 [***] - [***]2576 - 
A380 [***] [***] [***] [***] 
 
Rates of Return of Comparable Market-Based Financing 
7.432  Relying on separate studies prepared specifically for the purpose of this dispute by different 
economic experts,2577 the parties have submitted their own indivi dual estimates of the rates of return 
they consider a market lender would have require d to provide financing to Airbus on the same terms 
and conditions as the relevant provisions of LA/MSF.   According to the United States, such rates 
should reflect both the risks associated with Airbus ' general borrowing activities and the specific risks 
associated with LCA development and the features of  LA/MSF.  Thus, the United States submits that 
the commercial rates of return for financing whic h is comparable to LA/MSF may be constructed on 
the basis of: (i) ten-year long-term government bo rrowing rates (representing the general risk-free cost 
of capital); (ii) ten-year company-specific genera l borrowing rates (representing the general level of 
risk associated with lending to Airbus); and (iii) a project-specific risk premium (representing the risk 
                                                      
2573 Unless otherwise indicated, the maximum rates of re turn identified in this table are sourced from 
Exhibit EC-597 (HSBI) (see "IRR W ithout the Effects of Taxation"). 
2574 See above, Table 2.  See also further below, paragraph 7.484. 
2575 See above, paragraph 7.422. 
2576 See above, paragraphs 7.423 - 7.424. 
2577 The studies the United States has presented for th is purpose are:  The Ellis Report, Exhibits US-
80 (BCI) and US-80 (HSBI), and Ellis Answer to White law, Exhibits US-534 (H SBI) and US-534a BCI. The 
studies the European Communities has presented for this  purpose are the   Whitelaw Report, Exhibit EC- 11 
(BCI/HSBI) and the   Whitelaw Rebutta l Report, Exhibit EC- 656 (BCI/HSBI).  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  profile of LCA development and the features of LA/MSF).2578  The borrowing rates established by the 
United States in this manner are identified in the following table.  For various reasons, the 
United States argues that they are based on conser vative assumptions and therefore understate what it 
considers would be the true level of market bo rrowing rates for financing comparable to LA/MSF.2579 
Table 6 – Market Rates of Return Proposed by the United States  
 
 Aircraft 
Model France Germany Spain UK 
A300 16.52% 15.18% 16.60% - 
A310 18.88% 13.99% 18.88% - 
A320 20.49% 15.95% 24.52% 19.59% 
A330/A340 17.86% 14.52% 21.19% 17.97% 
A330-200 17.22% - - - 
A340-500/600 14.47% - 15.29% - 
A380 13.89% 13.75% 14.07% 13.54% 
 7.433  The European Communities does not reject the en tirety of the United States' construction of 
the proposed interest rate benchmarks, and ap plies the same general government and corporate 
borrowing rates used in the United States' calcula tions when deriving its own proposed market-based 
rates of return.
2580  However, the European Communities doe s take issue with the value that the 
United States proposes for the project-specific risk premium, arguing that it is overstated because, in 
the European Communities' view, it is based on the returns that would be expected from equity-based 
financing.  The European Communities presents its  own alternative project-specific risk premium 
based on what it asserts are the re turns expected by the risk-sharing suppliers participating in the 
A380 project.  The European Communities argues that this benchmark is more  appropriate than the 
one advanced by the United States because it more closely reflects the debt-like characteristics of 
LA/MSF.  Accordingly, the Eur opean Communities established its own estimates of the rates of 
return for market financing comparab le to LA/MSF on the basis of HSBI.2581  All of the European 
Communities' proposed market rates of return are lo wer than those advanced by the United States; in 
some cases the difference between the two parties' submissions is considerable. 
7.434  Thus, although the parties have presented different overall view s on the appropriate rates of 
return that a market lender would demand when prov iding financing to Airbus on the same or similar 
terms and conditions as LA/MSF, their disagreement in  terms of the overall levels of the relevant 
market interest rate benchmarks is focused on the valu e of the project-specific risk premium.  It is to 
this aspect of their calculations that we next turn our attention. 
                                                      
2578 Ellis Report, pp. 1-23. 
2579 For instance, one of the conservative assumptions th at the United States asserts has been adopted in 
the Ellis Report analysis is the use of government and corp orate borrowing rates with a maturity of ten years.  
The United States argues that the use of  a ten year maturity understates the actual credit spreads associated with 
the LA/MSF contracts, which are open-ended or have a matur ity that is significantly longer than ten years.  Ellis 
Report, pp. 7-8, 11. 
2580 EC, FWS, paras. 489-490. 
2581 Whitelaw Report, Exhibit 3, Exhibit EC-11 (HSBI).  The European Communities has provided no 
estimate of any market-based borrowing rates relating to the A300 and A310 contracts. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  Project-specific risk premium advanced by the United States
 
 7.435  The United States submits that LA/MSF is a "hybrid" finance instrument that has 
characteristics of both debt and equity.
2582  According to the United States, LA/MSF is debt-like in 
that it contains a schedule of promised repayments, and in some cases a stated interest rate.  However, 
the United States explains that like equity and unlike debt, LA/MSF does not entitle the EC member 
State governments to repayment with interest over a specified period of time; it has no fixed maturity, 
and repayments depend entirely on sales which ma y or may not occur according to a scheduled 
forecast.  Moreover, like shareholders and unlike ordi nary creditors, the United States asserts that in 
the event that Airbus fails, the EC member State governments have no recourse to obtain repayment, 
whereas corporate bondholders may declare the debtor  company to be in default and pursue whatever 
remedies they have to recover their initial invest ment.  In addition, the United States notes that while 
LA/MSF is dependent upon the success of a single pr oject, typical corporate debt is dependent upon 
the success of the whole company.  It is because of pr ecisely this type of repayment structure that the 
United States contends Fitch Ratings agency has declared that it "'does not treat launch aid as 
debt'".2583 
7.436  Given its alleged "hybrid" nature, the United St ates argues that the most appropriate market 
interest rate benchmark for LA/MSF is one th at reflects both its debt-like and equity-like 
characteristics.  The United States submits that th e benchmarks presented in the Ellis Report reflect 
precisely these characteristics. 
7.437  The market interest rate benchmarks identified in the Ellis Report are constructed by adding a 
700 basis point project-specific risk premium to the su m of the relevant Airbus entity's cost of debt 
calculated in the Ellis Report for each of the challe nged LA/MSF contracts.  This risk premium was 
derived from the results of a 2004 empirical st udy of venture capital investments undertaken by 
Kerins, Smith and Smith ("KSS Study").2584  Ellis explains that the KSS Study found returns on 
venture capital investments to range from 16.7% to  57.5%, depending on the diversification of the 
investor.  The project-specific risk premium of 700 basis points was derived fro m the lowest return in 
this range ( i.e., 16.7%), which represents the return obtaine d by a "well diversified investor in both 
venture capital projects and other, less risky, equity investments represented by a stock market index".
2585  The United States characterizes the Ellis Report project-specific risk premium as the 
opportunity cost of capital for a well-diversified por tfolio of venture capital investments including 
both debt and equity instruments.2586  In its view, the risk premium is itself "hybrid", which not only 
matches the essential characteristics of LA/MSF, but also means that the overall Ellis Report market 
interest rate benchmark "if anything, is bi ased towards debt and thus too conservative".2587 
7.438  According to the United States, reliance on the risk associated with venture capital funding 
for the purpose of establishing the project-specifi c risk premium for LA/MSF is appropriate for 
                                                      
2582 US, FNCOS, paras. 44-49; US, SWS, paras. 89-94; Ellis Answer to Whitelaw Report, pp. 3-5, 
Exhibit US-534a (BCI). 
2583 US, FNCOS, para. 48, referring to Fitch Ratings, Special Report, Diverging Flight Paths: Boeing 
and Airbus Large Commercial Aircraft Industry Update , (15 November 2006) p. 6, Exhibit US-451. 
2584 Frank Kerins, Janet Kiholm Smith and Richard Smith, Opportunity Cost of Capital for Venture 
Capital Investors and Entrepreneurs, Journal of Financial and Quantitative Analysis , vol. 39(2), (June 2004), 
(hereinafter "KSS Study"), Exhibit US-470. 
2585 Ellis Answer to Whitelaw Report, p.7, Exhibit US-534a (BCI). 
2586 US, Answer to Panel Questions 8 and 9. 
2587 US, Answer to Panel Question 9. In its SWS, th e United States explains that the Ellis Report 
interest rate benchmark is conservative for two additi onal reasons: because Ellis selected the lowest risk 
premium indicated in the KSS Study and because it used the corporate debt rate  rather than the equity rate or 
weighted average cost of capital, US, SWS, para. 90.  See, also , Ellis Answer to Whitelaw Report, p.7, Exhibit 
US-534a (BCI).  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  various reasons.  In particular, the United States considers LA/MSF to be comparable with venture 
capital financing because of its project-specific and highly speculative nature.2588  In this regard, the 
Ellis Report points to a July 2000 press Article quoting Airbus' then Executive Vice President of 
Strategy, Philippe Delmas, as saying that: "{g}ove rnment support for the A3XX should be thought of 
as 'venture capital'".2589  The Ellis Report also asserts that "like a provider of {LA/MSF}, {a provider 
of venture capital} is willing to assume a significant pa rt of the business risk of a project or company 
... {and} will provide a significant proportion of the required start-up funds without the certainty or 
security of a certain level of return".2590  Moreover, referring to an article appearing in the Review of 
Economic Studies and an economic finance textbook , the Ellis Report affirms that "venture 
capital may also take the form of high-yield loan s or even levy-based financing comparable to 
{LA/MSF} loans provided to Airbus".2591 
7.439  The United States advances a number of confirmations or cross-checks to corroborate the 
order of magnitude of the 700 basis point project-specific risk premium used in the Ellis Report.  First, the proposed 700 basis point risk premium is  compared with Ibbotson Associates data on the 
historical average risk premia associated with i nvestments in the equity of large United States 
companies.
2592  According to Ellis, Ibbotson Associates is  a widely used source of data on equity 
market risk premia that is accepted and ta ught in business schools and economics curricula.2593  Ellis 
explains that the Ibbotson data show that between 1926 and 2005 the market risk premium for 
investments in low-risk large company stocks  over returns on long-term  government bonds has 
averaged 7.08%.2594  
7.440  A second cross-check advanced by the United St ates is the 1997 European Commission State 
Aid Decision concerning support provided to CASA , allegedly in the form of LA/MSF, by the 
Spanish government for the developmen t of a regional 70-80 seat aircraft.2595  According to the 
United States, in its assessment of the alleged State Aid, the European Commission identified a 
comparable market interest rate benchmark by applying a risk premium of at least 8% over the ten 
year Spanish government (risk-free) borrowing rate for a financing package for a project to develop 
commercial aircraft the repayment of which,  as in the case of LA/MSF for LCA, was success 
dependent.2596  A third cross-check the United States iden tifies is the range of discount rates that 
[***] .  The United States shows that its own benchmark (including the 700 basis point risk premium) 
is in the lower portion of this range of discount rates.2597   
                                                      
2588 US, Answer to Panel Question 9, referring to explanations given in the Ellis Report. 
2589 Airbus gets risk free loans; European Plane Ma ker Doesn't have to Pay Governments Back if A3XX 
Superjumbo Fails, Seattle Post-Intelligencer , 25 July 2000, referred to in NERA Economic Consulting, 
Economic Assessment of the Benefit of Launch Aid, 10  November  2006, (Ellis Report) p. 19, footnote 25, 
Exhibit US-80. 
2590 Ellis Report, pp. 19-20, Exhibit US-80 (BCI). 
2591 Ellis Report, pp. 19-20, Exhibit US-80 (BCI), referring to Francesca Cornelli and Oved Yosha, 
Stage Financing and the Role of Convertible Securities , Review of Economic Studies (2003) 70, p. 1, and Karl 
F. Seidman, Economic Development Finance , Sage Publications Inc., 2005, p. 260. 
2592 Ellis Report, p. 21, Exhibit US-80 (BCI).  Ibbotson Associates uses  the total return of the S&P 500 
(which includes the 500 common stocks with the larges t market capitalization that are actively traded in the 
United States) as its market benchmark when  calculating the equity risk premium.   
2593 Ellis Report, p. 21, Exhibit US-80 (BCI); Ellis Answer to Whitelaw Report, p. 19, Exhibit US-
534a (BCI).   
2594 Ellis Report, p 21 and Exhibit 8, Exhibit US-80 (BCI).   
2595 Ellis Report, p. 21, Exhibit US-80 (BCI).   
2596 US, SWS, para. 98; US, Answer to Panel Questio n 8; Ellis Report, p. 21, Exhibit US-80 (BCI); 
Ellis Answer to Whitelaw Report p.  16, Exhibit US-534a (BCI).   
2597 US, SWS, para 100; Ellis Answer to White law Report, p.13-16, Exhibit US-534 (HSBI). WT/DS316/R 
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  7.441  Relying on HSBI, the United States argues that the [***]  analysis undertaken by the 
Department of Trade and Industry ("DTI") in the UK government's critical project appraisal for the 
A380 also confirms the Ellis Report project-specific risk premium and United States' market interest 
rate benchmarks.
2598  In addition, again relying upon HS BI, the United States submits that the 
discount rates employed in the Airbus business case for the A380 confirm its proposed project-
specific risk premium.2599   
7.442  The European Communities does not accept the project-specific risk premium proposed by 
the United States.  Relying upon the arguments, an alyses and conclusions described in two studies 
commissioned from Professor Robert Whitelaw,2600 the European Communities argues that the 
proposed 700 basis point project-specific risk premiu m is grossly inflated, and cannot be supported by 
the United States' cross-checks.2601   
7.443  The European Communities characterizes LA/MSF as project-specific debt, rather than equity 
or a hybrid between debt and equity, implying that the risk premium advanced by the United States is 
inapposite.  In the European Communities' view, th e fact that LA/MSF loans are project-specific does 
not render them equity-like.2602  The project risk associated with LA/MSF is a function of 
development risks and market risks – both insignifi cant in the European Communities' view – which 
are qualitatively different from the risk borne by equity holders.2603  The European Communities notes 
that equity returns depend on the profitability of the company as a whole, which is subject to wide 
fluctuations.  By comparison, the European Communities asserts that LA/MSF contracts involve 
amortizing loans repaid out of project revenue.  Thus, in the view of the European Communities, 
equity is generally riskier than debt.  Moreove r, the European Communities argues that LA/MSF 
creditors are not guaranteed a share in the upside rewa rds afforded to equity holders when profits are 
high, nor are they required to bear losses when th e market is weak.  According to the European 
Communities, these and other differences between LA/MSF and equity investments confirm that 
LA/MSF is a form of debt that is distinct from equity.2604  In support of its view, the European 
Communities quotes several market analysts who have  characterized LA/MSF loans as a form of debt, 
and distinguished them from equity.2605  For instance, in a 2003 report, Morgan Stanley observed that 
"{o}nce aircraft start to be delivered, launch aid is  repayable. It has no sensitivity to the profitability 
of the deliveries. It looks like debt; correspondingly, we treat it as such."2606   
7.444  In any case, the European Communities contends that the United States' project-specific risk 
premium fails to reflect the characteristics of hybr id financing instruments because it relies upon the 
KSS Study, which the European Communities alleges uses data relating to returns from risky venture 
capital investments in the form of Initial Public Offerings ("IPOs") by high-tech firms.2607  According 
to the European Communities, venture capital return s do not reflect the risk profile of LA/MSF.  
Professor Whitelaw asserts that the launch of an Air bus LCA bears risk that is several orders of 
                                                      
2598 Ellis Report, Exhibit US-80 (HSBI).   
2599 Ellis Answer to Whitelaw Report, Exhibit US-534 (HSBI).   
2600 Whitelaw Report, Exhibit EC- 11 (BCI/HSBI);  Whitelaw Rebuttal Report Exhibit EC- 656 
(BCI/HSBI), para. 16. 
2601 EC, FWS, paras. 483-486; EC, Answer to Panel Question 66; EC, SWS, paras. 168-200, EC, 
SNCOS, paras. 89-112; EC, SCOS, paras. 58-70. 
2602 EC, SWS, para. 171 
2603 EC, FWS, paras. 304-306; EC, SWS, para. 172. 
2604 EC, SWS, para. 174 
2605 The European Communities provides quotations to that effect from Morgan Stanley, see text at 
footnote 2606 below, Deutsche Bank, Exhibit EC-674 , Citigroup Smith Barney, Exhibit EC-675, and Goldman 
Sachs, Exhibit EC-676; EC, SWS, footnote 146. 
2606 Morgan Stanley, "Little Scope for Further Downside Risk" 20 June 2003, p. 13, Exhibit EC-673. 
2607 EC, SWS, para. 176; EC, Comments on United States Answer to Panel Question 143.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  magnitude lower than venture capital investment.2608  In support of this assertion, Professor Whitelaw 
quotes an economic study that describes venture capita l projects as "high-risk, potentially high-reward 
projects";2609 and refers to a paper by Cochrane, cited by the United States in support of its venture-
capital-based risk premium, who notes that the "ave rage arithmetic return to IPO or acquisition is 
698% with a standard deviation of 3282%" and that  "{v}enture capital investments are like options; 
they have a small chance of a huge payoff."2610  Professor Whitelaw recalls that Airbus and Boeing 
have never experienced a significan t commercial failure, asserting that to date, Airbus has never failed 
to repay an EC member State due to the failure of an aircraft programme.2611  
7.445  Professor Whitelaw also argues that the Ellis  Report risk premium suffers from severe 
methodological flaws.  According to Professor Whitela w, the Ellis Report appears to have derived the 
venture capital risk premium by deducting the estimat ed market cost of capital identified in the KSS 
Study from the gross  return achieved by a venture capital fund before fees and expenses .  However, 
Professor Whitelaw submits that the premium embedded  in the 16.7% gross return identified in the 
KSS Study is not a risk premium, noting that the KSS Study authors describe it as a fee "to 
compensate for investment of effort" by the venture capital fund managers.2612  In Professor 
Whitelaw's view, this fee applies to venture capital funds  that require the expertise and effort of a fund 
manager – but it would not appl y to commercial borrowing rates.  Thus, Professor Whitelaw 
concludes that not only is the fee not project-specific (that is, the fee is applied at the fund level, not 
the project level), but it is also not a risk premium at all.2613     
7.446  In his rebuttal report, Professor Whitelaw also denies that the combination of a debt-based 
general corporate risk premium and an equity-based project-specific risk premium reflects the hybrid 
character of LA/MSF loans.  In particular, Professor Whitelaw argues that the concept of 
deconstructing the relevant interest rate into co mpensation for general corporate risk and project-
specific risk works only for debt-like securities.2614  According to Professor Whitelaw, this approach 
cannot work in the context of equity financing b ecause no project-specific risk premium will exist in a 
required return on equity.2615  
7.447  Furthermore, the European Communities argues that the evidence submitted by the United 
States to corroborate its proposed project-specific risk premium does not "cure the fatal deficiencies in the Ellis report", nor call into question its ow n proposed market interest rates benchmarks.
2616  The 
European Communities first criticizes the United Stat es' reliance on Ibbotson Associates' historical 
measure of the risk premium associated with inv estments in equity.  Professor Whitelaw argues that 
these data fail to support the project-specific risk premium advanced in the Ellis Report because they 
are drawn entirely from equity returns and measure ma rket risk associated with equity investments, 
while the Ellis Report risk premium is not a risk premium at all because it represents a fee to investment managers.
2617  Professor Whitelaw also notes that even if one were to consider the cost of 
equity investment to be an appropriate cross-check  for the project-specific risk premium associated 
with LA/MSF, the Ibbotson Associates data would not  be suitable because they substantially overstate 
the equity investment risk premium.  Professor White law alleges that there are three reasons for this: 
                                                      
2608 Whitelaw Rebuttal Report, para. 20, Exhibit EC-656 (BCI) . 
2609 P. Gompers and J. Lerner, The Venture Capital Revolution , Journal of Economic Perspectives, 
2001, vol. 15(2), p. 145, Exhibit EC-677. 
2610 J. Cochrane, The Risk and Return of Venture Capital , Journal of Financial Economics, 2005, vol. 
75, pp. 4-5, Exhibit US-471. 
2611 Whitelaw Rebuttal Report, para. 20, Exhibit EC-656 (BCI). 
2612 EC, SNCOS, para. 102, referring to KSS Study, p. 401, Exhibit EC-112. 
2613 Whitelaw Report, paras. 4-10, Exhibit EC-11 (BCI). 
2614 Whitelaw Rebuttal Report, para. 16, Exhibit EC-656 (BCI). 
2615 Whitelaw Rebuttal Report, para. 16, Exhibit EC-656 (BCI). 
2616 EC, FWS, para. 512. 
2617 EC, SCOS, paras. 59-60. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  (i) that Ibbotson's historical equity investment risk premium is based on a simple average of widely 
fluctuating historical returns, which implies the existence of an error rate that is "enormous"
2618; (ii) 
that Professor Aswath Damodaran, who is desc ribed by the European Communities as "a world-
renowned scholar whom Ellis and th e United States repeatedly cite",2619 concludes that based on ex-
post data of the type Ibbotson uses, the hist orical equity risk premium should be 4.8%;2620 and (iii), 
that current academic literature identifies a variet y of reasons why the historical difference between 
the return on equity investment and the risk-free ra te is not an appropriate measure of the expected 
market equity investment risk premium.2621  In particular, referring to 15 different academic studies, 
Professor Whitelaw argues that a substantial body of research now confirms that historical measures 
such as those used in the Ibbot son Associates data systematica lly overstate the equity risk 
premium.2622   
7.448  Similarly, the European Communities contests the United States' reliance on the discount 
rates proposed by [***]  for the purpose of the [***]  to confirm the magnitude of its proposed risk 
premium, the so-called " [***]  measure".  According to the European Communities, the Ellis Report 
concedes that the [***]  measure captures the risk of equity  rather than debt, which Professor 
Whitelaw considers is an inappropriate me asure of the risk associated with LA/MSF.2623  Moreover, 
even if one were to consider that a measure of th e risk of equity investment were appropriate, the 
European Communities contends that the [***]  measure overstates the cost of equity.  The European 
Communities notes that in identifying the appropriate discount rate, [***]  relied upon the Capital 
Assets Pricing Model ("CAPM").  Professor Whitelaw e xplains that this model equates the expected 
return on a proposed investment with the interest rate attached to a risk-free security (such as a 
government security or a treasury bill) plus a risk  premium calculated as the market risk premium 
multiplied by a "beta" factor.2624  The market risk premium is defined in the Whitelaw Report as an 
estimate of the difference between the expected retu rn investors demand to invest in the so-called 
market portfolio and the return they would ob tain on risk-free government bonds; and the "beta" 
factor is defined as the relative perceived risk  of the particular investment in question.2625  Professor 
Whitelaw argues that in applying the CAPM, [***]  used a market risk premium from Ibbotson 
Associates, which for reasons already explained, the European Communities considers to overstate 
the equity risk premium.  In addition, according to Professor Whitelaw, the "beta" factor applied by 
[***]  was also too high for reasons explained using HSBI.2626  Finally, the European Communities 
rejects the [***]  measure on the basis that it was proposed by [***]  in a negotiation where [***]  had 
an interest in adopting an inflated discount rate , which an auditing firm rejected as excessive and 
which [***]  itself decided to abandon at a later stage.2627 
7.449  The European Communities is also critical  about the United States' reliance on the [***]  
analysis conducted by the DTI in the UK critical project appraisal for the A380 project.  The European Communities rejects the view  that this appraisal confirms the United States' project-specific 
risk premium on various grounds.  First, Pr ofessor Whitelaw alleges that the Ellis Report 
misunderstands the [***]  analysis carried out in th e UK critical project appraisal.
2628  Second, 
according to Professor Whitelaw, the Ellis Report's assessment of the [***]  analysis carried out in the 
UK critical project appraisal fails to take into acc ount how the distinctive repayment characteristics of 
                                                      
2618 EC, SCOS, para. 61. 
2619 EC, SWS, para. 188.   
2620 Aswath Damodaran, Damodaran on valuation , 41 (2d ed 2006), Exhibit EC-678. 
2621 Whitelaw Report, para 23, Exhibit EC-11 (BCI). 
2622 EC, SCOS, para 63. 
2623 EC, FWS, para. 517. 
2624 Whitelaw Report, paras. 15-16 and 43-44, Exhibit EC-11 (BCI). 
2625 Whitelaw Report, paras. 44 and 16, Exhibit EC-11 (BCI). 
2626 EC, FWS, para. 518; EC, SCOS, para. 64; Whitelaw Report, paras. 18-19, Exhibit EC-11 (HSBI). 
2627 EC, FWS, paras. 519-521; and EC, SCOS, para. 64. 
2628 EC, FWS, para. 524.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  LA/MSF loans affect the recovery rate.  Professor Wh itelaw submits that, together with the expected 
default rate, a loan's recovery rate enters the cal culation of the expected loss which is the critical 
determinant of relative bond yields across rating categories.2629  Professor Whitelaw argues that the 
Ellis Report implicitly assumes that LA/MSF has a rec overy rate equal to the historical averages for 
bonds in certain rating categories.  However, Prof essor Whitelaw argues that in reality there is no 
reason to expect LA/MSF to have the same rec overy rate as a bond with a similar probability of 
default.  For bonds, the entire principal balance fa lls due at maturity.  If a bond defaults one day 
before maturity, the principal is lost, except for wh at may eventually be recovered in bankruptcy or 
settlement proceedings.  By contrast, Professor Wh itelaw asserts that LA/MSF is typically repaid 
incrementally on each delivery of an aircraft.  If Ai rbus defaults by ending a project after making 95% 
of the anticipated deliveries, the loss to a member State is trivial.2630  Thirdly, the European 
Communities argues that because of the context in which it was prepared, the UK government's 
critical project appraisal employs very conservative forecasting methodologies.  The European Communities submits that the approach chosen refl ects a desire to ensure that the UK government 
would structure LA/MSF loans for the A380 so as to  comply with the terms of the 1992 Agreement, 
which the European Communities recalls requires gove rnments to prepare a critical appraisal of the 
project based on conservative assumptions.  The Eu ropean Communities asserts that the critical 
project appraisal was also intended to assist the UK government in its negotiations with BAE over the 
structure and terms of this financing.
2631  Fourthly, the European Communities observes that, as noted 
by the United States itself, the UK government ultim ately "disregarded" the advice in the appraisal 
regarding how to structure the repayment schedule.2632  In any case, the European Communities 
emphasizes that the delivery projections in the a ppraisal have no bearing on the French, German and 
Spanish LA/MSF agreements for the A380.2633  Finally, in the light of certain HSBI, the European 
Communities argues the [***]  analysis found in the UK critical project appraisal, once correctly 
modified and reinterpreted by Professor Whitelaw, does not in fact support the United States' project-
specific risk premium or its market interest rate benchmarks.2634   
7.450  The European Communities disputes the United St ates' contention that the CASA State Aid 
Decision supports its project-specific risk premium, arguing that the 8% risk premium applied by the European Commission in its decision is obiter dicta , in the sense that it was ir relevant to the outcome 
of the case.
2635  More generally, the European Communities ar gues that the risk premium used in that 
case was specific to the particular facts before the European Commission and would not necessarily 
be applied by the European Commission for th e purpose of evaluating LA/MSF for LCA activities.2636  
The European Communities submits that the 8% risk premium applied to the CASA loan also reflects 
the crisis in the regional aircraft industry during the early-to-mid 1990s.  According to the European 
Communities, extreme market conditions prompted the European Commission to propose an elevated 
risk premium. 2637 
7.451  The European Communities also criticizes the Un ited States' assertion that the similarity 
between the discount rates used in the Airbus business case for the A380 and the Ellis Report 
benchmark confirm the credibility of the United Stat es' proposed project-specific risk premium.  In 
this regard, the European Communities' main argument  is that the discount rates used in the business 
                                                      
2629 Professor Whitelaw explains that the recovery rate for bonds is the percent of the principal that an 
investor recovers (through bankruptcy or other mean s of settlement) when a bond issuer defaults on its 
obligation.  Whitelaw Report, Exhibit EC-11 (HSBI) , para. 31. 
2630 Whitelaw Report, Exhibit EC-11 (HSBI) , para. 34. 
2631 EC, FWS, paras. 526-527. 
2632 EC, FWS, para. 528. 
2633 EC, FWS, para. 530. 
2634 Whitelaw Rebuttal Report, Exhibit EC-656 (HSBI) , paras. 40-45. 
2635 EC, SWS, para. 193. 
2636 EC, FWS, para. 535. 
2637 EC, SWS, paras. 194-199. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  case reflect the risks borne by shareholders, which differ in kind from the risks borne by LA/MSF 
lenders.
2638  
7.452  Other evidence the European Co mmunities relies upon to support its view that the project-
specific risk premium applied by the United States is inflated includes a [***] .2639  According to the 
European Communities, the repayment terms of this  contract were, like LA/MSF, tied to aircraft 
deliveries.  The European Communities explains that  the agreed interest rate for this loan was [***]  
basis points above the London Interbank Offered Ra te ("LIBOR").  Thus, the European Communities 
submits that if a loan had been granted to Airbus by a market lender at the time of the launch of the 
[***] , the interest rate would have been no higher than [***] .2640  This is less than the 15.41% 
benchmark predicted by the Ellis Repor t for this model.  Moreover, when in 2003, the parties to the 
contract agreed to eliminate the risk sharing provis ion and converted the instrument into an instalment 
loan with a fixed repayment schedule, the loan margin was [***]  from [***]  to [***]  basis points.  
According to the European Communities, th e difference between these two margins, i.e., [***]  basis 
points, corresponds to the project-specific risk premium charged by the [***] , and represents only a 
fraction of the 700 basis point risk premium advanced by the United States.   
7.453  Moreover, the European Communities asserts that ev en if one were to assume that the cost of 
equity were an appropriate basis from which to de rive the project-specific risk premium for market 
financing comparable to LA/MSF, the risk prem ium advanced by the United States would still 
overstate the true value of what such a premium should be for LA/MSF.2641  Relying on the CAPM 
the Whitelaw Report arrives at an upper limit (a "cei ling") for the cost of equity, which the European 
Communities considers the United States' benchmark should not exceed.2642  In particular, the 
Whitelaw Report presents three different estimates of the equity market risk premium drawn from recent academic literature, coming to the conclusion th at taken together, they suggest a conservative 
estimate of the equity market risk premium of approximately 4.5%.
2643  The Whitelaw Report argues 
that as illustrated by the KSS Study, beta factors for projects or firms that are undiversified and have 
high total risk are not necessarily high.  Using a beta factor of one and an equity market risk premium 
of 4.5%, Professor Whitelaw finds a total risk premium of 450 basis points, which he adds to the country-specific risk free rates in the Ellis Report to  arrive at country-specific costs of equity capital 
                                                     
 
2638 EC, SCOS, paras. 66-67. 
2639 Exhibit EC-113 (BCI); EC, FWS, paras. 505-506; EC, Answer to Panel Question 64. 
2640 As explained in footnote 388 of the European Communities' first written submission, 
in December 1997, the 1-y ear LIBOR was at 6.079%. [***]  to this rate yields approximately [***] . 
2641 EC, FWS, paras. 507-508. 
2642 Whitelaw Report, Exhibit EC-11 (BCI), paras. 41-54. 
2643 Whitelaw Report, Exhibit EC-11 (BCI), paras. 45-49, referring to G. Donaldson, M. Kamstra and 
L. Kramer, Estimating The Ex-Ante Equity Premium , working paper, 2006; L. Pastor, M. Sinha and B. 
Swaminathan, Estimating The Intertemporal Risk-Return Tradeoff Using The Implied Cost Of Capital , working 
paper, 2006; J. Claus and J. Thomas, Equity Premia As Low As Three Percent? Evidence From Analysts' 
Earning Forecasts For Domestic And International Stock Markets , Journal of Finance, 2001, vol. 56; J. Graham 
and C. Harvey, The Equity Risk Premium In January 2006: Evidence From The Global CFO Outlook Survey , 
working paper, 2006.  See, also, EC-Second BCI/HSBI Oral Statement, para  63, referring in addition to Oliver 
J. Blanchard, Movements in the equity premium , Brookings Papers on Economic Activity, 1993, vol. 2, pp.75-
138; Lubos Pástor and Robert Stambaugh, The Equity Premium and Structural Breaks , Journal of Finance , 
2001, vol. 56 (1), pp.1207-1239; William R. Gebhardt , Charles M. C. Lee, and Bhaskaran Swaminathan, 
Toward an implied cost of capital , Journal of Accounting Research , 2001, 39, 135–176; Irwin Friend, Randolph 
Westerfield, and Michael Granito, New evidence on the capital asset pricing model , Journal of Finance, 1978, 
vol. 33, pp.903–917; Steven N. Kaplan and Richard S. Ruback, The valuation of cash flow forecasts: An 
empirical analysis , Journal of Finance, 1995, vol. 50, pp.1059–1093; Alon Brav, Reuven Lehavy, and Roni 
Michaely, Using expectations to test asset pricing models , Financial Management, Autumn 2005;  Charles M.C. 
Lee, David Ng, and Swaminathan, B, International Asset Pricing: Evidence from the Cross Section of Implied 
Cost of Capital  (November 1, 2003). 14th Annual Conference on Financial Economics and Accounting (FEA).  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  for the aerospace industry.  In the European Communities' view, these values are not suitable 
benchmarks for LA/MSF but they can be viewed as reliable upper bounds.2644   
7.454  The United States refutes all of the European  Communities' criticisms of the evidence it 
advances to confirm the value of its proposed 700 basis points project-specific risk premium.2645  The 
United States rejects the European Communities' argument that LA/MSF is project-specific debt, 
rather than a hybrid between debt and equity on the grounds that LA/MSF has equity-like qualities.  
The United States recalls that repayment of LA/MSF  depends entirely on sales and the providers of 
LA/MSF hold a shareholder's risk with respect to  non-repayment.  The United States considers the 
European Communities' claim that the [***]  contract illustrates that financing comparable to LA/MSF 
is properly characterized as debt to be inapposite.2646  According to the United States, the [***]  
contract has many more debt-like characteristics than LA/MSF so that if it were characterized as debt, it would have no bearing on the proper characterizati on of LA/MSF.  The United States also rejects 
the European Communities' assertion that it has added an equity risk premium to the cost of debt, 
which the European Communities argues would be in appropriate.  The United States recalls that its 
proposed project-specific risk premium is a hybrid it self, not a pure equity premium, and that for this 
reason it reflects the hybrid nature of LA/MSF.
2647   
7.455  Additionally, the United States defends its re liance on the project-specific risk premium 
derived from the KSS Study on various grounds.  In the United States' view, LA/MSF has equity like 
qualities and thus its risk profile is comparable to that of venture capital investments.2648  T h e  
United States argues that the results of the KSS Stud y are relevant to estimating the cost of capital for 
private venture capital investment whether in the form of debt, equity or hybrid financing.2649  
According to the United States, this is confirme d in the KSS Study itself where it states that the 
authors used "a database of high tech IPOs to est imate opportunity cost of capital for venture capital 
investors and entrepreneurs".2650  The United States contests the Eu ropean Communities' attempt to 
suggest that the returns on venture capital invest ments are too extreme to serve as the basis for 
establishing a risk premium for LA/MSF.  In this respect, the United States argues that the calculation 
of the Ellis Report project-specific risk premium re lies on the returns to well-diversified portfolios 
that contain venture capital investments.  The United States asserts that such portfolios generate much 
lower returns – on average about 16.7% – than the 698% average arithmetic return to IPO or 
acquisition quoted by the EC.2651  Finally, although recognizing that the 16.7% figure identified in the 
KSS Study represents a gross return on an investment in a venture capital fund, including fees paid to 
the fund managers, the United States nevertheless argu es that it is appropriate to derive the project-
specific risk premium from this figure, noting that KSS defined this return as "... the cost to an 
entrepreneurial venture of raisi ng capital from a venture capital fund".2652 
7.456  The United States also rejects the European Communities' criticisms of its confirmatory 
analyses.  With regard to the Ibbotson Associates data, the United States contends that the project-
specific, delivery-contingent and non-recourse natu re of LA/MSF gives it equity-like risk exposure 
which is certainly higher than the risk associated with investing in the large, established United States 
                                                      
2644 EC, FWS, para. 508. 
2645 United States, confidential oral statement at the first meeting with the Panel (hereinafter "US, 
FCOS"), para. 28; US, SWS, para. 80. 
2646 US, SWS, para. 88. 
2647 US, SWS, para. 93; Ellis Answer to Whitela w Report, Exhibit US-534a (BCI) , pp. 10-11. 
2648 US, Answer to Panel Question 143, paras. 40-43. 
2649 US, SWS, para. 94; US, Answer to Panel Question 143. 
2650 KSS Study, Exhibit US-470, p. 385. 
2651 United States, non-confidential or al statement at the second meet ing with the Panel (hereinafter 
"US, SNCOS"), para. 59. 
2652 Ellis Answer to Whitelaw Report, Exhibit US-534a (BCI) , pp. 11-12. WT/DS316/R 
Page 428  
BCI deleted, as indicated [***] 
 
  companies surveyed in the Ibbotson Associates data.
2653  The United States also rejects the academic 
literature which the European Co mmunities relies upon to argue that  the Ibbotson Associates data 
overstate the equity risk premium.  In the view of the United States, the literature advanced by the 
European Communities is extremely recent and thus  would not have been known to managers when 
the LA/MSF was provided.  In addition the United States argues that it does not represent a consensus 
approach to measuring equity risk.  The United St ates rejects the European Communities' criticisms of 
the [***]  measure because of its equity-like nature  and reliance on Ibbotson Associates data for 
essentially the same reasons.2654  The United States also defends its comparison of the Ellis Report 
project-specific risk premium with the [***]  measure on the ground that it reflects a methodology 
relied upon by an actual market participant in an  actual transaction.  Moreover, the United States 
argues that the European Communities' point concerning the rejection of the [***]  measure by an 
auditing firm is irrelevant, because the question r esolved by the auditing firm was whether the figure 
was an appropriate discount rate for the Germ an government not whether the same value was 
appropriate in the context of LA/MSF to Airbus.2655  The United States also responds to Professor 
Whitelaw's criticism of the beta factor u sed in its analysis relying on HSBI.2656 
7.457  In terms of the CASA State Aid Decision, th e United States consider s that the European 
Communities is not only wrong to dismiss the 8% risk premium on the ground that it was "obiter 
dicta",2657 but also that the European Communities grossly overstates the relative risk associated with 
regional aircraft projects compared to projects for new LCA.2658  The United States also rejects the 
European Communities' criticisms of its cross-ch eck based on the UK government's critical project 
appraisal of the A380 project.2659   
7.458  As regards the [***]  contract, the United States does not consider it to be an example of 
commercial, success-dependent financi ng that is comparable to LA/MSF.2660  In the United States' 
view, the risk premium in the [***]  case is lower than in the case of LA/MSF because [***]  did not 
accept the same level of risk as the governments di d under the LA/MSF contracts.  According to the 
United States, this is borne out by many key differences between the terms of the [***]  contract and 
the terms of LA/MSF granted by the governments of  France and Spain for the same project.  These 
include: (a) that the participants in the [***]  pledged only [***] , in contrast to the French government 
which provided EUR 321 million for the same project; (b) that the [***]  required repayment over 
[***]  deliveries, almost [***]  deliveries less than the French gov ernment accepted; (c) on the day 
when the [***]  contract was signed, [***]  knew that Airbus had already sold enough A340-500/600 
to repay the loan over the [***]  scheduled deliveries; (d) [***]  the back-loaded repayment terms 
which are typical of the LA/MSF contracts; (e) the repayment schedule in the [***]  was structured so 
that [***]  would receive full repayment after [***]  years instead of [***]  years under the French and 
Spanish LA/MSF contracts; (f) the interest rate on the [***]  is substantially [***]  than the interest rate 
on the corresponding French and Spanish contracts; (g) the [***]  contract contained [***] ; and (h) the 
[***]  provides for a significant step up in the [***] .2661  
7.459  The European Communities denies the correctness of the United States' assertion that the 
[***]  loan agreement had little or no downside risk, ar guing that it did in fact incur delivery risk.  
According to the European Communities, Airbus had only [***]  firm orders at the time it entered into 
                                                      
2653 Ellis Answer to Whitelaw Report, Exhibit US -534 (HSBI) , p. 19; US, SWS, para. 98. 
2654 US, SWS, para. 100. 
2655 US, FCOS, paras. 30-31. 
2656 Ellis Answer to Whitelaw, Exhibit US-534 (HSBI) , p. 14. 
2657 United States, confidential oral st atement at the second meeting w ith the Panel (hereinafter "US, 
SCOS"), para. 16. 
2658 US, FCOS, para. 33. 
2659 Ellis Answer to Whitelaw Report, Exhibit US-534  (HSBI) , pp. 16-18; and US  SCOS, para 21. 
2660 US, FCOS, paras. 5-15. 
2661 US, SWS, paras. 103-109.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  the [***]  contract.  Thus it had no guarantee that [***]  deliveries would ultimately be made.2662  
However, the European Communities does r ecognize that the risk incurred by the [***]  is not fully 
comparable with the risk incurred by the EC me mber State governments granting LA/MSF for the 
A380, identifying two differences –  fewer tec hnological advances in the A340-500/600 as compared 
with the A380, and repayment over fewer deliveries under the [***]  contract.  Nevertheless, the 
European Communities considers these distinctions do not explain the large disparity between the risk 
premium applied to the [***]  and the one calculated in the Ellis Report. 2663 
7.460  Finally, the United States criticizes the cost of equity ceiling advanced by the European 
Communities because, in its view: (i) the equity ceiling wrongly assumes that the risk of a single 
project cannot exceed the risk of a company's equity; ( ii) the beta factors used in the calculation of the 
equity ceiling are based on the risk associated wi th a sample of diversified companies engaged in 
multiple projects or of companies not primarily engaged in the commercial aircraft business, as 
opposed to LCA-focused companies or projects; an d (iii) the European Communities' determination 
of an equity risk premium is largely based on ve ry recent research that do es not represent a consensus 
approach to measuring equity risk.2664  Furthermore, the United States argues that the European 
Communities is incorrect in assuming that debt canno t have a risk level greater than the Whitelaw 
equity ceiling.  For its part, the European Comm unities objects to the United States' criticism of the 
sample of companies used for the purpose of deriving the beta factors, arguing that there is in excess 
of 40% overlap between the basket of aerospace companies Professor Whitelaw employs and the companies the Ellis Report uses in support of the [***]  cross-check.
2665  Moreover, the European 
Communities notes that while it may be possible to locate instances in which debt could be riskier 
than equity when considering firms with different risk  profiles, Airbus SAS' risk profile is similar to 
that of the companies used to calculate the ceiling.2666  
7.461  Having closely reviewed and carefully consider ed the parties' detailed arguments, counter-
arguments and the various expert economic studies a nd opinions that have been submitted, we believe 
there are a number of deficiencies with the project-specific risk premium advanced by the 
United States which, in our view, imply that it pr obably overstates the appropriate level of project-
specific risk that may be reasonably associated with LA/MSF provided for at least a number of the challenged Airbus LCA projects.   
7.462  In essence, the project-specific risk premium advanced by the United States is based on the 
alleged risk associated with holding a diversified portfolio of venture capital investments.  While it 
would not be inaccurate to characterize LA/MSF, because of its unsecured, success-dependent and 
graduated repayment terms, as a form  of financing that is inherently  speculative, we do not consider 
this renders it entirely  comparable with venture capital investments.  There are several reasons to 
believe that the level of risk associated with ventur e capital financing is typically higher than the risk 
associated with LA/MSF.  We find that Professor Wh itelaw has convincingly ar gued that virtually all 
venture capital financing consists of equity or equity-like instruments,
2667 which we believe do not 
entirely match the characteristics of LA/MSF.  As Professor Whitelaw explains, venture capitalists typically provide financing through instruments th at are convertible to equity because they are 
interested in the high equity returns associated with  successful ventures.  Such instruments ensure an 
equity return in the event the financed venture is  successful, leaving the investor in a preferential 
position in case the venture fails.
2668  By contrast, while LA/MSF may be considered to have some 
                                                      
2662 EC, Answer to Panel Question 63. 
2663 EC, Answer to Panel Question 63. 
2664 US, SWS, paras. 110-113; Ellis Answer to White law Report, Exhibit US-534 (HSBI) , pp 20-21.   
2665 EC, SWS, para. 210. 
2666 EC, SWS, paras. 213-214. 
2667 Whitelaw Rebuttal Report, Exhibit EC-656 (BCI) , paras. 8-14. 
2668 Whitelaw Rebuttal Report, Exhibit EC-656 (BCI) , para. 12. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  equity-like qualities, such as the fact that lende r governments have no recourse in the event of non-
repayment, LA/MSF contracts are generally concei ved as amortizing loans repaid out of project 
revenue.   
7.463  Moreover, as explained in an Article appeari ng in the Journal of Economic Perspectives, 
venture capital is provided to firms that are "typica lly small and young, plagued by high levels of 
uncertainty and large differences between what entrepreneurs and investors know. ... {T}hese firms 
typically possess few tangible assets and operate in mark ets that change very rapidly.  Venture capital 
organizations finance these high-risk, potentially hi gh-reward projects, purchasing equity or equity-
linked stakes while the firms are still privately held."
2669  By contrast, by the time of the launch of the 
A380, Airbus had developed into a relatively larg e firm with over 30 years experience, substantial 
capital assets and revenues, and a track record of successful LCA development, sometimes even exceeding expectations (although it is equally apparent that it is not entirely clear yet whether several 
of the Airbus LCA models developed immediately prior to the A380 will be as successful as initially 
expected).
2670,2671  
7.464  One of the reasons the United States advances to support its assertion that the project-specific 
risk premium identified in the Ellis Report is conser vative is that it reflects the risk associated with 
holding a well-diversified venture capital portfolio as opposed to the risk associated with financing 
individual venture capital projects.  However, as we have already noted, there are reasons to believe 
that venture capital financing is inherently more risky than LA/MSF, even when considered in the 
form of a portfolio.  In addition, it is not entirel y clear to us that the figure of 700 basis points the 
United States derives from the "cost  of venture capital financing"2672 identified in the KSS Study 
captures only the risk associated with venture capital fina ncing.  As the European Communities points 
out, KSS describe this "cost" to include "management fees".   
7.465  The United States views the various cross-ch ecks it has presented as evidence supporting the 
alleged conservative nature of its proposed project -specific risk premium.  However, we are not 
convinced that they fully corroborate the 700 b asis points advanced by the United States.   
7.466  First, we note that there appear to be good r easons to believe that the Ibbotson Associates 
historical risk premium for investing in large company stocks is overstated.  We recall that Ibbotson Associates' data was not only used by the United States to cross-check its proposed project-specific 
risk premium, but it was also relied upon in the construction of the [***]  measure.  Estimates based 
on ex-post data of the type Ibbotson Associates u ses in its database show that the risk premium 
associated with an investment in equity may be below 7.08%.
2673  Moreover, Professor Whitelaw 
points out that current academic literature identifies a variety of reasons why the historical difference 
between the market return for an investment in equ ity and the risk-free rate may not be an appropriate 
                                                      
2669 P.Gompers and J. Lerner, "The venture capital revolution", Journal of Economic Perspectives, 15-
2, (2001), Exhibit EC-677, at 145, quoted in Whitelaw Rebuttal Report, Exhibit EC-656 (BCI), para. 18. 
2670 EC, SCOS paras. 47-48; EC, Answer to Panel Question 171; EC, Comments on US, Answer Panel 
Question 142. 
2671 US, Comments on EC Answer to Panel Question 171, indicating that the Airclaims CASE database 
shows that, by end of 2006, Airbus had made 419 deliveries of the A330/A340 and 95 deliveries of the A340-500/600.  However, according to the forecast delivery information submi tted by the European Communities, 
Exhibit EC-597 (HSBI), there is a si gnificant difference between Airbus' deliv ery expectations at the time these 
LCA were launched and the position which in reality wa s achieved in 2006, with actual deliveries falling far 
short of expectations. 
2672 Underline added. 
2673 Professor Aswath Damodoran concludes that base d on ex post data, the equity risk premium should 
be 4.8%.  Aswath Damodaran, Damodaran on Valuation , Exhibit EC-678.  WT/DS316/R 
 Page 431 
 
BCI deleted, as indicated [***] 
 
  measure of the expected equity investment risk premium.2674  According to the European 
Communities, a substantial body of research also co nfirms that historical measures such as Ibbotson 
Associates systematically overstate the premium abov e the risk-free interest rate that should be paid 
for equity investment.2675  Second, we are inclined to agree with the European Communities that the 
8% risk premium identified in the CASA State Ai d Decision is context specific, as it relates to 
financing for regional aircraft development at a particular moment in time.  The European 
Communities convincingly argues that the risk prem ium identified in that Decision was elevated 
because of the severe overcapacity and low demand confronted by the European regional aircraft 
industry in the early 1990s.2676  Third, turning to the United States reliance on the [***]  analysis 
undertaken in the UK government's critical project  appraisal for the A380, we agree with the 
European Communities that the UK government's fa ilure to take into account how the distinctive 
repayment characteristics of LA/MSF affect its  recovery rate undermines the United States' 
submission that the appraisal supports its market in terest rate benchmark and project-specific risk 
premium.2677 
7.467  We also note that the equity risk premium u sed in the European Communities' calculation of 
the equity ceiling, which is based on relatively recen t scientific evidence, supports the view that the 
Ellis Report estimate may be on the higher side.  We  are also not persuaded that the differences 
identified by the United States between the [***]  loan and LA/MSF explain the entirety of the [***]  
basis points difference between the 700 basis point s Ellis Report project-specific risk premium and 
the [***]  basis points risk premium applied in the [***]  contract.   
7.468  Finally, we note that the United States seeks to apply one and the same project-specific risk 
premium to construct the market interest rate benchmarks associated w ith all models of LCA 
                                                      
2674 Whitelaw Report, Exhibit EC-11 (BCI) , paras. 21-29, citing L. Calvet, M. Gonzalez-Eiras and 
P. Sodini, Financial Innovation, Market Participation, and Asset Prices , Journal of Financial and Quantitative 
Analysis, 2004, vol. 39, pp. 431-459;  E. Fama and K. French, The Equity Premium , Journal of Finance, 2002, 
vol. 57, pp. 637-659;  R. Jagannathan, E. McGrattan and A. Scherbina, The Declining US Equity Premium , 
Federal Reserve Bank of Minneapolis Quarterly Review, 2000, vol. 24, pp. 3-19;  M. Lettau, S. Ludvigson and 
J. Wachter, The Declining Equity Premium: What Ro le Does Macroeconomic Risk Play ? , Review of Financial 
Studies, 2008, vol. 21, 1653-1687;  J. Siegel, The Shrinking Equity Premium , Journal of Portfolio Management, 
1999, vol. 26, pp. 10-16. 
2675 EC, SCOS, para. 63, citing L. Calvet, M. Gon zalez-Eiras and P. Sodini, 2004, "Financial 
Innovation, Market Particip ation, and Asset Prices," Journal of Financial and Quantitative Analysis , 39, 431-
459; E. Fama and K. French, 2002, "The Equity Premium," Journal of Finance , 57, 637-659; M. Lettau, S. 
Ludvigson and J. Wachter, 2006, "The Declining Equity Premium: What Role Does Macroeconomic Risk Play?" Review of Financial Studies , forthcoming; J. Siegel, Fall 1999, "The Shrinking Equity Premium," 
Journal of Portfolio Management , 26, 10-16; R. Jagannathan, E. McGrattan and A. Scherbina, Fall 2000, "The 
Declining U.S. Equity Premium," Federal Reserve Bank of Minneapolis Quarterly Review , 24, 3-19; E. Dimson, 
P. Marsh and M. Staunton, 2003, "Global Evidence on the Equity Risk Premium," Journal of Applied Corporate 
Finance , 15, 27-38; W. Goetzmann and P. Jorion, 1999, "Global Stock Markets in the Twentieth Century," 
Journal of Finance , 54, 953-980; Elton, Edwin J., 1999, "Expected  return, realized return, and asset pricing 
tests", Journal of Finance 54, 1199–1220; Brown Stephen J., William N Goetzmann, and Stephen Ross, 1995, 
Survival, Journal of Finance  50, 853-873; Mehra, Rajnish and Edward C. Prescott, 1985, The Equity Premium: 
A Puzzle, Journal of Monetary Economics 15, 145-161; Kocherlakota, Narayana R., 1996, The Equity 
Premium: It's Still a Puzzle, Journal of Economic Literature 34 (1), 42-71; Cochrane John H., 1997, Where is 
the market going? Uncertai n facts and novel theories, Economic Perspectives 21, 3-37; Siegel, Jeremy J. and 
Richard H. Thaler, 1997, Anomalie s: The Equity Premium Puzzle, Journal of Economic Perspectives 11 (1), 
191-200; Burr, Barry B., 1998, 20% + again? Keep dreaming, Pensions and Investments  26, 33-34; Benore, 
Charles, 1983, A survey of investor attitudes toward  the electrical power industry, Paine Webber Mitchell 
Hutchens, Inc., New York; Siegel, Jeremy J., 1992, The equity premium: Stock and bond returns since 1802, 
Financial Analysts Journal  January/February, 28-38. 
2676 EC, SWS, paras. 194-199. 
2677 See, paragraph 7.449 above. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  developed by Airbus.  Although the European Comm unities has not disputed this aspect of the Ellis 
Report project-specific risk premia, we are not convinced that it is the best approach to identifying the most appropriate project-specific risk premium for each  of the challenged LA/MSF contracts.  
Various pieces of evidence and arguments presented by the parties indicate that the risk associated 
with LCA development will vary over time depe nding upon a variety of factors.  These factors 
include the conditions of competition in the airc raft industry and differences in the levels of 
technology associated with developing different models of LCA.
2678  In our view, a project-specific 
risk premium may even vary over time because of th e levels of risk that the finance industry is willing 
to accept at different moments in its own economic cycle.  Moreover, if the project-specific risk 
premium is intended to relate to the risk of default attached to LA/MSF for a particular LCA 
development project, it would seem to follow that, a ll things being equal, it should be greater for 
earlier LCA development projects, when Airbus ha d relatively less experience – or conversely, the 
risk premium associated with development of a later model of LCA should be lower in the light of successful prior experience.  The Ellis Report appears to recognize this when it explains that the 700 
basis points project-specific risk premium relates to LA/MSF in the aggregate, asserting that "a 
40 percent risk premium or something of that order of magnitude would probab ly be quite appropriate 
for the earlier years of Airbus' existence given the high-risk of LA/MSF and the project-specific 
repayment during the early life of the company".
2679 
7.469  All of the above considerations lead us to c onclude that the United States' proposed project-
specific risk premium may not be an appropriate pr oxy for the project-specific risk premium that a 
market lender would ask Airbus to pay in return  for financing on the same or similar terms and 
conditions as LA/MSF for all of the challenged LA/MSF contracts.  In our view, in order to evaluate 
the suitability of the United States' proposed project-sp ecific risk premium, it is important to bear in 
mind the nature of and circumstances surrounding each of the different LCA development projects 
financed under the challenged LA/MSF measures.  Thus , in respect of the earliest models of Airbus 
LCA, namely, the A300 and A310, when Airbus was in  its very early stages of existence, a project-
specific risk premium derived from the risk associated with investing in a well- diversified portfolio of 
venture capital investments, appeals to us as a reasonable proxy for the minimum  project-specific risk 
premium that it would be appropriate to associate w ith market financing comparable with LA/MSF.  
However, for subsequent models of Airbus LCA, and in particul ar, the A320, A330/A340, A330-200 
and A340-500/600, the project-specific risk prem ium proposed by the United States' probably 
overstates the maximum  that we believe the evidence before  us suggests would be appropriate; 
whereas, because of the acknowledged technological challenges associated with the A380 project, our 
sense is that the United States' project-specifi c risk premium could be reasonably accepted to 
represent the outer limit  of the risk premium that a market lender would ask Airbus to pay for 
financing on the same or similar terms and conditions as the A380 LA/MSF contracts. 
Project-specific risk premium advanced by the EC  
 7.470  The European Communities presents its own project-specific risk premium, constructed by 
Professor Whitelaw on the basis of th e returns the Airbus "risk-shari ng suppliers" expected to achieve 
on the financing they provided for the purpose of developing the A380.
2680  According to the 
European Communities, WTO jurisprudence confirms  that the Panel should prefer a more specific 
market interest rate benchmark over one that is of a more general nature.  Thus, the European 
                                                      
2678 See, e.g., EC, FWS, paras. 305 and 484 (identifying "development risk" – "the risk that Airbus will 
fail to design and build the aircraft" and "market risk" – "t he risk that Airbus will not deliver enough completed 
aircraft to repay {LA/MSF} principal and interest"); and EC, SWS, paras. 19 5-198 (discussing risk factors that 
apparently affected the European regional aircraft industry between 1991 to 1993). 
2679 Ellis Report, Exhibit US-80 (BCI), footnote 28. 
2680 Whitelaw Report, Exhibit EC-11 (HSBI) , paras.  36-54; Whitelaw Rebuttal Report, Exhibit EC-
656 (HSBI) , paras. 21-36.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  Communities calls upon the Panel to reject the more general project-specific risk premium advanced 
by the United States in favour of its own proposed project-specific risk premium, derived from the 
returns expected by Airbus' "ris k-sharing suppliers" from their financial participation in the same 
project (A380) undertaken by the same comp any (Airbus) in the same market (LCA).2681  Like the 
United States, the European Communities proposes one  and the same project-specific risk premium 
for each of the challenged LA/MSF measures, with the exception of the A300 and A310, for which 
the European Communities has pre sented no market interest rate benchmark.  The value of the 
European Communities' proposed project-specific risk premium is less than [***]  the 700 basis points 
proposed by the United States. 
7.471  The European Communities advances various reas ons to justify reliance on the Airbus A380 
risk-sharing supplier contracts for the purpose of id entifying an appropriate project-specific risk 
premium for LA/MSF, including because, in its view , they are widely used  in the LCA industry, 
contain similar terms and conditions and involve co mparable risk.  In particular, the European 
Communities asserts that "financing through risk-shari ng suppliers is an important funding source for 
the development of Airbus and Boeing aircraft", al legedly covering an "estimated 60 percent of the 
development costs for the Boeing 787."2682  Moreover, the European Communities notes that in the 
case of both LA/MSF and risk-sharing supplier fi nancing, one party finances a fraction of 
development costs in return for repayment with re venues generated from the delivery of aircraft, not 
profits.2683  Indeed, in this respect, Professor Whitela w asserts that "the terms of the risk-sharing 
supplier agreements are similar to those of the member states" LA/MSF contracts,2684 noting however 
that risk-sharing suppliers face two sources of risk  not faced by the EC member States, namely, 
uncertainty in respect of their own developm ent costs; and uncertainty on the timing of 
repayments.2685 
7.472  The methodology used by Professor Whitelaw to construct the proposed project-specific risk 
premium involved the following steps: (i) computing the internal rate of return anticipated for each 
contract in a selected sample of A380 risk-sharing supplier contracts; (ii) calculating the weighted 
average internal rate of return of the sampled co ntracts; and (iii) subtracting the interest rate 
associated in the Ellis Report with average risk -free government borrowing and the average Airbus 
general corporate borrowing risk premium for the year 2001, thereby arriving at the project-specific risk premium.
2686  Thus, Professor Whitelaw first selected a sa mple of risk-sharing supplier contracts.  
For each selected contract, Professor Whitelaw calculate d the internal rate of return as the discount 
rate that equates the present value of the risk-sha ring supplier's investment in the development work 
on the A380 and the present value of Airbus' antici pated repayment of those development costs.  
Professor Whitelaw then computed the weighted averag e return for the selected contracts, arriving at a 
single overall benchmark rate of return for the A 380.  Professor Whitelaw justifies a single rate of 
return for all of the A380 LA/MSF on the following basis: 
"{b}y the time of the launch of the A380, Airbus was controlled 80% by EADS, and 
the Airbus GIE was in the process of combini ng into the single entity, Airbus S.A.S.  
Therefore, country-specific rates are less ju stified.  Also, due to the creation of the 
Euro and the European Central Bank, th e risk-free rates of France, Germany and 
                                                      
2681 EC, SNCOS, para. 89, referring to Panel Report, Canada – Aircraft (no paragraph citation provided 
by the European Communities). 
2682 EC, FWS, para. 501. 
2683 Whitelaw Report, Exhibit EC-11 (BCI), para. 36. 
2684 European Communities, confidential oral statement at the first meeting with the Panel (hereinafter 
"EC, FCOS"), para. 23. 
2685 EC, FCOS, para. 23. 
2686 Whitelaw Report, Exhibit EC-11 (BCI), para. 39. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  Spain were converging and that of the UK was virtually identical to the average of the 
other three."
2687    
7.473  To finally arrive at the project-specific risk premium, Professor Whitelaw subtracted the Ellis 
Report risk-free rate and the Ellis Report average general Airbus corporate borrowing rate from the 
single rate of return calculated for all A380 LA/MSF contracts.   
7.474  The European Communities advances three alte rnative cross-checks to confirm its proposed 
project-specific risk premium.  The European Comm unities' arguments in respect of two of these, the 
[***]  financing agreement and the cost of equity ceiling, have already been set out and discussed.2688  
The third cross-check is the  [***]  analysis performed by the DTI in the UK critical project appraisal 
for the A380, as modified and reinterpreted by Professor Whitelaw.2689  This measure is presented and 
discussed by the parties in their HSBI submissions.2690 
7.475  The United States considers the European Co mmunities' proposed project-specific risk-
premium to be unreliable for several reasons.  Fi rst, the United States argues that the European 
Communities has failed to provide sufficient eviden ce to support its proposed risk premium, noting 
that the European Communities submitted only five pages from one single contract between one risk-
sharing supplier and Airbus.2691  Second, the United States argues that the sample of risk-sharing 
supplier contracts used by Professor Whitelaw is selec tive, biased and too small, and for this reason 
renders Professor Whitelaw's calculation subject to errors.2692  For instance, the Ellis Report declares 
that the "{s}ample selection bias due to the particular business environment for these suppliers of the A380 is enough to disqualify the use of the Whitela w analysis, let alone the substantial inclusion in 
that small sample of subsidized suppliers."
2693  Third, according to the Ellis Report, the limited 
information provided by the European Communities on the repayment terms of one of the risk-sharing 
supplier contracts, though not strictly sufficient to satisfactorily assess its relative risk, shows that it 
involves significantly lower risk than LA/MSF contr acts.  Thus, the Ellis Report argues that the lower 
risk attached to the supplier contracts results in a sharp downward bias in Professor Whitelaw's 
project-specific risk premium.2694     
7.476  Apart from different repayment terms, the Ellis  Report identifies another alleged feature of 
the risk-sharing supplier contracts that indicates acce ptance of a lower level of risk compared with 
LA/MSF, namely, minimum purchase obligations undert aken by Airbus.  To support this contention, 
the Ellis Report relies on a report by Fitch Ratings  agency suggesting that many of the Airbus 
suppliers are shielded from risk by contractua l commitments requiring Airbus to make minimum 
purchases of supplies, thus assuming some of the risk from delays or project failure.2695  The Ellis 
Report also argues that for various reasons, the inte rnal rates of return on the supplier contracts are 
typically lower than the true expected rates of retu rn to the suppliers.  The Ellis Report bases this view 
on the assertion that the expected return on a manuf acturing project typically includes a number of 
potential sources of return, such as future business opportunities that increase the expected return of 
the project above the calculated internal rate of re turn and reduce its risk.  Firms also engage in 
bidding strategies such that the price bid for a particular contract may reflect other opportunities with the same customer.  Also, unlike the capital provided by banks or fi nancial institutions, a supplier's 
                                                     
 
2687 Whitelaw Report, Exhibit EC-11 (BCI), footnote 31. 
2688 See, paras. 7.452-7.453 and 7.459. 
2689 EC, SWS, para. 357; EC, Comments on US Answer to Panel Question 215. 
2690 See, also, Whitelaw Rebuttal Report, Exhibit EC-656 (HSBI) , paras. 40-45. 
2691 US, SCOS, para. 31; US, Comments on EC Answ er to Panel Question 171; Ellis Answer to 
Whitelaw Report, Exhibit US-534a (BCI) , p. 22.   
2692 Ellis Answer to Whitelaw Report, Ex hibit US-534a (BCI) , pp 21-22.   
2693 Ellis Answer to Whitelaw Report, Exhibit US-534a (BCI) , p. 28.   
2694 Ellis Answer to Whitelaw Report, Exhibit US-534 (HSBI) , pp. 23-24.   
2695 Ellis Answer to Whitelaw Report, Exhibit US-534 (HSBI) , p. 23.    WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  capital is tied up to the input that the supplier is manufacturing.  Because suppliers have a narrower 
range of choices than investors, their required rate of return will be lower than that of investors.2696  
Ellis also suggests that many suppliers received government funding to underwrite their cost of 
participating in the A380 project, implying that th e returns on their contracts cannot be viewed as 
fully commercial.2697  Finally, the United States adopts Brazil's argument that LA/MSF reduces the 
risk associated with Airbus itself, and therefore, fo r this reason alone, distorts the risk-sharing supplier 
benchmark.2698     
7.477  The United States rejects the proposition that  the European Comm unities' cross-checks 
substantiate its project-specific risk-premium .  The United States' arguments against the [***]  
financing agreement and the cost of equity ce iling have been set out and discussed previously.2699  The 
United States also advances two objections to the revised UK [***]  analysis presented in Professor 
Whitelaw's Rebuttal Report.2700  In particular, the United Stat es argues that in presenting this 
information, the European Communities was offering new factual evidence not as a rebuttal, but as an 
attempt to bolster its flawed criticism of the Unite d States' benchmark.  The United States considers 
the introduction of this evidence contravenes para graph 15 of the Panel's Working Procedures, and 
accordingly asks the Panel to reject both the new evidence and the argument the European 
Communities has made in reliance on that new evid ence.  The second United States' objection relates 
to its inability to verify the accuracy of the new information submitted in the Whitelaw Rebuttal 
Report.2701   
7.478  The European Communities reject s the United States' criticisms.2702  Professor Whitelaw 
responds to the United States' criticisms regarding the sampling of risk-sharing supplier contracts, 
asserting that the sample used comprised 100% of the contracts for which an internal rate of return 
could be calculated.  In addition, Professor Wh itelaw notes that the total agreed amount of A380 
development costs assumed by the risk-sharing suppliers included in the sample represents 
42.09 percent of total value of development co sts for all A380 risk-sharing suppliers contracts.2703  
Second, referring mostly to HSBI evidence, th e European Communities argues that there are only 
modest differences between the repayment terms of  the risk-sharing supplier contracts and LA/MSF, 
and that these differences are offset by two s ources of risk not faced by the member States: i.e., the 
risk of cost overruns and the risk in the timing of their receipts.2704  The European Communities also 
dismisses the United States' reliance on the Fitch Rati ngs agency report, arguing that the latter did not 
know whether the A380 suppliers received minimum purchase commitments.2705  Third, the European 
Communities rejects the idea that the risk-sharing s uppliers are not fully-fledged market actors.  
Moreover, according to the European Communities, the notion that the risk-sharing suppliers have 
fewer options for their investment capital than invest ors such as banks and pensi on funds is irrelevant.  
In the view of the European Co mmunities, what matters is that risk-sharing suppliers provide 
alternative sources of market financing.  Sim ilarly, the European Communities does not see any 
reason to believe that the prospect of obtaining futu re contracts with Airbus would have affected the 
terms of the supply agreements.  In this regard , the European Communities alleges that the United 
States does not offer any evidence for this argume nt and the European Communities does not see any 
aftermarket for the sort of products sold by the risk-sharing suppliers nor any incentive for them to 
                                                      
2696 Ellis Answer to Whitelaw Report, Exhibit US-534 (HSBI) , p. 25; US, SWS, paras. 115-118.   
2697 Ellis Answer to Whitelaw Report, Exhibit US-534 (HSBI) , p. 24.   
2698 US, SCOS, para. 40. 
2699 See, paras. 7.454, 7.458 and 7.460. 
2700 US, SCOS, paras. 23-24. 
2701 United States, HSBI Appendix to US, SCOS (her einafter "US, SCOS-HSBI Appendix"), para. 24. 
2702 EC, FNCOS, paras. 14 to 17. 
2703 EC, SOS (HSBI), paras. 84-88. 
2704 EC, SOS (HSBI), paras. 78-80; EC, FCOS, para 23. 
2705 EC, SOS (HSBI), para. 83. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  reduce their returns.
2706  Fourth, the European Communities ar gues that the United States has offered 
no evidence that government financing for the risk-s haring suppliers affects the terms of the finance 
contracts agreed with Airbus.  Moreover, the Europ ean Communities argues that even if this were the 
case, the resulting change to the benc hmark rate would be negligible.2707  Fifth, with regard to the 
argument that LA/MSF reduces the risk associated with Airbus, the European Communities argues 
that there is no evidence to support the hypothesis th at the risk-sharing suppliers would accept lower 
returns based on the possibility that Airbus w ould receive LA/MSF on terms and amounts unknown to 
them.2708     
7.479  Having closely reviewed and carefully consider ed the parties' detailed arguments, counter-
arguments and the various expert economic studies a nd opinions that have been submitted, we believe 
there are a number of deficiencies with the project-s pecific risk premium advanced by the European 
Communities which, in our view, imply that it un der-estimates the appropriate level of project-
specific risk that may be reasonably associated w ith LA/MSF for all of the challenged measures.  
7.480  In principle, we agree with the view that the returns associated with market financing actually 
provided to Airbus for the same project as LA/MSF  would serve as an appropriate basis from which 
to derive the relevant project-specific risk premium.  Indeed, such an approach would be preferable to 
the one used by the United States to calculate its  own proposed project-specific risk premium.  
However, we are not persuaded that the project-s pecific risk premium advanced by the European 
Communities is derived from data having these character istics.  In the first instance, we note that 
Professor Whitelaw used information from only a samp le of the risk-sharing supplier contracts to 
construct the proposed project-specific risk premium.2709  Although Professor Whitelaw asserts that 
the contracts used amounted to 100% of those for which an internal rate of retu rn could be calculated, 
we have no way of verifying this assertion becau se the European Communities has submitted little if 
any of the underlying data used  in Professor Whitelaw's calculati ons.  Specifically, the European 
Communities has provided a table summarizing various pieces of information that appear to be taken 
and derived from the sampled risk-sharing supplier contracts, and five pages of one of those 
contracts.2710  Even on the basis of only the number of ri sk-sharing supplier contracts actually sampled 
we find this to be clearly insufficient to substan tiate the European Communitie s' assertions in respect 
of the appropriate project-specific risk premium.  Moreover, we note that the one contract that the 
European Communities has submitted shows that ther e is at least one major difference between the 
repayment terms under this contract and LA/MSF wh ich we believe reduces its relative level of 
risk.2711  We are also of the view that there is so me logical merit to the United States' arguments 
suggesting that the risk-sharing suppliers had incen tives to lower their expected rates of return.2712  
We furthermore agree with the view expressed by Brazil and the United States that government 
support for the A380 in the form of LA/MSF reduces the level of risk associated with risk-sharing supplier financing, thereby limiting its comparability with LA/MSF.  Moreover, there is information 
                                                     
 
2706 EC, SOS (HSBI), paras. 94-97. 
2707 EC, SOS (HSBI), paras. 89-91. 
2708 EC, SNCOS, para. 14; EC, SOS (HSBI), para. 92. 
2709 We note that the Ellis Answer to Whitelaw Report appears to assert that the Whitelaw sample of  
risk-sharing supplier contracts was sel ected from "thousands" of contracts.  Ellis Answer to Whitelaw, Exhibit 
US-534a (BCI) , p.22. 
2710 Whitelaw Report, Exhibit EC-11 (HSBI) , Exhibit 1; and Risk-Sharing Supplier Contract Re A380, 
Exhibit EC-117 (HSBI). 
2711 Compare repayment provisions of the Risk-Sharing Supplier Contract Re A380, Exhibit EC-
117 (HSBI), with e.g., UK A380 LA/MSF contract, Schedule 3, para. 3, Exhibit US-79 (BCI). 
2712 US, Comments on EC Answer to Panel Question 174.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  contained in the Airbus A380 business case which suggests that the risk-sharing participants' 
involvement in the A380 project may not have been on strictly market terms for all participants.2713 
7.481  Thus, notwithstanding its potential, the shortc omings in the evidence relied upon by Professor 
Whitelaw to derive the European Communities pr oposed project-specific risk premium and the 
notable differences between the risks assumed by th e risk-sharing suppliers compared with the EC 
member State governments, lead us to conclude th at the European Communities' project-specific risk 
premium for the A380 is unreliable and understates the risk premium that a market operator would 
have reasonably demanded Airbus pay for financing on the same or similar terms as LA/MSF for this 
particular model of LCA.  In addition, we note that as with the United States, the European 
Communities seeks to apply one and the same projec t-specific risk premium to construct the market 
interest rate benchmarks associated with all m odels of LCA developed by Airbus.  For reasons 
already explained, we are not convinced that this  is the best approach to identifying the most 
appropriate project-specific risk premium for each of the challenged LA/MSF contracts.2714  As we 
observed in the context of our evaluation of the proposed project-specific risk premium advanced by 
the United States, in order to ass ess the suitability of a project-specific risk premium for market 
financing comparable to LA/MSF, it is important to  bear in mind the nature of and circumstances 
surrounding each of the different LCA developmen t projects financed under the challenged LA/MSF 
measures.  Thus, while we consider it reasonable to conclude that the earliest models of Airbus LCA, 
namely, the A300 and A310, would have attracted a project-specific risk premium at least matching 
the project-specific risk premium advanced by the United States, for subsequent models of Airbus 
LCA, and in particular, the A320, A330/A340, A 330-200 and A340-500/600, the project-specific risk 
premium proposed by the United States' probably overstates the maximum project-specific risk 
premium we believe the evidence before us suggests would be appropriate.  Conversely, we find that 
the project-specific risk premium advanced by  the European Communities for the same models 
underestimates the reasonable project-specific risk premium that a market lender would have asked 
Airbus to pay for financing on the same or simila r terms and conditions as LA/MSF for all of these 
models of LCA, as well as the A380. 
Conclusion on Whether the Financia l Contributions Confer a Benefit 
7.482  We recall that in order to determine whethe r the financial contributions made under the 
LA/MSF agreements confer a benefit on Airbus, w ithin the meaning of Article 1.1(b) of the 
SCM Agreement, we must focus on whether LA/M SF places Airbus in a more advantageous position 
than would otherwise be the case if it were left to find financing on the same or similar terms and 
conditions on the market.  In the light of the par ties' arguments and the particular circumstances of 
this dispute, we consider it appropriate to resolve this question by examining whether the cost of the 
challenged LA/MSF contracts to Airbus is less than th e cost that Airbus would be faced with if it 
sought financing on the same or similar term s and conditions as LA/MSF from market lenders.2715 
7.483  In terms of the cost of LA/MSF to Airbus, we  have found that the estimates advanced by the 
European Communities, before alleged taxation effects,  are in almost all cases an appropriate basis for 
conducting the required comparison, bearing in mind that we consider they represent the maximum  
rate of return that the EC member State government s could have reasonably expected at the time they 
entered into the LA/MSF contracts.  In one instance, we have relied upon the rates of return proposed 
                                                      
2713 Exhibit EC-362 (HSBI), p. 29.  Similarly, the Ellis Answer to Whitelaw Report asserts that a 
number of the suppliers used in the Whitelaw analysis received "launch aid-like financing or other government subsidies which reduces their cost of capital and therefore the returns required on contracts with Airbus".  Ellis 
Report to Whitelaw Report, Exhibit US-534 (HSBI) , p. 24. 
2714 See, para. 7.468 above. 
2715 See, para. 7.401 above. WT/DS316/R 
Page 438  
BCI deleted, as indicated [***] 
 
  by the United States,
2716 and in one other case, we have id entified the most appropriate value 
ourselves.2717   
7.484  For the six A300 and A310 LA/MSF measures fo r which the European Communities did not 
submit an estimate of the relevant rates of return, we believe the estimates of [***]  for each contract 
advanced by the United States accurately reflect th e EC member State governments' expectations in 
respect of these contracts.  In this regard, we note that although the European Communities has 
presented extensive, multi-layered, arguments on th e questions surrounding the actual rates of return 
associated with LA/MSF, at no stage has it specifically contested the [***]  interest rate allegation 
advanced by the United States for these contracts.  Moreover, we have found nothing in the relevant 
agreements that undermines the argument that the EC member State governments did not expect to 
obtain any particular return on the full repaymen t of their LA/MSF contributions for the A300 and 
A310 at the time they concluded the respective contracts.2718 
7.485  However, as far as the cost of market fina ncing comparable to LA/MSF is concerned, we 
have found that neither of the proposals made by th e parties on the appropriate project-specific risk 
premium can be reasonably applied as the perfect st andard against which to measure whether all of 
the challenged LA/MSF contracts confer a benefit.  Starting with LA/MSF provided for the A300 and 
A310, we have found that the project-specific risk premium advanced by the United States represents  
a reasonable proxy for the minimum  project-specific risk premium that it would be appropriate to 
associate with market financing comparable to LA /MSF.  We recall that the European Communities 
has not advanced any alternative project-specific risk premium for these Airbus LCA models.  It 
follows that the appropriate market interest rate  for determining whether the French, German and 
Spanish government LA/MSF contracts for these Airbus  LCA models confer a benefit is the market 
interest rate benchmark advanced by the United States, which we view as representing a reasonable estimate of the lowest interest rate that a co mmercial lender would have demanded in return for 
financing the same LCA projects on comparab le terms and conditions to LA/MSF.   
7.486  In terms of the models of LCA developed between the A310 and the A380, our findings on 
the appropriate project-specific risk premium lead us  to conclude that the most appropriate market 
interest rate benchmarks against which to measure whether the challenged LA/MSF measures 
conferred a benefit lie in the range of interest rates advanced by both of the parties – that is, above the 
interest rate benchmarks proposed by the Eur opean Communities but belo w the benchmark levels 
submitted by the United States. 
7.487  Finally, we recall that we have found the Unite d States' project-specific risk premium for the 
A380 could be reasonably accepted to represent the out er limit of the risk premium that a market 
lender would ask Airbus to pay for financing comp arable with LA/MSF; whereas, we consider the 
project-specific risk premium advanced by the Eu ropean Communities to understate the appropriate 
level of risk associated with financing such a project on terms and conditions comparable with 
LA/MSF.  Accordingly, we find that the most appr opriate market interest rate benchmarks against 
which to measure whether the challenged A380 LA/MSF contracts conferred a benefit lie in the range 
of interest rates above those submitted by the Eur opean Communities and up to the values advanced 
by the United States.  
7.488  Our specific findings may be illustrated in tabular form as follows:  
                                                     
 
2716 See, paras. 7.416-7.422 above. 
2717 See, paras. 7.423-7.424 above. 
2718 See, 1969 A300 Agreement, Articles 6 and 7; French A300 Protocole D'Accord, Article 5, 
Exhibit EC-603 (BCI); 1981 A310 Agreement, Article 9, Exhibit EC-942 (BCI).  We note that the latter 
Agreement envisaged royalty payments af ter repayment of the loan principal.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  Table 7 – LA/MSF Rates of Return Compared with Market Rates of Return  
 
 LA/MSF 
Contract LA/MSF Rate of 
Return2719 Market Rate of 
Return2720 Differential 
A300  0% at least 16.52% at least 16.52% 
A310  0% at least 18.88% at least 18.88% 
A320  [***] above 13.49%2721 but less 
than 20.49% more than [***] + 
[[HSBI]]2722 but less than 
[***] 
A330/A340 [[HSBI]] above 10.86%2722 but less 
than 17.86% more than [[HSBI]]2723 
but less than [[HSBI]]2724 
A330-200  [***] above 9.2%2722 but less 
than 17.22% more than [[HSBI]]2725 
but less than [***] 
A340-500/600  [***] above 7.47%2722 but less 
than 14.47% more than [***] + 
[[HSBI]]2723 but less than 
[***] FRANCE 
A380  [***] more than 6.89%2722 and 
up to 13.89% from ([***] + 
[[HSBI]]2723) to [***] 
A300  0% at least 15.18% at least 15.18% 
A310  0% at least 13.99% at least 13.99% 
A320  [***] more than 8.95%2722 but 
less than 15.95% more than ([***] + 
[[HSBI]]2723) but less 
than [***] 
A330/A340  [***] more than 7.52%2722 but 
less than 14.52% more than ([***] + 
[[HSBI]]2723) but less 
than [***] GERMANY 
A380  [***] more than 6.75%2722 and 
up to 13.75% from ([***] + 
[[HSBI]]2723)  to [***] 
A300  0% at least 16.60% at least 16.60% SPAIN A310  0% at least 18.88% at least 18.88% 
                                                      
2719 See above, Table 5. 
2720 All figures that are not marked with a footnote in this column are sourced from Table 6. 
2721 This figure is intended to represent the market interest rate benchmark proposed by the European 
Communities.  However, because the European Communities has designated its market interest rate benchmarks 
HSBI, they cannot be revealed  in the text of our Report.  In order to disclose an approximate measure of the 
relevant range of market interest rate benchmarks, we have substituted the EC market interest rate benchmark 
based on HSBI with the "Market based General Corp orate Borrowing Rates for the Airbus Companies" 
identified in Exhibit 6 of the Ellis Report (which we note were relied upon by the European Communities in 
establishing its benchmarks).  See. e.g., Whitelaw Report , Exhibit EC-11 (BCI), para. 40.  In all cases, the actual 
market interest rate benchmark advanced by the European Communities is less than [***]  of 700 basis points 
greater than the relevant value taken from the "Market based General Corporate Borrowing Rates for the Airbus Companies" identified in Exhibit 6 of the Ellis Report.   
2722 This HSBI figure is the project-specific risk premium calculated by the European Communities, 
which can be found in Exhibits 2 and 3 of the Whitelaw Report, Exhibit EC-11 (HSBI). 
2723 10.86% plus the European Communities' proposed project-specific risk premium, minus the 
[[HSBI ]] rate of return shown in the second column. 
2724 17.86% minus the [[HSBI ]] rate of return shown in the second column. 
2725 9.2% plus the European Communities' proposed project-specific risk premium, minus [***] . WT/DS316/R 
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BCI deleted, as indicated [***] 
 
   LA/MSF 
Contract LA/MSF Rate of 
Return2719 Market Rate of 
Return2720 Differential 
A320  [***] more than 17.52%2722 but 
less than 24.52% more than ([***] + 
[[HSBI]]2723) but less 
than [***] 
A330/A340 [***] more than 14.19%2722 but 
less than 21.19% more than ([***] + 
[[HSBI]]2723) but less 
than [***] 
A340-500/600 [***] more than 8.29%2722 but 
less than 15.29% more than ([***] + 
[[HSBI]]2723) but less 
than [***]  
A380 [***] more than 7.07%2722 and 
up to 14.07% from ([***] + 
[[HSBI]]2723) to [***] 
A320  [***] more than 12.59%2722 but 
less than 19.59% more than ([***] + 
[[HSBI]]2723) but less 
than [***] 
A330/A340 [***] more than 10.97%2722 but 
less than 17.97% more than ([***] + 
[[HSBI]]2723) but less 
than [***] UK 
A380 [***] more than 6.54%2722 and 
up to 13.54% from [[HSBI]]2726 to [***] 
 
7.489  According to the United States, all of the LA/MSF  contributions provided to Airbus at a zero 
rate of interest do not seek a commercial rate of return, and therefore must confer a benefit.2727  
Although it is not necessary, for the purpose of resolving this dispute, to decide whether the United States is correct as a general matter,
2728 it is possible to confirm from the above table that in 
the cases where LA/MSF was provided to Airbus at no interest cost, the same financing could have 
been obtained from the market only at positive rates of interest.  Thus, we find that the financial 
contributions made available through the A300 and A310 agreements, and the Spanish A320 and 
A330/A340 contracts, conferred a benefit upon Airbus and therefore constitute subsidies within the 
meaning of Article 1.1 of the SCM Agreement. 
7.490  We come to the same conclusion in respect of all of the other challenged LA/MSF measures.  
Indeed, even relying on the European Communities' own estimates of the rates of return and market 
interest rate benchmarks, it is clear that the fina ncial contributions provided in the form of LA/MSF 
conferred a benefit on Airbus.2729  Moreover, had we not rejected the taxation-adjusted LA/MSF rates 
of return advanced by the Europ ean Communities, the same would also be true for all but the French 
A330-200 LA/MSF contract. 
7.491  The European Communities argues that the fact th at the interest rates associated with the 
challenged LA/MSF measures might be less than those that would be attached to comparable market-
based financing instruments does not automatically impl y that they confer a benefit.  According to the 
                                                      
2726 6.54% plus the European Communities' proposed project-specific risk premium, minus [***]. 
2727 US, FWS, paras. 184 (A300 and A310 contracts), 198 and 200 (Spanish 1992 A320 contract), 223 
and 225 (Spanish A330/A340), asserting that such a result follows from the panel's finding in Canada – Aircraft 
that loans made under the Technology  Partnership Canada programme conferred a benefit because, "as a matter 
of policy, {they did} not seek a commercial rate of return".  Panel Report, Canada – Aircraft , paras. 9.313-315. 
2728 Nevertheless, in our view, a situation where market-based financing for LCA development is 
provided at a zero rate of return to the lender would be extraordinary and highly unlikely. 
2729 Compare the third column of Table 7 with Exhibit EC-597 (HSBI).  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  European Communities, the public polic y obligations attached to "most"2730 of the relevant contracts 
must also be taken into account.  In particul ar, the European Communities contends that the 
challenged LA/MSF measures may contain public policy obligations that are not present in 
commercial loans.2731  Thus, the European Communities explains that "to enable an 'apples-to-apples' 
comparison between a MSF loan and a commercial lo an, the effective price paid under the MSF loan 
must reflect the additional obligations for the reci pient that would not be present in a commercial 
loan.  In return for accepting these obligations, Airbus Ams/NatCos, as commercial operators, would 
logically expect to pay less for other elements of the MSF contract."2732  When the costs associated 
with such public policy obligations are taken in to account, the European Communities submits that 
the rates of return associated with the challenge d LA/MSF contracts would need to be significantly 
adjusted to a level that would "ca ll into question the existence of the de minimis benefit indicated" by 
the values found in Whitelaw and ITR Reports.2733   
7.492  The United States argues that the European Comm unities' reliance on the alleged existence of 
public policy obligations to increase the effective rates of return associated with the LA/MSF 
contracts is "extremely vague and not supported by any evidence".2734  In addition, the United States 
submits that even if there were a theoretical justification for the European Communities' position, it 
would be inappropriate to take account of supposed obligations associated with LA/MSF while 
ignoring other obligations and costs associated with commercial financing (e.g., bank fees, regulatory 
and credit agency fees, and costs associated with em ployees engaged on an ongoing basis in financing 
related activities).2735  
7.493  It is a well established principle in WTO dispute settlement that the party asserting a 
particular fact, claim or defence must prove that assertion with evidence and/or legal argument.2736  In 
the present case, the European Communities states that it has "substantiated its position on the 
matter",2737 noting that it has provided copies of all of the challenged LA/MSF contracts to the Panel.  
Thus, the European Communities urges the Panel to take the alleged public policy obligations into 
account when performing the benefit analysis.2738  In our view, the European Communities' arguments 
are clearly not enough to fulfil its burden of proof on this matter. 
7.494  The European Communities asks th e Panel to accept that "public policy obligations", that 
would not be found in comparable market-based financ ing instruments, were contained in "most" of 
the challenged LA/MSF contracts and that these impo sed a level of costs on Airbus that at least 
cancels out the difference between the LA/MSF rates of  return and market interest rate benchmarks 
presented in the economic studies it relies upon.  However, apart from the case of one draft 
contract,2739 it does not specifically indicate which of the re levant contracts contains such obligations, 
nor where they might be found.  Neither does it quan tify or even suggest how to quantify the resulting 
                                                      
2730 EC, Answer to Panel Question 170. 
2731 EC, SWS, paras. 162-167. 
2732 EC, SWS, para. 167. 
2733 EC, Answer to Panel Question 170. 
2734 US, SNCOS, para. 60; US, Answer to Panel Qu estion 140; US, Comments on the EC's Answer to 
Panel Question 170. 
2735 US, Answer to Panel Question 140; US, Comments on the EC's Answer to Panel Question 170. 
2736 Appellate Body Report, US – Wool Shirts and Blouses , p.14. 
2737 EC, Comments on the United States' Answers to Panel Question 140. 
2738 EC, Answer to Panel Question 170; EC, Comments on the United States' Answers to Panel 
Question 140. 
2739 The European Communities discusses the alleged [***]  imposed on British Aerospace by the UK 
government in the draft LA/MSF contract for the A340-500/600, Exhibit EC-874 (BCI).  It is less than clear to 
us that an obligation to provide the UK government with [***]  amounts to a "public policy obligation".  In any 
case, we note that the particular draft LA/MSF contr act discussed by the European Communities was never 
concluded and is not the subject of the United States' complaint. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  adjustment it argues must be made to the LA/MSF rat es of return, stating only that this "would be a 
matter for commercial negotiation or an independent assessment".
2740  Furthermore, the only 
description it provides of the type of obligations it is  talking about is that they are "e.g., requirements 
for Airbus to maintain employment levels  and to accept rather burdensome reporting 
requirements".2741  Thus, in effect, the European Communitie s urges us to review each of the over 
202742 relevant LA/MSF contracts that have been subm itted in this dispute and: (i) determine which 
ones contain the type of "public policy obligations" it has described; (ii) come to a view about how 
much additional cost such obligations would im pose on Airbus; and (iii) determine whether this 
additional cost would be enough to demonstrate th at the financial contributions made available 
through those LA/MSF measures do not confer a benefit.  In our view, such a task would amount to 
the Panel making the case for the European Communities.   Therefore, even assuming that we were to 
accept the premise that any public policy obligatio ns contained in the challenged LA/MSF contracts 
should be taken into account when considering th e question of benefit (a premise upon which we 
make no ruling),2743 we find that the European Communities has failed to adduce sufficient factual 
arguments to persuade us that it has reasonably substantiated its assertion. 
7.495  In any case, we note that the European Co mmunities raises the costs of public policy 
obligations as a factor that may alter the benefit anal ysis solely in the contex t of the (tax adjusted) 
LA/MSF rates of return it has relied upon.  Because  we have rejected these rates, we question the 
continued relevance of the European Communities' argument.  Finally, we agree with the United 
States that if our benefit analysis were to take th e costs associated with pub lic policy obligations into 
account, we would also need to consider whether to factor costs that ar e unique to market-based 
financing into our determination. 
7.496  For all of the above reasons, we therefore dism iss the European Communities' contention that 
the costs of public policy obligations contained in "most" of the challenged LA/MSF measures are 
enough to call into question the existence of a bene fit indicated by our comparison of LA/MSF rates 
of return with the rates of return associated with  market financing on the same or similar terms as 
LA/MSF. 
Whether the LA/MSF subsidies are specific wi thin the meaning of Article 2 of the 
SCM Agreement  
7.497  The United States considers that each of the subsidies conferred upon Airbus through the 
LA/MSF contracts is specific, within the mean ing of Article 2 of the SCM Agreement because inter 
alia, each individual grant of LA/MSF is made pursuan t to a specific contract between the relevant 
EC member State government and Airbus.2744  The European Communities has not contested the 
                                                      
2740 EC, Answer to Panel Question 170. 
2741 EC, Answer to Panel Question 170; EC, SWS, pa ra. 166.  Again, the European Communities also 
discusses certain [***]  appearing in the draft UK LA /MSF contract for the A340-500 /600 in the same context.  
However, as we have previously noted, it is less than clear to us how such obligations amount to "public policy obligations".  In any case, we note that the particular draft LA/MSF contract discussed by the European 
Communities was never concluded and is not the subject of the United States' complaint.   
2742 Excluding the over 45 LA/MSF contracts for the A300 and A310 submitted by the EC. 
2743 The extent to which the cost of public policy obligations should be taken into account when 
identifying a market interest rate benchmark for the purpose of determining whether a loan granted by a public entity amounts to a subsidy under the SCM Agreement is a matter that merits serious reflection.  This is 
particularly so in the case of public policy obligations  connected with the establishment or continuation of 
economic activity that impacts international trade.  In our view, subsidies containing public policy obligations of this kind may be precisely the types of measures that the adverse effects provisions  of the SCM Agreement are 
intended to address.  Thus, to take such "public policy co sts" into account when establishing the existence of a 
subsidy would seem to be incompatible with the objectives of Part III of the SCM Agreement.   
2744 US, FWS, paras. 186-188, 206-210, 229-233, 251, 258, 271, 280, 288 and 297.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  United States' submission.  We agree with the Un ited States.  Each of the challenged LA/MSF 
contracts involves a unique transfer of funds at below- market interest rates to one particular company, 
Airbus.  It follows that the subsidies granted un der each of the contracts are explicitly limited to 
Airbus – explicitly limited to "certain enterprises"  within the meaning of Article 2.1(a) of the 
SCM Agreement.  We therefore find that each of  the subsidies granted pursuant to the challenged 
LA/MSF contracts is specific within the meani ng of Article 2 of the SCM Agreement, and can 
therefore be challenged under Part III of the Agreement. 
3. Whether LA/MSF as a Programme is a Subsidy Within the Meaning of Article 1 of the 
SCM Agreement  
(a) Arguments of the United States 
7.498  The United States alleges that the governments of France, Germany, Spain and the UK (the 
"Airbus governments")2745 have maintained a formal and ins titutionalized industrial policy towards 
Airbus, a central part of which has been the "s ystematic and coordinated" provision of LA/MSF 
subsidies to assist Airbus develop a family of LCAs.2746  The United States considers that this record 
of support evidences the existence of a LA/MSF Pr ogramme, which as a distinct measure, separate 
from the individual grants of LA/MSF that it challenges,  is a subsidy that causes adverse effects to the 
United States' interests within the meaning of Articles 5 and 6 of the SCM Agreement.2747  To thi s  
end, the United States argues that the alleged LA/MSF Programme is a "financial contribution" (in the form of "a government practice {that} involves ... dir ect transfers of funds or potential direct transfers 
of funds") that confers a benefit, "for example by  enhancing {Airbus'} credit rating".  According to 
the United States, this alleged subsidy causes adver se effects to its interests by enabling Airbus to 
launch new aircraft more quickly and simultane ously reduce prices to gain market share.
2748 
7.499  The United States recognizes that there is no si ngle written instrument that sets forth the 
alleged LA/MSF Programme.  However, it asserts th at the existence of the LA/MSF Programme can 
be established on the basis of several alleged facts,  which considered together demonstrate that the 
Airbus governments have systematically provided  Airbus with a significant portion of the capital 
needed and sought by Airbus to develop each and every new LCA model through unsecured loans 
granted on back-loaded and success-dependent repaym ent terms, at below-market interest rates.2749  
The alleged facts the United St ates relies upon include: (i) the existence of institutional apparatus 
established under various inter-governmental agreem ents to support the systematic application of 
LA/MSF; (ii) the provision of LA/MSF on essentially  the same terms and conditions in respect of 
each new model of LCA developed by Airbus; (iii) st atements by officials of the Airbus governments 
expressing their alleged commitment to the continuity  of the LA/MSF Programme, (iv) statements by 
executives of Airbus and EADS allegedly evidencing  reliance on LA/MSF; and (v) the perceptions of 
LA/MSF held by different credit rating agencies.2750  
7.500  The United States considers that the alleged LA/MSF Programme is a measure with 
"normative value", possessing the qualities of the types of unwritten measures that the Appellate Body 
in US – Zeroing (EC)  found can be challenged "as such" in WTO dispute settlement proceedings.2751  
However, the United States does not challenge th e alleged LA/MSF Programme "as such", asserting 
                                                      
2745 US, FWS, para. 1. 
2746 US, FWS, paras. 85-89. 
2747 US, SNCOS, paras. 34 and 36. 
2748 US, SNCOS, para. 36; US, Answer to Panel Questions 138 and 139. 
2749 US, FWS, para. 87; US, FNCOS, para. 20; US, Answer to Panel Question 3. 
2750 US, Answer to Panel Question 3. 
2751 US, FNCOS, para. 25; US, SNCOS, para. 36.  See also, US, FWS, para. 106, where the United 
States concludes that "{i}n the light {of the evidence}, the specific content of {the}Launch Aid program and the 
future conduct it will entail  is clear}".  (Emphasis added). WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  that nothing in the Appellate Body report suggests that an unwritten measure with "normative value" 
may only exist in the context of an "as such" challenge.
2752  Moreover, the United States argues that it 
need not necessarily establish the existence of the alleged LA/MSF Programme by satisfying the test 
identified by the Appellate Body in that dispute.2753  In its view, like the panels in Japan – Apples  and 
EC – Biotech , the Panel in the present controversy shoul d examine the merits of its claim in 
accordance with Articles 3.2 and 11 of the DSU – that  is, by interpreting the ordinary meaning of the 
word "measure" in context and in the light of the object and purpose of the WTO Agreement, and by conducting an objective assessment of the evidence submitted in support of the alleged measure's 
existence.
2754  In any case, the United States considers that  even assuming that the test set out by the 
Appellate Body in US – Zeroing (EC) were relevant, it has established the existence of the alleged 
measure, having demonstrated: (i) the precise conten t of the alleged LA/MSF Programme; (ii) that it 
is attributable to the four Airbus  governments; and (iii) that it is of  general and prospective application 
in the sense that whenever Airbus  seeks LA/MSF to support the devel opment of a new model of LCA, 
the Airbus governments provide it on the same core terms.2755   
7.501  The United States describes the precise content of the alleged LA/MSF programme as 
consisting of "the consistent, up -front provision by the Airbus governments of a significant portion of 
the capital that Airbus needs to develop each ne w LCA model through loans that are (a) unsecured, 
(b) repayable on a success-dependent basis ( i.e., through per sale levies), (c) with the levy amounts 
greater for later sales than earlier sales ( i.e., back-loaded), and (d) with interest accruing at rates below 
what the market would demand for the assumption of similar risk".2756  According to the 
United States, each and every LA/MSF contract h as featured these core characteristics.  While 
accepting that differences exist among the specific terms and conditions of the various LA/MSF 
contracts, the United States argues that these do no t mean that the LA/MSF Programme does not have 
a precise content because, in its view, differences in  the details of one LA/MSF contract compared 
with another have only a marginal impact on the bene fit conferred by the particular subsidy at issue, 
and in any case, do not change the core conten t and essence of the alleged LA/MSF Programme.2757 
7.502  The United States asserts that the alleged LA/MSF Programme is incontestably attributable to 
the Airbus governments - France, Germany, Sp ain and the UK - pointing to the relatively 
sophisticated intergovernmental institutions a nd national bureaucracies allegedly set up by these 
countries to oversee the funding and development of  Airbus, as well as various statements made by 
government representatives and heads of State.2758 
7.503  The United States argues that the alleged LA/M SF programme is of general and prospective 
application, and that this is demonstrated not  only by the consistent funding of Airbus LCA 
development on the same core terms and conditions , but also by the "A380 Launch Aid Agreement", 
certain statements made by the member State governments and the European Commission, and the 
actions of market analysts such as Moody's and Fitch Ratings, that the United States asserts, in 
responding to the statements of the member Stat e governments, have put a value on the alleged 
LA/MSF Programme and rely on its availability in  making their projections of Airbus' financial 
health.2759   
                                                      
2752 US, SNCOS, paras. 35 and 36. 
2753 US, SNCOS, para. 39; US, Answer to Panel Ques tion 136; US Comments to EC, Answer to Panel 
Question 173. 
2754 US, Answer to Panel Question 136; US Comme nts to EC, Answer to Panel Question 173. 
2755 US, Answer to Panel Question 3; US Comm ents to EC, Answer to Panel Question 173. 
2756 US, Answer to Panel Question 3 
2757 US, Answer to Panel Question 3. 
2758 US, FWS, paras. 95-101. 
2759 US, FWS, paras. 102-106; US, FNCOS, paras. 22-25; US, Answer to Panel Questions 3 and 137.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  7.504  Finally, the United States submits that even if  the Panel disagreed with its view that the 
alleged LA/MSF Programme has genera l and prospective value, it should still find, on the basis of the 
totality of the evidence, that the alleged Programme constitutes a challengeable measure.2760 
(b) Arguments of the European Communities 
7.505  The European Communities rejects the United States' contention that the four Airbus 
governments have maintained an unwritten LA/M SF Programme pursuant to which development 
funding for each new model of Airbus LCA has been provided on the same essential terms and 
conditions.  According to the European Communities, the facts do not support the existence of such a 
Programme because they show that: (i) LA/MSF has not always been sought to finance development 
of Airbus LCA; (ii) when development financing h as been sought, it has not always been in the form 
of LA/MSF; (iii) when LA/MSF has been sought, it has not always been provided; and (iv) when LA/MSF has been provided, it has been on terms and conditions that vary widely both as between member States and as between the different Airbus LCA projects.
2761 
7.506  The European Communities submits that given the nature of its claim, in order for the United 
States to make out its case, it must establish: (i) that the EC member States concerned did, in fact, 
adopt a "Launch Aid Program"; and (ii) the preci se content of the challenged programme, including 
its alleged prospective application.  The Eur opean Communities argues that the United States has 
failed to make any such demonstration.2762 
7.507  In terms of the evidence advanced by the Un ited States for the purpose of substantiating the 
first element, the European Communities considers th at it has, at most, referred to certain inter-
governmental agreements concerni ng co-operation and co-ordination in respect of new Airbus LCA 
models.  However, the European Communities points out that none of these agreements contain any 
undertakings committing the four EC member Stat e governments to granting subsidized LA/MSF, 
either for the LCA models covered under the individu al agreements or any future models of Airbus 
LCA.  The European Communities considers that ne ither of the two inter-governmental agreements 
whose text it alleges was discussed by the United States (the 1969 Agreement and the 2003 
Agreement) advances its claim.  In particular, the European Communities ch aracterizes the contents 
of the 2003 Agreement as evidence of merely a general expression of support, not any commitment on 
the part of the Airbus governments to provide LA/MSF loans for any existing or future LCA development programme on subsidized terms.  Si milarly, the European Communities notes that the 
governments of Spain and the UK were not party to the 1969 Agreement, implying that it cannot 
speak to concerted action involving all four Ai rbus governments.  Moreover, the European 
Communities recalls that under that Agreement, Fr ance and Germany affirmed their commitment to 
"'European cooperation in the field of aeronautics'" only in "very general terms".  According to the 
European Communities, such a "vague commitment  to cooperate in unspecified ways" does not 
represent an expression of the two governments' joint intention to grant LA/M SF loans on particular 
terms and conditions.  In any case, the European Co mmunities submits that any affirmation made in 
1969 by the two governments does not constitute prima facie  evidence of the same two governments' 
joint intention with respect to aeronautics today.
2763       
7.508  The European Communities argues that the evidence advanced by  the United States in respect 
of the alleged inter-governmental institutional structures does not establish any "grand" structure 
surrounding and supporting past grants of LA/MSF .  The European Comm unities explains that 
                                                      
2760 US, Answer to Panel Question 136. 
2761 EC, SWS, paras. 120-129. 
2762 EC, FWS, paras. 342-344; EC, FCOS, paras. 2-10; EC, SWS, paras. 107-129; EC, Comments on 
US Answer to Panel Questions 136 and 137. 
2763 EC, Comments on US Answer to Panel Questions 136 and 137. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  although the four governments meet in various framewo rks to discuss a range of matters relating to 
the aerospace industry, none of the institutions identified by the United States is dedicated to 
LA/MSF.  According to the European Communities,  none of the institutions are responsible for 
granting LA/MSF or fixing its terms and conditions.  Neither is the provision of LA/MSF or its terms 
and conditions ever discussed by the EC member States in these fora.
2764  In any case, even if an inter-
governmental institutional structure did once exist, th e European Communities asserts that its past use 
for the purpose of discussing LA/MSF does not infer th at the member States have collectively adopted 
an overarching general rule in the form of a LA/MSF Programme.2765   
7.509  Similarly, the European Communities submits that  the statements made by private actors the 
United States refers to in support of its claim do not show that the EC member State governments 
have collectively adopted a general rule governin g the provision of LA/MSF.  In particular, the 
European Communities characterizes one of the stat ements made by Moody's Ratings agency as being 
merely an expression of its expectation that past  individual instances of "government support" might 
be repeated in the future.  Howe ver, according to the European Co mmunities, neither the repetition of 
governmental action over time nor private expecta tions regarding that action prove that the 
government has adopted a general rule governing its future conduct.  Moreover, the European 
Communities contends that the statement made by Moody's does not suggest that the terms of any 
"government support" would be below-market.  In  any case, the European Communities argues that 
the United States overstates the importance of privat e parties' expectations in assessing the existence 
of an unwritten rule of general application, suggesting in the light of US – OCTG from Argentina , that 
such evidence may be probative when concerned with a written statement of government policy.2766    
7.510  On the question whether the United States has de monstrated the precise content of the alleged 
LA/MSF Programme, the European Communities cons iders the evidence adva nced by the United 
States does not support its position.  First, the Eur opean Communities points to what it contends are 
significant differences between the LA/MSF contract s, arguing that this undermines the United States' 
assertion that LA/MSF was granted on the same four uniform "core terms".2767  In addition, the 
European Communities contends that the "core" co ntractual terms and conditions identified by the 
United States cannot support the existence of an unwritten norm to provide LA/MSF because, in its 
view, they are too generic.  Thus, the European Communities argues that "there is nothing 'precise' 
about a description that is generic enough, and at a hi gh enough level of abstraction, to apply to many 
different forms of financing other than MSF".2768   
7.511  The European Communities consid ers that the United States has failed to demonstrate how 
the alleged LA/MSF Programme actually operates,  and what conduct it requires of the four 
governments.  Without demonstrating these and othe r key elements of the alleged unwritten LA/MSF 
Programme, the European Commun ities submits that the United St ates cannot be found to have 
established its existence.2769  Moreover, the European Communities notes that three models of LCA, 
the A321, A319 and A318, were developed without LA/MSF; and that Airbus' rejection of the UK 
government's offer to finance development of the A340-500/600 shows that, contrary to what the 
United States argues, LA/MSF is not automatic, but  subject to terms and conditions negotiated 
separately with each of the four member State gove rnments.  In the Euro pean Communities' view, 
                                                      
2764 EC, Answer to Panel Question 172. 
2765 EC, Comments on US Answer to Panel Questions 136 and 137. 
2766 EC, Comments on US Answer to Panel Questions 136 and 137. 
2767 EC, SWS, paras. 116-117. 
2768 EC, SWS, para. 119. 
2769 EC, Comments on US Answer to Panel Questions 136 and 137.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  these facts also undermine the existence of the unw ritten LA/MSF Programme that is defined by the 
United States.2770 
7.512  Finally, the European Communities submits that  the reality of how the EC member States 
may provide LA/MSF to Airbus for any future LCA pr ojects is very different from what is implied by 
the United States' alleged unwritte n LA/MSF Programme.  If Airbus were to seek LA/MSF in the 
future from one or more of the four governments,  the European Communities argues that each of the 
governments would consider the reque st on its own merits, in light of the situation at the time, and 
according to criteria to be developed by each gove rnment.  Thus, the European Communities asserts 
that there are no general and prospective rul es governing the provision of LA/MSF by the four 
governments, and therefore that the Unit ed States has failed to prove its case.2771 
(c) Evaluation by the Panel 
7.513  The United States claims that the alleged LA/MSF Programme is a measure with "normative 
value" that satisfies the definition of a "subsidy" fo und in Article 1 and causes adverse effects to its 
interests within the meaning of Article 5 of the SCM Agreement.2772  However, the United States does 
not challenge the alleged LA/MSF Programme "as such", explaining that the focus of its claim is not 
"on something about a measure that mandates or n ecessarily results in a breach each time the measure 
is applied, which is the essen ce of an 'as such' claim".2773  Indeed, the United States questions whether 
"it is even possible to successfully claim that  a measure 'as such' breaches Article 5 of the 
SCM Agreement, as that would require showing that  the measure will mandate particular effects in 
the future, such as displacement and impedance, wh ich involve marketplace factors independent of 
the measure".2774  Thus, as we understand it, the United States' claim is rooted in the very existence of 
the alleged LA/MSF Programme, which it contends, in and of itself , constitutes a subsidy to Airbus 
that causes adverse effects.  For this claim to succeed, we consider that the United States must 
demonstrate: (i) the existence of the alleged LA/M SF Programme; (ii) that th e alleged Programme is a 
subsidy within the meaning of Article 1 of the SCM Agreement; and (iii) that the subsidy causes 
adverse effects within the meaning of Article 5 of  the SCM Agreement.  We start our evaluation by 
addressing the first of these elements. 
(i) Does the alleged LA/MSF Programme exist? 
7.514  The United States describes the alleged measur e at issue as a "Programme" operated by the 
Airbus governments that involves the systematic and coordinated provision of unsecured long-term 
loans covering a significant amount of the capital that is needed and sought by Airbus for the 
development of each and every new model of LC A on back-loaded and success-dependent repayment 
terms and at below-market interest rates.2775  Although it acknowledges that there is no single written 
document that attests to the existence of such a deliberate system of financing, the United States 
argues that the alleged measure's existence is neve rtheless evidenced by a series of alleged facts or 
"individual components that could themselves be considered measures".2776  These include the alleged 
existence of institutional appara tus established under various inte r-governmental agreements to 
support the systematic application of LA/MSF, the provision of LA/MSF on essentially the same terms and conditions in respect of each new model of LCA developed by Airbus, various statements 
                                                     
 
2770 EC, SWS, para. 121. 
2771 EC, Comments on US Answer to Panel Questions 136 and 137. 
2772 US, FNCOS, para. 25; US, SNCOS, para. 36.  See also, US, FWS, para. 106, where the United 
States concludes that "{i}n the light {of the evidence} , the specific content of {t he} Launch Aid program and 
the future conduct it will entail  is clear".  (Emphasis added). 
2773 US, SNCOS, para. 37 
2774 US, SNCOS, para. 37. 
2775 US, FWS, para. 87; US, FNCOS, para. 20; US, Answer to Panel Question 3. 
2776 US, SNCOS, para. 34. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  made by officials of the Airbus governments and ex ecutives of Airbus and EADS, and the perceptions 
held by different credit rating agencies and one bank.
2777 
7.515  It is now well established that "In principle, any act or omission attributable to a WTO 
Member can be a measure of that Member for purposes of dispute settlement proceedings."2778  Thus, 
the fact that the alleged existence of the LA/MSF Programme is not evidenced in any single written 
document does not mean that it cannot amount to a "m easure" that may be challenged in WTO dispute 
settlement proceedings.  Indeed, as the United Stat es points out, acts attributable to WTO Members 
not expressed in written form have previously been the subject of WTO dispute settlement. 
7.516  In Japan – Apples , the panel treated nine inter-related and cumulative legal and administrative 
requirements imposed by the government of Japan on  the importation of United States' apple fruit as 
comprising one single sanitary and phytosanitary measure for the purpose of evaluating the United States' complaint against those requirements.
2779  In following the same approach, the implementation 
panel explained that the original panel had treat ed "the requirements imposed by Japan as several 
elements of one single measure, essentially because all the requirements were presented as part of a 
systemic approach".2780  Similarly, in EC – Biotech , the panel agreed with the complainants that the 
European Communities had applied a "general de facto  moratorium on the approval of biotech 
products between June 1999 and August 2003".  Notw ithstanding the absence of any single document 
explicitly establishing its existence, the panel found that the alleged de facto moratorium existed as "a 
measure which is the result of  other measures (decisions)".2781  It arrived at this conclusion after 
conducting a detailed assessment (covering approximately 190 pa ges) of various facts the 
complainants had argued demonstrated the existen ce of the alleged moratorium.  These included the 
operation of the European Communities' relevant approval procedures, documents and statements 
made by European Communities and EC member St ate officials, and the histories of individual 
applications for the approval of biot ech products over the period in question.2782 
7.517  In US – Zeroing (EC) , the panel found that the United States' "zeroing methodology", which 
was not expressed in written form, represented a well-established and well-defined norm that was 
challengeable as a measure in WT O dispute settlement proceedings, and that this measure was "as 
such" inconsistent with the United States' obligations under the Anti-Dumping Agreement.2783  The 
panel reached this conclusion after closely examin ing the parties' arguments and various pieces of 
evidence on the existence and application of the zeroing methodology over time, including the 
United States' recognition that it had been unable to identify an instance where the USDOC had not 
applied the methodology, the standard computer  programmes used by the USDOC to calculate 
margins of dumping in investigations, and expert op inions regarding the use and the content of the 
zeroing methodology.  The panel also noted that the United States had not contested that the zeroing 
                                                      
2777 See, para. 7.499 above. 
2778 Appellate Body Report, United States – Sunset Review of Anti-Dumping Duties on Corrosion-
Resistant Carbon Steel Flat Products from Japan  ("US – Corrosion-Resistant Steel Sunset Review "), 
WT/DS244/AB/R, adopted 9 January 2004, DSR 2004:I, 3, para. 81. 
2779 Panel Report, Japan – Measures Affecting the Importation of Apples ("Japan – Apples "), 
WT/DS245/R, adopted 10 December 2003, as upheld by Appellate Body Report WT/DS245/AB/R, DSR 2003:IX, 
4481, paras. 8.5-8.20. 
2780 Panel Report, Japan – Measures Affecting the Importation of Apples – Recourse to Article 21.5 of the 
DSU by the United States ("Japan – Apples (Article 21.5 – US) "), WT/DS245/RW, adopted 20 July 2005, DSR 
2005:XVI, 7911, paras. 8.28-8.30. 
2781 Panel Report, EC – Approval and Marketing of Biotech Products , paras. 7.1292. 
2782 Panel Report, EC – Approval and Marketing of Biotech Products , paras. 7.438-7.1295. 
2783 Panel Report, United States – Laws, Regulations and Methodology for Calculating Dumping 
Margins ("Zeroing") ("US – Zeroing (EC) "), WT/DS294/R, adopted 9 May 2006, as modified by Appellate 
Body Report WT/DS294/AB/R, DSR 2006:II, 521, paras. 7.91-7.106.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  methodology was a deliberate policy.2784  On appeal, the Appellate Body upheld the panel's finding, 
concluding inter alia, that the evidence before the panel was sufficient to establish that the "zeroing 
methodology" was a "measure" that could be challenge d "as such".  In doing so, the Appellate Body 
made the following observations: 
" ... a panel must not lightly assume the existence of a 'rule or norm' constituting a 
measure of general and prospective applicati on, especially when it is not expressed in 
the form of a written document.  If a panel we re to do so, it would act inconsistently 
with its obligations under Article 11 of th e DSU to 'make an objective assessment of 
the matter' before it. 
When an 'as such' challenge is brought agains t a 'rule or norm' that is expressed in the 
form of a written document—such as a la w or regulation—there would, in most 
cases, be no uncertainty as to the existence or content of the measure that has been 
challenged.  The situation is different, howe ver, when a challenge is brought against a 
'rule or norm' that is  not  expressed in the form of a written document.  In such cases, 
the very existence of the challenged 'rule or norm' may be uncertain.   
In our view, when bringing a challenge agains t such a 'rule or norm' that constitutes a 
measure of general and prospective appli cation, a complaining party must clearly 
establish, through arguments and supporting evidence, at least that the alleged 'rule or norm' is attributable to the responding Member;  its precise content;  and indeed, that it does have general and prospective applicati on.  It is only if the complaining party 
meets this high threshold, and puts forwar d sufficient evidence with respect to each of 
these elements, that a panel would be in a position to find that the 'rule or norm' may be challenged, as such.  This evidence may include proof of the systematic 
application of the challenged 'rule or norm'.   Particular rigour is required on the part 
of a panel to support a conclusion as to the existence of a 'rule or norm' that is  not  
expressed in the form of a written document.  A panel must carefully examine the 
concrete instrumentalities that evidence the existence of the purported 'rule or norm' in order to conclude that such 'rule or norm' can be challenged, as such.
2785 
7.518  We recall that the United States has explicitly described the alleged LA/MSF Programme as a 
measure with "normative value" in the sense that  it "'creates expectations among the public and 
among private actors'";2786 a measure that "possesses the qualities the Appellate Body identified in US 
– Zeroing (EC) ".2787  To this extent, we believe that the situa tion before us is similar to that faced by 
the panel and the Appellate Body in US – Zeroing (EC) , in the sense that as with the European 
Communities in US – Zeroing (EC) , the United States in the present controversy complains about the 
existence of an alleged unwritten measure with "normative value" that it considers to be WTO-
inconsistent independent of its application .  However, the United States e xplains that unlike the claim 
at issue in US – Zeroing (EC) , its complaint against the LA/MSF Programme is not based on the 
typical subject of an "as such" complaint, name ly, something about a measure that mandates or 
                                                      
2784 Panel Report, US – Zeroing (EC) , paras. 7.103. 
2785 Appellate Body Report, US – Zeroing (EC) , paras. 196-198, (footnote omitted). 
2786 US, FNCOS, para. 25, citing Appellate Body Report, United States – Sunset Reviews of Anti-
Dumping Measures on Oil Country Tubular Goods from Argentina ("US – Oil Country Tubular Goods Sunset 
Reviews "), WT/DS268/AB/R, adopted 17 December 2004, DSR 2004:VII, 3257, para. 187. 
2787 US, SNCOS, para. 36.  See also US, FWS, para. 106, where the United States concludes that "{i}n 
the light {of the evidence}, the specific co ntent of {the} Launch Aid program and the future conduct it will 
entail  is clear".  (Emphasis added). WT/DS316/R 
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  necessarily results in WTO-inconsistent conduct.  Rather, the United States' claim is focussed on a 
breach "resulting from the Launch Aid Program itself".
2788 
7.519  We are mindful that the distinction between "as such" and "as applied" claims "does not 
define exhaustively the types of measures that may be subject to challenge in WTO dispute 
settlement".2789  A measure "need not fit squarely within one of these two categories" in order to be 
susceptible to WTO dispute settlement.2790  However, in order to be the proper subject of WTO 
dispute settlement proceedings, a challenged measure mu st first be shown to actually exist.  Given the 
United States' explicit characterisation of the alleged LA/MSF Programme as a measure with "normative value" in the sense that it "'creates  expectations among the public and among private 
actors'";
2791 a measure that "possesses the qualities the Appellate Body identified in US – Zeroing 
(EC) ",2792 we find the Appellate Body's guidance in that  case on how to establish the existence of such 
a measure to be particularly instructive.  As bot h parties appear to recognize, the existence of a 
challenged measure must be established on the basis of an objective assessment of all relevant facts 
and circumstances;2793 and as we read it, the Appellate Body's guidance in US – Zeroing  (EC)  explains 
how to undertake such an assessme nt for the purpose of demonstrating the existence of an unwritten 
measure that is claimed to have ge neral and prospective application in the sense of a "rule or norm".   
7.520  It follows that regardless of the nature of a complaint, when challenging the WTO-
consistency of an alleged unwritten measure  that is alleged to have normative value , the criteria laid 
down by the Appellate Body in US – Zeroing (EC)  will be relevant to determining whether any such 
measure actually exists.  Therefore, when confront ed with a complaint against an unwritten measure 
that is considered to have genera l and prospective application, as we are here faced with in respect of 
the alleged LA/MSF Programme, a panel must not lightly assume its existence.  The arguments and evidence advanced by the complaining party to de monstrate its existence must be carefully and 
rigorously examined with a view to assessing whethe r the complainant has clearly established at least 
the precise content of the alleged unwritten measure, th at it is attributable to the responding Member 
and that it has general and prospective application.  It is only by satisfying this "high threshold" that a 
complainant will succeed in establishing the existen ce of the challenged measure.  Conversely, where 
any one of the above elements cannot be established,  the complaining party will have failed to make 
its case.   
7.521  We recall that the United States describes th e precise content of the alleged unwritten 
LA/MSF Programme as consisting of the consistent up -front provision, by the Airbus governments, of 
a significant portion of the capital that is needed  and sought by Airbus to develop each new LCA 
model, through unsecured loans granted on back-l oaded and success-dependent repayment terms and 
at interest rates below what the market would demand for the assumption of similar risk.
2794  T h e  
United States considers that the alleged unwritten LA /MSF Programme is incontestably attributable to 
four EC member States – France, Germany, Spain and the UK2795 – and that it has general and 
prospective application in the sense that "whe never an Airbus company seeks Launch Aid from an 
Airbus government for development of a new LCA model, it receives Launch Aid consisting of the 
same essential terms."2796  According to the United States, the ev idence that confirms the existence of 
                                                      
2788 US, SNCOS, para. 37. 
2789 Appellate Body Report, United States – Continued Existence and Application  
of Zeroing Methodology ("US – Continued Zeroing  "), WT/DS350/AB/R, adopted 19 February 2009, para. 179. 
2790 Appellate Body Report, US – Continued Zeroing , para. 179. 
2791 US, FNCOS, para. 25, citing Appellate Body Report, US – Oil Country Tubular Goods Sunset 
Reviews , para. 187. 
2792 US, SNCOS, para. 36. 
2793 US, Answer to Panel Question 136; EC, Comments on US Answer to Panel Questions 136 and 137. 
2794 US, Answer to Panel Question 3; US, FNCOS, paras. 19-26; US, SNCOS, paras. 39-46. 
2795 US, Answer to Panel Question 3. 
2796 US, Answer to Panel Question 3.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  an unwritten measure of this kind includes the challenged LA/MSF contracts, inter-governmental 
institutional structures and national bureaucracies al legedly charged with s upporting the operation of 
the alleged LA/MSF Programme, various statements made by European Communities, EC member State and Airbus officials, and the alleged percep tions of different credit rating agencies and one bank 
that the challenged LA/MSF Programme is an established part of the financial landscape in which 
Airbus operates.
2797  We review each of these categories of  evidence together with the parties' 
arguments in the following sections. 
The LA/MSF contracts  
7.522  One of the main EC criticisms of the Unite d States' description of the alleged LA/MSF 
Programme is that it is not "precise" enough to  confirm its status as an unwritten measure.2798  The 
European Communities notes that significant differe nces exist between the terms and conditions of 
the challenged LA/MSF contracts, both as between the various LCA projects that received LA/MSF, as well as between the various EC member States that funded them.
2799  In its view, these differences 
serve to undermine the United States' submission that  all LA/MSF contracts included the same four 
"core terms", and therefore that the alleged Programme exists.2800  Similarly, the European 
Communities argues that the four "core terms" of LA/MSF that are the focus of the United States' 
description are too generic to support the existe nce of an unwritten measure as the "very same 
attributes are displayed by market-based instrume nts such as development financing offered by 
Boeing and Airbus risk-sharing suppliers, as well as by loans secured from commercial banks".2801  
According to the European Communities, "there is no thing 'precise' about a description that is generic 
enough, and at a high enough level of abstraction, to apply to many different forms of financing other 
than MSF".2802  The European Communities maintains that the content of a subsidy programme would 
usually include some or all of a series of "key elements", including information on "how and when requests for support must be made"; "the terms a nd conditions governing eligibility for support"; and 
"how satisfaction of these cond itions must be demonstrated".
2803  It argues that the United States' 
description of the alleged LA /MSF Programme fails to iden tify any of these elements. 
7.523  We do not consider there to be any generally appli cable standard or particular set of facts that 
define the precise content of a "subsidy programme".   The "key elements" identified by the European 
Communities may usefully circumscribe the genera l contours of one or more subsidy programmes, 
but not even the European Communities contends that all subsidy programmes must exhibit such 
features.  Thus, the fact that the United States' description of the precise content of the LA/MSF 
Programme does not explicitly refer to the "key el ements" identified by the European Communities 
does not, for that reason, render it inadequate. 
7.524  In principle, we see no reason why the precise  content of an unwritten measure alleged to 
have "normative value" has to arrive at a certain level of specificity in order to be susceptible to 
challenge in WTO dispute settlement under the SC M Agreement.  If a WTO Member considers in 
good faith that a measure exists that nullifies or impairs benefits that accrue to it under the 
SCM Agreement, then regardless of how generic it s content may be, the WTO Member is entitled to 
                                                      
2797 US, SNCOS, paras. 39-66. 
2798 EC, SWS, paras. 116-119; EC, Comments on US Answer to Panel Question 136. 
2799 EC, SWS, para. 117. 
2800 EC, SWS, paras. 116-117. 
2801 EC, SWS, para. 119. 
2802 EC, SWS, para. 119. 
2803 EC, Comments on US Answer to Panel Question 136.  The other "key elements" identified by the 
European Communities are: "the nature and duration of  any support granted"; "the purposes for which any 
support can be used by the recipient"; "the terms and conditions governing any repayments"; and "whether the government is obliged to provide support when eligibility conditions are met". WT/DS316/R 
Page 452  
BCI deleted, as indicated [***] 
 
  seek redress through WTO dispute settlement.
2804  Of course, it may be more difficult to establish that 
a measure which possesses a generic content breach es a WTO obligation compared with a measure 
that is more specific.  However, we see no reason to exclude the possibility that even measures with 
generic content might be WTO-inconsistent.  In an y case, the United States' description of the precise 
content of the alleged LA/MSF Programme includes more than just a reference to LA/MSF contracts 
granted on the same four "core terms".  Rather, it is the Airbus governments' consistent up-front 
provision of a significant portion of the capital that is needed and sought by Airbus to develop each 
new LCA model, in the form of long-term loans on the same four "core terms", that defines the 
precise content of the alleged LA/MSF Programme at the centre of the United St ates' complaint.  In 
our view, this description is sufficiently detailed to  permit a clear understanding of the precise content 
the United States asserts defines the alleged unw ritten LA/MSF Programme measure.  Indeed, were 
such a Programme described in a written document, we would have no doubt a bout its existence as a 
matter of fact.   
7.525  As to the differences that exist between th e terms and conditions of the various LA/MSF 
contracts, it is true that the EC member States di d not adopt a standard approach or apply the same 
contractual template when entering into LA/MSF agreem ents.  Overall, the vast majority of terms and 
conditions of each LA/MSF contract are different, re flecting not only the individual characteristics of 
the Airbus entity and LCA development project bei ng funded, but also the policy objectives, legal 
culture and particular demands of the relevant EC member State funding the project.  For instance, the financing provided under the first series of LA/M SF contracts represented a much larger proportion of 
development costs compared with the LA/MSF contract s entered into after the entry into force of the 
1992 Agreement.
2805  Not all of the EC member State governments required the payment of royalties; 
and when royalties were called for, they were envi saged in different forms and over varying periods 
of time.2806  Moreover, the structure of the back-loa ded and success-dependent repayment terms found 
in each contract was not always the same;2807 and in terms of interest rates, where these were 
identified in the contracts, they were usually set at  different levels, at times through the application of 
different formulas.2808  There are other terms and conditions that vary between the contracts.  
However, in the light of our findings in respect of the individual LA/MSF measures, there is no doubt that all of the challenged LA/MSF contracts may be characterised as unsecured loans granted to 
Airbus on back-loaded and success-depe ndent repayment terms, at below-market interest rates, for the 
purpose of developing various new models of LC A.  While not demonstrating that the LA/MSF 
                                                     
 
2804 Article 3.3 of the DSU provides that the WTO dispute settlement system exists to address 
"situations in which a Member consider s that any benefits accruing to it direc tly or indirectly under the covered 
agreements are being impaired by meas ures taken by another Member".  In US – Corrosion-Resistant Steel 
Sunset Review  the Appellate Body addressed the scope of "measures" that may be subject to WTO dispute 
settlement, observing that "in principle, any act or omission attributable to a WTO Member can be a measure of that Member for purposes of dispute settlement proceedings.  The acts or omissions that are so attributable are, 
in the usual case, the acts or omissions of the organs of the state, including those of the executive branch."  
Appellate Body Report, US – Corrosion-Resistant Steel Sunset Review,  para. 81.  Article 7.1 of the 
SCM Agreement provides that  "{e}xcept as provided in Article 13 of the Agreement on Agriculture, whenever a 
Member has reason to believe that any subsidy referred  to in Article 1, granted or maintained by another 
Member, results in injury to its domestic industry, nu llification or impairment or serious prejudice, such 
Member may request consultations with such other Member." 
2805 See, paras. 7.369,7.2100, 7.2102, 7.2104 and 7.2106. 
2806 See, para. 7.410. 
2807 See, para.7.374. Thus, for example, each of th e four LA/MSF contract s for the A380 requires 
repayment in different ways and amounts.  The German A380 contract appears to require Airbus to make interest payments [***] .  In addition to those payments, [***] .  The French A380 contract fixes a [***] .  The 
Spanish A380 contract envisages repayment of [***] .  The UK A380 contract identifies [***]. 
2808 For example, compare Spanish A380 contract, Septima Clausula, with the UK A380 contract, 
Schedule 3, German A380 contract, Article 6.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  Programme described by the United States actually exists, the contracts do show that every time 
LA/MSF was provided in the past, it involved the f our "core terms" the United States identifies.  
7.526  The European Communities argues that a nother reason why the United States cannot 
demonstrate the existence of the alleged LA/MSF Pr ogramme is that Airbus has not always sought 
LA/MSF to finance the development of LCA.2809  In particular, the European Communities notes that 
"for example" no LA/MSF was sought from any of the Airbus governments for the A318, A319 and 
A321 models; that no German, Spanish and UK LA /MSF was requested for the A330-200; and that 
no German government LA/MSF was asked for in order to develop the A340-500/600.2810   
7.527  Although we consider that the United States' desc ription of the precise content of the alleged 
LA/MSF Programme has not always been crystal clear, it is apparent from the entirety of its 
arguments and submissions that the United States ch aracterizes the precise content of the alleged 
LA/MSF Programme in the terms we have expressed above, that is, as the consistent provision of 
LA/MSF on the same essential conditions whenever sought by Airbus.2811  Because LA/MSF was not 
sought  by Airbus from the above-mentioned EC memb er State governments for the relevant LCA 
projects,2812 it follows that the absence of LA/MSF for these models from the same Airbus 
governments does not undermine the existence of th e LA/MSF Programme descr ibed by the United 
States.  However, we note that the UK governme nt did not conclude a LA/MSF agreement with 
British Aerospace for the purpose of developing th e A340-500/600, even though British Aerospace 
had initially requested LA/MSF from the UK government.   
7.528  According to the United States, the absen ce of UK LA/MSF for the A340-500/600 does not 
detract from its assertion that an alleged LA/M SF Programme exists, beca use LA/MSF for this 
derivative was in fact offered  by the UK government.  Thus, according to the United States, the fact 
that British Aerospace ultimately declined to avail itself of the LA/MSF offered by the UK 
government "does not change the fact that the government made the commitment".2813   
7.529  The Heads of Terms Agreement the European Communities has submitted as evidence of the 
draft contract negotiated between British Aerosp ace and the UK government offered financial support 
                                                      
2809 EC, SWS, paras. 121 and 128. 
2810 EC, SWS, para. 121.  In addition, we note that LA/MSF for the first model of Airbus LCA, the 
A300, was provided by only the French, German and Spanish governments, but not the UK government.  See, 
para. 7.369.  We have also found that as of 20 July 2005 no LA/MSF had been committed by the Airbus 
governments for the A350, notwithstanding the fact that it had been launched. 
2811 When asked to explain what conclusions it considered could be drawn about the existence of the 
alleged LA/MSF Programme from the absence of German, Spanish and UK LA/MSF for the A330-200 (Panel 
Question 3), the United States argued that French government LA/MSF for the A330-200 was essentially additional French government LA/MSF for the A330/A340.  We are unclear as to why the United States did not 
point out, or at least suggest, that Airbus had not sought or asked for  LA/MSF for this model, (which would 
have been consistent with its overall description of the content of the alleged LA/MSF Programme), given that it has challenged this contract as a LA/MSF measure that is separate and distinct from the LA/MSF provided for 
the A330/A340.   
2812 In its answer to Panel Ques tion 173, the European Communities suggests that Deutsche Airbus 
"turned to a risk-sharing supplier" financing for the A340-500/600 only after it realized that it could not obtain 
LA/MSF from the German government.  However, the European Communities has submitted no specific 
evidence demonstrating that Deutsche Airbus had actually requested the German government to provide 
LA/MSF for the A340-500/600. 
2813 US, Answer to Panel Question 3, referring to  various pieces of evidence including House of 
Commons Hansard Written Answers, 2 Fe bruary 1998, (statement of Mrs. Beckett), Exhibit US-467; and House 
of Commons Hansard Written Answers,  15 December 1998, (statement of Mr. Battle) ("{T}he Government 
agreed on 2 February 1998 to invest up to GBP 123 million in a public-private partnership with British Aerospace on the development of the Ai rbus A340-5 00/600") Exhibit US-468. WT/DS316/R 
Page 454  
BCI deleted, as indicated [***] 
 
  for the A340-500/600 on unsecured, back-l oaded and success-dependent repayment terms.
2814  
Moreover, although nothing in the Heads of Terms Agreement suggests that the [***] internal rate of 
return2815 requested by the UK government represented a belo w-market interest rate for the risk being 
assumed under the proposed contract, when compared  with a market interest rate benchmark 
constructed on the basis of the same methodology applied by the European  Communities to identify 
appropriate market benchmar ks for other LA/MSF contracts, it is evident that the [***] rate of interest 
was non-commercial.2816  The European Communities has emphasized that the [***] interest rate 
charged by the UK government was equivalent to the interest rate obtained by British Aerospace on the [***] commercial loan that was ultimately used to  finance the A340-500/600 project.  However, 
as we have previously noted, the level of risk ta ken on by the commercial le nder under this contract 
was less than that assumed generally under the Airbus governments' LA/MSF contracts.
2817  It follows 
that the Heads of Terms Agreement drafted for the purpose of British Aerospace's participation in the 
A340-500/600 project featured the same four "core terms" found in other LA/MSF contracts. 
7.530  Thus, while we understand that the Airbus  governments did not provide LA/MSF for each 
and every model of LCA develope d by Airbus, the evidence we have reviewed does show that 
whenever Airbus sought LA/MSF it was offered by each of the Airbus governments on the same four 
"core terms", and in all but one case, the terms a nd conditions of that LA/MSF were agreed between 
the parties. 
7.531  It is important to note, however, that although it was possible to establish on the basis of the 
express terms of each of the LA/MSF contracts that they were granted on unsecured, back-loaded and 
success-dependent repayment terms, it was not equally  apparent from the face of each contract that 
the rate of return asked by the relevant EC me mber State government was below-market.  The non-
commercial nature of the interest rates charged for the LA/MSF contracts was a fact we established 
only after reviewing the extensive evidence and arguments submitted by the parties on appropriate 
market interest rate benchmarks for the LA/MSF cont racts.  In other words, below-market interest 
rates are not an explicit feature of the LA/MSF contracts.  Moreover, we see nothing inherent in the 
LA/MSF contracts which, in and of itself, renders them a form of financing that by definition will 
always  involve below-market interest rat es.  Indeed, it is clear that th e interest rate advantage obtained 
by Airbus varied across the different LA/MSF contr acts, in general diminishing with every new model 
of LCA, suggesting that LA/MSF is not synonymous with any particular degree of subsidy intensity 
(or level of below-market interest rates).  In our view, this fact undermines the existence of the alleged 
unwritten LA/MSF Programme because it shows that to the extent that past instances of LA/MSF 
might be argued to evidence a broader co-ordinated financing programme, they do not support a conclusion that such a programme would necessarily i nvolve the provision of loans in the future at 
below-market interest rates.   
7.532  In any case, even if LA/MSF were granted in the future on the same four "core terms" 
identified by the United States, this would not, on its own, demonstrate the existence of the unwritten 
LA/MSF Programme.  We agree with the European Communities that past governmental action may 
                                                     
 
2814 Exhibit EC-874 (BCI), Heads of Terms Agreement for the A340-500/600. 
2815 Exhibit EC-874 (BCI), Article 10.2 and Schedule 5. 
2816 As we have previously explained, the market interest rate benchmarks proposed by the European 
Communities for the purpose of determining whether the LA/MSF contracts involved subsidization were 
constructed by adding the individual project-specific ri sk premium identified by the European Communities to 
the general corporate borrowing rate identified in the E llis Report for the relevant Airbus borrowing entity.  See, 
paras. 7.433 and 7.470 - 7.473 above.  In 1998, the year in which the Heads of Terms Agreement was prepared, 
the Ellis Report identified the genera l corporate borrowing rate for Britis h Aerospace as 6.24%.  Adding the 
project-specific risk premium proposed by the European Communities to this interest rate brings it above [***] , 
therefore showing that even by the European Commun ities' own standards, the UK government's proposed 
LA/MSF for the A340-500/600 was at non-commercial interest rates. 
2817 See, paras. 7.452, 7.458 and 7.467 above.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  be repeated in the future simply because, on the individual merits of a future case, the government 
reaches the same decision as it did in the past.  The repetition of government action over time does not 
necessarily prove that the government has adopted  a general rule governing its future conduct.2818  
Thus, even assuming arguendo  that it could be concluded from the LA/MSF contracts we have 
reviewed that  each LA/MSF contract is by definiti on a form of financing that involves below-market 
interest rates, something more than the repeat ed conduct evidenced by the provision of LA/MSF to 
Airbus each time it sought support for LCA developmen t would be needed to prove the existence of 
the unwritten LA/MSF Programme that is the subject of the United States' complaint. 
Inter-governmental Institutional Structures  
7.533  The United States asserts that its description of the alleged LA/MSF Programme is supported 
by the existence of "entire institutio nal structures that have been creat ed and that continue to operate 
with the sole and express purpose of administering the Launch Aid Program".2819  The United States 
identifies the "core" institutions forming part of these alleged structures as the "Airbus Inter-
governmental Committee", the "Airbus Executive Comm ittee" and the "Airbus Executive Agency".  It 
also points to the "Airbus Ministers Conference" and the "Permanent Working Group for Sales 
Financing" as other relevant institutions.  Accordi ng to the United States, the alleged structures were 
first established under the 1969 A300 Agreement, in or der to "work with Airbus to ensure the success 
of each new LCA model, including through the provision of Launch Aid";2820 a "mission" which the 
United States contends was reinforced and con tinued through the conclusion of successive inter-
governmental agreements and decisions.   
The 1969 Agreement 
7.534  As its title and preamble suggest, the 1969 Agre ement evidences an intention on the part of 
the governments of France and Germany to co-operate in  the field of aeronautics and, in particular, to 
support Sud-Aviation2821 and Deutsche Airbus GmbH ("Associated Manufacturers") in the 
development of a single LCA, the Airbus A300-B.  This intention is given effect over thirteen 
Articles addressing various aspects of the devel opment and production of the A300, including its 
financing.2822  The 1969 Agreement envisaged that the French and German governments would 
provide a specified amount of funding for the development of the A300 in the form of loans ("avances remboursables") to be repaid through a series of gr aduated levies on the sale of each aircraft, the value 
of which (as a percentage of sales  revenue) was explicitly identified.
2823  Both development and 
production of the A300 was to be divided between the two Associated Manufacturers involved, in 
proportion to each government's respective contribu tion to development costs through "avances 
remboursables".2824  However, the costs of A300 series production were not financed under the 
Agreement, which explicitly provided that these woul d be the responsibility of each of the Associated 
Manufacturers.2825  The Agreement left the choice of engin es subject to the approval of the Parties2826 
                                                      
2818 EC, Comments on US Answer to Panel Questions 136 and 137. 
2819 US, SNCOS, para. 43. 
2820 US, SNCOS, para. 43. 
2821 At the time of the conclusion of the 1969 Agreement, Sud-Aviation was a government-owned 
entity. See, para. 7.183 and footnote 2054. 
2822 The Agreement is structured ar ound the following six chapter headings: "Organisation"; "Division 
of Work"; "Financial Provisions"; "Engines and Equipment"; "Participation of Third Country Industries"; and "Final Provisions". 
2823 Articles 6 and 7.  The total amount of funding identified in the Agreement was set on the basis of 
price conditions ("conditions de prix") existing on 1 January 1968, and was subject to revision in the light of any evolution in the general economic conditions ("conditi ons économiques générales") since 1 January 1968.  
Article 6. 
2824 Articles 3.1 and 4.2. 
2825 Article 9. WT/DS316/R 
Page 456  
BCI deleted, as indicated [***] 
 
  and envisaged that outsourcing to enterprises in third countries would be possible.
2827  It also required 
the "Work Coordinator"2828 to invite all competent suppliers based in the Signatory countries to 
participate in possible equipment supply opportunities.2829 
7.535  An organisational apparatus was established to  oversee the Agreement's implementation.  
This consisted of three bodies: the Inter-govern mental Committee ("AIC"); the Executive Committee 
("AEC"); and the Executive Agency ("AEA").  The management of the governments' participation in 
the project was delegated to the AIC, which was spec ifically tasked with informing the parties of the 
"technical, industrial, commercial a nd financial developments in th e project and to guard over or 
ensure the application of the provisions of {the}  agreement, defining when needed the necessary 
procedures and examining with the companies th e problems that occur during the life of the 
programme".2830  The AIC was also mandated with establishing the AEC, a body "composed of one 
member per country and charged with those r esponsibilities that the parties delegate to it".2831  It was 
envisaged that both committees would be supported by the AEA, established within the French government administrative service, which would act  as the Committees' executi ve arm and source of 
information regarding "any part of the programme".
2832  One of the main tasks specifically attributed 
to the AEA was to enter into a Framework Agreem ent with the Work Coordinator implementing all 
relevant provisions of the Agreement.2833  The Work Coordinator was dir ected to enter into a similar 
agreement with each of the Associated  Manufacturers assuring their functions vis-à-vis  the AEA and 
defining, in particular, the division of work and responsibilities, mutual pricing rules, risk sharing 
conditions between the Associated Manufacturers and joint profits.2834   
7.536  Other particular tasks identified in the Ag reement for the relevant Committees included 
monitoring that a balanced division of work was achieved2835, declaring the final amounts of "avances 
remboursables" transferred by each government fo r the purpose of identifying the final sums to 
reimburse2836, agreeing with the Work Coordinator on the "modalities" for supervising 
implementation of the repayment provisions2837, and the preparation of an annual report to the parties, 
including an analysis of the financial situation.2838 
                                                                                                                                                                     
2826 Article 10. 
2827 Article 12. 
2828 At the time of the conclusion of the 1969 A300 Agreement, the "Work Coordinator" was Sud-
Aviation.  However, this position was shortly thereaf ter transferred to Airbus Industrie GIE, which was 
constituted on 18 December 1970.  Exhibit US-11. 
2829 Article 11. 
2830 Exhibit US-11, Article 1.  English translation pr ovided by the United Stat es of original French 
language, which reads:  "an Intergovernmental Committee" was created to: "inform them of technical, industrial, 
commercial and financial developments in the project and to guard over or ensure the application of the 
provisions of this present agreement, defining when ne eded the necessary procedur es and examining with the 
companies the problems that occur during the life of the programme". 
2831 Exhibit US-11, Article 1.  English translation pr ovided by the United Stat es of original French 
language, which reads:  "an Executive Committee composed of one member per country and charged with those 
responsibilities that the Parties delegate to it". 
2832 Exhibit US-11, Article 1.  English translation pr ovided by the United Stat es of original French 
language, which reads:  "any part of the programme". 
2833 Article 2.1. 
2834 Article 2.2. 
2835 Article 3.2 (AIC). 
2836 Article 7.1 (AIC). 
2837 Article 7.1 (AEA). 
2838 Article 8 (AIC).  WT/DS316/R 
 Page 457 
 
BCI deleted, as indicated [***] 
 
  7.537  The 1969 Agreement was extended to th e government of the Netherlands on 
28 December 1970, and the government of Spain on 23 December 1971.2839  The latter agreement 
indicates that the entry of both governments into  the A300 project resulted in them receiving a 
representative on the AIC.2840  It also indicates that the government of Spain was represented on the 
AEC.2841  Apart from three specific questions considered to  directly affect the interests of the Spanish 
government and its industry, the vote of the Sp anish government representative on the AIC was 
limited to consultation ("voix consultative").2842  In terms of substance, the 1971 A300 Agreement 
inter alia, declared CASA2843 to be an Associated Manufacturer, and conferred upon it both a portion 
of A300 series production and, [***].2844  The Agreement also indi cated that any "avances 
remboursables" from the government of Spain would be repaid with [***] of the repayments 
identified in Article 7 of the 1969 Agreement.2845  Finally, another element of note is that the 
Agreement [***].2846 
The 1981 Agreement 
7.538  The governments of France, Germany, Spain a nd the UK entered into an agreement on 
28 September 1981 confirming the continued rele vance of the 1969, 1970 and 1971 Agreements for 
the development and production of the A300 and exte nding the key principles of those agreements to 
the development and production of the A310.2847  The 1981 Agreement comprised fourteen 
Articles addressing essentially the same matte rs contained in the 1969 Agreement.2848  As with the 
financing provided for development of the A300, the 1981 Agreement envisaged that certain specified 
amounts of funding would be made available for the de velopment of the A310 in the form of loans to 
be repaid through a series of graduated levies on the sale of each aircraft, the value of which (as 
                                                      
2839 The Agreement between the Governments of the Ki ngdom of the Netherlands, the Federal Republic 
of Germany, and the French Republic concerning the realization of the Airbus A300B (1970) ; cited inter alia, in 
Article 3 of Exhibit US-16; and the Agreement of the 23rd of December 1971 betwee n the Governments of the 
Spanish State, the French Republic, the Federal Republic of Germany, and the Kingdom of the Netherlands 
concerning the realization of the Airbus A300B,  Exhibit EC-992 (BCI).  The parties have not submitted a copy 
of the former 1970 Agreement between the governments of France, Germany and the Netherlands. 
2840 1971 A300 Agreement, Article 2, para. 4 ("The re presentatives of the four Contracting Parties on 
the Intergovernmental Committee ..."). 
2841 1971 A300 Agreement, Article 2, para. 7.  As the parties have not submitted a copy of the 1970 
A300 Agreement, we cannot conf irm whether the government of th e Netherlands was also granted 
representation on the AEC.  However, an organisatio nal chart submitted by the United States as Exhibit 
US-49 (BCI) suggests that this may have been the case.   The 1981 A310 Agreemen t (discussed below) appears 
to confirm this. 
2842 Article 2. As the parties have not submitted a copy of the 1970 A300 Agreement, we cannot 
confirm whether it contained the same or a similar provision in respect of the voting rights of the government of 
the Netherlands. 
2843 At the time, CASA was a publicly-owned enterprise of the Spanish government. See, 
footnote 2234. 
2844 Article 4.  As the parties have not submitted a copy of the 1970 A300 Agreement, we cannot 
confirm whether it contained the same or a similar provision. 
2845 Article 5. 
2846 Article 6. 
2847 The Agreement between the Governments of the Federal Republic of Germany, the French 
Republic, the United Kingdom of Great Britain and Northern Ireland, and Spain concerning the Airbus 
programme (the "1981 Agreement"), Exhibit EC-942 (BCI). 
2848 The Agreement is structured  around the following seven ch apter headings:  "General"; 
"Organisation"; "Pursuit of the Airbus A300 Programme and Distribution of Work in the Airbus A310 
Programme"; "Financing of the A310 Programme"; "Equipment"; "Participation of Third Country Industries"; "Final Provisions".  WT/DS316/R 
Page 458  
BCI deleted, as indicated [***] 
 
  a percentage of sales revenue) was explicitly identified.
2849  It also provided that a specified amount of 
the development costs of the A310 would be as sumed by the governments of Belgium and the 
Netherlands (carried out respectively by Belairbus  and Fokker), and that an agreement would be 
signed with the two governments in due course.2850  An agreement was concluded with the 
governments of Belgium and the Netherlands in 1982.2851   
7.539  Development work was divided in proportion to  each government's respective contribution to 
development costs through "avances remboursables".2852  The Associated Manufacturers (which now 
included British Aerospace2853) were given responsibility for series production of the element of the 
A310 each had developed.2854  However, again, the costs of A310 series production were not financed 
under the Agreement, which explicitly provided that  these would be the responsibility of each of the 
Associated Manufacturers.2855  As with the previous agreements, the 1981 Agreement also envisaged 
that outsourcing to enterprises in third countries would be possible.2856  Moreover, Airbus Industrie 
was required to invite all competent suppliers based  in the Signatory countries to participate in 
possible equipment supply opportunities and to provide a list of the invited s uppliers and the reasons 
underlying their eventual selection to the AEA.2857 
7.540  The same organisational apparatus consisting of  the AIC, AEC and AEA that was established 
under the previous agreements was maintained.2858  The UK government's participation in the AIC 
and AEC was recalled;2859 and the AEA was opened to include representation from not only the 
French government, but also the governments of Germany and the UK.2860  The French, German and 
UK governments were given full voting rights in the committees.  However, the Spanish government's 
voting rights were limited to f our specific areas that essentially  mirrored those found in the 1971 
Agreement.2861  
7.541  As the implementing agency, the AEA was once ag ain tasked with entering into a Framework 
Agreement ("Accord Cadre") with Airbus Industrie GIE in order to give effect to all relevant 
provisions of the Agreement.  The Framework Agre ement was required to stipulate: that Airbus 
Industrie and the Associated Manufacturers undertook to satisfactorily complete the development of 
the A310 and obtain the necessary certificates; that all additional development costs would be borne 
by Airbus Industrie and the Associated Manufacturer s; and that Airbus Industrie would conclude a 
contract with each of the Associated Manufacturers, by virtue of which the latter would share responsibility of Airbus Industrie before the AEA,  and which would define division of work and 
                                                     
 
2849 Exhibit EC-942 (BCI), Articles 8-10.  The speci fied funding amounts were set on the basis of the 
economic conditions ("conditions économiques") prevailing in January 1978, and were subject to revision in the 
light of any cost variations from January 1978 to the date of disbursement, on the basis of a formula to be developed by each granting country.  Article 8.3. 
2850 Exhibit EC-942 (BCI), Article 8.6. 
2851 The Agreement between the Governments of the Kingdom of Belgium, the Federal Republic of 
Germany, Spain, the French Republic, the Kingdom of the Netherlands, and the United Kingdom of Great 
Britain and Northern Ireland concerning the program Airbus (1982) , referred to in Article 3 of US-16.  The 
parties have not submitted a copy of this agreement. 
2852 Article 8.2. 
2853 Preamble.  At the time, British Aerospace was a public company. See, footnote 2057. 
2854 Article 5.1. 
2855 Article 10.1. 
2856 Article 12. 
2857 Article 11. 
2858 Exhibit EC-942 (BCI), Articles 2.1, 2.6 and 2.7. 
2859 Exhibit EC-942 (BCI), Articles 2.2 and 2.6.  The UK government's participation in the AIC 
commenced as of 1 January 19 79 as a result of British Aerospace's entr y into Airbus Industrie GIE with a 20% 
share.  See, e.g., Exhibit EC-941 (BCI). 
2860 Article 2.7. 
2861 Article 2.4.  WT/DS316/R 
 Page 459 
 
BCI deleted, as indicated [***] 
 
  responsibilities.2862  Other particular tasks identified in the Agreement for the relevant committees 
included: reporting on progress in respect of various phases of the project;2863 declaring the final 
amounts of the "avances remboursables" transf erred by each government for the purpose of 
identifying the final sums to reimburse;2864 and agreeing with Airbus Industrie GIE on the 
"modalities" for supervising implementation of the repayment provisions.2865  The Permanent 
Working Group on Sales Finance was reconfirmed (having been established by Decision of the AIC 
in 1973), and opened to participation of the Spanish and UK governments.2866  
The 1991 Agreement 
7.542  On 6 February 1991, the governments of France, Germany, Spain, the UK and Belgium 
concluded another agreement con cerning the development, producti on and sales financing of the 
A320.2867  This Agreement comprised seventeen Arti cles addressing essentially the same matters 
contained in the previous agreem ents relating to the A300 and A310, but with respect to the A320, 
and with the addition of a more detailed oblig ation on support for export sales financing and a 
provision on the possibility of extending the Agreement to the A321 and other derivatives of the 
A320.2868  Each government's expected financial c ontribution ("aportacíones nacionales") to the 
Associated Manufacturers (which now included Belairbus2869) for the purpose of developing the A320 
was identified,2870 and it was prescribed that repayments would be made from aircraft sales 
revenues.2871  However, unlike the previous agreements, the 1991 Agreement did not specify the form 
or value of such repayments.   
7.543  Development work and production was divided between the five national actors, in proportion 
with the work undertaken in each territory and each government's respective contribution to 
development costs.2872  However, again, the costs of production of the A320 were not financed under 
the Agreement, but left to the Associated Manufacturers.2873  As with the previous agreements, it was 
envisaged that outsourcing to enterprises in third countries would be possible.2874  Moreover, Airbus 
Industrie and the Associated Manufacturers were requ ired to invite all competent suppliers, especially 
those based in the Signatory countries, to partic ipate in possible equipment supply opportunities and 
to provide a list of the invited suppliers and th e reasons underlying their eventual selection to the 
AEA.2875  The Agreement also prescribed that the gove rnments of France, Germany, Spain and the 
UK would support A320 export financing (the Span ish government's obliga tion being limited to 
                                                      
2862 Article 3. 
2863 Article 8.6 (AEA). 
2864 Article 9.1 (AIC). 
2865 Article 9.5 (AEA). 
2866 Article 10.2. 
2867 The Agreement between the Governments of th e French Republic, the Federal Republic of 
Germany, the United Kingdom of Great Britain and Northern Ireland, the Kingdom of Spain and the Kingdom 
of Belgium concerning the Airbus A320 programme (the "1991 Agreement") Exhibit US-16.. 
2868 The Agreement is structured around the following nine chapter headings:  "General 
Considerations"; "Organisation"; "Development"; "Equipm ent"; "Production"; "Partic ipation of Third Country 
Industries"; "Financing of Export Sales "; "Derived Versions"; and "Final Provisions". 
2869 Preamble. 
2870 Articulo 5.  The specified funding amounts were set on the basis of the economic situation 
("situación económica") in January 1982, and were subject to revision in acco rdance with an adjustment formula  
that reflects the corresponding national indexes.  Article 6.1. 
2871 Articulo 8 ("The respective national contributions to development costs shall be reimbursed by 
Airbus Industrie from aircraft sales revenues"). 
2872 Articulo 5.2, 5.3 and 11. 
2873 Articulo 12. 
2874 Articulo 13 and 14. 
2875 Articulo 10. WT/DS316/R 
Page 460  
BCI deleted, as indicated [***] 
 
  purchases made by Spanish airlines).
2876  The responsibilities of the Permanent Working Group on 
Sales Financing were extended to include the A320.2877 
7.544  The AIC, AEC, AEA and Permanent Working Group on Sales Financing were maintained 
and their mandate and responsib ilities extended to cover the A320.2878  The government of Belgium 
was granted representation on the AIC and AEC for the purpose of the A320 project; while it was 
clarified that the government of the Netherlands would not be represented in committee meetings for 
the purpose of the A320.2879  Once again, the French, German and UK governments were given full 
voting rights in the committees; whereas the Spanish and Belgian government's voting rights were limited to four specific areas.
2880 
7.545  Finally, the AEA was once again tasked w ith entering into a Framework Agreement 
("Acuerdo Marco") with Airbus Industr ie GIE in order to give effect to all relevant provisions of the 
Agreement.  The Framework Agreement was required to contain: a commitment from Airbus Industrie and the Associated Manufacturers that they undertook to satisfactorily complete the 
development of the A320 and to obtain the necessar y certificates; a definition of development work, 
costs and technical stages; an explanation of how  reimbursement amounts would be made by Airbus 
Industrie to the Associated Manufacturers, a nd a plan of these repayments; a commitment from 
Airbus Industrie that it would conclude a contract with each of the Associated Manufacturers, by virtue of which the latter would share responsibility of Airbus I ndustrie before the AEA; and a 
commitment from Airbus Industrie that it would i mmediately inform the AEA in the event of any 
change to the development work.
2881  Other particular tasks identi fied in the Agreement for the 
relevant committees included monitoring the pr ogress of the various phases of the project,2882 and 
discussion of compensation proposals in the event that a balanced divisi on of production was not 
achieved.2883  
The 1994 Agreement 
7.546  The same five governments concluded a very si milar agreement concerning the development, 
production and sales financing of the A330/A340 on 25 and 26 April 1994.2884  The Agreement 
comprised fourteen Articles covering essentially the sa me matters set out in the 1991 Agreement, but 
applying them to the A330/A340.2885  It identified each government's maximum expected financial 
contribution to the development project,2886 and prescribed that final amounts would be determined by 
the AIC, in the light of estimates obtained from Airbus Industrie.2887  Like all previous agreements, 
the 1994 Agreement stipulated that repayments of  the amounts advanced by the governments would 
                                                      
2876 Articulo 15.1. 
2877 Articulo 15.2. 
2878 Articulo 3.1, 3.5 and 12. 
2879 Articulo 3.1. 
2880 Articulo 3.2, 3.3 and 3.4. 
2881 Articulo 4. 
2882 Articulo 11 (AIC). 
2883 Article 9.1 (AIC). 
2884 Agreement between the Governments of the French Republic, the Federal Republic of Germany, 
the United Kingdom of Great Britain and Northern Ireland, the Kingdom of Spain and the Kingdom of Belgium concerning the program Airbus A330/A340 of 25/26 April, 1994  (the "1994 Agreement")  Exhibit US-28. 
2885 The Agreement is structured around the following eight chapter headings:  "General 
Considerations"; "Organization"; "D evelopment"; "Equipment"; "Production; "Financing of the export sales"; 
"Derived versions"; and "Final Dispositions". 
2886 Articulo 5. 
2887 Articulo 6.1. The funding amounts specified in the contract were to be readjusted following a re-
adjustment formula containing respective national indexes.  Article 6.2.  WT/DS316/R 
 Page 461 
 
BCI deleted, as indicated [***] 
 
  be made from aircraft sales revenues.2888  However, it did not specify the form or value of such 
repayments.   
7.547  Production was divided between the five national industries, to the extent possible, in 
proportion with each government's respectiv e contribution to development costs.2889  However, again, 
the costs of production of the A330/A340 were not financed under the Agreement, but left to the 
Associated Manufacturers.2890  As with the previous agreements , it was envisaged that outsourcing to 
enterprises in third countries would be possible.2891  Moreover, Airbus Industrie and the Associated 
Manufacturers were required to invite all competent suppliers, especially those based in the Signatory 
countries, to participate in possible equipment suppl y opportunities and to provide a list of the invited 
suppliers and the reasons underlying their eventual selection to the AEA.2892  The Agreement also 
prescribed that the governments of France, Germ any, Spain and the UK would support A330/A340 
export financing (the Spanish government's obliga tion being limited to purchases made by Spanish 
airlines).2893    Finally, the Agreement explained that c onsultations would be undertaken to decide the 
modalities for extending its provisions to derivatives of the A330/A340.2894 
7.548  In terms of organisational apparatus, the sa me committees identified in the 1991 Agreement 
were maintained for the purpose of implementing the governments' participation in the A330/A340 
project.2895  The AEA was again tasked with enteri ng into a Framework Agreement ("Acuerdo 
Marco") with Airbus Industrie GIE in order to give e ffect to all relevant provisions of the Agreement.  
The Framework Agreement was required to contai n: a commitment from Airbus Industrie that, 
together with the Associated Ma nufacturers, it undertook to satisfactorily complete the development 
of the A330/A340 and to obtain the necessary certif icates; a definition of development work and 
technical stages so that the AEA could supervise and evaluate the project's implementation; a commitment from Airbus Industrie to provide a docum ent, agreed with the A ssociated Manufacturers, 
which would define respective national contributions  to the development costs, as well as a calendar 
of predicted expenses; a commitment from Airbus I ndustrie to provide various pieces of information 
including all information necessary for the superv ision over the development programme, including 
its financial statement; a commitment from Airbus Industrie that it would immediately inform the 
AEA in the event of any change to the developm ent work; and the conclusion as soon as possible of 
contracts between Airbus Industrie and each of the Associated Manufacturers, by virtue of which the 
latter would share responsibility of Airbus Industrie before the AEA.
2896  Other particular tasks 
identified in the Agreement for the relevant co mmittees included monitoring the progress of the 
various phases of the project,2897 and consideration of claims rela ting to unbalanced distribution of 
production work.2898 
The 2003 Agreement  
7.549  The French, German, Spanish and UK governme nts entered into an agreement with 
Airbus SAS on 16 June 2003 setting out certain principles and obligations applicable to the four 
                                                      
2888 Articulo 8 ("The respective national contributions to development costs shall be reimbursed by 
Airbus Industrie from aircraft sales revenues"). 
2889 Articulo 10. 
2890 Articulo 11. 
2891 Articulo 7. 
2892 Articulo 9. 
2893 Articulo 12. 
2894 Articulo 13. 
2895 Articulo 3. 
2896 Articulo 4. 
2897 Articulo 11 (AIC). 
2898 Article 9.1 (AIC). WT/DS316/R 
Page 462  
BCI deleted, as indicated [***] 
 
  governments' continued support for Airbus LCA programmes.
2899  The Agreement's preamble 
describes its context in the following three recitals: 
"Having regard to the change in the structur e of Airbus to an integrated company and 
the investment of the Four Principal Airbus Countries in Airbus national companies; 
Having regard to the willingness of the Four Principal Airbus Countries to continue to 
provide support to Airbus such as la unch investment, research and technology 
investment and aircraft export sales financing; {and} 
Having regard to Airbus' willingness to provi de information to the Four Principal 
Airbus Countries for the purpose of enabling them to formulate policy relating to 
Airbus and to ensure that obligations in curred when support is provided are met". 
7.550  It then sets out an obligation on Airbus, upon request, to provide the AIC and/or AEC with 
various pieces of information "relating to Airbus and to the Airbus Programmes", defined as "the 
A380 programme, programmes launched on or after the date of this Agreement and their derivatives, 
and any other Airbus programmes not covered by specific Framew ork Agreements with Airbus".2900  
The Agreement states that the purpos e of the information transfer is  to enable "each of the Four 
Principal Airbus Countries to formulate policy in re lation to Airbus and to ensure that obligations 
incurred when support is provided are met".2901  A non-exhaustive list of ten pieces of information that 
must be provided on request is included, describing information such as "financial updates relating to 
each Airbus Programme and to the financial status  of Airbus", "reports on Airbus Programmes 
technical developments", "forecasts and effective airc raft sales detailed by customers and comparisons 
with aircraft sales of Airbus' competitors",  and "Airbus' business and product development 
strategy".2902  A series of provisions are also included relating to confidentiality.2903 
7.551  Unlike previous inter-governmental agreemen ts, the 2003 Agreement does not concern any 
one particular Airbus LCA development project.  It s main focus is the A380, but other unspecified 
projects launched on or after the date of the Agreem ent and their derivatives were also covered.  In 
addition, other Airbus projects not dealt with unde r specific Framework Agre ements concluded prior 
to the 2003 Agreement also fell within its scope.2904  The Agreement takes note of the four 
governments' willingness to continue to support Airbus LCA developmen t with "launch investment".  
While it does not define "launch investment", the re ferences to past Airbus  LCA development projects 
strongly suggests that what is intended is LA/MSF in the terms we have previously described.  
However, it is clear that no commitment is made by the governments to provide "launch investment" 
for any particular model of LCA.   
7.552  As far as the A380 is concerned, the United States asserts that the Airbus governments had 
already decided at the end of 2000 to support its de velopment by means of LA/MSF.  To substantiate 
its assertion, the United States points to a press release dated 15 March 2002 issued by the French 
Ministre de l'Equipement, des Transports et du Logement.  This press release in part reads: 
                                                      
2899 Agreement of 16th June 2003 signed at Paris-Le Bourget between the Ministers of the Four 
Principal Airbus Countries and Airbus , Exhibit US-122 (BCI). 
2900 Articles 1 and 3. 
2901 Article 3.1. 
2902 Article 3.2. 
2903 Article 6. 
2904 We understand the latter to be a reference to th e Framework Agreements that were called for under 
prior inter-governmental agreements be tween the AEA and Airbus Industrie.  WT/DS316/R 
 Page 463 
 
BCI deleted, as indicated [***] 
 
  "Agreement on the financing of the Airbus A380 
Jean-Claude Gayssot welcomes the signing of the protocol under which the State will 
advance EUR 1,213 million to Airbus France for the development of the future A380 
LCA. 
For France, this signature is the realization of the decision taken at the end of the year 
2000 by the various European countries con cerned to support this programme in 
proportion to their respective industries' involvement in the development of the new aircraft.  
The advance is granted at market rate and will be repayable as the aircraft are 
delivered.  This financing therefore co mplies with all the provisions of the 
European/US agreement of July 1992 gove rning support for over-100-seater aircraft 
programmes ...".
2905 
7.553  The United States considers that the underlined  part of the above press release evidences the 
existence of an accord between the Airbus gove rnments on the provision of LA/MSF for the A380.  
The United States notes that during the Annex V process, the European Communities denied the 
existence of any such agreement,  and "did not attempt to resolv e the discrepancy between their 
assertion and the French Transport Ministry's press release".2906 
7.554  In terms of the A350, the United States argu es that the Airbus governments committed to 
providing LA/MSF for this project by the time this panel had been established.   However, we have 
concluded elsewhere that the United States' asser tion cannot be substantiated on the basis of the 
evidence and arguments before us.2907 
Airbus Ministers Conference 
7.555  The United States argues that the Airbus Ministers Conference is part of the inter-
governmental institutional structure established "t o operate for the sole and express purpose of 
administering the Launch Aid Program".2908  However, the United States has advanced no evidence or 
additional arguments to explain exactly how it co nsiders this body operates as a matter of fact.  
According to the European Communities, the Airbus  Ministers Conference is a "meeting held at the 
annual aircraft shows in Le Bourget, Berlin  and Farnborough" where Ministers from France, 
Germany, Spain and the UK meet "to discuss a range of topics with Airbus officials – such as the company's financial condition, the status of exis ting LCA programmes, and plans for future Airbus 
LCA".
2909  While the European Communities has also no t submitted any evidence to substantiate its 
factual assertions, the United States appears to accept this aspect of th e European Communities' 
explanation of the Airbus Ministers Conference functions.2910  On the other hand, the United States 
does not accept the European Communities' contenti on that neither the provision of LA/MSF nor its 
terms and conditions are discussed or coordinated in this body.2911   
                                                      
2905 Press Release, Accord pour le Financement de l'Airbus A380 , French Ministry of Transport 
(15 March 2002), Exhibit US-45, (underline added). 
2906 US, FWS, footnote 84. 
2907 The United States' assertion that the Airbus governments had committed to providing LA/MSF of 
the A350 is examined at paras. 7.296 and 7.314 of this Report above. 
2908 US, SNCOS, para. 43. 
2909 EC, Answer to Panel Question 172. 
2910 US, Comments on EC Answer to Panel Question 172. 
2911 EC, Answer to Panel Question 172; US Comme nts to EC, Answer to Panel Question 172. WT/DS316/R 
Page 464  
BCI deleted, as indicated [***] 
 
  Overall assessment of the inter-governmental institutional structures 
7.556  The European Communities asserts that none of the inter-gove rnmental institutions identified 
by the United States provide LA/MSF or fix its terms.
2912  Moreover, according to the European 
Communities, the provision of LA/MSF or its te rms and conditions are never discussed by the EC 
member States governments in the various fora.  The European Communities describes the present-
day function of the AIC, which it notes meets twice pe r year, as a "forum for Airbus GIE/SAS and the 
member States to exchange information on a range of  issues" including Airbus' financial status, sales 
financing, technical developments, export credits, avia tion emissions and air traffic.  It explains that 
"in some cases, the AIC may work with Airbus GIE/SAS to allocate development work (known as 
'work share') with respect to specific LCA programmes."2913  It also asserts that the role of the AEC 
has steadily declined since the late 1980s, and that  its functions have now largely been subsumed 
within the AIC.2914  As regards the AEA, the European Communities discloses that it is today 
"defunct", and that the Framework Agreements it used to negotiate with Airbus Industrie on behalf of 
the AEC are no longer concluded.  Similarly,  the European Communities describes the Airbus 
Ministers Conference as a meeting held once a year  between Ministers from the France, Germany, 
Spain and the UK, to discuss "a range of topics with Airbus officials – such as the company's financial conditions, the status of existing LCA progra mmes, and plans for future Airbus LCA".
2915  Finally, the 
European Communities alleges that  the Permanent Working Group for Sales Financing has no nexus 
with LA/MSF loans, as it addresses issues relating to  aircraft sales financing and export credits.2916 
7.557  According to the United States, the functions of the institutional fora identified by the 
European Communities support the existence of a LA/MSF Programme with the precise content it has 
defined because they all "facilitate the ultimate d ecisions by the Airbus governments to provide 
Launch Aid and on what terms".2917  The United States emphasizes that "{e}ven if the EC were 
correct in its assertions {that the inter-governmental  entities do not decide whether to grant LA/MSF 
or its terms}", the European Communities has its elf confirmed that they "provide the support 
necessary for the responsible officials to make" su ch decisions, thereby supporting the existence of 
the alleged LA/MSF Programme.2918  
7.558  We are not persuaded by the United States' argu ments.  Since their creation in 1969, the inter-
governmental institutions have played a role in admi nistering the EC member States' participation in 
Airbus LCA development projects.  However, this role has varied between different LCA projects in 
both substance and form, becoming increasingly lim ited.  For instance, whereas the Committees' 
functions in respect of the earliest projects covered aspects including entering into Framework 
Agreements and the establishment of "modalities" th rough which to monitor the execution of specific 
repayment provisions; by the time of the A380, the role of the Committees that continued to exist2919 
was reduced to essentially the exchange of informati on.  Indeed, the role of the Committees in the 
development of the A380 was not prescribed in any inter-governmental ag reement because no inter-
governmental agreement was ever concluded for th e A380.  Instead, an agreement requiring the 
exchange of information between Airbus and the AIC and/or AEC was conclu ded between the Airbus 
governments and Airbus SAS.   
                                                      
2912 EC, Answer to Panel Question 172. 
2913 EC, Answer to Panel Question 172. 
2914 EC, Answer to Panel Question 172. 
2915 EC, Answer to Panel Question 172. 
2916 EC, Answer to Panel Question 172. 
2917 US Comments and EC, Answ er to Panel Question 172. 
2918 US Comments and EC, Answ er to Panel Question 172. 
2919 We note that the United States has not contested the European Communities' assertion that the 
AEA is "now defunct".  WT/DS316/R 
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  7.559  Over time, participation in the Committees has also fluctuated.  Although invited,2920 the UK 
government did not initially participate in the Committees for the purpose of the A300 project.  The 
UK government was only afforded representation on the Committees in 1979, when it joined the 
governments of Spain and the Netherlands, each respectively represented in the AIC since 1970 and 
1971.  Subsequently, the government of Belgium jo ined the A310, A320 and A330/A340 projects, 
contributing development funds on the same terms ag reed with other participants in the respective 
inter-governmental agreements, and accordingly recei ving representation on at least two of the three 
Committees.  On the other hand, the government of  the Netherlands did not participate in projects 
after the A310, and its representation on the Committees was limited accordingly.  Thus, at most, the 
evidence before us suggests that if the Committ ee's operations point to the existence of any 
"Programme" of support, it would be a Programme involving the governments of Belgium (which was 
granted essentially the same voting rights as Spain in  respect of the A320 and A330/A340 projects) 
and the Netherlands. 
7.560  The agreements at issue say nothing about whether the three Airbus Committees were 
involved in the development of the A330-200 a nd the A340-500/600, two models which received 
LA/MSF, and therefore according to the United States ' own description, models that must fall within 
the scope of the alleged LA/MSF Programme.2921  Likewise, there is no evidence indicating that the 
Committees or the Airbus Ministers Conference were involved in Airbus' launch of the A350.  Indeed, 
we have already concluded that the United States h as failed to demonstrate that any commitment to 
provide LA/MSF for this LCA model had been made by the Airbus governments by the time of the 
establishment of this Panel.2922 
7.561  Like the European Communities, we see no a pparent connection between the Permanent 
Working Group for Sales Financing and the provisi on of LA/MSF or the existence of the alleged 
LA/MSF Programme.  Moreover, on the basis of the ev idence that is before us, we cannot conclude 
that the Airbus Ministers Conference is more th an what the European Communities says it is – a 
forum where information is exchanged between the Airbus governments and Airbus executives.  
While we have some sympathy with the United St ates' view that "it is implausible that the 
governments and Airbus meet at least three times each year to discuss matters including 'the company's financial status' but never discuss the provision of billions of Euros of government 
financing representing one-third of the cost of developing an LCA model",
2923 the United States has 
pointed to no evidence that directly substantiates its  position.  In any case, even if there were evidence 
demonstrating that the Airbus governments "discu ss" the provision of LA/MSF loans in the Airbus 
Ministers Conference, the weight given to such evidence would depend upon to extent to which it 
could substantiate the precise content of the alle ged unwritten LA/MSF Programme.  In other words, 
evidence of mere discussions on the provision of LA /MSF would not alone establish the existence of 
the unwritten LA/MSF Programme defined by the United States. 
7.562  Finally, we note that the scope of the inter- governmental agreements that were the source of 
the Airbus Committees' existence, mandates and ope rations, went beyond the provision of LA/MSF 
for the purpose of LCA development.  The Agreem ents also covered LCA production, outsourcing of 
development and production work, equi pment supplies, sales financing, and in some cases, rules on 
the purchase of engines and commitments to purchase LC As.  Thus, contrary to the submission of the 
United States, the Airbus Committees were not create d or continued for "the sole and express purpose 
of administering the Launch Aid Program".  If, in fact, the Committees do have a "sole" purpose, it 
                                                      
2920 See, preamble of the 1969  A300 Agreement. 
2921 Although Articulo 13 of the 1994 Agreement provided that consultations would be undertaken to 
decide the modalities for extending its provisions to derivatives of the A330/A340, the United States has not 
argued or advanced any evidence sugge sting that any such consultations or extension actually took place. 
2922 See, para. 7.314 above. 
2923 US, Comments on EC Answer to Panel Question 172. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  could perhaps be better characterized as the gene ral management and administration of the varying 
participation of individual EC member States in Airbus LCA development on a project-by-project basis. 
National Bureaucracies
 
7.563  The United States asserts that the Airbus gove rnments maintain "ded icated bureaucracies" 
that perform the administrative tasks involved in maintaining the LA/MSF "system" and which 
coordinate the provision of LA/MSF to Airbus.  In th e case of France, the United States argues that "a 
special unit" exists (the "cellule d'avions de tr ansport de plus de 100 places") in the "Direction des 
Programmes Aéronautiques Civils", which monitors Airbus and the LA/MSF "system"; participates in 
the inter-governmental institutions; and admi nisters the provision of LA/MSF to Airbus.2924  In 
Germany, the United States asserts that the office of the Coordinator for the Aerospace Industry and 
for Aeronautics Research, within the Federal Mini stry of Economics and Technology, is responsible 
for administering the LA/MSF "system".2925  In Spain, the United States points to the Ministry of 
Science and Technology, which it contends is r esponsible for administering the "'system of 
reimbursable advances'" and participating in the "'Council of Ministers of the four countries, the 
{Airbus} Executive Committee and the other bodies that manage and coordinate the system'".2926  
Finally, the United States argues that the "UK Laun ch Aid system" is administered by the "aerospace 
team" located within the Aerospace and Defence Unit of the Department of Trade and Industry.  The 
United States contends that this Unit is responsible  for "'relations with civil aerospace companies, and 
launch investment'".2927    
7.564  According to the European Comm unities, the "cellule d'avions de transport de plus de 100 
places" that exists within the Direction des Progra mmes Aéronautiques Civils ("DPAC") consists of 
one staff member.  DPAC functions within the Di rection Générale de l' Aviation Civil, and is 
responsible for international co-operation in aeron autics and civil aviation, air safety, air traffic 
management, R&T for the aerospace sector a nd external communications.  The European 
Communities asserts that the single staff member working in the "cellule d'avions de transport de plus 
de 100 places" passes 40% of his time on matters relating to LA/MSF loans for Airbus, with the 
remainder being devoted to a range of policy and other issues relating to the LCA industry.2928  In 
Germany, the European Communities explains th at the "aerospace industry and technology" unit 
within the Coordinator for Aeronautics and Spa ce, is responsible for various tasks including 
evaluating requests for government financing such as LA/MSF and export credits, providing 
information to Parliament and the public on aer onautics matters, administering existing financing 
instruments, implementing the federal R&T progra mme, and addressing an array of issues relating to 
national and international air transport.  The European Communities states that 10 staff members work in this unit, with two devoting approximate ly 30% of their time to the LA/MSF loans provided 
to Airbus and other entities.
2929  In Spain, the European Communities asserts that approximately 50% 
of the work carried out by one of eight staff member s in the Aeronautics Department of the Centre for 
the Development of Industrial Technology ("CDIT") , located within the Ministery of Industry, 
Tourism and Trade, relates to LA/MSF loans for Airbus.  The European Communities notes that the 
CDIT is responsible for the promotion of R&D activities in all sectors of the economy.2930  Finally, 
the European Communities explains that out of a to tal of 18 staff working for the Aerospace, Marine 
and Defence unit of the UK Department of Bu siness, Enterprise and Regulatory Reform, the 
                                                      
2924 US, FWS, para. 97; US, SNCOS, para. 44; US, Answer to Panel Question 137; Exhibit US-50. 
2925 US, FWS, para. 99; Exhibit US-34. 
2926 US, FWS, para. 100; Exhibit US-54. 
2927 US, FWS, para. 98; Exhibit US-52. 
2928 EC, Answer to Panel Question 172. 
2929 EC, Answer to Panel Question 172. 
2930 EC, Answer to Panel Question 172.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  equivalent time of 1.4 staff members is spent on LA/MSF loans for Airbus, and 1 staff member on 
LA/MSF loans for other entities.  In addition to va rious forms of government support to the aerospace 
industry, the Aerospace, Marine and Defence unit is  responsible for aviation emission issues, military 
and marine procurement, industrial and strategic planning and aerospace research.2931   
7.565  The European Communities considers that it is not  surprising to find that the member States 
act through "bureaucrats" when fulfilling their obliga tions under the LA/MSF contracts.  In this sense, 
the European Communities describes th e role of the national bureaucrats as "no different than that of 
the 'dedicated' loan officers at a bank", declaring th at "the fact that banks have employees dedicated to 
considering loan requests and reviewing the on going performance of existing loans does not say 
anything about the terms on which those loans are pr ovided, or suggest that future loans will be 
conferred to the same recipient".2932  Thus, the European Communities explains that the essence of the 
functions of the national bureaucrats is to administ er and monitor LA/MSF loans to all recipients, not 
only those provided to Airbus.  According to the European Communities, this involves reviewing requests for development cost reimbursement; ensu ring that disbursements occur on time and in 
accordance with contractual terms; processing repa yments; and analyzing technical and commercial 
information provided by recipients, in line with the loan contracts.  The European Communities 
emphasizes that the bureaucrats serve only to unde rtake these functions, conduct analyses and make 
recommendations.  They do not decide whether to provide LA/MSF to Airbus.
2933 
7.566  The evidence and arguments submitted by the pa rties on the existence and functions of the 
alleged "dedicated bureaucracies" makes clear that each of the four Airbus governments currently 
direct a limited amount of resources within their national civil service to th e task of managing their 
participation in Airbus' LCA development projects th rough LA/MSF.  In our view, it is not surprising 
to find civil servants managing and monitoring th e implementation of the LA/MSF contracts.  As the 
lending contractual party, each government providing LA/MSF will want to ensure that its decisions 
are well informed, obligations maintained and rights en forced.  The fact that each of the four Airbus 
governments go about doing so by engaging their r espective national civil ser vants does not, in our 
view, provide support for the existence of th e unwritten LA/MSF Programme the United States 
describes.  The resources the four EC member States have allocated are not exclusively dedicated to LA/MSF for Airbus, and it is clear that this is not  the focus of the administrative entities housing the 
relevant bureaucracies.  Moreover, there is nothing in  the evidence to indicate that the relevant civil 
servants co-ordinate their actions, or assist in co -ordinating the actions of their governments, in 
respect of LA/MSF provided to Airbus.  Neither is  it apparent from the evidence and arguments that 
they participate in any "system" of LA/MSF.  Thus , while the existence of bureaucrats involved in 
managing each government's participation throu gh LA/MSF in Airbus' LCA development activities 
does not contradict the existence of the allege d unwritten LA/MSF Programme, we consider that, on 
its own, this fact provides little, if any, support for the United States' position. 
Statements by EC, EC member State and Airbus officials and employees
 
7.567  The United States submits that various statemen ts made since 2000 by the EC member States, 
the European Commission and Airbus officials confirm the existence of the challenged LA/MSF 
Programme.2934  In particular, the United States id entifies the following statements by: 
                                                      
2931 EC, Answer to Panel Question 172. 
2932 EC, Answer to Panel Question 172. 
2933 EC, Answer to Panel Question 172. 
2934 US, FWS, paras. 102-104. WT/DS316/R 
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  French President Jacques Chirac, January 2005 –  
"The A380 is the success of European industrial policy, which has 
helped make Airbus the world's leading aircraft manufacturer", 
reported in Aviation Week & Space Technology, 
24 January 2005.
2935  
British Prime Minister Tony Blair, January 2005 (same day as President Chirac) – 
"The A380 is the result of unprecedented co-operation between the 
four countries ... ", reported in Airbus Press Release dated 18 January 2005.
2936 
European Commission, 19 January 2005 – 
"... for the EU, the A380 represents the fruit of European state-level 
co-operation"2937 
UK Secretary of Trade and Industry, Stephen Byers, 2000 – 
"This is the largest ever Government investment in a project of this 
kind, and reflects our approach to industrial policy.  We are not 
standing to one side and leaving everything to the market, nor intervening to prop up failing industries ... ", reported in Daily Record, 14 March 2000.
2938 
European Commission, October 2003 – 
"However, the member States will retain a crucial responsibility for 
providing support in terms of R&D programmes, repayable launch 
aid and contributions to ESA programmes, as well as remaining the industry's major customers through defence procurement."
2939 
European Commission, May 2005 – 
"In the view of the Commission, the launch investment is WTO legal 
and as things stand it is part of the commercial landscape for aircraft 
development in the EU", reported by Agence France Press, 19 May 2005.
2940 
French Transport Minister, Gilles de Robien, May 2005 – 
 "The French state has given its financial support to the A380 
programme and we expect to continue in this vein thanks to the help 
of the European Union which is using all means at its disposal 
                                                      
2935 Exhibit US-58. 
2936 Exhibit US-44. 
2937 Exhibit US-43 
2938 Exhibit US-64. 
2939 Exhibit US-59. 
2940 Exhibit US-60.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  against American pressure", reported by AFX News Limited, 
24 May 2005.2941 
EADS spokesman, Rainer Ohler, June 2006 – 
"'As far as we can see, the negotiati ons have not led to anything,' ... 
He stopped short of saying that Airbus would request the aid – which 
could run into billions of euroes – but called the money 'indispensable' for establishing what he called a level playing field with Boeing. 'Launch aid is the only available system right now', he said", reported in International Herald Tribune, 19 June 2006.
2942 
Airbus Ministers, 24 July 2006 – 
"reaffirmed their agreement to support Airbus to continue to innovate 
and to develop programmes in the context of international competition."
2943 
French Prime Minister, Dominique de Villepin, 2006 – 
On the role of the state in EADS, "{the state is there} to defend a 
strategic long term vision, which is  guarantor of jobs and economic 
dynamism of the company.  I can ensure you that the State will fully play its part", reported in La Dépêche du Midi, 14 November 2006.
2944  
Airbus CEO, Louis Gallois, March 2007 –  
"We are not putting away refundable launch investment" (in the 
context of the A350XWB), reported by AFP.2945 
7.568  The European Communities rejects the United States' reliance on these statements, arguing 
that they do not demonstrate the four EC member State governments adopted any rules of general and 
prospective application governing the grant of LA/MSF, and thus any unwritten LA/MSF 
Programme.2946 
7.569  A first observation that may be made in respect of  the above statements is that none contains 
any explicit reference to the existence of any type of unwritten LA/MSF Programme.  Second, the 
particular context of each statement is, for the most part, either the A380 or the possibility of LA/MSF for the A350.  So, for example, the statements ma de by the UK Secretary of Trade and Industry, 
Stephen Byers, and the French Minister for Trans port, Gilles de Robien, relate to the respective 
government's decisions to provide LA/MSF for one project – the A380.
2947  Likewise, the statements 
made by President Chirac, Prime Minister Blair and the European Commission referring to "European 
                                                      
2941 Exhibit US-61. 
2942 Exhibit US-62. 
2943 Exhibit US-63. 
2944 Exhibit US-638, English translation provided by the United States. 
2945 Exhibit US-449. 
2946 EC, Comments on US Answer to Panel Questions 136 and 137. 
2947 The declaration made by Louis Gallois, Airbus CE O, that Airbus was "not putting away refundable 
launch investment" can be viewed in a similar light, name ly, as a statement that Airbus considered LA/MSF to 
be a possible source of financing for one project – the A350. WT/DS316/R 
Page 470  
BCI deleted, as indicated [***] 
 
  industrial policy", "unprecedented co-o peration between the four countries"
2948 and "the fruit of 
European state-level co-operation"2949 do not suggest the existence of any coordinated system of 
LA/MSF funding for Airbus LCA projects.  Rather, th ey simply disclose that four EC member State 
governments co-operated with each other for the purpose of realizing one project – the A380.  
Moreover, these statements do not single out the pr ovision of LA/MSF by each individual member 
State as the tool through which they cooperated.  Indeed, given the variety of support measures taken 
for the A380 by each of the four EC member States2950, it is quite plausible that what the authors of 
the statements had in mind was co-operation in th e sense of support, in all its guises, for the A380.  
We see the reaffirmation of the Airbus governments'  "agreement to support Airbus to continue to 
innovate and to develop programmes in the context of international competition" in essentially the 
same light, that is, as a statement expressing ongoing support, in general, for Airbus LCA 
development projects.  Thus, at most, the above statements seem to reflect only a shared desire to support the A380 and A350 projects and Airbus' LCA business in general. 
7.570  The European Commission's 2003 observation that "member States will retain a crucial 
responsibility for providing support in terms of  R&D programmes, repayable launch aid and 
contributions to ESA programmes, as well as re maining the industry's major customers through 
defence procurement"
2951 was made in the context of a Communication expressing the Commission's 
point of view on how the EU could play a role in  fostering an improved environment for the purpose 
of enhancing the operation of the EC aerospace industry in genera l.  In terms of LA/MSF, the 
Communication notes only that, in the Commission's vision, the EC member States would "retain a 
crucial responsibility for providing" "repayable launch  aid".  To read this statement as support for the 
existence of the unwritten LA/MSF Programme describe d by the United States would, in our view, be 
stretching its intended meaning beyond what may be  reasonably inferred from its plain language and 
context.  Similarly, the statement made by French  Prime Minister, Dominique De Villepin, quoted by 
the United States, was made in r esponse to a question asking him wh ether, in the light of recent 
setbacks, the French government would use its repr esentative on the board of EADS to exercise more 
rigorous control.2952 In this light, it is difficult to understand the French Prime Minister's statement as 
providing any support at all for the existence of  the alleged unwritten LA/MSF Programme measure. 
7.571  Finally, the statements that perhaps do lend a degree of support to the United States' factual 
assertion, in the sense that they could be underst ood to be consistent with the existence of an 
unwritten LA/MSF Programme measure,  without substantiating its existence, are those made by the 
EC Commission and the EADS spokesman identifying LA/MSF as "part of the commercial landscape 
for aircraft development in the EU" or "the only av ailable system right now'".  However, because the 
time horizon of the "commercial landscape" or "system" considered in these statements is not revealed, it is difficult to attribute to them  any positive probative value for the purpose of 
substantiating the United States' allegations. 
Perceptions of Credit Rating Agencies
 
7.572  The United States submits that the existence of  the LA/MSF Programme is also evidenced by 
what it asserts is the fact that credit rating agenci es see it as an established feature of the financial 
                                                      
2948 Exhibit US-44. 
2949 Exhibit US-43. 
2950 Apart from LA/MSF for the A380, other support measures applied by the four EC member States 
that are the subject of th is dispute include various research and development grants, the provision of 
infrastructure and one loan from the European Investme nt Bank.  The United States complaint against these 
measures is evaluated in the following sections of this Report. 
2951 Exhibit US-59. 
2952 Exhibit US-638 ("In the light of recent setbacks, will the State use its repres entative on the board of 
the aeronautic and defence group to exerci se more rigorous control over EADS?")  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  landscape that informs their projections of Airbus' financial health.2953  In particular, the United States 
points to the following statements made by: 
Moody's, 15 March 2002 –  
"The new rating also reflects the forecast that Government support in 
the form of refundable advances will continue for the development 
programs of Airbus for up to 1/3 of the development cost of each new aircraft program; thus offsetting some of the pressure on the company's cash flows over the near-term".
2954 
Moody's, 6 February 2003 –  
"EADS's A3 long-term debt rating reflects the leading worldwide 
market positions held by several of its businesses, as well as the company's strong balance sheet, wh ich should remain solid during 
the current severe downcycle in the commercial aircraft market.  The rating also considers the expect ation for continuing government 
support, which is primarily in the form of refundable advances for up 
to 1/3 of the development cost of  each new aircraft program on the 
Airbus level."
2955 
Moody's, 9 March 2007 –  
"Moody's considers EADS as a Government Related Issuer (GRI) 
and as part of its rating review has increased the level of support for 
EADS to High from Medium.  The change in the support assessment 
reflects the higher degree of government support for EADS that has become evident in the course of the company's current financial challenges. ... "
2956 
Moody's, 12 March 2007 – 
"Moody's has raised the level of potential support from medium-high 
to high to reflect the accumulation of indices that Airbus is perceived as economically, socially and politically critical for a wide range of stakeholders" noting "an entren ched inclination for state 
protection".
2957 
Fitch Ratings, 15 November 2006 –  
"With the A380 delays significantly reducing cash generation, and 
the deferrals and cancellations to fu rther reduce it, combined with the 
buyout of BAE and the increased co sts associated with designing the 
all-new A350XWB versus the origin al A350 concept, Airbus may be 
forced to seek additional launch aid for the A350XWB.  In a vacuum, 
additional launch aid would be viewed favourably from a credit 
                                                      
2953 US, FWS, para. 104; US, FNCOS, paras. 24-25; US, SNCOS, para. 46;  US Answer to Panel 
Question 137. 
2954 Exhibit US-57. 
2955 Exhibit US-56. 
2956 Exhibit US-464. 
2957 Exhibit US-450. WT/DS316/R 
Page 472  
BCI deleted, as indicated [***] 
 
  perspective, as well.  Unfortunate ly, the continuing trade dispute 
between the United States and the EU regarding Boeing and Airbus 
subsidies continues, and additional launch aid to Airbus would only 
increase tensions and reduce the likelihood of a negotiated 
settlement".
2958 
Credit Suisse, 15 June 2006 –  
"Airbus is the second largest civil ai rcraft manufacturer after Boeing, 
with a market share within the range of 50% and rising.  Supported by a European government launch aid, Airbus has developed an 
extremely competitive product range, competing with Boeing in all 
segments..."
2959 
7.573  The European Communities argues that the credit rating agencies' statements do not support 
the existence of the unwritten LA/MSF Programme de fined by the United States because they do not 
take into account the specific terms of individual LA/MSF contracts.  In its view, the credit rating 
agencies' statements represent br oad assessments of LA/MSF without any consideration of its precise 
details,2960 that express an expectation that past individual instances of "government support" might be 
repeated in the future.2961  However, the European Communities considers that an expectation that 
past government action might be repeated in the future does not demonstrate the existence of a 
general rule taking the form of the unwritten LA /MSF Programme challenged by the United States.  
7.574  We find the above statements provide little, if any, support for the existence of the unwritten 
LA/MSF Programme defined by the United States.  Fi rst, we note that two of the statements do not 
even mention LA/MSF.  In particular, the two Moody's statements made in 2007 indicate only a 
general expectation of government support  for EADS and Airbus.  As we have previously noted,   
LA/MSF is but one of the instruments used by th e EC governments to support Airbus' LCA business.  
Moreover, it would not be unreasonable to read th e Moody's statements as referring to support from 
all EU public entities, not only the governments of France, Germany, Spain and the UK.  Certainly, 
there is no indication that their focus was limited to support provided only by these four governments.  To the extent that the other statements do mention LA/MSF, we agree with the European 
Communities that the fact that the credit rating agen cies and Credit Suisse could not have been aware 
of its precise details, and in particular, the extent  to which any contract may involve below-market 
interest rate terms, reduces their probative valu e.  Because LA/MSF does not involve non-commercial 
financing by definition, it does not automatically follow that the statements should be understood as 
referring to LA/MSF on the same four "core" terms identified by the United States.  In any case, as 
regards the two Moody's statements from 2002 and 2003, the perception articulated is that LA/MSF 
would continue for "each new aircraft program".
2962  It is a forward looking assessment, that does not 
address whether or not instances of LA/MSF received in the past were part of a broader unwritten 
LA/MSF Programme.  Similarly, the Fitch Ratings statement speculates only that additional  LA/MSF 
might be a possibility for the A350.  Finally, the statement from Credit Suisse  simply observes that 
the Airbus family of LCA was developed with the support of LA/MSF.  The statement does not reveal 
or suggest whether LA/MSF support was provided individually by the relevant EC member States or through the application of any kind of LA/MSF Pr ogramme.  Thus, we do not consider the Credit 
Suisse statement to demonstrate a perception that the four relevant EC member States have acted 
through the unwritten LA/MSF Programme measure th at is challenged by the United Sates.   
                                                     
 
2958 Exhibit US-451. 
2959 Exhibit US-465. 
2960 EC, SWS, paras. 111-112. 
2961 EC, Comments on US Answer to Panel Questions 136 and 137. 
2962 Emphasis added.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  (ii) Conclusion  
7.575  We have explained that in order to establis h the existence of the alleged unwritten LA/MSF 
Programme it has described, the United States must dem onstrate at least its precise content, that it is 
attributable to governments of France, Germany,  Spain and the UK, and that it has general and 
prospective application.2963  Although the United States argues th at the Panel need not necessarily find 
that the alleged LA/MSF Programme has general and prospective application in order to establish its 
existence,2964 we recall that the United States has e xplicitly described the challenged LA/MSF 
Programme as a measure that "' creates expectations among the public and among private actors', 
demonstrating that it has 'normative value'".2965  In other words, the alleged "normative value" of the 
challenged LA/MSF Programme is a central element of the alleged measure that the United States 
describes.  In our view, this alleged "normative valu e" must therefore be demonstrated as a matter of 
fact in order for us to find in favour of the United States.   
7.576  Overall, having carefully reviewed and consid ered the evidence and arguments advanced by 
the United States, we are not convinced that the Un ited States has met the "high threshold" that must 
be overcome in order to establish the existen ce of the alleged unwritten LA/MSF Programme.  
7.577  Individually, no piece or category of evidence relied upon by the United States positively 
demonstrates the existence of the alleged unwr itten LA/MSF Programme.  Some pieces of evidence 
appear not to be inconsistent with the existence of an unwritten Programme of the kind described by 
the United States.  However, other evidence is clearly contradictory.  Thus, while the facts 
surrounding the development of Airbus LCA show a history and general policy to support Airbus 
through LA/MSF, this support has not always been expressed by the same four EC member States or 
for the same LCA projects.  Likewise, the institu tions created under the first inter-governmental 
agreements to manage the different  Members' participation in vari ous Airbus LCA projects have at 
different times involved fewer or more countries th an the four EC member States the United States 
asserts systematically operated the unwritten LA /MSF Programme.  Importantly, the functions of 
these institutions evolved over the years, becoming more limited by the time of the A380.  Apparently 
the institutions were not used at all to mana ge LA/MSF provided for the A330-200 and A340-500/600 
projects.   
7.578  As we have previously explained, the eviden ce and arguments advanced by the parties do not 
lead us to conclude that LA/MSF, by definition, involves below-market financing.  Therefore, in our view, it cannot be concluded with the degree of certa inty needed to overcome the "high" evidentiary 
threshold that the United States must satisfy that  any LA/MSF granted in the future will involve non-
commercial interest rates.  In addition, we note that several of the statements relied upon by the 
United States evidence a general perception that Ai rbus has been and will be supported in its LCA 
operations by the EC member States.  However, in our view, a perception that government support 
will be available for Airbus does not prove that th is support will be implemented by means of the 
unwritten LA/MSF Programme described by the United St ates.  Moreover, it is less than clear that the 
temporal horizon of many of the statements referre d to by the United States covered all Airbus LCA 
projects since 1969.  Indeed, many of the statements  were expressly focussed on only the A380 or the 
A350.   
                                                     
 
2963 See, paras. 7.514 - 7.521 above. 
2964 US, Answer to Panel Question 136. 
2965 US, FNCOS, para. 25, citing Appellate Body Report, US – Oil Country Tubular Goods Sunset 
Reviews , para. 187.  See also US, SNCOS, para. 36, and US, FWS, para. 106, where the United States concludes 
that "{i}n the light {of the evidence}, the specific content of {the} Launch Aid program and the future conduct 
it will entail  is clear".  (Emphasis added). WT/DS316/R 
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  7.579  Thus, for all of the above reasons, we find that  the totality of the evidence and arguments the 
United States has advanced does not demonstrat e the existence of the alleged unwritten LA/MSF 
Programme.   
7.580  Had we found that the United States did not ha ve to establish the general and prospective 
application of the alleged unwritten LA/MSF Pr ogramme, our conclusion would be the same – 
namely, that the United States has not demonstr ated that such an unwritten LA/MSF Programme 
exists.  First, we note that in general terms, a "programme" may be described as a planned series of 
events.  Thus, we query whether a "programme" of any kind can exist without having general and 
prospective application.  Second, it is not entirely clear to us what the Un ited States means when it 
argues that the evidence it has adduced supports the existence of an unwritten LA/MSF Programme 
that is not of general and prosp ective application.  If the focus of the United States' position is the 
repetition of the same government acti on over a limited period of time, ( i.e., the Airbus governments' 
provision of LA/MSF to Airbus, whenever sought, on the same four core terms between 1969 and 
2002), we recall our view that the mere repetition of the same government action over time does not 
necessarily demonstrate that the government acted pursu ant to a rule that applied generally over that 
same period.
2966  Moreover, there is evidence that points to the non-existence of any such unwritten 
LA/MSF Programme, including: the fact that between 1969 and 2002 the same four EC member 
States did not always participate, or participated  with other EC member States, in Airbus LCA 
projects funded through LA/MSF; the evolving role and function of the inter-governmental 
institutions; and the fact that the latter were not  apparently used for the purpose of the LA/MSF 
provided for the A330-200 and A340-500/600.  Thus , on the basis of our understanding of the United 
States' argument, we find that the facts do not substantiate its claim. 
7.581  Having concluded that the United States has not  demonstrated the existence of the alleged 
unwritten LA/MSF Programme, we need not evaluate  the United States' claims that the alleged 
Programme is a subsidy that causes adverse effects to  its interests within the meaning of Article 5 of 
the SCM Agreement.  Accordingly, we dismiss the United States' complaint against the alleged 
unwritten LA/MSF Programme.  
4. Whether LA/MSF for the A380, A340-500/600 and the A330-200, constitutes, in each 
case, a prohibited export subsidy within the meaning of Article 3 of the SCM Agreement 
(a) Arguments of the United States 
7.582  The United States claims that the LA/MSF cont racts for the A380, the A340-500/600 and the 
A330-200 constitute prohibite d subsidies under Article 3 of the SC M Agreement.  In particular, the 
United States submits that each of these instances of  LA/MSF involves a subsidy that is contingent, 
both in law and in fact, upon anticipated export perf ormance within the meaning of Article 3.1(a) and 
footnote 4 of the SCM Agreement, and therefore, pursuant to Article 3.2 of the SCM Agreement, 
must not be granted or maintained.  According to the United States, irrespective of whether its claim 
is viewed as one of in law or in fact export conti ngent subsidies, the elements are the same: the EC 
member State governments provide subsidies in the form of financing for the development of LCA 
models on terms that are better than what Airbus  could obtain in the market; these subsidies are 
provided through contracts in which funding is tie d to Airbus making repayments over a specified 
number of sales of the LCA model being financed; and, in each case, the number of sales that must be made for Airbus to fulfil its repayment commitment cannot be reached without exporting.
2967 
7.583  Relying on the Appellate Body's findings in Canada – Aircraft , the United States argues that 
a determination that a subsidy is contingent upon export performance involves proving three 
                                                      
2966 See, para. 7.532 above. 
2967 US, FWS, paras. 343-386; US, Answer to Panel Question 10.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  elements: (i) the "granting" of a subsidy; (ii) that is  "tied to"; (iii) "actual or anticipated exportation or 
export earnings".2968  To the extent that it has demonstr ated that each of the challenged LA/MSF 
measures amount to subsidies within the meani ng of Article 1 of the SCM Agreement, the 
United States asserts that the first elem ent of this test has been satisfied.2969  As regards the third 
element, the United States submits that for each of the challenged LA/MSF measures, the EC member 
State governments anticipated that the financed projects would result in exportation or export earnings because they were fully aware of the global nature of  the LCA market and the fact that Airbus is a 
highly export-oriented co mpany, as evidenced by, inter alia , information contained in Airbus' Global 
Market Forecasts, Airbus' LA/MSF applications  and the governments' own market appraisals.
2970 
7.584  In terms of establishing the second element – the existence of contingency between the 
granting of a subsidy and actual or anticipated export performance – the United States argues that the 
legal standard that must be applied is the same for subsidies that are alleged to be contingent in law, 
or contingent in fact, upon export performance.  Th us, recalling certain observations of the Appellate 
Body in Canada – Aircraft , the United States submits that when  examining whether the grant of a 
subsidy is "tied to" export performance , either in law or in fact, it is necessary to assess whether it is 
"conditional" on export performance or "dependent for its existence" on export performance.  
Consistent with the views of the Appellate Body, the United States notes that the type of evidence 
that may be employed to demonstrate the two types of contingency will be different.2971 
7.585  In respect of in law  contingency, the United States concurs with the views it asserts were 
expressed by the Appellate Body in Canada – Autos , where it found that contingency in law upon 
export performance may be establishe d "when the existence of that condition can be demonstrated on 
the basis of the very words of the relevant legisla tion, regulation or other legal instrument constituting 
the measure".2972  The United States recalls, however, that th e Appellate Body explained that this did 
not mean that in law conti ngency could only be established expressis verbis , but that it could also be 
found "by necessary implication  from the words actually used in the measure".2973  Thus, the 
United States argues that the terms and conditi ons of each of the challenged LA/MSF contracts 
demonstrate in law contingency because, when read in the light of the number of LCA sales the EC 
member State governments expected would be achie ved in Europe and abroad, the "words actually 
used" in those contracts – in particular, the c ontractual terms tying the provision of LA/MSF to 
repayment over a specific number of LCA sales – gi ve rise to the "necessary implication" that the 
provision of LA/MSF is contingent, in law, upon export performance.2974 
7.586  In contrast, the United States notes that a finding that a subsidy is in fact  contingent upon 
export performance must be " inferred  from the total configurati on of facts constituting and 
surrounding the granting of the subsidy, none of whic h is likely to be decisive in any given case".2975  
The United States observes that pursuant to footnot e 4 of the SCM Agreement, such facts must 
establish that "the granting of a subsidy, without having been made legally contingent upon export 
                                                      
2968 US, FWS, para. 343, citing Appellate Body Report, Canada – Aircraft , para. 169. 
2969 US, FWS, paras. 344 (A380 contracts); 362 (A340-500/600 contracts); and 377 (A330-200 
contract). 
2970 US, FWS, paras. 345-351 (A380 contracts); 363-371 (A340-500/600 contracts); and 378-382 
(A330-200 contract). 
2971 US, FWS, para. 326-327, citing Appellate Body Report, Canada – Aircraft , para. 167. 
2972 Appellate Body Report, Canada – Certain Measures Affecting the Automotive Industry ("Canada – 
Autos "), WT/DS139/AB/R, WT/DS142/AB/R, adopted 19 June 2000, DSR 2000:VI, 2985, para. 100, cited in US, 
FWS, para. 328. 
2973 Appellate Body Report, Canada – Autos , para. 100, cited in US, FWS, para. 328 (emphasis added 
by the United States); and US, Answer to Panel Question 146. 
2974 US, Answer to Panel Questions 10 and 146; US, FWS, paras. 352-357 (A380 contracts); 372-373 
(A340-500/600 contracts); and 384 (A330-200 contract). 
2975 US, FWS, para. 329, referring  to Appellate Body Report, Canada – Aircraft , para. 167. WT/DS316/R 
Page 476  
BCI deleted, as indicated [***] 
 
  performance, is in fact tied to actual or anticipated exportation or export earnings".
2976  In this regard, 
the United States notes that the existence of a " tie" between the granting of a subsidy and export 
performance may be demonstrated when there is a relationship of "conditionality" or "dependence" 
between the subsidy and exports.2977  The United States submits that such a relationship can be found 
in the facts surrounding the decisions to provide the challenged LA/MSF measures, and in particular: 
(i) the existence of a contractual tie between th e provision of LA/MSF and Airbus' commitment to 
repay LA/MSF through revenues generated from LCA sales necessarily involving exports; and (ii) the 
EC member State governments' an ticipation of export performance.2978 
(b) Arguments of the European Communities 
7.587  The European Communities rejects the United States' claims, contesting both the United 
States' legal argument and the inferences it has draw n from the facts it asserts and evidence it adduces.  
According to the European Commun ities, in order to find that a measure is a prohibited export 
subsidy within the meaning of Article 3.1(a) a nd footnote 4 of the SCM Agreement, the following 
three elements must be established: (i) the requi red condition (export performance); (ii) the required 
consequence (grant of a subsidy); and (iii) th e required contingent re lationship (contingency).2979   
7.588  In respect of the first element – the require d condition of export performance – the European 
Communities considers that when it comes to a ssessing whether the EC member State governments 
"anticipated exportation or export earnings", within the meaning of footnote 4 of the SCM Agreement, 
the term "anticipated" must be understood as meanin g "an export that has not yet taken place at the 
moment when the subsidy is deemed to exis t, but {that} will take place in the future".2980  T h u s ,  
contrary to what the European Communities allege s the United States to have argued, the European 
Communities contends that an "anticipated" export is  not a "potential" export, but one that will take 
place in the future.2981  According to the Europ ean Communities, if this we re not the case, the export 
performance condition would be fulfilled on the basi s of the mere "consideration by the granting 
Member that exports might occur in the future".2982  Therefore, were the United States correct, it 
would be possible to apprehend subsidies simply because they have effects  in a global market, even 
though the object and purpose of Article 3.1 is to prohibit subsidies that create an incentive for companies to favour exports and thereby distort international trade.  In this regard, the European 
Communities notes that the SCM Agreement addresses the adverse effects of subsidies on the interests 
of other Members, including export interests, under Part III, not Part II.
2983  Thus, the European 
Communities contends that the United States has based its claim on an erroneous understanding of 
what "anticipated exportation or export earnings" is  intended to mean.  In any case, the European 
Communities argues that the evidence the United St ates relies upon to prove the existence of the 
required export performance conditio n, including the terms of the disputed LA/MSF contracts and the 
market forecasts contained in various document s, shows only a concern with performance, not export  
performance.2984 
                                                      
2976 US, FWS, para. 330. 
2977 US, FWS, para. 331, referring  to Appellate Body Report, Canada – Aircraft , paras. 170-171. 
2978 US, FWS, paras. 352-357 (A380 contracts); 372-373 (A340-500/600 contracts); and 384 (A330-
200 contract); US, SWS, paras. 135-144; 161-209.   
2979 EC, FWS, paras. 556, 567-582; EC, Answer to Panel Question 79. 
2980 EC, SWS, para. 236. 
2981 EC, SWS, paras. 232-250. 
2982 EC, SWS, para. 245; EC, SNCOS, para. 127. 
2983 EC, FWS, paras. 575-576 and 686-688; EC, SWS, paras. 245-249. 
2984 EC, FWS, paras. 615-629 (A380 contracts), 674-677 (A340-500/600 contracts), and 678-682 
(A330-200 contract) arguing, in the context of the United States' in fact export subsidy claim, that the evidence 
relied upon by the United States, if at all relevant, show s "only a concern with profit, wherever it may be earned 
in the global market".    WT/DS316/R 
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  7.589  As far as the required consequence – the grant of a subsidy – is concerned, the European 
Communities submits that in order to demonstrate the existence of a subsid y contingent upon export 
performance, that subsidy must be granted as a consequence, that is, as a result of, export 
performance.  The European Communities argues that  the United States has failed to establish that 
any such subsidy was granted through the LA/M SF measures because "the consequence of the 
condition being fulfilled is that {Airbus} agrees to pa y" the EC member State governments.  In other 
words, according to the European Communities, th e consequence of any export sale under the terms 
of the LA/MSF contracts is not the grant of a s ubsidy, but "the reverse ... a 'negative subsidy'".2985  
Thus, the European Communities argues that the Unit ed States has failed to demonstrate the required 
consequence because its legal argument is "ill c onceived".  Moreover, the European Communities 
submits that the United States errs because it allege dly bases its claim on the notion that the subsidy at 
issue is the LA/MSF contract itself,  when it is instead "the difference between the terms of the loan 
and the relevant benchmark".2986  The European Communities finds support for this view in the fact 
that Article 4.7 of the SCM Agreement requires Me mbers found to have granted an export contingent 
subsidy to withdraw the subsidy without delay.  The European Co mmunities argues that in the case of 
a subsidy provided through a loan at below-market interest rates, Article 4.7 does not require the 
withdrawal of the financial contribution transferre d as the loan, but only the amount represented by 
the subsidy "benefit".2987 
7.590  On the third element – contingency between the required condition (export performance) and 
the required consequence (the grant of a subsidy) – the European Communities,  like the United States, 
submits that the legal standard that must be applie d is the same for subsidies that are alleged to be 
contingent, either in law or in fact, upon export performance.  The European  Communities also agrees 
with the United States that when examining whether the grant of a subsidy is contingent upon export 
performance, it is necessary to assess whether it  is "conditional" on export performance.2988  
Moreover, like the United States, the European Co mmunities notes that while the legal standard for 
proving contingency doesn't change, the evidence re quired to demonstrate in fact or in law export 
contingency may be different.2989  In this regard, the Europ ean Communities emphasizes that 
demonstrating the existence and precise content of an in fact contingency claim is "a much more 
difficult task" compared with an in law claim.2990  
7.591  The European Communities contends that the Un ited States has, for various reasons, failed to 
demonstrate the required in fact  contingency between the conditi on (export performance) and the 
consequence (the grant of a subsidy).  First, the European Communities submits that contrary to what 
it alleges is argued by the United States, the exis tence of sales-dependent repayment terms that are 
neutral as to the origin of those sales, or the fact  that the EC member State governments envisaged a 
return from their LA/MSF investment, cannot prove the existence of any contingency.2991  Second, the 
European Communities argues that unlike the position it contends is advanced by the United States, 
the anticipation of export sales, the export orientation of Airbus, or the fact that Airbus operates in a 
                                                      
2985 EC, FWS, paras. 630-635 (A380 contracts), 599-601, 676-677 (A340-500/600 contracts), and 603-
604, 680-681 (A330-200 contract); EC, SWS, paras. 220-226. 
2986 EC, FWS, paras. 630-635 (A380 contracts), 676-677 (A340-500/600 contracts), and 680-681 
(A330-200 contract). 
2987 EC, SWS, paras. 223-224, citing in support, Decision by the Arbitrator, Canada – Export Credits 
and Loan Guarantees for Regional Aircraft – Recourse to Arbitration by Canada under Article 22.6 of the DSU and Article 4.11 of the SCM Agreement  ("Canada – Aircraft Credits and Guarantees (Article 22.6 – Canada) "), 
WT/DS222/ARB, 17 February 2003, DSR 2003:III, 1187, paras. 3.60-3.64. 
2988 EC, FWS, paras. 581. 
2989 EC, FWS, para. 606. 
2990 EC, FWS, para. 607, citing Appellate Body Report, Canada – Aircraft , paras. 167-168. 
2991 EC, FWS, paras. 642-645 (A380 contracts), 676-677 (A340-500/600 contracts), and 680-681 
(A330-200 contract). WT/DS316/R 
Page 478  
BCI deleted, as indicated [***] 
 
  global market, are all factors that do not demonstrate contingency.
2992  Moreover, the European 
Communities argues that all of these factors taken to gether cannot prove the existence of contingency 
because, inter alia , the United States' assertion that full repayment of the LA/MSF contributions can 
only be obtained by making the required number of sal es specified in the contracts (which themselves 
can only be achieved through exports) is false due to the possibility of early repayment.2993  In this 
regard, the European Communities submits that the sales-dependent delivery terms of the LA/MSF 
contracts "have nothing to do with export contingent  subsidies", but rather reflect two "legitimate 
commercial" considerations: (i) that deliveries of aircraft provide the most reliable indication that sufficient cash-flow will be on hand to make repayments;
2994 and (ii) that timing repayment with 
deliveries allocates the risk between Airbus and th e EC member State government in accordance with 
the parties' agreement.2995  Thus, the European Communities co ncludes that the fact that "some 
deliveries will be exports is not the result of any condition imposed by {the EC member State 
governments}, but is instead the result of the partic ular sources of demand in the marketplace.  Any 
'choice' {Airbus} has between export versus domestic sales is driven not by the measure but instead 
by the location of the customers".2996  In any event, the European Communities notes that none of the 
provisions that the United States relies upon as evidence of a commitment to export oblige Airbus to make any sales at all, let alone export sales.  Acco rding to the European Communities, Airbus' right to 
retain the funds advanced under each of the LA/MSF c ontracts is not subject to any condition that it 
sell aircraft.  Thus, the European Communiti es submits there can be no export contingency.
2997   
7.592  The European Communities relies upon many of th e same legal and factual arguments when 
contesting the United States' in law export contingent subsidy claims.2998  Thus, the European 
Communities contends that the United States has fa iled to demonstrate that the language of the 
LA/MSF contracts, either on its own or by necessary implication,2999 proves the existence of: (i) the 
required export performance condition, because the te rms of the relevant measures "refer only to 
sales, without favouring either domestic or export sales";3000 (ii) the required consequence, because 
the contract terms secure repayment of the loan, a nd therefore do not amount to a subsidy, but rather a 
"negative subsidy";3001 and (iii) the required contingency, b ecause there is no obligation on Airbus to 
repay LA/MSF,3002 and in any case, repayments may be made on an accelerated basis with income 
that is not generated from LCA sales.3003  In addition, to the extent that the United States pursues its 
complaint in reliance on documents and information th at cannot be found in the text of the challenged 
                                                      
2992 EC, FWS, paras. 646-651 (A380 contracts), 676-677 (A340-500/600 contracts), and 680-681 
(A330-200 contract). 
2993 EC, FWS, paras. 653-656 (A380 contracts), 676-677 (A340-500/600 contracts), and 680-681 
(A330-200 contract). 
2994 EC, FWS, paras. 657-661 (A380 contracts), 676-677 (A340-500/600 contracts), and 680-681 
(A330-200 contract). 
2995 EC, FWS, paras. 662-664 (A380 contracts), 676-677 (A340-500/600 contracts), and 680-681 
(A330-200 contract). 
2996 EC, FWS, paras. 665 (A380 contracts), 676-677 (A340-500/600 contracts), and 680-681 (A330-
200 contract).  Additional submissions on the arguments and evidence presented by the United States in support of its in fact export contingent subsidy claims are set out at EC, SWS, 296-325. 
2997 EC, SNCOS, para. 153; EC, Comment on Un ited States Answer to Panel Question 145. 
2998 EC, FWS, paras. 584-598 (A380 contracts), 599-602 (A340-500/600 contracts), and 603-604 
(A330-200 contract); EC, SWS, paras. 258-295. 
2999 EC, FWS, para. 592; EC, SWS, paras. 258-295. 
3000 EC, FWS, paras. 585-588, 594-598 (A380 contracts), 599-602 (A340-500/600 contracts) and 603-
604 (A330-200 contract). 
3001 EC, FWS, paras. 589, 594-598 (A380 contracts), 599-601 (A340-500/600 contracts) and 603-604 
(A330-200 contract). 
3002 EC, SNCOS, para. 153; EC, Comment on Un ited States Answer to Panel Question 145. 
3003 EC, FWS, paras. 590, 594-598 (A380 contracts), 599-601 (A340-500/600 contracts) and 603-604 
(A330-200 contract).  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  measures, the European Communities asks the Panel to dismiss the United States' allegations on the 
ground that they are not properly constituted in law  contingency claims.3004 
7.593  Finally, the European Communities asks the Pane l to dismiss several allegedly "new claims" 
made by the United States after the first substan tive meeting of the parties.  According to the 
European Communities, the United St ates, for the first time in its  second written submission and then 
again in its answer to Panel Question 144, referre d to various provisions of the challenged LA/MSF 
contracts in support of its new "claim{} that a co mmitment to provide {LA/MSF} was given in return 
for a commitment on the part of Airbus to export, and that for this reason the measure should be construed as a subsidy contingent upon export".
3005  The European Communities submits that the 
Panel is not "entitled, at this stage of the proceed ings, to re-arrange the evidence, and change or 
broaden the seven distinct claims set out in th e US first written submission, which the European 
Communities has rebutted".3006  Thus, the European Communities as ks the Panel to set these allegedly 
new claims aside on the grounds that they are inconsis tent with: (i) "Article 4 of the DSU (as regards 
the inadequacy of consultations)"; (ii) "Article 6.2 of the DSU (as regards the inadequacy of the panel 
request)"; and (iii) "paragraphs 5, 6 and 15 of the Working Procedures, according to which the 
United States is deemed to have already presented the facts of the case and its arguments, no good 
cause being even asserted let alone shown for the atte mpt at such a radical enlargement of the case at 
this late stage".3007 
(c) Arguments of Third Parties 
(i) Australia 
7.594  In Australia's view, the focus by the United States on the export propensity of the LCA 
product leads to a misapplication of the Appella te Body guidance on export contingency and the 
Panel's findings in Australia – Auto motive Leather II .  Recalling the three elements necessary to 
establish export contingency, Australia notes that  evidence of the export nature of a product supports  
the establishment of a relationship of conditionalit y but is not conclusive of this second element.3008 It 
further submits that the second sentence of footnote 4 to Article 3.1(a) explicitly states that the mere 
fact that a subsidy is granted to enterprises which export cannot by itself support a finding of export contingency.  This, according to Australia, means that  export propensity is only one of several facts to 
be taken into account.  Careful consideration needs to be given in the presen t case to the evidence 
used to support export contingenc y and the weight it should be accorded.  Australia submits that if 
disproportionate emphasis is give n to export propensity, this would undermine the second sentence of 
footnote 4.
 3009 
7.595  According to Australia, there are two main defici encies with the United States' analysis of in 
fact export contingency in the present case.  First,  by focusing on export propensity the United States 
conflates product sales generally with export sales, whic h leads to the erroneous conclusion that sales 
performance is export performance.  Second, the United States focuses on the contractual requirement 
to repay the loan and its co nnection with sales performance. 3010  Australia notes that the United States 
relied, inter alia , on the findings on the grant contract in Australia – Automotive Leather II to support 
                                                      
3004 EC, SWS, para. 268. 
3005 EC, SNCOS, para. 151. 
3006 EC, Comments on US Answer to Panel Question 144. 
3007 EC, SNCOS, para. 149. 
3008 Australia, Third Party Submission, para. 22. 
3009 Australia, Third Party Submission, para. 26. 
3010 Australia, Third Party Submission, para.25. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  its claim that contingency has been established.  In Australia's view, the United States has misapplied 
the panel's findings in Australia – Automotive Leather II.  
3011  
7.596  Australia argues that it is not clear on the facts presented the extent to which the repayment of 
LA/MSF is mandatory.  Instead, it appears that  Airbus receives payment of LA/MSF whether or not 
there are any sales.  Therefore, the United Stat es has failed to explain why a link between the 
requirement to repay the loan and sales performance establishes a tie between the grant of an alleged 
subsidy and export performance.3012 
7.597  Australia further contends that in fact expor t contingency must be inferred from the total 
configuration of the facts constituting a nd surrounding the granting of the subsidy.3013  Such relevant 
facts could include, among other things, the motiva tions or reasons for granting a subsidy, once 
objectively ascertained.  For instance, according to  Australia, the motivation or reason of the 
government in granting the loan with a repayment requirement linked to sales performance may be a 
relevant fact in determining whethe r any production targets in the loan contracts are linked to exports.  
Hence, for Australia, the weight that should be acco rded to motivations or reasons should be assessed 
on the basis of where they sit in relation to all the other evidence relating to whether subsidies were in 
fact export contingent.3014 
(ii) Brazil 
7.598  Brazil agrees with the panel and the Appellate Body in Canada-Aircraft I .  The Panel's 
analysis of de facto  export contingency should be based on the total configuration of the facts 
constituting and surrounding the granting of the subsid y.  For  Brazil, to the extent supported by 
relevant evidence, the motivations or reasons for granting the subsidies should be taken into 
consideration by the Panel as part of this total configuration of the facts. 3015 
(iii) Canada 
7.599  Canada submits that the United States has failed to accurately apply the test for de facto  
export contingency set out in footnote four of the SCM Agreement.3016  In Canada's opinion, instead 
of applying this test, the United States attempts to  establish only that repaym ent of the financing was 
tied to actual or anticipated exportation or export earnings.3017 
7.600  Canada considers that the United States has obscured the locus of the inquiry when it 
paraphrased the test and inserted the word "that" into it, i.e.: (1) the 'granting' of a subsidy; (2) that is 
'tied to' (3) 'actual or anticipated exportation or expo rt earnings'.  Canada argues that the text is clear 
in establishing the locus of the " tied to" inquiry as "the granting of the subsidy".  Therefore, according 
to Canada, the relevance of repayment is limited to  the light it sheds on whether the granting of the 
subsidy was export contingent, and that repayment is not dispositive. 3018   
7.601  Canada maintains that the reason why the SCM Agreement locates the "tied to" inquiry in the 
granting of the subsidy rather than its repayment is  because a tie between repayment of a subsidy and 
sales can provide governments with an effective m echanism for establishing when repayments are due 
without creating any incentive to export.  It conte nds that requiring repayment of a subsidy only when 
                                                      
3011 Australia, Third Party Submission, para.27. 
3012 Australia, Third Party Submission, paras.28-30. 
3013 Australia, Third Party Oral Statement 24 July 2007, para 9, quoting Canada-Aircraft  at para 167. 
3014 Australia, Third Party Answer to Panel question 6 . 
3015 Brazil, Third Party Answer s to Questions, Para 11. 
3016 Canada, Third Party Submission, para. 3. 
3017 Canada, Third Party Submission, para. 6. 
3018 Canada, Third Party Submission, para. 7-8.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  export sales are made could be a device for using subsidies to develop domestic sales in preference to  
export sales.3019   
7.602  Canada rejects United States' attempt to associate its approach with the approach taken by the 
panel in Australia – Leather .  For Canada, the facts surrounding th e two cases are different because 
the contract at issue in the Australia – Leather   conditioned continuing grants  to the beneficiary on the 
satisfaction of sales targets, whic h were effectively export performance  targets, where as in this case, 
continuing grants are not conditioned on meeting ex port performance targets.  Canada contends that 
the United States errs in conflating the term s "export performance", "exportation" and "export 
earnings" with the term "sales".  By conflating these terms, the United States would have it that any 
subsidy provided in the form of royalty-based fina ncing is prohibited if the level of anticipated 
repayment factored in even a single export sale.  Ca nada maintains that this nullifies the final sentence 
of footnote four. 3020    
7.603  Canada submits that the United States has pr ovided no evidence that the granting of the 
financing was conditioned on full repayment.  Even  if such evidence was provided, for Canada, it 
would be "absurd" to characterize a full repaymen t requirement as an expor t contingency.  Canada 
argues that every prior finding of a prohibited export subsidy was based on a positive, direct 
correlation between subsidization a nd exportation.  Here, the correla tion is the inverse: repayments 
triggered by export sales only reduce any benefit to Airbus. 3021 
7.604  In addition, Canada submits that inferring mo tivations can be a highly subjective matter, 
particularly when the motivations at issue are those of a government.  It refers in this context to the 
Appellate Body in Japan – Alcoholic Beverages II .3022  It contends that it may be extremely difficult 
for a panel to weigh the relative significance of t hose reasons to establish legislative or regulatory 
intent and a panel should exercise great care in tryi ng to do so.  According to Canada, a panel should 
consider many relevant factors in assessing whethe r a subsidy is in fact contingent upon export 
performance, depending on the circumstances of a partic ular case, based on "the total configuration of 
the facts constituting and surrounding the granting of the subsidy".3023   
(iv) China 
7.605  China contends that the finding of in fact expor t subsidies in the form of loans, pursuant to 
footnote 4 to Article 3.1(a) of the SCM Agreement, must focus on the " granting " - instead of the 
"repayment " - of the loans, and that it must be shown, based on the total confi guration of the facts, 
that there is a conditionality between the granting of a subsidy and the actual or  anticipated export.  In 
this connection, China refers the Pa nel to the Appellate Body Report in Canada – Aircraft, which 
clarified the three elements relevant to th e finding of an in fact export contingency.3024 
7.606  China adds that in case of a loan, in order to determine whether the loan constitutes a subsidy 
in fact contingent upon export, it must be estab lished that the granting authority imposes a condition 
based on export performance when providing  the loan.  Therefore, according to China, Article 3.1(a) 
is not intended to prohibit the repayment of a loan contingent upon export performance.  In any event, 
the manner in which a debtor will repay the loan sub sequently is not relevant to the consideration of 
                                                      
3019 Canada, Third Party Submission, para. 10. 
3020 Canada, Third Party Submission, para. 11-13. 
3021 Canada, Third Party Submission, para. 14. 
3022 Canada, Answer to Third Party Panel Questions, para. 4 referring to Appellate Body Report, Japan 
– Alcoholic Beverages II , para. 119. 
3023 Canada, Answer to Third Party Panel Questions, para. 5 referring to Appellate Body Report, 
Canada – Aircraft , para. 167. 
3024 China, Third Party Submission, paras. 5-13. WT/DS316/R 
Page 482  
BCI deleted, as indicated [***] 
 
  in fact export contingency of a granted loan.  Rather , this issue is more relevant to the finding of a 
benefit, and is not to be blurred with the granting of a loan.
 3025 
7.607  Lastly, China submits that the relevant facts of a particular case must sufficiently prove the 
"tie" between the "granting of a subsidy" and the "actual or anticipated exportation" and that the 
export orientation of a subsidy recipient alone does not sufficiently demonstrate the existence of in 
fact export contingency.  3026 
(v) Japan 
7.608  Japan contends that mere anticipation of future  exports at the time of subsidy bestowal does 
not, by itself, prove that the subsidy is continge nt upon export performance.  It notes that while the 
term "contingent" in Article 3.1(a) ha s the same meaning as applied to both de jure  and de facto  
export contingency, demonstrating the latter is inherently more difficult.3027  
7.609  Japan argues that footnote 4 to SCM Agreement Article 3.1(a) is central to the Panel's 
analysis in determining whether the alleged expor t subsidies are contingent in fact upon export 
performance.  It refers to the Appellate Body Report in Canada – Aircraft , noting that the footnote 4 
test for de facto  export contingency requires proof of three different substantive elements,3028  each of 
which must be independently applied to the relevant facts.3029 
7.610  Finally, Japan observes that the de facto  export contingency analysis is necessarily fact-
intensive, and will differ based on the unique facts of  each case.  It notes that the Appellate Body in 
Canada – Aircraft  cautioned that, in performing the analysis required by footnote 4, "there can be no 
general rule as to what facts or what kinds of facts must  be taken into account,"3030 none of which 
facts had been given undue emphasis.3031  Hence, Japan submits that a similarly broad approach is 
warranted in this dispute and that the Panel should examine the specific factual elements pertinent to 
this case. 3032 
(vi) Korea 
7.611  Korea recalls that panels and the Appellate Body have previously addressed the issue of de 
facto  export subsidy on various occasions.  In  particular, the Appellate Body in Canada – Aircraft  set 
out a three element test for demonstrating de facto  export contingency.  Accordingly, (1) the "granting 
of a subsidy" must be (2) "tied to" (3) "actual or  anticipated exportation or export earnings". Korea is 
of the view that, in order to establish that th e LA/MSF is "tied to" export performance, the United 
States has to prove that the LA/MSF would not have been granted to Airbus, if the Airbus 
Governments had known that no expo rt sales may ensue from the LA/MSF.  In other words, the 
                                                      
3025 China, Third Party Submission, paras. 14-15. 
3026 China, Third Party Submission, paras. 16-22 referring to Appellate Body Report, Canada – Aircraft 
(WT/DS70/AB/R), para. 175, and Panel Report, Australia – Automotive Leather II , paras. 9.66-71. 
3027 Japan, Third Party Submission, para. 23 referring to Appellate Body Report, Canada – Aircraft , 
para. 167. 
3028 Japan, Third Party Submission, para. 25 referring to Appellate Body Report,  Canada – Aircraft , 
para. 169 (emphasis in original). 
3029 Japan, Third Party Submission, para. 25 referring to Appellate Body Report,  Canada – Aircraft , 
para. 173. 
3030 Japan, Third Party Submission, para. 26 referring to Appellate Body Report,  Canada – Aircraft , 
para. 169. 
3031 Japan, Third Party Submission, para. 26 referring to Appellate Body Report,  Canada – Aircraft ,  
paras. 169-70.   
3032 Japan, Third Party Submission, para. 26.    WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  United States has to prove that the grant of a subsidy is contingent upon export  sales, and not mere 
sales.3033 
(d) Evaluation by the Panel 
(i) The European Communities' Request to Dismiss Certain Allegedly New Claims made in the 
United States' Second Written Submission 
7.612  The European Communities asks the Panel to di sregard a series of allegedly "new claims" 
made by the United States over a series of paragraphs of its second written submission3034 as well as 
its answer to Panel Question 144 because it considers th em to be incompatible with the United States' 
obligations under Article 4 of the DSU (as regards th e inadequacy of consultations), Article 6.2 of the 
DSU (as regards the inadequacy of the panel requ est), and paragraphs 5, 6 and 15 of our Working 
Procedures.  It is not entirely clear to us whethe r the European Communities' submissions in respect 
of Articles 4 and 6.2 of the DSU are grounded in the view that the United Stat es' has advanced "new 
claims" not already set out in its request for consultations and panel request, or (in the case of Article 6.2 of the DSU) the alleged absence of any in dication in the United States' panel request of the 
precise evidence it relies upon to make out its in fact export contingency claims.
3035  For the reasons 
articulated in the following sections, we decline th e European Communities' request on either of these 
grounds.  Moreover, we are also not persuaded by  the European Communiti es' contention that the 
relevant passages of the United States' second wr itten submission and answer to Panel Question 144 
contravene paragraphs 5, 6 a nd 15 of our Working Procedures. 
New claims allegedly not identified in the re quest for consultations and the panel request  
7.613  We find it useful to begin our analysis by r ecalling how "claims" and "arguments" have been 
defined and distinguished in previous  dispute settlement proceedings.  In Korea – Dairy , the 
Appellate Body explained that:  
"By ' claim'  we mean a claim that the respondent party has violated, or nullified or 
impaired the benefits arising from, an identif ied provision of a particular agreement.  
Such a  claim of violation  must, as we have already noted, be distinguished from the 
 arguments  adduced by a complaining party to demonstrate that the responding 
party's measure does indeed infringe upon th e identified treaty provision.  Arguments 
supporting a claim are set out and progressively clarified in the first written submissions, the rebuttal submissions and the first and second panel meetings with 
the parties.  ... 
... Both 'claims' and 'arguments' are di stinct from the 'evidence' which the 
complainant or respondent presents to support its assertions of fact and arguments."
3036 
7.614  The Appellate Body has also observed that it has: 
                                                      
3033 Korea, Third Party Submission, para. 69-74, referring to Appellate Body Report, Canada – 
Aircraft , para. 169 and 173. 
3034 In particular, paragraphs 163 to 209.  EC, SNCOS, paras. 148 and 153. 
3035 EC, Comments on US Answer to Panel Question 14 4 where it states: "Just as a panel request must 
include the identification of the measure,  so, in the case of an 'in fact' claim,  it must include the identification of 
the precise evidence on which the in fact claim is based." 
3036 Appellate Body Report, Korea – Definitive Safeguard Measure on Imports  
of Certain Dairy Products ("Korea – Dairy "), WT/DS98/AB/R, adopted 12 January 2000, DSR 2000:I, 3, para. 
139 (footnotes omitted). WT/DS316/R 
Page 484  
BCI deleted, as indicated [***] 
 
  "... consistently distinguished between the  claims   of a Member regarding the 
application of the various provisions of the  WTO Agreement , and the  arguments  
presented in support of those claims.  Clai ms, which are typically allegations of 
violation of the substantive provisions of the  WTO Agreement , must be set out 
clearly in the request for the establishment of a panel.  Arguments, by contrast, are 
the means whereby a party progressively deve lops and supports its claims.  These do 
not need to be set out in detail in a panel request;  rather, they may be developed in 
the submissions made to the panel."
3037 
7.615  In its second written submission, the United States introduces the paragraphs which the 
European Communities asserts present "new claims",  describing them as "an extended discussion of 
the actual U.S. argument {on export contingency} to  eliminate any confusion that may have been 
engendered by the European Communities' res ponse to the U.S. first written submission".3038  It then 
explains its view that LA/MSF involves an excha nge of performance commitments on the part of the 
parties, whereby "the government commits to di sburse Launch Aid according to a set schedule in 
exchange for which the company commits to repay the Launch Aid amounts on the basis of a 
specified levy per sale over an agreed-to number of sales".3039  Finally, the United States proceeds to 
"elaborate on the demonstration in its first writte n submission that the provision of the Launch Aid 
subsidy is contractually tied to anticipated exportation".3040  For each of the seven LA/MSF measures 
the United States claims to be export subsidies, it fi rst recalls how in its first written submission, it 
discussed their respective repayment provisions, dem onstrating how by conditioning the provision of 
LA/MSF on a specific number of LCA sales that could not be achieved without exporting, the 
governments "necessarily tied the aid to substantial exports".  Thereafter, the United States identifies 
and discusses various contractual te rms and conditions it asserts "co rroborate the existence of this 
tie".3041   
7.616  The United States' answer to Panel Question 144 explains the extent to which it relies upon 
the same evidence to demonstrate "anticipated exportation or export earnings" and in fact contingency 
upon export performance.  In doing so, the United St ates repeats its view that the exchange of 
performance commitments in the LA/MSF contract s demonstrates the existence of a "tied to" 
relationship, and therefore export contingency.  It  also refers to the discussion in its second written 
submission of various contractual provisions of the seven challenged LA/MSF contracts. 
7.617  In our view, the passages that are the focus of the European Communities' concern do not 
introduce new claims , but merely expand and explain the United States' arguments on the issue of 
contingency by further articulating the United Stat es' theory of contingency and discussing various 
aspects of the evidence submitted with its first writt en submission.  The United States does not, in the 
relevant paragraphs, complain that the European Communities "has violated, or nullified or impaired 
the benefits arising from, an identified provision of  a particular agreement" that was not previously 
mentioned in its consultations re quest or its panel request.  Indeed, the United States makes no 
reference at all in the relevant passages to any pr ovision of any WTO covered agreement.  Thus, to 
the extent that the European Communities' concern w ith the contents of paragraphs 163 to 209 of the 
United States' second written submission and its answ er to Panel Question 144 is that it introduces 
"new claims" not identified in the United States' re quest for consultations a nd its panel request, we 
find that it cannot be sustained. 
                                                      
3037 Appellate Body Report, Dominican Republic – Measures Affecting the Importation and Internal 
Sale of Cigarettes ("Dominican Republic – Import and Sale of Cigarettes "), WT/DS302/AB/R, adopted 
19 May 2005, DSR 2005:XV, 7367, para. 121 (footnote omitted). 
3038 US, SWS, para. 162. 
3039 US, SWS, para. 164. 
3040 US, SWS, para. 167. 
3041 US, SWS, paras. 168, 175, 182, 188, 193, 199 and 204.  WT/DS316/R 
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  United States' alleged failure to identify in its  panel request the precise facts relied upon to 
make out its in fact export contingency claims  
7.618  It is now well established that Article 6.2 e xplains how a complainant wanting to bring a 
matter to WTO dispute settlement is required to requ est the establishment of a panel.  In particular, 
Article 6.2 imposes an obligation on a complaining Me mber to ensure that its panel request: (i) is 
made in writing; (ii) indicates whether consultations  were held; (iii) identifi es the specific measures at 
issue; and (iv) provides a brief summary of the le gal basis of the complaint sufficient to present the 
problem clearly.3042 
7.619  Apart from requiring the identification of the sp ecific measures at issue, Article 6.2 does not 
call upon a complainant to additionally set out or describe the precise facts relied upon for the purpose 
of establishing the merits of its claim(s).3043  The precise facts a complainant relies upon to 
substantiate its claims will typically constitute  the evidence submitted in support of its complaint 
during the course of a panel proceeding.  Article 6. 2 of the DSU is not concerned with how or when 
such evidence must be presented, but only the proper identification of "claims" and "measures" for the 
purpose of ensuring that a panel request is "sufficient to present the problem clearly".  In this light, we 
see no legal basis to support the European Commun ities' allegation that the United States' panel 
request failed to comply with Article 6.2 of the DSU because, in resp ect of its claims under 
Article 3.1(a) of the SCM Agreement, the United St ates did not identify in this document the precise 
facts it considers demonstrate that the alleged subsidies are in fact contingent upon export 
performance. 
New facts and arguments allegedly introduced in contravention of the Working Procedures  
7.620  The European Communities consid ers that the United States' discussion in paragraphs 163 to 
209 of its second written submission and in its an swer to Panel Question 144 introduced new 
arguments and factual evidence in contravention of its obligations under paragr aphs 5, 6 and 15 of our 
Working Procedures.  These paragraphs read: 
"5. Before the first substantive meeting of  the Panel with the parties, the parties 
to the dispute shall transmit to the Pane l written submissions in which they present 
the facts of the case, their arguments and th eir counter-arguments, respectively.  Third 
parties may transmit to the Panel written submissions after the first written submissions of the parties have been submitted.  
6. At its first substantive meeting with the parties, the Panel shall ask the United 
States to present its case. Subsequently, and at the same meeting, the European 
Communities will be asked to present its point of view.  Third parties will be asked to 
present their views thereafter at the separat e session of the same meeting set aside for 
that purpose.  The parties will then be allowed an opportunity for final statements, with the United States presenting its statement first. 
15. Parties shall submit all factual eviden ce to the Panel no later than during the 
first substantive meeting, except with resp ect to evidence necessary for purposes of 
rebuttals or answers to questions.  Exceptions  to this procedure will be granted upon a 
                                                     
 
3042 For example, Appellate Body Report, Korea – Dairy , para. 120; Appellate Body Report, US – 
Carbon Steel , para. 125; Appellate Body Report, European Communities – Selected Customs Matters ("EC – 
Selected Customs Matters "), WT/DS315/AB/R, adopted 11 December 2006, DSR 2006:IX, 3791, para. 129. 
3043 This is in contrast to the provisions of Article  4.2 of the SCM Agreement, which require a Member 
to include a "statement of available evidence" with a request for consultations regarding such a subsidy. We 
note the European Communities makes no claim under Article 4.2. WT/DS316/R 
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  showing of good cause.  The other party shall be accorded a period of time for 
comment, as appropriate, on any new factual evidence submitted after the first substantive meeting." 
7.621  The Panel's Working Procedures used in this  dispute were adopted, in accordance with 
Article 12.1 of the DSU, after consultations with both the United States and the European 
Communities.  Apart from the references to third parties, paragraphs 5 and 6 broadly follow the 
provisions set out in the Working Procedures contained in Appendix 3 of the DSU, explaining what is expected of the parties (and third parties) in terms of the submissions that must be made leading up to 
and during the first substantive meeting of the part ies.  Neither of the two paragraphs requires the 
parties to make all
 arguments and counter-arguments and present all  supporting facts by the time of 
the first substantive meeting of the parties.  Whet her complaining or responding party, the arguments 
and counter-arguments in respect of the claims at is sue will be first set out in the parties' first written 
submission and explained orally through the statemen ts made during the first substantive meeting of 
the parties.  However, as para graphs 8 and 9 of our Working Pr ocedures make clear, the parties' 
submissions do not end with the first substantive mee ting of the parties, and arguments will continue 
to be progressively clarified and developed in the rebuttal submissions, the parties' oral statements 
made at the second substantive meeting of the parti es and in response to the Panel's questions.  These 
paragraphs read: 
"8. Formal rebuttals shall be made at a second substantive mee ting of the Panel. 
The European Communities shall have the right to take the floor first, to be followed 
by the United States.  The parties shall submit, prior to that meeting, written rebuttals 
to the Panel. 
9. The Panel may at any time put questions to the parties and to the third parties 
and ask them for explanations either in th e course of the substantive meeting or in 
writing.  Answers to questions shall be s ubmitted in writing by the date(s) specified 
by the Panel.  Answers to questions after the first meeting shall be submitted in 
writing at the same time as the written re buttals, unless the Panel specifies a different 
deadline." 
7.622  There is therefore no basis in the Working Pro cedures of this Panel proceeding to support the 
European Communities' contention that the United Stat es was required to present  all of its arguments 
by the time of the first substantive meeting of the parties.  
7.623  Paragraph 15 of our Working Procedures establis hes certain rules and a precise deadline for 
the submission of factual evidence.  In particular, it stipulates that "all factual evidence" must be submitted no later than during the fi rst substantive meeting, with the exception of evidence necessary 
for the purpose of rebuttals or answers to questi ons, and any other instance where "good cause" can be 
shown.  Moreover, where any new evidence is admitt ed after the first substantive meeting on showing 
"good cause", an appropriate period of time must be  set aside for the party that did not submit that 
evidence to provide its comments.  One of objectives of paragraph 15 is to secure both parties' due 
process rights by: (i) setting a deadline for the subm ission of "all factual evidence" supporting or 
rebutting either party's claims and arguments; ( ii) allowing for the possibility that new factual 
evidence may be accepted after this deadline if "good  cause" is shown; and (iii) clarifying that the 
acceptance of any new evidence will give rise to an appropriate period of time being afforded to the 
other party to comment. 
7.624  We recall that the passages in the United St ates' second written submission and answer to 
Panel Question 144 that are at the centre of the European Communities' concern expand and explain 
certain arguments first presented by the United Stat es in its first written submission by discussing 
various aspects of evidence already submitted with its  first written submission.  In particular, the  WT/DS316/R 
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  focus of the United States' discussion in the relevant  passages is on various contractual provisions of 
each of the LA/MSF contracts it considers to be a prohibited export subsidy.  There is therefore no doubt that the factual evidence discussed by the Un ited States had already been submitted by the time 
of the first substantive meeting of the parties.  More over, while it is true that the United States did not 
refer to or discuss precisely the same contractual pr ovisions in submissions made prior to its second 
written submission, this does not amount to the presen tation of new factual evidence, but rather the 
elaboration of arguments in the light of different aspects of evidence already submitted.  In our view, 
the process of highlighting, examining and testing different aspects of duly submitted evidence by either party for the purpose of supporting or rebuttin g each other's claims and arguments is a central 
and indispensable element of the panel process.   We can see no reason why parties should be 
precluded from developing their arguments over the course of a panel proceeding on the basis of 
different aspects of evidence submitted in good time.   
7.625  In any case, paragraph 8 of our Working Procedur es makes clear that "rebuttals" include the 
parties' second written submission presented prior to the second substantive meeting of the parties.  It 
follows that even assuming arguendo  that it were incorrect to concl ude that the relevant passages of 
the United States' second written submission and an swer to Panel Question 144 did not refer to 
evidence already submitted by the fi rst substantive meeting of the pa rties, the United States would not 
have acted inconsistently with paragraph 15 of our Working Procedures because it was entitled to 
introduce factual evidence after the first substantive meeting of the pa rties "with respect to evidence 
necessary for purposes of rebuttals". 
7.626  Finally, we note that the European Communiti es did in fact respond to the United States' 
discussion of the various contractual provisions in  its second written submission when making is oral 
statement at the second substantive meeting of the pa rties.  Moreover, it also had occasion to do so 
when commenting on the United States' answer to Panel Question 144.   
7.627  For all of the above reasons, we therefore dec line the European Communities' request to set 
aside and disregard the arguments presented and evidence referred to by the United States in 
paragraphs 163 to 209 of its second written submission and its an swer to Panel Question 144. 
(ii) Whether the LA/MSF Measures Amount to Subsid ies that are In Fact Contingent upon 
Anticipated Export Performance 
7.628  Although the United States makes both in law and in fact export contingent subsidy claims, it 
describes its complaint as "principally a claim of de facto  contingency".
3044  In addition, the United 
States has explained that it is not pursuing clai ms based on the allegation of contingency upon actual 
export performance.  Accordingly, we begin our evaluation of the United States' challenge by 
focusing on the claim that the LA/MSF measures for the A380, A340-500/600 and A330-200 amount to subsidies that are in fact  contingent upon anticipated export performance. 
7.629  The prohibition on subsidies that are contingent upon export performance is contained in 
Article 3.1(a) of the SCM Agreement.  This Article reads:   
"3.1 Except as provided in the Agreement on Agriculture, the following subsidies, 
within the meaning of Article 1, shall be prohibited: 
(a) subsidies contingent, in law or in fact
4, whether solely or as one of several 
other conditions, upon export performance, including those illustrated in Annex I5 ... 
___________________________ 
                                                      
3044 US, Answer to Panel Question 10. WT/DS316/R 
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  4 This standard is met when the facts demonstrate that the granting of a subsidy, 
without having been made legally continge nt upon export performance, is in fact tied 
to actual or anticipated exportation or export earnings. The mere fact that a subsidy is 
granted to enterprises which export shall not for that reason alone be considered to be 
an export subsidy within the meaning of this provision. 
5 Measures referred to in Annex I as not constituting export subsidies shall not be 
prohibited under this or any othe r provision of this Agreement." 
7.630  In Canada – Aircraft , the Appellate Body held that the language of footnote 4 indicates that 
"satisfaction of the standard for determining de facto export contingency … requires proof of three 
different substantive elements: first, the ' granting ' of a subsidy; second, 'is ... tied to  ...'; and third, 
'actual or anticipated exportation or export earnings".3045  The United States relies on this guidance as 
the starting point of its legal argument.3046  Although the European Communities presents its own 
interpretation of the obligations contained in Artic le 3.1(a) and footnote 4 using slightly different 
terminology,3047 it shares  the view that a finding of de facto export contingency requires proof of the 
three elements identified by the Appellate Body.  Thus, there appears to be no disagreement between 
the parties as to the legal standard that must be applied when determining whether a subsidy is 
contingent in fact upon export performance.3048  However, the parties' views diverge when it comes to 
explaining what it means to satisfy this standa rd, and therefore, what the United States must 
demonstrate in order to prove its case.  Whereas th e position advanced by the United States appears to 
us, in general, to follow the findings and observa tions made by the Appellate Body in previous 
dispute settlement proceedings,3049 in certain respects, the Europ ean Communities' analysis proposes a 
somewhat different picture of how the obligations set  out in Article 3.1(a) and footnote 4 of the SCM 
Agreement must be understood and applied. 
7.631  In its second non-confidential oral statement, the European Communities presented what it 
described as "a succinct and simp le re-statement of how the Eu ropean Communities sees the overall 
design and architecture of Article 3.1(a) and f ootnote 4".  The European Communities expressed the 
"hope{} that the Panel may return to this statement as a point of reference to guide it in its future 
deliberations".3050  The European Communities drew from the contents of this oral statement to 
answer Panel Question 175.  The salient passages from these submissions are reproduced below: 
"The European Communities invites the Panel to consider first the case of an 'ad hoc' 
subsidy contingent in law  upon export performance. The evid ence consists of the text 
of the measure. The text of the measure provides that a subsidy is granted contingent 
upon export performance. In other words, the text of the measure provides that if 
there is export performance, then a subsidy is granted. That is the essence of 
contingency. The measure itself constitutes the initial grant  of the subsidy. The fact 
of export fulfils the condition and thus completes the grant . The export occurs after 
the initial grant. At the time of  the initial grant, the export is  an 'anticipated' export, in 
the sense that it is in the future.   
                                                      
3045 Appellate Body Report, Canada — Aircraft,  para. 169. 
3046 US, FWS, para. 343. 
3047 As described above at paras. 7.587 to 7.590, the European Communities argues that Article 3.1(a) 
and footnote 4 contain three "requirements" – "the required condition: actual or anticipated export performance, exportation or export earnings; the require d consequence: the gran t of a subsidy; and the required contingent 
relationship (or contingency) between condition and consequence".  See also, EC, FWS, paras. 567, 570-582; 
EC, FNCOS, paras. 68 and 73; EC, Answer to Panel Question 79. 
3048 EC, FWS, paras. 567-583. 
3049 See, paras. 7.583-7.586 above; and, in particular, US, FWS, paras. 325-333; US, SWS, paras. 132-
136 and 148-160. 
3050 EC, SNCOS, para. 116.  WT/DS316/R 
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  As soon as such measure exists (that is, th e initial grant is in place), it could be the 
subject of panel proceedings, and would be f ound to be a prohibited subsidy in law. It 
would be immaterial whether or not export had occurred."3051 
"... At the moment when the measure is enacted (that is, the initial grant  is made) the 
export might already exist or have occurred (t hat is, be actual), or the export might be 
expected in the future (that is, be anticipa ted). In either case, if there is a subsidy 
contingent in law upon export, it is prohibited, and this already from the moment of initial grant
. This remains so even if the expor t is anticipated, but never occurs . Faced 
with such a prohibited measure, a complaining Member does not have to wait for the 
measure to be used before commencing panel proceedings. 
Thus, the European Communities is not say ing that the export must occur before 
there is a prohibited measure and panel proceedings are brought. Rather, the European Communities is saying that the measure enacting the initial grant must 
provide that the subsidy is granted continge nt upon export, and that the measure must 
also provide that it is only export (whether in the past or in the future) that completes 
the grant and triggers the right to receive or  retain the funds unconditionally. That is 
what contingency ("ifness") means. Anticipa tion or consideration or motivation (that 
is, the Member grants the subsidy because  it anticipates exports) is not contingency. 
"'Becauseness" is not "ifness" and is not to be confused with it."
3052 
In order to fully appreciate the European Communiti es "re-statement" of its interpretation of Article 
3.1(a) and footnote 4, it is important to understa nd the meaning it gives to "actual or anticipated" 
export performance.  The European Communities su bmitted a detailed expositi on of its view on the 
meaning of this term in its second written submission, where inter alia  it stated: 
 
"... the term "actual" means an export that ex ists (that is, has already taken place) at 
the moment when the subsidy is deemed to exist within the meaning of Article 1 of 
the SCM Agreement ; whilst the term "anticipated" (also juxtaposed to the meaning of 
the term "actual") means an export that has not yet taken place at the moment when the subsidy is deemed to exist, but will take place in the future. 
... Dictionary meanings do not by themselves determine, but are relevant to, assessing 
ordinary meaning. The Shorter Oxford English Dictionary (fifth edition 2002)  
provides two non-obsolete meanings of the te rm "actual" (when used as an adjective, 
as in footnote 4) : "Existing in act or fact; real" and "In action or existence at the time; 
present, current.". The second of these unequivocally confirms the European Communities' interpretation. As regards th e first meaning, the United States might 
attempt to glean support for its position from th e term "real", but the term "existing", 
especially when read together with the sec ond meaning, also brings the first meaning 
closer to the European Communities' position.  On balance, therefore, the dictionary 
meanings of the term "actual" support the European Communities, not the United 
States : an "actual" export is one that alr eady exists at the moment when the subsidy 
is deemed to exist. 
The same dictionary does not contain an entry for the precise term "anticipated" 
(including when used as an adj ective, as in footnote 4 of the SCM Agreement ). It does 
                                                     
 
3051 EC, SNCOS, paras. 117 and 118. 
3052 EC, Answer to Panel Question 175 (footnote omitted). WT/DS316/R 
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  contain entries for the term "anticipate" (when used as a verb) and "anticipation" 
(when used as a noun).
219 All of the several dictionary meanings under the entries 
"anticipate" and "anticipation" indicate a temporal connotation : "before the due 
time"; "too soon"; "in advance of the time"; "future event"; "beforehand"; "earlier"; 
"look forward to"; "in advance of the expect ed time". This strongly supports the view 
that an "anticipated" export is one that h as not yet occurred at the moment when the 
subsidy is deemed to exist, and by definiti on is therefore envisaged to be one that will 
occur subsequently. 
____________________ 
219 These two dictionary entries must be tr eated with caution in the context of the 
present dispute, because footnote 4 does not pr ovide that the required condition is that 
the granting authorities "anticipate"; or that  there is "anticipation" by the granting 
authorities; but rather that the required condition is "export", whether "actual or 
anticipated" (see further below)." 3053 
7.632  Thus, the European Communities argues that an anticipated export is one that has not yet 
occurred but will take place in the future.  Accord ing to the European Communities, an anticipated 
export cannot be an export that a granting authority expects will take place in the future or sees as a 
mere future possibility because in its view, "footnot e 4 does not provide that the required condition is 
that the granting authorities 'anticipate' or that th ere is anticipation by the granting authorities, but 
rather that the required condition is export, whether actual or anticipated."  It follows that for the 
European Communities, the grant of a subsidy that is contingent upon anticipated export performance 
should be understood to mean a subsidy granted conti ngent upon an export that has not yet occurred at 
the time of the grant of the subsidy but that will occur in the future. 
7.633  Reading the entirety of the European Communities'  submissions together leads us to conclude 
that it is arguing that a subsidy will be contingent , in fact, upon anticipated export performance when 
the total configuration of the facts show that the measure granting a subsidy requires  the recipient to 
satisfy a performance condition that cannot be achieve d without exports, irrespective of whether those 
exports (or that performance) actually takes place. Where a subsidy is granted subject to such an 
obligation to perform, it is legally certain at the time of the grant of the subsidy that the recipient must 
perform in order to obtain the subsidy.  If it can th en be inferred from the total configuration of the 
facts that the granting authority, at the same moment, anticipated that the satisfaction of the 
performance obligation would involve exports, then the subsidy would be contingent in fact upon that 
anticipated export performance.  In the light of the Eur opean Communities' rejection of the possibility 
that an "anticipated" export may be one that is expected  by the granting authority, we find it difficult 
to see how else an export that has "not yet taken pla ce at the moment when the subsidy is deemed to 
exist, but {that} will take place in the future" can be demonstrated to exist at the time of the granting 
of a subsidy.  In this regard, we observe that  in its own submissions, the European Communities 
states: 
"By arguing that the required condition is th e "anticipating of" exports – whether or 
not the "anticipated" export ever "actually"  (as that term is understood by the United 
States) takes place - the United States is ar guing that the requireme nt of contingency 
that is at the heart of the provision can be replaced by mere consideration – that is, 
consideration by the granting Member that exports might  occur in the future, rather 
                                                      
3053 EC, SWS, paras. 235 and 237-238.  WT/DS316/R 
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  than imposition by the granting Member of a requirement that the recipient 
export in order to obtain the subsidy ."3054 
Thus, we understand the European Communities to argue that contingency in fact upon anticipated 
export performance arises when the measure granting a subsidy legally requires  the recipient to 
satisfy a performance condition that cannot be achieve d without exports, irrespective of whether those 
exports (or that performance) actually takes place.  In  our view, this interpreta tion of the relvant legal 
standard finds no basis in the language of Article 3.1( a) or footnote 4 or the jurisprudence of previous 
panels and the Appellate Body.  
7.634  The ordinary meaning of the word "contingent" has been held in previous dispute settlement 
proceedings to be "conditional" or "depe ndent for its existence on something else".
3055  Likewise, the 
expression "tied to" has been interpreted as conno ting to "limit or restrict as to ... conditions".3056  In 
our view, these meanings do not suggest that a rela tionship of contingency between the granting of a 
subsidy and anticipated exportation can only be demonstrated, in fact, when a subsidy recipient is 
required  to satisfy a performance obligation that ca nnot be achieved without exports.  To put it 
another way, we see nothing in the ordinary mean ing of the word "contingent" to support the view 
that the required link between the anticipation of export performance and the granting of a subsidy 
can only be established by proving the existence of a requirement  to achieve that anticipated 
performance.  In this regard, it is  instructive to recall that the subsidies found to be contingent in fact  
upon anticipated export performance in the Canada – Aircraft  and Australia – Leather  cases were not  
granted based on a requirement that exports take place in the future.  
7.635  In Canada – Aircraft , the panel was asked to determine wh ether the "actual application" of 
the Technology Partnerships Canada ("TPC") progr amme constituted a subsidy contingent in fact 
upon export performance.  The "TPC assistance" at  issue involved the provision of royalty-based 
financing for a number of "high technology" project s in the Canadian regional aircraft sector.  The 
royalty-based repayment terms of the financing cont racts before the panel required the recipients to 
make repayments only if they made sales.  The contracts did not require  the recipients to achieve any 
particular level of sales performance.  Nevert heless, even in the ab sence of any such legal 
performance obligations, the panel found that the "TPC assistance" constituted a subs idy contingent in 
fact upon anticipated export performance.  In doing so, it re lied upon 16 considerati ons derived from 
the materials and arguments submitted by the parties, none of which included the existence (or not) of 
any requirement or obligation  to make sales.3057  S i m i l a r l y ,  i n  Australia – Leather , the panel was 
asked to determine whether three subsidy paymen ts made under a grant contract to Howe, an 
Australian automotive leather manufacturer, were con tingent in fact upon export performance.  Under 
the grant contract, payments were scheduled to occu r in three instalments, with the first payment upon 
conclusion of the contract and subsequent paymen ts to be made on the basis of Howe meeting 
performance targets, including a "best endeavours" sales target.  Thus, again, the subsidies at issue in 
Australia – Leather  did not involve a requirement  to achieve any particular sales performance.  
Nevertheless, the panel found, on th e basis of all the facts before it (none of which pointed to the 
existence of any requirement to make sales), that the grants were contingent in fact upon anticipated 
exportation.3058   
7.636  In our view, limiting the scope of the prohibition on subsidies that are contingent in fact upon 
anticipated exportation to only those subsidies that are granted subject to the existence of a 
                                                      
3054 EC, SWS, para. 245 (emphasis added). 
3055 See, Panel Report, Canada – Aircraft , para. 9.331; Appellate Body Report, Canada – Aircraft , 
para. 166. 
3056 Appellate Body Report, Canada – Aircraft , para. 170. 
3057 Panel Report, Canada – Aircraft , paras. 9.316-9.348. 
3058 Panel Report, Australia – Automotive Leather II , paras. 9.46-9.72. WT/DS316/R 
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  performance obligation  that can only be achieved through export sales, would create significant 
potential for circumvention.  It would mean that so long as Members did not include any legal performance obligation in a contract granting a su bsidy, they could escape the disciplines of the 
prohibition in Article 3.1(a), even if it could be est ablished on the basis of the facts that the grant of 
the subsidy depended  upon the granting authority's anticipation of export performance – that is, when 
it is clear from the facts surrounding the granting of the subsidy that it was provided to a particular 
enterprise precisely because of the granting authority's anticipation of exportation.  For instance, a 
government subsidy programme that is ostensibly open to all businesses may provide subsidies only 
to those applicants indicating in their application th at exports are likely to arise.  Such a programme 
would not involve subsidization contingent upon any export performance requirement.  However, the 
fact that subsidies would be granted to only t hose entities holding export performance expectations 
shows that the anticipation of export performance was in fact a condition for the granting of each 
subsidy.  Under the European Communities' theory of contingency, such a subsidy programme would 
escape the prohibited subsidy disciplines of the SC M Agreement.  In our view, the text of 
Article 3.1(a) and footnote 4 does not envisage such an outcome. 
7.637  Thus, we find that the European Communities'  interpretation of the legal standard for 
determining whether a subsidy is contingent in fact upon anticipated export performance pursuant to 
Article 3.1(a) and footnote 4 cannot be sustained.     
7.638  The United States has advanced a second interpre tation of the European Communities' theory 
of contingency, which it argues is "deeply  flawed".  The United States explains: 
"... the EC's theory of the two steps involved in the granting of a subsidy tied to 
anticipated exportation amounts to a different legal standard for de jure  export 
contingency and de facto  export contingency ...  The EC asserts that 'if there is a 
subsidy contingent in law upon export, it is  prohibited, and this already from the 
moment of initial grant'
.  However, following the EC's reasoning, a subsidy 
contingent in fact upon export performan ce – in particular, a subsidy tied to 
anticipated exportation or export earnings – would be prohibited only on the basis of the 'completing {of} the grant'.  This is because it would be impossible to determine, 
solely on the basis of what the EC calls the 'initial grant', whether any consequence 
will flow from the occurrence or non-occurre nce of exportation; therefore, it would 
be impossible to determine whether the subs idy is, in fact, tied to exportation that 
'will occur'. 
By contrast, an interpretation of 'anticipat ed exportation' according to its ordinary 
meaning, in context, and in light of the object and purpose of the SCM Agreement is 
consistent with a single legal standard for de jure  and de facto  export contingency.  
Following that interpretation, there simply is a 'granting of a subsidy' – not an initial, 
conditional grant followed by a 'completing' of the grant, whereby the grant is made 
unconditional.  Based on the granting of a s ubsidy, the subsidy may be found to be 
contingent, either in law or in fact, upon export performance.  At that point, it is possible to determine whether the granting of the subsidy is tied to 'anticipated 
exportation' – i.e., exportation that is 'expected' – whether as a matter of law or as a 
matter of fact.  There is no need to wait for the subsequent occurrence or non-
occurrence of exportation to determine wh ether the subsidy is in fact tied to 
exportation that 'will occur'."
3059 
7.639  Thus, according to the United States, the Europ ean Communities' theory of what must be 
demonstrated in order to prove contingency in f act upon anticipated exportation would require it to 
                                                      
3059 US, Comments on EC Answer to Panel Question 175 (footnotes omitted).  WT/DS316/R 
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  demonstrate that the challenged LA/MSF measures e ach involve the granting of a subsidy only once 
any anticipated export performance is realized.  In  effect, the United States argues that the European 
Communities' "if-then"3060 standard of contingency may be u nderstood to mean contingency in the 
following sense: if anticipated export performance is realized, then a subsidy will be granted.  We are 
not convinced that this is how Article 3.1(a) a nd footnote 4 of the SCM Agreement are intended to 
operate. 
7.640  In Canada – Aircraft  the Appellate Body held that the standard of contingency set out in 
footnote 4 requires a demonstration of "a re lationship of conditionality or dependence"3061 between 
the granting of a subsidy and export performance.  On e way of describing this standard may well be in 
terms of an "if-then" relationship between export performance (either actual or anticipated exportation 
or export earnings) and the granting of a subsidy.  However, it would be wrong to conclude that this 
means that the contingency standard  focuses on a relationship between the realization  of anticipated 
export performance and the granting of a subsidy.   
7.641  Among the meanings of the verb "anticipate" is  "{t}ake into consideration before due time", 
"{o}bserve ... before due time", "look forward to",3062 "be aware of (a thing) in advance and act 
accordingly" and "expect, foresee, regard as probable".3063  In our view, all of these meanings suggest 
the same thing: to "anticipate" exportation means to consider, expect or fores ee that exports will take 
place in the future.  Thus, in the specific context of footnote 4 of the SCM Agreement, "anticipated" 
exportation may be understood to be exportation that a granting authority considers, expects or 
foresees will occur after  it has granted a subsidy.  We find support for this interpretation in Canada – 
Aircraft , where the Appellate Body observed that: 
"The dictionary meaning of the word 'anticip ated' is 'expected'.  The use of this word, 
however, does not transform the standard for 'contingent … in fact' into a standard 
merely for ascertaining 'expectations' of expor ts on the part of the granting authority.  
Whether exports were anticipated or 'expected ' is to be gleaned from an examination 
of objective evidence.  This examination is quite separate from, and should not be 
confused with , the examination of whether a subsi dy is 'tied to' actual or anticipated 
exports.  A subsidy may well be granted in  the knowledge, or with the anticipation, 
that exports will result.  Yet, that alone is not sufficient, because that alone is not 
proof that the granting of the subsidy is tied to  the anticipation of exportation."3064 
7.642  In our view, this passage confirms that the rela tionship of "conditionalit y or dependence" that 
must be established is not a relationshi p between the granting of a subsidy and the realization of 
anticipated export performance, but rather a relati onship of "conditionality or dependence" between 
the granting of a subsidy and those expectations themsel ves.  In this regard, we note that the subsidies 
found to be contingent in fact upon anticipated export performance in the Canada – Aircraft  and 
Australia – Leather  cases were not granted as a consequence of the actual realization of anticipated 
exportation.  In both cases, the subsidies found to  be prohibited under Article 3.1(a) existed in 
advance of any actual  export performance being achieved.3065  Thus, contrary to what is implied by 
                                                      
3060 EC, NCSOS, para. 127. 
3061 Appellate Body Report, Canada – Aircraft , para. 171. 
3062 The New Shorter Oxford English Dictionary , (Clarendon Press 1993), Vol. I, p. 88. 
3063 The Concise Oxford Dictionary , Ninth Edition , (Clarendon Press 1995), p.53. 
3064 Appellate Body Report, Canada – Aircraft , para. 172 (footnote omitted, emphasis original). 
3065 In Canada – Aircraft , the panel determined that the "assistance" provided under the Technology 
Partnerships Canada ("TPC") programme amounted to subsid ization that was contingent in fact upon anticipated 
export performance after examining whether "the factua l evidence adduced ... demons trate{d} that had there 
been no expectation of export sales  (i.e., no 'exportation ' or 'export earnings ') 'ensuing ' from the subsidy, the 
subsidy would not have been granted".  The panel reje cted Canada's argument that no export contingency 
existed because TPC assistance was "not conditional on ex ports taking place" by stating that "{w}hile this WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  the United States' characterization of the European Communities' legal argument, it is not necessary to 
show that expected exportati on or export earnings have actually materialized in order to establish a 
relationship of contingency in fact between the granting of a subsidy and anticipated export 
performance.  What must be demonstrated for th is purpose is that the grant of a subsidy is 
"conditional" to, or "dependent" upon, th e granting authority's export performance expectations .  
Thus, the legal theory the United States considers to be advanced by the European Communities can 
find no basis in the language of footnote 4.   
7.643  The European Communities contends that an interpretation of footnote 4 that results in 
finding that anticipated exportation may be establis hed on the basis of mere "consideration by the 
granting Member that exports might occur in the future"
3066 would "effectively convert a prohibition 
based on contingency into one based on some sort of 'motivation' or 'effects' based test".3067  
According to the European Commun ities, the Uruguay Round negotiators  rejected the "United States' 
attempts ... to secure a prohibition on subsidies having effects on exports" in Part II of the 
SCM Agreement, agreeing instead to regulate the a dverse effects of subsidies on the interests of 
Members, "notably via exports", under Part III of the SCM Agreement.3068  Moreover, the European 
Communities submits that such a reading "would render findings of prohibition more likely in the case of global markets or small or export depe ndent economies, because exports would appear to 
loom larger in the set of potential considerations".
3069 
7.644  We disagree. In our view the European Co mmunities is confusing the question of what 
contingency means with the question of what the subs idy is contingent upon.  In concluding that the 
reference to "anticipated exportation or export earni ngs" in footnote 4 means to consider that exports 
will take place before they actually do, or to envisag e that exports may take place in the future, we are 
not saying that the required contingency between the granting of a subs idy and anticipated exportation 
or export earnings may be demonstrated by merely  showing that a granting authority anticipated  
export performance. Rather, we are saying that the required contingency may be demonstrated where 
the subsidy was granted because  the granting authority anticipated export performance.  As the 
Appellate Body noted in the Canada – Aircraft , the meaning of anticipated exportation "does not 
transform the standard for 'contingent … in fact' in to a standard merely for ascertaining 'expectations' 
                                                                                                                                                                     
argument may be relevant in determining whether a subsidy would not have been granted but for actual  
exportation or export earnings, we find this argument insufficient to rebut a prima facie  case that a subsidy 
would not have been granted but for anticipated  exportation or export earnings." Panel Report, Canada – 
Aircraft , paras. 9.339 and 9.343, respectively, (emphasis original).   
In Australia – Automotive Leather II , the panel's finding related to three grant payments provided for 
under a contract between the Australian government and Howe.  The first payment was made at the time the 
contract was concluded ( i.e., before any actual exportation).  The remaining two payments were to be made 
subsequently on the condition that Howe satisfy a "best endeavours" obligation to meet certain specific sales performance targets.  Australia accep ted that each of the payments provi ded for under the contract was a 
subsidy, and the panel found that each subsidy had been granted contingent in fact upon anticipated export 
performance.  Panel Report, Australia – Automotive Leather II , paras. 9.45 and 9.71.  In coming to this 
conclusion, the panel noted that it was "clear ... that continued exports, that is, anticipated exportation, was an 
important condition in the provision of" the subsidies.  In addition, it observed that  
"{a}t the time the contract was entered into, the government of Australia was aware of {Howe's 
necessity to continue and probably increase exports}, and thus anticipated contin ued and possibly increased 
exports by Howe.  In our view, these facts effectivel y transform the sales perfor mance targets into export 
performance targets.  We thus consider that Howe's anticipated export performan ce was one of the conditions 
for the grant of the subsidies."   
Panel Report, Australia – Automotive Leather II , paras. 9.66 and 9.67. 
3066 EC, SWS, para. 245; EC, SNCOS, para. 127. 
3067 EC, SNCOS, para. 129. 
3068 EC, SWS, para. 245. 
3069 EC, SNCOS, para. 129.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  of exports on the part of the granting authority".3070  It is clear to us, as it was to the Appellate Body in 
Canada – Aircraft , that establishing whether a granting authority anticipates export performance, or 
whether a relationship of "conditionality" or "depende nce" exists between the grant of a subsidy and 
any such anticipation, involves two separate inquiries.  We do not understand the United States to 
argue anything different.  Indeed, the United States h as expressly stated that it "does not argue that the 
governments' expectations of e xportation or export earnings alone make the provision of {LA/MSF} 
contingent upon export performance".3071 
7.645  Finally, another aspect of the European Comm unities' legal argument that we do not find 
convincing is the view that the subsidy provided through the challenged LA/MSF contracts is the 
difference between the interest rate  charged under each contract and th e interest rate that would be 
demanded by a market lender offering financi ng on the same or similar terms and conditions.3072  The 
European Communities relies on this argument to al lege that the United States cannot "demonstrate 
that the consequence of the anticipated export" is the granting of a "subsidy" (as opposed to the 
measure itself or the principal amount of the loan).3073 According to the European Communities, the 
United States cannot make out this case because the consequence of any anticipated export 
performance is the repayment of the financial contributions, which does not amount to the granting of 
a subsidy, but is instead a "negative subsidy".3074 
7.646  We recall that Article 1.1 of the SCM Ag reement defines a "subsidy" as a financial 
contribution that confers a benefit.3075  A "subsidy" is, therefore, constituted by both a financial 
contribution and a benefit.  In the first section of our Repor t, we concluded that the United States has 
demonstrated that each of the challenged LA/MSF m easures constitute a subsidy within the meaning 
of Article 1.1.3076  In other words, we have already found that by entering into the LA/MSF 
agreements with Airbus, the EC member State governments provided Airbus with a subsidy.  
Therefore, for the purpose of Article 3.1(a), the "gra nting of a subsidy" refers to the provision of 
LA/MSF by the EC member State governments.  It does not refer to the moment when, pursuant to 
the LA/MSF contracts, Airbus is re quired to make loan repayments.  
7.647  Thus, to the extent it is grounded in a con ception of contingency and anticipated export 
performance, and a notion of what it means to grant a subsidy (in the context of a loan), that is not 
contemplated in the text of Article 3.1(a) and f ootnote 4, the European Communities' interpretation of 
the legal standard for determining whether a subs idy is contingent in fact upon anticipated export 
performance cannot be sustained. 
7.648  Correctly interpreted, the legal standard set out  in footnote 4 indicates that a subsidy may be 
found to be contingent in fact  upon anticipated  export performance, and therefore prohibited under 
Article 3.1(a), when there is evidence demonstrating the existence of three di stinct elements: (i) the 
granting of a subsidy; (ii) that is tied to; (iii) an ticipated exportation or export earnings.  At the heart 
of this legal standard is the second element, wh ich reflects the notion of contingency set out in 
Article 3.1(a).3077  The meaning of "contingent" in Article 3. 1(a) is "conditional" or "dependent for its 
existence upon".3078  Thus, in order to qualify as a prohibited export subsidy, the grant of the subsidy 
must be conditional  or dependent upon  actual or anticipated export performance; or as we have put it 
above, a subsidy must be granted because  of actual or anticipated export performance.  Article 3.1(a) 
                                                      
3070 Appellate Body Report, Canada – Aircraft , para. 172 (footnote omitted, emphasis original). 
3071 US, SWS, paras. 135, 211-214. 
3072 EC, FWS, para. 634. 
3073 EC, FWS, para. 634. 
3074 EC, FWS, para. 579; EC, FWS, paras. 589, 594-604. 
3075 See, paras. 7.301 and 7.365. 
3076 See, paras. 7.482 - 7.490. 
3077 Appellate Body Report, Canada — Aircraft, para. 171. 
3078 Appellate Body Report, Canada – Aircraft , para. 166. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  further provides that such export contingency may be the sole condition governing the grant of a 
prohibited subsidy or it may be "one of several other conditions".
3079  However, it is clear that mere 
anticipation of export performance on the part of a granting authority – that is, the expectation or 
consideration that exportation or export earnings will take place in the future – is not enough to show 
that a subsidy was granted contingent upon anticipated export performance.   Similarly, the language 
of the last sentence of footnote 4 indicates that the mere fact that an ente rprise exports cannot, alone, 
be used to establish the required contingency.  Nevertheless, the fact that a company is export-
oriented "may be taken into account as a relevant fact, provided it is one of several facts which are 
considered and is not the only fact supporting a finding" of export contingency.3080  Finally, we note 
that for the purpose of establishing a case of in fact contingency, each of the three elements identified 
above must be separately " inferred  from the total configuration of facts constituting and surrounding 
the granting of the subsidy, none of which is  likely to be decisive in any given case".3081 
7.649  With this legal standard in mind, we now turn  to examine the United States' factual assertions 
in respect of each of the challenged LA/M SF contracts on a measure-by-measure basis. 
"Granting of a subsidy"  
7.650  We have already found that in entering into  each of the challenged LA/MSF agreements with 
Airbus, the EC member State governments provided Airbus with a subsidy.  The United States has 
therefore established the first of the three elements it must demonstrate in order to make out its case under Article 3.1(a).  For its claim to succeed, the Un ited States must also show that the provision of 
LA/MSF by each of the relevant EC member State governments ( i.e., the "granting of a subsidy") was 
contingent in fact upon anticipa ted exportation or export earnings. 
Whether the EC member State governments "a nticipated exportation or export earnings"
 
A380 
7.651  The United States argues that the evidence surr ounding the decisions of the EC member State 
governments to provide LA/MSF for the A380 de monstrates not only that the governments 
anticipated or expected that exportation or export earnings would result from the project, but also that 
the governments knew Airbus was developing the A 380 primarily for the export market, and that 
export sales would be critical to the project's success.3082  The evidence the United States relies upon 
to support its assertions,3083 and the European Communities' responses thereto,3084 are set out below: 
• The United States argues that in 1999 and 2000, at the time it asserts the Airbus governments 
were discussing A380 LA/MSF with Airbus, Airbus  was stating publicly in its Global Market 
Forecast ("GMF") that it was developing the A380 primarily for the export market by, for 
example, asserting that the Asia-Pacific region would account for 55% (1999) and 57% 
                                                      
3079 Appellate Body Report, United States – Tax Treatment for "Foreign Sales Corporations" – Recourse 
to Article 21.5 of the DSU by the European Communities ("US – FSC (Article 21.5 – EC) "), WT/DS108/AB/RW, 
adopted 29 January 2002, DSR 2002:I, 55, para. 111. 
3080 Appellate Body Report, Canada – Measures Affecting the Export of Civilian Aircraft – Recourse by 
Brazil to Article 21.5 of the DSU ("Canada — Aircraft (Article 21.5 — Brazil)") , WT/DS70/AB/RW, adopted 
4 August 2000, DSR 2000:IX, 4299 , paras. 48, 51. 
3081 Appellate Body Report, Canada – Aircraft , para. 167. 
3082 US, FWS, para. 345. 
3083 US, FWS, paras. 345-351; United States, HSBI Appendix to US, FWS (h ereinafter "US, FWS, 
HSBI Appendix"), paras. 29-32, 34-36; US, SWS, paras. 137-140; US, Answer to Panel Questions 10 and 144. 
3084 EC, FWS, paras. 615-629; EC, SWS, paras. 298-299, 308-313; European Communities, HSBI 
Appendix to EC, SWS, "EC, SWS, HSBI Appendix"), paras. 35-44.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  (2000) of orders, while "Europe" woul d account for 23% (1999) and 20% (2000).3085  The 
United States considers that essentially the same message was communicated in the Third 
Quarter 1999 edition of the Airbus A3XX Briefing,  which noted that "{t}he market for large 
passenger aircraft will be concentrated: both geographically, with over half the projected 
deliveries expected to go to airlines domiciled in the Asia-Pacific region, and in terms of 
customers, with 20 airlines taking more than 75% of the aircraft."3086  Moreover, the 
United States submits that Airbus repeated  the assertions made in the 1999 GMF in [***], 
noting in particular, that [***].3087  Finally, the United States identifies "other relevant 
information" in the French governme nt's "critical project appraisal".3088 The European 
Communities argues that the GMF is "simply an analytical global market forecast, regularly 
prepared as part of the company's normal commercial operations, and for reasons entirely unrelated to the matter at hand".  Moreover, the European Communities points out that the GMF refers to "Europe" (a broader market th an the "EC").  According to the European 
Communities, it is impossible to infer from th e GMF that the terms of any of the A380 
LA/MSF contracts vary by reference to geographical region.  The European Communities 
explains that the same observations are applicab le in respect of the United States' reliance on 
the Third Quarter 1999 edition of the Airbus A3XX Briefing.  Finally, the European Communities notes that the 2000 GMF post-dates the conclusion of the UK A380 LA/MSF contract.
3089 
 
• The United States argues that the repayment provisions of the four LA/MSF contracts 
anticipate a level of A380 sales substantially exceeding the 247 sales Airbus predicted in the 
2000 GMF for aircraft with more than 400 seats in Europe between 200 0 and 2019. Thus, the 
United States notes that an annex to the German A380 contract refers to [***] forecast A380 
deliveries in 20 years;3090 and that the Spanish A380 contract refers to the expectation that 
there will be deliveries of [***] passenger versions of the A380, and [***] cargo versions.3091 
The United States also identifies [***] set out in the French and UK A380 "project 
appraisals", as well as the Airbus business case for the A380.3092  Moreover, the United States 
also notes that the French, German, Spanish and UK LA/MSF contracts required Airbus to make full repayment over, respectively, [***], [***], [***] and [***]
3093 A380 sales.3094  The 
European Communities argues that the repaymen t provisions are origin-neutral, the company 
being free to repay from the proceeds of any sal e, regardless of destination, or from other 
sources, and even in advance of delivery.  Moreover, the European Communities argues that 
there is no requirement under the LA/MSF cont racts for any sales performance at all.3095  In 
responding to the United States reliance on the "critical project appraisals", the European 
                                                      
3085 Exhibits US-356 and US-358. 
3086 Exhibit US-359. 
3087 Exhibit US-357 (BCI).  The United States note s that the European Communities did not provide 
copies of the A380 LA/MSF appli cation submitted by any of the other Airbus companies.  We observe, 
however, that the questions asked by the Facilitator during the Annex V process did not specifically request the 
European Communities to provide copies of the A380 LA/MSF applications. 
3088 US, FWS, HSBI Appendix, paras. 34 and 36. 
3089 EC, FWS, paras. 617-619. 
3090 Exhibit US-357 (BCI).   
3091 Spanish A380 LA/MSF contract, Septimo, Exhibit US-73 (BCI). 
3092 French A380 project appraisal, DS316-EC-HSBI-00011434, at 9-10; UK A380 project appraisal, 
DS316-EC-HSBI-0001211, at 35-36, discussed in US, FWS, HSBI Appendix, paras. 29-32.  Airbus A380 
business case, DS316-EC-HSBI-0001261. 
3093 In fact, the UK government sought full repayment of the principal plus interest loaned under the 
A380 LA/MSF contract over [***] sales.  An additional [***] payment was required for sales between [***] to 
[***], with [***] being owed for sales in excess of [***].  EC, FWS, paras. 432-439. 
3094 US, Answer to Panel Question 10. 
3095 EC, FWS, paras. 616, 620 and 621. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  Communities points out that the exercise of ea ch government's judgment as to the market 
prospects of a particular investment is exac tly the sort of market discipline that the 
SCM Agreement is in place to encourage.
3096 
 
• According to the United States', the EC memb er State governments "specifically referenced 
the global nature of the A380 project and Airbus' export sales" in various documents.3097  In 
particular, the United States refers to: (i) la nguage in the Spanish contract revealing the 
[***];3098 (ii) a DTI press release stating that "{w}ithin 25 years Airbus has grown to take 
55% of the civil aircraft production market and contributes £1 billion to the UK's trade balance";
3099 and (iii) the statement reportedly made by Prime Minister Blair at the ceremony 
unveiling the first A380 to the public "{t}he e xport gains will run into the billions of 
pounds".3100  The European Communities argues that  the media sources cited by the United 
States are of low reliability (the European Communities does not admit the accuracy of any of the press statements relied upon by the United States).  The European Communities points out 
that the reports cite only certain components (wi ngs) destined for other parts of the European 
Communities, i.e., not exported outside of the European  Communities, and that the statement 
from Prime Minister Blair post-dates the contracts.  As with the other documents submitted as evidence by the United States, the European Co mmunities argues that it is impossible to infer 
from the two media releases that the terms of the A380 LA/MSF contracts vary by reference 
to the European Communities and the rest of the world.
3101 
 
• The United States submits that when Airbus w as seeking LA/MSF, "it pointed to potential 
export earnings and stressed the importance of the export sales to the project's success".3102  In 
support of this submission, the United States asserts that [***];3103 that Airbus Senior Vice 
President for Marketing John Leahy was reported in February 2000 as stating that "{a}bout 
half the demand for the A3XX will come from Asia. ...  I am sure that we would not be launching it if there were not key Asian airlines on board";
3104 and that a March 2000 
Article in The Economist  noted Leahy's view that Asia would account for around half of the 
sales of the A380, reporting that Leahy hoped "t o win launch orders from two Asian carriers, 
one European or Middle Eastern airline and one  American. ... encouraged by the responses 
from Singapore Airlines, Cathay Pacific, Malaysia Air Lines and Emirates."3105  T h e  
European Communities argues that  the cited report is of low reliability (the European 
Communities does not admit the accuracy of any of the press statements relied upon by the 
United States), and that it is impossible to infer from it any differentiation in the terms of the LA/MSF contracts between the European Communities and the rest of the world.
3106 
 
• The United States contends that the A380 is an export-oriented project and that Airbus itself 
is a "highly export-oriented company", w ith over 84% of total 1992-2005 sales going to 
                                                      
3096 EC, SWS, HSBI Appendix, para. 36. 
3097 US, FWS, para. 348. 
3098 Spanish A380 LA/MSF contract, Sexto, Exhibit US-73 (BCI). 
3099 Exhibit US-360. 
3100 Exhibit US-361. 
3101 EC, FWS, paras. 622-623. 
3102 US, FWS, para. 349. 
3103 Exhibit US-357 (BCI).  In citing this Exhib it, the United States recalls that the European 
Communities did not provide copies of any other A380 LA /MSF applications.  We observe, however, that the 
questions asked by the Facilitator during the Annex V process did not specifically request the European Communities to provide copies of the A380 LA/MSF applications. 
3104 Exhibit US-362. 
3105 Exhibit US-363. 
3106 EC, FWS, para. 625.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  export.3107  In support of this assertion, the United States submits a chart prepared on the basis 
of information derived from the Airclaims CASE database showing that between 1992 and 
2005 an average of 84% of total Airbus sales of aircraft of all sizes have been export sales.3108 
In addition, the United States refers to the 2000  Airbus GMF, which it asserts indicated that 
"{t}he biggest share (35 per cent) of deliveries will go to airlines in North America.  
European airlines will take 30 per cent, and Asia -Pacific (including PRC) airlines 24 per cent, 
leaving just 11 per cent for airlines in Latin America, Africa and the Middle East."3109 The 
United States also points to a position paper pr epared by the External Advisory Group for 
Aeronautics which states that the aeronautics industry in Europe "employs a huge workforce 
and, through exports, contributes strongly to Europe's ability to fund other changes and to 
develop the quality of life of its citizens."3110  The European Communities argues that even 
the United States recognizes that export-orientation is insufficient to demonstrate contingency.  Moreover, in respect of th e position paper, the European Communities notes 
that it post-dates the UK A380 contract, and th e United States has not demonstrated how its 
contents are imputable to the European Co mmunities.  And, finally, the European 
Communities submits that it is impossible to infer from the documents submitted by the United States any differentiation in terms of the LA/MSF contracts between the European Communities and the rest of the world.
3111  
  
7.652  Having carefully reviewed and considered the evidence and related arguments advanced by 
the parties, as they concern each of the challe nged LA/MSF measures, we have no doubt that at the 
time that Airbus and the EC member State govern ments concluded the A380 LA/MSF contracts, the 
latter were fully aware that Airbus was a global company operating in a global market, and that the 
A380 project would involve Airbus selling much if not  most of its production in export markets.  This 
is most apparent from the publicly availabl e market forecasts cited by the United States,3112 the Airbus 
A3XX Briefing, the A380 business case, the French and UK government's "critical project 
appraisals", Deutsche Airbus' A380 LA/MSF applica tion, the sales expectations described in the 
German and Spanish A380 contract, the langua ge in the Spanish contract revealing the [***], and the 
repayment schedules of the contracts themselves, wh ich clearly envisaged that repayment would be 
made over a number of sales that exceeded the Airbus market forecasts for "Europe" over a 
comparable period of time.  The Airclaims data s howing that the vast majority of Airbus sales 
between 1992 to 2005 were made on export markets provides further support for our conclusion.   
7.653  One of the main arguments made by the European Communities in responding to the 
evidence advanced by the United States is that the challenged A380 LA/MSF contracts contained no 
obligation on Airbus to make any export sales, or  any sales at all.  In addition, the European 
Communities has repeatedly argued that it is impossi ble to infer from the evidence that the terms of 
the LA/MSF measures varied in any way as a function of whether a sale is destined for the European 
Communities or elsewhere.  We do not consider this  line of argument to be directly relevant to 
whether the EC member State governments "anticip ated exportation or export earnings", but rather 
whether the subsidy granted under those contracts was contingent on that anticipation.   
                                                      
3107 US, FWS, para. 350. 
3108 Airclaims CASE database. 
3109 Exhibit US-358. 
3110 Exhibit US-364. 
3111 EC, FWS, paras. 626-629. 
3112 Although the European Communities notes that the 2000 GMF post-dated the conclusion of the UK 
A380 contract, we note that the French, German and Sp anish A380 contracts were concluded respectively in 
2002, 2002 and 2001.  Moreover, we r ecall that the United States also re lies upon market forecast information 
contained in the 1999 GMF that was similar to that in the 2000 GMF, and that the former document was 
published in advance of the UK entering into the A380 LA/MSF contract with Airbus. WT/DS316/R 
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  7.654  Thus, even accepting that the GMF 2000 post-dated the conclusion of the UK A380 contract, 
and assuming, arguendo , that the press reports and media Articles relied upon by the United States 
have a relatively low probative value given th at the European Communities does not accept their 
accuracy, we nevertheless conclude that the ev idence advanced by the United States clearly 
establishes that at the time each of the A380 LA/M SF contracts were entered into, each of the EC 
member State governments "anticipated exportation or export earnings", within the meaning of 
footnote 4 of the SCM Agreement, in the sense that they expected or considered that exportation or 
export earnings would result from the development of the A380.   
A340-500/600 
7.655  As with the A380, the United States argues th at the evidence surrounding the decisions of the 
French and Spanish governments to provide LA/M SF for the A340-500/600 demonstrates that the 
governments anticipated or expected that expor tation or export earnings would result from the 
project.
3113  The evidence the United States relies upon to support its assertions,3114 and the European 
Communities' responses thereto,3115 are set out below: 
• The United States asserts that the Spanish A340-500/600 LA/MSF contract [***].3116  
Similarly, the United States argues that the Fr ench government's "critical project appraisal" 
contained other relevant information, for exam ple, with respect to sales projections and 
customer lists.3117   
 
• According to the United States, in 1997-1998, Airbus was predicting that the substantial 
majority of its sales of aircraft of all types over the next 20 years would be for export.  In support of this assertion, the United States points to the 1997 and 1998 GMFs, which, 
respectively, predicted that European airlines would represent 25 to 29 percent of its total 
orders during the period 1997 to 2016, and 25 to  28 percent of its total orders during the 
period 1997 to 2017.
3118  
 
• The United States notes that on the date of the LA/MSF contracts for the A340-500/600 were 
signed, almost half of the firm orders that  Airbus had already received were export sales: 
Virgin Atlantic, Lufthansa and Swissair had ordered a total of 29 A340-500/600s; and Air 
Canada, Emirates, ILFC (based in the United St ates), and Egyptair had ordered a total of 23 
aircraft.3119  The United States points to other releva nt information in the French government's 
"critical project appraisal".3120 
 
• The United States also refers to an EC State Aid decision concerning the French government's 
LA/MSF for the A340-500/600, arguing that this decision noted the French government's expectation that the development of the aircra ft would allow Airbus to compete for sales 
throughout the world.  In particular, the Un ited States cites the follo wing passage from that 
decision: "{f}rom a global standpoint, th e A340-500/600 program will have only one 
                                                     
 
3113 US, FWS, para. 363. 
3114 US, FWS, paras. 363-371; US, FWS, HSBI Appendix, paras. 46 and 48; US, SWS, paras. 137-140; 
US, Answer to Panel Questions 10 and 144. 
3115 EC, FWS, paras. 674-677; EC, SWS, paras. 314-316, 318-320. 
3116 Spanish A340-500/600 LA/MSF contract, at 2, Exhibit US-37 (BCI). 
3117 US, FWS, para. 365, referring to Exhibit DS316-EC-HSBI-0001143; US, FWS, HSBI Appendix, 
para. 46. 
3118 Exhibits US-366 and US-367. 
3119 US, FWS, para. 367 referring to Exhibit US-368, containing data derived from the Airclaims 
database. 
3120 US, FWS, HSBI Appendix, para. 48.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  competitor- Boeing.  The A340-500/600 will be able to compete with the 747-400 and 777-
300.  The A340-500 will be able to compete with the Boeing 777-200GW."3121 
 
• Finally, the United States argues, once again, that Airbus is an export-oriented company, 
noting that the table of orders derived from the Airclaims database shows that in the 1992 to 
1997 period ( i.e., the period predating the French and Spanish decisions to provide LA/MSF 
for the A340-500/600) 86% of total Airbus sales of aircraft were export sales.3122 
 
• The European Communities argues that the United States has provided no evidence to 
demonstrate that the number of A340-500/600 de liveries needed to fully repay principal and 
interest exceeds projections of demand in the European Communities for the aircraft.  
According to the European Communities, th e United States has introduced no evidence 
whatsoever regarding potential demand in the Eu ropean Communities for this aircraft.  The 
European Communities submits that for this reas on alone, the United States' claims in respect 
of the A340-500/600 must be rejected.3123   
 
7.656  Having carefully reviewed and considered the evidence and related arguments advanced by 
the parties, as they concern the two challenged LA/MSF measures, we have no doubt that at the time 
that Airbus and the French and Spanish gove rnments concluded the A340-500/600 LA/MSF 
contracts, the latter were fully aware that Airbus  was a global company operating in a global market, 
and that the A340-500/600 project would involve Air bus selling much if not most of its production in 
export markets.  This is most apparent from the Spanish LA/MSF contract which as the United States 
has noted, [***]; and information from the French government's  "critical project appraisal" referred to 
and discussed by the United States in the HSBI Appendix to its first written submission.  The market forecasts for "Europe" (compared with other re gions) made in the 1997 and 1998 GMFs and the 
Airclaims data showing that the vast majority of Airbus sales between 1992 to 1997 were made on 
export markets provides further support for our conclusion.  
7.657  The European Communities submits that the United States has failed to establish "anticipated 
exportation or export earnings" because it has advanced no data to demonstrate that the number of 
deliveries needed to fully repay principal and in terest under the LA/MSF loans exceeds projections of 
demand in the European Communities for the A3 40-500/600.  Although the United States has not 
specifically advanced this informa tion, the evidence discussed in the pr evious paragraph, in our view, 
clearly demonstrates that at the time each of th e A340-500/600 LA/MSF contracts were entered into, 
each of the EC member State governments "anticip ated exportation or export earnings", within the 
meaning of footnote 4 of the SCM Agreement, in th e sense that they expected  or considered that 
exportation or export earnings would result fro m the development of the A340-500/600. 
A330-200 
7.658  Again, the United States argues that the ev idence surrounding the decision of the French 
government to provide LA/MSF for the A330-200 demons trates that it anticipat ed or expected that 
exportation or export earnings would result from the project.
3124  The evidence the United States relies 
upon to support its assertions,3125 and the European Communities' responses thereto,3126 are set out 
below: 
                                                      
3121 US, FWS, para. 368 citing from Exhibit US-3. 
3122 US, FWS, para. 369, referring to information derived from the Airclaims CASE database. 
3123 EC, FWS, para. 675. 
3124 US, FWS, para. 382. 
3125 US, FWS, paras. 378-382; US, FWS, HSBI Appendix, paras. 55-56; US, SWS, paras. 137-140; US, 
Answer to Panel Questions 10 and 144. WT/DS316/R 
Page 502  
BCI deleted, as indicated [***] 
 
  • The United States points to certain information in the French government's "critical project 
appraisal" for the A330-200, which it argues show s that the French government expected that 
LA/MSF for the A330-200 would lead to s ubstantial exportation or export earnings.
3127 
 
• In addition, the United States notes that in 1995 and 1996, Airbus was already predicting that 
the substantial majority of its sales of aircraft of all types over the next 20 years would be for 
export.  In this connection, the United Stat es refers to the 1995 GMF where it was predicted 
that European airlines would represent only 28 percent of its total orders during the 1995-
2014 period.3128    
 
• Moreover, the United States asserts that on the date that the French government signed the 
A330-200 LA/MSF contract, 100 percent of the firm  orders that Airbus had already received 
for the A330-200 were export sales.3129 
 
• The United States also includes,  as evidence it submits shows that Airbus is an export 
oriented company, the evidence it presented in th e context of its claim against the A380.  In 
particular, this evidence is that over 84% of  total Airbus sales between 1992 and 2005 were 
export sales.3130   
 
• The European Communities argues that the United States has provided no evidence to 
demonstrate that the number of A330-200 deliv eries needed to fully repay principal and 
interest exceeds projections of demand in the European Communities for the aircraft.  
According to the European Communities, th e United States has introduced no evidence 
whatsoever regarding potential demand in the Eu ropean Communities for this aircraft.  The 
European Communities submits that for this reas on alone, the United States' claims in respect 
of the A330-200 must be rejected.3131 
 
7.659  Our conclusion in respect of the evidence subm itted to support the contention that the French 
government "anticipated exportation or export ear nings" at the time it entered into the A330-200 
LA/MSF contract with Airbus is the same as our c onclusion in respect of the LA/MSF contracts for 
the A380 and A340-500/600.  After careful review a nd consideration of the evidence and the parties' 
arguments, we have no doubt that at the time that Airbus and the French government concluded the 
A330-200 LA/MSF contract, the French government was fully aware that Airbus was a global company operating in a global market, and that the A330-200 project would involve Airbus selling 
much if not most of its production in export market s.  This is most apparent from the information 
contained in the French government's "critical pr oject appraisal" highlighted by the United States in 
the HSBI Appendix to its first written submission.  The market forecasts for "European airlines" made 
in the 1995 GMF and the Airclaims data showing that  the vast majority of Airbus sales between 1992 
to 2005 were made on export markets provi des further support for our conclusion.  
7.660  Again, the European Communities submits that  the United States has failed to establish 
"anticipated exportation or export earnings" because it has adduced no data to demonstrate that the 
number of deliveries required under each contract to fully repay principal and interest under the 
LA/MSF loans exceeds projections of demand in the European Communities for the A330-200.  
Although the United States has not specifically advan ced this information, th e evidence discussed in 
                                                                                                                                                                    
 
3126 EC, FWS, paras. 678-679; EC, SWS, paras. 322-324. 
3127 US, FWS, para. 379; and US, FWS, HSBI Appendix, paras. 55-56. 
3128 US, FWS, para. 380, citing Exhibit US-369. 
3129 US, FWS, para. 381, citing Airclaims database data contained in Exhibit US-368. 
3130 US, FWS, para. 378, incorporating by cross-re ference the arguments and evidence presented in 
Section IV.B.2.c of its FWS. 
3131 EC, FWS, para. 679.  WT/DS316/R 
 Page 503 
 
BCI deleted, as indicated [***] 
 
  the previous paragraph, in our view, clearly de monstrates that at the time the A330-200 LA/MSF 
contract was concluded, the French government "an ticipated exportation or export earnings", within 
the meaning of footnote 4 of the SCM Agreement, in  the sense that it expected  or considered that 
exportation or export earnings would result from the development of the A330-200. 
Whether the granting of the LA/MSF was "tied to" anticipated exportation or export earnings  
7.661  The United States submits that various provisions of the challenged LA/MSF contracts, when 
considered in the light of other relevant inform ation, demonstrate that the grant of each subsidy 
measure was in fact "tied to" anticipated expor tation or export earnings, within the meaning of 
footnote 4 of the SCM Agreement.  The main argument advanced by the United States in support of 
this submission is focussed on an alleged excha nge of commitments between Airbus and the EC 
member States that necessarily involves Airbus having to make "substantial" exports.  In particular, 
the United States asserts that each time Airbus co ntracted with the EC member States under the 
challenged LA/MSF measures, the two parties ex changed performance commitments, pursuant to 
which the EC member States agreed to provide Ai rbus with development funding in accordance with 
a set schedule, and in return Airbus agreed to  make repayments with revenue generated from a 
specified number of LCA sales that could only be achieved through exports.  The United States argues 
that other information corroborates this alleged "tie" between the subsidy measures and the EC 
member States' anticipated exportation or export earni ngs.  This includes: the preambular language of 
a number of the LA/MSF contracts; various provis ions in the LA/MSF contracts setting out Airbus' 
repayment obligations, representations and warran ties, and reporting requirements; contractual 
termination and adjustment provisions; Airbus' c ontractual undertaking to complete the development 
projects; various statements reportedly made by gov ernment officials; and information contained in 
the UK and French governments' "critical project a ppraisals" for a number of the aircraft models.3132  
The European Communities argues that the United St ates grossly distorts the terms of the LA/MSF 
contracts and latches onto a host of irrelevant pr ovisions that have no conceivable connection to 
export performance, much less est ablish a "necessary" relationship between the alleged subsidy and 
export.  At most, according to the European Co mmunities, these provisions confirm the member 
States' concern with ensuring the commercial a nd technical viability of the programme they are 
financing.3133  The evidence identified by the United States, and the European Communities' specific 
responses thereto,3134 are set out below: 
French LA/MSF for the A380  
• The United States notes that Articles 6.2 and 6.3 of the French A380 LA/MSF contract 
require Airbus to repay the loaned pr incipal through per-aircraft levies on the [***] sales.  
The United States observes that if sales are fewe r than expected, the French government has 
no other recourse to obtain repayment.  A ccording to the United States, these repayment 
provisions show that the French government conditioned the provision of LA/MSF on repayment over [***] sales, a level of sales that could not be achieved without substantial 
exports.  In particular, on the basis of evidence it has submitted showing that Airbus had, in 
2000, forecast a total size of the market segme nt for aircraft with more than 400 seats in 
"Europe" of 247 aircraft, the United States argues that it follows that the French government 
                                                     
 
3132 US, FWS, paras. 352-360 (A380), 372-375 (A340-500/600) and 383-386 (A330-200); US, FWS, 
HSBI Appendix, paras. 39-42, 50-53, 57-60; US, FNCO S, paras. 65-75; US, SWS, paras. 141-143, 161-192 
(A380), 193-203 (A340-500/600) and 204-209 (A330-200); US SOS-HSBI Appendix paras. 2-7; US, Answer to 
Panel Questions 10, 144, 145 and 217; US, Comments on EC Answer to Panel Question 217. 
3133 EC, SNCOS, para. 163. 
3134 EC, FWS, paras. 636-673, 676-677 and 680-681;  EC, SWS, paras. 296-325; EC, SNCOS, paras. 
158-168; EC, SWS, HSBI Appendix, paras. 35-44; EC, Answers to Panel Questions 79 and 217; Comments on US, Answer to Panel Questions 144, 145 and 217. WT/DS316/R 
Page 504  
BCI deleted, as indicated [***] 
 
  "tied" its grant of LA/MSF for the A380 to Airbus making at least [***] export sales.  Indeed, 
the United States argues that Airbus' actual expor t requirements are even greater, noting that 
the Airbus 2000 Global Market Forecast defin es the more than 400 seat market segment as 
including the A340-600 and the Boeing 747 and 777-300.  Thus, when the French 
government [***] it necessarily [***].
3135 The European Communities asserts that the 
repayment provisions impose no obligation on the company to sell, let alone export, a single aircraft.  According to the European Comm unities, the repayment provisions are origin-
neutral, Airbus being free to repay from proceed s of any sale, regardless of destination.  
Airbus retains full commercial freedom and the choice of export versus domestic sale is made 
according to the demands of the market.  Thus , the European Communities contends that the 
repayment provisions do not demonstrate that the terms of the LA/MSF cont ract vary at all by 
reference to the European Commun ities and the rest of the world.
3136     
 
• The United States submits that other terms and conditions found in the French A380 LA/MSF 
contract corroborate the existence of the alle ged "contingent" relations hip between the grant 
of the subsidy and anticipated exportation or ex port earnings.  In this regard, the United States 
points to:  
 
(a) Article 6.1, which the United States asserts [***]. The United States submits that this 
obligation confirms that the contract re presents a commitment on the part of the 
government in exchange for a commitment on the part of Airbus.3137  
(b) Article 1.3, which the United States argues stipulates that Airbus undertakes [***]. 
The United States submits that this provisi on further demonstrates the "tie" between 
the government's commitment to provide LA/MSF and Airbus' commitment to [***].
3138 The European Communities argues that a provision in a contract governing 
the terms of development  financing, that requires the borrower to do its best to 
develop , is hardly surprising, and shows nothing more than the cred itor's interest in 
the viability of its investment.3139 
(c) Article 8.2, which the United States asserts obligates Airbus to [***]. The United 
States submits that this shows that the French government did not simply provide 
LA/MSF in the hope that it would lead to export performance but that it was provided 
contingent upon performance by Airbus – to be demonstrated to the government 
through, inter alia , [***] – which performance necessarily involves exportation.3140  
The European Communities responds by sta ting that when governments ask Airbus 
companies to provide periodic progress reports, they are not implicitly (or "necessarily") asking whether Airbus has exported aircraft.  Instead, they seek 
information on how development  costs are being incurred, whether milestones in the 
development  process have been reached, and whether the project remains viable.  In 
this respect, governments are simply pe rforming due diligence – like any market-
based creditor.
3141 
                                                      
3135 US, FWS, paras. 353-357, citing Exhibits US-358 and US-365 (BCI); US, FWS, HSBI Appendix, 
paras. 39-41. 
3136 EC, FWS, paras. 614, 616 and 637; EC, Comments on US Answer to Panel Question 145. 
3137 US, SWS, para. 183. 
3138 US, SWS, para. 184. 
3139 EC, SNCOS, para. 163. 
3140 US, SWS, para. 185. 
3141 EC, SNCOS, para. 164.  WT/DS316/R 
 Page 505 
 
BCI deleted, as indicated [***] 
 
  (d) Article 9.1, which the United States contends  stipulates that in the event that Airbus 
breaches its contractual obligations, the French government [***]. According to the 
United States, this provision further corroborates the link between the French government's performance and Airbus' performance.
3142  The European Communities 
argues that this provision does not call for termination and discontinuation of 
LA/MSF funding if the company fails to export .  Instead, it only states that if the 
company does not use the funding received to  make best endeavours to develop the 
aircraft as planned, the government will cease providing LA/MSF.  Thus, the European Communities contends that the only contingency established through this 
provision is between the continued receipt  of LA/MSF and the obligation on the 
company to use best endeavours to develop an aircraft.
3143 
German LA/MSF for the A380  
• The United States notes that Section 7 of the German A380 LA/MSF contract requires Airbus 
to make repayments of the loaned pr incipal through per-aircraft levies on the [***] sales.  The 
United States observes that if sales are fewer than expected, the German government has no 
other recourse to obtain repayment.  Acco rding to the United States, these repayment 
provisions show that the German governme nt conditioned the provision of LA/MSF on 
repayment over [***] sales, a level of sales that could not be achieved without substantial 
exports.  In particular, on the basis of evidence it has submitted showing that Airbus had, in 2000, forecast a total market size for aircraft with more than 400 seats in "Europe" of 247 
aircraft, the United States argues that it follows th at the German government "tied" its grant of 
LA/MSF for the A380 to Airbus making at least [***] export sales.  Indeed, the United States 
argues that Airbus' actual export requirements are even greater, noting that the Airbus 2000 Global Market Forecast defines the more than  400 seat market segment as including the 
A340-600 and the Boeing 747 and 777-300.  Thus, when the German government [***] it 
necessarily [***].
3144  The European Communities asserts  that the repayment provisions 
impose no obligation on the company to sell, let al one export, a single aircraft.  According to 
the European Communities, the repayment provisio ns are origin-neutral, Airbus being free to 
repay from proceeds of any sale, regardless of destination.  Airbus retains full commercial 
freedom and the choice of export versus domestic sale is made according to the demands of 
the market.  Thus, the European  Communities contends that the repayment provisions do not 
demonstrate that the terms of the LA/MSF contract vary at all by reference to the European 
Communities and the rest of the world.3145 
 
• The United States submits that other terms and conditions found in the German A380 
LA/MSF contract corroborate the existence of the alleged "contingent " relationship between 
the grant of the subsidy and anticipated exporta tion or export earnings.  In this regard, the 
United States points to: 
 
(a) Section 1, clause 5, which the United States submits identifies certain [***].  
Moreover, the United States notes that the prea mble to the contract reveals that the 
German government was in possession of [***]. The United States asserts that this 
[***] showed that the German government was [***].  In particular, the United States 
points to several pages in the [***] where it was stated that [***]; and which describe 
[***].  The United States also relies upon a [***].3146  The European Communities 
                                                      
3142 US, SWS, para. 186. 
3143 EC, SNCOS, para. 168. 
3144 US, FWS paras. 353-357, citing E xhibits US-358 and US-72 (BCI). 
3145 EC, FWS, paras. 614, 616 and 637; EC, Comments on US Answer to Panel Question 145. 
3146 US, SWS, para. 176, citing Exhibit US-357 (BCI); US, Answer to Panel Question 145. WT/DS316/R 
Page 506  
BCI deleted, as indicated [***] 
 
  responds by questioning the validity of a single statement made by Airbus Germany 
(and not an EC member State) in a several-hundred page application as purported evidence of export contingency.  The European Communities argues that such 
statements reveal nothing about any conditions imposed by the government on a 
recipient.
3147 
(b) Section 12, which the United States asserts provides that [***].  The United States 
maintains that this further demonstrat es that the German government relied on 
[***].3148  
(c) Section 12, clause 3(b), which the United States submits sets out the right of the 
government to [***].  According to the United States,  this also demonstrates reliance 
on that information (for instance, the overview provided [***]) and hence a tie 
between the provision of LA/MSF and the performance necessarily implied by that 
information.3149  The European Communities argues th at this provision does not call 
for termination and discontinuation of LA/MSF funding if the company fails to 
export .  Instead, it states only that if the company does not use the funding received to 
make best endeavours to develop the aircra ft as planned, the government will cease 
providing LA/MSF.  Thus, the European Communities contends that the only contingency established through the provisi on is between the continued receipt of 
LA/MSF and the obligation on the company to use best endeavours to develop an aircraft.
3150 
(d) Section 2, clause 5, which the United States contends describes [***].3151 
(e) Appendix 14, referred to in Article 12, clause 3(b) (termination provision), entitled 
[***].3152  The European Communities notes that the provisions cited by the United 
States do not call for termination and discontinuation of LA/MSF funding if the company fails to export.
3153   
Spanish LA/MSF for the A380  
• The United States notes that Séptima clausula of the Spanish A380 LA/MSF contract requires 
Airbus to make repayments of the loaned principal through per-aircraft levies on the [***].  
The United States observes that if sales are fewe r than expected, the Spanish government has 
no other recourse to obtain repayment.  A ccording to the United States, these repayment 
provisions show that the Spanish government conditioned the provision of LA/MSF on repayment over [***] sales, a level of sales that could not be achieved without substantial 
exports.  In particular, on the basis of eviden ce it has submitted showing that Airbus had in 
2000 forecast a total market size for aircraft with more than 400 seats in "Europe" of 247 
aircraft, the United States argues that it follows th at the Spanish government "tied" its grant of 
LA/MSF for the A380 to Airbus making at least [***] export sales.  Indeed, the United States 
argues that Airbus' actual export requirements are even greater, noting that the Airbus 2000 
Global Market Forecast defines the more than  400 seat market segment as including the 
A340-600 and the Boeing 747 and 777-300.  Thus, when the Spanish government [***] it 
                                                     
 
3147 EC, SNCOS, para. 164. 
3148 US, SWS, para. 177. 
3149 US, SWS, para. 178. 
3150 EC, SNCOS, para. 168. 
3151 US, SWS, para. 179. 
3152 US, SWS, para. 180. 
3153 EC, SNCOS, para. 168.  WT/DS316/R 
 Page 507 
 
BCI deleted, as indicated [***] 
 
  necessarily [***].3154 The European Communities asserts that the repayment provisions 
impose no obligation on the company to sell, let al one export, a single aircraft.  According to 
the European Communities, the repayment provisio ns are origin-neutral, Airbus being free to 
repay from proceeds of any sale, regardless of destination.  Airbus retains full commercial 
freedom and the choice of export versus domestic sale is made according to the demands of 
the market.  Thus, the European  Communities contends that the repayment provisions do not 
demonstrate that the terms of the LA/MSF contract vary at all by reference to the European Communities and the rest of the world.
3155 
 
• The United States submits that other terms and conditions found in the Spanish A380 
LA/MSF contract corroborate the existence of the alleged "contingent " relationship between 
the grant of the subsidy and anticipated exporta tion or export earnings.  In this regard, the 
United States points to: 
 
(a) The Séptimo preambular paragraph, which the United States quotes as stating that 
[***]. According to the United States, this rec ognition in the preamble of the contract 
shows that the Spanish government [***] information in providing the LA/MSF.  In 
its view, this statement demonstrates th at the Spanish government's expectation 
[***].3156 
(b) The Primera clausula, which the Untied St ates asserts establishes an obligation on 
Airbus [***]. The United States submits that this obl igation confirms that the contract 
represents a commitment on the part of the government in exchange for a 
commitment on the part of Airbus.3157   
UK A380 contract  
• The United States notes that Schedule 3, paragraph 3, of the UK A380 LA/MSF contract 
requires Airbus to make repayments of the lo aned principal through per-aircraft levies on the 
[***].3158 The United States observes that if sales are fewer than expected, the UK 
government has no other recourse to obtain repayment.  According to the United States, these 
repayment provisions show that the UK gove rnment conditioned the provision of LA/MSF on 
repayment over [***] sales, a level of sales that could not be achieved without substantial 
exports.  In particular, on the basis of eviden ce it has submitted showing that Airbus had in 
2000 forecast a total market size for aircraft with more than 400 seats in "Europe" of 247 
aircraft, the United States argues that it follo ws that the UK government "tied" its grant of 
LA/MSF for the A380 to Airbus making at least [***]3159 export sales.  Indeed, the United 
States argues that Airbus' actual export requirement s are even greater, noting that the Airbus 
2000 Global Market Forecast defines the more than 400 seat market segment as including the 
A340-600 and the Boeing 747 and 777-300.  Thus, when the UK government [***] it 
                                                      
3154 US, FWS, paras. 353-357, citing Exhibits US-358 and US-73 (BCI). 
3155 EC, FWS, paras. 614, 616 and 637; EC, Comments on US Answer to Panel Question 145. 
3156 US, SWS, paras. 189-190. 
3157 US, SWS, para. 191. 
3158 In fact, the UK government sought full repayment of the principal plus interest loaned under the 
A380 LA/MSF contract over [***] sales.  An additional [***] payment was required for sales between [***] to 
[***], with [***] being owed for sales in excess of [***].  EC, FWS, paras. 432-439. 
3159 We note that as the UK government sought full repayment of the principal loaned plus interest 
under the A380 LA/MSF contract over [***] sales, it could not have "tied" full repayment of LA/MSF to Airbus 
making at least [***] aircraft sales.  Following the United States' logic, the UK government "tied" full 
repayment of LA/MSF to [***] A380 sales. WT/DS316/R 
Page 508  
BCI deleted, as indicated [***] 
 
  necessarily [***].
3160  The European Communities asserts  that the repayment provisions 
impose no obligation on the company to sell, let al one export, a single aircraft.  According to 
the European Communities, the repayment provisio ns are origin-neutral, Airbus being free to 
repay from proceeds of any sale, regardless of destination.  Airbus retains full commercial 
freedom and the choice of export versus domestic sale is made according to the demands of 
the market.  Thus, the European  Communities contends that the repayment provisions do not 
demonstrate that the terms of the LA/MSF contract vary at all by reference to the European Communities and the rest of the world.
3161 
 
• The United States submits that other terms and conditions found in the UK A380 LA/MSF 
contract corroborate the existence of the alle ged "contingent" relations hip between the grant 
of the subsidy and anticipated exportation or ex port earnings.  In this regard, the United States 
points to: 
 
(a) Article 3.1, which the United States asserts shows that BAE Systems (Operations) 
Ltd and its corporate parent (BAE Systems) made certain representations and 
warranties to the UK government.  Among these was the representation and warranty that [***].  The United States submits that such an affirmation would be irrelevant if 
the relationship between the provision of LA/MSF and Airbus' commitment to performance (which cannot be fulfilled without exportation) were not one of 
conditionality or dependence.
3162  In other words, according to the United States, the 
provision shows that in committing to provide LA/MSF, the UK government relied 
on [***].3163  The United States contends that the same reliance can also be seen in 
[***].3164 
(b) Article 4.1, which the United States ar gues sets out a commitment by BAE Systems 
(Operations) Ltd to [***].  The United States notes that the [***].  Thus, according to 
the United States, to obtain LA/MSF,  the company had to commit to [***].3165  The  
European Communities argues that a provision  in a contract governing the terms of 
development  financing, that requires the borrower to do its best to develop , is hardly 
surprising, and shows nothing more than the creditor's interest in the viability of its 
investment.3166 
(c) Article 6, which the United States assert s provides that the UK government may 
[***]. The United States maintains that this  further demonstrates that the UK 
government's performance (its provision of  LA/MSF) is tied to Airbus' performance, 
which cannot be accomplished without exportation.3167  The European Communities 
                                                      
3160 US, FWS, paras. 353-357, citing Exhibits US-358 and US-79 (BCI); US, FWS, HSBI Appendix, 
para. 42. 
3161 EC, FWS, paras. 614, 616 and 637; EC, Comments on US Answer to Panel Question 145. 
3162 US, Answer to Panel Question 145. 
3163 US, SWS, paras. 169-171.  The United States alleges that during the Annex V process, the 
European Communities refused to provide BAE Systems' [***] .  However, it notes that on the basis of the 
Airbus Deutschland [***] , the German government was well aware of , and relied upon, anticipated exportation 
in deciding to provide LA/MSF.  In the light of the European Communities' alleged refusal to provide the a copy 
of BAE Systems' [***] , the United States asks the Panel to draw the "logical inference .. that [***] ".  As we 
have previously observed, the questions asked by the Facilitator during the Annex V process did not specifically 
request the European Communities to provide copies of the A380 LA/MSF applications. 
3164 US, SWS, para. 171; US, FWS, HSBI Appendix, para. 30, referring to UK A380 "critical project 
appraisal" DS316-EC-HSBI-00121, at section 2.3 and pp. 35-36. 
3165 US, SWS, para. 172. 
3166 EC, SNCOS, para. 163. 
3167 US, SWS, para. 173.  WT/DS316/R 
 Page 509 
 
BCI deleted, as indicated [***] 
 
  argues that this provision does not call for termination and discontinuation of 
LA/MSF funding if the company fails to export .  Instead, it states only that if the 
company does not use the funding received to  make best endeavours to develop the 
aircraft as planned, the government will cease providing LA/MSF.  Thus, the 
European Communities contends that the only contingency established through the 
provision is between the continued receipt  of LA/MSF and the obligation on the 
company to use best endeavours to develop an aircraft.3168 
(d) Article 7.1(a), which the United States  argues provides for the Company to [***].  
The United States submits that this show s that the UK government did not simply 
provide LA/MSF in the hope that it would lead to export performance, but that it 
provided LA/MSF contingent upon performance by Airbus – to be demonstrated to 
the government through, inter alia , [***] – which performance necessarily involves 
exportation.3169  The European Communities responds by asserting that when 
governments ask Airbus companies to provide periodic progress reports, they are not 
implicitly (or "necessarily") asking whether Airbus has exported aircraft.  Instead, 
they seek information on how development  costs are being incurred, whether 
milestones in the development  process have been reached, and whether the project 
remains viable.  In this respect, governme nts are simply performing due diligence – 
like any market-based creditor.3170 
French LA/MSF for the A340-500/600 
• The United States notes that Articles 6.2 and 7 of the French A340-500/600 LA/MSF contract 
require Airbus to make repayments of the loan ed principal through per-aircraft levies on the 
[***] sale.  The United States observes that if  sales are fewer than expected, the UK 
government has no other recourse to obtain repayment.  According to the United States, the French government's project appraisal makes clear that [***].
3171  The European Communities 
asserts that the repayment provisions impose no obl igation on the company to sell, let alone 
export, a single aircraft.  According to the European Communities, the repayment provisions 
are origin-neutral, Airbus being free to repa y from proceeds of any sale, regardless of 
destination.  Airbus retains full commercial fr eedom and the choice of export versus domestic 
sale is made according to the demands of th e market.  Thus, the European Communities 
contends that the repayment provisions do not demonstrate that the terms of the LA/MSF 
contract vary at all by reference to the Eu ropean Communities and the rest of the world.3172 
 
• The United States submits that other terms and conditions found in the French A340-500/600 
LA/MSF contract corroborate the existence of the alleged "tie".  In this regard, the United 
States points to: 
 
(a) Article 7, which the United States argues obligates Airbus [***].  According to the 
United States, this obligation confirms that  the contract represents a commitment on 
the part of the government in exchange for a commitment on the part of Airbus.3173  
                                                      
3168 EC, SNCOS, para. 168. 
3169 US, SWS, para. 174. 
3170 EC, SNCOS, para. 164. 
3171 US, FWS, para. 373, citing Exhibit US-36 (BCI); US, FWS, HSBI Appendix, paras. 50-53, 
referring to Exhibit DS316-EC-HSBI-0001143; US, SCOS, HSBI Appendix, paras. 2-7. 
3172 EC, FWS, paras. 614, 616 and 637; EC, Comments on US Answer to Panel Question 145. 
3173 US, SWS, para. 194. WT/DS316/R 
Page 510  
BCI deleted, as indicated [***] 
 
  (b) Article 9, which the United States asserts obligates Airbus to [***].  The United 
States submits that this shows that the French government did not simply provide 
LA/MSF in the hope that it would lead to export performance, but that it provided it contingent upon performance by Airbus – to be demonstrated to the government 
through, inter alia , [***] – which performance necessarily involved exportation.
3174 
The European Communities responds by asserti ng that when governments ask Airbus 
companies to provide periodic progress reports, they are not implicitly (or "necessarily") asking whether Airbus has exported aircraft.  Instead, they seek 
information on how development  costs are being incurred, whether milestones in the 
development  process have been reached, and whether the project remains viable.  In 
this respect, governments are simply pe rforming due diligence – like any market-
based creditor.
3175 
(c) Annex 5 of the Protocole, which the United States contends requires Airbus [***].  
The United States argues that this requireme nt further reinforces the contractual tie 
between the provision of LA/MSF and Airbus' export performance.3176  The European 
Communities argues that these provisions enable the government to verify, including through contact with the buyer if necessary, that the company is indeed making the required payments on each delivery.  The European Communities emphasizes that the 
provisions do not require that the company repay a greater percentage of LA/MSF, or repay a higher interest rate, if the buyer ha ppens to be in a domestic as opposed to an 
export market.  Thus, the European Communities considers that the periodic 
statements of deliveries do not imply export contingency.
3177  
(d) Article 10, which the United States asserts  requires that in the event that Airbus 
breaches its obligations, the French government [***]  further corroborating the link 
between the government's performan ce and Airbus's performance.3178  The European 
Communities argues that this provision does not call for termination and 
discontinuation of LA/MSF funding if the company fails to export .  Instead, it states 
only that if the company does not use the funding received to make best endeavours to develop the aircraft as planned, the government will cease providing LA/MSF.  Thus, the European Communities contends that the only contingency established through this provision is between the con tinued receipt of LA/MSF and the obligation 
on the company to use best endeavours to develop an aircraft.
3179 
Spanish LA/MSF for the A340-500/600  
• The United States notes that Octavo preambular paragraph and the Quinta clausula of the 
Spanish A340-500/600 LA/MSF contract require Air bus to make repayments of the loaned 
principal through per-aircraft levies.  The Unite d States recalls that all of the numbers from 
the LA/MSF agreement's repayment schedule were  redacted, so it was not possible for it to 
determine over how many deliveries Airbus must  repay the financing.  However, it asserts 
that the contract anticipates [***] worldwide sales of the aircraft over a 20 year period.  In the 
light of the European Communities' refusal to provide the actual information from the repayment schedule, the United States asks the Panel to draw the reasonable inference that 
                                                     
 
3174 US, SWS, para. 195. 
3175 EC, SNCOS, para. 164. 
3176 US, SWS, para. 196. 
3177 EC, SNCOS, para. 165. 
3178 US, SWS, para. 197. 
3179 EC, SNCOS, para. 168.  WT/DS316/R 
 Page 511 
 
BCI deleted, as indicated [***] 
 
  Airbus must repay the loan over a similar number of sales.3180 The European Communities 
asserts that the repayment provisions impose no obl igation on the company to sell, let alone 
export, a single aircraft.  According to the European Communities, the repayment provisions 
are origin-neutral, Airbus being free to repa y from proceeds of any sale, regardless of 
destination.  Airbus retains full commercial fr eedom and the choice of export versus domestic 
sale is made according to the demands of th e market.  Thus, the European Communities 
contends that the repayment provisions do not demonstrate that the terms of the LA/MSF 
contract vary at all by reference to the Eu ropean Communities and the rest of the world.3181 
 
• The United States submits that other terms and conditions found in the Spanish A340-500/600 
LA/MSF contract corroborate the existence of the alleged "tie".  In this regard, the United 
States points to: 
 
(a) The United States argues that, as in the Sp anish LA/MSF contract for the A380, the 
contract for the A340-500/600 contains certain representations in the preamble 
evidencing the information on which the Sp anish government relied in deciding to 
provide LA/MSF.  In particular, the United States points to the statement that [***].  
Thus, by making this statement, the United States notes that the Spanish government states explicitly that in providin g LA/MSF for the A340-500/600 it is [***].
3182  
(b) Article 1, pursuant to which the Unite d States argues that Airbus commits [***].  
According to the United States, this obligati on confirms that the contract represents a 
commitment on the part of the government in exchange for a commitment on the part 
of Airbus.3183  
French LA/MSF for the A330-200  
• The United States notes that Articles 6.2 of the French A330-200 LA/MSF contract requires 
Airbus to make repayments of the loaned pr incipal through per-aircraft levies on the first 
[***] sales.  The United States observes that if sales are fewer than expected, the French 
government has no other recourse to obtain repayment.  According to the United States, the 
French government's project appraisal makes clear that [***].3184  The European Communities 
asserts that the repayment provisions impose no obl igation on the company to sell, let alone 
export, a single aircraft.  According to the European Communities, the repayment provisions 
are origin-neutral, Airbus being free to repa y from proceeds of any sale, regardless of 
destination.  Airbus retains full commercial fr eedom and the choice of export versus domestic 
sale is made according to the demands of th e market.  Thus, the European Communities 
contends that the repayment provisions do not demonstrate that the terms of the LA/MSF 
contract vary at all by reference to the Eu ropean Communities and the rest of the world.3185 
 
                                                      
3180 US, SWS, para. 373, citing Exhibit US-37 (BCI).   In the light of the missing information on 
repayment terms, the United States requested the Panel to either use its authority under Article 13 of the DSU to 
request the European Communities and Spain to provide the necessary info rmation or else draw the adverse 
inference that Airbus must repay the aid over [***]  sales. 
3181 EC, FWS, paras. 614, 616 and 637; EC, Comments on US Answer to Panel Question 145. 
3182 US, SWS, paras. 200 and 201, referring to Exhibit US-37 (BCI) – the first and fourth paragraphs 
under "Primero". 
3183 US, SWS, para. 202, referring to Exhibit US-37 (BCI) – third paragraph under "Primero". 
3184 US, FWS, para. 384, citing Exhibit US-78 (BC I); US, FWS, HSBI Appendix, paras. 57-60; US, 
SCOS, HSBI Appendix, paras. 2-7. 
3185 EC, FWS, paras. 614, 616 and 637; EC, Comments on US Answer to Panel Question 145. WT/DS316/R 
Page 512  
BCI deleted, as indicated [***] 
 
  • The United States submits that other terms a nd conditions found in the French A330-200 
LA/MSF contract corroborate the existence of the alleged "tie".  In this regard, the 
United States points to: 
 
(a) Article 6, which the United States asserts obligates Airbus [***].  According to the 
United States, this obligation confirms that  the contract represents a commitment on 
the part of the government in exchange for a commitment on the part of Airbus.
3186   
(b) Article 7, which the United States argues requires Airbus to [***].  The United States 
argues that this shows that the French government did not simply provide LA/MSF in the hope that it would lead to export performance but that it provided LA/MSF 
contingent upon performance by Airbus – to be demonstrated to the government 
through, inter alia , [***] – which performance necessarily involves exportation.
3187 
The European Communities responds by asserti ng that when governments ask Airbus 
companies to provide periodic progress reports, they are not implicitly (or "necessarily") asking whether Airbus has exported aircraft.  Instead, they seek 
information on how development  costs are being incurred, whether milestones in the 
development  process have been reached, and whether the project remains viable.  In 
this respect, governments are simply pe rforming due diligence – like any market-
based creditor.
3188 
(c) The United States also points to Annex 5, which it argues requires Airbus [***].  The 
United States contends that this requirement further reinforces the contractual tie 
between the provision of LA/MSF and Airbus' export performance.3189  The European 
Communities argues that these provisions enable the government to verify, including through contact with the buyer if necessary, that the company is indeed making the required payments on each delivery.  The European Communities emphasizes that the 
provisions do not require that the company repay a greater percentage of LA/MSF, or 
repay a higher interest rate, if the buyer ha ppens to be in a domestic as opposed to an 
export market.  Thus, the European Communities considers that the periodic statements of deliveries do not imply export contingency.
3190 
(d) Article 8, which the United States asserts show s that in the event that Airbus breaches 
its obligations, the French government [***].  According to the United States, this 
further corroborates the link between the government's performance and Airbus's 
performance.3191  The European Communities argues that this provision does not call 
for termination and discontinuation of LA/MSF funding if the company fails to 
export .  Instead, it states only that if the company does not use the funding received to 
make best endeavours to develop the aircra ft as planned, the government will cease 
providing LA/MSF.  Thus, the European Communities contends that the only 
contingency established through this provisi on is between the continued receipt of 
LA/MSF and the obligation on the company to use best endeavours to develop an aircraft.
3192 
                                                      
3186 US, SWS, para. 205, referring to Exhibit US-78 (BCI). 
3187 US, SWS, para. 206, referring to Exhibit US-78 (BCI). 
3188 EC, SNCOS, para. 164. 
3189 US, SWS, para. 207, referring to Exhibit US-78 (BCI). 
3190 EC, SNCOS, para. 165. 
3191 US, SWS, para. 208, referring to Exhibit EC-90 (BCI). 
3192 EC, SNCOS, para. 168.  WT/DS316/R 
 Page 513 
 
BCI deleted, as indicated [***] 
 
  Whether the sales-dependent repayment provisions of the challenged LA/MSF measures 
amount to exchanges of commitments that ev idence contingency in fact upon anticipated 
exportation or export earnings  
7.662  Apart from the above-mentioned arguments, th e European Communities makes a series of 
additional submissions it considers demonstrate that the United States has failed to substantiate its 
claims.  The first of these concerns what the Eur opean Communities considers to be the implications 
of the United States' alleged exchange of commitment s theory for the types of subsidies that may be 
caught by the prohibition on export subsidies under Article 3.1(a) of the SCM Agreement. 
7.663  The European Communities construes the United States' focus on the repayable nature of 
LA/MSF as the articulation of a "thesis ... that financ ial contributions that foresee a return (such as 
loans) are more susceptible to be found to c ontain a prohibited export contingent subsidy than 
financial contributions in the form of outright grants".3193  However, the European Communities 
argues that Article 3.1(a) applies equally to all typ es of financial contributions, with no particular type 
of subsidy being more susceptible to eith er escaping or being cau ght by the prohibition.3194  In the  
view of the European Communities, accepting the United States' thesis "would create an incentive for 
Members to make outright subsidy gr ants, rather than financial contri butions that foresee a return, in 
order to avoid the prohibition" and thereby "encour age Members to depart from the market disciplines 
that the SCM Agreement meant to foster".3195  Thus, the European Communities argues that the 
United States asks the Panel to adopt an interpretati on of Article 3.1(a) of the SCM Agreement that is 
not only contrary to its text, but also  "manifestly absurd and unreasonable".3196 
7.664  The United States rejects the European Communities' characterization of its arguments, 
emphasizing that it is "not the foreseeing of a return that makes {LA/MSF} export contingent but the conditioning of the provision of {LA/MSF} on a commitment by Airbus to repay {LA/MSF} over 
levels of sales that necessarily involve exportation".
3197  Thus, the United States explains that: 
"In committing to provide {LA/MSF}, the Airbus governments could have insisted 
on any number of conditions or no conditions at all.  They could have insisted on 
repayment over much smaller numbers of sales than actually are set out in the {LA/MSF} contracts (e.g ., numbers that could be reached without necessarily 
exporting).  They could have insisted on repayment over a fixed schedule, regardless 
of sales.  They could have foregone repa yment – effectively treating {LA/MSF} as a 
grant.  But instead of taking any of these possible approaches, the Airbus 
governments took the approach of cond itioning the provision of {LA/MSF} on 
repayment over levels of sales derived from  Airbus's own Business Case and Global 
Market Forecasts and the governments' own project appraisals and other analyses, which levels of sales would necessarily involve exportation.  Because the provision of {LA/MSF} is tied to export performance in this way it is a prohibited subsidy under 
Article 3.1(a) of the SCM Agreement."
3198 
7.665  We do not understand the United States' argument to  be based on the fact that the EC member 
States expected to obtain a return  from their LA/MSF contributions.  Rather, it is the nature of how 
the EC member States structured th at return that is at the centr e of the United States' claim.  
Therefore, it does not follow from the United States' exchange of commitments theory that "financial 
                                                      
3193 EC, FWS, para. 569. 
3194 EC, SNCOS, para. 160. 
3195 EC, SNCOS, para. 161. 
3196 EC, FWS, para. 569. 
3197 US, SWS, paras. 219 and 220. 
3198 US, SWS, para. 143. WT/DS316/R 
Page 514  
BCI deleted, as indicated [***] 
 
  contributions that foresee a return (such as loans) " would be more susceptible to fall foul of the 
prohibition of export subsidies established under Article 3.1(a) of the SCM Agreement.   
7.666  A second argument the European Communities a dvances challenges the United States' focus 
on sales-dependent repayment terms as the sole m eans available to Airbus to repay LA/MSF.  
According to the European Communities, each of the challenged LA/MSF contracts, either expressly 
or by implication, envisages the possibility of re payment via cash-flows ge nerated through business 
activities other than sales of the aircraft.
3199  In particular, the European Communities notes that the 
contracts do not prevent the possibility of early repayment at any time.  Moreover, the European Communities asserts that other related companies gua ranteed Airbus' repayment obligations, implying 
that "{i}n all cases there are related companies or  commercial activities that guarantee alternative 
sources of repayment".
3200   
7.667  Accelerated repayment provisions are expressly provided for under th e German, Spanish and 
UK A380 LA/MSF contracts, and the Spanish A340-500/600 LA/MSF contract.3201  The parties' 
arguments have focussed on the provisions appeari ng in two of these contracts – the German and UK 
A380 agreements.  The German A 380 contract allows Airbus to [***].  However, in this event, 
Airbus must pay [***].3202  The right to make prepayments under the UK A380 contract is [***] of 
the funding received under the loan.3203  Should Airbus exercise this right, it would be required to 
[***].3204  The United States characterizes these as [***] that actually reinforce the "tie" between 
LA/MSF and export performance by [***].3205 The European Communities rejects this 
characterization, arguing that the provisions "ensure that the government does not face dilution of its 
return if the company elects to prepay", reflec ting the government's aim to protect its return.3206  
Although not defined in detail, the prepayment provi sions under the German A380 contract appear to 
envisage that the German government [***].  At the very least, this suggests that the German A380 
contract creates a [***].3207  
7.668  In any case, we note that the accelerated re payment possibilities expressly provided for under 
the German, Spanish and UK A380 LA/MSF contr acts, and the Spanish A340-500/600 LA/MSF 
contract, are only optional.  On the other hand, the per-aircraft levies expressly called for under each 
of the challenged contracts are mandatory and ther efore must be complied with after each and every 
relevant aircraft sale.  Thus, we are doubtful about the extent to which the mere possibility  of early 
repayment on the part of Airbus from an income stre am unassociated with aircraft sales influenced the 
EC member State governments' decisions to provide LA/MSF.  In this regard, we see some merit in 
the United States' contention that because "there is nothing uncommon about the possibility of 
accelerating repayment of a loan", were an option to  voluntarily prepay a loan enough to sever a "tie" 
between the provision of a loan and export performance, "it would be virtually impossible to ever find 
                                                      
3199 EC, FWS, paras. 323, 514, 590 and 673. 
3200 EC, FWS, footnote 570. 
3201 German A380 contract, Section 8, Exhibit US-72 (BCI); Spanish A380 contract, Séptima Clausula,  
Exhibit US-73 (BCI); UK A380 contract, Article 5.9, Exhibit US-79 (BCI); and Spanish A340-500/600 
contract, Quinta Clausula, Exhibit US-37 (BCI).   
3202 German A380 contract, Section 8, para. 2, Exhibit US-72 (BCI). 
3203 UK A380 contract, Article 5.9, Exhibit US-79 (BCI). 
3204 UK A380 contract, Schedule 3, para. 9.1, Exhibit US-79 (BCI). 
3205 US, SWS, paras. 225-226. 
3206 EC, SNCOS, para. 168. 
3207 Although the United States asserts that applica tion of the accelerated repayment provisions under 
the UK A380 contract would result in [***]  (US, SWS, para. 225), we have been  unable to confirm or reject this 
assertion on the basis of the UK A380 LA/MSF contract or  the facts and arguments the parties have presented.    WT/DS316/R 
 Page 515 
 
BCI deleted, as indicated [***] 
 
  a subsidy provided through a loan contract to be  contingent upon export performance within the 
meaning of Article 3.1(a) of the SCM Agreement".3208   
7.669  The European Communities states that the repa yments of all of the relevant LA/MSF 
contracts were guaranteed, implying that sources of funding for the repayment LA/MSF other than 
revenue from aircraft sales were available.  Th e European Communities focuses its analysis on the 
German and UK A380 contracts.3209   Under both contracts, the European Communities asserts that 
[***].3210  The European Communities considers that  these guarantees place Airbus in the same 
position as the Howe Leather company in Australia – Leather , where the European Communities 
argues the fact that the assets of Howe's parent company guaranteed a loan provided by the Australian 
government to Howe was an important factor relie d upon by the panel to conclude that it was not a 
prohibited export subsidy.3211  The United States argues that because the guarantee under the UK 
A380 contract "does not ensure repayment of {LA/ MSF} regardless of whether Airbus succeeds in 
delivering [***] copies of the A380, it does not sever the tie between the provision of {LA/MSF} and 
Airbus' commitment to a level of performance that necessarily involves exportation".3212  Moreover, it 
considers the European Communities' reliance on the Australia – Leather to be inapposite because in 
that dispute it alleges "the security provided by  Howe's parent (in the form of a lien on assets and 
undertakings) was a true guarantee of repayment of  the government loan, as opposed to a 'guarantee' 
to pay levies due to the government on a per sale basis".3213   
7.670  The guarantee provided under the UK A380 contract relates to [***].3214  Similarly, under the 
German A380 contract, [***].3215  The European Communities expl ains that both guarantees will 
operate when the borrowing Airbus entity [***].  We agree with the United States that this type of 
guarantee is different from the guarantee considered in Australia – Leather .  In Australia – Leather , 
one of the factors that led the panel to find th at a 15-year preferential loan from the Australian 
government to the Howe Leather company was no t a prohibited export subsidy was that it was 
"secured by a lien on the assets and undertakings of ALH {Howe's parent company}, which is itself 
responsible for repayment of the loan, and not  merely on the assets and undertakings of Howe."3216  
The guarantees provided under the German and UK A380 contracts are clearly of a different kind as 
they will only come into play if the loan reci pients do not make a required repayment following 
delivery of an aircraft.  
7.671  Finally, the European Communities identifies two "countervailing explanations" or 
"legitimate commercial reasons" that it submits explain why the challenged LA/MSF contracts 
contain delivery-dependent repayment provisions, which the European Communities submits "have 
nothing to do with export contingent subsidies".3217  First, the European Communities notes that 
Airbus' revenues are generated by and large from LC A sales, with between 83% and 85% of the gross 
price paid on delivery.  According to the Europ ean Communities, this makes aircraft deliveries the 
most reliable indication that sufficient cash-flow will be on hand to make repayments, giving both 
Airbus and the EC member States a strong commercia l incentive to time repayments to coincide with 
delivery of LCA.3218  Second, the European Communities submits that timing repayment with 
                                                      
3208 US, SWS, para. 224. 
3209 EC, FWS, para. 673; EC, Answer to Panel Question 65. 
3210 EC, Answer to Panel Question 65. 
3211 EC, FWS, para. 673. 
3212 US, SWS, para. 228. 
3213 US, SWS, para. 228. 
3214 UK A380 contract, Article 20, Schedule 4, Exhibit US-79 (BCI). 
3215 German A380 contract, Section 14, Exhibit US-72 (BCI). 
3216 Panel Report, Australia – Automotive Leather II , para. 9.75. 
3217 EC, FWS, paras. 657-666; EC, FNCOS, para. 80; EC, SNCOS, para. 157; EC, Answer to Panel 
Question 217; EC, Comments on US Answer to Panel Question 217. 
3218 EC, FWS, para. 659. WT/DS316/R 
Page 516  
BCI deleted, as indicated [***] 
 
  deliveries allocates the risk between Airbus and the EC member State governments in accordance 
with the risk each party agreed to accept.  A re payment schedule based on repayment dates fixed at 
the time when the contracts were concluded would result in a distribution of risk that is different from 
that agreed between the parties.
3219  Thus, the European Commun ities argues that the Airbus 
governments agreed to allow repayment upon delivery  – "not to induce Airbus to export, but to 
accommodate the company's cash fl ow needs and allocate risk".3220  
7.672  According to the European Communities, the commercial validity of both "countervailing 
explanations" it advances is confir med by the fact that Airbus' risk-sharing suppliers use the same 
repayment term structure as the EC member State governments.3221  The European Communities 
emphasizes that such market-based lenders "care only about securing their return, and not whether 
that return is secured via exports  rather than domestic sales".3222  In its view, the "fact that some 
deliveries involve exportation was not the parties' reason for constructing the repayment terms {of the 
LA/MSF contracts} by reference to deliveries.  Rath er, exports are an incident al feature that results 
from an exogenous factor – marketplace demand, wh ich turns both Airbus and Boeing into export-
oriented firms".3223 Thus, the European Communities submits th at the EC member States' motivations 
for using deliveries as the trigger for repaymen t were based on the same legitimate commercial 
considerations that motivate market actors, and not an y desire to grant export contingent subsidies.   
7.673  The United States notes that neither of the European Communities' "countervailing 
explanations" address the level of  sales over which LA/MSF is to be  repaid, even though in its view 
this is an essential element of Airbus' contract ual obligation that demonstrates that LA/MSF is 
provided in exchange for an undertaking by Airbus th at can be fulfilled only if it exports.  Moreover, 
the United States alleges that the European Commun ities has advanced no evidence to substantiate its 
assertions.3224  In any case, the United States submits that even if the EC member State governments 
had held non-export-related motivations when ag reeing to the repayment terms of the LA/MSF 
contracts, the "possible existence of additional, non-export-related motivations that could (according 
to the EC) explain the design of Airbus' obligations  ... does not sever the tie between the provision of 
{LA/MSF} and actual or anticipated exportation or export earnings".3225   
7.674  Quoting from the Appellate Body Report in Canada – Aircraft , the United States recalls that 
"th{e} relationship of contingency, between the subsidy and export performance, must be inferred  
from the total configuration of the facts  constituting and surrounding the gr anting of the subsidy, none 
of which is likely to be decisive in any given case".3226  According to the Unit ed States, "the total 
configuration of the facts" may include "official statements by governments indicating the intention 
behind the granting of the subsidies".3227  In the present dispute, the United States alleges that it has 
adduced ample evidence demonstrating that increasing exports is among the motivations of the Airbus 
governments for providing LA/MSF.  In particular, the United States points to:  
(a) the statement by French Prime Minister Lionel Jospin that the French government 
"will give Airbus the means to win the battle against Boeing";3228 
                                                      
3219 EC, FWS, paras. 662-663. 
3220 EC, Answer to Panel Question 217. 
3221 EC, FWS, paras. 660 and 664; EC, Comments on US Answer to Panel Question 217. 
3222 EC, SNCOS, para. 157. 
3223 EC, FWS, para. 665. 
3224 US, Answer to Panel Question 217. 
3225 US, Answer to Panel Question 217. 
3226 US, Answer to Panel Question 217, quoting Appellate Body Report, Canada – Aircraft , para. 167 
(italicized emphasis original; underline emphasis added by the United States). 
3227 US, Answer to Panel Question 217, quoting from Australia Third Party Oral Statement, para. 10. 
3228 Exhibit US-1, discussed in US, FWS, paras. 1 and 92.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  (b) the UK government's statement, upon announcing the provision of LA/MSF for the 
A380, that "{w}ithin 25 years Airbus has gr own to take 55% of the civil aircraft 
production market and contributes £1 billion to the UK's trade balance";3229 
(c) the British Prime Minister's statement, upon the public unveiling of the A380, that 
"{t}he export gains will run into the billions of pounds".3230 
(d) the communiqué issued by ministers of the Airbus governments at the July 2006 
Farnborough air show in which they "reaffirm ed their agreement to support Airbus to 
continue to innovate and to develop progr ammes in the context of international 
competition";3231 
(e) the Spanish A380 LA/MSF contract's identification of [***];3232 
(f) the acknowledgment in the preamble to th e Spanish A340-500/600 LA/MSF contract 
that [***];3233  
(g) the statement by Airbus, in its applicati on to the German government for LA/MSF for 
the A380, that a benefit of providing the requested LA/MSF would be an [***];3234 
and  
(h) other evidence that the European Communities has designated as HSBI.3235 
7.675  In our view, a government's motivation for grantin g a particular subsidy, to the extent it can 
be established from the evidence and arguments presen ted by the parties in dispute, will be highly 
relevant when evaluating whether a subsidy has been granted contingent in fact upon export 
performance within the meaning of Article 3.1(a) of  the SCM Agreement.  In the present instance, the 
United States has presented evidence of alleged mo tivations which, in light of all the facts and 
circumstances, it considers demonstrates that th e challenged LA/MSF contracts were entered into 
contingent in fact upon anticipated export perform ance.  We examine the probative value of this 
evidence in conjunction with the remainder of th e evidence advanced by the United States in the 
paragraphs that follow.3236   
7.676  Quite apart from our views on the relevance of the motivations behind the provision of 
LA/MSF, we do not consider the European Communiti es to have done enough to substantiate that the 
two "countervailing explanations" it has advanced actually explain why the EC member States 
required each of the challenged LA/MSF contracts to  be repaid with reve nue generated from LCA 
sales.  First, we note that the European Commun ities has only specifically addressed the relevance of 
the two "countervailing explanations" in the context of the UK A380 contract,3237 stating that the same 
arguments apply mutatis mutandis  to the other challenged LA/MSF contracts.3238  Second, even in the 
context of the UK A380 LA/MSF contract, the Eur opean Communities has pointed to no evidence 
that substantiates the "commercial reasons" it a lleges were behind the UK government's provision of 
LA/MSF on sales-based repayment terms.  The one  document the European Communities does rely 
                                                      
3229 Exhibit US-360. 
3230 Exhibit US-361. 
3231 Exhibit US-63. 
3232 Spanish A380 contract, Exhibit US-73 (BCI). 
3233 Spanish A340-500/600 contract, Exhibit US-37 (BCI). 
3234 Exhibit US-357 (BCI). 
3235 US, FWS, HSBI Appendix, paras. 34-36, 55; US SCOS, paras. 5-6. 
3236 See, at paras. 7.679-7.690 below. 
3237 EC, FWS, paras. 657-666. 
3238 EC, FWS, para. 614. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  upon is a French Senate Report concerning the French government's support for civil aircraft 
construction over the period 1996 to 1997, an extract of which was submitted by the United States in 
Exhibit US-337.
3239  However, the particular passages of  this Report cited by the European 
Communities in support of its allega tions cannot be found in the extract contained in Exhibit US-337.  
In any case, the French Senate Report predates th e French government's LA/MSF contracts for the 
A380 and A340-500/600.  Third, the European Co mmunities refers to evidence and arguments it has 
submitted in respect of the "nearly identical" fina ncing arrangements between Airbus and its risk-
sharing suppliers to show that the EC member Stat es acted according to market principles.  However, 
even if we were to accept that su ch contracts are sufficiently comp arable to the LA/MSF contracts at 
issue (which we do not),3240 it does not automatically follow that  the EC member States and the risk-
sharing suppliers held the same objectives when th ey agreed to finance development of the A380 
through sales-dependent repayment terms.   
7.677  In any case, even assuming arguendo  that the EC member State governments agreed to the 
particular repayment terms of LA/MSF for commercia l reasons, this fact alone would not settle the 
question whether the LA/MSF subsidies were granted contingent in fact upon export performance, 
because such motivations would need to be consider ed together with all other relevant facts and 
circumstances.  In this regard, we recall that "th{ e} relationship of continge ncy, between the subsidy 
and export performance, must be inferred from the total configuration of the facts  constituting and 
surrounding the granting of the subsidy, none of whic h is likely to be decisive in any given case".3241  
Moreover, we note that Article 3.1(a) of the SC M Agreement provides that export contingency may 
be the sole condition governing the grant of a prohib ited export subsidy or it may be "one of several 
other conditions" .3242  Thus, even if we were to accept th e "countervailing explanations" advanced by 
the European Communities, this would not necessarily preclude a finding of export contingency, if it 
could be inferred from the "total configuration of th e facts" that at least one of the conditions or 
reasons for the provision of LA/MSF was the anticipation of export performance. 
7.678  Turning to the exchange of commitments them selves, we note that under each of the seven 
LA/MSF contracts at issue, Airbus was required to repay the loaned principal plus any interest from 
the proceeds of the sale of a specified number of LC A developed with the financing provided by the 
EC member States.  Although the text of the repaym ent provisions is neutral as to the origin of the 
required sales, it is clear from various pieces of information that achieving the level of sales needed to fully repay each loan would require Airbus to make a substantial number of exports.
3243  Exports were 
therefore not merely incidental to full repayment of  the loans; and they could not be replaced with 
domestic sales in order to achieve the number of sal es necessary to fully repay the loans.  Moreover, 
while it is true that the contracts impose no oblig ation on Airbus to make any sales at all, the 
European Communities has explained that the EC member States expected their LA/MSF 
contributions would be fully  repaid and achieve their target rate of return.3244  Indeed, it is on the basis 
                                                      
3239 Collin (Yvon), Senate Report No. 367 (1996-1997), Rapport d'Information "Mission de contrôle 
effectuée sur le soutien public à la construction aéronautique civile," Commission des Finances, du Contrôle 
Budgétaire et des Comptes Économiques de la Nation , Exhibit US-337A. 
3240 See, para. 7.480 above. 
3241 Appellate Body Report, Canada – Aircraft , para. 167 (Italicized emphasis original; underline 
emphasis added). 
3242 Appellate Body Report, US – FSC (Article 21.5 – EC) , para. 111 (emphasis added). 
3243 French A380 contract, Exhibits US-358 and US-365 (BCI); US, FWS, HSBI Appendix, paras. 39-
41.  German A380 contract, Exhibits US-358 and US-72 (BCI).  Spanish A380 contact, Exhibits US-358 and 
US-73 (BCI).  UK A380 contract, Exhibits US-358 and US-79 (BCI); US, FWS, HSBI Appendix, para. 42.  
French A340-500/600 contract, Exhibit US-36 (BCI); US, FWS, HSBI Appendix, paras. 50-53, Exhibit DS316-EC-HSBI-0001143; US, SCOS, HSBI Appendix, paras. 2-7.  Spanish A340-500/600 contract, Exhibits US-
37 (BCI), US-366 and US-367.  French A330-200 contract, Exhibit US-78 (BCI); US, FWS, HSBI Appendix, 
paras. 57-60; US, SCOS, HSBI Appendix, paras. 2-7. 
3244 EC, FWS, para. 638.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  of the EC member States' expectations of full re payment over the number of LCA sales predicted in 
the Airbus business cases for each  of the relevant LCA models, that the European Communities 
argues the relevant contractual rates of return should be calculated.3245  The EC member States also 
knew that Airbus was a highly export-oriented company.3246  It follows that the EC member States 
must have been counting on Airbus to make LCA sales that necessarily included a substantial number 
of exports when concluding the LA/MSF contracts.  This means that the EC member States, fully 
expecting to be repaid, must have  held a high degree of certainty that the provision of LA/MSF would 
result in Airbus making those export sales.  In our view, without being decisive, this evidence 
supports the view that the provision of LA/MSF on sales-dependent repayment terms was, at least in 
part, "conditional" or "dependent for its exis tence" upon the EC member States' anticipated 
exportation or export earnings. 
Other "additional" evidence  
7.679  We recall that in addition to the evidence de monstrating that each of the LA/MSF contracts 
involved an exchange of commitments between Airb us and the EC member St ates, the United States 
points to various other pieces of information a nd evidence it alleges corroborate the alleged "tie" 
between each of the subsidy measures and the EC member States' anticipated exportation or export 
earnings. 
7.680  Starting with the A380, we find the additiona l evidence advanced by the United States in 
respect of the German LA/MSF to be compelling.  In  particular, the preamble to the LA/MSF contract 
shows that the German government was [***].  Moreover, Section 2.5 of the contract obligates Airbus 
Deutschland [***].3247  In addition, Section 12 of the LA/MSF contract provides that the German 
government would be entitled to [***].  Section 12 also envisages that the German government may 
[***].  We are satisfied that together with the ev idence the United States has advanced concerning the 
exchange of commitments between Airbus and the German government, the evidence discussed in 
this paragraph demonstrates that the German A380 LA /MSF contract was, in fact, concluded at least 
in part on the condition or because  of the German government's anticipation of exportation.3248 
7.681  We also find persuasive the additional evidence th e United States has pointed to in respect of 
the Spanish A380 contract.  In particular, we note th at the sixth preambular paragraph that is cited by 
the United States explicitly states that the Spanish government's support for the A380 project is 
[***].3249  The seventh preambular paragraph then goes on to identify that the [***].3250  We are 
satisfied that together with th e evidence the United States has adva nced concerning the exchange of 
commitments between Airbus and the Spanish gove rnment, the evidence discussed in this paragraph 
                                                      
3245 See, also , paras. 7.404-7.406 above. 
3246 In making this point, we recognize that pursuant to footnote 4 of the SCM Agreement, "{t}he mere 
fact that a subsidy is granted to ente rprises which export shall not for that reason alone be considered to be an 
export subsidy with in the meaning of {Article 3.1(a)}".  Thus, we take Airbus' export orie ntation into account in 
conjunction with the other evidence that is before us.   
3247 Exhibit US-72 (BCI) (emphasis added). 
3248 In arriving at this conclusion, we have reviewed  and considered all of the facts and circumstances 
surrounding the granting of the German A380 LA/MSF subsidies to Airbus that were presented and argued by 
the parties.  We have also taken into account the United States' observation that the European Communities did not provide a copy of any German government "critical project appraisal" for the A380, despite being asked to 
provide a copy of "any 'critical project appraisal" documents in Facilitator Question 13(f) during the Annex V 
process.  To the extent that any such evidence is not explicitly referred to in this paragraph as support for our conclusion, we consider that it does not detract from the United States' case or our findings in respect of this 
LA/MSF measure. 
3249 Exponen Sexto. 
3250 Exponen Séptimo. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  demonstrates that the Spanish A380 LA/MSF contract was, in fact, concluded at least in part on the 
condition or because  of the Spanish government's anticipation of exportation.
3251 
7.682  As regards the UK A380 contract, the United States identifies various pieces of other 
evidence it argues supports its case.  Among these is a statement reportedly made by Prime Minister 
Blair in January 2005 when speaking at the public unveiling of the A380 where he stated that "{t}he 
export gains will run into the billions of pounds".3252  In addition, the United States points to a press 
release published by the UK Department of Trad e and Industry in March 2000 announcing that the 
UK government had agreed to invest GBP 530 million in the A380 project, explaining that "{w}ithin 
25 years Airbus has grown to take 55% of the civi l aircraft production market and contributes GBP 1 
billion to the UK's trade balance".3253  On their own, we consider these reported statements to have 
only a relatively low probative value.  Having committed large amounts of public monies to the A380 project, it is in our view only natural to find pub lic officials emphasizing the perceived benefits of 
government participation in the Airbus project in their public statements, which in the present case, 
the UK government expected would involve exports.  Thus, when read in isolation, the above two 
statements provide only little support for the United States' submissions. 
7.683  The United States also relies upon the representation and warranty made by BAE Systems in 
Article 3 of the UK LA/MSF contract that [***].
3254  The United States alleges that the European 
Communities refused to provide a copy of BAE Systems' [***].  However, it notes that on the basis of 
the Airbus Deutschland [***], the German government was well aware of, and relied upon, 
anticipated exportation in deciding to provide LA/M SF.  In the light of the European Communities' 
alleged refusal to provide a copy of BAE Systems' [***], the United States asks us to draw the 
"logical inference ... that [***]".3255  In our view, the warranty provided by BAE Systems is 
significant as it shows that the UK government pl aced contractual reliance on the accuracy of the 
representations (and in particular [***]) made by BAE Systems in its LA/MSF application when 
entering the A380 LA/MSF.  Thus, overall, although not as clear as in the case of the German and 
Spanish A380 contracts, we are satisfied that together with the evidence the United States has 
advanced concerning the exchange of commitme nts between Airbus and the UK government, the 
contractual warranty and the two above-mentione d statements demonstrate that the UK A380 
LA/MSF contract was, in fact, concluded at least in part on the condition or because  of the UK 
government's anticipation of exportation.3256   
                                                      
3251 In arriving at this conclusion, we have reviewed  and considered all of the facts and circumstances 
surrounding the granting of the Spanish A380 LA/MSF subsidies to Airbus that were presented and argued by 
the parties.  We have also taken into account the United States' observation that the European Communities did 
not provide a copy of any Spanish government "critical project appraisal" for the A380, despite being asked to provide a copy of "any 'critical project appraisal" documents in Facilitator Question 13(f) during the Annex V 
process.  To the extent that any such evidence is not explicitly referred to in this paragraph as support for our 
conclusion, we consider that it does not detract from the United States' case or our findings in respect of this LA/MSF measure. 
3252 Exhibit US-361. 
3253 Exhibit US-360. 
3254 Article 3.1.4, UK A380 LA/MSF contract, Exhibit US-79 (BCI). 
3255 US, SWS, paras. 169-171.  As we have previously observed, the questions asked by the Facilitator 
during the Annex V process did not specifically request the European Communities to provide copies of the 
A380 LA/MSF applications. 
3256 In arriving at this conclusion, we have reviewed  and considered all of the facts and circumstances 
surrounding the granting of the UK A380 LA/MSF subsidies to Airbus that were presented and argued by the 
parties.  To the extent that any such evidence is not explicitly referred to in this paragraph as support for our 
conclusion, we consider that it does not detract from the United States' case or our findings in respect of this LA/MSF measure.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  7.684  Finally in respect of the A380, the United States refers to four provisions of the French A380 
contract and one statement reportedly made by Fr ench Prime Minister, Lionel Jospin in March 2000, 
as additional evidence supporting its case that the Fr ench A380 LA/MSF contract is a prohibited 
export subsidy.  The first of the contractual provisi ons relied upon by the United States is Article 6.1.  
This basically establishes Airbus' repayment oblig ations, stipulating that Airbus has to make 
repayments [***].  We find it difficult to see what more this  adds to Articles 6.2 and 6.3, which the 
United States relies upon to demonstrate the excha nge of commitments.  The other contractual 
provisions the United States submits support its complaint require Airbus to [***] (Article 1.3); [***] 
(Article 8.2); and provide the government with the right to [***] if Airbus breaches its obligations 
(Article 9.1).  In our view, these provisions are to be understood as concerning the proper 
advancement of the A380 programme, in the sense of developing the A380 and bringing the project to 
the point where the particular aircraft is ready for commercial production and sale.  The evidence and 
argument presented by the United States has not persuaded us that the [***] should be given a broader 
meaning, encompassing the attainment or maintena nce of any level of LCA deliveries or exports.  
Thus, we agree with the European  Communities that the provisions in  the French A380 contract the 
United States relies upon do not support its complaint.  
7.685  The only other specific piece of additional ev idence the United States relies upon is the 
statement reportedly made by French Prime Mini ster, Lionel Jospin in March 2000 when, responding 
to questions in French Parliament, he said "{w}e w ill give Airbus the means to win the battle against 
Boeing".3257  The question posed to the Prime Minister is not disclosed.  However, the report goes 
onto say that "{w}ith the creation of ... EADS, Josp in and his government and its European partners 
had made a commitment to build a strong European aeros pace industry".  It also explains that Airbus 
was "currently in the process of securing government s upport, in the form of low-interest loans" for 
the A380.  We do not believe this statement adds much in the way of support to the United States 
export contingent subsidy allegati ons.  Thus, overall, on the basis of  the total configuration of the 
facts constituting and surrounding the provision of  French LA/MSF for the A380, including the 
evidence the United States has advanced on the exch ange of commitments between Airbus France and 
the French government, we find that the United St ates has failed to demonstrate that the French 
government provided LA/MSF, even in part, on the condition  or because  of its anticipation of exports.   
7.686  Moving on to the French government's provision of LA/MSF for the A340-500/600, the 
United States identifies four provisions of the Fr ench A340-500/600 contract and certain information 
found in the French government's critical project  appraisal as additional evidence supporting its case 
that this measure is a prohibited export subsidy.  Three of these provisions are very similar to 
Articles 6.1, 1.3 and 9.1 of the French A380 contr act to the extent they establish repayment and 
reporting obligations on Airbus and grant the French government the right to terminate the contract in 
the event of breach.  In particular, Article 7 requires Airbus to [***]; pursuant to Article 9 Airbus 
must [***]; and under Article 10, the government is given the right to [***] if Airbus breaches its 
obligations.  We tend to agree with the Europ ean Communities that these three provisions do not 
support the United States' position.  The United St ates also relies upon Annex 5 of the A340-500/600 
contract, which requires Airbus [***]. Again, we find it difficult to see how this obligation, alone or 
taken together with evidence on exchange of commi tments, demonstrates that the French government 
provided LA/MSF for the A340-500/600 on the condition or because of its anticipated export 
performance.  Similarly, we are not persuaded by the information referred to by the United States in 
the HSBI Appendix to its first written submissi on on the French government's critical project 
appraisal.  In our view, this information does not  advance the United States' case on the question of 
contingency.  Thus, on the basis of the total conf iguration of the facts constituting and surrounding the 
provision of French LA/MSF for the A340-500/600, including the evidence the United States has 
advanced on the exchange of commitments between Aérospatiale and the French government, we find 
                                                      
3257 Exhibit US-1. WT/DS316/R 
Page 522  
BCI deleted, as indicated [***] 
 
  that the United States has failed to demonstrate th at the French government provided LA/MSF for the 
A340-500/600, even in part, on the condition  or because  of its anticipation of exports. 
7.687  The United States relies on two references in th e Spanish A340-500/600 contract as additional 
evidence supporting its case that this measure is a prohibited export subsidy.   In particular, the 
United States relies upon the first preambular paragraph, which in relevant part reads [***].  The 
United States points out that the same preambular paragraph goes on to state: [***]. The United States 
argues that this latter statement means that in providing LA/MSF for the A340-500/600, the Spanish 
government is [***].
3258 In our view, when read together as a whole, the two statements made in the 
first preambular paragraph are close (but not identic al) to those made in the Spanish A380 contract.  
One particular difference is that unlike the statemen ts referred to by the United States in the Spanish 
A380 contract, they do not explicitly identif y the Spanish governments' justification  for entering into 
the A340-500/600 contract.  Moreover, it is appa rent that the information referred to is [***] for the 
purpose of arriving at the conclusion that [***]. In addition to the preambular language, the 
United States relies upon Article 1 of the Spanish A340-500/600 contract.  However, as we read it, 
this simply repeats CASA's obligation to [***].  Again, we find it difficult to see how this obligation, 
alone or taken together with evidence on excha nge of commitments, demonstrates that the Spanish 
government provided LA/MSF for the A340-500/600 on the condition or because of its anticipated 
export performance.  Thus, on the basis of the to tal configuration of the facts constituting and 
surrounding the provision of Spanish LA/MSF for the A340-500/600, including the evidence the United States has advanced on the exchange of  commitments between CASA and the Spanish 
government, we conclude that the United States has failed to establish that the Spanish government 
provided LA/MSF for the A340-500/600, even in part, on the condition  or because  of its anticipation 
of exports.   
7.688  Finally in respect of the provision of French LA/MSF for the A330-200, the United States 
identifies four provisions of the French contract and certain information contained in the French 
government's critical project appraisal as additional evidence supporting its case that this measure is a 
prohibited export subsidy.  The provisions set out essentially the same obligations the United States 
relies upon in the context of the French A340-500/ 600 contract.  In particular, Article 6 requires 
Airbus to [***]; pursuant to Article 7 Airbus must [***]; under Article 8, the government is given the 
right to [***] if Airbus breaches its obligations; a nd pursuant to Annex 5, Airbus must [***].  As with 
the appearance of these provisions in the French A340-500/600 contract, we tend to agree with the 
European Communities that they do not support the United States' position, whether considered alone 
or together with the evidence on the exchange of  commitments. The information referred to by the 
United States in the HSBI Appendix to its first written submission on the French government's critical 
project appraisal also does not advance its case on the question of contingency.  Thus, on the basis of the total configuration of the facts constituting and surrounding the provision of French LA/MSF for 
the A340-500/600, including the evidence the Unite d States has advanced on the exchange of 
commitments between Aérospatiale and the French  government, we find that the United States has 
failed to demonstrate that the French government  provided LA/MSF for the A330-200, even in part, 
on the condition  or because  of its anticipation of exports. 
Conclusion
 
7.689  Having carefully reviewed and considered the evidence and related arguments advanced by 
the parties as they concern each of the challenge d LA/MSF measures, we find that the United States 
has demonstrated that the German, Spanish a nd UK A380 contracts amount to prohibited export 
subsidies within the meaning of Article 3.1(a) a nd footnote 4 of the SCM Agreement.  However, we 
consider that the United States has not shown th at the granting of the other challenged LA/MSF 
                                                      
3258 US, SWS, paras. 200 and 201.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  subsidies was contingent in fact upon anticipated e xport performance, within the meaning of the same 
provisions.   
7.690  The European Communities has argued in this dis pute that if the United States' "interpretation 
of the legal standard {were} accepted, then findi ngs of export contingent subsidies would be more 
likely in the case of small or export dependent econom ies ... or in the case of global markets, such as 
the various types of LCA commercialized by both Airbus and Boeing".3259  However, we note that the 
United States has been clear in explaining that it does not consider the concept of export contingency 
to vary according to the size of an economy, its dependency on exports or the degree to which the 
market for the allegedly subsidized product is globalized.3260  Moreover, we do not accept that the 
scenario advanced by the European  Communities is a consequence of our findings in respect of the 
German, Spanish and UK A380 LA/MSF measures.  Indeed, although all of the seven challenged 
LA/MSF contracts were concluded for the purpose of financing the development of a globalized 
product manufactured by an export-oriented compan y for primarily a global market, and subject to 
sales-dependent repayment terms that could only be  satisfied through Airbus making an important 
number of exports, we have found that the United States has demonstrated that only three of the 
challenged measures constitute subsidies grante d contingent in fact upon anticipated export 
performance.  Our conclusion that the German , Spanish and UK A380 LA/MSF contracts were 
prohibited export subsidies is based on what we have objectively inferred from the "total 
configuration of the facts constituting and surrounding the granting of the subsidy".3261  These facts 
included not only evidence showing that compliance with the sales-dependent  contractual repayment 
terms would necessarily involve exportation, but also  evidence of the three go vernments' anticipation 
of export performance, the fact that they counted up on and expected Airbus to fully repay the loaned 
principal plus interest, as well as other contractua l provisions and information advanced by the United 
States that revealed at least part of the respec tive government's motivation for entering into each 
contract.3262  
7.691  We now turn to examine the United States' sec ond claim in respect of these measures, namely 
that the LA/MSF contracts for the A380, A340-500/600 and A330-200 constitute subsidies contingent 
in law upon anticipated export performance, within the meaning of Article 3.1(a) of the 
SCM Agreement.  
(iii) Whether the LA/MSF Measures Amount to Subs idies that are Contingent In Law upon 
Anticipated Export Performance 
7.692  In addition to claiming that the provision of  LA/MSF for the A380, A340-500/600 and A330-
200 was contingent in fact upon anticipated export performance, within the meaning of Article 3.1(a) 
and footnote 4 of the SCM Agreement, the United States claims that the same measures were also 
contingent in law  upon anticipated export performance, within the meaning of the same legal 
provisions.  The United States presents this add itional claim making essentially the same legal 
argument used to advance its in fact export contingency claims, namely, that each of the seven 
LA/MSF measures is a prohibited export subsidy be cause it involved (i) the granting or maintenance 
of a subsidy; (ii) that is tied to; (iii)  anticipated exportation or export earnings.3263   
7.693  The United States recalls that the Appellate Body in Canada – Aircraft  noted that the legal 
standard expressed by the term "contingent" in Artic le 3.1(a) of the SCM Agreement is the same for 
subsidies that are contingent in law and those that ar e contingent in fact, but that the type of evidence 
                                                      
3259 EC, SWS, para. 229. 
3260 US, Answer to Panel Question 11. 
3261 Appellate Body Report, Canada – Aircraft , para. 167. 
3262 See, para. 7.680 - 7.683 above. 
3263 US, FWS, para. 343. WT/DS316/R 
Page 524  
BCI deleted, as indicated [***] 
 
  that can be employed to demonstrate the two types of export contingency is different.
3264 Thus, in 
advancing its claim that each of the cha llenged LA/MSF measures was granted contingent in law  
upon anticipated export performance, the United St ates relies upon essentially the same evidence we 
have reviewed above to establish that the provisi on of LA/MSF involved the granting of a subsidy, 
and that the relevant EC member States anticip ated exportation or export earnings at the time 
LA/MSF was provided.3265  However, reflecting the nature of its in law  contingency claim, the United 
States focuses particular attention on the terms a nd conditions of the challe nged LA/MSF contracts to 
support its submission that the granti ng of the subsidies was contingent in law  upon anticipated export 
performance.  In this regard, the United States ar gues that the terms and conditions of each of the 
challenged LA/MSF contracts implicitl y substantiate its claim because, when considered in the light 
of the number of LCA sales the EC member St ate governments expected would be achieved in 
Europe and abroad, they demonstrate that the "words  actually used" in those contracts – in particular, 
the contractual terms tying the provision of LA/M SF to repayment over a specific number of LCA 
sales – give rise to the "necessary implication" that the provision of LA/MSF is contingent in law  
upon anticipated export performance. 3266 
7.694  The European Communities rejects the United Stat es' claim, relying upon many of the same 
legal and factual arguments raised in the context of the United States' in fact export contingency 
claim.  In addition, to the extent that the Unite d States pursues its complaint in reliance on documents 
and information that cannot be found in the te xt of the challenged measures, the European 
Communities asks the Panel to dismiss the United Stat es' allegations on the ground that they are not 
properly constituted in law  contingency claims. 3267 
7.695  As we have understood it, the United States' co mplaint raises two threshold questions that we 
believe must be resolved before we can turn to evaluate its substantive merits.  These two questions 
are: (i) whether Article 3.1(a) and footnote 4 envisage the possibility of bringing a claim of subsidization contingent in law upon anticipated export performance; and (ii) whether the United 
States is entitled to rely upon more than just the text of the instrument granting the LA/MSF subsidies 
in order to demonstrate that they were granted contingent in law  upon anticipated export performance.   
Contingency in law upon anticipated export performance
 
7.696  We recall that Article 3.1(a) and footnote 4 of the SCM Agreement provide as follows: 
"3.1 Except as provided in the Agreement on Agriculture, the following subsidies, 
within the meaning of Article 1, shall be prohibited: 
(a) subsidies contingent, in law or in fact4, whether solely or as one of several 
other conditions, upon export performance, including those illustrated in Annex I5; 
______________________ 
4 This standard is met when the facts demonstrate that the granting of a subsidy, 
without having been made legally continge nt upon export performance, is in fact tied 
to actual or anticipated exportation or export earnings. The mere fact that a subsidy is 
granted to enterprises which export shall not for that reason alone be considered to be 
an export subsidy within the meaning of this provision.  
                                                      
3264 US, FWS, para. 327, citing Appellate Body Report, Canada – Aircraft , para. 167. 
3265 US, FWS, paras. 344-351; 361-371;  377-382; US, SWS, paras. 137-140. 
3266 See, para. 7.585. 
3267 See, para. 7.592.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  5 Measures referred to in Annex I as not constituting export subsidies shall not be 
prohibited under this or any othe r provision of this Agreement."3268 
7.697  Article 3.1(a) speaks in general terms of subs idies "contingent, in law or in fact, ... upon 
export performance".  Footnote 4, which is placed after the word "fact" in Article 3.1(a), clarifies that 
"{t}his standard is met when the facts de monstrate that the granting of a subsidy,  without having been 
made legally contingent  upon export performance , is in fact  tied to actual or anticipated exportation 
or export earnings ".3269  In our view, when read in isolation, the language of footnote 4 suggests that 
the concept of "anticipated" exportation or export earnings is limited to claims of "in fact" export 
contingency. 
7.698  Relying upon certain Appellate Body observations in Canada – Autos , both parties have 
expressed the view that the legal standard for the de termination of whether a su bsidy is contingent in 
fact or in law upon export performance is the same , and that only the type of evidence that may be 
relied upon differs.  According to the United States, this means that the text of Article 3.1(a) and 
footnote 4 equate the concepts of "contingent upon" and "tied to", as well as "export performance" 
and "actual or anticipated exportation or export ear nings" for the purpose of both types of claims.3270  
The European Communities appears to agree with the United States.3271 
7.699  The particular passage from the Appellate Body Report in Canada – Autos  that both parties 
rely upon explains: 
"Although we are not examining whether the subsidy in this case is contingent 'in 
fact' upon export performance, we note that footnote 4 to Article 3.1(a) uses the 
words 'tied to' as a synonym for 'contingent' or  'conditional'.  As the legal standard is 
the same for  de facto  and  de jure  export contingency, we believe that a 'tie', 
amounting to the relationship of contingency,  between the granting of the subsidy and 
actual or anticipated exportation meets the legal standard of 'contingent'  in 
Article 3.1(a) of the  SCM Agreement." 3272 
7.700  In our view, this Appellate Body statement wa s more directed to explaining that the legal 
standard for "contingency"  does not vary between an in fact or  in law contingency claim, than to 
affirming that the notion of anticipated exportation or  export earnings in footnote 4 applies equally to 
in law and in fact contingency claims.  Nevertheless , when read in the context of footnote 4, we agree 
with the parties that the concept of export perform ance described in Article 3.1(a) can be properly 
understood to refer to actual or anticipated  exportation or export earnings. 
7.701  As we have noted above, footnote 4 clarifi es the circumstances wh en the granting of a 
subsidy will be contingent in f act upon export performance for the purpose of Article 3.1(a).  This 
contingent relationship is described in terms of the granting of a subsidy being in fact "tied to" actual 
or anticipated exportation or export earnings.  Thus, in  the context of a claim that a subsidy is granted 
contingent in fact upon export performance, footnot e 4 equates "tied to" with "contingent", and 
"actual or anticipated exportation or export earni ngs" with "export performance".  The Appellate 
Body has noted that footnote 4 does not alter the contingency standard between in fact and in law 
contingent subsidy claims.3273  In other words, although not directly applicable to in law contingent 
                                                      
3268 Underline added. 
3269 Emphasis added. 
3270 US, FWS, para. 327; US, Answer to Panel Question 216. 
3271 EC, FWS, para. 606; EC, Answer to Panel Question 216. 
3272 Appellate Body Report, Canada – Autos , para. 107 (footnote omitted, underline added). 
3273 See, para. 7.699 above. WT/DS316/R 
Page 526  
BCI deleted, as indicated [***] 
 
  subsidy claims,
3274 the Appellate Body has read footnote 4 as informing the notion of what amounts to 
contingency for the purpose of an in law contingent subsidy claim.  In our view, it is equally appropriate to read footnote 4 as informing the m eaning of "export performance" for the purpose of in 
law contingent subsidy claims under Article 3.1(a) .  Accordingly, we see no obstacle to the United 
States raising its in law export contingency co mplaint against the seven LA/MSF measures under 
Article 3.1(a) of the SCM Agreement. 
Evidence the United States asserts demonstrates that the LA/MSF subsidies were granted 
contingent in law  upon anticipated export performance  
7.702  To a large extent, the evidence the United States relies upon when  making its claim of in law 
export contingency overlaps with the evidence it presents for the purpose of its in fact export 
contingency claim.  As already noted above, the United States uses essentia lly the same evidence to 
argue that the provision of LA/MSF involved the gran ting of a subsidy, and that the relevant EC 
member States anticipated exportation or export ear nings at the time LA/MSF was provided.  In 
addition, under both sets of claims the United St ates relies upon the sales-dependent repayment terms 
of the LA/MSF contracts, in c onjunction with Ai rbus' Global Market Forecasts and the project 
appraisals prepared by the Airbus governments, to  establish the elements of in law contingency.3275  
For example, the United States notes that Airbus' 2000 Global Market Forecast projected that orders 
for aircraft with more than 400 seats by European airlines would total only 247.3276  Yet, the UK A380 
LA/MSF contract requires Airbus to make repayments over [***] sales; the German contract requires 
Airbus to repay over [***] sales; the French contract requires Airbus to repay over [***] sales; and 
the Spanish contract requires Airbus to repay over [***] sales.3277  Given a forecast of 247 European 
sales for all aircraft with more than 400 seats (a segment the United States submits includes not only 
the A380, but also the Boeing 747 and 777-300), th e United States asserts that these numbers translate 
into UK subsidies tied to at least [***] export sales; German subsidies tied to at least [***] export 
sales; French subsidies tied to at least [***] export sales; and Spanish subsidies tied to at least [***] 
export sales.3278  The United States presents similar evid ence and arguments in respect of the 
challenged A340-500/600 and A330-200 contracts.3279  Thus, the United States submits that, when 
read in the light of the Airbus Global Market Fo recasts and the government project appraisals, the 
sales-dependent repayment provisions of each of the LA/MSF contracts necessarily imply a tie to export performance.   
7.703  The United States argues that its reliance on doc uments extraneous to the challenged LA/MSF 
measures is supported by the Appe llate Body observations in Canada – Autos . In particular, the 
United States recalls that in Canada – Autos , the Appellate Body stated that  a subsidy is contingent in 
law upon export performance not only when "the exis tence of that condition can be demonstrated on 
the basis of the very words of the relevant legisla tion, regulation or other legal instrument constituting 
the measure", but also "where the condition to expo rt is clearly, though implicitly, in the instrument 
comprising the measure."
3280  In that case, the Appellate Body c oncluded that "for a subsidy to be de 
jure export contingent, the underlying legal inst rument does not always have to provide expressis 
verbis that the subsidy is available only upon fulfilment of the condition of export performance.  Such 
conditionality can also be derived by necessary im plication from the words actually used in the 
                                                      
3274 We recall in this regard that footnote 4 explicitly confines its direct relevance to situations when 
"the facts demonstrate that the granting of a subsidy, without having been made legally contingent upon export 
performance , is in fact tied to actual or anticipated export performance ...". 
3275 US, Answer to Panel Question 10. 
3276 Airbus, Global Market Forecast 2000, at 37, Exhibit US-358; US, FWS, para. 346; US, Answer to 
Panel Question 10. 
3277 US, FWS, para. 353; US, Answer to Panel Question 10. 
3278 US, FWS, para. 354; US, Answer to Panel Question 10. 
3279 US, FWS, paras. 372-375, 383-386; US FWS, HSBI Appendix; US, Answer to Panel Question 10. 
3280 Appellate Body Report, Canada – Autos , para. 100.  WT/DS316/R 
 Page 527 
 
BCI deleted, as indicated [***] 
 
  measure".3281  Thus, the United States argues that when ex amining whether a subsidy has been granted 
contingent in law upon export performance, it is appr opriate to consider not only the text of the 
measure, but also how the measure "actually work{s}".3282  Therefore, according to the United States, 
reliance on the Global market forecast and the governme nt project appraisals, to the extent they help 
to understand how the LA/MSF measures actually work, is permissible for the purpose of 
substantiating its claim of in law export contingency. 
7.704  In Canada – Autos, the European Communities and Japan brought a complaint against an 
import duty exemption regime applie d by Canada to certain imports of motor vehicles.  Two aspects 
of the regime that were challenged by the complain ants concerned: (i) a limitation on imports eligible 
for duty exemption that was set according to the ratio between a manufacturer's domestic vehicle 
production and its sales in Canada; and (ii) a requireme nt that each manufacturer meet certain levels 
of Canadian value added ("CVA") in order to obtain the duty exemption.  The first aspect was 
challenged as constituting a subsid y granted contingent in law up on export performance within the 
meaning of Article 3.1(a) of the SCM Agreement; whereas the second was challenged as a prohibited 
import substitution subsidy under the terms of  Article 3.1(b) of the SCM Agreement.3283 
7.705  Under the prohibited export subsidy claim, th e panel was asked to rule upon whether an 
import duty exemption, granted under the Motor Vehi cles Tariff Order ("MVTO") and a number of 
Special Remission Orders ("SROs"), was contingent  in law upon export performance.  The MVTO 
and the SROs established a series of domestic production-to-domestic sales ratios that served to identify the extent to which companies were entitled to import motor vehicles into Canada duty-free.  
Pursuant to these ratios, car manufacturers were en titled to import cars duty-free to the extent that 
their domestic production fell short of  their domestic sales.  Thus, for example, a manufacturer with a 
production-to-sales ratio of 75:100 would be entitled to import cars duty-free to a value of 25.  
However, a manufacturer with a 100:100 producti on-to-sales ratio was not entitled to import cars 
duty-free.  The only way such a manufacturer could take advantage of the duty-free treatment was to 
export cars, thereby reducing the number of sales of Canadian-made cars in Canada and 
simultaneously filling this difference with the imported cars.
3284  The panel concluded that the subsidy 
granted pursuant to the ratio requirements establis hed under the MVTO and the SROs was contingent 
in law on export performance, noting that: 
"... it is the law ... that creates this construct, i.e., an import duty exemption upon 
condition of meeting certain ratio requirements.  It is the law that determines what a 
particular manufacturer beneficiary's ratio requirement will be.  And, in the case of a 
ratio requirement lower than 100:100, a lthough the manufacturer beneficiary has a 
choice as to the amount of the import duty exemption it wishes to access, it is the law 
that determines the consequences of that c hoice for the manufacturer beneficiary, or, 
otherwise put, it is the law that then establishes contingency upon export 
performance."3285 
                                                      
3281 Appellate Body Report, Canada – Autos , para. 100. 
3282 US, Answer to Panel Question 146, citing Appellate Body Report, Canada – Autos , para. 128. 
3283 In fact, the CVA requirements were also challenged by the European Communities under 
Article 3.1(a).  However, the panel did not make any findings in respect of this claim.   
3284 Panel Report, Canada – Certain Measures Affecting the Automotive Industry  ("Canada – Autos "), 
WT/DS139/R, WT/DS142/R, adopted 19 June 2000, as modified by Appellate Body Report WT/DS139/AB/R, 
WT/DS142/AB/R, DSR 2000:VII, 3043, paras. 10.184-10.189. 
3285 Panel Report, Canada – Autos , para. 10.192. WT/DS316/R 
Page 528  
BCI deleted, as indicated [***] 
 
  In agreeing with the panel, the Appellate Body explained: 
 
"We start with what we have held previously .  In our view, a subsidy is contingent 'in 
law' upon export performance when the existence of that condition can be 
demonstrated on the basis of the very words of the relevant legislation, regulation or 
other legal instrument constituting the measure.  The simplest, and hence, perhaps, the uncommon, case is one in which the cond ition of exportation is set out expressly, 
in so many words, on the face of the law, regulation or other legal instrument.  We 
believe, however, that a subsidy is also properly held to be  de jure   export contingent 
where the condition to export is clearly, though implicitly, in the instrument 
comprising the measure.  Thus, for a subsidy to be  de jure   export contingent, the 
underlying legal instrument does not always have to provide  expressis verbis   that 
the subsidy is available only upon fulfilme nt of the condition of export performance.  
Such conditionality can also be derived by necessary implication from the words 
actually used in the measure."
3286 
The Appellate Body went on to conclude that "f or the amount exceeding the duty-free 'allowance'  
there is ... a clear relationship of contingenc y between the import duty exemption and export 
performance"3287, finding, inter alia , that: 
 
"Regardless of the actual ratio specified for a particular manufacturer, the MVTO ... 
and the SROs operate , as a matter of law, in such a manner that the more motor 
vehicles a manufacturer exports, the more motor vehicles the manufacturer is entitled to import duty-free"
3288 
7.706  Under the prohibited import subs titution subsidy claim, the panel was asked to determine 
whether the CVA requirements rendered the availab ility of the same import duty exemption a subsidy 
contingent upon the use of domestic over imported goods  within the meaning of Article 3.1(b) of the 
SCM Agreement.3289  The CVA requirements were a second cond ition that beneficiaries had to satisfy 
in order to qualify for the import duty exemption on motor vehicles.  They were prescribed for certain 
manufacturers in the MVTO and the SROs, and define d to include parts and materials of Canadian 
origin, direct labour costs, manufacturing overh eads, general and administrative expenses and 
depreciation.  The panel found that "depending upon the factual circumstances, a manufacturer might 
well be willing and able to satisfy a CVA re quirement without using any domestic goods 
whatsoever".3290  On this basis, the panel concluded th at the CVA requirements did not render the 
measure a prohibited import substitution subsidy.   
7.707  The Appellate Body found the panel to have erred in its assessment.  In doing so, it first 
recalled that: 
"In our discussion of Article 3.1(a) in Secti on VI of this Report, we recalled that in 
 Canada – Aircraft  we stated that 'the ordinary connotation of 'contingent' is 
'conditional' or 'dependent for its existence on something else'.'   Thus, a subsidy is 
prohibited under Article 3.1(a) if it is 'c onditional' upon export performance, that is, if 
it is 'dependent for its existence on' export performance.  In addition, in  Canada – 
                                                      
3286 Appellate Body Report, Canada – Autos , para. 100. 
3287 Appellate Body Report, Canada – Autos , para. 105. 
3288 Appellate Body Report, Canada – Autos , para. 106 (underline added). 
3289 Article 3.1(b) of the SCM Agr eement reads: "Except as provided in the Agreement on Agriculture, 
the following subsidies, within the mean ing of Article 1, shall be prohibited:  ... (b) subsidies contingent, whether 
solely or as one of several other conditions, upon the use of domestic over imported goods." 
3290 Panel Report, Canada – Autos , para. 10.216.  WT/DS316/R 
 Page 529 
 
BCI deleted, as indicated [***] 
 
  Aircraft , we stated that contingency 'in law' is demonstrated 'on the basis of the 
 words  of the relevant legislation, regulation or other legal instrument.'   (emphasis 
added)  As we have already explained,  such conditionality can be derived by 
necessary implication from the word s actually used in the measure .  We believe that 
this legal standard applies not only to 'con tingency' under Article 3.1(a), but also to 
'contingency' under Article 3.1( b) of the  SCM Agreement."3291 
7.708  It went on to conclude that: 
"The Panel's failure to examine fully the legal instruments at issue here and their 
implications for individual manufacturer s vitiates its conclusion that the CVA 
requirements do not make the import duty ex emption contingent 'in law' upon the use 
of domestic over imported goods.  In the absence of an examination of the operation 
of the applicable CVA requirements for individual manufacturers , the Panel simply 
did not have a sufficient basis for its finding on the issue of 'in law' contingency.  Thus, we conclude that the Panel erred in conducting its 'in law' contingency 
analysis."
3292 
7.709  The United States argues that the Appellate Body's findings in respect of the panel's 
assessment of the claim against the CVA requi rements supports its reliance upon Airbus' Global 
Market Forecasts and other evidence (including the French and UK government's critical project 
appraisals) to show that the challenged LA/MSF cont racts constitute subsidies granted contingent in 
law upon export performance because their repayment terms are linked to a number of LCA deliveries 
that cannot be achieved wit hout substantial exportation.3293  The European Communities argues that 
the United States is not entitled to rely upon any do cuments other than the legal instruments pursuant 
to which the subsidies at issue were granted.3294  In its view, the Appellate Body's findings in Canada 
– Autos do not support the United States' position. 
7.710  The starting point of the Appellate Body's ex amination of the appeals against the panel's 
findings under both Articles 3.1(a) and 3.1(b) of the SCM Agreement in Canada – Autos  was the 
same, namely, that "contingency 'in law' is demonstrated 'on the basis of the words  of the relevant 
legislation, regulation or other legal instrument.'"3295   It then went on to note that "such conditionality 
can be derived by necessary implication from the words actually used in the measure".3296   
7.711  As we read it, the Appellate Body's confirmation of the panel's findings in respect of the in 
law export contingency claim under Article 3.1(a) did not involve looking into facts extraneous to the 
text of the ratio requirements.  The panel and th e Appellate Body both established the operation of the 
ratio requirements by looking to the text of the challenged measure.  Likewise, in the context of the prohibited import substitution subsidy claim under Artic le 3.1(b), the Appellate Body focussed on the 
panel's failure to fully examine "the speci fic CVA requirements for specific manufacturer 
beneficiaries",
3297 "the legal instruments at issue ... and their implications for individual 
manufacturers".3298  Thus, the Appellate Body observed: 
"Although the Panel did explain what types of costs could be used to satisfy the CVA 
requirements, the Panel did not, for any MVTO manufacturer or for particular SRO 
                                                      
3291 Appellate Body Report, Canada – Autos , para. 123 (footnotes omitted, underline added). 
3292 Appellate Body Report, Canada – Autos , para. 132 (underline added). 
3293 US, Answer to Panel Question 10. 
3294 EC, Answer to Panel Question 216. 
3295 Appellate Body Report, Canada – Autos , paras. 100 and 123. 
3296 Appellate Body Report, Canada – Autos , paras. 100 and 123. 
3297 Appellate Body Report, Canada – Autos , para. 128. 
3298 Appellate Body Report, Canada – Autos , para. 132. WT/DS316/R 
Page 530  
BCI deleted, as indicated [***] 
 
  manufacturers (with the exception of CAMI), make any findings as to the actual 
level of CVA required.  The Panel's statement that 'value-added requirements' are 'not 
synonymous' with a condition to use domes tic over imported goods seems to have 
been based on 'value-added requirements' considered in the abstract  as opposed to the 
actual CVA requirements for the MVTO and SRO manufacturer beneficiaries. 
... the Panel reached its conclusion here without examining the specific CVA 
requirements in the MVTO 1998 and the SROs .  The Panel simply speculated that 
'depending upon the factual circumstances', a manufacturer ' might well be  willing 
and able to satisfy a CVA requirement without using any domestic goods whatsoever '.  
(emphasis added)  The Panel did not, however, scrutinize the actual CVA 
requirements for MVTO and SRO manufacturers to see whether they could indeed be satisfied without using domestic goods. 
... It seems to us that whether or not a par ticular manufacturer is able to satisfy its 
specific CVA requirements without using an y Canadian parts and materials in its 
production depends very much on the level  of the applicable CVA requirements.  For 
example, if the level of the CVA requirement s is very high, we can see that the use of 
domestic goods may well be a necessity a nd thus be, in practice, required as 
a condition  for eligibility for the import duty exemption.  By contrast, if the level of 
the CVA requirements is very low, it w ould be much easier to satisfy those 
requirements without  actually using domestic goods; for example, where the CVA 
requirements are set at 40 per cent, it might be possible to satisfy that level simply 
with the aggregate of other elements of Ca nadian value added, in particular, labour 
costs.  The multiplicity of possibilities  for compliance with the CVA requirements, 
when these requirements are set at low levels, may, depending on the specific level applicable to a particular manufacturer, make the use of domestic goods only one 
possible  means (means which might not, in f act, be utilized) of satisfying the CVA 
requirements."
3299 
7.712  Thus, the Appellate Body faulted the panel's fa ilure to consider what could be necessarily 
implied from the actual CVA requirements prescribed  for each of the beneficiary entities.  Notably, in 
making this finding, the Appellate Body at no stage referred to the panel's failure to take into account 
any facts extraneous to the instrument being cha llenged.  Indeed, the Appellate Body emphasizes at 
the beginning of its analysis th at a claim under Article 3.1(b) ma y involve reviewing not only the 
words of the challenged measure, but also what those words  necessarily imply.   
7.713  We note that the arguments the United States has advanced in support of its claims are based 
on more than simply the text of the LA/MSF contr acts, or the implications that can be necessarily 
drawn from that text .  The United States clearly relies upon f acts that are extraneous to the LA/MSF 
contracts themselves, most notably, information contained in the Global Market Forecasts and the 
government project appraisals.  In our view, by rely ing upon such facts, the United States' claim strays 
from a complaint about what can be understood from the legal obligations written into the LA/MSF  
contracts, to a complaint about how th ose legal obligations can be understood in the light of relevant 
facts and circumstances .  Whereas the former represents what we  consider to be the essence of an in 
law export contingency claim, the latter, in our vi ew, defines the contours of a claim that a subsidy 
measure is contingent in fact upon export perfo rmance.  Thus, we agr ee with the European 
Communities that the United States' claims of in  law export contingency against the challenged 
LA/MSF measures are improperly constituted.  Accord ingly, we dismiss the United States' claim that 
the provision of LA/MSF for the A380, A340-500/600 and A330-200 was contingent in law upon 
                                                      
3299 Appellate Body Report, Canada – Autos , paras. 128-130.  WT/DS316/R 
 Page 531 
 
BCI deleted, as indicated [***] 
 
  anticipated export performance, w ithin the meaning of Article 3.1(a) and footnote 4 of the 
SCM Agreement. 
7.714  In any case, as we explain in the following secti on, even assuming we were incorrect in our 
assessment of the types of evidence that may be re lied upon for the purpose of bringing a claim of in 
law export contingency under Article 3.1(a) and footnote 4, we would nevertheless dismiss the 
United States' claims as, even taking into account the evidence it has adduced that  is extraneous to the 
LA/MSF contracts, we do not believe it has establishe d that the subsidies were granted contingent in 
law upon anticipated export performance. 
Whether the evidence the United States relies upon demonstrates that the LA/MSF subsidies 
were granted contingent in law  upon anticipated export performance  
7.715  We recall that by entering into each of the challenged LA/MSF contracts, the EC member 
States provided Airbus with a financial contribution that conferred a benefit.  In other words, the 
subsidy made available under the LA/MSF contract s was granted when each EC member State 
provided the LA/MSF.  It follows that for the United States' claim to succeed, it must demonstrate that 
the provision of LA/MSF was, as a matter of law , conditional or dependent, at  least in part, upon the 
EC member States' anticipation of export performance.   
7.716  The text of the challenged LA/MSF contracts provides no explicit support for the 
United States' claim.  Moreover, after examini ng how the contractual repayment provisions were 
intended to operate in the light of the evidence a dduced by the United States, the EC member States' 
anticipated export performance does not, as a matter of law , appear to have been a condition for the 
granting of the subsidies.  In this regard, we recall that while it is true that the EC member States must 
have been counting on Airbus to make LCA sales that necessarily included an important number of 
exports when concluding the LA/MSF contracts, th e fact that Airbus was under no legal obligation  to 
actually sell any LCA means that, on the basis of ho w the repayment terms we re intended to operate, 
the EC member States could have at most held only a high degree of certainty that each grant of 
LA/MSF would induce Airbus to make an important  number of export sales.  The other contractual 
provisions which the United States appears to rely upon do not add anything to this understanding of 
how the repayment provisions operate.3300  Thus, on the basis of the evidence the United States has 
advanced, the way the LA/MSF repayment provisions  were intended to operate shows that, as a 
matter of law, the EC member States provided the LA/MSF on the basis of their expectation (but not the condition) that Airbus would export.  Acco rdingly, even assuming that the United States was 
entitled to bring its case relying upon evidence that is extraneous to the LA/MSF contracts, we find 
that it has failed to demonstrate that the LA/M SF subsidies were granted contingent in law upon 
anticipated export performance.  
                                                     
 
3300 The United States appears to rely upon the same additional contractual provisions described above 
in the context of the in fact conti ngency claim for the purpose of its in law contingency claim.  US, SWS, 
paras. 163-209. WT/DS316/R 
Page 532  
BCI deleted, as indicated [***] 
 
  5. Whether certain European Investment Bank loans to Airbus are specific subsidies 
within the meaning of Articles 1 and 2 of the SCM Agreement 
(a) Introduction 
7.717  The United States claims that at least 12 loan s provided by the European Investment Bank 
("EIB") to various Airbus entities between 1988 a nd 2002 constitute specific subsidies within the 
meaning of Articles 1 and 2 of the SCM Agreement.  The 12 loans at issue are:
3301   
(i) the 2002 loan to EADS for research and development activities related to the A380 
(No. 21650/FR);3302 
(ii) the 1993 loan to Aérospatiale for produc tion of the Super Transporteurs (No. 
6832/FR);3303 
(iii) the 1992 loan to Aérospatiale for the cons truction of buildings and installation of 
industrial equipment for the A330/A340 (No. 16086);3304 
(iv) the 1991 loan to British Aerospace for the design, development and manufacture of 
wing boxes for the A330/A340 (No. 15119/UK);3305 
(v) the 1990 loan to CASA for the design and production of various parts of the A320 
and A330/A340 (Loan No. 1.4711/ES);3306 
                                                      
3301 The United States had also challenged a thirteenth loan, the 1997 loan to Aérospatiale for the Super 
Transporteurs.  However, the US withdrew its compla int against this measure after the European Communities 
confirmed in its first written submission and Exhibit EC-154 (BCI) that the loan at issue was never granted.  US, 
Answer to Panel Question 12; EC, FWS, footnote 807. 
3302 Contrat de Financement entre La Banque Européenne d'investissement et European Aeronautic 
Defence and Space Company, EADS N.V., Munich, le 2 août 2002 US-158 (BCI), as amended by Avenant 
Relatif au Contrat de Financement en date du 2 août 2002 entre La Banque Européenne d'investissement et 
European Aeronautic Defence and Space Company, EADS N.V., Paris, le 5 mai 2004, Luxembourg le 10 mai 2004 Exhibit EC-879 (BCI). 
3303 Aérospatiale Super Transporteur A, Contrat de financement entre La Banque Européenne 
d'investissement et Aérospatiale Société Nationale Industrielle, Luxembourg, le 4 octobre 1993, Exhibit EC-695 (BCI); and Aérospatiale Super Transporteur A, Accord 3 entre La Banque Européenne d'investissement et 
European Aeronautic Defence and Sp ace Company, EADS France, Paris, le 7 novembre 2002, Exhibit EC-
699 (BCI). 
3304 Aérospatiale-Gramont A330/340 II, Contrat de Financement entre La Banque Européenne 
d'investissement et Aérospatiale Société Nationale Indus trielle, Paris, le 20 juillet 1992 et Luxembourg, le 
21 juillet 1992, EC-694 (BCI); and Aérospatiale-Gram ont A330/340 II, Accord 2 entre La Banque Européenne 
d'investissement et European Aeronautic Defence and Space Comp any, EADS France, Paris, le 
7 novembre 2002, EC-698 (BCI). 
3305 British Aerospace-Airbus A330/340 – B, Finance C ontract between European Investment Bank and 
[***]  and British Aerospace Public Limited Company, London, 15 March 1991, EC-706 (BCI); British 
Aerospace-Airbus A330/340 – B bi s, Finance Contract between Eu ropean Investment Bank and [***]  and 
British Aerospace Public Limited Compan y, London, 26 June 1991, Luxembou rg 26 June 1991, EC-707 (BCI); 
as amended by Amendment Agreement between European Investment Bank and British Aerospace Public 
Limited Company and [***]  and British Aerospace (Operations) Li mited, London, 9 September 1999, 
Luxembourg, 10 September 1999, EC-708 (BCI); Deed of Novation, Amendment and Release between 
European Investment Bank and BAE Systems PLC and [***]  and BAE (Operations) Limited, 23 July 2001 
Exhibit EC-709 (BCI); and Deed of Amendment between European Investment Bank and BAE Systems PLC, 17 May 2004 Exhibit EC-710 (BCI).  WT/DS316/R 
 Page 533 
 
BCI deleted, as indicated [***] 
 
  (vi) the 1990 loan to CASA for the design and production of various parts of the A320 
and A330/A340 (No. 1.4712/ES);3307 
(vii) the 1990 loan to British Aerospace for the design, development and manufacture of 
wing boxes for the A330/A340 (No. 14999/UK);3308 
(viii) the 1990 loan to Airbus Industrie GIE for research, design and development of the 
A321 (No. 15007);3309 
(ix) the 1989 loan to CASA for the design and production of various parts of the A320 
and A330/A340 (14081/ES);3310 
(x) the 1989 loan to BAE Systems for the design and development of wings for the A320 
(No. 13802/UK);3311 
(xi) the 1988 loan to British Aerospace for the design and development of wings for the 
A320 (No. 13588/UK);3312 and  
(xii) the 1988 loan to Aérospatiale for a ne w assembly plant for the A330/340, and 
administrative and services buildings (No. 13764/FR).3313   
                                                                                                                                                                     
3306 Proyecto Casa Airbus A320/330/340-B, Contracto de Financiación entre El Banco Europeo de 
Inversiones y Construcciones Aeronáuticas, S.A. (CASA), Madrid, a 29 junio de 1990, Luxemburgo, a 
2 julio de 1990, No. 4711/ES, EC-701 (BCI). 
3307 Proyecto Casa Airbus A320/330/340-C, Contracto de Financiación entre El Banco Europeo de 
Inversiones y Construcciones Aeronáuticas, S.A. (CASA), Madrid, a 29 junio de 1990, Luxemburgo, a 
2 julio de 1990, No. 1.4712/ES, EC-702 (BCI).  We note that the United States did not initially identify this loan in its first written submission.  It was disclosed for th e first time by the European Communities in Exhibit EC-
154 (BCI).   
3308 BAE-Airbus A330/340 – A, Finance Contract between European Investment Bank and [***]  and 
British Aerospace Public Limited Co mpany, London, 21 D ecember 1990, Luxembourg,  21 December 1990, 
EC-705 (BCI). 
3309 Airbus Industrie A321 Development Project, Finance Contract between European Investment Bank 
and Airbus Industrie Financial Services and Airbus Industrie G. I.E., Toulouse, 21 December 1990, EC-
692 (BCI). 
3310 Proyecto Casa Airbus A320/330/340-A, Contracto de Financiación entre El Banco Europeo de 
Inversiones y Construcciones Aeronáuticas, S.A. (CASA), Luxemburgo, a 20 de Julio de 1989, No. 1.4081/ES, 
EC-700 (BCI). 
3311 BAE-Airbus A320 Project B, Finance Contract between European Investment Bank and BAE 
Systems p.l.c., London, 2 February 1989, as amended on 14 February 1991, 8 April 1994, 22 October 1996, and 
9/10 September 1999, and as novated and amended on 23  July 2001, EC-704 (BCI); as amended by Amendment 
Agreement between European Investment Bank a nd British Aerospace Public Limited Company and [***]  and 
British Aerospace (Operations) Limited, London, 9 Sept ember 1999, Luxembourg, 10 September 1999, EC-
708 (BCI); Deed of Novation, Amendment and Release between European Investment Bank and BAE Systems 
PLC and [***]  and BAE (Operations) Limited, 23 July 2001 Exhibit EC-709 (BCI); and Deed of Amendment 
between European Investment Bank and BAE Systems PLC, 17 May 2004 Exhibit EC-710 (BCI). 
3312 BAE-Airbus A320, Finance Contract between European Investment Bank and [***]  and British 
Aerospace Public Limited Company, Luxembourg, 18 October 1988, EC-703 (BCI); as amended by 
Amendment Agreement between Eur opean Investment Bank and British Aerospace Public Limited Company 
and [***]  and British Aerospace (Operations) Limited,  London, 9 September 1999, Luxembourg, 
10 September 1999, EC-708 (BCI); Deed of Novation, Amendment and Release between European Investment 
Bank and BAE Systems PLC and [***]  and BAE (Operations) Limited, 23 July 2001 Exhibit EC-709 (BCI); 
and Deed of Amendment between European Investment Bank and BAE Systems PLC, 17 May 2004 Exhibit EC-710 (BCI). WT/DS316/R 
Page 534  
BCI deleted, as indicated [***] 
 
  7.718  The European Communities contests the United St ates claims on various grounds.  In a first 
series of arguments, the European Communities asks th e Panel to dismiss the United States claims in 
respect of certain loans because it contends th at: (i) the loans granted between 1988 and 1993 are 
outside the temporal scope of the SCM Agreemen t; (ii) the loans granted between 1988 and 1993 
were granted to Airbus entities other than Airbus  SAS or its subsidiaries and the United States has 
failed to demonstrate that the alle ged benefits of these loans "passed  through" to Airbus SAS; (iii) 
eight of the loans have been fully repaid, and ther efore do not constitute "existing measures"; and (iv) 
in respect of one of the loans (to British Aerosp ace), an entity that is no longer active in the 
production of Airbus LCA or that is not part of Airbus SAS [***].  The European Communities also 
disputes the United States' specific subsidization cl aims by arguing that the loans at issue did not 
confer a benefit on Airbus, and that in any case, th e alleged subsidies were not specific within the 
meaning of the SCM Agreement. 
7.719  Elsewhere in this report, we have examined and dismissed the first two of the European 
Communities' arguments relating to the temporal sc ope of the SCM Agreement and the issue of "pass 
through".
3314  In the evaluation that follows, we begin by addressing the two remaining EC arguments 
that do not relate to the question whether the challe nged loans are specific subsidies, before turning to 
consider the merits of the United States specifi c subsidy claims under Articles 1 and 2 of the 
SCM Agreement. 
(i) Loans Already Repaid 
7.720  The European Communities asks the Panel to rej ect the United States claims in respect of all 
but three of the EIB loans due to the fact that th ey have already been fully repaid, in many cases 
before the establishment of this panel.3315  According to the European Communities, in order to 
challenge loans that have been fully repaid, th e United States must explain why the Panel should 
examine them, and how it could make recommendati ons and findings, when they are measures that no 
longer exist.  In addition, the European Commun ities argues that the United States must explain how 
the non-existing loans cause present adverse effects to its interests.3316 
7.721  Recalling the Appellate Body's statement in US – Upland Cotton  where it observed that "there 
could be a time-lag between payment of a s ubsidy and any consequential adverse effects"3317, the 
United States argues that a subsidized loan may cont inue to provide a benefit or cause adverse effects 
after it is repaid, just as a subsidy grant may con tinue to provide a benefit or cause adverse effects 
after it is granted.3318 
7.722  In essence, the European Communities' argume nts raise two questions: whether alleged 
subsidy measures that have expired may be challe nged under Article 5 of the SCM Agreement, and 
whether the United States has done enough to demons trate that any such expired subsidy measures 
(i.e., the relevant EIB loans) cause present adverse eff ects to its interests.  In respect of the first 
question, we understand the European Communities to  argue that once a subsidized loan has been 
fully repaid, the subsidy no longer exists as a me asure and therefore cannot cause adverse effects 
                                                                                                                                                                     
3313 Projet Aérospatiale Gramont A330/340, Contrat de Financement entre La Banque Européenne 
d'investissement et Aérospatiale Société Nationale Indu strielle, Paris, le 21 décembr e 1988, EC-693 (BCI); and 
Projet Aérospatiale Gramont A330/340, Accord 1 entre La Banque Européenne d'investissement et European 
Aeronautic Defence and Space Company,  EADS France, GIE Saint Martin Ba il, GIE Gramont Bail, Paris, le 7 
novembre 2002, EC-697 (BCI). 
3314 See, paras. 7.44  - 7.65 setting out Panel's findings on temporal scope arguments and paras. 7.192 - 
7.200 setting out Panel's findings on the pass-through argument. 
3315 The three loans that have not been fully repaid are the [***] , the [***]  and the [***] . 
3316 EC, FWS, para. 1001; EC, FNCOS, pa ra. 96; EC, SWS, paras. 481-482. 
3317 Appellate Body Report, US – Upland Cotton , para. 273. 
3318 US, Answer to Panel Question 18; US, SWS, footnote 301.  WT/DS316/R 
 Page 535 
 
BCI deleted, as indicated [***] 
 
  under Article 5 of the SCM Agreement.  This line of argument implies that subsidized loans cannot 
cause adverse effects beyond the date on which they have been fully repaid.  We are unable to accept 
the European Communities' contention.  As the Appellate Body has observed: 
"... Article 7.8 of the  SCM Agreement  provides that, where it has been determined 
that 'any subsidy has  resulted   in adverse effects to the interests of another Member', 
the subsidizing Member must 'take appropriate steps  to remove the adverse effects  or 
... withdraw the subsidy'. (emphasis added)  The use of the word 'resulted' suggests 
that there could be a time-lag between the payment of a subsidy and any consequential adverse effects.  If expire d measures underlying past payments could 
not be challenged in WTO dispute settleme nt proceedings, it would be difficult to 
seek a remedy for such adverse effects.  Fu rther—in contrast to Articles 3.7 and 19.1 
of the DSU—the remedies under Article 7.8 of the  SCM Agreement   for adverse 
effects of a subsidy are (i) the withdrawal of the subsidy  or  (ii) the removal of 
adverse effects.  Removal of adverse effects through actions other than the 
withdrawal of a subsidy could not occur if the expiration of a measure would 
automatically exclude it from a panel's terms of reference."
3319 
Similarly, the panel in Indonesia – Autos  noted: 
 
"If we were to consider that past subsidi es were not relevant to our serious prejudice 
analysis as they were 'expired measures' while future measures could not yet have 
caused actual serious prejudice, it is hard to imagine any situation where a panel 
would be able to determine the ex istence of actual serious prejudice."3320 
7.723  Although the subsidies that were the focus of  the above statements did not involve the 
granting of loans,3321 the observations of the Appellate Body an d the panel are, in our view, of equal 
application and relevance to the EIB loans at issue in the present dispute.  Thus, while the European 
Communities may be correct in characterizing a fully  repaid EIB loan as a measure that no longer 
exists, the nature of an adverse effects claim do es not preclude the possibility of finding that it may 
have a consequential impact on the relevant mark et after its full repayment and, as such, cause 
adverse effects within the meaning of Article 5 of  the SCM Agreement.  There is therefore no legal 
basis to support the European Communities' submission that fully repaid loans that are alleged to be 
subsidies cannot be challenged unde r Article 5 of the SCM Agreement.  Thus, in light of the above, 
and consistent with our findings in respect of the temporal scope of this dispute, we reject the 
European Communities' request to exclude all but three of the EIB loans at issue from our 
consideration of the United States' claims on the grounds that they are expired measures. 
7.724  The second question raised by the European Comm unities relates to whether the United States 
has demonstrated that any EIB loans found to be sp ecific subsidies cause present adverse effects to its 
interests.  We will address the European Communi ties' concerns, to the extent necessary, in the 
section of our Report that examines the merits of the United States' adverse effects claims.3322  
                                                      
3319 Appellate Body Report, US – Upland Cotton , para. 273. (Footnote omitted, emphasis original). 
3320 Panel Report, Indonesia – Autos , para. 14.206. 
3321 The Appellate Body's statement in US – Upland Cotton was made in the contex t of Brazil's claims 
against subsidy payments to United States cotton farmer s under the "production flexibility contract" and "market 
loss assistance" programmes.  The panel's statement in Indonesia – Autos related to subsidies provided under the 
National Car programme in the form of an import duty tax exemption and a luxury sales tax exemption. 
3322 Section VII.F of this Report. WT/DS316/R 
Page 536  
BCI deleted, as indicated [***] 
 
  (ii) 1991 Loan to British Aerospace 
7.725  The European Communities asserts that [***] continues to [***], even after it transferred all 
Airbus LCA-related design, engineering, manuf acturing and production activities to Airbus SAS 
subsidiaries in 2001 and sold its 20% shareholding in  Airbus SAS to EADS in October 2006.  Thus, 
according to the European Communitie s, it follows that any benefit c onferred by this loan could not 
have been transferred to Airbus SAS and be causing present adverse effects to United States 
interests.
3323 
7.726  The United States contends that the European Communities' assertion shows only that Airbus 
received the entire benefit of a subsi dy provided for the A330/A340, while the [***].  The United 
States argues that to assess whether the alleged subsid y caused adverse effects to its interests within 
the meaning of Article 5 of the SCM Agreement, it suffices to show that the recipient of the loan 
enjoyed a benefit, thus conferring a subsidy, a nd that the subsidy was for the development and 
production of LCA.  In any case, the United States notes that even assuming that [***], it must be 
recalled that [***].  Thus, whatever the current [***] of the 1991 EIB loan, the United States contends 
that the loan is properly before the Panel; that Ai rbus and the A330/A340 in pa rticular have benefited 
from below-market EIB borrowing rates for 15 years; and that throughout that period, the loan's 
beneficial terms have contributed to the causation of adverse effects to the interests of the United 
States' producers.3324 
7.727  We recall that we have already dismissed th e European Communities' argument that the 
United States must demonstrate that any benefit conferred to entities forming part of the Airbus 
Industrie consortium via the challenged financial c ontributions was "passed through" to Airbus SAS 
or any of its subsidiaries for the purpose of establishing adverse effects.3325  In doing so, we concluded 
that the European Communities' reliance on the concep t of "pass-through", in the light of the facts of 
this dispute, was misplaced.  In particular, we f ound that based on the economic realities of Airbus 
LCA production, the Airbus Industrie consortium is the same producer of  Airbus LCA as Airbus SAS.  
We therefore concluded that it was unnecessary for th e United States to show that any benefit of each 
of the alleged financial contributions to entities fo rming part of the Airbus  Industrie consortium was 
passed through to Airbus SAS.  Thus, for the pe riod from 1991 to October 2006, when either British 
Aerospace or its successor BAE Systems continued to  be involved in Airbus LCA production, it is 
clear to us that any benefit (in the form of belo w market interest rates) of the 1991 EIB loan was 
conferred on the same producer of Airbus LCA.   
7.728  We note that publicly available information indicates that the funds obtained by British 
Aerospace for the A330/A340 under the 1991 EIB loan amounted to EUR 141,274,864.3326  
Moreover, according to the European Communities, as of January 2007, [***] of the loaned principal 
[***].3327  Thus, to the extent that the EIB loan conferre d any benefit, it was for the most part enjoyed 
between 1991 and October 2006, and can therefore be di rectly connected with Airbus LCA.  As we 
understand it, the United States argues further th at the fact that BAE Systems currently [***] means 
that Airbus received the entire benefit of the EIB loan subsidy provided for the A330/A340.  Although 
we believe that it would not be unreasonable to view the [***] of the EIB loan by BAE Systems 
                                                      
3323 EC, FWS, para. 1058; EC, SWS, para. 483. 
3324 US, Answer to Panel Question 17. 
3325 See, paras. 7.190 - 7.200 above. 
3326 Exhibit US-157. 
3327 Exhibit EC-154 (BCI).  This Exhibit contains an overview prepared by the EIB of the status of the 
loans challenged by the United States, as of January 2007.  It reveals information including the relevant loan contract numbers, disbursement dates, loan currencies, interest rates and outstanding principal amounts.  We do 
not understand the United States to challenge the accuracy or  reliability of the information set out in this Exhibit 
as it relates to the amount of principal outstand ing on the 1991 EIB loan to British Aerospace as 
of January 2007.  WT/DS316/R 
 Page 537 
 
BCI deleted, as indicated [***] 
 
  after October 2006 as at least suggesting that Airbus  SAS received the amount of loan principal 
outstanding at the time of BAE Systems' withdrawal from Airbus SAS free of charge ( i.e., 
transforming this portion of the loan into a grant of funds), we do not consider it necessary to come to 
a firm conclusion on the merits of the United States ' position.  In our view, the fact that any benefit 
conferred by the loan would have been enjoye d for the most part between 1991 and October 2006, 
and therefore directly connected with Airbus LCA, is enough to dispose of the European Communities' argument that any benefit conferred by the 1991 EIB loan to British Aerospace could 
not have been transferred to Airbus SAS and therefore be causing present adverse effects to the United States interests.  Accordingly, we reject  the European Communities' request to dismiss the 
United States' complaint against th e 1991 EIB loan to British Aerosp ace because of the fact that BAE 
Systems has [***] while no longer taking part in Airbus LCA production. 
(b) Whether Each of the Challenged EIB Loans Am ounts to a Subsidy within the Meaning of 
Article 1 of the SCM Agreement 
(i) Are the Loans "Financial Contributions"? 
7.729  The United States argues that all of the challenged EIB loans involve direct or potential direct 
transfers of funds within the meaning of Article 1. 1(a)(1)(i) of the SCM Agreement, and are therefore 
financial contributions.
3328  The European Communities does not dispute the United States' contention 
that all of the measures at issue involve financial c ontributions in the form of loans.  However, in 
respect of the 2002 loan to EADS for the A380,  the European Communities contests the amount of 
the financial contribution that is at stake.  Be fore turning to examine the European Communities' 
assertions in respect of the 2002 loan to EADS, we recall that Article 1.1(a)(1)(i) of the 
SCM Agreement explicitly identifies a "loan" as an example of a "government practice {that} 
involves a direct transfer of funds", and therefore a financial contribution.  Thus, we agree with the 
parties that to the extent that the EIB finance c ontracts evidence the exis tence of loans they are 
financial contributions within the meaning of  Article 1.1(a)(1)(i) of the SCM Agreement. 
- The 2002 loan to EADS 
7.730  The finance contract entered into between the EIB and EADS on 2 August 2002 opened a 
EUR 700 million ("crédit") credit line for the purpose of research and development activities related to the A380 project.
3329  Under the terms of this contract, EADS was entitled to request the EIB to 
provide it with all or part of the cred it line in loan amounts no smaller than [***] over a period of two 
years.3330  The essential terms and conditions of any even tual disbursement of funds, including the 
interest rate charged on repayments, were described in the same contract.3331  EADS requested one 
disbursement of [***], which it received on [***].3332  The remaining credit of [***] was cancelled on 
[***].3333 
7.731  According to the European Communities, the fi nancial contribution provided to EADS under 
the 2002 finance contract is the one disbursement obtained in [***], which was provided in the form 
of a loan of [***].  The European Communities argues that the remaining undisbursed credit line of 
[***] is irrelevant because it was cancelled in [***].3334  On the other hand, the United States argues 
that the relevant amount should not be limited to the [***] disbursement, and that it should include the 
                                                      
3328 US, FWS, paras. 396 and 409; US, Comments on EC Answer to Panel Question 181. 
3329 Article 1.02.A, Exhibit US-158 (BCI). 
3330 Article 1.02.B, Exhibit US-158 (BCI). 
3331 As amended by Exhibit EC-879 (BCI). 
3332 Exhibit US-162 (BCI). 
3333 Article 1.05A, Exhibit US-158 (BCI ).  EC, Answer to Panel Questio n 178, referring in addition to 
Exhibits EC-162 and EC-880 (BCI). 
3334 EC, FWS, para. 1092; EC, SWS, para. 452; EC, Answers to Panel Questions 178 and 181. WT/DS316/R 
Page 538  
BCI deleted, as indicated [***] 
 
  EUR 700 million credit line.  In this regard, the Un ited States identifies two alleged benefits of the 
finance contract, one arising from the "eventual u se of the loan" (by which we understand the United 
States to be referring to the [***] loan), and the other from the "ability to draw on a Euro 700,000,000 
line of credit" ( i.e., the EUR 700 million credit line).
3335   
7.732  The United States argues that the latter benefit arises from "the very fact"3336 that the EIB 
provided EADS with a EUR 700 million credit line.  In particular, the Unit ed States argues that 
"EADS ability to draw on a Euro 700,000,000 lin e of credit gave it valuable liquidity".3337  
Consequently, the United States considers that the European Communities errs  when it suggests that 
the relevant value of the financial contribution at  issue should be limited to the amount of funds 
ultimately disbursed under the 2002 finance contract .  The United States argues that the European 
Communities' approach is contradicted by the SCM Agreement's reference to "potential  direct 
transfers of funds" as a category of "financial cont ribution" that may confer a "benefit" and thereby 
constitute a subsidy.  The United States observes that a specificity analysis of a subsidy consisting of 
a potential direct transfer of funds necessarily occurs  in advance of any knowledge as to how much of 
the funds (if any) will actually be disbursed.3338  Thus, when referring to the alleged benefit arising 
from EADS' "ability to draw on a Euro 700,000,000 line of credit", we understand the United States 
to focus on the alleged benefit conferred by what it c onsiders to be a potential direct transfer of funds 
in the form of the [***] credit line. 
7.733  Article 1.1(a)(1)(i) defines a financial contribution as including "potential direct transfers of 
funds or liabilities ( e.g., loan guarantees)".  As we have previously explained,3339 the explicit 
identification of "loan guarantees" as an example of a "potential direct transfers of funds or liabilities" 
is instructive for the purpose of understanding the types of measures that may constitute "potential 
direct transfers of funds or liabilities".  A loan  guarantee may be described as a legally binding 
promise to repay the outstanding balance of a loan wh en the loan recipient defaults on its repayments.  
Thus, it is the promise to repay an outstanding loan  in the event of default that is the financial 
contribution ( i.e., the potential direct transfer of funds), not  the funds that may be transferred in the 
future in the event of default. 
7.734  Article 14(c) of the SCM Agreement establis hes guidelines for calculating the amount of a 
subsidy in terms of the benefit conferred by a loan guarantee for the purpose of countervailing duty 
investigations.  We have previously noted that although not intended to define the circumstances 
when a loan guarantee will confer a benefit under Artic le 1.1(b) in disputes involving Part III of the 
SCM Agreement, Article 14(c) does provide useful context.3340  This provision describes the benefit 
of a loan guarantee as the difference in the amount th at a recipient pays for a loan guaranteed by the 
government and a comparable commercia l loan absent the loan guarantee: 
"a loan guarantee by a government shall not  be considered as conferring a benefit, 
unless there is a difference between the amount  that the firm receiving the guarantee 
pays on a loan guaranteed by the government and the amount that the firm would pay 
on a comparable commercial loan absent the government guarantee.  In this case the 
benefit shall be the difference betw een these two amounts adjusted for any 
differences in fees;" 
                                                      
3335 US Comments to EC, Answer to Panel Question 181. 
3336 US Comments to EC, Answer to Panel Question 181. 
3337 US Comments to EC, Answer to Panel Question 181. 
3338 US Comments to EC, Answer to Panel Question 181. 
3339 See, para. 7.302 above. 
3340 See, para. 7.303 above.  WT/DS316/R 
 Page 539 
 
BCI deleted, as indicated [***] 
 
  7.735  In our view, the fact that a loan guarantee will confer a benefit on a recipient when it enables 
that recipient to obtain the guaranteed loan at a below market price implies that the benefit of a 
potential direct transfer of funds arises from the mere existence  of an obligation to make a direct 
transfer of funds in the event of default.  T hus, as we have concluded elsewhere in this Report,3341 
when assessing whether a transaction involves a "pot ential direct transfer{} of funds", the focus 
should be on the existence of a government practi ce that involves an obligation to make a direct 
transfer of funds which, in and of itself , is claimed and capable of conferring a benefit on the recipient 
that is separate and independent to the benefit that  might be conferred from any future transfer of 
funds.  This can be contrasted with financial contributions in the form of direct transfers of funds, 
which will result in a benefit being conferred on a re cipient when there is a government practice that 
involves a direct transfer of funds. 
7.736  It is not entirely clear to us whether the Unite d States intended that its arguments should be 
understood as suggesting that the 2002 finance c ontract between the EIB and EADS evidences the 
existence of two types of financial contributions – a direct transfer of funds (the [***] loan) and a 
potential direct transfer of funds (the EUR 700 mi llion credit line).  However, in our view, this 
appears to be the natural implication of what it is  saying when it alleges that the finance contract 
results in EADS receiving two very different types of benefit. 
7.737  We recall that between 2 August 2002 (the da te of the conclusion of the contract) and [***] 
(the date of the [***] disbursement), EADS was entitled to  draw down on the EUR 700 million credit 
line.  The United States has argued that the very ex istence of this credit facility provided EADS with a 
benefit.  In other words, the United States claims that the EIB's obligation to lend money to EADS, in 
and of itself , conferred a benefit upon EADS.  From this pe rspective, we agree w ith the United States 
that the finance contract, at least until [***], evidences the existence of a potential direct transfer of 
funds in the amount of EUR 700 million.3342  Similarly, the United States has argued that the 
"eventual use of the loan", that  is, the actual disbursement of [***] on the terms and conditions set out 
in the finance contract, conferred a different benefit upon EADS.  Thus, as with the European 
Communities, the United States is also of the view th at the finance contract evidences the existence of 
a financial contribution in the form of a loan amounting to [***]. We agree that the [***] 
disbursement amounts to a loan, and therefore a financial contribution within the meaning of 
Article 1.1(a)(1)(i) of the SCM Agreement. 
7.738  Thus, in the light of the foregoing analysis, we  find that the 2002 finance contract between the 
EIB and EADS evidences the existence of a financial contribution, in the form of a loan, within the 
meaning of Article 1.1(a)(1)(i) in the amount of [***].  In addition, in the light of the United States' 
characterisation of the alleged benefit resulting fro m the mere existence of the EUR 700 million credit 
line, we also find that the 2002 finance contract ev idences the existence of a po tential direct transfer 
of funds within the meaning of Article 1.1(a)(1)(i).   We now turn to consider whether these and other 
financial contributions provided by the EIB to Ai rbus conferred a benefit within the meaning of 
Article 1.2 of the SCM Agreement. 
                                                      
3341 See, para. 7.304 above. 
3342 Once EADS obtained the disbursement of [***] , the amount of the credit line made available under 
the contract was [***] .  The United States has not explained whether its claim extends to this residual amount of 
the credit line. WT/DS316/R 
Page 540  
BCI deleted, as indicated [***] 
 
  (ii) Do the Challenged EIB Loans Confer a "Benefit" on Airbus? 
Arguments of the United States
 
7.739  The United States argues that the very purpose of the EIB is to provide financing on terms 
more favourable than those available fo r comparable financing in the market.3343  In particular, the 
United States notes that Article 18 of EIB Statute explicitly limits EIB lending to situations where 
"funds are not available from other sources on reas onable terms".  Moreover, the United States 
submits that the EIB operates by using the EC member States' AAA credit rating to obtain large 
amounts of funds from the money market at advantageous rates, and then passing these rates onto non-AAA credit rated loan recipients.  Thus, th e United States argues that, like the Technology 
Partnerships Canada Progra mme that was at issue in Canada – Aircraft , the EIB "neither seeks nor 
earns a commercial rate of return"
3344 on the loans it provides.  Like the panel in that dispute, the 
United States urges the Panel in the present dispute to  find that all of the EIB loans at issue confer a 
benefit on Airbus.3345 
7.740  The United States argues that the interest rate  charged by the EIB on each of the relevant 
loans confirms that they were more advantage ous than comparable loans offered by a commercial 
bank.  For two of the loans at issue – the 2002 EIB lo an to EADS and the 1992 loan to Aérospatiale – 
the United States has submitted its own market interest  rate benchmark analysis and compared this to 
the interest rate charged by the EIB.  In both cases,  the United States concludes that the interest rates 
for comparable commercial financing would be less advantageous than the interest rates charged on 
the loans from the EIB.3346  In respect of the remaining loans, the United States did not have access to 
the actual interest rates charged by the EIB until it received the European Communities' first written 
submission, when the European Communities submitte d a one page overview of the status of the 
relevant loans.3347  The European Communities submitted copies of the loan contracts in its second 
written submission, together with its own analys is of whether the loans were provided at non-
commercial interest rates.3348  Prior to the European Communities' disclosures, the United States had 
presented information in its first written submission  showing that the average annual interest rates 
charged by the EIB to its customers, as published in  the EIB's annual reports from 1996 to 2004, were 
lower than the contemporaneous market-based cor porate borrowing rates determined in the Ellis 
Report.3349  The United States argued that in the light of the European Communities' refusal to provide 
the actual terms of the loans during the Annex V pr ocess, the reasonable inference for the Panel to 
draw is that the nine remaining EIB loans, provi ded to Airbus between 1988 and 1993, were similarly 
beneficial.3350 
7.741  In addition to the interest rate benefit that the EIB allegedly provides to recipients of its loans, 
the United States submits that the EIB's loans confer  another benefit, because the EIB does not charge 
                                                      
3343 US, FWS, paras. 397-402; US, SWS, paras. 260-268. 
3344 Panel Report, Canada – Aircraft , para. 9.314. 
3345 US, FWS, para. 400. 
3346 In particular, the United States asserts that the in terest rates charged on the 2002 EIB loan to EADS 
and the 1992 loan to Aérospatiale were, respectively, [***]  and [***]  basis points below the level of interest that 
would be charged by a commercial lender on comparable loans.  US, SWS, paras. 275-276, referring to the 
study prepared by NERA Economic Consulting,  The EIB Loans to Airbus , Exhibit US-542 (BCI). 
3347 Exhibit EC-154 (BCI). 
3348 EC, SWS, paras. 420-421 and 491-508, Exhibit EC-722 (BCI).  The United States had (through the 
Facilitator) requested the European Communities to provide a copy of the contracts during the Annex V process, 
but the European Communities refused because inter alia, it considered they were outs ide of the temporal scope 
of the SCM Agreement.  See, EC Reply to Question 81, Exhibit US-5 (BCI). 
3349 US, FWS, paras. 410-416 referring to certain pa rts of the Ellis Report, Exhibit US-80 (BCI); US, 
SWS, para. 271; US, Answer to Panel Question 149.   
3350 US, FWS, para. 416.    WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  its borrowers "commitment fees" to  compensate for committing to the loans, nor "non-utilization fees" 
in cases where the borrowers do not use the credit lines the EIB has provided.3351  M o r e o v e r ,  t h e  
United States argues that the EUR 700 million credit line opened for EADS in 2002 confers a benefit 
because in the view of the United States, the "abilit y to draw on a Euro 7 00,000,000 line of credit 
gave {EADS} valuable liquidity".3352  Finally, the United States contends that all of the loans at issue 
granted prior to 1999 conferred a benefit upon Ai rbus because the EIB did not impose a risk 
premium.3353 
Arguments of the European Communities  
7.742  The European Communities rejects the United Stat es contention that, by its very nature, EIB 
lending confers a benefit on loan r ecipients, and in this case, Airbus.  The European Communities 
points to Articles 19(1) and 24 of EIB Statute, which it explains require the EIB to set interest rates at 
a level enabling it "to meet its obligations, to cover its  expenses and to build up a reserve fund" that is 
10% of the prescribed capital.  In addition, the European Communities notes that pursuant to 
Article 19(2) of the EIB Statute, "the bank shall not grant any reduction in interest rates".  Thus, 
according to the European Commun ities, the EIB does not pass on to borrowers financing that it 
borrowed in the capital markets "at cost".3354  Moreover, any suggestion that the EIB's lending results 
in subsidization due to its opera tions being run on a not-for-profit basis should be dismissed because 
profitability is irrelevant to the question whether a measure is a financial contribution that confers a 
benefit within the meaning of Ar ticle 1.1 of the SCM Agreement.3355 
7.743  The European Communities argues that, contrary  to the United States' assertions, the EIB 
does not structure its loans in a way that confers a benefit on recipients.  The European Communities 
explains that the EIB uses standard form loan  agreements and a standard methodology for the 
calculation of interest rates.  In respect of the latter, the European Communities indicates that the EIB 
establishes interest rates for each lo an that it grants on the basis of three separate elements: a base rate 
(reflecting the EIB's cost of refinancing on the cap ital markets); a "mark-up" (in order to meet its 
obligations to cover expenses and build up a reserve fund); and, as of 1999, a risk premium (reflecting 
a loan's credit risk and replacing the form al requirement of providing a guarantee).3356  Moreover, the 
European Communities contends that the fact th at the EIB does not charge commitment fees or non-
utilization fees is justified because inter alia, (i) for "open-rate" contracts ( i.e., contracts where the 
rates are not fixed ex ante ), there is no certainty as to the timing of availability of funds, and the EIB 
does not commit to a precise interest rate; and (ii) fo r "single disbursement" contracts, there is no open 
commitment as such because the contract is signed and one or more disbur sements typically take 
place a few days later.3357  The European Communities notes that  if a borrower cancels a requested 
disbursement, then it must pay compensation to the EIB. 
7.744  The European Communities argues that th e approach taken by the panel in Canada – Aircraft  
should not be applied in the present instance because in that dispute, Canada had refused to provide 
relevant information on the terms and conditions of  the challenged contracts.  In contrast, the 
European Communities points out that  in the present dispute, it has disclosed all of the relevant 
contractual terms and conditions.3358   
                                                      
3351 US, FWS, para. 402, referring to an EI B statement submitted as Exhibit US-160. 
3352 US Comments to EC, Answer to Panel Question 181. 
3353 US, SWS, para. 269. 
3354 EC, FWS, paras. 1061-1062. 
3355 EC, Answer to Panel Question 86; EC, SWS, paras. 485-490. 
3356 EC, FWS, paras. 1069-1070; EC, SNCOS, para. 191. 
3357 EC, Answers to Panel Questions 87 and 179; EC, SNCOS, para. 192. 
3358 EC, Answer to Panel Question 86. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  7.745  The European Communities rejects the interest  rate benchmark analyses presented by the 
United States for various reasons,
3359 and presents its own analysis showing that in most instances, the 
EIB loans at issue were not granted at below-market  interest rates, when ad justed for the cost of 
certain alleged additional obligations present in EIB loan contracts.3360  Where the European 
Communities' own analysis shows that certain EIB loan s were granted at below-market interest rates, 
the European Communities contends that the Pa nel should assess whether such loans conferred a 
benefit by checking whether the interest rate di fferences fall within the range of 20-50 basis points 
above or below the relevant benchmark.  In the European Communities' view, a benefit could only 
exist if the interest rates requested by the EIB we re convincingly outside of this spread of rates.3361 
7.746  Finally, the European Communities argues that the general operations of the EIB are similar 
to those of the World Bank to the ex tent that the latter can allegedly only lend if it "is satisfied that in 
the prevailing market conditions the borrower would be unable otherwise to obtain the loan under conditions which in the opinion of the bank are reasonable for the borrower".
3362  The European 
Communities contends that the same type of prov isions define the lendi ng operations of other 
international lending institutions such as the Asian Development Bank, the European Bank for 
Reconstruction and Development, the Internationa l Bank for Reconstruction and Development, the 
Inter-American Development Bank and the Internati onal Finance Corporation.  Thus, the European 
Communities submits that to find that the EIB's le nding operations involve s ubsidization would mean 
that loans from all of these other international lendi ng institutions would also, by definition, amount to 
subsidies. 
Evaluation by the Panel  
7.747  The United States' allegations in respect of the question of benefit are grounded in essentially 
two lines of argument:  First, that the nature of th e EIB's lending operations demonstrates that it grants 
loans on the basis of non-commercial considerations ; and second, that the actual terms and conditions 
attached to the EIB's loans to Air bus show that they were more favourable to Airbus than comparable 
market financing because granted at lower interest rates and with no requirement to pay commitment 
or non-utilization fees.  As regards the EUR 700 million credit line opened for EADS in 2002, the 
United States also considers that a benefit was conferred because it provided EADS with "valuable 
liquidity".3363 We evaluate each of the United States' lines of argument in turn. 
The EIB's lending operations 
7.748  The EIB was established in 1957 pursuant to Ar ticle 266 of the Treaty of Rome ("EC Treaty") 
as the long-term lending arm of the European Comm unities.  As described in Article 267 of that 
Treaty, the EIB's task is: 
"... to contribute, by having recourse to the capital markets and utilising its own 
resources, to the balanced and steady de velopment of the common market in the 
interest of the Community.  For this purpose the Bank shall, operating on a non-
profit-making basis, grant loans and give guarantees which facilitate the financing of 
the following projects in all sectors of the economy: 
                                                      
3359 EC, FWS, paras. 1073-1089 and EC, SWS, paras. 494-499 (as regards the interest rate benchmarks 
based on the Ellis Report); EC, SNCOS, paras. 188-189 a nd Exhibit EC-857 (BCI) (as regards the interest rate 
benchmarks derived in the NERA Economic Consulting Report). 
3360 EC, FWS, paras. 1090-1103; EC, Answer to Panel Question 89; EC, SWS, paras. 500-508; Exhibit 
EC-722 (BCI); EC, Answer to Panel Question 176; Exhibit EC-876 (BCI). 
3361 EC, SWS, para. 507. 
3362 EC, FWS, para. 1064. 
3363 US Comments to EC, Answer to Panel Question 181.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  (a) projects for developing  less-developed regions; 
(b) projects for modernising or converting undertakings or for 
developing fresh activities called for by the progressive establishment of the common market, where these projects are of such a size or 
nature that they cannot be entirely financed by the various means 
available in the individual member States; 
(c) projects of common interest to several member States which are 
of such a size or nature that they  cannot be entirely financed by the 
various means available in the individual member States. 
In carrying out its task, the Bank shall facilitate the financing of investment 
programmes in conjunction with assistance from the Structural Funds and other Community Financial Instruments."
3364 
7.749  The Statute of the EIB further provides: 
    "Article 2 
The task of the Bank shall be that defined in Article 267 of {the EC Treaty}. 
    Article 18 1. Within the framework of the task set out in Article 267 of this Treaty, the Bank 
shall grant loans to its members or to priv ate or public undertakings for investment 
projects to be carried out in the European territories of member States, to the extent 
that funds are not available from other sources on reasonable terms. 
2. As far as possible, loans shall be granted only on condition that other sources of 
finance are also used.  
3. When granting a loan to an undertaking or to a body other than a Member State, 
the Bank shall make the loan conditional either on a guarantee from the Member 
State in whose territory the project w ill be carried out or  on other adequate 
guarantees. 
4. The Bank may guarantee loans contracted by public or private undertakings or 
other bodies for the purpose of carrying out projects provided for in Article 267 of this Treaty. 
5. The aggregate amount outstanding at any time of loans and guarantees granted by 
the Bank shall not exceed 250% of its subscribed capital. 
6. The Bank shall protect itself against ex change risks by including in contracts for 
loans and guarantees such clauses as it considers appropriate. 
                                                     
 
3364 Exhibit EC-157. The European Communities notes that the objective set out in subparagraph (b) 
"has progressively been abandoned as measures to create the EC Single Market were of a transitory nature".  
The European Communities explains that "it has been used for the last time in Spain, during the first years of its accession to the EC".  EC, FWS, footnote 809. WT/DS316/R 
Page 544  
BCI deleted, as indicated [***] 
 
      Article 19 
1. Interest rates on loans to be granted by the Bank and commission on guarantees 
shall be adjusted to conditions prevailing on the capital market and shall be calculated 
in such a way that the income therefrom sh all enable the Bank to meet its obligations, 
to cover its expenses and to build up a reserve fund as provided for in Article 24. 
2. The Bank shall not grant any reduction in interest rates. ... "
3365 
7.750  Thus, the EIB may be characterised as a public purpose supranational banking institution that 
acts to further EU policy objectives  by providing loans across a broad array of economic sectors, "to the extent that funds are not available from other sources on reasonable terms", at interest rates that 
cover its expenses and enable it to build up a reserve fund.  The EIB has described its lending 
activities in the following terms: 
"{B}acking by the member states gives th e EIB the highest possible credit rating 
(AAA) on the money markets, where it can  therefore raise very large amounts of 
capital on very competitive terms.  This in tu rn enables the Bank to invest in projects 
of public interest that would otherwise not  get the money – or would have to borrow 
it more expensively."
3366 
"With an excellent 'AAA' credit reputati on and operating as a major international 
borrower on financial markets, EIB is able to  raise funds at advantageous rates. Being 
a not-for-profit institution, the Bank passes on the benefits to its clients in the form of 
loans at fine rates. Interest rates ar e based on EIB's borrowing cost and a small 
margin to cover administrative expenses and other costs."3367    
7.751  In practice, the funds lent by the EIB are therefore first obtained on the money market by the 
EIB at interest rates reflecting its AAA credit rating.   These funds are then passed on to borrowers at a 
marked-up interest rate which enables the EIB "to m eet its obligations, to c over its expenses and to 
build up a reserve fund".  We understand that the inte rest rate charged to borrowers has also, since 
1999, included a risk premium to  reflect the perceived level of a loan's "expected loss".3368  Prior to 
the introduction of this risk premium, the European  Communities asserts that a loan's credit risk was 
in general taken into account by the EIB through a requirement for loan guarantees.3369 
7.752  The United States argues that these features of the EIB's lending operations demonstrate that 
EIB loans are non-commercial and therefore, in the same way that the non-commercial nature of the 
loans at issue in Canada – Aircraft  were found to confer a benefit to their recipients, the EIB loans 
that are at issue in the present dispute must also  confer a benefit on Airbus, within the meaning of 
Article 1.1(b) of the SCM Agreement.  On the ot her hand, the European Co mmunities rejects the view 
that the general nature of the EIB's lending activities necessarily means that the EIB did not earn a rate of return on its loans to Airbus that is sim ilar to the rate that would be sought by commercial 
banks.  The European Communities argues that a de termination of whether a measure is a subsidy 
should not be made by focussing on whether the grantor "as an abstract matter 'seeks' a certain rate of 
                                                     
 
3365 Exhibit EC-157. 
3366 EIB, What Does the Bank Do?  Exhibit US-153.  A similar statement is also made in the EIB 
Annual Report for 2004, submitted as Exhibit US-159. 
3367 EIB, FAQs, Project & Loans , Exhibit US-160.  A similar statement is also made in another 
document submitted by the United States as Exhibit US-151. 
3368 EC, FWS, para. 1070; Exhibit EC-842, p. 149. 
3369 EC, SNCOS, para. 191.  This alleged aspect of the EIB's lending operations is examined in more 
detail at paras. 7.815-7.819 below.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  return", but rather through "a comparison of the terms on which the challenged financial contribution 
was extended with the terms availa ble for the recipient at market".3370 
7.753  We recall that in order to understand whether a fi nancial contribution, in the form of a loan, 
confers a benefit, an assessment must be made of  whether that loan places the recipient in a more 
advantageous position compared to the position it woul d have been in had a comparable loan been 
obtained from a commercial lender.3371  In making this assessment, we see the non-profit-making 
nature of the EIB's operations and its mandate to  provide financing to the extent funds are not 
otherwise available "on reasonable terms" as featur es of the EIB's lending activities that suggest its 
loans are granted for projects that would be mo re difficult to successfully realize, or simply 
unfeasible, on the basis of commercial financing.  To  this extent, we believe that the evidence we 
have reviewed on the nature of the EIB's lendi ng activities (especially its non-profit-making nature) 
indirectly supports the view that the rate of retu rn it obtains on the loans it grants to borrowers 
(including those challenged by the United States in this  dispute) is below the rate of return that would 
be demanded by a commercial lender, thereby c onferring a benefit within the meaning of 
Article 1.1(b) of the SCM Agreement.  However, the parties have submitted other evidence that goes 
directly to the terms and conditions that the pa rties assert commercial lenders would have asked 
Airbus to agree to in order to obtain loans compar able to the EIB loans at issue.  The United States 
has submitted this evidence for the purpose of confirming  that the EIB loans confer a benefit on 
Airbus; whereas the intention behind the European  Communities' submission is to rebut the United 
States' allegations and demonstrate that the loans do not  confer a benefit.  We evaluate the parties' 
submissions in the following sections.  
Terms and conditions of the loans to Airbus 
The 2002 loan to EADS 
7.754  The 2002 EIB loan to EADS was granted for the purpose of one particular project – the 
development of the A380.  It was effe cted through one disbursement of USD [***] at an interest rate 
of [***], payable annually, on a non-amortizing loan with a final maturity of [***] years ( i.e., loaned 
capital plus final year interest payment due on [***]).3372  The United States alleges that the loan to 
EADS conferred a benefit for two reasons: (i) because  it was granted on interest rate terms that were 
more advantageous than comparable market financi ng; and (ii) because EADS did not have to pay any 
commitment fees or non-utilization fees.  We examine each of the United States' allegations in turn. 
Interest rate terms  
7.755  Initially, the market interest rate benchmarks presented by the United States for all of the EIB 
loans were based on the country-specific general co rporate borrowing rates determined in the Ellis 
Report.3373  For the 2002 EIB loan to EADS, the Un ited States asserted that the risk-adjusted 
commercial borrowing rate that the market would have  charged EADS in 2002 on an equivalent long-
term loan would have been "in the range of [***] percent, plus applicable commitment and non-
utilization fees".3374  In its second written submission, the United States submitted a revised market 
interest rate benchmark analysis for this loan, prepared by NERA Economic Consulting (the "NERA 
EIB Report").3375  On the basis of this revised analysis , the United States concludes that "the 
commercial rate for a loan with the characteristi cs of the 2002 EIB loan to EADS (European 
                                                      
3370 EC, Answer to Panel Question 86. 
3371 See, para. 7.382 above. 
3372 Exhibits US-158 (BCI), US-162 (BCI), EC-168 (BCI) and EC-879 (BCI). 
3373 US, FWS, paras. 404 and 415, referring to Ellis Report, Exhibit 6, Exhibit US-80 (BCI). 
3374 US, FWS, para. 404. 
3375 NERA, The EIB Loans to Airbus (hereinafter "NERA EIB Report"), Exhibit US-542 (BCI). WT/DS316/R 
Page 546  
BCI deleted, as indicated [***] 
 
  borrower, rated A3/A-, loan in Eurodollars, 10-ye ar maturity) would have been 5.68 percent in 
[***]."
3376 
7.756  The European Communities criticises the United St ates' market interest rate benchmark on 
various grounds.  In an assessment of the find ings of the NERA EIB Report, the European 
Communities alleges that the United States' benc hmark for the 2002 loan to EADS suffers from 
numerous deficiencies making it unreliable: 
"In relation to the 2002 EIB loan, the EIB h as identified the following crucial errors 
affecting NERA's assessment:  
• the entire 57 basis points 'benefit' claimed by NERA is wholly 
based on {the} NERA assert{ion}, without evidence, that the USD 
capital market is so inefficient that it would have cost EADS approximately 63 basis points more to borrow USD than an equivalently rated US corporation{}.  
• NERA assumes that EADS would have chosen what NERA claims 
to be the most expensive option to borrow USD (the Eurobond 
market) even though, according to NERA, it would have been cheaper for a European corporati on such as EADS to borrow in the 
so-called Yankee market.  
• NERA ascribes {a} wrong credit rating to EADS – in [***], EADS 
was rated A by S&P, and not A-.  
• the 57 basis points 'benefit' claimed by NERA simply does not 
stand up to any analysis with pricing achieved by other comparable European corporate borrowers at the time of the 2002 EIB loan or, 
indeed, pricing levels that EADS could have achieved in the swap 
market or through the USD syndicated loan market."
3377 
7.757  As we understand it, the market interest rate benchmark identified in the NERA EIB Report 
for the 2002 loan to EADS is based on the interest  rate that a non-United States corporate borrower 
with allegedly the same credit rating as EADS woul d have had to pay on a 10 year "Eurodollar" bond 
issued on [***].3378  Eurodollar bonds are USD bonds issued by companies outside of the United 
States.  They may be compared with either "Ya nkee" bonds, which are USD bonds issued within the 
United States by companies that are not domiciled in the United States, or domestic USD corporate 
bonds, which are issued by United States compani es in the United States.  NERA asserts that 
in August 2004, the yield on A rated 10 year Eurodollar bonds exceeded Yankee bonds by around 30 basis points; while the yield on A rated Yank ee bonds exceeded domestic 10 year USD corporate 
bonds by about 33 basis points.
3379  In other words, the NERA EIB Report submits that 
in August 2004, 10 year USD denominated bonds we re approximately 63 basis points more expensive 
for non-United States A rated corporations to issue outside of the United States than A rated 
United States corporations issuing within the Unite d States.  This price difference is explained by 
NERA as a function of factors such as "cross-border risks (the fact that a foreign company borrowing 
in USD is exposed to currency risk, plus that if the borrower is outside of the U.S., it may be more 
                                                      
3376 US, SWS, para. 275. 
3377 EIB Analysis of NERA EIB Report, p. 1, Exhibit EC-857 (BCI) (hereinafter "EIB Analysis of 
NERA EIB Report"). See, also , EC, Answer to Panel Question 180. 
3378 NERA EIB Report, p. 7. 
3379 NERA EIB Report, pp. 3-4.  WT/DS316/R 
 Page 547 
 
BCI deleted, as indicated [***] 
 
  difficult to enforce provisions of the bond indenture, etc) and liquidity differences in the three 
markets".3380 
7.758  The first EC criticism of the NERA EIB Report goes to the appropriateness of using the yield 
associated with a 10 year Eurodollar bond index in August 2004 as the basis of the appropriate market 
interest rate benchmark.  The European Comm unities notes that NERA does not cite any specific 
evidence or data sources to substantiate its assertion in respect of the levels of the 10 year Eurodollar 
or Yankee bond yields on [***].  In addition, the European Comm unities argues that if the indices 
used by NERA were the Bloomberg 10 year Singl e A USD Yankees Industrial index and the 10 year 
Single A EuroDollar EMU index, NERA's assessme nt cannot be relied upon because the two indices 
represent "a sort of interpolation between  existing bonds" that are not homogeneous.3381  T h e  
European Communities explains that the 10 year  Single A USD Yankees Industrial index includes 
bonds issued by "the State of Israel, Bank of Chin a, the National Bank of Hungary, Poland and BHP".  
Reflecting the heterogeneity of these bond issuers, the European Communities notes that the range in 
the spread between 10 year USD bonds issued by A rated domestic industrial issuers and 10 year USD 
Yankee bonds issued by A rated industrial users show ed "extreme volatility with a minimum value of 
21 bps and a max value of 35 bps".  Likewise, th e European Communities observes that the 10 year 
Eurodollar bond index "currently contains issuers su ch as the Republic of Italy, the Italian Regione 
Campania, the Greek subsidiary of Coca Cola and so me special entity vehicles related to Transneft, 
the Russian oil pipeline provider".3382  The spread between 10 year USD Yankee bonds issued by 
A rated industrial users and the 10 Year Eurodolla r bond issued by EMU A rated industrial users is 
equally "very volatile with a range of between – 19 bps and 39 bps".  Given that the issuers of the 
bonds used to compile these indices are not all indu strial corporations, the European Communities 
argues that they are unreliable proxies for assessing wh at the market would have asked a corporation 
such as EADS to pay in 2004 for USD financing similar to the EIB loan.3383 
7.759  We agree with the European Communities that the use of a USD bond index that is derived 
from information about the yields of bonds issued in August 2004 by entities that include 
governments and other non-industrial corporations does not provide a perfect benchmark for assessing 
the precise interest rate that a company, like EADS, would have had to pay for this type of USD bond financing in August 2004.
3384  However, in our view, the Eurodollar bond index that the United States 
appears to have relied upon is not entirely irrelevant.3385  First, we note that Eurodollar bonds are a 
form of USD financing available to entities that like EADS are domiciled and operate outside of the 
United States.3386  Therefore, Eurodollar bond financing was an option available to EADS at the time 
                                                      
3380 NERA EIB Report, footnote 5, Exhibit US-542 (BCI).  See, also, US, Comments on EC Answer to 
Panel Question 180, where the United States notes that the fact that Eurodollar bonds ar e not registered with the 
United States Securities and Exchange Commission means that new issues cannot immediately be sold in the 
United States, making them less liquid . 
3381 EIB Analysis of NERA EIB Report, p. 3. 
3382 EIB Analysis of NERA EIB Report, p. 3. 
3383 EIB Analysis of NERA EIB Report, p. 3. 
3384 We note that the Eurodollar bond index that the European Communities suggests was relied upon 
in the NERA EIB Report included companies active in the consumer (n on-cyclical), consumer (cyclical), 
communications, utilities and financial industry sectors.  Only two of the 13 borrowing entities included in the 
index were public administrations – the Republic of Italy and the Italian region of Campania. EIB Analysis of 
NERA EIB Report, Annex I. 
3385 Although NERA did not attach a copy of the Eurodolloar bond price information it relies upon in 
the EIB Report, it did explicitly note that the information was drawn from Bloomberg.  NERA EIB Report, p.7, 
Exhibit US-542 (BCI).  The United States has not contes ted the assertion in the EIB Analysis of the NERA EIB 
Report that NERA relied upon the Bloomberg 10 year Single A EuroDollar EMU index to establish its 
benchmark. 
3386 "Eurodollar bonds are 1. Denominated in U.S. dolla rs 2. Issued and traded outside the jurisdiction 
of any single country 3. Underwritten by an international syndicate 4. Issued in bearer (unregistered) form".  WT/DS316/R 
Page 548  
BCI deleted, as indicated [***] 
 
  the EIB loan was disbursed.  Second, although not specific to EADS, the Eurodollar bond index might 
nevertheless be viewed as representing the average cost of Eurodollar bonds for the group of similarly rated entities that make up that index, onl y two of which were public administrations.
3387  In othe r  
words, the 10 year Single A EuroDollar EMU inde x which the United States appears to have relied 
upon acts as a signal of the average cost of 10 year Eurodollar bond financing on the market for 
A rated entities at the relevant moment.3388 
7.760  The second EC criticism relates more specifically  to the question whet her the United States' 
revised market interest rate benchmark overstates the cost of financing that would have been available 
to EADS on 20 August 2004.  In particular, the Eu ropean Communities argues that by relying on data 
from a Eurodollar bond index, the United States assu mes that EADS would have chosen what the 
NERA EIB Report recognizes was the more expensive USD funding option available to EADS compared with Yankee bonds.
3389  The United States explains th at NERA used a Eurodollar bond 
index because it represents "a loan denominated in the same currency as the EIB loan and provided 
under comparable market circumstan ces in the same place as the EIB loan was issued", and therefore 
achieves an "apples-to-apples comparis on" with the 2002 loan to EADS.3390  Thus, the United States 
argues that "like the EIB loan to E ADS, the U.S.- proposed benchmark is a [***] loan provided by a 
non-U.S. lender to a non-U.S. borrower."3391 
7.761  Fabozzi and Mann describe the Yankee bond ma rket as encompassing "those foreign-
domiciled issuers who register with the SEC and borrow dollars via issues underwritten by a U.S. 
syndicate for delivery in the United States."3392  In other words, Yankee bonds involve USD financing 
in the United States  for entities that are not domiciled in the United States.  This compares with 
Eurodollar bonds, which involve USD financing outside of the United States  for entities that are not 
domiciled in the United States.3393  It is clear to us that the 2002 EIB loan to EADS, as a non-
amortizing USD loan issued to a European corpor ate outside of the United States, bears closer 
resemblance to the latter than the former.  In a ddition, we note that Eurodollar bonds pay interest 
(coupons) annually, like the EIB loan; wherea s Yankee bonds pay interest semi-annually.3394  Thus, 
while we recognize that Yankee bond financing may ha ve been available to EADS in August 2004, 
we agree with the United States that financing th rough a Eurodollar bond would be a better proxy for 
the 2002 EIB loan to EADS.   
                                                                                                                                                                     
Frank J. Fabozzi and Steven Mann: The Handbook of Fixed Income Securities , Seventh Edition, McGraw-Hill, 
pp. 396-397. Exhibit US-673. 
3387 See, footnote 3384 above. 
3388 Furthermore, we note that the EIB has been declared to be "consistently among the top borrowers" 
in the Eurodollar bond market (Fabozzi and Mann, p. 397, Exhibit US-673).  The EIB described its USD 
borrowing activities for 2004 (the year in which the loan to EADS was disbursed) in the following terms: "In 
USD, the Bank was unique among international borrowers in issuing {bonds} in all key benchmark maturities, 
involving six new global issues for USD 14.5 bn in total, via benchmark transactions in 2, 3, 5 and 10-year 
maturities and a callable bond.  The EIB remained the largest and most frequent USD issuer among supranationals and is the only issuer in its class to offer such a comprehensive yield curve, with maturities 
ranging from 2005 to 2014".  EIB, Activity Report 2004, p. 39, Exhibit EC-714.  Recalling that the EIB operates 
by borrowing funds from the money market and on-lending these to its borrowers, it is possible to speculate on 
the basis of this information (although we emphasize that th ere is no evidence before us to confirm) that the 
Eurodollar bond market might well have been the source of the USD funds disbursed to EADS under the 2002 loan contract.   
3389 EIB Analysis of NERA EIB Report, pp. 2-3, Exibit EC-857 (BCI). 
3390 US, Comments on EC Answer to Panel Question 180. 
3391 US, Comments on EC Answer to Panel Question 180. 
3392 Frank J. Fabozzi and Steven Mann, p. 398, Exhibit US-673. 
3393 Frank J. Fabozzi and Steven Mann, pp. 396-398, Exhibit US-673. 
3394 Frank J. Fabozzi and Steven Mann, p. 396, Exhibit US-673.  WT/DS316/R 
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  7.762  The third EC criticism is that the United States ' benchmark applies a Standard & Poors credit 
rating for EADS of A-, when in fact, on [***], EADS had a Standard & Poors credit rating of A.  
According to the European Communities, the di fference means that the United States' proposed 
benchmark overstates the market interest rate by 6.5 basis points.3395  The United States responds by 
noting that even accepting the Europ ean Communities' factual asserti on and proposed adjustment, the 
revised market interest rate benchmark would be 5.6138%, still [***] basis points [***] the interest 
rate paid on the EIB loan.3396  We agree with the European Co mmunities that EADS' credit rating on 
the date of the EIB loan disbursement ( [***]) should be used when identifying the appropriate market 
interest rate benchmark. 
7.763  Finally, the European Communities argues that the United States Eurodollar bond-based 
benchmark "does not stand up to any comparison  with pricing achieved by other comparable 
European corporate borrowers at the time of th e 2002 EIB loan" in alternative USD financing 
markets.3397  The European Communities presents these altern atives as appropriate market interest rate 
benchmarks, and argues that when properly adjusted and examined together, they demonstrate that the 
interest rate attached to the 2002 loan to EADS fe ll within the range of commercial financing options 
available to EADS at the time and, therefore, did not confer a benefit. 
7.764  Initially, the European Commun ities proposed a market interest rate benchmark of 5.10%, 
constructed using the value, on [***], of the 10 year Constant Maturity Treasury rate from the United 
States Treasury Yield Curve (4.24%) (representing the risk-free rate for borrowing in USD at the time 
when EADS drew down on the EIB loan) and adding to this the "Reuters' 10 year Corporate Bond 
Spread for Industrials" with the same A3 credit ra ting as EADS (0.86%) (reflecting the general credit 
risk of the specific borrower).3398  Subsequently, the European Co mmunities added an additional 5 
basis points to this rate in order "to take into account the valid comment contained in the {NERA EIB 
Report} with regard to the frequency of interest payments" on US Treasury bonds.3399  In addition, the 
European Communities presented three other possible ma rket interest rate benchmarks based on: (i) 
the interest rate paid by a comparable European  corporate borrower (Norsk Hydro A/S) on the USD 
Yankee bond market; (ii) the interest rate paid by a comparable European corporate borrower 
(Pearson Plc) in the USD syndicated lo an market; and (iii) the interest rate that could have been paid 
by EADS on the corporate bond "swap market".3400  Finally, the European Communities adjusted 
three of these benchmarks to reflect "additional fi nance-related project cost/obligations" that are 
"expressly acknowledged by the ratings agencies" to affect the market prices of bonds and loans,3401 
arriving at the following result: 
                                                      
3395 EIB Analysis of NERA EIB Repo rt, p. 4, Exibit EC-857 (BCI). See, also , EC, Answer to Panel 
Question 180. 
3396 US, Comments on EC Answer to Panel Question 180. 
3397 EIB Analysis of NERA EIB Report, p. 4, Exibit EC-857 (BCI); EC, Comments on US Answer to 
Panel Question 149. 
3398 EC, FWS, paras. 1097-1099; Exhi bit EC-168 (BCI).  The European Communities did not submit a 
copy of the relevant "Reuters' 10 year Corporate Bond Spread for Industrials" Index.  In subsequent 
submissions, the European Communities states that it used the "Moody's index for A3 rated corporates" to 
determine the relevant spread, Exhibit EC-722 (BCI)) or that it relied upon the "relevant Merril Lynch index" 
(EC, Answer to Panel Question 180).  However, we und erstand that the credit spread actually used by the 
European Communities was based on the "Reuters' 10 year  Corporate Bond Spread for Industrials" index for 
corporations with an A3 credit rating, reflecting the fact that Moody's had assigned EADS an A3 credit rating on 
15 March 2002.  Exhibit EC-168 (BCI).   
3399 EC, Answer to Panel Questions 176 (footnote 62) and 180. 
3400 EIB Analysis of NERA EIB Report, Exhibit EC -857 (BCI), pp. 4-6; EC, Answer to Panel 
Question 176. 
3401 EC, Answer to Panel Question 176, referring to a Moody's publication which states inter alia, that 
"{i}n order to equalize losses across similarly rated loans and bonds, upward adjustments on loan ratings {of WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  Table 8 – EC Benchmark Analysis for the 2002 EIB Loan
 
 
Benchmark EIB Rate Benchmark Rate Adjusted 
Benchmark Rate 
USD Treasury Bond plus 
Relevant Spread for A3 
Corporations [***] 5.15% 5.08% 
Norsk Hydro Yankee Bond [***] 5.26% 5.20% 
Pearson USD Syndicated 
Loan [***] LIBOR/Swaps plus 
35.5 basis points No adjustment 
EADS EUR bonds 
swapped into USD bonds [***] 5.20% 5.14% 
 
7.765  The European Communities asserts that the a bove four interest rates represent "EADS' 
alternative cost of funding for a loan equivalent" to the 2002 loan from the EIB, and should therefore 
all be considered relevant to the benchmarking exercise.3402  In this regard, the European 
Communities argues that "the commercial reality is that  it is simply not possible to argue credibly that 
for any one borrower at any point in  time there exists (to the nearest one hundred of one percent) a 
market benchmark consisting of " one single interest rate.3403  Thus, in recognition of this alleged 
reality, the European Communities concludes that all of the four funding options it has identified must be taken into account.  When this is done, the European Communities notes that the difference 
between the interest rate charged by the EIB and th e various (adjusted) commercial market interest 
rate benchmarks, is between minus three and plus nine basis points – on average, a difference of plus 
1.5 basis points or 0.015%.
3404 
7.766  The European Communities also considers that  any assessment of whether the EIB loans to 
EADS confer a benefit must take into account wh at it alleges are the additional costs of various 
project-related and administrative obligations found in the EIB loans that would not normally be 
present in the bond instruments used by the Un ited States or the European Communities for 
benchmarking.3405  The European Communities describes at least nine such project- related 
obligations,3406 and identifies where each is found in each of the EIB loans in dispute.3407  T h e  
European Communities explains that costs of this  kind are not typically found in bond instruments 
because, as illustrated by an EADS bond issued in 20 05, bond financing is not project-specific, but for 
"general corporate purposes".3408  In respect of administrative costs, the European Communities 
argues that the main additional administrative cost faced by a borrower taking an EIB loan is time – 
the time needed to undertake the a dditional procedural steps, most importantly project appraisal, that 
                                                                                                                                                                     
about 0.5 to 1.5 alpha-numeric rating notches}, rather than downward adjustments on bond ratings, appear more 
appropriate".  Moody's Investor Service, Special Comment 'Credit Loss Rates on Similarly Rated Loans and 
Bonds' , December 2004, Summa ry, Exhibit EC-878. 
3402 EC, Comments on US Answer to Panel Question 149. 
3403 EC, Comments on US Answer to Panel Question 149. 
3404 EC, Answer to Panel Question 176. 
3405 EC, FWS, paras. 1081-1089; EC, Answer to Panel Question 176. 
3406 These are the obligation to: (i) participate in project  appraisal; (ii) carry out a project; (iii) use funds 
solely for the financing of the project; (iv) prepay in  the event project costs co me under expectations; (v) 
maintain and insure the project; (vi) not dispose of project assets; (vii) comply with EIB procurement requirements; (viii) comply with project reporting requir ements; and (ix) permit EIB project visits.  EC, Answer 
to Panel Question 176. 
3407 Exhibit EC-876 (BCI). 
3408 EC, SWS, paras. 494-495; EC, Answer to Panel Question 176; Exhibit EC-721.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  are not required when funding is sought from the bond market.3409 Taking all such additional costs 
into account, the European Communitie s submits that the interest rate offered by the EIB for the 2002 
loan to EADS fell within the range of ma rket interest rates at EADS' disposal on [***], and therefore, 
did not confer a benefit.3410  
7.767  The United States rejects the benchmarks est ablished by the European Communities for 
various reasons.  As we understand it, the United St ates' particular criticism of the first of the 
European Communities' benchmarks is focussed on the appropriateness of using the Reuters' 
Corporate Bond Spread for Industrials with an A3 credit rating.  According to the NERA EIB Report, 
the European Communities erred in the construction of  its first benchmark because it used the "yield 
on A-3 rated bonds issued by US domestic borrowers, not European borrowers."3411  Thus, we 
understand the United States to argue that the u se of the Reuters' Corporate Bond Spread for 
Industrials with an A3 credit rating in the construc tion of the market interest rate benchmark means 
that it is less useful as a proxy fo r the EIB loan to EADS (which w as a USD loan granted by a lending 
institution outside of the United States to a non-Unite d States corporation) than its own benchmark. 
7.768  We recall that the European Communities has not  submitted a copy of the "Reuters' 10 year 
Corporate Bond Spread for Industrials" index that w as allegedly used to construct the first of its 
market interest rate benchmarks for the 2002 loan to EADS.  Neither has it explained the extent to 
which the spread data relied upon was limited (or not) to USD bonds issued in the United States.  
Moreover, although asked to specifically respond to the United States' criticism of its benchmark, the 
European Communities did not contest the asserti on that it relied upon the "yield on A-3 rated bonds 
issued by US domestic borrowers".3412  In this light, we find the European Communities' benchmark 
to be less relevant to the benchmarking exercise th an information on the yields attached to USD bonds 
issued by European A3-rated companie s outside of the United States.   
7.769  The second benchmark presented by the European  Communities was derived from the yield, 
on [***], of a Yankee bond issued by Norsk Hydro A/S, maturing in 2014.  The European 
Communities adjusted this yield (5.145%) three tim es: (i) adding 6.5 basis points to account for the 
fact that EADS had a "slightly lower" credit rating than Norsk Hydro (which at the time was a single 
A rated European corporation); (ii) adding a further 5 basis points to reflect the fact that Yankee bonds pay interest semi-annually, whereas the EIB lo an to EADS required annual interest payments; 
and (iii) detracting 6.5 basis points as the cost of the "additional finance-related project cost/obligations" "expressly acknowledged by the rati ngs agencies" to affect the market prices of 
bonds and loans.
3413 
7.770  In our view, the European Communities' reliance on data from the Yankee bond market 
renders its second proposed benchm ark a less appropriate commercial proxy for the EIB loan to 
EADS than the benchmark advanced by the Unite d States.  We recall that Yankee bonds are USD 
bonds issued in the United States to non-United St ates entities that pay interest semi-annually.  In 
addition, according to Fabozzi and Mann, Yankee bonds are usually issued by high credit quality 
sovereign and sovereign-guaranteed issuers – wh ereas Eurodollar bonds are issued mostly by 
corporations.3414  Thus, we see interest rates associated with Yankee bond financing to be less 
appropriate as a proxy for the EIB's USD loan to E ADS than bonds issued in the Eurodollar market.  
Although we recognize the merits of seeking to est ablish a market interest rate benchmark on the 
                                                      
3409 EC, SWS, para. 497; EC, Answer to Panel Question 176. 
3410 EC, SNCOS, para.189; EC, Comments on US Answer to Panel Question 149. 
3411 NERA EIB Report, p. 3. (Emphasis original.) US, SWS, para. 279. 
3412 EC, Answer to Panel Question 180. 
3413 EIB Analysis of NERA EIB Report, Exhibit EC-8 57 (BCI), p. 4; EC, Answer to Panel Question 
176. 
3414 Frank J. Fabozzi and Steven Mann, p. 396, Exhibit US-673. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  basis of actual Yankee bond financing with the same  maturity as the 2002 loan to EADS obtained by 
a European corporation having a similar credit  rating to EADS, we consider the European 
Communities' benchmark to be a less appropriate proxy  for the interest rate that a commercial lender 
would have charged EADS in August 2004 for a loan  having the same characteristics as the 2002 EIB 
loan to EADS than the revised benc hmark advanced by the United States. 
7.771  The third European Communities benchmark is based on a syndicated USD loan to a BBB+ 
rated European publishing company, Pearson Plc, in  July 2004, adjusted to account for EADS better 
credit rating and the 5 year duration of the loan (compared with the 10 year loan to EADS).
3415  The 
United States argues that the features of this benchmark, like that derived from Yankee bond 
information, differ from the EIB loan to EADS to the extent that it involves USD lending by United 
States lenders.3416  The European Communities has not disclo sed the source of the information on the 
Pearson Plc syndicated loan.  Therefore, we cannot  verify whether the syndicate involves only United 
States lenders.  However, in our view, there are several other features of the Pearson syndicated loan which render it less appropriate to use as a commercia l proxy for the 2002 EIB loan to EADS than the 
revised benchmark proposed by the United States.  In particular, the recipient of the syndicated loan is 
a publishing company, whose activities are by their nature very different from those of EADS and 
Airbus.  In this regard, we recall that the 2002 EIB loan to EADS was granted for the purpose of the A380 development programme, a project of largel y unprecedented proportions in the field of LCA 
development.  Furthermore, the Pearson loan w as syndicated, meaning that the risks were spread 
between different lenders; and as the European Communities has itself noted,
3417 the Pearson loan 
involved revolving credit of five years, whereas the EIB loan to EADS involved a "10-year bullet".  
These features render the syndicated loan quite diffe rent from the EIB loan to EADS for the A380.  
This leads us to conclude that it is a less appropria te proxy for the EIB loan at issue than the revised 
benchmark proposed by the United States. 
7.772  The last commercial interest rate benchm ark the European Communities proposes for the 
2002 EIB loan to EADS is based on what the European Communities submits it would have cost 
EADS to "swap" (convert) a Euro denominated bond issued on [***] into US dollars.  Using 
historical secondary market trading data for two Euro denominated bonds issued by EADS that were outstanding on [***] – one maturing in 2010 and another in 2018 – the European Communities 
arrives at an approximate market price "for a th eoretical spread to swaps of a 10-year EADS bond 
issue as at the date on which the EIB interest rate was fixed".
3418  It then converts this spread into "an 
approximate spread to USD swaps by subtracting th e relevant cross country swap level and adding an 
estimated level of transaction costs".  Because no da ta were available on USD to EUR cross currency 
swaps for 10 year maturities on [***], the European Communities derive d the relevant cross currency 
swap from historical "ICAP" data available on Bloomberg.3419  Transaction costs were estimated on 
the basis of "ICAP" information to be "half of  the bid offer spread on a 10 yr basis swap".3420  Thus, 
the European Communities concludes that "EADS  USD funding through a hypothetical EUR issue 
{on [***]} would have cost 5.205%".3421 
                                                      
3415 EIB Analysis of NERA EIB Report, Exhibit EC-857 (BCI), pp. 4-5. 
3416 US Comments to EC, Answer to Panel Question 180. 
3417 EIB Analysis of NERA EIB Report, Exhibit EC-857 (BCI), footnote 8. 
3418 The European Communities defines "spread to swaps"  as "the differential between the yield of the 
bond and the corresponding swap".  EIB Analysis of NERA EIB Report, Exhibit EC-857 (BCI), footnote 9. 
3419 The European Communities describes "ICAP" as "a major broker in the derivatives business and 
has a strong presence in interest rate swaps and cro ss currency swaps". EIB Anal ysis of NERA EIB Report, 
Exhibit EC-857 (BCI), footnote 13. 
3420 EIB Analysis of NERA EIB Report, Exhibit EC-857 (BCI), footnote 15.  The European 
Communities describes the "bid offer spread" as "the difference between the pric e at which the financial 
intermediary is willing to purchase – sell the swap".   
3421 EIB Analysis of NERA EIB Report, Exhibit EC-857 (BCI), pp. 5-6.  WT/DS316/R 
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  7.773  In commenting on this benchmark, the United States notes that "a hypothetical 'swap' into 
[***] bonds issued by EADS ... bears no resemblanc e to the loan actually issued by the EIB."3422  We 
are also not convinced that the proposed benchmark is an appropriate commercial proxy for what the 
cost of USD financing comparable with the 2002 EIB loan would have been for EADS.   
7.774  Brealey and Myers explain that a typical cr oss currency swap transaction involving the 
issuance of a bond would result in the exchange of a series of cash-flows between two parties.  In the 
first instance, the bond issuer would swap funds obt ained in one currency on the bond market at a set 
interest rate with an equivalent  amount of financing from a counterpart in another currency.  Each 
year until the bond reaches maturity, the counterpart  would provide the bond issuer with the funds 
needed to make interest payments to the bondholde rs in the bond currency.  In return, the bond issuer 
would make interest payments in the swap currenc y on the funds swapped with its counterpart.  On 
maturity of the bond, the counterpart would transfer a sufficient amount of funds in the bond currency to enable the bond issuer to make the final paymen t of interest and principal to its bondholders.  
Likewise, the bond issuer would make the last paymen t of interest and principal in the swap currency 
to the counterpart.
3423 
7.775  Thus, in essence, as we understand it, the benc hmark proposed by the European Communities 
is based on a theoretical agreement between two parties (EADS and a counterpart) to exchange 
principal and interest payments in separate currenci es.  It would involve the exchange of principal 
denominated in EUR (obtained by EADS from a bond issue) for an equivalent amount in USD.  In each year until the bond issue reaches maturity, EADS  and the counterpart would exchange interest 
payments – EADS would make USD interest payments  to the counterpart at the rate of interest 
attached to the USD "swap"; and the counterpart would make EUR interest payments to EADS in an amount to cover the interest payments required on th e bond.  At maturity, the final interest payments 
would be made and the principals would be re-exchanged between the two parties.  In our view, these 
features of the European Communities' fourth propo sed benchmark show that it is a very different 
type of financing instrument than the 2002 EIB loan to EADS.  We are therefore not convinced that it 
represents a better proxy for the commercial interest ra te that EADS would have been asked to pay for 
USD financing with the same characteristics as the 2002 loan from the EIB than the revised 
commercial benchmark advanced by the United States. 
7.776  The parties' submissions show that establishing an  appropriate market interest rate benchmark 
for the 2002 loan to EADS is a complex exercise.   While we accept that EADS would have had a 
range of options available to it in August 2004 to obtain funding in USD from the market, the options 
that the parties have advanced involve financial in struments offering different levels of comparability 
with the loan from the EIB.  We  recall that in order to determine whether the 2002 loan to EADS 
conferred a benefit, we must identify which, if any,  of the interest rate benchmarks proposed by the 
parties can serve as the most appropriate proxy for the interest rate that a commercial lender would 
charge Airbus for financing having the same or similar charact eristics as the 2002 loan to EADS .  
Thus, contrary to what is suggested by the Eur opean Communities, the fact that EADS may have 
sought USD financing in August 2004 from a variety of market sources does not necessarily mean that all such sources represent a range of commercial financing options that are equally comparable  
with the 2002 loan to EADS. 
7.777  Overall, on the basis of the arguments and eviden ce submitted by the parties, we consider that 
the market interest rate proxy that comes closest in terms of key characteristics and features to the 
2002 EIB loan to EADS, and which would be appropr iate to use as a commercial benchmark for the 
purpose of our benefit analysis, should be based on th e 10 year Eurodollar bond interest rate advanced 
                                                     
 
3422 US, Comments on EC Answer to Panel Question 180. 
3423 Richard A. Brealey a nd Steward C. Myers, Principles of Corporate Finance , Fourth Edition, Mc-
Graw Hill Inc., 1991, pp. 642-643. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  by the United States, adjusted to account for EADS' credit rating on [***]. As we have already 
observed, this benchmark represents the average annual interest rate cost of 10 year USD bond 
financing outside of the United States on [***] for entities with the same credit rating as EADS that 
are not domiciled in the United States.  It therefor e bears close resemblance to the 2002 EIB loan to 
EADS, which was a 10 year non-amortizing USD loan  attracting annual interest payments granted 
outside of the United States to a European company.   In contrast, to the extent that the two bond-
based benchmarks presented by the European Communities were based on the cost of USD bond 
financing obtained (i) within the United States by United States corporations ; or (ii) within the United 
States by a European company (Yankee bond), they represen t USD financing options that have less in 
common with the EIB loan to EADS than Eurodollar bond market financing.   
7.778  The differences between the 2002 EIB loan to EADS and the European Communities' two 
other proposed market benchmarks are more pr onounced.  As we have noted, the USD syndicated 
loan option would involve multiple banks taking on the risk of E ADS' default; whereas the EIB loan 
to EADS involves only one bank.  Moreover, it is unclear whether the USD financing under the 
syndicated loan would be provided from within th e European Communities or elsewhere.  Likewise, 
compared with the EIB loan to EADS, a EUR de nominated bond swapped into USD is a relatively 
complex finance instrument that would be given effect through a two step process: first, EADS would need to issue a EUR denominated bond; and second, EADS would have to enter into an agreement 
with a counterpart to exchange principal and inte rest payments connected with the EUR denominated 
bond into USD.  Thus, whereas the EIB loan to EADS involves one core contractual relationship 
(between the EIB and EADS), the hypothetical EUR bond USD swap transaction would involve at 
least two core contractual relationships – one  between EADS and its bondholders and another 
between EADS and its swap counterpart.  In our vi ew, this type of financial instrument bears little 
resemblance to the 2002 EIB loan to EADS.  It is therefore a less reliable proxy, compared with the 
United States Eurodollar bond benchmark, for the inte rest rate that a commercial lender would charge 
EADS for USD financing having the same ch aracteristics as the loan from the EIB. 
7.779  Having concluded that the most appropriate commercial interest rate benchmark against 
which to measure whether the 2002 EIB loan to EADS conferred a benefit is the Eurodollar bond 
interest rate advanced by the United States adjusted to account for EADS' credit rating in [***], we 
believe that it is not necessary for us to make an y definitive findings on whether further adjustments 
are required to account for the three types of add itional costs the European Communities asserts were 
incurred under the EIB loan contract, but not in co nnection with the bond instruments used to derive 
the parties' interest rate benchmarks.  This is because even accepting the en tirety of the European 
Communities' arguments and adjusting the United Stat es' market interest benchmark accordingly, our 
overall assessment is that the EIB loan to EADS  would still be advantageous compared with 
comparable commercial financing. 
7.780  The first of the alleged additional costs are th e so-called "additional finance-related project 
cost/obligations".  According to the European  Communities, "additional finance-related project 
cost/obligations" reflect "the fact that different fi nancial instruments have different features and that 
these features are reflected in the market -pricing of these financial instruments".3424  The European 
Communities explains that: 
"It is, for example, generally accepted that lo ans are priced cheaper than bonds.  This 
is because, inter alia , (i) lenders have a direct re lationship with, and have much 
greater information on, a borrower, whereas bond investors invest through a financial intermediary (typically an investment bank)  (ii) a bilateral loan agreement allows 
lenders to maintain a constant dialogue w ith their borrowers, something that a bond 
issuer does not and cannot do with potentiall y tens of thousands of bondholders (iii) 
                                                     
 
3424 EC, Answer to panel Question 176.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  loan documentation tends to have many  more protective covenants than bond 
documentation and (iv) ultimately, recovery ra tes in the event of default are typically 
higher in the case of a loan than in the case of a bond."3425 
7.781  Relying on Moody's assessment of the differences in three-year cumulative loss rates between 
similarly rated loans and bonds, the European Comm unities submits that it is possible to quantify the 
"pricing impact of using bonds to benchmark a loan that has more stringent terms and conditions than 
the benchmark bonds"3426, and calls for a 6.5 basis point reduc tion in the benchmark interest rates 
derived from bond market information. 
7.782  The United States does not specifically contest  the European Communities' reliance or 
interpretation of the Moody's information.  However,  it notes that even after making the adjustment to 
the European Communities' benchmarks to account fo r the alleged "additional finance-related project 
cost/obligations" between bonds a nd the EIB loan, two of the European Communities benchmark's 
continue to show that the 2002 EIB loan to EADS was non-commercial.3427 
7.783  We agree with the European Communities that, in  general, the differences between loan and 
bond instruments may well translate into differences in the price of borrowing that should be taken 
into account in the present benefit analysis.  Howe ver, even assuming that the European Communities 
is correct in asking for a 6.5 basis point adjustment to be made to the parties' bond-based benchmarks, the interest rate attached to th e EIB loan to EADS (5.11%) would still be below the level of the 
United States' adjusted interest rate benchmark (5.5488%).  Thus, even accepting the European 
Communities' submission that "additional finance-relate d project cost/obligations" must be taken into 
account in order to identify an appropriate commer cial interest rate benc hmark against which to 
measure whether the EIB loan to EADS conferred a bene fit, the interest rate at tached to the EIB loan 
to EADS would still be non-commercial, confirming th at it confers a benefit within the meaning of 
Article 1.1(b) of the SCM Agreement. 
7.784  The two further cost adjustments called for by  the European Communities are to account for 
what it alleges are the "additional project specific  costs/obligations" and "additional administrative-
related project costs/obligations" incurred by EADS  under the EIB loan.  The European Communities 
recognizes that such costs are not easily quantifie d.  Nevertheless, in the benchmark analyses 
presented in Exhibit EC-722 (BCI), the European Co mmunities estimates what it considers they might 
have been, when added to the alleged cost of a dditional financial obligations, for a number of the 
challenged EIB loans.  For instan ce, in respect of the 1988 EIB loan to Aérospatiale for the 
A330/A340,
3428 the European Communities submits that the "additional project obligations, financial 
obligations and administrative obligations " would have cost Airbus at least [***] basis points.  
Conversely, the European Communities considers th at the "additional project  obligations, financial 
obligations and administrative obligations" connected with the 1993 EIB loan to Airbus for the Super 
Transporteurs3429 (a contract sharing the same type of "p roject-related additional obligations" as the 
1988 loan to Aérospatiale for the A330/A3403430) would have cost Airbus less than [***] basis 
points.3431  For another contract, the European Communities notes that "{e}ven if the other {non-
financial} additional obligations are di fficult to value precisely, they can  definitely be valued at over 
[***] basis point".3432  Thus, it is clear to us that whatever their precise value, the European 
                                                      
3425 EC, Answer to panel Question 176. 
3426 EC, Answer to panel Question 176 ; see also , footnote 3401 above. 
3427 US, Comments on EC Answer to Panel Question 176. 
3428 Exhibit EC-693 (BCI). 
3429 Exhibit EC-695 (BCI). 
3430 Exhibit EC-876 (BCI). 
3431 Exhibit EC-722 (BCI). 
3432 Exhibit EC-722 (BCI), analysis prepared in re spect of the 1991 EIB lo an to British Aerospace for 
the A330/A340, Exhibit EC-707 (BCI). WT/DS316/R 
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  Communities is not suggesting that the alleged additio nal project and administrative costs incurred by 
EADS under the 2002 EIB loan for the A380 project were significant in terms of basis points, and certainly not sufficient to redu ce a margin of approximately [***] basis points to zero – the difference 
between the actual interest rate charged on the EI B loan (5.11%) and the United States' adjusted 
benchmark (5.5488%).  
7.785  Moreover, in order to properly take into account  the cost of the alleged additional project-
related or administrative obligations imposed on EI B borrowers, we believe that it would also be 
necessary to take into account any similar types of project- related or administrative costs associated 
with market financing that are not incurred when  borrowing from the EIB.  The United States submits 
that seeking to take all such alleged differences in to account "would make a benefit analysis virtually 
impossible".  The United States asks how "would one compare the burden associated with applying for EIB loans with the burden (including the efforts of lawyers, bankers, and others) associated with 
obtaining financing from the market?  Or ... how would one compare project-specific 
'costs/obligations' identified by the European Comm unities with the 'costs/obligations' of a borrower 
having dedicated personnel to main tain relations with investment banks for purposes of regular bond 
issuances?"
3433  In any event, the United States notes th at the European Communities merely asserts 
that the alleged additional costs "would not normally be present" in the market finance instruments 
referred to by the United States.  According to the United States, had the European Communities 
undertaken a comparison of the actual "costs/obligations" incurred under the individual EIB loans compared with commercial financing, it would have found that, in fact, the actual costs a company 
incurs in issuing bonds or raising capital through other market channels do not support its assertions.  
In this regard, the United States not only points to Boeing's own alleged experience in respect of bond 
issues,
3434 but also a 2003 study of allegedly several thousand issues between 1990 and 1994 cited in 
the NERA EIB Report, showing total costs ranging from 0.475% to 1.75% for bond offerings and even higher for other types of commercial financing.
3435  Given this latter evidence, which the 
European Communities has not contested, we are not convinced that it would be appropriate to take 
the alleged additional project- related and administ rative costs into account in the manner that is 
suggested by the European Communities.  However, as noted above, even if we were to accept the 
European Communities' proposition, the interest ra te charged on the 2002 EIB loan to EADS would 
still be below the interest rate charged for comparable market funding. 
7.786  The European Communities contends that becau se a borrower will typically consider the 
terms and conditions offered by different finance provi ders before taking out a loan, a market interest 
rate benchmark should be a spread of rates and not a single interest rate.  According to the European 
Communities, it follows that "a difference of 20 to 50 basis points above or below the single 
benchmark rate" should not be taken as a sign of benefit.3436  Thus, it would only be where the EIB 
rate were "convincingly outside this spread of rat es" that it could be found to confer a benefit within 
the meaning of Article 1.1(b) of the SCM Agreement.3437   
7.787  We agree with the European Communities that it would not be unreasonable to expect that 
two or more different commercial lenders may charge  slightly different rates of interest for loans 
having the same terms and conditions.  There are many factors that might affect the level at which a 
                                                      
3433 US, Comments on EC Answer to Panel Question 176. 
3434 US, Comments on EC Answer to Panel Questio n 176, revealing that Boeing estimates that 
investment bank, regulatory and other fees on a USD 1 billion dollar bond issue would be between USD 10 and 20 million (1% and 2%).  According to the United States, other costs incurred by Boeing would include costs 
related to maintaining its credit rating (including cred it agency rating fees), maintaining compliance with 
securities regulations, and engaging employees on an ongoing basis in related activities. 
3435 NERA EIB Report, p. 5 (citing Richard A. Breal ey, Stewart C. Myers, and Franklin Allen, 
Principles of Corporate Finance , p. 399), Exhibit US-542 (BCI). 
3436 EC, SWS, para. 507. 
3437 EC, SWS, para. 507; EC, Comments on US Answer to Panel Question 149.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  commercial lender will set its interest rates to custom ers.  These might include the level of any reserve 
requirements, differences between lenders in the assess ment of the risk associated with a particular 
loan, access to liquidity, the lender's desired ri sk exposure and business model, as well as the 
commercial relationship it has or wants to build with  the potential customer.  Because these factors 
might be valued differently by di fferent commercial lenders, it would not  be unreasonable to expect to 
find different lenders offering comparab le loans to the same customer at a different interest rate.  In a 
given set of circumstances, all such offers might represent an appropriate range of market interest rates for a comparable loan.
3438  However, in our view, when such a contention is made in WTO 
dispute settlement, it is up to the party that adva nces the existence of a range of relevant market 
interest rates to present credible evidence and convinc ing argument to establish its parameters.  In this 
instance, we believe the European Communities has fa iled to make any such presentation.  First, the 
European Communities appears to suggest that the benchmark it has advanced should be considered 
to be the middle-point in a range of available market interest rates that oscillates "20 to 50 basis points 
above or below the single benchmark rate".  Howe ver, it has failed to explain why we should accept 
this proposition, instead of considering that the benchmarks advanced by the European Communities 
may fall at the high or low end of the range.  S econd, the European Communities has not explained 
exactly why the range of market interest rates that  competing lenders would offer for a loan that is 
comparable with the 2002 EIB lo an to EADS should be between 20 and 50 basis points, instead of 
another set of values.  In the absence of any justif ication for its contention, and in particular, in the 
light of our findings on the nature of the EIB's lending activities3439, we are not convinced that it 
would be appropriate to accept that market lenders  would have offered a loan to EADS that is 
comparable with the loan obtained from the EIB in 2002 at an interest rate as much as 50 basis points 
below the adjusted United States' benchmark. 
Commitment fees and non-utilization fees  
7.788  We recall that the United States asserts that  EADS benefited from the 2002 loan not only 
because of the below market interest rates charged by  the EIB, but also because it did not have to pay 
any commitment fees or non-utilisation fees.  In support of this assertion, the United States refers to the following statement made by the EI B in a document published on its website: 
"In addition to its usually advantageous lending rates, the EIB charges neither 
commitment fees nor non-utilization fees,  but may charge fees for a project's 
appraisal and required legal services in appropriate cases."
3440  
7.789  The United States, argues that when a lender co mmits to provide a borrower with funding at a 
later date (as the EIB did in respect of the 2002 lo an to EADS) it is giving the borrower a "valuable 
option".3441  According to NERA, this "valuable option" manifests itself as the right of a borrower to 
"access ... funds on agreed terms regardless of whethe r its credit worthiness deteriorates or market 
conditions change".3442  NERA submits that in return for tyin g up its capital in this way, a lender will 
                                                      
3438 That a range of interest rates may be charged on comparable commercial loan s appears to also have 
been recognized by the Appellate Body in Brazil – Aircraft , where in addressing an alleged claim of export 
subsidization within the meaning of item (k) of Annex I of the SCM Agreement, it observed that "{i}n any 
given case, whether or not a government payment is used to secure a ' material  advantage', as opposed to an 
'advantage' that is not 'material', may well depend on where the  net  interest rate applicable to the particular 
transaction at issue in that cas e stands in relation to the range  of commercial rates available ." Appellate Body 
Report, Brazil – Aircraft , para. 182 (italics original, underline added). 
3439 See, para. 7.753 above. 
3440 Exhibit US-160. 
3441 US, SWS, para. 278, referring to the explanation of commitment fees provided in the NERA EIB 
Report, p.4, Exhibit US-542 (BCI). 
3442 NERA EIB Report, p.4, footnote 7, Exhibit US-542 (BCI), paraphrasing Richard A. Brealey, 
Stewart C. Myers, an d Franklin Allen, Principles of Corporate Finance , pp.856-857, Exhibit US-161. WT/DS316/R 
Page 558  
BCI deleted, as indicated [***] 
 
  require compensation which will usually take th e form of a "commitment fee", quoted as an 
annual percentage rate paid on the same basis as the loan (annual, semi-annual etc), and calculated on 
the amount of the loan facility not yet drawn down.
3443 The United States estimates that by not paying 
commitment fees, Airbus saved "an amount of up to USD 910,000 annually".3444 
7.790  The European Communities accepts that commitme nt fees are typically charged by banks on 
the unused amounts of credit lines granted to borrowers "at a fixed spread over the general level of interest rates".
3445  However, it asserts that the challenged EIB loans did not involve the kind of 
"valuable option" that would normally attract the payment of such fees.3446  The European 
Communities explains that the EIB enters into two t ypes of loan contracts: (i) "single disbursement" 
contracts, which provide for one disbursement of a fi xed amount of funds in a currency, at an interest 
rate and on a date that is agreed at the time of signature; and (ii) "open-rate" contracts, where the 
borrower is granted a loan facility with the right to  request disbursements within a certain period, in 
different currencies, maturities, interest rate re gimes (fixed or floating) and amounts, pursuant to a 
framework that is pre-defined in the contract.3447  The European Communities submits that to charge a 
commitment fee for the first type of loan contr act would not be standard market practice because, 
given that such contracts involve the disbursement of funds typically within a few days of signature, 
there is no "open" commitment.  With regard to "ope n-rate" contracts, like the 2002 loan contract with 
EADS, the European Communities argues that the EIB does not offer the kind of contractual 
assurances that would merit the application of a commitment fee.  This is because "open-rate" contracts do not guarantee entities access to funds at a fixed level of interest, irrespective of whether 
or not a borrower's "credit worthiness deteriorates" or the "cost of credit rises".
3448  Moreover, the 
European Communities notes that under such contr acts the EIB does not guarantee immediate access 
to its disbursements.3449 
7.791  In the particular case of the 2002 EIB loan to EADS, the European Communities explains that 
the EIB committed to provide EADS with funds at an  interest rate to be determined by the EIB in 
accordance with its internal rules at the time of disbursement, not at the time of signature.  The 
European Communities states that thes e internal rules require the EIB's board of directors to comply 
with Article 19.1 of the EIB Statute, which provides that interest rates shall be set to "enable the Bank 
to meet its obligations, to cover its expenses and to  build up a reserve fund".  Thus, according to the 
European Communities, on entering the 2002 loan contract with the EIB, EADS had no certainty or protection in respect of the interest rate that w ould be charged on any requested disbursement because 
it had no knowledge of what the EIB's cost of fund s, administrative expenses or the level of the EIB's 
reserve fund, would be at the time of disburseme nt.  Moreover, the European Communities notes that 
the EIB did not commit to provide EADS with any re quested funds within a matter of "one or two 
days", but expressly reserved the right to take up to 120 days.
3450   
7.792  The European Communities contrasts the above features of the 2002 loan to EADS with a 
credit facility obtained by EADS in [***] from a syndicate of commercial banks which did charge a 
commitment fee.  This credit facility involved a EUR [***] revolving credit line to be [***] at a an 
interest rate set at a [***] notwithstanding any changes in the relevant banks' cost of funds or the 
interest rate setting methodology.  In addition, pursuant to the credit facility, the bank syndicate was 
                                                      
3443 NERA EIB Report, p.4, Exhibit US-542 (BCI). 
3444 NERA EIB Report, p. 7, Exhibit US-542 (BCI). 
3445 EC, Answers to Panel Questions 87 and 179. 
3446 EC, Answers to Panel Questions 87 and 179. 
3447 EC, Answer to Panel Question 87. 
3448 EC, Answer to Panel Question 179. 
3449 EC, Answer to Panel Question 179. 
3450 EC, Answer to Panel Question 179, referring to Article 1.02 A b of the 2002 EADS loan contract, 
Exhibit EC-167 (BCI).  See, also, EIB Analysis of NERA EIB Report, pp.7-8, Exhibit EC-857 (BCI).  WT/DS316/R 
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  required to provide funding within thr ee business days of a request from EADS.3451  The European 
Communities argues that these differences show that the "valuable option" that the United States 
contends is the reason why banks charge a commi tment fee was not present in the 2002 EIB loan to 
EADS.3452 
7.793  Under the terms of the original loan contract,3453 the EIB agreed to lend EADS a maximum of 
EUR 700 million, in up to [***] tranches of no less than EUR [***] each, at an interest rate to be 
determined at the time of EADS' request for disburse ment, in accordance with the particular interest 
rate regime chosen by EADS.3454  EADS was granted the right to choose between three different 
interest rate regimes: a fixed interest rate ("Ta ux Fixe"), and two types of variable rates ("Taux 
Variable – Ecart Variable", "Taux Variable – Ecart Fixe").3455  The regime chosen by EADS was the 
fixed rate regime.  Article 3.01A of the original  contract describes the methodology that would be 
employed to arrive at the fixed rate of inte rest charged by the EIB in the following terms: 
[***] 
7.794  This provision was subsequently modified by amendment of May 2004 (before EADS had 
requested its first disbursement), which replaced  Article 3.01A(ii) with the following text: 
"(ii) increased by a margin of 20/100 per centage points (0.20%) if the Tranche in 
question is a ‘Tranche A’ ".3456 
7.795  The original contract further stipulated that after requesting a disbursement, EADS would be 
notified of the applicable interest rate (and the da te upon which the disbursement would be made) ten 
to 15 days prior to the disbursement actually being made.3457  Thus, at the time of concluding the loan 
contract , EADS was aware that the interest rate that it would have to pay on any requested 
disbursement would be composed of two parts: (i) th e interest rate applied by the EIB, on the date of 
EADS' request for disbursement, to loans pr esenting the same characteristics as the requested 
disbursement in terms of currency, repayment sc hedule, and length and periodicity of interest 
payments; and (ii) a margin of [***] basis points representing the risk premium charged by the 
EIB.3458  Apart from the value of the [***] basis points risk premium, the prescribed methodology for 
calculating the fixed interest rate (general EIB lendi ng rate applicable to comparable loans plus an 
                                                      
3451 EC, Answer to Panel Question 179, referring to various provisions of the EADS [***]  Credit 
Facility, Exhibit EC-881 (BCI), with drawn and replaced by a similar EUR [***]  credit facility in [***] , Exhibit 
EC-882 (BCI). 
3452 EC, Answers to Panel Questions 87 and 179. 
3453 Exhibits EC-167 (BCI), US-158 (BCI) 
3454 Article 1.02, Exhibits EC-167 (BCI), US-158 (BCI). 
3455 Article 3.01, Exhibits EC-167 (BCI), US-158 (BCI). 
3456 Article 1.05, Exhibit EC-879 (BCI ).  The original contract divide d each potential disbursement into 
two equal parts "Sous Tranche A" and "Sous Tranche B" (Article 1.02E, Exhibits EC-167 (BCI), US-158 (BCI)).  However, by amendment of May 2004, this division was replaced by another which separated 
the available credit into two parts: any disbursement that alone or added together with previous disbursements 
did not exceed [***]  would be designated "Tranche A"; and any othe r disbursement that alone or added together 
with previous disbursements exceeded [***]  would be designated "Tranche B". (Article 1.03, Exhibit 
EC-879 (BCI)).  In accordan ce with these terms, the [***]  disbursement requested by EADS was designated 
"Tranche A" and therefore subject to the [***]  basis points risk premium. 
3457 Article 1.02C, Exhibit US-158 (BCI).  We note that in the context of "single disbursement" 
contracts, the European Communities argues that a ten to 15 day delay between the conclusion of a contract and 
disbursement does not justify payment of a commitment fee.  EC, Answer to Panel Question 179, footnote 70.  
The United States has not argued that the 10 to 15 day notice period is sufficiently long enough to warrant the 
EIB demanding the payment of a commitment fee. 
3458 EC, Answer to Panel Question 89; Ex hibits EC-722 (BCI) and EC-842.   WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  additional margin) is the same that is set out in the EIB's standard form contract.
3459  Therefore, the 
interest rate setting mechanism agreed to under th e contract was not unique to EADS, but one that 
was applied generally by the EIB to other lending activities. 
7.796  The United States argues that without knowing more about the precise methodology applied 
by the EIB in setting interest rates, "it is impossi ble for the Panel to determine the degree to which 
interest rates may vary according to date of disbur sement and, therefore, the degree of uncertainty a 
borrower from the EIB actually faces compared  with a borrower from a commercial lender".3460  
Moreover, the United States notes that the European  Communities has not indicated which factors the 
EIB does not  take into account when it sets interest rates at the date of disbursement.  In particular, the 
United States observes that wher eas the European Communities has identified factors such as the 
EIB's cost of funds, its administrative expenses, a nd its reserve fund as variables that may affect the 
interest rates set by the EIB on the date of dis bursement, it has said nothing about whether the EIB 
takes into consideration a deteriorati on in the creditworthiness of the borrower.3461  In making this 
observation, we understand the United States to suggest  that to the extent that the EIB does not take 
into account any deterioration in the creditworthiness of a borrower between the time a loan is granted 
and the date of disbursement, it acts like a commerc ial bank that offers a credit facility on agreed 
terms and therefore, at least to this extent, would be expected to charge a commitment fee.  Thus, the 
fact that EADS did not pay a commitment fee mean s that the EIB loan was more advantageous to 
EADS than comparable market financing. 
7.797  In our view, the evidence and arguments before us indicate that the purpose of a commitment 
fee is to compensate a lender for agreeing, at the ti me of the conclusion of a loan contract, to provide 
funding at a later date on in terest rate terms reflecting inter alia, the credit rating of a borrower at the 
time the loan contract was concluded.3462  In other words, a commitment fee is at least in part required 
to compensate a lender for the risk that a borrower' s credit rating will deteriorate between the time that 
it is relied upon to set the contract interest rate a nd the actual disbursement of funds.  We find support 
for this conclusion in the following passage from Brealey and Myers, upon which both parties have 
relied: 
"Credit lines are relatively expensive, for in addition to paying interest on any 
borrowings the company must pay a comm itment fee on the unused amount.  In 
exchange for this extra cost, the firm r eceives a valuable option: It has guaranteed 
access to the bank's money at a fixed spread ove r the general level of interest rates.  
This amounts to a put option, because the firm can sell its debt to the bank on fixed 
terms even if its own creditworthiness deteriorates or the cost of credit rises" .3463 
7.798  We recall that the EIB charged EADS a fixed inte rest rate made up of two components.  It is 
unclear to us, from the European  Communities' description of how the EIB sets interest rates3464 and 
the evidence that is before us, whether the first of these components took into account EADS' 
creditworthiness.  However, our unde rstanding of the second component, the [***] basis point risk 
premium, is that it was in fact (at least in pa rt) established in the light of EADS' creditworthiness at 
the time of signature .  In its 2006 Annual Report, the EIB explains that it applies a loan grading 
                                                      
3459 Article 3.01A, EIB Standard Form Contract 2001, Exhibit EC-609 (BCI).  Apart from the risk 
premium text, essentially the same language is used in Article 3.01A of the Standard Form Contract that existed 
prior to 2001, Exhibit EC-711 (BCI). 
3460 US, Comments on EC Answer to Panel Question 179. 
3461 US, Comments on EC Answer to Panel Question 179. 
3462 US, SWS, para. 278, referring to NERA EIB Report, p.4, Exhibit US-542 (BCI); US, Comments on 
EC Answer to Panel Question 179; EC, Answer to Panel Question 179. 
3463 Exhibit US-161, US, SWS, para 278, NERA EIB Report, p. 4, footnote 7, Exhibit US-542 (BCI); 
EC, Answer to Panel question 179 (quoting all but the first sentence of the above-quoted passage.). 
3464 EC, FWS, paras. 1067-1069.  WT/DS316/R 
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  system to determine the credit risk of ea ch loan.  This involves consideration of inter alia, the 
borrower's credit rating, the value of any guaran tee instruments and securities, the contractual 
framework and the loan's duration, with a view to establishing the level of general or specific 
"provisioning" required.  Operations with a loan grading of "A-" will attract a 0.20% risk premium,3465 
[***].3466 
7.799  By applying a fixed risk premium of [***] basis points to the disbursement of funds requested 
by EADS, irrespective of any possible deteriora tion in EADS' creditworthiness, the EIB provided 
EADS with at least part of the "valuable optio n" that we understand would ordinarily justify 
commitment fees charged by commercial lenders.  It follows that to the exte nt that the EIB did not 
require EADS to pay a fee to compensate for its co mmitment to make funding available at a fixed risk 
premium, irrespective any deterioration in its creditworthiness, its loan to EADS was more 
advantageous than a comparable loan from a commercial lender. 
7.800  Turning to the United States' claim that the EI B loan to EADS conferred a benefit because the 
EIB did not charge non-utilization fees,3467 we note that apart from making this allegation, the United 
States has advanced no specific explanation nor adduced  any particular evidence or expert opinion (as 
it did in respect of the EIB's failure to charge a commitment fee)3468 that suggests a commercial lender 
would have required EADS to pay a non-utilization fee for the same type of financing it obtained 
from the EIB under the 2002 loan contract – namely, a credit line with only a risk premium of [***] 
basis points being fixed at the time of signature (as o pposed to, e.g., the full interest rate applicable to 
the entire disbursement).  In the absence of any such  evidence or relevant explanation, and given that 
the European Communities does not accept that the payment of a non-utilization fee was 
warranted,3469 we are not convinced that the United States has done enough to establish that the 2002 
loan to EADS conferred a benefit because the EIB did not require EADS to pay a non-utilization fee.   
Conclusion in respect of the 2002 loan to EADS  
7.801  On the basis of the foregoing analysis, and in the light of our findings on the nature of the 
EIB's lending activities,3470 we find that the United States has est ablished that the 2002 EIB loan to 
EADS conferred a benefit within the meaning of Ar ticle 1.1(b) of the SCM Agreement because: (i) 
the interest rate charged by the EIB was less than  what a market lender would have asked EADS to 
pay for comparable financing; and (ii) EADS was not required to pay a commitment fee, even though 
a fixed [***] basis points risk premium was charged on part of the loan, irrespective of any possible 
future deterioration of EADS' credit rating.  On the other hand, we find that the United States has 
failed to demonstrate that the 2002 EIB loan to E ADS also conferred a benefit upon EADS because of 
the EIB's failure to charge non-utilization fees. 
                                                      
3465 Exhibit EC-842, pp. 149-152. 
3466 See, footnote 3456 above. 
3467 The United States describes non-utilization fees as  fees charged "in cases where borrowers do not 
use the credit lines the EIB has provid ed".  US, FWS, para. 402.  The European Communities initially described 
non-utilization fees as "a basis point charge on the amount undrawn". EC, Answer to Panel Question 87.  
However, in its later submissions, the European Communi ties suggests that non-utilization fees and commitment 
fees are essentially two ways of referring "interchange ably" to the same compensation that a bank may seek for 
"guaranteeing borrowing entities immedi ate access to a lending bank's money 'at a fixed spread over the general 
level of interest rates'". EC, Answer to Panel Question 179. 
3468 Indeed, in presenting its revised benefit anal ysis for the 2002 EADS loan contract, the 
United States does not repeat its allegation that the loan  conferred a benefit because it did not provide for non-
utilization fees, focusing only on the absence of commitment fees.  US, SWS, paras. 275 and 278.  See, also, 
NERA EIB Report, p.4, Exhibit US-542 (BCI), where the alleged failure of the EIB to charge EADS non-
utilization fees is not identified as a benefit of the 2002 loan contract. 
3469 EC, Answers to Panel Question 87 and 179. 
3470 See, para. 7.753 above. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  The 1992 loan to Aérospatiale 
7.802  The 1992 EIB loan to Aérospatiale was gr anted pursuant to a contract concluded on 
21 July 1992 for the purpose of financing Aérospatiale 's construction of buildin gs and the installation 
of industrial equipment to be used in the commercia lization of the A330/A340.  The loan was effected 
through one disbursement of FRF [***] at an interest rate of [***], payable annually, with a maturity 
of [***] years in [***], amortizing in the last eight years from [***] (i.e., only interest payments 
required in the [***] years of the loan; principal plus interest being paid annually only from the [***] 
year).3471  The United States alleges that this loan c onferred a benefit on Aérospatiale because: (i) it 
was granted on interest rate terms that were more advantageous than comparable market financing; 
and (ii) the EIB did not charge Aérospatiale any commitment fees or non-utilization fees. 
Interest rate terms  
7.803  As already noted, the United States presented ma rket interest rate benchmarks for all of the 
EIB loans at issue based on the country-specific general corporate borrowing rates calculated in the 
Ellis Report for each of the relevant Airbus entities.3472  These benchmarks were constructed by 
adding: (i) the average annual interest rate attach ed to 10-year government bonds issued in France, 
Germany, Spain and the UK in the years correspondi ng to the conclusion of the EIB loan contracts 
(i.e., the risk-free rate of interest); to (ii) the "credit spread" for the Airbus borrower at issue ( i.e., an 
interest rate premium reflecting the additional ri sk associated with each individual Airbus entity's 
general borrowing).  For Aérospatiale, the United St ates estimated the "credit spread" in 1992 through 
the use of a regression model.  In essence, this model relied upon information on the actual credit 
spreads of two 10-year bonds allegedly issued by Aé rospatiale in 1993 to estimate what Aérospatiale's 
credit spreads would have been in each of the years from 1970 to 1992.3473  Applying this 
methodology, the United States initially advanced a ma rket interest rate benchmark for the 1992 EIB 
loan to Aérospatiale of [***].3474 In its second written submission, the United States revised this 
benchmark to "incorporate market data on the date of the loan", in response to the European Communities' criticism of its reliance upon annual averages.
3475  On the basis of its updated analysis, 
the United States submits that the relevant market in terest rate benchmark for a loan having similar 
characteristics to the EIB loan woul d be "10.46 percent, approximately [***] basis points [***] than 
the actual rate the EIB charged {Aérospatiale} of [***] percent".3476 
7.804  The European Communities criticizes the United States' revised benchmark for being based 
on what it considers to be an erroneous regressi on model which relies on too few data points and 
assumes maturities that are not comparable with  the actual maturity of the 1992 EIB loan to 
                                                      
3471 Exhibits US-167 (BCI), EC-694 (BCI) and EC-698 (BCI). 
3472 See, para. 7.755 above. 
3473 Ellis Report, pp. 11-16, Exhibit US-80 (BCI).  (" Regressions to establish parameters of the credit 
spread model for Aérospatiale ... were based on yield-to -maturity data on two bonds issued by Aérospatiale in 
1993. ... Using the coefficients arrived at in this way, together with data from th e French yield curve for the 
period 1970 to 1992, we were able to construct values of the credit spread for ten year general corporate 
borrowings for Aérospatiale for those years.")  We un derstand that the United States relied upon the actual 
credit spreads for the two Aérospatiale bonds in years after 1992. ("The same procedure used to construct credit 
spreads for the French operating company was follo wed in the case of the Un ited Kingdom: actual BAE 
Systems credit spreads were used  for the years 1991-2006, and the regression parameters derived were used in 
those years for which out-of-sample yield curve data were available.") 
3474 US, FWS, para. 411. 
3475 US, SWS, paras. 274-277; NERA EIB Report, pp 3 and 6 ("We agree with th e EC's assertion that 
market conditions fluctuate and that consequently the rate on the loan must be compared with a benchmark 'at 
the relevant point in time and in the relevant year the EIB loan was made'".) Exhibit US-542 (BCI). 
3476 US, SWS, para. 276.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  Aérospatiale.3477  In particular, the European Communiti es notes that although the chosen explanatory 
variables are "significant" because "they p ass the so called F test", the model's "R2" value is "only 
0.43 in range of 0 to 1, where 1 is the most accurate".3478  Moreover, the European Communities 
argues that the regression model does not take into acc ount the relevant features of the relevant loans, 
observing that whereas the EIB loan to Aérospatiale is [***], the benchmark established by NERA 
relies upon a "10-year government bond and is assuming a 10-year bullet loan, ignoring the impact of its amortization schedule".
3479   
7.805  The European Communities considers that the flaw ed nature of the United States' regression 
model for the 1992 EIB loan to Aérospatiale is confir med by the fact that the credit spreads associated 
with two 10-year bonds actually issued by Aéro spatiale in September 1991 and October 1992 were 
respectively [***] and [***] basis points, less than half the [***] basis points spread estimated by the 
United States' model, even though there wa s "no significant news/improvement on the 
creditworthiness of Aérospatiale to jus tify such a sharp reduction in spreads".3480 Accordingly, the 
European Communities advances its own market inter est rate benchmark, constructed on the basis of 
the actual [***] basis point credit spread that existed in September 1991 and the interest rate it asserts 
was attached to French government long-term bor rowing having allegedly the same maturity as the 
EIB loan on the actual date of the EIB di sbursement to Aérospatiale, 27 July 1992.3481  Applying this 
methodology, the European Communities arrives at a market interest rate benchmark for the 1992 EIB 
loan to Aérospatiale of [***].3482   
7.806  Information contained in Aérospatiale's annual reports suggests that the credit spreads derived 
from the United States' regression model may indeed  be overstated.  The two 10-year bonds the 
European Communities asserts were issued by Aérospatiale in Sept ember 1991 and October 1992 
were "domestic bonds" that each raised FRF 1 b illion at an interest rate of 9.4% and 8.7%, 
respectively.3483  Aérospatiale issued three additional 10-year "foreign bonds" in 1992 and 1993: one 
in March and June 1992 raising FRF 1.8 b illion at an interest rate of 9.125%;3484 one in February 1993 
raising FRF 1 billion at an interest rate of 8.375%; and another in July 1993 raising FRF 1.5 billion at 
an interest rate of 7%.3485  As the European Communities notes, the September 1991 
and October 1992 bonds were issued with a credit spr ead above the interest rate paid by the French 
government on its long-term borrowing (according to the European Communities, respectively [***] 
and [***] basis points).  Thus, when compared with the actual credit spreads on the corporate bonds 
Aérospatiale issued in 1991 and 1992, the credit spread outcome of the United States' regression 
model for Aérospatiale in July 1992 (136 basis point s) appears to overestimate what Aérospatiale's 
                                                      
3477 EC, FWS, para. 1078; EIB Analysis of the NERA EIB Report, p.7, Exhibit EC-857 (BCI). 
3478 EC, FWS, para. 1078.  The Ellis Report descri bes the "adjusted R2" and "F" statistic as "two 
summary statistics frequently used to assess the validity of a regression ... : adjusted R2  measures the fraction of 
the variance of the dependent variable explained by the independent variable(s) adjusted for degrees of freedom, 
and the F statistic is used to test the hypothesis that a ll of the slope coefficients are zero."  Ellis notes that "in 
this instance the adjusted R2 is relatively high and the F statistic is highly statistically significant; this shows 
that the regression model does a good job of estimating th e credit spread for Aérospatiale's bonds". Ellis Report, 
p. 14, Exhibit US-80 (BCI). 
3479 EIB Analysis of the NERA EIB Report, p.7, Exhibit EC-857 (BCI). 
3480 EIB Analysis of the NERA EIB Report, p.7, Exhibit EC-857 (BCI). 
3481 Exhibit EC-722 (BCI); EIB Analysis of the NERA EIB Report, p.7, Exhibit EC-857 (BCI). 
3482 Exhibit EC-722 (BCI). 
3483 Aérospatiale 1992 Annual Report, p.61, Exhibit EC -174.  We note that Aérospatiale's 1992 Annual 
Report indicates that a 10-year "domestic bond" for FRF 1 billion was issued in November 1992, 
not October 1992.  The European Communities has not submitted a copy of either of these bond instruments.   
3484 Aérospatiale 1992 Annual Report, p.61; Aérospatiale 1993 Annual Report, p.77; and Aérospatiale 
1994 Annual Report, p.75, Exhibits EC-174, 175 and 186. 
3485 Aérospatiale 1993 Annual Report, p.77; and Aérospatiale 1994 Annual Report, p.75, Exhibits EC-
175 and 186. WT/DS316/R 
Page 564  
BCI deleted, as indicated [***] 
 
  cost of financing would have been on the market.  Nevertheless, overall, we do not find the evidence 
submitted by the United States to be insufficient fo r the purpose of establishing that the 1992 EIB loan 
to Aérospatiale conferred a benefit. 
7.807  First, we note that the risk-free rate of interest  used in the construction of the United States' 
revised market interest rate benchmark is 9.10%,
3486 the same risk-free borrowing rate applied by the 
European Communities to derive its ow n market interest rate benchmark,3487 which is [***] rate of 
interest charged by the EIB on the loan to Aérospatia le.  In other words, both of the parties agree that 
the 1992 EIB loan to Aérospatiale was provided at a contract interest rate [***] to the risk-free rate of 
interest associated with French government long- term borrowing.  There is no doubt, however, that 
the market would have required Aérospatiale to pay a premium above the risk-free rate of borrowing 
for such funding, a premium that the European Communities contends was as much as 62 basis points 
in October 1992 (just three months after conclusion of the EIB loan contract). 
7.808  Second, the alternative benchmark presented by  the European Communities implies that the 
1992 EIB loan to Aérospatiale provided an advantage of [***] basis points relative to comparable 
financing available on the market.  Moreover, even  if we were to accept th e European Communities' 
contention that the actual level of the interest char ged by the EIB should take into account the cost of 
the loan guarantee required from Air bus (allegedly having a value of [***] basis points),3488 the 
difference between the adjusted inte rest rate charged on the EIB loan [***] and the European 
Communities' market interest rate benchmark [***] would still show an advantage to Airbus of [***] 
basis points.  According to the European Communiti es, this advantage could not be reduced to below 
zero by the alleged "additional project obligati ons, financial obligations and administrative 
obligations" associated with the 199 2 loan compared with the bond in struments used to construct the 
benchmark.3489  Thus, on its face, the European Commun ities' own benchmark analysis confirms the 
United States' claim that the inte rest rate charged by the EIB on the 1992 loan to Aérospatiale was 
more advantageous than what Aérospat iale could have found on the market.   
7.809  The European Communities argues that this inter est rate differential is not enough to establish 
the existence of benefit.  In particular, the European Communities argues that the difference of [***] 
basis points is exceptional and should not be taken as demonstrating that the loan confers a benefit 
upon Airbus.  The European Communities submits th at a "likely explanation for the substantial 
divergence{}... is that the EIB might have fixed its conditions prior to or following an important 
movement in the rate".3490  The European Communities explains th at "if in the morning the EIB fixes 
its condition for a disbursement and the risk free ra te increases in the afternoon, then the EIB rate 
could appear particularly attractive compared to the new risk free rate of that afternoon."3491  
However, the European Communities has presented no evidence demonstrating that the difference of 
[***] basis points was attributable to any such volatility in daily interest rates, noting that 
"{u}nfortunately past data is recorded only once per day and therefore it is often impossible to take 
account of same-day movements in the risk-free rate".3492  Thus, the European Communities does not 
assert, as a matter of fact, that any actual volatility in the level of the risk-free rate of interest on 
27 July 1992 explains the interest rate differential of [***] basis points. 
                                                      
3486 I.e., the difference between the Unite d States proposed benchmark [***]  and the [***] basis points 
credit spread calculated for Aérospatiale. 
3487 Exhibit EC-722 (BCI). 
3488 Exhibit EC-722 (BCI). 
3489 Exhibit EC-722 (BCI). 
3490 EC, SWS, para. 506. 
3491 EC, SWS, para. 506. 
3492 EC, SWS, para. 506.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  7.810  Finally, we recall that in the case of the 1992 EIB loan to Aérospatiale, the contract rate of 
interest was set at [***] as the risk-free interest rate attached to French government long-term 
borrowing.  Therefore, to accept that the loan to Aé rospatiale was not granted at below-market interest 
rate terms, in the context of the European Commun ities' own market interest  rate benchmark, would 
mean that we would have to accept that a commercia l lender would have granted Aérospatiale a loan 
at an interest rate that did not take into account Aérospatiale's own discrete credit risk.  However, we 
cannot accept this to be a plausible outcome as it implies that a commercial lender would have been 
prepared to lend funds to Aérospatiale at  a rate of return that at most was [***] the rate of return it 
could have obtained from lending to the French gove rnment at a time when even according to the 
European Communities' own evidence, Aérospatiale 's borrowing carried a risk premium above the 
risk-free rate of French government lending.3493   
Commitment fees and non-utilization fees  
7.811  The United States relies on the sa me evidence advanced in resp ect of the 2002 loan to EADS 
to claim that the 1992 loan to Aérospatiale also  conferred a benefit upon Airbus because it did not 
require Aérospatiale to pay any commitment fees or non-utilisation fees.3494  The European 
Communities refutes the United States' allegation, on the basis of the same arguments we have 
already described above.3495   
7.812  We recall that the 1992 loan to Aérospatiale was concluded on [***].  It provided for one 
single disbursement on [***], to be repaid at an interest rate of [***], agreed and fixed in the contract 
on the date of signature.3496  Thus, under the 1992 loan contract, the EIB legally committed itself to 
providing Aérospatiale with a loan on certain fixed terms and conditions [***] before actually 
transferring the borrowed funds to Aérospatiale.  Conversely, Aérospatiale undertook an obligation to 
take possession of the prescribed funding amount on [***] on terms and conditions fixed when the 
contract was concluded.   
7.813  According to the European Communities, it woul d not be in accordance with market practice 
for the EIB to demand the payment of a fee for making this type of commitment.3497  The United 
States has not contested the European Communities'  assertion.  Indeed, the characterisation of 
commitment fees used in the NERA EIB Report that  is relied upon by the United States suggests that 
commitment fees would not normally be demanded by a bank when a borrower has undertaken an obligation to borrow, as opposed to merely an option to borrow under an open credit line.
3498  In this 
light, and given the particular circumstances of the 1992 loan to Aérospatiale , which included the EIB 
making funds available to Aérospatiale  at a fixed interest rate merely [***] after the loan contract was 
concluded, the United States has failed to advance sufficient evidence and argument to persuade us 
that the EIB's failure to charge a commitme nt fee conferred a benefit upon Aérospatiale. 
7.814  On the issue of non-utilization fees, once again we  note that apart from alleging that the 1992 
loan to Aérospatiale (like all EIB loans) confe rred a benefit because the EIB did not charge non-
utilization fees, the United States has advanced no specific explanation nor adduced any particular 
evidence or expert opinion suggesting that a comme rcial lender would have re quired Aérospatiale to 
                                                      
3493 See, para. 7.806 above. 
3494 US, FWS, para. 414, citing Exhibits US-160 and US-161. 
3495 See, para. 7.790 above. 
3496 See, para. 7.802 above. 
3497 See, para. 7.790 above. 
3498 The relevant passage of the NERA EIB Report reads: "an important feature of the EIB Loan 
Contract signed in 2002 is the fact that it gave the European Communities [***] .  This means that the EIB 
committed itself to make that amount of funds available to EADS.  This is a common occurrence in commercial 
lending, but banks require compensation for tying up their capital, usually in the form of what is called a 'Commitment Fee'".  NERA EIB Report, p.4, Exhibit US-542 (BCI). WT/DS316/R 
Page 566  
BCI deleted, as indicated [***] 
 
  pay a non-utilization fee for the same type of financing it obtained from the EIB under the 1992 loan 
contract.  In the absence of any su ch evidence or relevant explanation, and given that the European 
Communities does not accept that the paymen t of a non-utilization fee was warranted,
3499 we are not 
convinced that the United States has done enough to  establish that the 1992 loan to Aérospatiale 
conferred a benefit because the EIB did not require Aé rospatiale to pay a non- utilization fee.  In any 
case, were we to understand non-utilization fees as co mpensation charged by commercial lenders on 
unused amounts of credit lines, as the parties have suggested,3500 we would note that the entirety of the 
amount of financing that was the subject of the 1992 loan agreement was, in fact, transferred to 
Aérospatiale as stipulated in the contract.3501  On this basis, there would be no justification for 
requiring Aérospatiale to pay non-utilization fees. 
Absence of a risk premium  
7.815  In its second written submission, the United St ates argued that the European Communities 
admitted in its first written submission that the EIB did not charge a risk premium on any loans granted prior to 1999.  According to the United Stat es, the absence of a risk premium means that the 
EIB's loans were "by definition preferential to those available in the market, because the EIB (unlike a 
market lender) did not charge a premium to compen sate the risk it assumed in providing financing to 
the borrower".
3502   
7.816  The European Communities does not contest the United States' view that market lenders 
would normally charge a premium in return fo r assuming the risks associated with lending to a 
particular borrower.  However, it rejects the Un ited States' assertion that the EIB's introduction of 
"risk pricing" in 2000 necessarily implies that all pr e-2000 loans conferred a benefit because they did 
not involve the EIB charging a risk premium.  The European Communities explains that the EIB's introduction of "risk pricing" in 2000 was the r esult of its ongoing efforts to apply "best banking 
practices" in the area of risk management.  The European Communities asserts that following a 
review of its credit policies, the EIB decided to in troduce "risk pricing" as "an alternative (total or 
partial) to {the} external {loan} guarantees" requi red under Article 18.3 of its Statute.  Thus, the 
application of a risk premium on a particular lo an as of 2000 was intended to place the EIB "in a 
position similar to that it would have been if the lo an benefited from an external guarantee".  In other 
words, the European Communities submits that the introduction of risk premia did "not entail a 
relaxation of (or variation to) a consistent existing credit policy".  Rather, it merely represented 
another option for the bank to apply in the contex t of managing the risk associated with its loans.
3503 
7.817  To support its assertions, the European Communities submits four pages from the EIB's 2006 
Annual Report, which describe its risk management practices.3504  We have closely reviewed this 
document and find that it does not substantiate th e totality of what the European Communities is 
alleging.  While it states that the EIB does attempt to "align its risk management systems to changing 
economic conditions and evolving re gulatory standards" with a view to following "best market 
practice", it says nothing about why the EIB decide d to introduce a risk premium in 2000 or whether 
it was intended, as the European Communities contends, to operate as a partial or total alternative to 
the loan guarantees required under Article 18.3 of its  Statute.  Thus, although we consider the 
European Communities' explanation to make some  intuitive sense, we cannot accept it as a matter of 
fact on the basis of the eviden ce that has been presented.   
                                                      
3499 EC, Answers to Panel Question 87 and 179. 
3500 See, footnote 3467 above. 
3501 See, para. 7.802 above.  Exhibits EC-167 (BCI) and EC-698 (BCI) confirm that the amount of 
agreed funding was transfe rred to Aérospatiale on [***] . 
3502 US, SWS, para. 269. 
3503 EC, SNCOS, para. 190. 
3504 Exhibit EC-842.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  7.818  Moreover, while the European Communities' e xplanation of why the EIB introduced a risk 
premium suggests that risks associated with EIB lending prior to 2000 were taken into account by 
means of "external guarantees", the European Co mmunities has not explained how the particular 
guarantee provided under the 1992 loan to Aérospatiale served to compensate the EIB for the risks 
associated with lending to Aérospatiale in the sa me way that a market lender would have sought 
compensation for the same risks under a commercial loan.   
7.819  In this light, we find that the European Comm unities has failed to advance sufficient evidence 
and argument to persuade us that the absence of a risk premium on the EIB 1992 loan to Aérospatiale 
did not confer a benefit upon Airbus.  We therefore uphold the United States' claim that the 1992 loan 
to Aérospatiale conferred a benefit, within the meaning of Article 1.1(b) of the SCM Agreement, 
because it did not include a risk premium. 
Conclusion in respect of the 1992 loan to Aérospatiale  
7.820  On the basis of the foregoing analysis, and in the light of our findings on the nature of the 
EIB's lending activities,3505 we find that the 1992 loan to Aérospatiale conferred a benefit on 
Aérospatiale, within the meaning of Article 1.1( b) of the SCM Agreement, because it was granted: 
(i) at an interest rate [***] to the cost of borrowing for the Fren ch government and was therefore more 
advantageous than the interest rate that would have  been available to Aérospatiale on the market for 
comparable financing; and (ii) on interest rate terms that did not include a risk premium.  On the other 
hand, we find that the United States has failed to establish that the 1992 loan to Aérospatiale also 
conferred a benefit because the EIB did not require  Aérospatiale to pay any commitment fees or non-
utilization fees.   
The other EIB loans  
7.821  We recall that in addition to the 2002 loan to EADS for the A380 and the 1992 loan to 
Aérospatiale for the A330/A340, the United States clai ms that ten other loans provided by the EIB to 
various Airbus entities were subsidies within the m eaning of the SCM Agreement.  These loans are: 
(i) the 1993 loan to Aérospatiale for the Super Tran sporteurs; (ii) the 1991 loan to British Aerospace 
for the A330/A340; (iii) the 1990 loan to CA SA for the A320 and A330/A340 (No. 14711/ES); 
(iv) the 1990 loan to CASA for the A320 and A330/A340 (No. 14712/ES); (v) the 1990 loan to 
British Aerospace for the A330/A340; (vi) the 1990 loan to Airbus Industrie GIE for the A321; 
(vii) the 1989 loan to CASA for the A320 and A330/A340; (viii) the 1989 loan to British Aerospace for the A320; (ix) the 1988 loan to British Aero space for the A320; and (x ) the 1988 loan to 
Aérospatiale for the A330/340.  The United States ar gues that all of these loans conferred a benefit on 
Airbus because: (a) each loan was granted on interest rate terms that were more advantageous than 
comparable market financing; (b) the EIB did not  charge the respective borrowers any commitment 
fees or non-utilization fees; and (c) the EIB did not charge a risk premium on each loan. 
Interest rate terms
 
7.822  During the Annex V process, the United Stat es (through the Facilitator) requested the 
European Communities to provide information on  the terms and conditions of the each of the 
challenged EIB loans, including all of the relevant loan contracts.3506  The European Communities 
responded by providing information only with respect to two of these loans: the 2002 loan to EADS 
                                                      
3505 See, para. 7.753 above. 
3506 See, e.g., Questions 81 and 82 for the EC Pursuant to Annex V of the SCM Agreement, 
7 October 2005, Exhibit US-4 (BCI). WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  for the A380 and the 1992 loan to Aérospatiale for the A330/A340.
3507  In the absence of information 
on the actual terms and conditions of the remaini ng ten loans, the United States endeavoured to 
substantiate its claims on the basis of publicly ava ilable information.  On the question of benefit, the 
United States presented information in its first wr itten submission demonstrating that in each of the 
years between 1996 and 2004, the average annual inte rest rates charged by the EIB to its borrowers 
were lower than the general corporate borrowing rat es for the different Airbus entities calculated in 
the Ellis Report.3508  This information was presented in the form of the following table:  
Table 9 – US EIB Average Interest Rate Information  
 
 1996 1997 1998 1999 2000 2001 2002 2003 2004 
EIB 
Average 7.87 7.21 6.70 5.91 6.06 5.64 4.74 4.06 3.82 
Germany 8.04 7.53 6.56 6.48 7.14 6.75 6.75 6.14 6.11 
France 8.13 7.47 6.63 6.60 7.27 6.89 6.83 6.20 6.17 
UK 9.25 8.41 6.82 6.21 6.54 6.20 6.10 5.76 6.12 
Spain 10.56 8.29 6.82 6.72 7.41 7.07 6.93 6.19 6.17 
 
7.823  The United States argues that in the light of th e European Communities' refusal to disclose the 
actual terms and conditions of the loans, the reasonabl e inference for the Panel to draw on the basis of 
the information set out in this table is that the re maining ten EIB loans it challenges were provided to 
Airbus on beneficial interest rate terms.3509 
7.824  The European Communities disclosed the interest rates it alleges were charged by the EIB for 
the first time in Exhibit EC-154 (BCI) to its first wr itten submission.  The inte rest rates were listed in 
a one page overview of the status of the challenge d loans as of January 2007 prepared by the EIB, 
which also included information on the relevant lo an contract numbers, disbursement and repayment 
dates, loan currencies and outstanding principal amounts.3510  In its second written submission, the 
European Communities submitted copies of the EIB lo an contracts it considered to be relevant, 
together with its own benefit analysis for all of the loans.3511  According to the information contained 
in the European Communities' analys is, the remaining ten EIB loans involved the transfer of funds to 
Airbus through 22 disbursements at different interest  rates, sometimes under separate contracts.  The 
European Communities performed a distinct benef it analysis for each individual disbursement of 
funds, in effect treating each disbursement as a sepa rate loan.  Overall, in the light of all of its 
arguments, including the contention that a proper bene fit analysis must take into account a 20 to 50 
basis points range of market interest rates above  and below the relevant market interest rate 
benchmark, the European Communities concludes th at none of the 22 disbursements conferred a 
benefit on Airbus.  
7.825  In the following sections, we examine the argume nts and evidence the parties have advanced 
on whether the ten loans cited above in paragraph 7.821 confer a bene fit in more detail, focussing in 
                                                      
3507 See, e.g., Questions 81 and 82 for the EC Pursuant to Annex V of the SCM Agreement, 
7 October 2005, Exhibit US-5 (BCI). 
3508 Prior to 1996, the EIB's Annual Reports did not contain any information on the average interest 
rates charged to its borrowers.  US, FWS, para. 415, fo otnote 491 citing EIB Annual Reports from 1997 to 2004, 
Exhibits US-168 to US-175. 
3509 US, FWS, paras. 410-416; US, SWS, para. 271; US, Answer to Panel Question 149.   
3510 Exhibit EC-154 (BCI). 
3511 Previously, in Answer to Panel Question 89, the European Communities had set out its own benefit 
analysis in respect of the 1988 loan to Aérospatiale for the A330/A340 and the 1990 loan to British Aerospace 
for the A330/A340.  However, on that occasion, the European Comm unities provided no evidence to 
substantiate the facts used as the basis for its analysis.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  the first instance on the European Communities' disclo sure of what it asserts were the actual interest 
rates charged by the EIB.  We then review the par ties' positions on the relevant  market interest rate 
benchmarks, before turning to  conclude on the merits of the United States' claims. 
What were the interest rates charged by the EIB?  
7.826  According to the European Co mmunities, the interest rates charged by the EIB for the 
relevant disbursements were either fixed for the entire duration of the contract ( single interest rate 
disbursements), or revised during the course of the lo an through the application of an interest rate 
revision clause or simply due to the loan contracts being modified or restructured ( revised interest 
rate disbursements). 
7.827  The European Communities' benefit analysis i ndicates that 13 of the disbursements under the 
challenged loans were made at a single interest  rate.  For these disbursements, the European 
Communities took the interest rate set by the EIB as the starting point of its benefit analysis.  Where necessary, the European Communities adjusted each rate to account for the alleged basis points value 
of the securities provided under the relevant lo ans.  The European Communities argues that 
adjustments for loan securities we re necessary because the bonds used  in the establishment of the 
market interest rate benchmarks were unsecured.  Therefore, in order to ensure a proper comparison, 
the European Communities submits th at the basis points value of the loan securities had to be taken 
into account in the benefit analysis. 
7.828  The European Communities made loan security  adjustments to the single interest rate 
disbursements effected under two loans to British Aerospace
3512 and two loans to Airbus Industrie and 
Aérospatiale3513.  In the case of British Aerospace, the Eur opean Communities asser ts that the loans 
from the EIB were [***].3514  The European Communities valued this security at [***] basis points 
because it alleges that this was the amount by which the EIB increased the relevant interest rate when 
it agreed to release the security in [***].3515  The two loans to Airbus Industrie and Aérospatiale3516 
were secured, respectively, by a loan guarantee and an assignment  of receivables.  The European 
Communities valued each security at [***] basis points, explaining that "the security is given a 
relatively low value, to reflect the fact that stat e-ownership of the relevant companies had already 
ensured a relatively high rating profile (and th e higher rating profile the less valuable the 
security)".3517  It therefore made an upward adjustment of [***] basis points to the corresponding 
interest rates. 
7.829  After carefully reviewing the arguments and evidence submitted by the European 
Communities in respect of the above-mentioned loan security adjustments,3518 we are satisfied that 
both the need for and the value a ttributed by the European Commun ities to each security is reasonable 
                                                      
3512 In particular, the European Communities made a s ecurity adjustment to one of two disbursements 
under each of the 1990 and 1991 loans to British Aerospace for the A330/A340.   
3513 Both disbursements under the 1990 loan to Airbus Industrie for the A321, and one disbursement 
under the 1993 loan to Aérospatiale for the Super Transporteurs. 
3514 EC, Answer to Panel Question 89; Exhibit EC-722 (BCI). 
3515 EC, Answer to Panel Question 89. 
3516 The two EIB loans to Aérospatiale were: the 1989 loan for the A330/A340 and the 1993 loan for 
the Super Transporteurs. 
3517 Exhibit EC-722 (BCI), p.2. 
3518 EC, Answer to Panel Question 89; Exhibits EC -154 (BCI); EC-722 (BCI); EC-705 (BCI), 
Article 7.01(ii) and Annexure III-A, Revenues Assignme nt Agreement; EC-706 (BCI), Articles 6.09 and 7.02; 
EC-695 (BCI), Article 7.01; an d EC-692 (BCI), Article 7.01. WT/DS316/R 
Page 570  
BCI deleted, as indicated [***] 
 
  and can be accepted.
3519  We note that the United States has not specifically contested these 
adjustments. 
7.830  For the nine remaining disbursements, the in itial interest rates set by the EIB were 
subsequently modified due to the loans being amende d, or because of interest rate revisions mandated 
under the contracts.  For these disbursements, th e European Communities used the interest rate 
charged by the EIB at the time of the revision or amendment as the starting point of its analysis.  For example, according to the European Communitie s, the 1990 loan to British Aerospace for the 
A330/A340 was initially effected through two disbursements under separate contracts.
3520  T h e  
interest rate terms of one of these disbursements we re subsequently modified when amended in 1999, 
resulting in a reduction of the applicable inter est rate on the outstanding loan principal from [***] to 
[***].3521  For this particular disbursement, the Europ ean Communities used the interest rate charged 
by the EIB following the restructuring ( [***]) as the starting point of its analysis. 
7.831  The European Communities made loan security adjustments to the revised interest rate 
disbursements effected under two loans to Aérospatiale.3522  The European Co mmunities asserts that 
two of the three disbursements under the 1988 loan  for the A330/A340, and one disbursement under 
the 1993 loan for the Super Transporteurs were s ecured by a loan guarantee from EADS NV as well 
as real estate mortgages.3523  Because these securities were offered after 2002, the European 
Communities decided to value them at [***] basis points each because [***] by the EIB for the 2002 
loan to EADS, which was [***].3524  For the third disbursement under the 1988 loan for the 
A330/A340, the European Communities made an upward adjustment of [***] basis points, reflecting 
the value it attributed to the loan security, which was in the form of an assignment of receivables.  As 
we understand it, the European Communities justifies this [***] basis point adjustment explaining that 
"the security is given a relatively low value, to reflect the fact that state-ownership of the relevant companies had already ensured a relatively high ratin g profile (and the higher rating profile the less 
valuable the security)".
3525 
7.832  We have carefully reviewed the argumen ts and evidence submitted by the European 
Communities in respect of the these loan security adjustments,3526 and are satisfied that both the need 
                                                      
3519 As we have previously noted (at para. 7.783 ab ove), we agree with the European Communities that, 
in general, differences between loan and bond instrume nts may well translate into differences in the price of 
borrowing that should be taken into account in the present benchmarking exercise.  It seems to us that the value 
of a security provided under a loan agreement should  be taken into account when comparing the interest 
attached to that loan with the price of unsecured bond financing. 
3520 The first disbursement of [***]  being made on [***]  at a fixed interest rate of [***] , Exhibit EC-
706 (BCI).  A second disbursement of [***]  was made on [***]  at a revisable interest rate of [***] , Exhibit EC-
707 (BCI). 
3521 Exhibit EC-708 (BCI). 
3522 All three disbursements under the 1989 loan to Aérospatiale for the A330/A340, and one 
disbursement under the 1993 loan to Aérospatiale for the Super Transporteurs.  As we understand it, the 
European Communities did not make a security adjustment to the two revised interest rate disbursements 
granted under each of the 1990 and 1991  loans to British Aerospace because the revised interest rates charged 
on these disbursements were above the relevant Ellis Repo rt market interest rate be nchmarks.  In other words, 
although securities were provided for the purpose of both disbursements (Article 7, Exhibits EC-722 (BCI), EC-
705 (BCI) and EC-706 (BCI)), the Eu ropean Communities took their alleged value into account only for the 
purpose of adjusting the interest rates charged for one of two disbursements under each loan. See, para. 7.828 
above.   
3523 Exhibit EC-722 (BCI), pp. 11 and 13. 
3524 Exhibit EC-722 (BCI), p.2. 
3525 Exhibit EC-722 (BCI), p.2. 
3526 Exhibits EC-154 (BCI); EC-722 (BCI); EC-695 (BCI), Article 7.01; EC-699 (BCI), Articles 2.02 
and 2.03; EC-697 (BCI), Articles 2.01 and 2.02.  WT/DS316/R 
 Page 571 
 
BCI deleted, as indicated [***] 
 
  for and the value attributed by the European Co mmunities to each security is reasonable and can be 
accepted.  Again, we note that the United States has not specifically contested these adjustments. 
7.833  The United States does not explicitly dispute the European Communities' assertions in respect 
of the values of the  interest rates charged by the EIB for each of the relevant disbursements.  Indeed, 
to the extent that these values correspond to tho se found in Exhibit EC-154 (BCI), we note that the 
United States has itself relied upon information cont ained in the same exhibit: (i) to confirm its 
assertion that the EIB provided a loan to British Aerospace for the A330/A340 in 1991;3527 and (ii) 
when it withdrew its complaint against the allege d 1997 EIB loan to Aérospatiale for the Super 
Transporteurs.3528  The United States does, however, critic ize the European Communities' decision to 
conduct its benefit analysis for certain loans on the basis of revised interest rates, arguing that it 
ignores the interest rates applicable from each relevant loan's inception, thereby rendering it 
incomplete.3529 
7.834  We agree with the United States that to the ex tent that the European Communities' benefit 
analysis is based on the alleged interest rate applicable following the most recent contractual 
modification or interest rate revision, without also taking into account interest charged over the 
previous life of the loan, it is only partially re levant to assessing whether the EIB loans conferred a 
benefit.  For example, in the case of the 1990 loan to British Aerospace for the A330/A340, the 
European Communities' benefit analysis for one of the two [***] disbursements made in 1991 relies 
upon the alleged interest rate ( [***]) charged on the amount of debt outstanding ( [***]) at the time the 
loan was amended (1999).3530  It says nothing about whether the [***] interest rate charged on the 
same disbursement between 1991 a nd 1999 conferred a benefit.  Thus, the European Communities' 
focus on revised interest rates means that its an alysis does not determine whether the relevant 
disbursements, as a whole , conferred a benefit.  Nevertheless, to  the extent that the revised interest 
rates represent the interest rate terms associated with a particular disbursement for at least part of the life of a loan, they are in our view relevant for the purpose of determining whether the disbursement 
was provided on beneficial interest rate terms over that  same period.  With this qualification in mind, 
we believe that it would be appropriate, in the light  of the evidence and arguments that are before us, 
to rely upon the EIB interest rates disclosed in  the European Communities' benefit analysis as the 
starting point  of our own evaluation of the United States' claims.  These interest rates, and other 
related information drawn from our  understanding of Exhibit EC-722 (BCI), are set out in the 
following table: 
                                                     
 
3527 US, Answer to Panel Question 17. 
3528 At footnote 481 of its FWS, the United States noted that it would not be necessary for the Panel to 
determine whether the alleged 1997 loan to Aérospatia le for the Super Transporteurs was a subsidy if the 
European Communities confirmed that the alleged loan was never drawn by Aérospatiale.  Information in 
Exhibit EC-154 (BCI) indicated that the loan had been [***] .  The Panel asked the United States (Panel 
Question 12) whether it intended to continue to pursue its claim against this alleged measure "in the light of this 
information".  The US answered that it did not intend to do so.  US, Answer to Panel Question 12. 
3529 US, SWS, paras. 272-273. 
3530 The actual amount of debt outstanding at the time was [***] , Exhibit EC-708 (BCI), Article 2.4. WT/DS316/R 
Page 572  
BCI deleted, as indicated [***] 
 
  Table 10 – EIB Interest Rates (as reported in Exhibit EC-722 (BCI))
 
 
 1988 loan to British Aerospace for the A320 (Loan No. 13588) 
Column (a) (b) (c) (d) (e) (f) 
Disb. No. EIB Interest 
Rate EIB Interest 
Rate 
Applicable 
From Security 
Adjustment Adjusted EIB 
Interest Rates Loan 
Principal 
Subject to 
EIB Interest 
Rate 
(Millions) 
1 [***] [***] [***] - [***] 
[***] 
 1989 loan to British Aerospace for the A320 (Loan No. 13802) 
Disb. No. EIB Interest 
Rate EIB Interest 
Rate 
Applicable 
From Security 
Adjustment Adjusted EIB 
Interest Rates Loan 
Principal 
Subject to 
EIB Interest 
Rate 
(Millions) 
1 [***] [***] [***] - [***] 
[***] 
 1990 loan to British Aerospace for the A330/A340 (Loan No. 14999) 
Disb. No. EIB Interest 
Rate EIB Interest 
Rate 
Applicable 
From Security 
Adjustment Adjusted EIB 
Interest Rates Loan 
Principal 
Subject to 
EIB Interest 
Rate 
(Millions) 
1 [***] [***] [***] - [***] 
2 [***] [***] [***] [***] [***] 
 
 1991 loan to British Aerospace for the A330/A340 (Loan No. 15119) 
Disb. No. EIB Interest 
Rate EIB Interest 
Rate 
Applicable 
From Security 
Adjustment Adjusted EIB 
Interest Rates Loan 
Principal 
Subject to 
EIB Interest 
Rate 
(Millions) 
1 [***] [***] [***] - [***] 
2 [***] [***] [***] [***] [***] 
[***] 
 1990 loan to Airbus Industrie for the A321 (Loan No. 15007) 
Disb. No. EIB Interest 
Rate EIB Interest 
Rate 
Applicable 
From Security 
Adjustment Adjusted EIB 
Interest Rates Loan 
Principal 
Subject to 
EIB Interest 
Rate 
(Millions) 
1 [***] [***] [***] [***] [***] 
2 [***] [***] [***] [***] [***] 
  WT/DS316/R 
 Page 573 
 
BCI deleted, as indicated [***] 
 
   1988 loan to Aérospatiale for the A330/A340 (Loan No. 13764) 
Disb. No. EIB Interest 
Rate EIB Interest 
Rate 
Applicable 
From Security 
Adjustment Adjusted EIB 
Interest Rates Loan 
Principal 
Subject to 
EIB Interest 
Rate 
(Millions) 
1 [***] [***] [***] [***] [***] 
2 [***] [***] [***] [***] [***] 
3 [***] [***] [***] [***] [***] 
[***]     
 1993 loan to Aérospatiale for the Super Transporteurs (Loan No. 6832) 
Disb. No. EIB Interest 
Rate EIB Interest 
Rate 
Applicable 
From Security 
Adjustment Adjusted EIB 
Interest Rates Loan 
Principal 
Subject to 
EIB Interest 
Rate 
(Millions) 
1 [***] [***] [***] [***] [***] 
2 [***] [***] [***] [***] [***] 
[***] 
 1989 loan to CASA for the A320 and A330/A340 (Loan No. 14081) 
Disb. No. EIB Interest 
Rate EIB Interest 
Rate 
Applicable 
From Security 
Adjustment Adjusted EIB 
Interest Rates Loan 
Principal 
Subject to 
EIB Interest 
Rate 
(Millions) 
1 [***] [***] [***] - [***] 
2 [***] [***] [***] - [***] 
3 [***] [***] [***] - [***] 
[***] 
 1990 loan to CASA for the A320 and A330/A340 (Loan No. 14711) 
Disb. No. EIB Interest 
Rate EIB Interest 
Rate 
Applicable 
From Security 
Adjustment Adjusted EIB 
Interest Rates Loan 
Principal 
Subject to 
EIB Interest 
Rate 
(Millions) 
1 [***] [***] [***] - [***] 
2 [***] [***] [***] - [***] 
3 [***] [***] [***] - [***] WT/DS316/R 
Page 574  
BCI deleted, as indicated [***] 
 
   1990 loan to CASA for the A320 and A330/A340 (Loan No. 14712) 
Disb. No. EIB Interest 
Rate EIB Interest 
Rate 
Applicable 
From Security 
Adjustment Adjusted EIB 
Interest Rates Loan 
Principal 
Subject to 
EIB Interest 
Rate 
(Millions) 
1 [***] [***] [***] - [***] 
2 [***] [***] [***] - [***] 
3 [***] [***] [***] - [***] 
 
Market interest rate benchmarks advanced by the United States  
7.835  Although the EC had disclosed all of the alle ged interest rates charged by the EIB and 
provided copies of what it asserts were all of the relevant loan c ontracts by the time of its second 
written submission, the United States did not revise the market interest rate benchmarks advanced in 
its first written submission.  We recall that the be nefit analysis presented by the United States in its 
first written submission compared the average annua l interest rates charged by the EIB to its 
borrowers in each year between 1996 and 2004 with  the general corporate borrowing rates for the 
different Airbus entities calculated in the Ellis Re port in those same years.  Given the European 
Communities' disclosure, it is now possible to identif y the Ellis Report interest rate benchmarks that 
correspond more precisely with the information set ou t in the European Communities' benefit analysis 
about the challenged loans.  These are reported in the following table: 
Table 11 – Ellis Report Benchmarks  
 
Loan Disb. 
No. Ellis Report 
Benchmark Loan Disb. 
No. Ellis Report 
Benchmark 
1988 loan to British 
Aerospace 1 6.21% 1 8.49% 
1989 loan to British 
Aerospace 1 6.21% 1993 loan to Aérospatiale 
2 6.17% 
1 11.51% 1 9.46% 1990 loan to British 
Aerospace 2 11.51% 2 9.46% 
1 6.21% 1989 loan to CASA 
3 None 1991 loan to British 
Aerospace 2 11.51% 1 None 
1 None 2 None 1990 loan to Airbus 
Industrie 2 None 1990 loan to CASA         
(No. 14711) 
3 None 
1 6.20% 1 None 
2 6.20% 2 None 1988 loan to Aérospatiale 
3 6.63% 1990 loan to CASA         
(No. 14712) 
3 None 
 
7.836  In considering the evidentiary value of the Ellis  Report benchmarks, we believe it is important 
to bear in mind that they were constructed on the basis of lending in local currencies, not USD.  As 
such, to the extent that the EI B loans at issue involved USD financing, the Ellis Report provides no 
relevant market interest rate benchmark.  Moreover, as we have explained elsewhere,3531 the Ellis 
                                                      
3531 See, para. 7.803 above.  WT/DS316/R 
 Page 575 
 
BCI deleted, as indicated [***] 
 
  Report benchmarks were partly de rived from interest rate inform ation relating to government bonds 
with a 10 year maturity.  However, the bond-comparable maturity of most of the EIB loans at issue was of a different duration.  Finally, we recall that  the Ellis Report market interest rate benchmarks 
were calculated using annual average interest ra te data.  In the case of the 1992 EIB loan to 
Aérospatiale, the United States revised the Ellis Report benchmarks precisely because NERA agreed 
with the European Communities that, for the purpo se of assessing whether the EIB loans conferred a 
benefit, the interest rate charged by the EIB "mus t be compared with a benchmark 'at the relevant 
point in time  and in the relevant year the EIB loan was made'".3532  It follows that, by its own logic, 
the United States' failure to revise the market intere st rate benchmarks calculated in the Ellis Report 
for the remaining EIB loans, after the European Co mmunities' disclosure of the interest rates charged 
by the EIB, means that the Ellis Report interest ra te benchmarks for the EI B loans are less accurate 
than a benchmark based upon interest rate informati on for comparable market financing in the same 
currency, with the same maturity and on the same date as the challenged loans.3533 
Market interest rate benc hmarks advanced by the EC  
7.837  The European Communities did not establish a mark et interest rate benchmark for each of the 
challenged EIB loans, but only those to Airbus companies othe r than British Aerospace.  This is 
because, according to the European Communities, th e interest rates charged by the EIB on its loans to 
British Aerospace, adjusted where relevant to account for the cost of the security and other financial, 
project and administrative obligations, were above the general corporate borrowing rates calculated 
for British Aerospace in the Ellis Report.3534   
7.838  For the EIB loans to other Airbus entities, the European Communities constructed market 
interest rate benchmarks through the application of a methodology similar to that used in the Ellis 
Report: an estimated credit spread for the relevant  Airbus borrowing entity was added to the interest 
rate attached to government risk-free borrowing at the time (or as close as possible to the time) of 
each disbursement.  The European Communities' benc hmarks also took into account the maturity of 
each disbursement and the fact that a certain number of the loans were made in USD.3535 
- EC Benchmarks for loans to Air bus Industrie and Aérospatiale 
7.839  In the case of the two USD dis bursements made under the 1990 loan to Airbus Industrie for 
the A321, the risk-free rate used by  the European Communities was the rate associated with a relevant 
United States treasury bond having a maturity comparable to that of the two disbursements.3536  The 
European Communities then added a credit spread which it based on actual credit spread information 
relating to a USD bond issued by Elf Acquitaine.   The European Communities asserts that Elf 
Acquitaine "was the only French issuer in the [***] market close to the relevant date with a similar 
rating profile" compared with Airbus Industrie.3537  
                                                      
3532 NERA EIB Report, p.3, Exhibit US-542 (BCI), (underline added). 
3533 In its second non-confidential or al statement, the United States di d in fact respond to the benefit 
analysis presented by the European Communities in its s econd written submission.  However, the United States' 
comments were limited to criticizing the European Comm unities' assertion that certain alleged additional loan 
obligations taken on by EIB borrowers make EIB loan s more expensive than commercial loans, and must 
therefore be taken into account in the be nefit analysis.  US, SNCOS, para. 122. 
3534 Exhibit EC-722 (BCI), p.2. 
3535 Exhibit EC-722 (BCI). 
3536 The European Communities explains that "{w}here there was no risk free rate available reflecting 
the precise maturity profile of the re levant EIB loan available, the risk free rate has been derived by linear 
interpolation of relevant treasury rates".  Exhibit EC-722 (BCI), p.2. 
3537 Exhibit EC-722 (BCI), pp 2, 11-13. WT/DS316/R 
Page 576  
BCI deleted, as indicated [***] 
 
  7.840  The market interest rate benchmarks agains t which the European Communities compared the 
interest rates charged by the EIB on the disburse ments under the two loans to Aérospatiale were 
constructed in much the same manner.  The disbur sement-date value of the credit spread (taken from 
an actual FRF bond issued by Aérospatiale or the Merrill Lynch Index for A rated or AAA rated 
corporate bonds) was added to the interest rate attached to a French government FRF bond having a 
maturity comparable to that of the disbursement.
3538  For one of the disbursements under the 1993 
loan for the Super Transporteurs, we understand th e European Communities to have added the credit 
spread identified in the Merrill Lynch Index for A ra ted corporate bonds having a maturity of 3 to 5 
years (similar to the alleged maturity of the di sbursement at issue) to the relevant EURIBOR 
(European Interbank Offer Rate) at the time of the disbursement.3539 
7.841  The European Communities' market interest rate  benchmarks for loans to Airbus Industrie 
and Aérospatiale are shown in the following table: 
Table 12 – EC Market Interest Rate Benchmarks (Loans to Airbus Industrie and Aérospatiale)  
 
Loan Disb. 
No. EC 
Benchmark Loan Disb. 
No. EC 
Benchmark 
1 8.79% 1 6.53% 1990 loan to Airbus 
Industrie 1 7.70% 1993 loan to Aérospatiale 
2 Euribor + 
0.26% 
1 4.09%   
2 3.55%   1988 loan to Aérospatiale 
3 3.98%  
  
 
- EC Benchmarks for loans to CASA 
7.842  For the nine disbursements made under the loans to CASA, the European Communities 
constructed a market interest ra te benchmark on the basis of the cost of borrowing for the Spanish 
government.  The European Communities asserts that th is was justified because each of the relevant 
disbursements was " [***] through budgetary allocations".3540  Thus, in respect of the two 
disbursements made to CASA in PTAS, the European  Communities' market interest rate benchmark is 
equivalent to the interest rate attached to Span ish government borrowing in PTAS at the time of the 
relevant disbursements.  Because it would have be en more expensive for the Spanish government to 
borrow in USD than for the United States government  to borrow in USD at the relevant time, the 
European Communities determined the market in terest rate benchmarks for the seven USD 
disbursements by adding a "Spain spread" to the va lue of the relevant United States treasuries.  The 
"Spain spread" was derived from the "spread at i ssuance (the only data available) on a 10 year 
maturity Kingdom of Spain bond issue".3541  The European Communities' market interest rate 
benchmarks for the loans to CASA are listed in the following table: 
                                                      
3538 Exhibit EC-722 (BCI), p.2. 
3539 Exhibit EC-722 (BCI), pp. 2 and 13. 
3540 Exhibit EC-722 (BCI), p.3. 
3541 Exhibit EC-722 (BCI), p.3.  WT/DS316/R 
 Page 577 
 
BCI deleted, as indicated [***] 
 
  Table 13 – EC Market Interest Ra te Benchmarks (Loans to CASA)  
 
Loan Disb. 
No. EC 
Benchmark Loan Disb. 
No. EC 
Benchmark 
1 9.17% 1 9.12% 
2 9.17% 2 8.78% 1989 loan to CASA 
3 9.28% 1990 loan to CASA         
(No. 14711) 
3 9.38% 
1 8.67%    
2 8.39%    1990 loan to CASA           
(No. 14712) 
3 8.41%    
 
- EIB interest rates compared with the market interest rate benchmarks 
7.843  We recall that in order to determine whether a financial contribution in the form of a loan 
confers a benefit, an assessment must be made of  whether that loan places the recipient in a more 
advantageous position compared with the position the recipient would have been in had a comparable 
loan been obtained from a commercial lender.3542  To this end, both parties' submissions have 
focussed on showing that the interest rates charged by the EIB were either above or below the interest 
rates that they consider would have been charged fo r a comparable loan to the relevant Airbus entity 
on the commercial lending market.  Below we evaluate  the merits of the parties' submissions, using 
the final (adjusted or unadjusted) EIB interest  rates identified by the European Communities 
(reproduced in columns (b) and (e) of Table 10) as the starting point  of our assessment.  We conduct 
our evaluation on a disbursement-by-disbursement b asis, in the same way the European Communities 
presented its own benefit analysis in Exhibit EC-7 22 (BCI).  In this regard, we agree with the 
European Communities that to the extent that each of the challenge d loans was effected through more 
than one disbursement of funds on different dates a nd interest rates, it mak es sense to assess whether 
the entirety of the loan conferred a benefit upon Air bus by examining the interest rates charged on 
each of the disbursements individually.  We begin our evaluation by focusing  on the loans to British 
Aerospace. 
- The loans to British Aerospace 
7.844  The four EIB loans to British Aerospace that the United States challenges (the 1988 and 1989 
loans for the A320 and the 1990 and 1991 loans for the A330/A340) were given effect through three single interest rate disbursements and three revised  interest rate disbursements, all in GBP.  
Comparing the interest rates charged by the EIB on each of these disbursements, as presented and 
where relevant as adjusted in Exhibit EC-722 (BC I), with the market inte rest rate benchmarks 
established in the Ellis Report gives the following result
3543: 
                                                      
3542 See, para. 7.753 above. 
3543 We recall that the European Communities did not establish its own market interest rate benchmarks 
for the loans to British Aerospace.  See, para. 7.837 above. WT/DS316/R 
Page 578  
BCI deleted, as indicated [***] 
 
  Table 14 – EIB Loans to British Aerospace vs. E llis Report Market Interest Rate Benchmarks
 
 
Loan Disb. 
No. EIB Interest 
Rate Ellis Report 
Benchmark Variance 
1988 loan to British 
Aerospace 1 [***]  6.21% [***]  
1989 loan to British 
Aerospace 1 [***]  6.21% [***]  
1 [***]  11.51% [***]  1990 loan to British 
Aerospace 2 [***]  11.51% [***]  
1 [***]  6.21% [***]  1991 loan to British 
Aerospace 2 [***]  11.51% [***]  
[***] 
[***] 
 
7.845  For five of the six disbursements, Table 14 show s that the interest rates charged by the EIB 
were above the market interest rate  benchmarks established in the Ellis  Report.  Two of these were the 
single interest rate disbursement s made under the 1990 loan for the A330/A340.  On this basis, it is 
possible to conclude that the 1990 loan for th e A330/A340 was provided to British Aerospace on 
interest rate terms that were not more advantage ous than the interest rate terms the United States 
asserts would have been available to British Aerospa ce on the market for a comp arable loan.  For the 
three other disbursements (both disbursements under the 1988 and 1989 loans and one of the two 
disbursements under the 1991 loan), the EIB intere st rates in Table 14 reflect those in force after  the 
relevant loan contracts had been amended in 1999.3544 
7.846  As we have previously explained, a benefit anal ysis that focuses on only the latest applicable 
interest rate following a contract revision, without also taking into account interest charged by the EIB 
up to the date of the interest rate revision, is only partially relevant to  determining whether the 
disbursement, as a whole , confers a benefit.  Thus, although Table 14 indicates that the interest rates 
charged by the EIB for the three revised interest rate disbursements were higher than the market 
interest rate benchmarks established in the Ellis Report, the same result does not automatically follow 
for the interest rates charged by the EIB on the same disbursements prior to being revised. 
7.847  The contract that first amended the interest rates charged on these three disbursements was 
submitted in Exhibit EC-708 (BCI).  On the basis of  the information in this contract amendment and 
other evidence that is before us,3545 we can make the following findings about the interest rates that 
were in effect prior  to the relevant contractual amendment:  
                                                      
3544 Exhibit EC-708 (BCI). 
3545 Exhibits EC-154 (BCI); EC-703 (BCI); EC- 704 (BCI); EC-706 (BCI); and EC-708 (BCI).  WT/DS316/R 
 Page 579 
 
BCI deleted, as indicated [***] 
 
  Table 15 – EIB Loans to British Aerospace (Interest  Rates Charged Prior to 1999 Restructuring)  
 
Loan Disb. 
No. EIB Interest 
Rate EIB Interest 
Rate Applicable 
From Ellis Report 
Benchmark Variance 
1988 loan to British 
Aerospace 1 [***]  [***]  9.67% [***]  
1989 loan to British 
Aerospace 1 [***]  [***]  10.19% [***]  
1991 loan to British 
Aerospace 1 [***]  [***]  11.51% [***]  
 
7.848  Thus, the initial interest rates charged by the EIB on both disbursements under the 1988 and 
1989 loans for the A320 were above the corresponding Ellis Report benchmarks.  For the disbursement under the 1991 loan for the A330/A340, th e initial interest rate charged by the EIB was 
below the relevant Ellis Report benchmark.  However,  we recall that Airbus had provided a particular 
security under this loan, which the European Communities valued at [***] basis points.
3546  Adding 
this to the interest rate charged by the EIB, it is possible to arrive at an adjusted interest rate of [***], 
which is [***] basis points above the corresponding Ellis Report benchmark. 
7.849  The interest rates charged on the three disbur sements to British Aerospace were revised once 
again by amendment of 17 May 2004.3547  The interest rates charged on the two disbursements made 
under the 1988 and 1989 loans were increased, with  retroactive effective from 16 October 2003, to 
[***].  Similarly, the interest rate charged on the disbursement made under the 1991 loan was 
increased to [***], with retroactive effect from 11 March 2003.  In 2003, the corresponding Ellis 
Report market interest rate benchmark was 5.76%.  
7.850  All this confirms the informati on contained in Table 14 and make s it possible to conclude that 
the financing provided to British Aerospace under the 1988, 1989 and 1991 loans was agreed on 
interest rate terms that were not  more advantageous than what th e Ellis Report suggests would have 
been available to British Aerospace on the market for comparable loans. 
7.851  Finally, we note that Table 14 shows that one single interest rate disbursement was provided 
to British Aerospace at an interest rate that was [***] below the relevant Ellis Report market interest 
rate benchmark.  However, given the complexities a ssociated with establishing market interest rate 
benchmarks for the above EIB loans, and in the light of our comments on the relatively low 
evidentiary value of the Ellis Report benchmarks,3548 we believe that a [***] difference between the 
interest rate charged by the EIB and the market inte rest rate benchmark calcul ated in the Ellis Report 
is not enough to confirm the United States' contention that the interest rate charged by the EIB on this 
disbursement was more advantageous than comparable market financing. 
- The loans to Airbus Industrie and Aérospatiale 
7.852  The three EIB loans to Airbus Industrie and Aérospatiale that the United States challenges 
(the 1990 loan for the A321, the 1988 loan for the A330/A340 and the 1993 loan for the Super Transporteurs) were given effect through two single interest rate disbursements in USD, one single 
interest rate disbursement in FRF, and four revised interest rate disbursements in FRF.  Comparing the 
interest rates charged by the EIB on each of these disbursements, as presented and where relevant as 
                                                     
 
3546 See, para. 7.828 above. 
3547 Exhibit EC-710 (BCI). 
3548 See, para. 7.836 above. WT/DS316/R 
Page 580  
BCI deleted, as indicated [***] 
 
  adjusted in Exhibit EC-722 (BCI), with the market interest rate benchmarks advanced by both parties 
gives the following result: 
Table 16 – EIB Loans to Airbus Industrie and Aéro spatiale vs. Market In terest Rate Benchmarks
 
 
Loan Disb. 
No. EIB 
Interest 
Rate Ellis Report 
Benchmark Variance EC 
Benchmark Variance 
1 [***]  None - 8.79% [***]  1990 loan to 
Airbus Industrie 2 [***]  None - 7.70% [***]  
1 [***]  6.20% [***]  4.09% [***]  
2 [***]  6.20% [***]  3.55% [***]  1988 loan to 
Aérospatiale 
3 [***]  6.63% [***]  3.98% [***]  
1 [***]  8.49% [***]  6.53% [***]  1993 loan to 
Aérospatiale 2 [***]  6.17% [***]‡ Euribor + 
0.26% [***]  
[***]   
‡  Although the European Communities did not disclose  the relevant EURIBOR rate, we note that on [***] , EURIBOR rates 
ranged between 2.064% (one week) and 2.388% (12 months).3549  It is therefore reasonable to conclude that the difference 
between the Ellis Report market interest rate benchmark of 6.17% and the EIB interest rate was [***] . 
 
7.853  Table 16 shows that the interest rates charged by the EIB on several of the disbursements 
made under the three loan contracts were below the market interest rate benchmarks established by 
both parties.  However, the interest rate differen tials vary considerably de pending upon which party's 
benchmark is used in the analysis. 
7.854  Compared with the European Communities' benc hmarks, the Ellis Repor t benchmarks have a 
more remote temporal connection with the loans at issue because they are based on annual average 
interest rate information.  On the other hand, the European Communities' benchmarks are based on 
interest rate information taken from the date, or as close as possible to the date, of the actual loan 
disbursement or interest rate revision.  To  this extent, and as we have already noted,3550 the Ellis 
Report benchmarks are likely to be less accurate th an the benchmarks established by the European 
Communities, a result we believe the United Stat es acknowledged when it revised the Ellis Report 
benchmark for the 1992 EIB loan to Aérospatiale in  the light of the European Communities' criticism 
of its reliance on annual average interest rates.3551  Moreover, we recall that  whereas the Ellis Report 
benchmarks for all of the loans reflect the interest  rate terms associated with 10 year borrowing, the 
European Communities' benchmarks are based on th e alleged interest rates charged for borrowing 
over a term that matches more closely the actual matu rity of the loans at issue.  In this light, we 
believe that, for the purpose of determining wh ether the EIB loans to Airbus Industrie and 
Aérospatiale conferred a benefit,  it would be appropriate to rely upon the market interest rate 
benchmarks established by the EC. 
7.855  Taking the European Communities' market interest  rate benchmarks as the relevant point of 
comparison, we note that the interest rates charged by the EIB were below the relevant benchmarks in 
respect of both disbursements made under th e 1993 loan for the Super Transporteurs (by [***] and 
[***] basis points), and disbursements 1 and 3 made under the 1988 loan for the A330/A340 (by 
                                                      
3549 Euribor Historical Data, www.euribor.org/html/download/euribor_2004.txt, visited by the WTO 
Secretariat on 3 July 2008. 
3550 See, para. 7.836 above. 
3551 See, para. 7.803 above.  WT/DS316/R 
 Page 581 
 
BCI deleted, as indicated [***] 
 
  [***] basis points each).  Despite th is result, the European Commun ities considers that it cannot be 
concluded that these four disbursements were gr anted at below-market interest rates.   
7.856  First, as we have previously noted, the Eur opean Communities contends that in assessing 
whether the EIB loans conferred a benefit, we mu st determine whether the rate charged by the EIB 
was convincingly outside a spread of interest rate s "20 to 50 basis points above or below the single 
benchmark".3552  While we accept the reasonableness of  the principle underlying the European 
Communities' contention – namely that market lenders may offer slightly different rates of interest for 
loans granted on the same or comparable terms a nd conditions – we have found that the European 
Communities has failed to prope rly substantiate its position.3553  Thus, we cannot accept that the range 
of market interest rate benchmarks advanced by the European Communities is an appropriate basis for 
finding that the above four disbursements were not  granted on beneficial interest rate terms.   
7.857  Second, and only in respect of disbursements 1 and 3 under the 1988 loan, the European 
Communities asserts that the [***] basis points difference between the alleged rate charged by the 
EIB and its own market interest rate benchmarks would fall to below zero, after taking into account 
the cost of additional project, financial and admini strative obligations attached to EIB loans that 
would not normally be found in the bond instrume nts used to establish its market interest rate 
benchmarks.3554  Relying on Moody's assessment of the differences in three-year cumulative loss rates 
between similarly rated loans and bonds, the Euro pean Communities submits that it is possible to 
quantify the "pricing impact of using bonds to benc hmark a loan that has more stringent terms and 
conditions than th e benchmark bonds"3555, and calls for a 6.5 basis point reduction in the benchmark 
interest rates derived from bond market information.3556   
7.858  As we have previously noted, we find the logi c of the European Communities' position to be, 
in general, persuasive.3557  Moreover, we note that the United States has not specifically contested the 
European Communities' reliance on Moody's assess ment, nor has it specifically challenged the 
European Communities' assertion that on the basis of  Moody's assessment, an adjustment of 6.5 basis 
points would be appropriate.3558  In this light, we find that when properly adjusted by 6.5 basis points 
to account for differences between the inherent ch aracteristics of loan instruments compared with 
bonds, the interest rates charged by the EIB fo r disbursements 1 and 3 under the 1988 loan do not 
appear to have conferred a benefit upon Aérospatiale.   
7.859  However, we note that the interest rates that  are identified in Table 16 as being charged on 
disbursements 1 and 3 under the 1988 loan reflect the effective interest rates after  a series of interest 
rate revisions.3559  Again, we recall our view that a benefit analysis that focuses on only the latest 
applicable interest rate following an interest rate  revision, without also taking into account interest 
charged by the EIB up to the date of that revision, is only partially relevant to determining whether the 
                                                      
3552 EC, SWS, para. 507. 
3553 See, para. 7.787 above. 
3554 Exhibit EC-722 (BCI). 
3555 EC, Answer to Panel Question 176 ; see also , footnote 3401 above. 
3556 See, para. 7.780 above. 
3557 See, para. 7.783 above. 
3558 US, Comments on EC Answer to Panel Question 176. 
3559 The two disbursements at issue gr anted under the 1988 loan were first transferred to Aérospatiale 
on [***]  and [***]  at a respective annual interest rate of [***]  and [***]  Exhibit EC-697 (BCI).  The 1988 loan 
contract envisaged that the interest rate on outstanding disbursement amounts would be revised [***]  Exhibit 
EC-693 (BCI), Article 3.01.  The interest rates disclosed by the European Communities in its benefit analysis (which we have used as the basis of the values  identified in Table 16) were those in force on [***]  and [***] , 
see, Table 10 above.  It follows that the original interest rate applicable to disbursement 1 must have been 
revised at least twice between [***]  and [***] ; and at least once in respect of disbursement 3 between [***]  and 
[***] . WT/DS316/R 
Page 582  
BCI deleted, as indicated [***] 
 
  terms of the disbursement, as a whole
, confer a benefit.  Thus, although Table 16 indicates that the 
revised interest rates  charged by the EIB on disbursements 1 and 3 under the 1988 loan were above 
the European Communities' market interest rate be nchmarks (when adjusted by 6.5 basis points), the 
same result does not automatically  follow for the interest rates charged by the EIB on the same 
disbursements prior to the interest rate revision.   
7.860  In order to determine whether market interest ra te terms were applied to each of the relevant 
disbursements as a whole , we would need to know the interest ra te (or interest rates) charged prior to 
each revision.  However, the European Communitie s has advanced no information about the precise 
number of revisions the EIB actually effected.  Neith er do we know the values of all of the previously 
applicable interest rates, or the outstanding disburse ment values to which they applied.  In our view, 
this is information that the European Communities could have disclosed in answering Panel Question 
89, or at the very least, when th e European Communities presented its own benefit analysis in respect 
of each of the challenged loans in Exhibit EC-722 (BCI).  In this light, and bearing in mind our 
findings on the nature of the EIB's lending activities,3560 we conclude, on the basis of the entirety of 
the information that is before us, that the inter est rates charged by the EIB on disbursements 1 and 3 
under the 1988 loan prior to, respectively, [***] and [***] were below-market.  Moreover, given that 
the (below-market) interest rates previously applicable on disburseme nt 1 would have been in force 
for 14 years and that this loan disbursement had a 15 year maturity, we also find that the interest rate 
terms of this disbursement c onferred a benefit on Aérospatiale for almost its entire life.3561  Similarly, 
we find that the (below-market) interest rate terms applicable to disbursement 3 ensured that 
Aérospatiale benefited for approxima tely eight years of this loan disbursement's 15 year maturity.3562  
7.861  Turning to the two disbursements made by th e EIB to Aérospatiale under the 1993 loan for 
the Super Transporteurs, we see from Table 16 that both appear to have been prov ided on interest rate 
terms that were below-market.  One of these disbursements (disbursement 1) was a single interest rate disbursement.  It is therefore possible to conclude that this disbursement was provided to Aérospatiale 
on interest rate terms that were more advantageous  than the interest rate terms that the European 
Communities believes would have been available on the market.  However, in respect of the second 
disbursement, we note that the EIB interest rate show n in Table 16 reflects the interest rate charged by 
the EIB after  the last of a series of interest rate revisions.
3563  Again, we recall our view that a benefit 
                                                      
3560 See, para. 7.753 above. 
3561 Disbursement 1 was transferred to Aérospatiale on [***]  at an initial interest rate of [***] .  This 
interest rate was subject to revision [***]  Exhibit EC-693 (BCI), Article 3.01. The interest rate disclosed by the 
European Communities in its benefit analysis (which we have used as the basis of the values identified in 
Table 16) was the interest rate in force on [***] , see , Table 10 above.  The disbursement was fully repaid in 
advance ("remboursement anticipé") on [***] . Exhibit EC-154 (BCI).  Thus, disbursement 1 under the 1988 
loan was repaid over [***]. Exhibits EC-154 (BCI), EC-693 (BCI), EC-697 (BCI) and EC-722 (BCI).  Given 
that we have held the interest rates charged by the EIB on this disbursement prior to [***]  to be below-market, it 
is possible to conclude that Aérospatiale paid below-market interest rates for approximately [***] out of the 
[***] years of life of this disbursement. 
3562 Disbursement 3 was transferred to Aérospatiale on [***]  at an initial interest rate of [***] .  This 
interest rate was subject to revision [***] , Exhibit EC-693 (BCI), Article 3.01.  The interest rate disclosed by the 
European Communities in its benefit analysis (which we have used as the basis of the values identified in 
Table 7) was the interest rate in force on [***] . See, Table 10 above.  We understand from Exhibit 
EC-722 (BCI) and EC, Answer to Panel Question 89 that  this was the last applicable interest rate, which 
remained in place until [***] , when the loan was repaid in full., Exhibit EC-154 (BCI)  Thus, disbursement 3 
under the 1988 loan was repaid over [***] years, Exhibits EC-154 (BCI), EC-693 (BCI), EC-697 (BCI) and 
EC-722 (BCI).  Given that we have held the interest rates charged by the EIB on this disbursement prior to [***]  
to be below-market, it is possible to conclude that Aérospatiale paid below-market interest rates for 
approximately [***] out of the [***] years of life of this disbursement. 
3563 Disbursement 2 under the 1993 loan was transferred to Aérospatiale on [***]  at a [***]  interest rate 
subject to [***]  Exhibit EC-695 (BCI), Article 3.01B; and Exhibit EC-699 (BCI).  The interest rate disclosed by  WT/DS316/R 
 Page 583 
 
BCI deleted, as indicated [***] 
 
  analysis that focuses on only the latest applicable in terest rate following an interest rate revision, 
without also taking into account interest charged by the EIB up to the date of that revision, is only 
partially relevant to determining whether the terms of the disbursement, as a whole , confer a benefit.  
Thus, although Table 16 indicates that the revised interest rate  charged by the EIB on disbursement 2 
under the 1993 loan was below the market interest  rate benchmarks established by the European 
Communities, the same result does not  automatically follow for the inte rest rates charged by the EIB 
on the same disbursement prior to the interest rate revision.   
7.862  In order to determine whether favourable interest rate terms were applied to this disbursement 
as a whole , we would need to know the interest rate (or in terest rates) charged pr ior to the revision.  
However, again, we note that the European Co mmunities has advanced no information about the 
precise number of revisions the EIB actually effect ed.  Neither do we know the values of all of the 
previously applicable interest rates, or the outsta nding disbursement values to which they applied.  In 
our view, this is information that the European Communities could have disclosed in answering Panel 
Question 89, or at the very least, when the Eur opean Communities presented its own benefit analysis 
in respect of each of the challenged loans in Exhibit EC-722 (BCI).  In this light, and bearing in mind 
our findings on the nature of the EIB's lending activities,3564 we conclude, on the basis of the entirety 
of the information that is before us, that all of the prior interest rates charged by the EIB on 
disbursement 2 under the 1993 loan to Aérospatiale were also below-market. 
7.863  Finally, we note that for three of the seven  disbursements identified in Table 16 (both 
disbursements made under the 1990 loan for the A321 and one under the 1988 loan for the 
A330/A340), the interest rate charged by the EIB wa s greater than the European Communities' market 
interest rate benchmarks.  Both disbursements unde r the 1990 loan for the A321 were single interest 
rate disbursements made in USD, for which the United States did not present any market interest rate benchmarks.  The other disburseme nt is the second of the three revised interest rate disbursements 
made under the 1988 loan to Aérospatiale for the A330/A340.
3565  The European Communities has 
explained that the interest rate applied to this la tter disbursement was revised three times.  In other 
words, four different interest rates were  charged by the EIB on this disbursement.3566  However, the 
European Communities has disclosed neither the value of  the four interest rates, nor the dates of the 
interest rate revisions or the outstanding disburseme nt amounts to which they applied.  Again, this is 
information that was in the possession of only th e European Communities; information which we 
consider could have been disclosed by the Eu ropean Communities when answering Panel Question 
89, or at the very least, when th e European Communities presented its own benefit analysis in respect 
of each of the challenged loans in Exhibit EC-722 (BCI).  In this light, and bearing in mind our 
findings on the nature of the EIB's lending activities,3567 we conclude, on the basis of the entirety of 
the information that is before us, that all of the pr ior interest rates charged by the EIB on disbursement 
2 under the 1988 loan were below-market.  Moreover,  given that the below-market interest rates 
applicable on disbursement 2 under the 1988 contr act were in force for 14 out of the loan 
                                                                                                                                                                     
the European Communities in its benefit analysis (which we have used as the basis of the value identified in 
Table 16) was the interest rate applicable on [***] , see, Table 10 above. 
3564 See, para. 7.753 above. 
3565 This disbursement was transferred to Aérospatiale on [***]  at an annual interest rate of [***]  
Exhibit EC-697 (BCI).  The 1988 loan contract envisaged that the interest rate on outstanding disbursement 
amounts would be revised [***]  Exhibit EC-693 (BCI), Article 3.01.  The interest rate disclosed by the 
European Communities in its benefit analysis (which we ha ve used as the basis of the values identified in Table 
16) was the interest rate in force on [***] , see , Table 10 above.  It follows that the original interest rate 
applicable to this disbursement must have been revised at least twice between [***]  and [***] . 
3566 EC, Answer to Panel Question 89. 
3567 See, para. 7.753 above. WT/DS316/R 
Page 584  
BCI deleted, as indicated [***] 
 
  disbursement's 19 year expected maturity, we also find  that the interest rate terms of the disbursement 
conferred a benefit on Aérospa tiale for approximately three quarters of its expected life.
3568   
- The loans to CASA 
7.864  The EIB loans to CASA challenged by the Un ited States (the 1989 and 1990 loans for the 
A320 and A330/A340) were given eff ect through two revised interest rate disbursements in PTAS and 
seven single interest rate disbursements in USD.  Comparing the interest rates charged by the EIB on 
each of these disbursements, as reported in Exhibit EC-722 (BCI), with the market interest rate 
benchmarks established by the parties gives the following result3569: 
Table 17 – EIB Loans to CASA vs. Market Interest Rate Benchmarks  
 
Loan Disb. 
No.  EIB 
Interest 
Rate Ellis Report 
Benchmark Variance EC 
Benchmark Variance 
1 [***]  9.46% [***]  9.17% [***]  
2 [***]  9.46% [***]  9.17% [***]  1989 loan to CASA 
3 [***]  None - 9.28% [***]  
1  [***]  None - 9.12% [***]  
2 [***]  None - 8.78% [***]  1990 loan to CASA 
(No. 14711) 
3 [***]  None - 9.38% [***]  
1 [***]  None - 8.67% [***]  
2 [***]  None - 8.39% [***]  1990 loan to CASA 
(No. 14712) 
3 [***]  None - 8.41% [***]  
[***] 
 
7.865  We recall that the market interest rate benc hmarks constructed by the European Communities 
for the EIB loans to CASA were based on the cost  of borrowing to the Spanish government because 
of the loan guarantees provided by INI, the Span ish government's industrial holding company.  By 
equating the market interest rate benchmarks to the cost of Spanish government borrowing in PTAS 
and USD, the European Communities is, in effect, suggesting that CASA's credit worthiness, as a 
separate and independent entity from the Spanish gove rnment, and the risk associated with the funded 
projects, did not affect the EIB's interest rate setting decisions.  In other words, the European 
Communities' benchmarks imply that because of th e INI loan guarantees, the loans to CASA should 
be compared with market financing available to the Spanish government. 
7.866  The United States has not challenged the Europ ean Communities' approach to establishing the 
relevant interest rate benchmarks.  Neither h as it argued that the loan guarantees provided by INI 
                                                      
3568 The disbursement at issue was made to Aérospatiale on [***] .  The European Communities 
explains that the interest rate originally applied to th is disbursement was revised three times, the last time on 
[***] , when it was set at [***] .  This last interest rate was intend ed to remain in pl ace until maturity on [***] .  
Thus, it was expected that the disbursement would be fully repaid over [***] y e a r s .   E C ,  A n s w e r  t o  P a n e l  
Question 89 and Exhibits EC-154 (BCI), EC-693 (BCI), EC-697 (BCI) and EC-722 (BCI).  Given that we have 
held the interest rates charged by the EIB on this disbursement prior to [***]  to be below-market, it is possible 
to conclude that Aérospatiale paid below-market interest rates for approximately [***] out of the [***] years of 
its maturity. 
3569 The United States has not advanced any market interest rate benchmarks for the EIB loans 
disbursed in USD.  WT/DS316/R 
 Page 585 
 
BCI deleted, as indicated [***] 
 
  afforded CASA with any particular advantage that  was inconsistent with the European Communities' 
obligations under the SCM Agreement.3570  In our view, it follows fro m the European Communities' 
own logic that, at least for the purpose of setting the applicable interest rate, the INI loan guarantees 
transformed the loans to CASA into  loans that are akin to loans to the Spanish government.  This 
being the case, a market interest rate benchmark that is based on the cost of Spanish government 
borrowing would seem to be appropriate. 
7.867  Turning to the data presented in Table 17, we note that the revised interest rates charged by 
the EIB for the two disbursements made in PTAS under the 1989 loan were below the Ellis Report 
and EC market interest rate benchmarks by comparable margins, respectively, [***] and [***] basis 
points.  However, it does not automatically follow th at the previous interest rates charged by the EIB 
on the same disbursements were also below-market.  In order to determine whether favourable interest 
rate terms were applied to each disbursement as a w hole, we would need to know the interest rate (or 
interest rates) charged prior to the revision.   
7.868  The two disbursements made in PTAS under the 1989 loan were first transferred to CASA on 
[***].3571  The loan contract indicates that the interest rates charged on the two disbursements were to 
be determined through application of the EIB's standa rd interest rate setting mechanism, and that they 
would be subsequently revised to the extent that the loaned principal remained outstanding on [***].
3572  We understand that it is these revised interest rates ( i.e., the interest rates applicable to the 
outstanding loan principal as of [***]) that the European Communities h as used in its benefit analysis, 
and which we have also relied upon as the basis of th e relevant EIB interest rate values identified in 
Table 17.  However, the European Communities has not  disclosed the initial interest rates charged by 
the EIB, and neither are these evident from the loan  contract.  Again, we consider this to be 
information that was in the possession of only th e European Communities; information which we 
believe could have been disclosed by the Europ ean Communities when answering Panel Question 89, 
or at the very least, when the Eu ropean Communities presented its own benefit analysis in respect of 
each of the challenged loans in Exhibit EC-722 (BCI).   In this light, and bearing in mind our findings 
on the nature of the EIB's lending activities,3573 we conclude, on the basis of the entirety of the 
information that is before us, that the prior inter est rates charged by the EIB on the two disbursements 
in PTAS made under the 1989 loan contract were also below-market.   
7.869  Table 17 indicates that a third, single interest  rate, disbursement was made under the 1989 
loan in USD.  As already noted, unlike the European Communities, the United States has not 
submitted a comparable market interest rate be nchmark for this disbursement.  The European 
Communities' market interest rate benchmark indi cates that this disbursement was not granted on 
interest rate terms that were more advantage ous than what CASA could have obtained from a 
commercial lender for a comparable loan.  Therefore, we find that the third, single interest rate, USD, 
disbursement made under the 1989 loan di d not confer a benefit upon CASA.   
7.870  Bearing in mind that the funds transferred vi a the first and second disbursements under the 
1989 loan amounted to more than half of the prin cipal made available under the 1989 loan contract, it 
is possible to conclude that the majority of the f unds lent to CASA under the 1989 loan were obtained 
at preferential interest rates co mpared with the market, thus c onferring upon it a benefit within the 
meaning of Article 1.1(b) of the SCM Agreement.   
                                                      
3570 We recall that loan guarantees are explicitly  identified in Article 1.1(a)(1)(i) of the 
SCM Agreement as one type of "potential direct transf er of funds or liabilities", and as such, under certain 
circumstances, they may amount to subsidies falling within the scope of the SCM Agreement. 
3571 Exhibit EC-154 (BCI). 
3572 Exhibit EC-700 (BCI), Article 3.01. 
3573 See, para. 7.753 above. WT/DS316/R 
Page 586  
BCI deleted, as indicated [***] 
 
  7.871  Of the six single interest rate USD disbursements made to CASA under the two 1990 loans, 
Table 17 indicates that one was made at an interest rate that was [***] basis points below the 
European Communities' market interest rate benchm ark.  We note that the principal transferred to 
CASA under this disbursement represented approximately [***] of the funds made available under 
loan No. 14711.
3574  On this basis, it is possible to conclude that just over [***] of the funds borrowed 
by CASA from the EIB under loan No. 14711 was subj ect to below-market interest rates, thus 
conferring a benefit within the meaning of  Article 1.1(b) of the SCM Agreement. 
7.872  Finally, as we have previously observed, the European Communities contends that in 
assessing whether the EIB loans conferred a benefit, we must determine whether the rate charged by 
the EIB was convincingly outside a spread of intere st rates "20 to 50 basis points above or below the 
single benchmark".3575  However, for the same re asons we have outlined above,3576 we cannot accept 
that the range of market interest rate benchmar ks advanced by the Eur opean Communities is an 
appropriate basis for finding that the relevant disbursement under the 1990 loan to CASA was not 
granted on beneficial interest rate terms. 
Commitment fees and non-utilization fees  
7.873  Once again, the United States relies on the sa me evidence advanced in respect of its 
complaint against the 2002 loan to EADS and the 1 992 loan to Aérospatiale to claim that each of the 
remaining challenged EIB loans also conferred a benefit because the EIB did not charge commitment fees or non-utilisation fees.
3577  The European Communities refute s the United States' allegation, on 
the basis of the same arguments we have already described above.3578  
7.874  Of the 22 disbursements made under the ten loans reviewed in this section of our Report, the 
precise disbursement amounts, interest rate valu es and disbursement dat es were, among other terms 
and conditions, agreed and fixed at the time of signa ture in respect of seven disbursements.  Four of 
these were disbursements made under each of the f our loan contracts between the EIB and British 
Aerospace.3579  The other three were the disbursement s made under the 1990 loan between the EIB 
and CASA (No. 14711).3580  In each case, the EIB legally committed itself to providing British 
Aerospace and CASA with loans on certa in fixed terms and conditions either [***], or on a specified 
date, ranging between [***] and [***] after the date of signature.3581  In return, not only did British 
Aerospace and CASA undertake an obligation to  take possession of the prescribed funding amounts 
on the dates and interest rate terms fixed in the cont ract, but they also agreed to being liable to pay a 
                                                      
3574 See, Table 10 above. 
3575 EC, SWS, para. 507. 
3576 See, paras. 7.787 and 7.856 above. 
3577 US, FWS, para. 414, citing Exhibits US-160 and US-161. 
3578 See, para. 7.790 above. 
3579 All disbursements made under th e 1988 and 1989 loan s to British Aerospace fo r the A320; and one 
of two disbursements made under each of the 1990 loans to British Ae rospace for the A330/A340  Exhibits EC-
703 (BCI), EC-704 (BCI), EC-705 (BCI) and EC-706 (BCI). 
3580 All disbursements made under the 1990 loan to CASA for the A320 and A330/A340 (No. 14711) 
Exhibit EC-701 (BCI). 
3581 For each disbursement, the delays between cont ract signature and disbursement date were:  [***]  
under the 1988 loan to Br itish Aerospace, Article 1.02 , Exhibit EC-703 (BCI); [***]  under the 1989 loan to 
British Aerospace, Article 1.02 , Exhibit EC-704 (BCI); [***]  in respect of disbursement 2 under the 1990 loan 
to British Aerospace, Article 1. 02A, Exhibit EC-705 (BCI); [***]  in respect of disbursement 1 under the 1990 
loan to British Aerosp ace, Article 1.02B, Exhibit EC -706 (BCI); and respectively [***] , [***] and [***] for the 
disbursements made under the 1990 loan to CASA (No. 14711), Article 1.02, Exhibit EC-701 (BCI).  WT/DS316/R 
 Page 587 
 
BCI deleted, as indicated [***] 
 
  fee to the EIB in the event that they were to eith er: (i) request the EIB to defer the disbursements to 
another date;3582 or (ii) annul the disbursements altogether.3583 
7.875  We recall that the United States has not contest ed the European Communities' assertion that it 
would not be in accordance with market practice fo r the EIB to demand the payment of a fee for the 
type of commitment it made in respect of the above seven disbursements.3584  Indeed, as we have 
already noted, the characterisation of commitment fe es used in the NERA EIB Report that is relied 
upon by the United States suggests that commitment fees would not normally be demanded by a bank 
when a borrower has undertaken an obligation to borrow, as opposed to merely an option to borrow 
under an open credit line.3585  In this light, we are not convinced, given the particular terms (including 
penalty provisions) applicable to the above seven  disbursements, that the United States has done 
enough to establish that a commitment fee would have been charged by a commercial lender for 
comparable financing, and therefore that the EIB's failure to charge a commitment fee in each of the 
above cases conferred a benefit upon British Aerospace and CASA. 
7.876  The remaining 15 disbursements made under the ten loan contracts reviewed in this section of 
our Report, were granted on what the European Communities has described as "open-rate" terms.3586  
However, unlike the 2002 loan to EADS (which was al so an "open-rate" contr act) the interest rate 
formulae applied to each of these disbursements did not include a fixed risk premium component.  Thus, at the time of the conclusion of each releva nt loan, the only commitment made by the EIB in 
terms of interest rates was to apply one or more contractually specified interest rate calculation 
methodologies when the time came to set the rele vant interest rate for any requested funding 
disbursement.
3587  As such, the circumstances that both pa rties have described, which would normally 
push a commercial lender to require the payment of commitment fees were not present.3588  It follows 
that the EIB's failure to charge the relevant Ai rbus entities a commitment fee under each of the loans 
at issue did not place Airbus in a position more adva ntageous than it would otherwise have been in 
had it obtained comparable financing from the market. 
                                                      
3582 Article 1.04 ("Deferment Commission"), Exhibits EC-703 (BCI) and EC-704 (BCI); Article 1.05 
("Deferment Commission") Exhibits EC-705 (BCI) and EC-706 (BCI); and Article 1.04 ("Comisión de 
aplazamiento") Exhib it EC-701 (BCI). 
3583 Article 1.05 ("Annulment of Credit"), Exhibits  EC-703 (BCI) and EC-704 (BCI); Article 1.06 
("Annulment of Credit"), Exhibits EC-705 (BCI) and EC-706  (BCI); and Article 1.05 ("Anulación de la apertura 
de crédito"), Exhibit EC-701 (BCI). 
3584 See, para. 7.790 above. 
3585 See, footnote 3467 above. 
3586 The relevant disbursements are:  disbursement 1 unde r the 1990 loan to British Aerospace for the 
A330/A340 (No. 14999), Exhi bit EC-705 (BCI); disbursement 2 unde r the 1991 loan to British Aerospace for 
the A330/A340 (No. 15119), Exhibit EC-706 (BCI); both disbursements under the 1990 loan to Airbus Industries for the A321 (No. 15007), Exhibit EC-692 (BCI); all three disbursements under the 1988 loan to 
Aérospatiale for the A330/A340 (No. 13764), Exhibit EC-697 (BCI); both disbursements under the 1993 loan to 
Aérospatiale for the Super Transporteurs (No. 6832), Exhibit EC-695 (BCI); and all six disbursements made under both the 1989 and 1990 loans to CASA for the A320 and A330/A340 (Nos 14081 and 14712), Exhibits 
EC-700 (BCI) and EC-702 (BCI) 
3587 See, in particular, Articles 1 and 3, disbursement 1 under the 1990 loan to  British Aerospace for the 
A330/A340 (No. 14999), Exhibit EC-705 (BCI); Articles 1 and 3, disbursement 2 under the 1991 loan to British 
Aerospace for the A330/A340 (No. 15119 ), Exhibit EC-706 (BCI); Articles 1 and 3, both disbursements under 
the 1990 loan to Airbus Industries for the A321 (No. 15007), Exhibit EC-692 (BCI); Articles 1 and 3, all three 
disbursements under the 1988 loan to Aérospatiale for the A330/A340 (No. 13764), Exhibit EC-697 (BCI); 
Articles 1 and 3, both disbursements under the 1993 loan to Aérospatiale for the Super Transporteurs (No. 6832), Exhibit EC-695 (BCI); and Articles 1 and 3, all six disbursements made under both the 1989 and 1990 
loans to CASA for the A320 and A330/A340 (Nos 14081 and 14712), Exhibits EC-700 (BCI) and EC-
702 (BCI). 
3588 See, paras. 7.789,7.790 and 7.797 above. WT/DS316/R 
Page 588  
BCI deleted, as indicated [***] 
 
  7.877  Finally, on the issue of non-utilization fees, we  repeat the same observations made when 
examining the United States' complaint in respect of the 1992 loan to Aérospatiale – namely, that 
apart from alleging that all EIB loans conferred a benefit upon Airbus because the EIB did not charge non-utilization fees, the United States has adva nced no specific explanation nor adduced any 
particular evidence or expert opinion suggesting that a commercial lender would have required the 
relevant Airbus entities to pay a non-utilization fee for the same type of financing obtained from the 
EIB under each of the relevant loan contracts.  In the absence of any such  evidence or relevant 
explanation, and given that the European Comm unities does not accept that the payment of a non-
utilization fee was warranted,
3589 we are not convinced that the United States has done enough to 
establish that the remaining ten loans co nferred a benefit for this reason.  
Absence of a risk premium  
7.878  The parties' arguments and submissions concer ning the United States' allegation that the EIB 
failed to charge a risk premium on any loans granted prior to 1999, including the ten loans that we have focused upon in this section of our Report, are se t out above in our analysis of the United States' 
claims in respect of the 1 992 EIB loan to Aérospatiale.
3590  We emphasized in that part of our Report 
that although the European Communities' explanati on of why the EIB did not charge risk premia on 
loans prior to 2000 made some intuitive sense, we coul d not accept it as a matter of fact in the light of 
the evidence and argument presented to support the Eu ropean Communities' position.  In particular, 
we found that the evidence advanced by the Eu ropean Communities showed that the EIB does 
attempt, as the European Communities asserts, to "a lign its risk management systems to changing 
economic conditions and evolving re gulatory standards" with a view to following "best market 
practice".  However, the information presented says nothing about why the EIB decided to introduce a 
risk premium in 2000 or whether it was intended, as the European Communities asserts, to operate as 
a partial or total alternative to the loan guar antees required under Article 18.3 of its Statute.3591  Thus, 
although we consider the European Communities' e xplanation to make some intuitive sense, we 
cannot accept it as a matter of fact on the basis of  the evidence that has been presented.   
7.879  Moreover, while the European Communities' e xplanation of why the EIB introduced a risk 
premium suggests that risks associated with EIB lending prior to 2000 were taken into account by 
means of "external guarantees", the European Co mmunities has not explained how the particular 
guarantees or securities provided under the ten loans ex amined in this section of our Report served to 
compensate the EIB for the risks associated with lend ing to the relevant Airbus entities in the same 
way that a market lender would have sought co mpensation for the same risks under a commercial 
loan.   
7.880  In this light, we find that the European Comm unities has failed to advance sufficient evidence 
and argument to persuade us that the absence of a risk premium on the ten loans examined in this 
section of our Report did not confer a benefit upon Airbus.  We therefore uphold the United States' 
claim that the each of the ten loans at issue conferred a benefit, within the meaning of Article 1.1(b) of 
the SCM Agreement, because it did not include a risk premium. 
Conclusion in respect of the "other" loans to Airbus  
7.881  On the basis of the foregoing analysis, and in th e light of our finding that the nature of the 
EIB's lending activities,3592 we find that each of the ten EIB lo ans examined in this section of our 
Report conferred a benefit upon the re levant Airbus entities, within the meaning of Article 1.1(b) of 
                                                      
3589 EC, Answers to Panel Question 87 and 179. 
3590 See, paras. 7.815-7.816 above. 
3591 See, para. 7.817 above.   
3592 See, para. 7.753 above.  WT/DS316/R 
 Page 589 
 
BCI deleted, as indicated [***] 
 
  the SCM Agreement, because: (i) it was either in part  or in total granted on below-market interest rate 
terms;3593  and/or (ii) the EIB did not charge the relevant Airbus entity a risk premium.3594 
7.882  On the other hand, we find that the United St ates has failed to demonstrate that the ten EIB 
loans examined in this section of our Report indivi dually conferred a benefit upon the relevant Airbus 
entities because each did not require paymen t of commitment fees or non-utilization fees.3595 
The EUR 700 million credit line 
7.883  The United States considers that the EUR 700 million credit line opened for EADS at below-
market interest rates conferred a benefit upon Airb us because "the very fact" of its existence gave 
EADS "valuable liquidity".3596     
7.884  We recall that we have found the EUR 700 million credit line to be a potential direct transfer 
of funds, and that in order to understand whether a pot ential direct transfer of funds confers a benefit, 
the focus should be on whether th e existence of the promise to provide the direct transfer confers a 
benefit.3597  The United States has submitted evidence wh ich we have accepted demonstrates that the 
[***] EIB loan to EADS was granted at a below-mark et interest rate, thereby conferring a benefit 
upon Airbus.  Moreover, the United States has also de monstrated that the same loan benefited EADS 
due to the absence of commitment fees.  Howeve r, it has adduced no evidence nor advanced any 
particular argument to identify and explain the alleged benefit of the promise to obtain liquidity on 
favourable terms for EADS.  We are not convinced that simply showing that a credit line has been 
granted on beneficial terms is enough to establish th at it has placed its recipient in a better position 
than it otherwise would have been in absent availab ility of the particular credit line.  In our view, 
something more is required to demonstrate th at a promise to provide "cheap" financing, in and of 
itself , confers a benefit.  Thus, while we are sympathetic  to the notion that a potential direct transfer of 
funds taking the form of a credit line on favourable te rms may confer a benefit upon its recipient, we 
believe that in the context of the EUR 700 million credit line to EADS, the United States has failed to 
substantiate its claim.   
Overall conclusion  
7.885  In summary, we conclude that the United States has established that: 
(i) the 2002 EIB loan to EADS for the A380 c onferred a benefit on EADS within the 
meaning of Article 1.1(b) of the SCM Agreement, and therefore constituted a 
subsidy under Article 1.1 of the SCM Agre ement, because: (a) the interest rate 
charged by the EIB was less than what a market lender would have asked EADS to 
pay for comparable financing; and (b) E ADS was not required to pay a commitment 
fee;3598   
(ii) the 1992 loan to Aérospatiale for the A330/A340 confe rred a benefit on 
Aérospatiale, within the meaning of Artic le 1.1(b) of the SCM Agreement, and 
therefore constituted a subsidy under Article  1.1 of the SCM Agreement, because: 
(a) it was granted at an interest rate [***] to the cost of borrowing for the French 
                                                      
3593 These loans are: the 1988 loan to Aérospatiale for the A330/A340; the 1993 loan to Aérospatiale 
for the Super Transporteur; the 1989 loan to CASA for the A320 and A330/A34; and the 1990 loan to CASA for 
the A320 and A330/A340 (No. 14711).  See, paras. 7.852-7.872 above. 
3594 See, paras. 7.878-7.880 above. 
3595 See, paras. 7.873-7.877 above. 
3596 US Comments to EC, Answer to Panel Question 181. 
3597 See, para. 7.735 above. 
3598 See, para. 7.801 above. WT/DS316/R 
Page 590  
BCI deleted, as indicated [***] 
 
  government and was therefore more advantage ous than the interest rate that would 
have been available to Aérospatiale on the market for comparable financing; and (b) 
it was granted on interest rate terms that did not include a risk premium;
3599   
(iii) the 1988 loan to Aérospatiale for the A330/A340, the 1993 loan to Aérospatiale for 
the Super Transporteur, the 1989 loan to  CASA for the A320 and A330/A340, and 
the 1990 loan to CASA for the A320 and A330/A340 (No. 1471 1), each conferred a 
benefit on the relevant Airbus entity, with in the meaning of Article 1.1(b) of the 
SCM Agreement, and therefore constitute d a subsidy under Article 1.1 of the 
SCM Agreement, because each loan: (a) was either in part or in total granted on 
below-market interest rate terms; and (b) was granted on interest rate terms that did 
not include a risk premium;3600 and 
(iv) the 1991 loan to British Aerospace for A330/A340, the 1990 loan to CASA for the 
A320 and A330/A340 (No. 1.4712/ES), the 199 0 loan to British Aerospace for the 
A330/A340, the 1990 loan to Airbus Industrie GIE for the A321, the 1989 loan to 
British Aerospace for the A320, the 1988 lo an to British Aerospace for the A320, 
each conferred a benefit on the relevant Airbus entity, within the meaning of 
Article 1.1(b) of the SCM Agreement, and therefore constitu ted a subsidy under 
Article 1.1 of the SCM Agreement, because each loan was granted on interest rate 
terms that did not include a risk premium.3601 
7.886  On the other hand, we find that the United St ates has failed to demonstrate that the 2002 EIB 
loan to EADS also conferred a benefit upon EADS  because of the EIB's failure to charge non-
utilization fees;3602 or that the remaining eleven challenge d loans conferred a benefit because the EIB 
did not charge the relevant Airbus entity either commitment fees or non-utilization fees.3603  
7.887  Finally, we recall that we have concluded that  the United States has failed to demonstrate that 
the EUR 700 million credit line provided to EADS unde r the 2002 loan contract conferred a benefit 
upon Airbus, and was therefore a subsidy within the meaning of Article 1 of the SCM Agreement.3604 
7.888  In finding, for one or more reasons, that each  of the twelve challenged loans constitutes a 
subsidy, it does not automatically follow, as the European Communities appears to suggest,3605 that all 
loans granted by the EIB and other multilateral fi nance institutions (such as those cited by the 
European Communities – the Asian Development Ba nk, the European Bank for Reconstruction and 
Development, the Inter-American Development Bank a nd the International Finance Corporation) will 
always amount to subsidies within the meaning of th e SCM Agreement.  The extent to which any loan 
provided by one or more of these funding institution s involves the provision of a subsidy is obviously 
a question that can only be answered in the light  of the particular facts surrounding the alleged 
instance of subsidization.  However, as a general matter, it is not entirely clear to us whether such 
entities may all be properly considered to be "a gove rnment or any public body within the territory of 
a Member" for the purpose of Article 1.1(a)(1).  In  any case, it is important to bear in mind that 
although the provision of financial assistance on be neficial terms and conditions of one kind or 
another would seem to fall squarely within the objectives and raison d'être  of such organizations, not 
all cases of support may involve subsidization th at is actionable under the SCM Agreement. 
                                                      
3599 See, para. 7.820 above. 
3600 See, para. 7.881 above. 
3601 See, para. 7.881 above. 
3602 See, para. 7.801 above. 
3603 See, paras. 7.820 and 7.882 above. 
3604 See, para. 7.884 above. 
3605 See, para. 7.746 above.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  7.889  We now turn to evaluate the United States' alle gation that the EIB loans which we have found 
to be subsidies are "specific" within the meaning of Article 2 of the SCM Agreement. 
(c) Whether the EIB loan subsidies are specific within the meaning of Article 2 of the 
SCM Agreement 
(i) Introduction 
7.890  The United States argues that each of the cha llenged EIB loans to Airbus was "specific" 
within the meaning of Articles 2.1(a) and 2.1(c)  of the SCM Agreement, and therefore actionable 
under Part III of the SCM Agreement.  The Europ ean Communities rejects th e United States' claims, 
and submits that rather than being "specific" within the meaning of these two provisions, the EIB 
loans were in fact "non-specific" under Article 2. 1(b) of the SCM Agreement.  Consequently, the 
European Communities argues that  the EIB loans cannot be challenged under Part III of the 
SCM Agreement. 
7.891  Below we review and evaluate the parties' argume nts as they relate to the EIB loans which we 
have found to be subsidies.  We start our analys is by addressing the United States' contention that the 
EIB loans are "specific" under the terms of Articles 2.1(a) and 2.1(c) of the SCM Agreement.  Should 
we find that the subsidies are not specific within  the meaning of these provisions, the United States 
will have failed to establish that th e subsidies are subject to Part II I of the SCM Agreement, and there 
will therefore be no need to address the European  Communities' assertion that they are non-specific 
under Article 2.1(b).  
(ii) Whether the Loans to Airbus were Specific under Article 2.1(a) 
Arguments of the United States  
7.892  The United States contends that each of the EI B loans it challenges is specific within the 
meaning of Article 2.1(a) because the EIB's lending activities are entirely "discretionary", with loans 
being negotiated individually with each relevant borro wer, and granted on the basis of criteria that it 
alleges the EIB admits are "tailored to each individual project".3606  To this extent, the United States 
submits that the challenged EIB loans are not unlike the subsidy measures at issue in the Japan – 
DRAMS  dispute, which were found to be specific b ecause "tailored to the needs of the recipient 
company" rather than being provided "on pre-determ ined terms (that are therefore not tailored to the 
recipient company)".3607 
7.893  In response to a Panel question asking the parties to elaborate their views on the extent to 
which a subsidy granted on unique terms and co nditions to an individual enterprise under a non-
specific subsidy programme could be found to be specific within the meaning of Article 2.1(a),3608 the 
United States answered that such a subsidy could still be specific under this provision, if granted on 
terms and conditions sufficiently different from the terms and conditions of other subsidies granted 
under the same non-specific subsidy programme.  Acco rding to the United States, the unique terms 
and conditions of such a subsidy could cause it to fall outside the parameters of the broader non-
specific subsidy programme.  In such an event, th e United States argues that  the granting authority, 
                                                      
3606 US, FWS, paras. 406 and 419, citing Exhibit US-166 (EIB, The Project Cycle at the European 
Investment Bank , at 4-5, 12 July 2001). 
3607 US, Answer to Panel Question 150, citing Panel Report, Japan – DRAMs (Korea) , paras. 7.372 and 
7.374. 
3608 Panel Question 117 ("What are the parties' views on the extent to which a subsidy granted, through 
a contract including one or more unique terms and conditions, to an individual enterprise pursuant to a subsidy 
programme that does not explicitly limit access to subsidie s to certain enterprises, may be specific within the 
meaning of Article 2.1(a) of the SCM Agreement?") WT/DS316/R 
Page 592  
BCI deleted, as indicated [***] 
 
  through the unique terms and cond itions of the subsidy, "explic itly limits access to a subsidy to 
certain enterprises".
3609 
7.894  The United States argues that in order to assess wh ether the EIB loans to Airbus were granted 
on terms and conditions that were sufficiently unique to take them  outside of the EIB's broader 
lending programme, the Panel would need to review a representative sample of other EIB loans.  
However, the United States submits that the Europ ean Communities has failed to disclose this, or any 
other, information that would be needed to determ ine the extent to which the terms and conditions of 
the EIB loans to Airbus differed from those in the EIB's loans to other enterprises.  The United States 
recalls that the European Communities did not provi de the information requested during the Annex V 
process.  Furthermore, in the view of the United St ates, the standard contract templates submitted by 
the European Communities indicate nothing about how core terms may differ between loans to Airbus 
and other companies.  Indeed, the United States cont ends that the EIB's standard contract templates 
show that it is precisely the core terms of the EIB' s loan contracts – the terms that, according to the 
United States, may cause a loan to confer a benef it and thus constitute a subsidy – that vary from 
contract to contract.  In particular, the United States asserts that the templates show that elements such 
as [***] are not pre-determined.  The United States also notes that other provisions, such as those 
[***].3610  Without information from actual contracts, th e United States argues that it is impossible to 
know the extent to which the variables highlighted by the template differ as between the Airbus loans 
and loans to other companies. 
7.895  The United States considers the European Communi ties' refusal to provide information that 
would allow the Panel to make a comparison between  the EIB loans to Airbus and those to other 
enterprises is an instance of non-cooperation in the in formation-gathering process that is the subject of 
Annex V of the SCM Agreement.  The United States recalls that pursuant to paragraph 7 of that Annex, a panel should draw adverse inferences fr om instances of non-cooperation by any party 
involved in the information-gathering process.  Thus, the United States argues that the reasonable 
inference to be drawn from the Eur opean Communities' alleged lack of  cooperation is that the missing 
information would confirm that the terms and conditi ons of the EIB's loans to Airbus are sufficiently 
different from the terms and conditions of other EI B loans as to cause the loans to be specific under 
Article 2.1(a).
3611  
Arguments of the European Communities  
7.896  The European Communities asserts that the EIB is a public purpose lending institution 
offering loans of a general character that are not limit ed to any enterprise, industry or group within the 
meaning of Article 2 of the SCM Agreement.  It  recalls that the United States Department of 
Commerce has found EIB loans to be neither de facto  nor de jure  specific under United States law.3612  
The European Communities calls upon the Panel to come to the same conclusion under the 
SCM Agreement.   
7.897  The European Communities explains that the EI B provides loans to companies of all sizes, 
with respect to projects across all sectors of th e economy, and without any discrimination as to the 
"nationality" of the borrowers.  According to the European Communities, any company may qualify 
for financing from the EIB as long as it is suffici ently credit-worthy and the underlying project 
                                                      
3609 US, Answer to Panel Question 117; US, SWS, para. 294. 
3610 US, Answer to Panel Question 150. 
3611 US, Answer to Panel Question 150. 
3612 EC, FWS, paras. 1014-1016, quoting passages from United States Department of Commerce final 
determination in the Belgian Steel countervailing duty investigation, Exhibits EC-158 and EC-159, and citing 
the United States Department of Commerce final determination in the Certain Pasta from Italy countervailing duty investigation (C-475-819).  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  contributes to the attainment of one of the EIB' s policy objectives and its eligibility criteria are 
satisfied.3613 
7.898  The European Communities rejects the United States' contention that the EIB loans are 
tailored to the needs of each individual project in such a way that renders them specific within the 
meaning of Article 2.1(a) of the SCM Agreement.  According to the Europ ean Communities, the fact 
that a loan agreement is negotiated with and limit ed to a particular borrower is standard banking 
practice.  The European Communities argues that th e EIB acts like any other bank when it negotiates 
loan contracts individually with different borrowe rs.  However, unlike other banks, the EIB Statute 
and the EIB Eligibility Guidelines  underpin all aspects of its lending operations by defining the 
financial, administrative and policy-related limits of the EIB, the context of the finance agreements to 
be agreed upon with the borrowers, the objectives to  which the funded projects must contribute, the 
appraisal process for each loan application, and the interest rate setting methodology.3614  Thus, the 
terms and conditions of the negotiated loans, wh ich the European Communities submits matter for 
finding that there is subsidization (such as interest  rate, maturity, repayment profile), are offered to 
borrowers on the basis of neutral and universally  applied financial, technical, methodological and 
policy criteria, irrespective of the identity or nati onality of the borrower and its corporate needs, in 
line with the prevailing market conditions.3615 
7.899  To the extent that any unique terms and cond itions do exist in the EIB loans, the European 
Communities contends that they do not evidence specificity.  Rather, the European Communities 
submits that they result from the application of th e same principles and objective criteria to different 
projects and borrowers.  For instance, the European Communities asserts that interest rate differences 
arise from the fact that each interest rate is set according to the same methodology applied in the 
context of financial markets that are constantly moving.3616  In terms of differences in loan maturities, 
the European Communities explains th at these arise from the application of the general principle that 
the maximum maturity of the loan depends upon th e economic life of the assets being financed – a 
large scale, long-term transport infrastructure project has a different financing requirement than 
funding for the purchase of new equipment for a small environmental project undertaken by a 
medium-sized firm.3617 
7.900  Thus, the European Communities argues that the challenged EIB loans are not like the 
measure that was found to be specific in Japan – DRAMS  because they are not tailored to each 
particular borrower, but are based on generally applicable and horizontally set methodologies and 
criteria which are pre-determined and independent of each borrower's request for financing.  The 
unique terms and conditions that the European Communities submits matter for a finding of the 
existence of a subsidy (such as interest rate, ma turity, repayment profile), do not depart from the 
standard criteria and methodology applied to all EIB projects.  The European Communities asserts 
that such a departure would be in contradiction with the EIB Statute, which it asserts rests on the 
principle of non-discrimination among borrowers.3618  
Evaluation by the Panel  
7.901  Before turning to evaluate the merits of the Un ited States' claims, we believe it is useful to 
first describe the EIB's lending activities in more detail. 
                                                      
3613 EC, FWS, paras. 1022, 1051-1053; EC, SWS, para. 426. 
3614 EC, Comments on US Answer to Panel Question 150. 
3615 EC, Comments on US Answer to Panel Question 150; EC, SWS, para. 424. 
3616 EC, Comments on US Answer to Panel Question 150. 
3617 EC, Comments on US Answer to Panel Question 150. 
3618 EC, SWS, para. 423. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  The EIB's lending operations 
7.902  Since its establishment in 1957, the EIB has pr ovided loans with a total value close to 
EUR 600 billion for over 10,000 projects undertak en in a wide array of economic sectors.
3619  T he  
EIB's lending is not limited to entities having EU na tionality.  However, the location of the funded 
project is important as the EIB's task is to "contri bute ... to the balanced and steady development of 
the common market in the interest of the Community".3620  Thus, funded projects are typically 
executed within the territory of the EC member St ates, although the EIB has also funded projects in 
countries acceding to the EU or in neighbouring States.3621   
7.903  The EIB grants two types of loans, described  by the European Communities as "individual" 
loans and "global" loans.  Acco rding to the European Communiti es, the "main (only)" difference 
between the two is the method of delivery of the EI B funds to the ultimate borrower, with "individual" 
loans being negotiated and disbursed directly by the EIB, and "global" loans provided through a 
financial intermediary (a bank) unde r mandate from the EIB to apply funds to EIB-eligible projects.  
Typically, the EIB grants "individual" loans only in relation to projects with an investment cost of at 
least EUR 25 million.  Projects valued at less th an this amount are financed through global loans.3622  
We note that all of the loans challenged by  the United States were "individual loans". 
7.904  The EIB's Eligibility Guidelines  indicate that in order to qualify for loan financing, a proposed 
project must contribute to the EIB's policy objectives.3623  In keeping with its mandate under the EC 
Treaty, the EIB sets these objectives in a way that reflects the goals and priorities of the EU.  One 
expression of the EIB's objectives is found in  the Annex to another EIB publication – The Project 
Cycle at the European Investment Bank (the " Project Cycle Document "): 
"PROJECTS ELIGIBLE FOR BANK FINANCING WITHIN THE EUROPEAN UNION
, projects considered for EIB financing must 
contribute to one or more of the following objectives: 
Balanced economic development of th e Union and its less favoured regions; 
Enrichment of human capital: health and education; 
Information technology and communications networks; Research and development; Diffusion of innovation; 
                                                     
 
3619 Exhibit EC-163 lists a ll loans granted by  the EIB between 1 January 1958 and 31 December 2006. 
3620 Article 267, EC Treaty.  Similar language is also found in Article 20.1(b) of the EIB Statute (the 
EIB "may grant loans or guarantees only where execution of the project contributes to increased economic 
productivity in general and promotes the attainment of the common market"). 
3621 EIB Statute, Article 18.1, Exhibit EC-158.  See, also, Exhibit EC-163.  The neighbouring states that 
the EIB has financed include Albani a,  Algeria, Bosnia Herzegovina,  Egypt, Serbia and Montenegro, 
Switzerland and Tunisia.  The European Communities expl ains that approximately 10% of the EIB's lending is 
made outside of the European Communities pursuant to external mandates.  We understand that this includes 
lending to numerous ACP States. 
3622 EC, FWS, para. 1047; EC, SWS, para. 475. 
3623 EC, FWS, para. 1025.  EIB, Eligibility Guidelines – Checking Consistency of EIB Operations with 
EU Objectives , Projects Directorate, Ma y 2004, (hereinafter " Eligibility Guidelines ") Exhibit EC-161, pp 1, 6, 
11, 14, 18, 21, 27, 31 and 34.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  Transport, telecommunications and Trans-European Networks (TENs); 
Environment: protection and improvement of  the natural and urban environment, 
projects with a positive impact on the regi onal or global environment (sustainable 
development and prevention of climate change); 
Increasing the competitiveness and integration of European industry; 
Development of small and medium-scale en terprises (venture capital funding aimed 
at stimulating innovation by SMEs and entrepreneurship is undertaken by the 
European Investment Fund). 
Securing the energy supply base and conserving energy."3624 
7.905  A more recent formulation of the EIB's "main operational objectives" is described in the 
Eligibility Guidelines : 
"(i) EU economic and social cohesion and regional development; (ii) Implementation 
of the Innovation 2010 Initiative; (iii) Envi ronment; (iv) TENS and other projects of 
common interest; and (v) human capital."3625   
7.906  For each of the EIB's five "main operational objectives", the Eligibility Guidelines identify 
the various types of projects that may fall within the scope of each objective in more detail.  For 
instance, the "Environment" objective is expanded into what appear to be five sub-objectives: 
"Tackling Climate Change"; "Protecting Nature  / Biodiversity & Natural Resources"; Improving 
Environment and Health"; "Promoting Sustainable Use of Natural Resources; Waste Management"; and "Enhancing Urban Environment".  The features of the types of projects eligible for EIB funding 
under each of these sub-objectives are further speci fied under the "Categories of Investment/ 
Indicators" heading.  Overall, the Eligibility Guidelines identify 27 sub-objectives and 95 "Categories 
of Investment/Indicators".
3626 
7.907  The EIB's operations are directed and mana ged by a Board of Governors, a Board of 
Directors and a Management Committee.3627  The Board of Governors consists of Ministers 
designated by the EC member States.  In addition to  setting the general credit policy of the EIB, the 
Board of Governors is responsible for inter alia, appointing the Board of Directors and the 
Management Committee.3628  The Board of Directors is comprised of at least one director nominated 
by one of each of the EC member States, and one director nominated by the Commission.3629  
Members of the Board of Directors are "persons whose independence ... is beyond doubt" and who are 
"responsible only to the Bank".3630  The Board of Directors has the sole power to take decisions in 
respect of granting loans,3631 and acts on the basis of proposals prepared by the Management 
Committee.  The Management Committee is responsible  for the current business of the EIB, including 
examining whether loan applications comply with the provisions of the Statute,3632 delivering an 
opinion to the Board of Directors on proposals for gr anting loans and preparing decisions of the Board 
                                                      
3624 The Project Cycle at the European Investment , Annex, p. 9, 12 July 2001 (hereinafter " Project 
Cycle Document ") Exhibit EC-608. 
3625 EIB, Eligibility Guidelines , p. 3, Exhibit EC-161. 
3626 Exhibit EC-161, Tables 1 to 8. 
3627 Exhibit EC-167, Article 9.1. 
3628 Exhibit EC-167, Article 9.2-9.4. 
3629 EIB Statute, Article 11.2, Exhibit EC-158. 
3630 EIB Statute, Article 11.2, Exhibit EC-158. 
3631 EIB Statute, Article 11.1, Exhibit EC-158. 
3632 EIB Statute, Article 21.4, Exhibit EC-158. WT/DS316/R 
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  of Directors.
3633  Management Committee opinions on whethe r to grant a loan are delivered to the 
Board of Directors only after the proposed proj ect has been appraised by the EIB's technical 
experts.3634 
7.908  As we understand it, the purpose of the EIB's proj ect appraisal is to assess the extent to which 
a proposed project is economically, financially and technically sound and that the potential borrower 
is able to service the potential loan.3635  The European Communities argues that this reflects the fact 
that the EIB is obliged under its Statut e to employ funds as rationally as possible.3636  The EIB 
undertakes appraisals of each loan application using a "standard" set of "criteria", which it explains 
are "tailored to each individual project".3637  In addition to checking a project's eligibility in terms of 
contributing to one or more of the EIB's objectives, the appraisal involves assessing a proposed 
project's business rationale and economic viability , the technical soundness of the project, its 
environmental impact and the financial and credit risk attached to the lending.3638  The full set of 
appraisal criteria that are applied by the EIB are described in the Project Cycle Document in the 
following terms: 
"5.1. Rationale for Bank financing:  e ligibility, value added of the operation. 
The project's contribution to European Union objectives supported by the EIB{} is 
ascertained.  The analysis also reveals how the Bank's input brings "value added" to 
the project:  this may be apparent in the financial terms offered, in the EIB's active 
and "catalytic" role in structuring the finance plan, or in the improvement of the project's technical specifications. 
5.2. Market and sector: 
This analysis is based on the information gathered during project appraisal and on the 
sectoral studies  regularly, carried out by the Projects Directorate.  It looks at the 
sector in question, establishes worst a nd best-case scenarios based on reasonable 
projections and assesses the promoter's qualities in relation to the project and the 
project's ability to meet existing demand. 
5.3. Technical description, capacity: The Bank's analysis looks at the project's technical soundness and the promoter's 
ability to implement the technical solutions adopted.  It also examines the technical 
risks and measures taken to attenuate these. 
                                                     
 
3633 EIB Statute, Articles 13.3 and 13.4, Exhibit EC-158. 
3634 EC, FWS, para. 1028.  The European Commun ities asserts that these will typically include 
economists, engineers, lawy ers and financial analysts. 
3635 The Project Cycle Document , Exhibit US-166, pp. 4-7.  We understand that the EIB conducts its 
own appraisal of projects seeking financing in the form of "individual loans".  However, it is unclear from the evidence that is before us whether the same appraisal process is applied to individual projects that seek 
financing from the intermediari es that receive and on-lend the EIB's "global" loans. 
3636 EC, FWS, para. 1026. 
3637 The Project Cycle Document , Exhibit US-166, p.4. 
3638 The Project Cycle , Exhibit US-166, pp.5-6.  The application of the "standard" set of "criteria" also 
involves reviewing the "total investment cost" of the project, its "implementation", its "operation" and the "prices, tariffs and financial return from the project".  WT/DS316/R 
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  5.4. Investment cost: 
The EIB examines the total investment cost . the main project costs compared with 
those of similar schemes financed by th e Bank, the margins for contingencies and 
price inflation adopted and the impact of taxes on the project and promoter. 
5.5. Implementation: 
The Bank's analyses cover the following points: - Technical:  establishment of a "technical description" of the project to be 
appended  to the contract  and serve as a basis for future monitoring. 
- Procurement: compliance with current procedures; percentage of project cost 
subject to international competitive bidding;  acceptability to the Bank of procedures 
envisaged. 
5.6. Operation: Management; measures taken to meet particular risks; evaluation of operating costs; 
employment. 
5.7. Environmental impact: 
Environmental situation with and without the project; where appropriate, review of 
studies of alternative solutions; project 's impact on the natural and human 
environments; definition of the measures a dopted to prevent, reduce or mitigate any 
adverse effects; compatibility with current or proposed environmental legislation; existence of an environmental management plan and promoter's ability to implement 
and manage it; examination of environmen tal aspects over the life of the project; 
project's compatibility with sustainable development objectives - including prevention of climate change - to wh ich the European Union is committed. 
In performing the environmental part of its appraisal, the Bank makes use of the 
variety of studies carried out by the prom oter or by independent consultants on its 
behalf (EIAs, SEAS, SISs, etc.).  Th e Bank examines the mitigating measures 
proposed, reserving the right to ask for furt her studies to be undertaken by competent 
external consultants.  In any event, the EIB ensures compliance with adequate 
project related conditionality . 
5.8 Prices, tariffs and financial return from the project: - Calculation of the expected cash flow in real terms. 
- Where appropriate, the forecasts and analyses of certain financial ratios may 
serve as a basis for formulating appropriate tariff policies. 
- Sensitivity and/or risk analysis. 5.9. Economic benefits: Economic justification of the project; ec onomic appraisal of value added of the 
project and the Bank's input; calculation of the project's economic rate of return; WT/DS316/R 
Page 598  
BCI deleted, as indicated [***] 
 
  estimation of external costs/benefits, su ch as environmental protection, regional 
development, etc; sensitivity analysis. 
5.10. Financial and credit risk analysis: The Directorate General for Lending Operations performs a detailed financial 
analysis of the borrower  - as well as of the guarantor  if the operation is backed by 
a commercial guarantee.  This can of c ourse be simplified for the EIB's repeat 
borrowers. 
Where public borrowers promoting infr astructure projects are concerned ( e.g., regions 
or municipalities), a different type of fi nancial analysis is performed, based on 
documents of a budgetary nature. 
The Credit Risk Department casts an objective eye on the financial viability of the 
borrower and guarantor , with whom it has no business relationship."
3639 
7.909  According to the United States, the EIB's admission that its appraisal criteria are "tailored to 
each individual project" confirms that the loans it gr ants are assessed against criteria that are unique to 
each project proposal.  On the other hand, the European Communities contends that the EIB's 
statement should be understood as meaning that the EI B adjusts its general appraisal criteria "to take 
account of the specifics of the project (the 'input data')".3640  In our view, when considered in its 
proper context, the EIB's explanation of how it applies the "standard" appraisal criteria does not 
appear to be an admission that it conducts appraisal s on the basis of criteria that are unique to each of 
the projects for which a loan  has been requested.  The Project Cycle  Document indicates that the EIB 
reviews project proposals against the same set of gene ral appraisal criteria, which "are all covered by 
the report submitted to the Board of Directors for a financing decision".3641  However, given the wide 
variety of projects financed by the EIB, it is only na tural to expect that the application of these general 
criteria may involve asking and answering slightly different questions depe nding upon the particular 
project proposal being reviewed.  It is this process of applying the general appraisal criteria, taking 
into account the particular characteristics of the project under review, that we believe the EIB is 
referring to when it states that its "standard" appraisal criteria are "tailored to each individual project".   
7.910  For instance, the first of the EIB's "standard" a ppraisal criteria is described as "Rationale for 
Bank financing: eligibility, value added of the op eration".  As we have already noted, the starting 
point of the EIB appraisal of a project is an assessme nt of its eligibility in terms of contributing to its 
main operating objectives.  Obviously, a project w ith an environmental scope will be assessed in 
terms of how it corresponds with the EIB's envi ronmental objectives.  Other EIB objectives may not 
be relevant.  Moreover, when examining the e nvironmental features of the proposed project, the 
appraisal may involve an assessment in terms of one  or more of the environmental sub-objectives or 
"Categories of Investment/Indicators" that are listed in the Eligibility Guidelines .3642  In our view, the 
fact that part of the EIB's appraisal of this particular project would involve assessing how closely it 
matches one or more of its environmental prioriti es, without also examining the extent to which it 
fulfils other objectives and priorities, does not impl y that the EIB applies assessment criteria that are 
unique to the project being reviewed, thereby placing a limitation on the entities entitled to receive the same type of loan. 
                                                     
 
3639 The Project Cycle , Exhibit US-166, pp.4-5 (footnote omitted) (emphasis original). 
3640 EC, FWS, para. 1027 and footnote 832. 
3641 The Project Cycle , Exhibit US-166, p.4. 
3642 These are briefly discussed at para. 7.906 above.  WT/DS316/R 
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  7.911  A similar conclusion may be reached in respect  of the other "standard" appraisal criteria 
applied by the EIB.  Because they are of a genera l nature, they may not necessarily be applied in the 
same way or have the same rele vance to all project proposals.  This does not mean that the EIB 
applies different appraisal criteria and standards when  determining whether to fund different projects.  
Rather, it shows that when the EIB applies its genera l appraisal criteria, it does so taking into account 
the particular characteristics of the proposed project. 
7.912  In order to be granted, a loan application that obtains a favourable opinion from the 
Management Committee must be approved by a qualif ied majority of the Board of Directors.  In 
considering a request for funding, the Board of Di rectors must also take into account any opinion 
delivered by the Commission or the EC member Stat e in whose territory the project will be carried 
out.  Where the concerned EC member State deliver s an unfavourable opinion, the Board of Directors 
cannot grant the loan.3643  Likewise, where an unfavourable opinion is provided by both the 
Management Committee and the Commission, the Board of Directors may not grant the loan.3644  
However, where an unfavourable opinion is de livered by the Management Committee or the 
Commission, the Board of Directors may still grant the loan, but only on the basis of a unanimous 
decision.3645  Thus, under its formal decision-making proce dure, it is possible for the EIB to decide 
not to grant loans to projects that satisfy all elig ibility requirements and appraisal criteria.  We note, 
however, that the European Comm unities asserts that between 1988 and 2006, the Board of Directors 
decided not to grant only two out of over 5,000 loan proposals submitted by the Management Committee for approval.
3646  The United States has not cont ested the European Communities' 
assertion. 
7.913  Finally, once a loan is approved by the Board of Directors, the EIB prepares the finance 
contract.3647  As we understand it, this process begins with  the use of a standard contract template as 
the basis for the loan agreement, wh ich is then adjusted to reflect th e characteristics of each loan.  The 
European Communities notes that the standard contra ct template applied by the EIB has changed over 
the years "essentially to reflect 'technical' developments in law or EIB lending practice".3648  It has 
submitted copies of two such templates,  prepared by the EIB in 1994 and 2001.3649  We understand 
the European Communities to consider both templates to be representative of the contractual provisions relied upon by the EIB around the time of the "individual" loans granted to Airbus that are the subject of the United States' complaint.  Ho wever, it is unclear from the evidence before us 
whether the same templates are equally representativ e of the contractual provisions found in the EIB's 
"global" loans.
3650 
7.914  Each of the contract templates is comprised of an introduction (identifying the parties), a 
preamble and 12 Articles, elaborated over more than 20 pages and 40 clauses,3651 addressing both 
procedural and substantive features of the EIB's loans.3652  The 2001 template also includes two 
                                                      
3643 Statute, Article 20.6. 
3644 Statute, Article 21.7. 
3645 Statute, Articles 21.5 and 21.6. 
3646 EC, FWS, para. 1028. 
3647 The Project Cycle Document , Exhibit US-166, p.7. 
3648 EC, Answer to Panel Question 85. 
3649 Exhibits EC-609 (BCI) and EC-711 (BCI). 
3650 We note that the European Communities has provided no copies of loans granted by the EIB's 
intermediaries when on-lending "global" loans to qua lifying projects.  Neither has the European Communities 
argued that the EIB's intermediaries issue loans on the basis of the same contract templates used by the EIB 
when granting "individual" loans. 
3651 There are 43 clauses under the 12 Articles contai ned in the 1994 template, which runs over 24 
pages; and 45 clauses under the 2001 template, which has 26 pages. 
3652 The Article headings used in  each contract template are essentially the same: Article 1 – 
"Provisions Relating to Payment"; Article 2 – "The Loan";  Article 3 – "Interest"; Article 4 – "Reimbursement"; WT/DS316/R 
Page 600  
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  annexes.
3653  In most instances, the provisions found in the templates are detailed, precise and 
mandatory.  However, as the United States observ es, there are certain provisions where precise 
amounts, dates or values are left unspecified.  This  is true in respect of clauses dealing with, for 
example, [***].  Moreover, the inclusion of one provision found in the 2001 template pertaining to 
mandatory anticipated repayment will depend up on the particular project to be financed.3654   
7.915  Where the contract templates leave certain provis ions or parts of provisions unspecified, these 
are finalized in the light of the choices made by th e borrower and the particular characteristics of the 
financed project and loan transaction.  For instan ce, both the 1994 and 2001 templates indicate that 
borrowers may choose between fixed, variab le or floating interest rate regimes.3655  Specific formulae 
describe how the interest rates a ttached to each regime should be calculated.  Irrespective of the 
borrower's choice, the same principle is applied u nder each formula.  Whether fixed, variable or 
floating, the interest rate will be the same as that o ffered by the EIB at the date of the disbursement 
notice for loans to be made under the same interest ra te regime, in the same currency, and on the same 
repayment terms including amortization and maturity, as the loan at issue.  Although this principle is 
expressed in slightly different language in the prov isions covering the three interest rate regimes,3656 
its application would seem to guarantee that borrowers obtaining comparable loans from the EIB at the same time and under the same interest rate regime  are treated in the same manner.  In other words, 
EIB financing is available on the same interest  rate terms for all borrowers seeking funding for 
comparable projects at the same time.  Thus, the fact that comparable projects financed by the EIB may be charged different interest rates can be  explained by differences in the conditions on the 
relevant financial markets used by the EIB to finance its lending. 
7.916  Borrowers are also given a choice of different loan currencies. The 1994 template offered the 
possibility of lending in FRF, USD and DM, depe nding upon the chosen interest rate regime.
3657 The 
currency options under the 2001 contract template we re either EUR or another currency available to 
the EIB and negotiated on one of the main financial marketplaces.3658  
                                                                                                                                                                     
Article 5 – "Payments"; Article 6 – "Specific Commitmen ts"; Article 7 – "Sureties"; Article 8 – "Information 
and Visits"; Article 9 – "Charges and Costs"; Article 10 – "Acceleration of Loan Maturity"; Article 11 – "Legal 
Regime Governing the Contract"; and Article 12 – "Final Clauses". 
3653 The annexes are: "A" "Technical Description" – a t echnical description of the project (which is left 
blank); and "B" "Definition of EURIBOR and LIBOR" (a text ual definition of the two types of bank offer rates). 
3654 Exhibit EC-609 (BCI), Article 4.03. 
3655 Exhibits EC-609 (BCI), Article 3.01; and EC-711 (BCI), Article 3.01 ("Taux Fixe", "Taux 
Variable" and "Taux Revisable"). 
3656 The different formulations include: "for th e FIXED-RATE TRANCHE, fixed-rate interest 
calculated at the annual rate applicable, for each curr ency, upon each NOTIFICATION  … to those operations of 
THE BANK having the same features, in terms of monies disbursed, amortization regime and term, as the 
payment in question"; "for the VAR IABLE-RATE TRANCHE, … The variable rate, determined by THE 
BANK for each of the reference periods in accordance with  the procedures established by its Board concerning 
variable-rate loans financed through the resources in question, applicable to those operations of THE BANK 
having the same features, in terms of monies disbursed, amortization regime and term, as the payment in 
question"; "for the FLOATING-RATE TRANCHE :…{the} annu al rate applicable to the currency of payment, 
upon each NOTIFICATION …, to those operations of THE BA NK carried out in the same  currency as that of 
the payment concerned, for a term iden tical to that between the dates of each payment." Exhibit EC-711 (BCI), 
Article 3.01.  Very similar language is also found in Exhibit EC-609 (BCI). 
3657 Exhibit EC-711 (BCI), Article 1.03. 
3658 Exhibit EC-609 (BCI), Article 1.03.  WT/DS316/R 
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  7.917  Guidance is provided in the templates on how to set a loan's amortization schedule.3659  
However, the precise periods of amortization and loan maturity are not prescribed.3660  Finally, loan 
amounts and conditions precedent are also not specified in the contract templates.  In respect of the 
former, we note that the amount of the EIB's lending is not subject to any specific budgetary 
restrictions or allocations for distinct loans or po licy objectives.  However, pursuant to its Statute, it 
must ensure that the aggregate amount of outstanding loans and guarantees at any time does not exceed 250% of its subscribed capital, and that it has sufficient reserves to cover 10% of its 
subscribed capital.
3661  Moreover, the EIB applies a policy of only providing part of the funding for a 
project.3662  Subject to these limitations, it appears that the amount of funds loaned by the EIB will 
depend upon the particular characteristics of the pr oject.  Likewise, conditions precedent used in any 
particular loan agreement will depend upon the feat ures of the loan transaction and the project being 
financed.3663   
Whether the Airbus loans are specific under Article 2.1(a) because allegedly 
negotiated individually and granted on a di scretionary basis on terms and conditions 
that are not pre-determined 
7.918  We begin our assessment of the United States' claim by reviewing the language of 
Article 2.1(a) of the SCM Agreement, which reads in pertinent part:  
"2.1 In order to determine whether a subsidy, as defined in paragraph 1 of 
Article 1, is specific to an enterprise or industry or group of enterprises or industries 
(referred to in this Agreement as 'certain en terprises') within the jurisdiction of the 
granting authority, the following principles shall apply: 
                                                      
3659 The 1994 template specifies that an amortization schedule is to be established on the basis of 
constant annual repayments of capital and interest (under a fixed interest rate regime) and annual repayments of 
capital in equal instalments (under a variable interest rate regime). Exhibit EC-711 (BCI), Article 4.01A. The 2001 template reveals a similar approach – amortization on the basis of annual or semi-annual repayments of 
capital in equal instalments under fixed, variable or floating interest rate regimes. Exhibit EC-609 (BCI), 
Article 4.01A. Pursuant to Article 2.04 of both templa tes, the amortization schedule is established by the EIB 
and provided to the borrower after it has executed each disbursement under the contract. 
3660 Two repayment options are provided for in the 1994 template under fixed and variable interest rate 
regimes: (i) a one-time repayment, at the earliest, after four  years, or at the latest, af ter 10 years; or (ii) annual 
repayments, with the first repayment after five years and the last after 15 years.   Exhibit EC-711 (BCI), 
Article 4.01.  The 2001 template provides that repayments may be made through a one-time payment or through 
annual or semi-annual instalments, irrespective of intere st rate regime.  Exhibit EC-609 (BCI), Article 4.01.  
Neither template prescribes the precise maturity of a lo an.  The European Communities asserts that the EIB sets 
the maturity of a loan through the application of "the general principle that the maximum maturity of the loan 
depends on the economic life of the assets to be fina nced".  EC, Comments on US Answer to Panel Question 
150.  However, the European Communities has advanced no  evidence to substantiate its assertion, and the terms 
of the templates do not confirm that this is how the EIB actually operates. 
3661 EIB Statute, Articles 18.5 and 24.1, Exhibit EC-158. 
3662 EIB Statute, Article 18.2 ("As far as possible, loans shall be granted only on condition that other 
sources of finance are also used"), Exhibit EC-158. 
3663 A condition precedent is a provision that requir es one party to a contract to fulfil a certain 
obligation (satisfy a condition) before the other party to the contract is required to execute its own contractual 
obligation.  The 2001 template leaves the conditions prece dent blank. Exhibit EC-609 (BCI), Article 1.04. Two 
conditions precedent are identified in the 1994 template: (i) that documents attesting the establishment of any 
loan guarantee required under a loan be provided to the EIB by the time of the first request for disbursement of 
the agreed funding; and (ii) that none of the situations (defined in Article 10 of the contract) that would require a 
borrower to make an anticipated repayment has occurred. Exhibit EC-711 (BCI), Article 1.04. WT/DS316/R 
Page 602  
BCI deleted, as indicated [***] 
 
  (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." 
7.919  The specificity principle set out in Article 2.1( a) focuses on whether the granting authority, or 
the legislation pursuant to which the granting auth ority operates, explicitly limits access to a subsidy 
to certain enterprises.  It follows from the ordinary  meaning of the word "explicit" that it is not any 
limitation on access to a subsidy to certain enterprises  that will make it specific within the meaning of 
Article 2.1(a), but only a limitation that "{d}istinct ly express{es} all that is meant; leaving nothing 
merely implied or suggested"; a limita tion that is "unambiguous" and "clear".
3664  I n  US – Upland 
Cotton , the panel observed that the concept of speci ficity under Article 2.1 of the SCM Agreement 
has to do with whether a subsidy is "sufficiently broadly available throughout an economy as not to benefit a particular limited group of producers of certain products".
3665  While we can broadly agree 
with this statement (particularly in the context of the facts at issue in US – Upland Cotton ), we would 
add that it is not only a limitation to a "group of pr oducers of certain products" that is the focus of the 
concept of specificity.  In our view, the notion of specificity extends to understanding whether a 
subsidy is sufficiently broadly available throug hout an economy so as not to benefit "certain 
enterprises" as defined in Article 2.1 – that is, a pa rticular enterprise or industry or a particular group 
of enterprises or industries.  Thus, a finding of specificity under Article 2.1(a) requires the 
establishment of the existence of a limitation that expressly and unambiguously restricts the availability of a subsidy to "certain enterprises", and thereby does not make the subsidy "sufficiently 
broadly available throughout an economy". 
7.920  The first and main argument adva nced by the United States to substantiate its claim that the 
EIB loans to Airbus are specific, within the meani ng of Article 2.1(a), is grounded on the view that 
the EIB explicitly limits access to its loans by nego tiating them individually, and by granting them on 
a discretionary basis on terms and conditions that are not pre-determined, but "tailored to each 
individual project".  In essence, we understand the United States to argue that the EIB loans 
(including those to Airbus) are all one-off, discrete lending transactions and, to this extent, explicitly 
limited to the counterpart involved in the loan transaction.   
7.921  The United States considers that the panel findings in Japan – DRAMS  support its claim.
3666  
At issue in that dispute were a number of determin ations made by the Japanese investigating authority 
("JIA") in a countervailing duty investigation into ce rtain restructurings of Hynix, a Korean semi-
conductor manufacturer, under the Corporate Restruct uring Promotion Act.  The United States notes 
that Korea had argued that the subsidies provided th rough the restructurings were not specific because 
"the same basic rules that governed Hynix's rest ructurings – as embodied in the Workout Agreement 
and later in the Corporate Restructuring Act {" CRPA"} – were the same rules that governed the 
restructuring of other Korean companies."3667  However, the panel rejected Korea's submission, 
upholding the finding made by JIA that "the CRPA merely provided the procedural framework within 
which the October 2001 and December 2002 restru cturings took place, rather than actually 
determining the terms of those restructurings".3668  The United States recalls that after making this 
finding, the panel set out its own views on when it believed a subsidy granted to an individual 
company under a generally available subsidy progra mme would not be specific, explaining that in 
                                                      
3664 New Shorter Oxford English Dictionary , Vol. 1, 1993, p.888. 
3665 Panel Report, US – Upland Cotton , para. 7.1142. 
3666 US, Answer to Panel Question 150. 
3667 Panel Report, Japan – DRAMs (Korea) , para. 7.364. 
3668 Panel Report, Japan – DRAMs (Korea) , para. 7.372.  WT/DS316/R 
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  order to avoid a finding of specificity, such a subsi dy had to be granted "on pr e-determined terms (that 
are therefore not tailored to the recipient company)".3669 
7.922  The United States asserts that, like the restructurings at issue in Japan – DRAMS , the loan 
subsidies provided to Airbus were granted pursu ant to a "procedural framework" set forth in 
documents such as the EIB Statute and the Eligibility Guidelines .  According to the United States, this 
"procedural framework" does not set "pre-determined terms", but identifies steps the EIB follows in 
exercising its discretion to provide loans.  Thus , the United States contends that the EIB loan 
subsidies to Airbus were not granted "on pre-determ ined terms (that are therefore not tailored to the 
recipient company)", but rather "t ailored to each individual project".3670  Like the restructuring 
measures at issue in Japan – DRAMS , the loans to Airbus are therefore specific. 
7.923  Having carefully reviewed and considered the arguments and evidence submitted by the 
parties, we believe that it would not be inaccu rate to characterize the EIB's lending activities as 
constituting a discretionary programme  of financing, which involves the granting of loans to entities 
of all nationalities for activities contributing to the balanced development of a wide array of economic 
sectors across the EU, on terms and conditions that ar e not all pre-determined.  However, there are 
various reasons why we consider that th e conclusion reached by the panel in Japan – DRAMs  is not 
justified in the present case. 
7.924  First, in expressing its view on the circumstances needing to be established in order to avoid a 
determination that a subsidy granted to an indivi dual company under a generally available subsidy 
programme is specific, the panel in Japan – DRAMs  was not pronouncing on the correct interpretation 
of the principle of specificity contained in Article 2.1( a).  When read in its full context, it is clear that 
the panel's statement relates to how  it considered the notion of sp ecificity must be understood under 
Article 2.1 as a whole : 
"As a general matter, ... if an investigati ng authority were to focus on an individual 
transaction, and that transaction flowed from a generally available support 
programme whose normal operation would gene rally result in financial contributions 
on pre-determined terms (that are therefore not tailored to the recipient company), 
that individual transaction would not, in our view, become 'specific' in the meaning of 
Article 2.1  simply because it was provided to a specific company.  An individual 
transaction would be 'specific', though, if it resulted from a framework programme whose normal operation (1) does not generally  result in financial contributions, and 
(2) does not pre-determine the terms on whic h any resultant financial contributions 
might be provided, but rather requires (a) c onscious decisions as to whether or not to 
provide the financial contribution (to one applicant or another), and (b) conscious 
decisions as to how the terms of the financ ial contribution should be tailored to the 
needs of the recipient company."
3671 
7.925  Our characterization of the panel's statement is  supported by the fact that Korea's complaint 
against the JIA's finding of specificity was focuse d on Article 2, without specifying the precise 
paragraph(s) or sub-paragraph(s)  forming the basis of its claim.3672  In addition, we note that at the 
heart of the opinion expressed by the panel is the vi ew that the determinative fact for finding that a 
                                                      
3669 US, Answer to Panel Question 150, citing Panel Report, Japan – DRAMs (Korea) , para. 7.374. 
3670 US, Answer to Panel Question 150. 
3671 Panel Report, Japan – DRAMs (Korea) , para. 7.374 (underline added). 
3672 Panel Report, Japan – DRAMs (Korea) , para. 7.363.  The panel noted in the same paragraph that 
Japan identified the legal basis of the JIA's specificity decision as Article 2.1(a)  of the SCM Agreement.  
However, the panel at no stage stated that its finding  upholding the JIA's determination was limited to this 
provision. WT/DS316/R 
Page 604  
BCI deleted, as indicated [***] 
 
  subsidy granted to an individual company under a generally available subsidy programme is specific 
will be the existence of discretion ( i.e., a conscious decision) to grant the financial contribution and 
set its terms and conditions.  If th is were the correct standard for finding a subsidy specific under 
Article 2.1(a) of the SCM Agreement, the implicatio n would be that all subsidies granted pursuant to 
the exercise of discretion to certain enterprises would be explicitly  specific within the meaning of 
Article 2.1(a), irrespective of how that discretion was actually exercised.  However, it is clear from Article 2.1(c) of the SCM Agreement that the manner in which a granting authority exercises any 
discretion to grant subsidies is a consideration that  is relevant to determin ing whether a subsidy is de 
facto  specific.  Article 2.1(c) reads: 
"(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 ente rprises, the granting of disproportionately 
large amounts of subsidy to certain enterp rises, and the manner in which discretion 
has been exercised by the granting author ity in the decision to grant a subsidy .3  In 
applying this  subparagraph, acc ount shall be taken of the extent of diversification of 
economic activities within the jurisdiction of  the granting authority, as well as of the 
length of time during which the subsidy programme has been in operation. 
____________________ 
3 In this regard, in particular, informati on on the frequency with which applications 
for a subsidy are refused or approved and the reasons for such decisions shall be 
considered."3673 
7.926  Because an inquiry into whether a subsidy is de facto specific under Article 2.1(c) becomes 
relevant when there is the appearance of non-speci ficity under Article 2.1(a), it follows that the 
existence of discretion in the granting of a subs idy and setting its terms and conditions cannot be 
determinative of whether it is specific within the m eaning of Article 2.1(a) of the SCM Agreement.  
Therefore, we cannot accept that the pr inciple pronounced by the panel in Japan – DRAMS  provides 
the support the United States contends for its  claim under Article 2.1(a) of the SCM. 
7.927  Second, the facts underlying the panel's decision in Japan – DRAMS  are in several important 
respects different from those of the present dis pute.  The restructuring measures at issue in Japan – 
DRAMS  ("new loans", "debt-to-equity swap" and "e xtension of maturity and interest rate 
reduction"3674) did not follow from the normal operation of the framework programme (the CRPA) 
that Korea had argued provided the legal basis of th e intervention.  The panel noted that Article 1 of 
the CRPA indicated that its purpose was merely "to facilitate the ordinary corporate restructuring 
under the market functions by (1) enhancing the acco unting transparency of enterprises and setting the 
systems for efficiently managing credit risks by the financial institutions, while (2) prescribing 
matters necessary to make the corporate restructuring facilitated swiftly and smoothly."3675  It was an 
instrument addressing "procedural matters such as  enhanced transparency and facilitation", whose 
normal operation did not, as a general matter, spec ifically result in financial contributions.3676  I n  
contrast, the provision of financial contributions (i n the form of loans or loan guarantees) is the raison 
d'être  of the EIB.   
                                                      
3673 Underline added. 
3674 Panel Report, Japan – DRAMs (Korea) , para. 7.55. 
3675 Panel Report, Japan – DRAMs (Korea) , para. 7.372. 
3676 Panel Report, Japan – DRAMs (Korea) , para. 7.372.  WT/DS316/R 
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  7.928  The panel in Japan – DRAMS  also found that evidence on the JIA's record indicated that the 
substantive terms of the restructurings at issue in  that case were the prerogative of the Councils for 
Creditor Financial Institutions, bodies which were  specifically established for each restructured 
company separately.  Moreover, the panel noted th at Korea had been unable to identify any record 
evidence indicating that the terms of the restructur ings were determined by the provisions of the 
CRPA per se .  Rather, the panel observed that Korea ha d in fact emphasized the company-specific 
nature of the restructuring process.3677  On the other hand, in the present case, we are faced with a 
very different set of facts.  The EIB's loans are av ailable for essentially all projects that contribute to 
one or more of its broad policy objectives.  Th e EIB's lending activities are guided by a generally 
applicable operational framework that sets both pro cedural, and also, in many important respects, 
clear substantive disciplines on the terms and conditions of its loans.  All project proposals are reviewed by essentially the same body, examined subj ect to the same general appraisal criteria, and 
the same decision-makers decide on whether to provide the requested funds.  Thus, unlike the 
measure at issue in Japan – DRAMS , there is no special decision-making authority set up for each of 
the loans granted by the EIB.   
7.929  Moreover, the contractual terms and conditi ons, including many of those relating to 
substantive rights and obligations, are to a large degree prescribed ex ante  in the EIB's standard 
contract templates.  Where dates and values are left  blank in the contract templates, methodologies are 
in some cases described for arriving at the releva nt figure(s), or other general guidance is given in 
order to finalise the relevant clauses.  For instan ce, interest rate terms are determined through the 
application of the same interest rate formulae for each interest rate regime, irrespective of the 
applicant.
3678  The same loan currency options are of fered; and general guidance is provided on 
repayment terms.3679  Although subject to a degree of discretion, EIB loans are, in our view, financial 
contributions of a clearly different kind to the one-off and uniquely conceived restructuring measures 
at issue in Japan – DRAMS . 
7.930  Finally, contrary to the situation in Japan – DRAMS , where the panel found that the JIA's 
determination was based, in part, on an intermediate  factual conclusion that the Government of Korea 
had the political intent to save a singl e company, Hynix, from insolvency,3680 there is no evidence 
before us to suggest that the loan s at issue were granted because of an y intention to provide that type 
of assistance only to Airbus. 
7.931  We recall that the specificity principle set out in Article 2.1(a) focuses on whether the 
granting authority "explicitly limits access to a subsid y to certain enterprises".  As we have already 
noted, it follows from the ordinary meaning of the word "explicit" that it is not any limitation on access to a subsidy that will make it specific within  the meaning of Article 2.1(a), but a limitation that 
"{d}istinctly express{es} all that is meant; leaving nothing merely implied or suggested"; a limitation 
that is "unambiguous" and "clear".
3681  Above we have found that the normal operation of the EIB's 
lending programme involves the granting of loans, with a degree of discretion, to entities of all 
nationalities, on terms and conditions that, to varying degrees, reflect the particular characteristics and 
features of the funded project and finance transacti on, for activities contributing to the development of 
a wide array of economic sectors across the EU.  While it could be argued that the EIB lending objectives, although very broad, do establish an explicit  limitation on its lending activities, we do not 
consider these to result in a limitation on the availability of its loans to " certain enterprises ".  In our 
view, the wide array of economic sectors covered by  the EIB's explicit lending objectives means that 
its operations are expressly intended to benefit recipients well beyond a particular enterprise or 
                                                     
 
3677 Panel Report, Japan – DRAMs (Korea) , para. 7.372 and footnote 564. 
3678 Discussed at para. 7.914 above. 
3679 Discussed at para. 7.935 above. 
3680 Panel Report, Japan – DRAMs (Korea) , para. 7.373. 
3681 New Shorter Oxford English Dictionary , Vol. 1, 1993, p.888. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  industry or group of enterprises or industries.  More over, the fact the EIB loans to Airbus (and other 
borrowing entities) may contain one or  more terms and conditions that  are not exactly the same, does 
not render access to those loans explicitly limited to the particular recipients.  This is because the 
normal operation of the EIB's lending programme places no explicit limitation on access to the same 
financing opportunity for any other recipient having the same funding needs for a comparable project.  
Thus, contrary to what the United States has argued,  the fact that the subsidy loans to Airbus were 
negotiated individually between the EIB and Airbus , and granted on terms and conditions that were 
not always identical to other loans granted by the EI B, does not mean that they  are specific within the 
meaning of Article 2.1(a) of the SCM Agreement.  Bearing in mind that the concept of specificity 
under Article 2.1 of the SCM Agreement has to do with whether a subsidy is sufficiently broadly 
available throughout an economy so as not to benef it "certain enterprises", we believe there is, in 
principle, no express, "unambiguous" and "clear " limitation on access to EIB lending to "certain 
enterprises".  Accordingly, we dismiss the United States claim that the EIB loans to Airbus are 
specific, within the meaning of Article 2.1(a), because the EIB's lending activities are discretionary, 
and result in loans being negotiated individually an d granted on terms and conditions that are not 
entirely pre-determined. 
Whether the Airbus loans are specific unde r Article 2.1(a) because allegedly granted 
on terms and conditions that ta ke them outside of the para meters of the EIB's lending 
programme 
7.932  The United States advances a second line of argum ent to support its contention that the EIB 
loans to Airbus are specific under Article 2.1(a).  In particular, the United States argues that the 
Airbus loans could be found to be specific within the meaning of Article 2.1(a) if granted on terms 
and conditions sufficiently different from the terms a nd conditions of loans granted to other recipients 
under the same programme.  However, because of th e European Communities' alleged failure to 
provide information requested on the EIB's lendi ng activities during the Annex V process, the United 
States considers that the Panel does not have e nough information before it to undertake a proper 
comparison of the terms and conditions of the EIB loan s granted to Airbus with loans granted to other 
recipients.  The United States submits that the Eur opean Communities' failure to provide the requested 
information is an instance of non-cooperation, and pursuant to paragraph 7 of Annex V, calls on the 
Panel to draw the adverse inference that had su ch information been available, it would have 
confirmed the United States' claims.
3682  
7.933  The United States' position focuses on the potentia l differences in the terms and conditions 
attached to the loans granted to Airbus compared  with loans to other recipients.  As we have 
previously observed, although the EIB's loans are generally structured to reflect the terms and conditions found in the EIB's standard contract te mplates, not all loan terms and conditions are 
identical.  Typically, the final content of sev eral provisions will depend upon the particular 
characteristics of the proposed project and the finance transaction.
3683  There may well be other 
reasons to explain differences in terms and conditi ons, including, for example, motives more closely 
tied to the exercise of the EIB's discretion to grant loans and evaluate the particular finance needs of 
any given project.  However, having carefully compar ed the terms and conditions in the EIB loans to 
Airbus with those in the standard contract templates,  it is clear to us that the terms and conditions of 
the loans at issue closely follow th e terms and conditions found in the standard contract templates.  
Thus, in the absence of any allegation on the part of the United States that the EIB does not use its 
standard contract templates when setting the terms and conditions of all of its loans, it follows that the 
loans to Airbus were not granted on terms and cond itions outside of the general parameters of the 
EIB's overall lending programme. 
                                                      
3682 See, paras. 7.893-7.895 above. 
3683 See, paras. 7.913-7.917 above.  WT/DS316/R 
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  7.934  Nevertheless, even assuming, arguendo , that the loan subsidies to Airbus were, as the 
United States suggests, provided on terms and cond itions outside of the parameters of the EIB's 
lending programme, this would not, in our view, render  them specific under Article 2.1(a).  This is 
because, on the basis of the facts that are before us , differences in the contractual terms and conditions 
offered to Airbus compared with other recipients  would not evidence the existence of any express, 
unambiguous and clear limitation on access to such subsidies, but rather only the EIB's decision to exercise its discretion to grant loans on those particular terms and conditions to Airbus.  
7.935  We recall that the manner in which a granting authority exercises its discretion to grant a 
subsidy is a relevant cons ideration when inquiring into whether a subsidy is in fact specific within the 
meaning of Article 2.1(c) of the SCM Agreement.  Thus, the fact that a granting authority may have 
exercised its discretion to grant a subsidy under a generally available subsidy programme on terms 
and conditions that are more favourable than those attached to all other subsidies granted under the 
same programme may be enough to demonstrate that it has, in fact , limited access to a subsidy to 
certain enterprises within the meaning of Article 2.1( c).  However, we do not believe that this course 
of action evidences that it has explicitly limite d access to a subsidy within the meaning of 
Article 2.1(a).
3684  We therefore dismiss the United States cl aim that the EIB loans to Airbus were 
specific within the meaning of Article 2.1(a) of  the SCM Agreement beca use allegedly granted on 
terms and conditions outside of the parame ters of the EIB's overall lending programme. 
(iii) Whether the Airbus loans were specific under Article 2.1(c) 
Arguments of the United States  
7.936  The United States claims that the EIB loans to Airbus are specific, within the meaning of 
Article 2.1(c) of the SCM Agreement, because they involve amounts of funding that are allegedly "disproportionately large", and because it consider s that Airbus was the "predominant user" of the 
EIB's subsidy programme.
3685   
7.937  According to the United States, in order to determine whether the amount of a subsidy is 
"disproportionately large" for the purpose of Article 2.1(c), it is first necessary to establish a 
"baseline" against which to measure disproportionality.3686  The United States submits that identifying 
a relevant baseline is a fact-dependent exercise.  In its view, such a baseline must, in the first instance, 
reflect the manner in which the granting au thority classifies its subsidization activities.3687 When 
subsidies are provided under the auspices of a particular subsidy programme, the progamme may 
serve as the appropriate baseline.  However, wher e there is no such subsidy programme, the United 
States argues that other ways in which a granting authority classifies its provision of subsidies should 
be examined, including any relevant categorisat ion of subsidization activities on the basis of 
objectives.3688 
7.938  The United States considers that an appropriate  baseline must also take into account the 
element of time referred to in the last sentence of  Article 2.1(c), that is, "the length of time during 
which the subsidy programme has been in operation" .  The United States explains that taking this 
latter time element into account does not mean that one must compare the amount of subsidy at issue 
                                                      
3684 While the United States has advanced a claim that the loans to Airbus are specific under 
Article 2.1(c), it has not argued that the reason for the alleged de facto  specificity is the existence of differences 
in the terms and conditions attached to the Airbus loans compared with loans to other recipients.  The 
United States has raised this argument only in the context of its claim under Article 2.1(a).  US, Answer to Panel 
Question 150. 
3685 US, FWS, paras. 405 and 420; US, Answer to Panel Questions 13, 14 and 151. 
3686 US, Answer to Panel Question 119. 
3687 US, Answer to Panel Questions 13 and 119. 
3688 US, Answer to Panel Questions 119, 151 and 218. WT/DS316/R 
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  to all subsidies granted during the entire life of a subsidy programme.  According to the United States, 
such a position would ignore the substantial chang es that take place in an economy over a period of 
decades.  It would ignore that technologies ch ange, sectors decline, new sectors emerge, and 
government priorities evolve.  Subsidies targeted towards certain enterprises in an emerging sector 
might not appear to be disproportionate or otherwi se specific when compared with an extremely broad 
universe that includes subsidies to enterprises in sectors that do not play as significant a role in the 
economy today as they did fifty years ago.  However, the United States argues that looked at in the context of the current economy, the same subs idies may well stand out as disproportionate or 
otherwise specific.
3689  Thus, when a subsidy programme has been in operation for a relatively long 
period of time, the United States contends that  taking account of the duration of the subsidy 
programme means identifying a shorter period for analysis that will lead to a more meaningful assessment of disproportionality than an assessment of  all subsidies granted during the entire life of 
the programme.
3690  If this were not the case, the United St ates argues that subsidies granted pursuant 
to programmes operating for long periods of tim e could escape SCM Agreement disciplines even 
though they may have been disproportionately larg e relative to other subsidies granted during the 
same distinct periods.3691  
7.939  The United States submits that once an appropria te baseline is identified, the amount of the 
subsidy at issue must be compared with the subsidi es granted to other enterpri ses in the baseline being 
examined.  The amount of a subsidy will not be "d isproportionately large" when "the relationship 
between the subsidy to certain enterprises ... and su bsidies to all enterprises in the baseline group is 
comparable to the relationship between the certa in enterprises and all enterprises in the group 
(measured by indicators that are appropriate in th e light of the circumstances, which could include 
economic output, employment, or other indicators)".3692  In other words, the United States is of the 
view that "the subsidy granted to certain enterpri ses constitutes an appropriate share of the relevant 
baseline if its relationship to the baseline corresponds to the relationship of certain enterprises to the 
entire group of enterprises covered by the baseline being examined".3693 
The 2002 loan to EADS 
7.940  The United States submits that the relevant base line for the 2002 EIB loan to EADS is all EIB 
lending under the research and development object ive of the "Innovation 20 00 Initiative" ("i2i"), 
because it was under the auspices of this objective of this alleged lending programme that the EIB 
granted the EUR 700 million credit line to EADS.   
7.941  The United States argues that the ordinary mean ing of the word "programme" implies that a 
subsidy programme may be found to exist when there are factors indicating that a series of subsidies is circumscribed in a way that distinguishes them as a planned series of subsidi es.  The United States 
considers that such factors could include: (i) designation by the granting authority of a series of subsidies as a programme; (ii) a common set of objectives; and (iii) dedicated funding.
3694 According 
to the United States, various pieces of evidence conf irm that all of these factors are present in the 
EIB's i2i lending.3695  For instance, the United States notes th at the EIB explicitly described i2i as a 
"dedicated EUR 12-15 billion lending programme" and that, in early 2003, the EIB declared it "had 
                                                      
3689 US, Comments on EC Answer to Panel Question 183. 
3690 US, Answer to Panel Questions 13, 119, 151 and 218. 
3691 US, Answer to Panel Question 13; US, FNCOS, para. 101; US, SNCOS, para. 129. 
3692 US, Answer to Panel Question 119. 
3693 US, Answer to Panel Question 119. 
3694 US, Answer to Panel Question 218. 
3695 US, Answer to Panel Questions 14, 151 and 218.  WT/DS316/R 
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  fully achieved its i2i objectives" upon having comm itted EUR 14.4 billion in loans by the end of 
2002.3696 
7.942  The United States argues that its focus on research  and development lending under the i2i is 
consistent with the way the EIB analysed its ow n activities.  The United States notes that the EIB 
described its i2i lending as being made pursuant to one of five "economic sectors": "development of 
SMEs and entrepreneurship"; "diffusion of in novation"; "research and de velopment"; "information 
and communications technology networks "; and "human capital formation".3697  M o r e o v e r ,  t h e  
United States asserts that the EIB discusses its lending activities under each sector in its annual 
activity reports.  Thus, the United States observes that in its 2002 Activity Report, the EIB explained 
that in "2002, the EIB ploughed {Euro} 2.1 billi on into 15 R&D projects spanning 6 EU countries, 
with one pan-European international coopera tion project partly located in Switzerland ... ".3698   
7.943  From a temporal perspective, the United States considers that the relevant baseline for the 
2002 loan to EADS should not be set, as the Eur opean Communities contends, to correspond with the 
period of time over which the EIB has conducted all of its lending activities ( i.e., since the EIB's 
establishment in 1957).  In the view of the United States, a more meaningful length of time for the 
baseline would be either the year in which the lo an to EADS was granted (2002) or the years from 
2000 to 2003, covering the period during which the alleged i2i programme was in existence.3699    
7.944  The United States asserts that the EUR 700 million credit line represented one third of EIB 
lending for research and development needs under i2i in 2002, and 18% of its lending for research and 
development under i2i from 2000 to the end of 2002.3700  The United States argues that these facts 
take on particular significance in the light of th e high degree of economic diversification within the 
European Communities, supporting the conclusion th at the 2002 loan to EADS is specific under 
Article 2.1(c) of the SCM Agreement.3701  Moreover, the United States alleges that the credit line to 
EADS was the single largest provided to any one company under the alleged i2i programme taken as 
a whole,3702 over the period 2000 to 2003 or even between 2000 and 2006.3703 Thus, the United States 
also submits that EADS was the predominant user  of the alleged i2i subs idy programme, therefore 
making the EIB loan specific within the meani ng of Article 2.1(c) also for this reason.3704 
The loans granted to Airbus between 1988 and 1993 
7.945  As regards the other EIB loans to Airbus gr anted between 1988 and 1993, the United States 
notes that during the relevant period the EIB classi fied its lending activities by economic sectors and 
lending objectives.  The two broad economic sector s used were: (1) "energy and infrastructure," 
which contained mostly state-owned-and-operated sect ors like petroleum, electricity, railways, roads, 
telecom, water, and sewage; and (2) "industry, services, and agriculture", which includes, inter alia , 
"transport equipment" (the sector for aeronautical e ngineering).  There were eight different lending 
                                                      
3696 US, Answer to Panel Questions 14 and 218, referring to European Investment Bank, Annual Press 
Conference 2003, Background Note No. 1: Innovation and Knowledge-Based Economy, p.1, Exhibit US-164. 
3697 US, Answer to Panel Questions 14 and 218, the latter referring to The Innovation 2000 Initiative, 
Actively promoting a European economy based on knowledge and innovation , European Investment Bank, 
pp. 2-3, Exhibit US-154. 
3698 US, Answer to Panel Question 14, referring to The EIB Group, Activity Report 2002, p.14, Exhibit 
US-165. 
3699 US, FWS, para. 405; US, Answer to Panel Questions 13 and 14. 
3700 US, FWS, para. 405, referring to Exhibit US- 164, p.2 and The EIB Group, Activity Report 2002, 
p.14, Exhibit US-165; US, Answer to Panel Question 14. 
3701 US, FWS, para. 405; US, Answer to Panel Questions 13, 14 and 119. 
3702 US, FWS, para. 405; US, Answer to Panel Question 14, referring to Exhibit US-474. 
3703 US, Answer to Panel Question 151, footnote 156. 
3704 US, Answer to Panel Question 218. WT/DS316/R 
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  objectives, with the loans to Airbus falling with in the "international competitiveness and European 
integration of large firms" objective.  In the light  of the EIB's own description of its activities, the 
United States argues that the appropriate baselin es for the 1988 to 1993 loans could be the EIB's 
lending to the "industry, services and agriculture" sect or and also its lending under the "international 
competitiveness and European integration of large firms" objective.
3705  In terms of the appropriate 
length of time of the baseline, the United States s ubmits that the period 1988 to 1993 could be used, 
covering the five years during which the re levant loans were granted to Airbus.3706 
7.946  The United States asserts that, during the period from 1988 to 1993, Airbus received 
approximately 10% of all EIB loans granted to th e "industry, services and agriculture" sector and 
approximately 20% of loans under the "internationa l competitiveness and European integration of 
large firms lending objective".3707  In addition, the United States not es that over the same five years, 
Airbus was the largest private recipient of EIB individual loans; that among private enterprises, EIB loans to Airbus were 44% greater than loans gran ted to the next largest recipient; and that the 
EUR 1.06 billion in loans to Airbus exceeded the EIB's lending to any industrial sector, with the 
exception of chemicals and other transport equipment.
3708  On this basis, the United States concludes 
that the EIB loans granted to Airbus between 1988 and 1993 were "disproporti onately large", within 
the meaning of Article 2.1(c), and therefore de facto specific. 
Arguments of the European Communities  
7.947  The European Communities rejects the United St ates' claims and argu es that the EIB loans 
were not "disproportionately large", and therefore not de facto  specific, within the meaning of 
Article 2.1(c) of the SCM Agreement. 
7.948  The European Communities submits that in orde r to determine whether the challenged loans 
were granted in disproportionately large amounts for the purpose of Article 2.1(c), it is first necessary 
to identify the proper universe of funding agains t which they can be compared.  The European 
Communities argues that the two alternatives advanc ed by the United States – EIB policy objectives 
or EIB-supported economic sectors – do not properly constitute distinct universes of funding for this 
purpose.3709  According to the European Communities, the appropriate universe of funding that should 
be used to determine whether the EIB loans i nvolved disproportionately large amounts is all EIB 
lending ( i.e., all "individual" and "global" loans) since 1957.  When this is done, the European 
Communities argues that it is clear that the EIB lo ans at issue do not involve disproportionately large 
subsidy amounts.  Moreover, the European Comm unities submits that the same result holds even 
when examining the relevant loans under different analytical frameworks involving a smaller universe 
of funding. 
The 2002 loan to EADS 
7.949  The European Communities submits that th e EIB's lending activities under the i2i do not 
amount to a subsidy programme and cannot therefor e be used as an appropriate baseline for the 
purpose of conducting a disproportionality analysis .  The European Communities asserts that the 
United States has misinterpreted the facts relating to  the i2i, arguing that rather than being a subsidy 
programme, the i2i is merely a manifestation of one of the objectives of the EIB's overall lending 
                                                      
3705 US, Answer to Panel Question 15. 
3706 US, FWS, para. 420; US, Answer to Panel Questions 13 and 15. 
3707 US, FWS, para. 420, referring to EIB, Annual Report 1988, Tbl. 24, Exhibit US-176; EIB, Annual 
Report 1989, Tbl. E, Exhibit US-177; EIB Annual Report 1990, Tbl. E, Exhibit US-178; EIB, Annual Report 1991, Tbl. E, Exhibit US-179; EIB, Annual Report 1992, Tbl. E, Exhibit US-180; and EIB, Annual Report 
1993, Tbl. E, Exhibit US-181. 
3708 US, FWS, para. 420; US, Answer to Panel Questions 13, 15 and 119. 
3709 EC, FWS, para. 1034; EC, Answer to Panel Question 182.  WT/DS316/R 
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  programme.3710  The European Communities explains that the i2i was launched to reflect the Lisbon 
Strategy formulated by the European Council in 2 000, a strategy which has the goal of making Europe 
the most competitive and dynamic knowledge based economy in the world by 2010.3711  According to 
the European Communities, the i2 i was established in order to gr oup together under one name the 
various elements of EIB policy objectives that were already in place and contributing to the 
attainment of the Lisbon Strategy in order to dem onstrate the EIB's involvement.  Thus, the European 
Communities argues that the i2i is "essentially a su ccessor to the {EIB's} 'industrial competitiveness' 
and 'advanced technology' objective{s}",3712 with the "industrial competitiveness" objective being 
formally replaced by the i2i as a separate EIB eligibility criteria in 2003.3713 
7.950  The European Communities asserts  that the EIB does not ring-fence pools of money for its 
lending activities under any of its individual policy objectives.  As regards the sum of EUR 12-15 
billion the United States argues was dedicated to the i2 i, the European Communities explains that this 
figure reflects a lending target based on the EIB's assessment of the possible contribution it could 
make to the Lisbon Strategy over an initial three-y ear period based on its experience in the relevant 
sectors.3714  The European Communities asserts that as  long as the EIB complies with its Statutory 
obligation to ensure that the aggregate amount of  loans and guarantees outstanding at any time does 
not exceed 250% of its subscribed capital, it can ha ve recourse to the capital markets in order to 
increase its lending activities.  Thus, the European Communities contends that there is no financial 
ceiling for any of the EIB's objectives and no appli cation for a loan is rejected on such grounds.3715  In 
this regard, the European Communities indicates that  by April 2003, the EIB Group had in fact lent 
almost EUR 17 billion under the i2i, more than  the EUR 15 billion that had been originally 
targeted.3716     
7.951  The European Communities recalls that the EIB provides loans that routinely meet several 
objectives at the same time.  For instance, the Eu ropean Communities notes th at the 2002 loan to 
EADS, like several other research and development lo ans granted under the i2i, satisfied multiple EIB 
policy objectives.  In addition to being classified under the i2i objective, the 2002 loan to EADS fell 
within the scope of the "common inter est" and "industrial competitiveness" objectives.3717  T h e  
European Communities argues that th e fact that the loans granted under the i2i satisfied multiple 
objectives provides additional confirmation that the i2i was not a distinct lending programme as the United States argues.
3718 
7.952  The European Communities submits that, to the extent that any of the challenged loans are 
found to be subsidies, the relevant subsidy progra mme is the EIB's entire portfolio of lending since 
1957.3719  When examined in the light of this b aseline, the European Co mmunities notes that the 
EUR 700 million credit line to EADS represents only one of 8,400 contracts that together involved a financing commitment amoun ting to EUR 591.5 billion.
3720  In terms of amounts actually disbursed, 
the European Communities discloses that betw een 1957 and 2006, the EIB actually disbursed 
EUR 497 billion.  The European Communiti es recalls that EADS drew down on only [***] of the 
                                                      
3710 EC, SWS, para. 437. 
3711 EC, SWS, paras. 445-449. 
3712 EC, FWS, para. 1040; EC, SWS, para. 447. 
3713 EC, SWS, para. 459. 
3714 EC, SWS, para. 449. 
3715 EC, SWS, para. 449. 
3716 EC, SWS, para. 450, referring to information contained in Exhibit US-164. 
3717 EC, FWS, paras. 1037-1039. 
3718 Answer to Panel Questions 182 and 218; EC, SWS, para. 439. 
3719 Answers to Panel Questions 182 and 218. 
3720 EC, FWS, para. 1044; EC, Comments on United States Answer to Panel Question 151. Exhibits 
EC-163 and EC-165. WT/DS316/R 
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  EUR 700 million commitment (i.e, [***]); and that it is only this dis bursed amount that is relevant for 
the purpose of a disproportionality analysis under the SCM Agreement.
3721     
7.953  Even using the EIB's i2i lending as the appr opriate baseline, the European Communities 
contends that the 2002 loan to EADS would still not be  disproportionately large.  Contrary to what is 
asserted by the United States, the European Communities argues that the EIB's i2i lending did not end 
in 2003.  Although initially conceive d for a term of 3 years, the i2i was "extended" to 2010, with its 
lending aim increased to EUR 50 billion by the end of  the decade.  Its name was also formally 
changed to the "Innovation 2010 Initiative", reflecting th e target date of the Lisbon Strategy (2010) as 
opposed to the year of the Strategy's adoption (2000).3722  When examined over the period from its 
establishiment in 2000 to 31 December 2006, the EUR 700 million represents 1.5% of the EIB's total 
funding under the i2i policy objective, whic h amounted to EUR 45.7 billion and covered 288 
projects.3723  In terms of actual disbursements, the European Communities notes that the [***] 
received by EADS must be compared with the EUR 37 billion disbursed under the i2i as of 8 May 2007, demonstrating that EADS received less than [***] of all i2i funding.
3724 
7.954  The European Communities arrives at the same conclusion after examining the loan to EADS 
in the context of research and development lendi ng under the i2i.  Although it contests the United 
States' use of all research and develo pment lending as an appropriate baseline,3725 the European 
Communities nevertheless notes that total EIB co mmitments in relation to i2i research and 
development lending during the period 2000 to Janua ry 2007 were EUR 22.7 billion. The European 
Communities notes that the credit line opened for EADS accounts for 3.1% of this total, even before 
taking into account the fact that EADS only drew down on [***] of the available funds.3726 
7.955  Finally, the European Communities disputes th e relevance of the United States' contention 
that the EADS contract was the largest single cr edit line to any one company under the i2i, arguing 
that it fails to take account of the fact that wh ile EADS received one large loan in one year, many 
other borrowers under i2i (such as Ford) received a number of significant loans across a number of 
years, which when aggregated, were la rger than the 2002 EADS loan contract.3727   In any case, the 
European Communities asserts that EADS was only the 11th largest recipient; and that when examined 
in terms of disbursed amounts, only the joint 30th largest recipient of funds under the i2i objective.3728  
The loans granted to Airbus between 1988 and 1993 
7.956  The European Communities argues that the "industry, services and agriculture sector 
category" and the "international competitiveness a nd European integration of large firms lending 
objective" are policy objectives, and not programmes th at can be used as appropriate baselines for the 
purpose of a disproportionality analysis under Article 2.1(c).3729  According to the European 
Communities, in seeking to use data relating to lo ans falling within the scope of these objectives, the 
United States relies upon classifications made by the EIB for the purpose of periodically reporting to 
                                                      
3721 EC, Answer to Panel Question 181. 
3722 EC, SWS, paras. 450-452. 
3723 EC, FWS, para. 1041; EC, SWS, para. 452; EC, Answer to Panel Question 181.  Exhibit EC-715. 
3724 EC, Answer to Panel Question 181.  Exhibit EC-883 (BCI). 
3725 EC, SWS, paras. 453-454. 
3726 EC, SWS, para. 454; EC, Comments on United States Answer to Panel Question 151. 
3727 EC, SWS, para. 457. 
3728 EC, Answer to Panel Question 181, referring to Exhibit EC-883 (BCI); Comments on United States 
Answer to Panel Question 151. 
3729 EC, FWS, paras. 1042-1043; EC, SWS, para. 464.  WT/DS316/R 
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  stakeholders and analysts.  In the view of the Eu ropean Communities, such an approach leaves the 
question of specificity to be resolved in the li ght of how a granting authority drafts its reports.3730 
7.957  Moreover, the European Communities contends  that the 1988 to 1993 time-frame advanced 
by the United States is artificial and self-serving.3731  In this respect, the European Communities 
argues that the United States has pr ovided no valid explanation for why data relating to total loan 
amounts reported in this five year period should be  accepted instead of data from any other period of 
time, for example, 10 years, one year, one month or even one week.3732  In addition, the European 
Communities considers that a period of time that is  shorter than the actual length of the subsidy 
programme that is at issue would be inconsistent with the wording of Article 2.1(c), which it argues 
expressly envisages that length of the duration of the "programme" as a whole must be taken into 
account, and not any part or segment thereof.3733  
7.958  Thus, the European Communities considers that all of the EIB's lending since 1957 must be 
taken into account when examining whether the loans to Airbus between 1988 to 1993 are de facto 
specific within the meaning of Article 2.1(c).  Howe ver, if another approach were to be taken, the 
European Communities submits that a methodology that would be more objective to the one proposed 
by the United States would be to compare the loans to Airbus provi ded in each year with the total 
value of loans provided by the EIB in the five preceding years.  The European Communities asserts 
that such a comparison shows that the disputed lo ans did not represent, in any one year, more than 
1.6% (on average 0.9%) of total EIB lending over the preceding five years.3734   
Evaluation by the Panel  
7.959  We begin our evaluation of the United States claims by reviewing Article 2.1(c) of the 
SCM Agreement, which reads: 
"2.1 In order to determine whether a subsidy, as defined in paragraph 1 of 
Article 1, is specific to an enterprise or industry or group of enterprises or industries 
(referred to in this Agreement as "certain en terprises") within the jurisdiction of the 
granting authority, the following principles shall apply: 
... (c) If, notwithstanding any appearance of non-specificity 
resulting from the application of the principles laid down in subparagraphs (a) and (b), there are reasons to believe that the 
subsidy may in fact be specific, other factors may be considered.  
Such factors are:  use of a subsidy programme by a limited number of 
certain enterprises, predominant use by certain enterprises, the 
granting of disproportionately large amounts of subsidy to certain enterprises, and the manner in which discretion has been exercised by the granting authority in the decision to grant a subsidy.
3  In applying 
this  subparagraph, account 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. 
                                                     
 
3730 EC, SWS, para. 461. 
3731 EC, SWS, para. 469; EC, Answer to Panel Question 183. 
3732 EC, SWS, paras. 455 and 469. 
3733 EC, Answers to Panel Questions 119 and 183. 
3734 EC, Answer to Panel Question 183. WT/DS316/R 
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  _________________________ 
3 In this regard, in particular, informati on on the frequency with which applications 
for a subsidy are refused or approved and th e reasons for such decisions shall  be 
considered." 
7.960  The language of Article 2.1(c) suggests that it is intended to address the situation where a 
challenged subsidy does not appear to be specific within the meaning of the principles set out in 
Articles 2.1(a) and 2.1(b), but "there are reasons to believe that the subsidy may in fact be specific".  
When such a situation arises, the first sentence of Ar ticle 2.1(c) stipulates that "other factors may be 
considered".  The second sentence of Article 2.1(c) elaborates four "{s}uch factors".  In essence, the 
United States' allegation that the EIB loans to Air bus are in fact specific under Article 2.1(c) is 
grounded in one of these factors – "the granting of  disproportionately large amounts of subsidy to 
certain enterprises".  However, it is also based upon  reliance on another factor – "predominant use by 
certain enterprises". 
"the granting of disproportionately large subsidy amounts to certain 
enterprises" 
7.961  Something may be said to be "dispropor tionate" when it is "lacking proportion".3735  T h e  
ordinary meaning of the word "proportion" includes "a portion, a part, a share, esp. in relation to a 
whole", "a relative amount or number", "a compar ative relation or ratio between things in size, 
quantity, number, etc.".3736  These meanings suggest that the in quiry that must be undertaken when 
assessing whether the amount of a subsidy is "dispr oportionately large" will involve identifying the 
relationship between the amount of the subsidy at i ssue and something else that is "a whole", and 
determining whether that relations hip demonstrates that the amount of subsidy is greater than the 
amount it would need to be in order to be proportionate – i.e., not lacking proportion.  The 
United States refers to the "something else" agains t which the amount of the subsidy at issue should 
be compared as a "baseline"; the European Commun ities as a "universe" of funding or "reference 
data".3737   
7.962  According to the European Communities, the "uni verse" of funding or "reference data" that 
should be used for the purpose of a disproportionality  analysis under Article 2.1(c) must be drawn 
from the subsidy programme pursuant to which the challenged subsidy is granted.  The European 
Communities argues that this follo ws from the fact that Article 2.1(c) identifies the "use of a subsidy 
programme  by a limited number of certain enterprises" as one of the factors that may be considered 
when assessing whether a subsidy is in fact specific.3738  Moreover, the European Communities notes 
that the last sentence of Article 2.1(c) explicitly requi res that, in applying Article 2.1(c), "the length of 
time during which the subsidy programme  has been in operation" must be taken into account.3739  
Thus, the European Communities emphasizes that the language of Article 2.1(c) calls for the 
consideration of data pertaining to an entire subs idy programme, not a part, component or element of 
that programme.  In its view, a disproportionality analysis must therefore involve comparing the amount of the subsidy at issue with the total am ount of subsidies granted under an entire subsidy 
programme.   
7.963  The United States does not share the European Co mmunities' view that the relevant "baseline" 
for a disproportionality analysis must in all situati ons be a subsidy programme.  In this regard, the 
                                                     
 
3735 The New Shorter Oxford Dictionary, Fourth Edition, p.700. 
3736 The New Shorter Oxford Dictionary, Fourth Edition, p.2381. 
3737 US, Answer to Panel Question 119; EC, FWS, para. 1034; EC, Answer to Panel Question 182. 
3738 EC Answers to Panel Questions 119 and 182.  Emphasis added by the EC. 
3739 EC, Answer to Panel Question 119.  WT/DS316/R 
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  United States notes that the third and fourth factors described in the second sentence of Article 2.1(c) 
do not refer to a subsidy programme.3740  According to the United States, this textual difference means 
that Article 2.1(c) permits the use of a frame of  reference that may be different from a subsidy 
programme when considering these two factors. 
7.964  In our view, the language of Article 2.1(c), when  interpreted in its proper context and in the 
light of its object and purpose, suggests that where the subsidy at issue has been granted pursuant to a 
subsidy programme, that programme should normall y be used for the purpose of identifying the 
"baseline" or "reference data" needed to perform a disproportionality analysis.  However, as the 
United States points out, the absence of any expl icit reference to "a s ubsidy programme" in the 
language of Article 2.1(c) suggests that it does not require that a subsidy programme be used for this 
purpose in each and every factual circumstance. 
7.965  The "granting of disproportionately large amount s of subsidy to certain enterprises" is the 
third of four specificity factors that Article 2. 1(c) identifies as having possible relevance for the 
determination of whether a subsidy is in fact specific.   Contrary to the first factor ("use of a subsidy 
programme by a limited number of certain enterprises") and the second factor ("predominant use by 
certain enterprises"), the third factor makes no direct or indirect reference to a subsidy programme.  Likewise, the fourth factor ("the manner in wh ich discretion has been exercised by the granting 
authority in the decision to grant a subsidy") includes no reference to a subsidy programme.  In our view, it would not have been difficult for the drafters  of the SCM Agreement to include a reference to 
a subsidy programme in the text of the third speci ficity factor, as they did for the first and second 
specificity factors.  However, the drafters chose not to do so.  Thus, on its own, the text of the third 
specificity factor listed in the second sentence of Article 2.1(c) does not support the view that a disproportionality analysis must  involve comparing the amount of a subsidy granted under a given 
subsidy programme with the entire amount of subs idies granted under the same subsidy programme. 
7.966  Important context for the interpretation of the f our specificity factors can be found in the last 
sentence of Article 2.1(c).  This sentence requ ires that consideration of "the granting of 
disproportionately large amounts of subsidy to certa in enterprises" (or consideration of any one or 
more of the remaining three specificity factors) must  take into account two matters: (i) "the extent of 
diversification of economic activities within the juri sdiction of the granting authority"; and (ii) "the 
length of time during which the subsidy programme has been in operation".  For present purposes, it 
is instructive to note that th e last sentence of Article 2.1(c) calls for the duration of " the subsidy 
programme" to be taken into account.  The use of the definite Article "the " denotes one particular 
subsidy programme.  It is apparent from the text of the first and second specificity factors that " the 
subsidy programme" stands for the programme that  must be considered when evaluating whether 
there has been "use of a subsidy programme by  a limited number of certain enterprises" or 
"predominant use by certain ente rprises".  In other words, " the subsidy programme" is the subsidy 
programme pursuant to which the subsidy at issue has been granted.   
7.967  As we have already observed, the third and fourth specificity factors make no direct or 
indirect reference to a subsidy programme.  In our view, this implies that there may be situations 
when the third specificity factor ("the granting of disproportionately large amounts of subsidy to 
certain enterprises") may be considered in the light of a frame of reference that is different from a 
subsidy programme.
3741  However, where the subsidy at i ssue is granted pursuant to a subsidy 
                                                      
3740 US, Comments on EC Answer to Panel Question 182. 
3741 While we recognise that determining whether a subsidy is specific within the meaning of 
Article 2.1 involves a case-by-case asse ssment of the particular facts surrounding the subsidy at issue, in 
general, we believe that to the extent that a subsidy not granted under a subsidy programme may be 
characterised as a one-off subsidy, it would be found to be specific within meaning of Article 2.1(a), rendering 
an assessment of specificity unde r Article 2.1(c) unnecessary. WT/DS316/R 
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  programme, the language of the last sentence of Article 2.1(c) implies that the duration of that subsidy 
programme be taken into account when performing a di sproportionality analysis.  It follows that when 
the subsidy at issue is granted pursuant to a subsidy programme, the "baseline" or "reference data" needed to conduct a disproportionality analysis shou ld be drawn from that same subsidy programme. 
7.968  The European Communities submits that taking into account "the length of time during which 
the subsidy programme has been in operation", in the context of a disproportionality analysis, involves comparing the amount of the subsidy at issue with the amount of all of the subsidies granted 
under the same programme for its entire duration.  In  other words, the European Communities argues 
that the relevant "baseline" or "reference data" n eeded to conduct a disporportionality analysis is the 
total amount of subsidization provided over the entire life of the relevant subsidy programme.  On the 
other hand, the United States considers that taking th is time element into account means identifying a 
period of time that will lead to a meaningful asse ssment of disproportionality.  According to the 
United States, this period may not always coincide with the entire duration of the relevant subsidy 
programme. 
7.969  The last sentence of Article 2.1(c) provides that: "In applying this subparagraph, account shall 
be taken  of ... the length of time during which the subsi dy programme has been in operation".  To take 
something into account means to take something into  reckoning or consideration; to take something 
on notice.
3742  Therefore, in the context of the thir d specificity factor, the last sentence of 
Article 2.1(c) requires that the length of time dur ing which the relevant s ubsidy programme has been 
in operation must form part of the consideration or reckoning  of whether the amount of a subsidy 
granted to certain enterprises pursuan t to that same subsidy programme is disproportionately large.  It 
follows that the total amount of subsidization pr ovided over the entire life of the relevant subsidy 
programme does not have to be used as the relevant  "baseline" or "reference data" when conducting a 
disporportionality analysis. 
7.970  We recall that the notion of specificity has to do with whether a subsidy is sufficiently 
broadly available throughout an economy so as not to benefit "certain enterprises".3743  In our view, 
this understanding of what specificity means serves  as the beacon which guides the interpretation of 
the entirety of Article 2, including Article 2.1(c).  Wh at it means to take account of "the length of time 
during which the subsidy programme has been in operation" when performing a disproportionality 
analysis must be understood in this context.  T hus, using the total amount of subsidies granted under a 
subsidy programme over its entire life as the "baseline" or "reference data" for the purpose of 
determining whether the amount of  a subsidy is "disproportionate ly large" may not always be 
appropriate if, for example, the subsidy progra mme has not operated long enough to understand its 
full impact on an economy.  Likewise, establishing a "baseline" or identifying "reference data" on the basis of the total amount of subsidies granted unde r a long-standing subsidy programme may also be 
inappropriate if, for example, there has been a mate rial change in the importance of the subsidized 
activities in the wider economy and/or the granting au thority's economic priorities over the life of the 
subsidy programme.  In this regard, we agree with  the United States that s ubsidies targeted towards 
certain enterprises in an emerging sector might not  appear to be disproportionately large when 
compared with an extremely broad universe that incl udes subsidies to enterprises in sectors that do not 
play as significant a role in the economy today as th ey did over previous decades.  However, in the 
context of the present economy, the same subsidi es may well stand out as disproportionately large.
3744  
Thus, in our view, where a subsidy to certain ente rprises has been granted pursuant to a long-standing 
subsidy programme, identification of the proper "b aseline" or "reference data" against which to 
measure whether the subsidy is granted in "dispro portionately large amounts" will involve taking into 
account the extent to which it would be reasonable and appropriate to determine whether the subsidy 
                                                      
3742 The New Shorter Oxford Dictionary, Fourth Edition, p.15. 
3743 See, para. 7.919 above. 
3744 US, Comments on EC Answer to Panel Question 183.  WT/DS316/R 
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  at issue is in fact sufficiently broadly available throughout an economy so as not to benefit "certain 
enterprises" on the basis of the entire duration of the subsidy programme or some shorter period of 
time. 
7.971  According to the United States, once the correct  "baseline" is identified, the relationship 
between the amount of the subsidy granted to certa in enterprises and the total amount of subsidies 
provided to the "baseline" group of enterprises must  be compared with the relationship between the 
"certain enterprises and all enterp rises in the {'baseline'} group (measured by indicators that are 
appropriate in the light of the circumstances, wh ich could include economic output, employment, or 
other indicators)".3745   
7.972  We agree with the United States that identifying the relationship between the amount of the 
subsidy at issue and the "baseline" is not enough to determine whether th e challenged subsidy is 
"disproportionately large".  For example, a subsid y granted to certain enterprises in an amount that 
represents 50% of the total amount of subsidies gr anted under a relevant subsidy programme says 
little, if anything, about whether that amount is "dis proportionately large".  As  we have previously 
explained,3746 assessing whether the amount of a subsidy is "disproportionately large" involves 
determining whether the relationship between the amount of the subsidy at issue and a relevant 
"baseline" demonstrates that the amount of subsidy is greater than the amount that it would need to be 
in order to be proportionate.  Thus , determining whether a 50% share of the total amount of subsidies 
granted under a particular subsidy programme to certain enterprises is "disproportionately large" 
involves considering whether the 50% share is greater than what it would need to be in order to say 
that the certain enterprises received a proportionate amount of all subsidies granted under that same 
programme.  There is no explicit guidance in Article  2.1(c) for how to make this determination.  
However, the fact that the last sentence of Article 2. 1(c) requires that "the extent of diversification of 
economic activities within the jurisdiction of the gr anting authority" be taken into account, suggests 
that evidence of the diversity of economic activ ity must be considered in the analysis.   
7.973  One relevant measure of the extent of economic diversification within the jurisdiction of the 
granting authority is the proportion of economic activ ity attributable to the subsidy recipient(s).  
Taking such evidence into account in the "dispropor tionality" analysis required under Article 2.1(c) 
would, in our view, involve comparing the share of the total amount of subsidies granted under a generally available subsidy programme to  one or  more recipients, with the proportion of economic 
activity attributable to the same recipient(s) within  the jurisdiction of the granting authority.  Where 
the amount of a subsidy granted to one or more  recipients under a broadly available subsidy 
programme represents a proportion of total subs idies granted under the same programme that 
significantly exceeds the economic activity attributab le to the same recipient(s) in the broader 
economy, the amount of the subsidy at issue would  be  "disproportionately large".  In our view, such a 
subsidy would not be sufficiently broadly ava ilable throughout an economy and would therefore 
benefit "certain enterprises".
3747 
"predominant use" 
7.974  The second specificity factor identified in Article 2.1(c) is "predominant use by certain 
enterprises".  As we have already noted, when read in the light of the first specificity factor ("use of a 
subsidy programme by a lim ited number of certain enterprises"), it is clear that this factor indirectly 
refers to "predominant use" of "a subsidy pr ogramme".  The ordinary meaning of the word 
"predominant" includes "constituting the ma in or strongest element; prevailing".3748  T h u s ,  
                                                      
3745 US, Answer to Panel Question 119. 
3746 See, para. 7.961 above. 
3747 Panel Report, US – Upland Cotton , para. 7.1142. 
3748 The New Shorter Oxford Dictionary, Fourth Edition, p.2329. WT/DS316/R 
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  "predominant use {of a subsidy programme} by certain enterprises" may be simply understood to be a 
situation where a subsidy programme is mainly, or for the most part, used by certain enterprises. 
7.975  In considering whether there is "predominan t use {of a subsidy programme} by certain 
enterprises" for the purpose of making a finding of specificity, the last sentence of Article 2.1(c) 
requires that account be taken of: (i) "the extent of diversification of economic activities within the 
jurisdiction of the granting authority"; and (ii)  "the length of time during which the subsidy 
programme has been in operation".  As with dete rmining whether a subsidy has been granted in 
"disproportionately large amounts", the relevance of these two factors to understanding whether there 
has been "predominant use {of a subsidy progra mme} by certain enterprises" will depend upon the 
particular facts.  Thus, for example, where a s ubsidy programme operates in  an economy made up of 
only a few industries, the fact that those industries may have been the main beneficiaries of a subsidy 
programme may not necessarily demonstrate "predominant use".  Rather, use of the subsidy programme by those industries may simply reflect the limited diversification of economic activities 
within the jurisdiction of the granting authority.  On the other hand, the same subsidy programme 
operating in the context of a highly diversified economy that is used mainly, or for the most part, by 
only a few industries would tend to indicate "predominant use".   
7.976  Likewise, when taking into account "the length of time during which the subsidy programme 
has been in operation", the use of a subsidy pr ogramme by certain enterprises may not necessarily 
indicate "predominant use" in the context of a re latively new subsidy programme that has not yet 
operated for enough time to understand its full impa ct on an economy.  Moreover, it may not always 
make sense to determine whether there has been "p redominant use" over the entire life of a subsidy 
programme, where that programme has operated for decad es that have witnessed a material change in 
the importance of the subsidized activities in the wider economy and/or the granting authority's economic priorities.  As with determining whethe r a subsidy has been granted under a long-standing 
subsidy programme in "disproportionately large amo unts", a determination of whether there has been 
"predominant use" of a long-standing subsidy pr ogramme should involve taking into account the 
extent to which it would be reasona ble and appropriate to determine wh ether the subsidy at issue is in 
fact sufficiently broadly available throughout an econo my so as not to benefit "certain enterprises" on 
the basis of the entire duration of the subsidy programme or some shorter period of time. 
7.977  With the above understanding of how to de termine whether a subsidy is granted in 
"disproportionately large amounts" to certain enterp rises or whether there is "predominant use" of a 
subsidy programme by certain enterprises in mind, we now turn to examine the United States' specific 
allegations in respect of the measures at issue. 
The 2002 loan to EADS 
7.978  The United States claims that the 2002 loan gran ted to EADS is specific within the meaning 
of Article 2.1(c) because in its view: (i) it repr esents a disproportionately large amount of subsidy 
granted to certain enterprises when measured against (a) all of the loans granted by the EIB for the 
purpose of research and development projects under the "Innovation 2000 Initia tive" ("i2i") in 2002, 
or (b) all of the loans granted by the EIB for th e purpose of research and development projects under 
the i2i between 2000 and the end of 2002, in the light of the highly diversified nature of the EU economy; and (ii) it evidences predominant use of the i2i subsidy programme by EADS.   
7.979  Before evaluating the merits of the United States' claims, we recall that we have already 
found that the 2002 finance contract between the EIB and EADS evidences the existence of two 
financial contributions: a direct tran sfer of funds in the form of the [***]
 loan; and a potential direct 
transfer of funds in the form of the EUR 700 million credit line.3749  Of the two financial 
                                                      
3749 See, para. 7.738 above.  WT/DS316/R 
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  contributions, we have found that the United Stat es has established that only the former confers a 
benefit upon Airbus, and ther efore constitutes a subsidy.3750  Thus, for the purpose of our specificity 
analysis, the relevant subsidy that must be examined is that conferred by the [***] loan, as evidenced 
by the 2002 finance contract between the EIB and EADS.  
"the granting of disproportionately large amounts of subsidy to certain 
enterprises" 
7.980  Both parties have advanced their arguments on whether the 2002 loan to EADS involved "the 
granting of disproportionately large amounts of s ubsidy to certain enterprises" by equating the 
financial contribution provided under the 2002 loan cont ract with the "amounts of subsidy" referred to 
in Article 2.1(c).  In our view, when the subsidy at  issue is provided in the form of a loan granted on 
below market interest rate terms, the amount of the subsidy benefit – i.e., the amount of the subsidy – 
will be a function of the interest rate advantage, the amount of the loan principal and the period of 
repayment.  Thus, the amount of principal transfer red under a loan may be a useful indicator of the 
amount of a subsidy, particularly where, as in th e present case, there is evidence showing that the 
interest rate terms of loans provided by the gran ting authority followed a standard methodology, and 
the parties in dispute have not argued there to be, in general, any material difference in the subsidy 
intensity between loans.  Thus, given the particular facts that are before us, we believe that the actual 
amount of principal transferred to the recipients of subsidized loans granted by the EIB may serve as a 
reasonable proxy of the "amounts of subsidy".   
7.981  A "disproportionality analysis" requires the id entification of an appropriate "baseline".3751  
The United States argues that the rele vant baseline to use for this purpose is the total amount of funds 
lent by the EIB for research and development pr ojects under the i2i in 2002, or between 2000 and the 
end of 2002.  According to the United States, such an approach mirrors the EIB's own description of 
its lending activities, which it considers demonstrates that the EIB had set up the i2i as a distinct 
lending programme with one of its particular objectives being the funding of research and 
development projects.  In this regard, the United St ates notes that at its launch, the EIB had explicitly 
described the i2i as "a practical programme ai med at building a Europe  based on knowledge and 
innovation"; a "dedicated EUR 12-15 billion lending programme", which in February 2003 the EIB 
declared "had fully achieved its objectives" upon having committed EUR 14.4 million in loans by the 
end of 2002.  The United States justifies its focus on i2i lending for research and development  by 
recalling that "research and development" was one of five alleged "economic sectors" targeted by i2i; 
and because "research and development" was a headi ng used by the EIB for the purpose of reporting 
the progress of its lending activities in its Activity Reports.  Moreover, the United States submits that 
the distinct research and development focus of the i2i is also evidenced by the fact that the EIB used 
research and development lending under the i2i as the "principal tool" with which it implemented the 
formal agreement that existed between the Europ ean Commission and the EIB to cooperate "with the 
aim of optimising their action in the field of research and the exploitation of its results".3752   
7.982  We are not convinced by the United States' su bmission.  The United States places significant 
reliance on the EIB's own characterisation of the i2 i as a "programme" to conclude that it should be 
treated as such for the purpose of Article 2.1(c).  As a general matter, we doubt whether a granting 
authority's own description of the nature of its activ ities can always be given the probative value that 
the United States attributes to the EIB's statements.  Nevertheless, we recognize that the statements of 
                                                      
3750 See, paras. 7.885 and 7.887 above. 
3751 See, paras. 7.961-7.970 above. 
3752 US, Answer to Panel Question 14, citing the Joint Memorandum establishing a framework for co-
operation between the community research framework pr ogramme and the "Innovation 2000 Initiative" between 
the European Community represented by the Commission of the European Communities and the European Investment Bank, para. 4, Exhibit US-155. WT/DS316/R 
Page 620  
BCI deleted, as indicated [***] 
 
  the authority responsible for granting subsidies that  are alleged to be specific will be relevant to 
determining whether those subsidies are in fact specific within the meaning of Article 2.1(c).  
However, their probative value needs to be assessed  on a case-by-case basis.  In the present instance, 
when considered in their proper context, the EIB statements provide little, if any, support for the 
contention that the i2i was a "programme" in th e sense that is argued by the United States. 
7.983  The first statement the United States relies upon was taken from an undated three page EIB 
publication introducing the i2i.  The first sentence of this publication reads:   
"In order to support the guidelines laid down by the Heads of Government, the EIB is 
implementing its Innovation 2000 Initiative, a practical programme
 aimed at building 
a Europe based on knowle dge and innovation. " 3753 
We note, however, that in the very next senten ce, the EIB describes th e i2i as an "initiative": 
 
"Adopted by the EIB's Board of Governors at  its Annual Meeting in June 2000, this 
initiative  covers a number of operational principles intended to target lending by the 
EIB Group towards the following five objectives: ..." 3754 
The United States also refers to the EIB's description in the same document of the i2i as a "dedicated 
EUR 12-15 billion lending programme".  This st atement is drawn from the following passage: 
 
"Over the next three years, EIB support fo r these areas will take the form of a 
dedicated EUR 12-15 billion lending progra mme, plus a further EUR 1 billion for 
developing venture capital operations.  Rath er than increasing the volume of finance , 
the Innovation 2000 Initiative will mark  a qualitative shift of emphasis  in the EIB 
Group's activities towards sectors of the future with high technological value added."
3755 
In our view, this statement shows that the i2i w as not intended to represent a new "programme" in the 
sense that is argued by the United States, but rather only a "qualitative shift of emphasis" in the EIB's 
ongoing finance activities without increasing their overa ll volume.  In other words, as we read it, the 
statement suggests that the i2i was intended to ope rate as an "innovation"-focused continuation of the 
EIB's ongoing lending activities.  7.984  According to an EIB press releas e, the i2i was "put in place by the EIB to support the 'Lisbon 
Strategy', as chartered by the European Counc il in March 2000, for building a 'European economy 
based on knowledge and innovation'".
3756  Similarly, the EIB Eligibility Guidelines explain that "{t}he 
Bank's 'Innovation 2000 Initiative' ... is the Bank's cont ribution to the Lisbon process, which itself was 
launched at the Extraordinary EU Summit in Lisbon in March 2000."3757  The overall goal of the 
Lisbon Strategy was for Europe "to become the most competitive and dynamic knowledge-based 
economy in the world capable of sustainable growth  with more and better jobs and greater social 
cohesion'" through a series of actions including increased support for research and development,  
competitiveness and innovation.  In 2004, the EIB d escribed its involvement in the implementation of 
the Lisbon Strategy through the i2i in the following terms: 
                                                      
3753 Exhibit US-154 (Underline added). 
3754 Exhibit US-154 (Underline added). 
3755 Exhibit US-154 (Underline added). 
3756 Exhibit US-164. 
3757 EIB Eligibility Guidelines , Exhibit EC-161, p. 8 (emphasis original).  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  "The EIB Group has been involved in the pr eparation and in the implementation of 
{the Lisbon Strategy}, focusing its efforts on those innovation areas where particular investment efforts were most required and where supporting EIB loans or EIF venture capital (and guarantees) could be best deployed.  Accordingly, in 2000, the Bank 
launched the 'Innovation 2000 Initiative'.  To some extent, i2i built upon the 
experience gained within the {EIB's} 'Amsterdam Special Action Programme' 
(ASAP), which ran from 1997-2000 and introduced or reinforced lending for education, health and R&D, as well as investment in venture capital."
3758 
7.985  With this description, the EIB explicitly acknow ledges that the lending activities carried out 
under the i2i were "to some extent" a more focu sed continuation of lendi ng activities undertaken 
between 1997 to 2000.  Indeed, other evidence confir ms that of the five lending objectives targeted 
under the i2i ("development of SMEs and entreprene urship"; "diffusion of innovation"; "research and 
development"; "information and communications  technology networks"; and "human capital 
formation"3759), at least four (if not all five) were alr eady the subject of the EIB's lending activities 
prior to i2i.3760  
7.986  That the i2i was not a "programme" in the sen se argued by the United States is also supported 
by evidence showing that loans, including the 2002 lo an to EADS, were routinely considered by the 
EIB to satisfy multiple lending "objectives", not only the i2i.3761  Indeed, the EIB identifies the 
relevant "eligibility" criteria for the 2002 loan to EADS to be "i ndustrial competitiveness" not i2i.3762  
It is difficult to understand, and indeed, the Unite d States has said little to explain, how the i2i may be 
characterised as a "programme" distinct from the EIB's other lending in the light of the fact that loans 
granted thereunder were counted by the EIB for its own reporting requirements as satisfying multiple 
lending objectives.3763 
7.987  The United States considers that the EIB's exp licit description of the i2i as a "dedicated 
EUR 12-15 billion lending programme" suggests that it maintained a dedicated budget for i2i lending, 
thereby supporting the view that the i2i was a "p rogramme" of lending separate to the EIB's other 
lending activities.3764  The United States asserts that the EIB's declaration in early 2003 that it "had 
                                                      
3758 EIB Eligibility Guidelines , Exhibit EC-161, p. 8.  "ECOFIN" is the Economic and Financial Affairs 
Council of the EU.  It is composed of the Economics a nd Finance Ministers of the  EU Member  States, as well 
as Budget Ministers when budgetary issues are discussed. 
3759 US, Answer to Panel Questions 14 and 218, the latter referring to The Innovation 2000 Initiative, 
Actively promoting a European economy based on knowledge and innovation , European Investment Bank, 
pp. 2-3, Exhibit US-154. 
3760 The EIB has consistently provided funding to "European communications infrastructure", "human 
capital" and "industrial competitiveness" projects since well before launching the i2i.  Exhibit EC-713.  
Moreover, the Eligibility Guidelines  reveal that the EIB started lending fo r "ex ante research and development" 
projects in 1995, and in the area of "education" ( i.e., "human capital") in 1981.  Exhibit EC-161, pp 11 and 18.  
As regards the "diffusion of innovation", we see no reason why the same or similar types of projects may not 
have also been funded by the EIB prior to the launch of the i2i under one of its other lending objectives. 
3761 Exhibit EC-163 indicates that the 2002 loan to EA DS fell within three of the EIB's lending policy 
objectives: "Common Interest (267 – c)", "i2i" and "Int. Compet. and EU. Int."  Exhibit EC-163 also identifies 
many other projects financed by the EIB that were classified under multiple policy objectives, including i2i.  
One such example is the 2001 EUR 100 million loan for the "Big Education Infrastructure" project, described as 
falling within five policy objectives: "Economic and Social Cohesion (267a)", "Common Interest (267 – c)", "i2i", "Environment" and "Human Capital". See, also, EC, Answer to Panel Question 182, footnote 92. 
3762 Exhibit US-157; and EC, SWS, footnote 418, referring to Exhibit EC-163. 
3763 Exhibit EC-713 contains a table breaking down the individual loans provided by the EIB within the 
EU in 2002 by six headings, which broadly correspond with  its lending objectives.  A footnote to this table 
reads: "As certain financing operations meet several obje ctives, the totals for the various headings cannot be 
meaningfully added together." 
3764 US, Answer to Panel Questions 14 and 218 WT/DS316/R 
Page 622  
BCI deleted, as indicated [***] 
 
  fully achieved its i2i objectives" upon having committ ed EUR 14.4 billion in loans by the end of 2002 
supports its position.
3765  We recall, however, that neither the EC Treaty nor the EIB Statute place any 
legal limits on the amount of lending that the EIB may undertake (apart from requiring that the 
aggregate amount of outstanding loans and guara ntees at any time does not exceed 250% of its 
subscribed capital, and that its reserves are maintain ed at a level that covers 10% of its subscribed 
capital).3766  Therefore, the "dedicated" funding amount that is referred to in the EIB statement is 
probably more accurately to be understood as the ta rget volume of lending the EIB's management set 
for projects supporting the i2i policy objective in 2 002.  Because projects considered to fall within the 
i2i may also satisfy other EIB policy objectives,3767 it follows that the EIB's declared "dedicated" 
funding amount covered projects that satisfied different and multiple EIB policy objectives that 
included i2i.  In other words, even as an expression of the goals of EIB management for the volume of 
i2i lending to be achieved in 20 02, the "dedicated EUR 12-15 billion"  was, in effect, not a target 
limited to only i2i projects.   
7.988  Finally, we note that the United States does not argue that loans granted under i2i were 
approved under a different applica tion, review or decision-making procedure compared with other 
EIB loans.  Nor does it contend that the loans gr anted under the i2i were granted on contractual terms 
and conditions that distinguished them from other lo ans granted by the EIB.  However, in our view, 
an understanding of the legal regime pursuant to whic h an alleged subsidy is gr anted is a relevant and 
important consideration when making a specificity determination under Article 2.1(c) as it helps to 
define the relevant "programme".  In this respec t, we note that no evidence has been presented to us 
showing that i2i loans were granted pursuant to a le gal regime that is different from that created by 
Article 267 of the EC Treaty and the provisions of th e EIB Statute; or that these loans were approved 
using a review procedure that is different from that described in the EIB's Project Cycle Document . 
7.989  Having carefully considered the detailed eviden ce and arguments presented by the parties, we 
believe that the i2i cannot be properly characterised as a "programme" for the purpose of 
Article 2.1(c).  The EIB was established under the EC Treaty, which gave it a general mandate to lend 
funds "to all sectors of the economy" for the purpo se of contributing "to the balanced and steady 
development of the common market in the interest of the Community".  This mandate is explicitly 
recalled and implemented through the EIB Statute.  Like the EC Treaty, the EIB Statute indicates that the focus of the EIB's lending should be on projects that contribute to an increase in economic productivity in general and promote the attainment of  the common market.  EIB funding is intended to 
support and contribute to the attainment of EU pol icy objectives, which the EIB has consistently 
identified in various documents including the Project Cycle Document  and the Eligibility Guidelines .  
Funded projects may qualify for one or more of th ese objectives and are reported as such in the EIB's 
Annual Reports.  This and other evidence tends to  support the view that the "programme" in the 
present instance is EIB lending as a whole, which constitutes one single discretionary programme of 
financing.
3768  Thus, the relevant subsidy programme from wh ich to derive the "baseline" must be the 
entire programme of EIB lending as mandated under the EC Treaty and the EIB Statute, not all of the EIB's lending under the i2i.
3769 
                                                      
3765 US, Answer to Panel Questions 14 and 218, referring to European Investment Bank, Annual Press 
Conference 2003, Background Note No. 1: Innovation and Knowledge-Based Economy, p.1, Exhibit US-164. 
3766 See, para. 7.917 above. 
3767 See, para. 7.986 above. 
3768 See, para. 7.923 above. 
3769 We note that the parties have not argued that we should limit our consideration of the EIB's lending 
activities to data that relates only to loans grante d for the purpose of the production or sale of goods .  However, 
in our view, the fact that the SCM Agreement is intended to deal exclusively with subsidies to goods , could be 
understood to mean that the baseline for a disproportionality analysis should ignore any subsidies granted for the provision of services.    WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  7.990  However, this does not mean that we agree with the European Communities when it argues 
that the relevant "baseline" should be the value of the EIB's entire lending activities since 1957.  As 
we have previously explained, when assessing whether a subsidy granted under a long-standing 
subsidy programme is specific unde r Article 2.1(c), the identification of the proper "baseline" will 
involve taking into account the extent to which it would be reasonable and a ppropriate to determine 
whether the subsidy at issue is in  fact sufficiently broadly available throughout an economy so as not 
to benefit "certain enterprises" on the basis of the entire duration of the subsidy programme or a 
shorter period of time.  Although the parties in the present dispute have not submitted any data 
specifically for this purpose, evidence of the EIB' s total lending in 2004, the year in which the 2002 
loan to EADS was disbursed, indicates that the [***] loan represented approximately [***] of the all 
loans disbursed in that year.3770  Excluding "global" loans from this calculation, which between 1957 
and 2006 accounted for approximately 27% of the EIB's loans,3771 it is possible to estimate that the 
[***] financing received by EADS under the 2002 loan represented [***] of all "individual" loans 
disbursed by the EIB in 2004.  Essentially the same r esult holds if the loan to EADS is considered in 
the light of the total amount of all lo ans disbursed in 2002 (EUR 35,214 million)3772 or even all 
"individual" loans, which we can estimate w ould have been approximately EUR 25,700 million.3773  
Given that we have found the i2i to be an "innovation"-focused continuation  of the EIB's existing 
lending, using the amount of all EIB lending (actual disbursements) in one calendar year is perhaps 
too short a period within which to assess whether the amount of the loan to EADS was "disproportionately large".  Nevertheless, even when  using calendar year data from the year in which 
the loan was disbursed (2004) or when the loan f acility was first agreed (2002), the amount of the loan 
to EADS represents at most [***] of total EIB lending in the form of "individual" loans in each of 
those two years.  Obviously, considering the amount of the loan to EADS in the light of EIB lending data over a longer period would render this pr oportion smaller.  Accepting that the European 
Communities has a highly diversified economy, we do not believe that these data imply that the 2002 
loan to EADS represents a dispropor tionately large amount of subsidy.  
7.991  Thus, in conclusion, we find that the United St ates has failed to establish that the 2002 loan to 
EADS involves "the granting of disproportionately  large amounts of subsidy to certain enterprises" 
within the meaning of Article 2.1(c) because the [***] loan to EADS was not disproportionately large 
when considered in the light of the total value of  the EIB's lending programme over a period of time 
that we believe is reasonable and appropriate  for the purpose of conducting a disproportionality 
analysis. 
"predominant use" 
7.992  The United States relies upon essentially the same f acts and arguments advanced in respect of 
its allegation of "disproportionalit y" to support its claim that the 2002 loan to EADS evidences 
"predominant use" of a subsidy programme, maki ng it a specific subsidy within the meaning of 
Article 2.1(c).  Again, the United States' arguments are framed in terms of the amount of the financial 
contribution received by EADS under the loan compared  with: (a) all of the loans granted by the EIB 
for the purpose of research and development projects under the i2i in 2002, or (b) all of the loans 
granted by the EIB for the purpose of research and development projects under the i2i between 2000 
and the end of 2002, in the light of the highly divers ified nature of the EU economy.  In addition, the 
United States also asserts that the loan granted to EADS was the single largest provided to any one 
                                                     
 
3770 EIB Annual Report 2004, Volume I Activity Report , p. 4, indicating that "Loans disbursed" in 2004 
amounted to EUR 38 547 million (excluding EUR 93 million of loans disbursed via the EIB's "Investment Facility").  Exhibit EC-714. 
3771 EC, FWS, para. 1048, Exhibit EC-165.   
3772 EIB Group Activity Report 2002 , p. 2.  Exhibit EC-712. 
3773 (73% of EUR 35,214 million =  EUR 25,706 million) WT/DS316/R 
Page 624  
BCI deleted, as indicated [***] 
 
  company under the alleged i2i programme taken as  a whole, over the period 2000 to 2003 or even 
between 2000 and 2006.
3774 
7.993  We recall that "predominant use {of a subsidy programme} by certain enterprises" may be 
simply described as the situation where a subsidy prog ramme is mainly, or for the most part, used by 
certain enterprises.  "Predominant use {of a subs idy programme} by certain enterprises" may indicate 
that a subsidy is in fact specific, within the meani ng of Article 2.1(c), when in the light of (i) "the 
extent of diversification of economic activities with in the jurisdiction of the granting authority"; and 
(ii) "the length of time during which the subsidy programme has been in operation", such predominant 
use suggests that the subsidy at issue is not sufficiently broadly available throughout an economy so 
as not to benefit "certain enterprises".3775  In our view, when cons idering whether there is 
"predominant use" of a subsidy programme within  these terms, the starting point should be the 
identification of the relevant subsidy programme.   
7.994  For the same reasons advanced to support its allegations of "disproportionality", the United 
States contends that the relevant subsidy progra mme for the purpose of determining whether the 2002 
loan to EADS evidences "predominant use" is the i2i.  We have already dismissed the United States' 
contention, and found instead that the relevant  subsidy programme is the EIB's entire lending 
activities as mandated under the EC Treaty and EIB Statute.3776  Moreover, we have also concluded 
that when measured against the estimated value of all "individual" loans disbursed by the EIB in only 
one year – 2002 or 2004 – the amount of the loan to EADS represents at most [***].3777  Bearing in 
mind that the European Communities has a highl y diversified economy, and considering that 
this percentage would be even sm aller if the EADS loan amount were measured in the light of EIB 
lending data over a longer period,  we do not consider the 2002 loan to EADS to evidence 
"predominant use" of a subsidy prog ramme by "certain enterprises".   
7.995  We come to the same conclusion when consid ering the United States' allegations about the 
size of the loan granted to EADS compared with  the size of loans granted to other recipients.3778  
Although there is no precise data before us on the value of EIB loan disbursements per corporate 
recipient for its entire lending programme (which  would have been our preferred level of 
comparison), we do have information on the value of disbursements made by the EIB to projects 
qualifying under the i2i between 2000 and 2006 by recipient.3779  Perusing this information, we cannot 
see any corporate borrower3780 that received an "individual" loan that was greater in amount than the 
[***] disbursement received by EADS in 2004.  Ho wever, there are at least six companies that 
received seven "individual" loan disbursements in 2000, 2001, 2003, 2005 a nd 2006 that were greater 
than [***].3781  Thus, even when examining the comparativ e size of the 2002 loan to EADS at the 
level of the i2i, it does not appear to us that the [***] loan disbursement to EADS evidences 
"predominant use" by EADS, irrespective of whether we review the data from 2000 to 2002 (which the United States asserts would be correct)
3782 or the period 2000 to 2006 (which the European 
Communities suggests could be used).3783  Although, as already mentioned, we have no precise details 
                                                      
3774 See, para. 7.944 above. 
3775 See, para. 7.974-7.976 above. 
3776 See, para. 7.989 above. 
3777 See, para. 7.990 above. 
3778 We recall that our specificity analysis is concerned with the [***]  loan that was actually disbursed, 
not the EUR 700 million credit line.  See, para. 7.979 above. 
3779 Exhibit EC-883 (BCI). 
3780 Excluding banks and public entities or public corporations. 
3781 The companies and respective disbursements, in cluding dates, are: Telefonica Finanzas SA [***] ; 
Wind Telecomunicazioni SPA [***] ; Deutsche Telekom AG [***] ; ENEL Distribuzione SPA [***] ; One 2 one 
Personal Communications [***] ; and Vodafone Group PLC [***] .  Exhibits EC-883 (BCI) and EC-163. 
3782 E.g., US, Comments to EC, Answer to Panel Question 181. 
3783 E.g., EC, Answer to Panel Question 181.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  on the value of EIB loan disbursements per corpor ate recipient for its entire lending programme in 
any given year, we strongly suspect that considering the loan to EADS within this broader comparison 
group between 2000 and 2006, or even 2000 and 2003, would render it even less significant compared 
with other "individual" loans granted to corporate recipients in the same years.3784  
7.996  Thus, we conclude, on the basis of the foregoing analysis, that the United States has failed to 
establish that the 2002 loan to EADS involves "pre dominant use by certain enterprises" of the EIB's 
lending programme, within the meaning of Article 2. 1(c), and is therefore not specific under the terms 
of this provision.  
The loans granted to Airbus between 1988 and 1993 
7.997  The United States claims that the loans grante d to Airbus between 1988 and 1993 are specific 
within the meaning of Article 2.1(c) of the SCM Ag reement because, in its view, the sum-total of the 
financial contributions provided thereunder repr esent a disproportionately large amount of subsidies 
granted to certain enterprises when measured agains t: (a) the value of all EIB loans granted between 
1988 and 1993 and falling within the then-existing "industry, services and agriculture" category used 
by the EIB to describe its lending activities; or (b) the value of all of the EIB loans granted between 
1988 and 1993 and falling within th e EIB's then-existing "international competitiveness and European 
integration of large firms" objective, in the light of  the highly diversified nature of the EU economy.  
In addition, the United States argues that the ch allenged loans involved disproportionately large 
amounts of subsidies because it alleges that: (i) Air bus was the largest recipient of EIB "individual" 
loans between 1988 and 1993; (ii) among private en terprises, the EIB loans to Airbus from 1988 to 
1993 were approximately 44% more than to the next  largest recipient; and (iii) the amount of loans 
received by Airbus between 1988 and 1993 exceeded  EIB lending to any entire industrial sector 
during this period, with the exception of chemicals and other transport equipment.3785 
7.998  As with the arguments advanced in respect of the 2002 loan to EADS, both parties have 
presented their positions on the question whether the challenged EIB loans granted to Airbus between 
1988 and 1993 involve the granting of disproportionate ly large amounts of subsidy by focusing on the 
amount of financial contributions.  Although the amount  of a financial contribution in the form of a 
loan is not the amount of the subsidy granted pursuant to that loan, we believe that the amount of principal transferred under a loan may be a useful i ndicator of the amount of a subsidy, particularly 
where, as in the present case, there is  evidence showing that the inter est rate terms of loans provided 
by the granting authority followed a standard methodol ogy, and the parties in dispute have not argued 
there to be, in general, any material diffe rence in the subsidy intensity between loans.
3786  Thus, given 
the particular facts that are before us, we believe that the actual amount of principal transferred to the 
recipients of subsidized loans granted by the EIB may serve as a reasonable proxy for the "amounts of subsidy". 
7.999  The United States contends that publicly availa ble information shows that the entire sum of 
the financial contributions transferred to Ai rbus under the challenged loans amounted to 
EUR 1,061 million.
3787  The figure advanced by the Europ ean Communities is essentially the same.3788  
                                                      
3784 Historically, the EIB disburses around 84% of the loan amounts agreed under contract.  EC, 
Answer to Panel Question 181.  On this basis, it is possible to identify from Exhibit EC-163 at least 40 
"individual" loans "signed" by the EIB between 2000 and 2006 that involved estimated disbursed  funding 
amounts in excess of [***]  – i.e., individual loans with a "signed" value greater than [***] . 
3785 US, Answer to Panel Question 15, referring to inter alia, Exhibit US-475. 
3786 See, para. 7.980 above. 
3787 US, FWS, para. 420, Exhibit US-475.  The same amount is arrived at by adding the individual loan 
values identified in Exhibit US-157 (subtracting the 1997  loan to Aérospatiale for the Super Transporteur, 
against which the United States no  longer pursues its complaint). WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  Thus, there is no apparent disagreement between the parties as to the approximate value of all of the 
funding amounts received by Airbus under the challenged loans.  Moreover, we note that the European Communities has not disputed the United Stat es' decision to present its claims of specificity 
against the challenged loans on an aggregate basis, as opposed to addressing each loan individually, as 
it did in respect of the 2002 loan to EADS.  Indeed , in its response to the United States' claims, the 
European Communities has to varying de grees adopted the same approach.   
7.1000  In our view, where a series of loans conferring a benefit upon the same recipient has been 
granted under a single long-standing subsidy progra mme, it may be appropriate to examine whether 
the provision of such loans involved the granting of disproportionately large amounts of subsidy, 
within the meaning of Article 2.1(c), by aggregati ng the subsidy amounts, particularly where there is a 
close temporal connection between each loan.  Howeve r, the fact that all such subsidy amounts have 
been aggregated must be taken into account in identifying the appropriate duration of the subsidy 
programme.
3789  Thus, it is conceivable that a party invo king Article 2.1(c) in WTO dispute settlement 
proceedings may want to conduct a disproportion ately analysis by cumulating subsidy amounts 
granted in, for example, the first two years of a ten year subsidy programme.  In this event, it would 
not, in our view, be appropriate to compare the su m total of these subsidy amounts with all subsidies 
granted under the programme in only its first or sec ond year of existence.  Moreover, in the same 
factual circumstance, it may also not make sense to compare the cumulated subsidy amount with 
subsidies that include amounts granted in the last two years of the subsidy programme if there has 
been a material change in the importance of the subsidized activities in the wider economy.3790  In this 
context, we see no contradiction (and certainly , the European Communities has not drawn our 
attention to any) between the approach adopted by  the United States in presenting its allegations of 
specificity against the 2002 loan to EADS and its appro ach to the eleven other lo ans, the last of which 
was granted in 1993. 
7.1001  Turning to the substance of the United States' cl aim, we recall once again, that in order to 
examine whether the amount of subsidy grante d under a particular subsidy programme is 
disproportionately large for the purpose of Article 2. 1(c), an appropriate "baseline" or "reference data" 
must be chosen.3791  Moreover, where the subsidy amount at  issue is granted pursuant to a subsidy 
programme, the "baseline" or "reference data" mu st be derived from that subsidy programme.3792  In 
the case of the challenged loans, the United States id entifies two possible "baselines": (a) the value of 
all EIB loans granted between 1988 and 1993 that fall  within the then-existing "industry, services and 
agriculture" category used by the EI B to describe its lending activities; or (b) the value of all of the 
EIB loans granted between 1988 and 1993 that fall  within the EIB's then-existing "international 
competitiveness and European integration of large firm s" objective.  We are not convinced by either 
of these options. 
                                                                                                                                                                     
3788 The European Communities notes on  several occasions that the valu e of the EIB loans (including 
the full EUR 700 million credit line opened in favour of EADS in 2002) amounts to approximately 0.3% of the EIB's total lending from 1957 to 2006, which it discloses was EUR 591.5 billion.  Thus, excluding the 
EUR 700 million credit line agreed with EADS, the value of the remaining challenged EIB loans the European 
Communities considers is at stake is approximately EU R 1,075 million.  EC, SWS, para. 478; EC, SNCOS, 
para. 195; EC, Comments on US Answer to Panel Question 151. 
3789 We recall that in considering whether a subsidy has been granted in disproportinately large 
amounts for the purpose of Article 2.1( c), "account shall be taken ... of th e length of time during which the 
subsidy programme has been in operation".  See, paras. 7.966-7.970 above. 
3790 Our observations on the effect that material changes in the importance of subsidized activities in 
the wider economy may have on determining whether a subsidy has been granted in disproportionately large 
amounts for the purpose of Article 2.1(c) of the SCM Agreement are set out at para. 7.970 above. 
3791 See, paras. 7.961-7.970 above. 
3792 See, para. 7.967 above.  WT/DS316/R 
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  7.1002  As the United States acknowledges, the "industry,  services and agriculture" and "international 
competitiveness and European integration of larg e firms" are not separate subsidy programmes 
operated by the EIB, but rather merely classificati on descriptions used by the EIB when reporting its 
overall lending activities.3793  This is clear from the extracts of  the EIB Annual Reports submitted by 
the United States in Exhibits US-176 to US-1 81.  Using these headings as the focus of a 
"disproportionality" analysis would ignore that, at the time of the challenged loans, the scope of the 
EIB's lending programme extended beyond the two partic ular headings chosen by the United States.  
In particular, the "industry, services and agricu lture" heading was one of two economic sectors;3794 
and the "international competitiveness and European in tegration of large firms" one of five lending 
objectives,3795 used by the EIB to describe its operations.  As we have already found, it is the EIB's 
entire lending programme as mandated under the EC Tr eaty and EIB Statute that must be used as the 
starting point for the identification of the corre ct "baseline" to perform a "disproportionality" 
analysis.3796 
7.1003  The total value of "individual" loans granted by the EIB within the European Communities 
between 1988 and 1993 amounted to ECU 62,057 million.3797  It is unclear from the evidence that is 
before us whether this amount represented "signed" or "disbursed" amounts of funding.3798  I f  t h e  
former, then bearing in mind that the EIB has hi storically disbursed 84% of its "signed" loan 
amounts,3799 the value of "individual" loans actually disbursed between 1988 and 1993 could be 
estimated to be ECU 52,142 million.  This means that the EUR 1,061 million loan amount received by 
Airbus represents approximately 2% of the EIB' s entire "individual" loan disbursements over the 
period between 1988 to 1993.  However, in our view, given that the subsidy amount at issue relates to 
eleven loans granted over a period of six years,  and because the EIB operates a lending programme 
that is long-standing, it would be reasonable and appr opriate to consider the relative importance of the 
loans to Airbus over a longer period than the si x years between 1988 and 1993.  When doing so, we 
note that even with the addition of data from just  one additional year, the loan amounts granted to 
Airbus would represent a proportion of all EIB "indivi dual" loan disbursements that is smaller than 
2%.  Considering that the European Communities has a highly diversified economy, we do not believe that these data support the conclusion that the el even challenged loans to Airbus evidence the 
existence of a subsidy that is, in fact, speci fic within the meaning of Article 2.1(c).  
7.1004  Finally, the United States contends that the el even challenged loans to Airbus involved the 
granting of disproportionately large amounts of subs idy because: (i) Airbus was the largest recipient 
of EIB individual loans between 1988 and 1993; ( ii) among private enterprises, the EIB loans to 
Airbus from 1988 to 1993 were appr oximately 44% more than to the next largest recipient; and (iii) 
the amount of loans received by Airbus between 1988 and 1993 exceeded EIB lending to any entire industrial sector during this period, with the exception of chemicals and other transport equipment.  In 
particular, the United States argues that "these add itional facts show that even looking at the EIB 
                                                     
 
3793 See, e.g., US, Answer to Panel Question 15. 
3794 The other being "energy and infrastructure". 
3795 The other four lending objectives were: "regional development"; "Community infrastructure"; 
"energy"; and "protection of the environment and urban development".  We note that the extracts of the Annual 
Reports submitted by the United States do not identify "international competitiveness and European integration of large firms" as an EIB lending objective for the year 1988.  See, Exhibit US-176. 
3796 See, para. 7.989 above. 
3797 Exhibits US-176 to US-181. 
3798 The European Communities asserts that the fundi ng amounts identified in Exhibits US-176 to 
US-181 represent "signed" amounts of funding within the European Communities.  EC, Request for Interim 
Review, p. 15. 
3799 See, footnote 3784 above. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  loans from perspectives other than  those suggested in {its first written submission}, {the loans to 
Airbus} still were disproportionately large".
3800 
7.1005  We have doubts about whether the United States ' factual assertions necessarily imply that the 
funding amounts obtained by Airbus between 1988 and 1993 involved the granting of 
disproportionately large amounts of subsidy, within the meaning of Article 2.1(c).  For instance, we 
can see no apparent reason why the simple fact that Ai rbus may have been the largest private recipient 
of funds over this period demonstrates, in the light of the highly diversified nature of the European 
Communities' economy and the long-standing duratio n of the EIB lending programme, that the EIB's 
subsidies are in fact not sufficiently broadly available throughout an economy to warrant a finding of 
specificity.  Moreover, we are not entirely convinced  that it is appropriate, given that many of the 
loans the United States is challenging in this dis pute were to entities that were at least partly 
government owned,3801 to remove all information about loans to publicly owned entities from 
consideration in the analysis.  Indeed, the Unite d States has not done so in the other analyses of 
"disproportionality" it has presented.   
7.1006  However, even apart from these doubts, we cannot  accept the United States' contention.  This 
is because it is premised on "baseline" information that is drawn exclusively from the EIB's activities 
in the years in which the loans at  issue were granted to Airbus.  The United States has not explained 
why the duration of the "baseline" should be limited to these years, other than to point to the fact that 
these were the years in which the Airbus loans were  agreed.  Moreover, as we have articulated above, 
we believe that given the subsidy amount at issue re lates to eleven loans granted over a period of six 
years, and in the light of the long-standing nature of the EIB lending programme, it would be 
reasonable and appropriate to take into account information from years in which Airbus did not 
participate in the EIB's lending programme.  Incl uding data on the EIB's lending activities from, for 
instance, the four years after 1993 into the analysis ( i.e., using a ten year "baseline" period from 1988 
to 1997) would show that FIAT received more in loans from the EIB than Airbus.3802  It would also 
diminish the importance of the loans received by Airbus over this period compared with other 
industry sectors.3803  
7.1007  Thus, for all of the above reasons and, in the light of the highly diversified nature of the 
European Communities' economy a nd the long-standing duration of the EIB's lending programme, we 
find that the United States has not established that the three additional facts it points to (described 
above)3804 demonstrate that the loans granted to Air bus between 1988 and 1993 were specific within 
the meaning of Article 2.1(c). 
                                                      
3800 US, Answer to Panel Question 15, referring to inter alia, Exhibit US-475. 
3801 The European Communities points out that "all of th e recipients of the challenged loans (other than 
British Aerospace and Ai rbus Industrie)" were companies "owned  by state".  EC, SWS, para. 473. 
3802 See, Exhibit EC-163, showing that FIAT recei ved loans worth EUR 83 million (1995), 
EUR 180 million (1996) and EUR 210 million (1997).  In 1998, FIAT obtained an additional loan of 
EUR 250 million. 
3803 The European Communities argues that had the United States' analys is taken into account the EIB's 
lending via "global" loans, it would have discovered that value of the loans to Airbus between 1988 and 1993 was less than the value of the loans granted to not only the "Transport equipment" and "Chemicals" sectors, but 
also "Metalworking and mechanical engineering", "Foodstuffs", "Paper and pulp, printing", "Electrical 
engineering and electronics" and "Rubber and plastics processing".  EC, SWS, para. 476 and Exhibit EC-720.  However, we cannot accept this proposition as it suggests th at the EIB's "global" loans are granted pursuant to 
the same decision-making process and on the same essential terms and conditions as "individual" loans, when 
the evidence before us suggests otherwise.  See, paras. 7.903 and 7.913 above. 
3804 See, para. 7.1004 above.  WT/DS316/R 
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  (d) Overall conclusion 
7.1008  In summary, we conclude that the United Stat es has failed to establish that each of the 12 
challenged EIB loans we have  found constitute subsidies3805 is specific within the meaning of 
Articles 2.1(a) and 2.1(c) of the SCM Agreement.   Accordingly, we dismiss the United States' 
complaint against these measures and will not c onsider them further in this dispute. 
6. Whether the German, French, UK, and Spani sh Governments Have Subsidized Airbus 
Through the Provision of Infrastructu re and Infrastructure-Related Grants 
(a) Introduction 
7.1009  In this section of our report, we address the United States' claims concerning infrastructure-
related measures provided by German authorities in  Hamburg, Nordenham, and Bremen; by French 
authorities in Toulouse; by UK authorities in Broughton, Wales; and by Spanish authorities in numerous locations in Spain.
3806   
7.1010  The United States asserts that the provision by the governments of Germany, France, the UK, 
and Spain of infrastructure and infrastructure–relate d grants constitutes specific subsidies within the 
meaning of Articles 1.1 and 2 of the SCM Agreement.  The United States specifically refers to the 
provision of the Mühlenberger Loch industrial site near Hamburg,3807 certain grants towards the costs 
of constructing the A380 assembly line in Hamburg,3808 the provision of the lengthened runway at 
Bremen airport,3809 the provision of the ZAC Aéroconstellation site,3810 access roads to the ZAC 
Aéroconstellation site and a linking road between the Aéroconstellation site and the "Itinéraire à grand 
gabarit" (IGG),3811 a grant by the German Land of Lowe r Saxony for the expansion of Airbus' 
Nordenham facility;3812 a grant by the Welsh government for Airbus' Broughton, Wales site;3813 and 
grants by Spanish local and regional governments fo r the expansion and modern ization of Airbus and 
EADS plants in Puerto de Santa Maria, Ill escas, Puerto Real, Sevilla and La Rinconada.3814 
7.1011  The United States argues that each of these measu res involves a financial contribution within 
the meaning of Article 1.1(a)(1)(i) or (iii) of th e SCM Agreement, each of which confers a benefit on 
Airbus within the meaning of Article 1.1(b) of the SCM Agreement.  The United States argues that 
the Mühlenberger Loch, Bremen airport, a nd ZAC Aéroconstellation and access roads are the 
provision of goods and services other than "general  infrastructure", and the remaining measures are 
outright grants, and thus there is a financial contribution by a government in each case.  The United States further asserts that each subsidy asserted is specif ic, either in law or in fact, or both, to Airbus.  
In asserting that they confer a benefit, the United States argues that the governments provided the 
infrastructure in question on better than commercial terms, based on comparison with asserted market 
benchmarks, or that the measures were gr ants, and thus conferred a benefit.   
                                                     
 
3805 See, para. 7.885 above. 
3806 US, FWS, para. 421.   
3807 US, FWS, para. 423. 
3808 US, FWS, para. 446.  The United States did not pursue its claim in this regard, US, Answer to 
Panel question 24, para. 167.  We therefore do not address this claim further, and make no findings with respect to it. 
3809 US, FWS, paras. 450-51. 
3810 US, FWS, para. 456. 
3811 US, FWS, para. 456. 
3812 US, FWS, para. 488. 
3813 US, FWS, para. 490. 
3814 US, FWS, para. 486. WT/DS316/R 
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  7.1012  The European Communities argues that the Mühl enberger Loch, Bremen runway extension, 
and the ZAC Aéroconstellation site and access roads constitute "general infrastructure" within the 
meaning of Article 1.1(a)(1)(iii), and thus there is  no financial contribution, such that these measure 
are not subsidies and are not properly before the Panel.
3815  In addition, the European Communities 
argues that assuming these measures did involve a fina ncial contribution, they did not confer a benefit 
on the recipients.3816  The European Communities does not make  any arguments regarding specificity 
in connection with these measures. 
7.1013  With respect to the measures that are outri ght grants, the European Communities does not 
dispute that each involves a financial contribution and confers a benefit on the respective recipient, 
but generally argues that they are not specific.3817  The European Communities asserts that certain of 
them are not specific because they are generally available to enterprises in the particular region,3818 
and certain of them are not specific because the re levant governing legislation establishes objective 
criteria governing the eligibility for, and the amount of, the grants in question.3819  In addition, the 
European Communities argues with respect to certa in of these measures that the recipient was not 
Airbus or that the grant in question was not provided in connection with LCA.3820 
7.1014  We begin our analysis of the United States' claims by addressing a question which is common 
to our analysis of the Mühlenberger Loch, Brem en airport, and ZAC Aéroconstellation measures:  
when does the provision of goods or services in the fo rm of infrastructure constitute the provision of 
infrastructure which is " other than  general " within the meaning of Artic le 1.1(a)(1)(iii) (emphasis 
added), such that there is a financial contribution by a government.  It is not disputed that these 
measures were provided by a "government" within th e meaning of Article 1.1(a)(1).  Therefore, 
should we conclude that these measures involve fi nancial contributions, we shall then go on to 
determine whether each measure confers a benefit on Ai rbus and, to the extent disputed, is specific.  
Finally, we will address the questions of whether the challenged grant measures provided by regional 
authorities are subsidies and were received by Airbus, and are specific within the meaning of 
Article 2.  With respect to these latter measures, th ere is no dispute as to the existence of a financial 
contribution by a government, or as to benefit.   
(b) When does the provision of goods or services in the form of infrastructure constitute the 
provision of infrastructure which is "other than general infrastructure" within the meaning of 
Article 1.(1)(a)(1)(iii)?  
(i) Arguments of the Parties 
7.1015  The United States asserts that the infrastruct ure-related measures in question constitute 
financial contributions within the meaning of Ar ticle 1.1(a)(1)(iii) in that these measures provide 
infrastructure which is "other than general".  The United States asserts that the ordinary meaning of 
the term "general infrastructure", in context and in light of the object and purpose of the 
SCM Agreement, leads to an interpretation that "g eneral" infrastructure is infrastructure that is 
accessible to all or nearly all users on a univer sal, non-discriminatory basis, where there are no de jure  
or de facto  limitations on use.3821  The United States argues that in order to be excluded from 
Article 1.1(a)(1)(iii) of the SCM Agreement as "gen eral" infrastructure, infrastructure must include, 
involve, or affect all or nearly all the parts of a whole territory or community; or must be completely 
                                                      
3815 EC, FWS, paras. 750, 875, 908, and 940. 
3816 EC, FWS, paras. 751, 876 and 909.  The European Communities also argues that the provisions of 
roads is not specific.  EC, FWS, para. 945. 
3817 EC, FWS, paras. 709, 948. 
3818 EC, FWS, paras. 892, 962, 967 and 980. 
3819 EC, FWS, paras. 898, 963, 969 and 971. 
3820 EC, FWS, paras. 975-997. 
3821 US, FNCOS, para 79.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  or nearly universal, as opposed to partial, particular, or local.  Conversely, the United States contends, 
infrastructure that includes, involves, or affects only a certain enterprise or group of enterprises, or 
that is open only to a limited number of enterprises  or group of enterprises ("specifically limited in 
application") does not constitute "general" infrastructure.3822  The United States goes on to argue that 
the provision of goods is "general infrastructure" "if it is available to all members of the public on the 
same terms and conditions".3823  In this context, the United States contends that the mere fact that a 
government creates infrastructure for reasons of "pub lic policy" or to "foster economic development" 
or to perform a public task does not make it "general ".  Thus, for the United States, universal use is 
the determinative factor of whether certain infrastru cture can be regarded as "general infrastructure" 
for the purpose of Article 1.1(a)(1)(iii) of the SCM Agreement.3824   
7.1016  The European Communities does not disagree wi th the view of the United States that 
universal use is an important factor when determin ing whether certain infrastructure can be regarded 
as "general infrastructure" for the purpose of Article  1.1(a)(1)(iii) of the SCM Agreement.  However, 
the European Communities does not accept that this element is the only, or the determinative, 
factor.3825  According to the European Communities,  th e term "general" given its ordinary meaning, 
in context and in light of its object and purpose, means the opposite of "specific", and the term "infrastructure" means basic goods and services  in a society which underpin its economic 
performance.
3826  Read together, in the European Comm unities' view, this means that "general" 
infrastructure is infrastructure provided for the benefit of the public at large, where the relevant good 
or service is accessible by the public at large, or where it "enables" members of the public at large, 
thereby fulfilling a public policy objective.3827  Thus, the European Communities concludes that 
infrastructure is general because it "benefits so ciety as a whole and reflects legitimate economic 
development policies".3828  In support of its view that the cha llenged measures constitute the provision 
of "general infrastructure", the European Comm unities argues that these measures are (i) government 
actions, related to basic installations, facilities a nd services needed to support economic development; 
(ii) further  public policy objectives and (iii) ar e designated for public use by because they are 
publicly accessible, because they "enable" members of the public at large, or because they provide 
common goods to the public . 3829   
7.1017  The European Communities considers that the reason general infrastructure measures are 
carved out from the SCM Agreement is because the negotiators were concerned that the 
SCM Agreement not interfere with legitimate gove rnment choices to pursue public policies for the 
benefit of the population as a whole.3830  The European Communities a sserts that the provision of 
general infrastructure is a public function of gove rnments, being one of the important tools for 
fostering of economic, social and cultural development.3831  Therefore, the European Communities 
argues that the negotiators of the SCM Agreement a ccorded themselves a large margin of appreciation 
for what they consider to constitute "general infrastructure".3832 
                                                      
3822 US, Answer to Panel Question 20, para. 137. 
3823 US, SWS, para 310. 
3824 US, SWS, para. 304. 
3825 EC, Answer to Panel Question 90, paras. 221-222. 
3826 EC, FWS, paras. 714-715. 
3827 EC, FWS, para. 716; see also, Id. , para. 719 (referring to goals of "raising standards of living" and 
"ensuring full employment," as expressed in preamble to the WTO Agreement, as object and purpose relevant to 
interpretation of the term "general infrastructure"). 
3828 EC, FWS, para. 909. 
3829 EC, FWS para. 909 and para. 923   
3830 EC, FWS, para. 711. 
3831 EC, FWS, para. 711. 
3832 EC, FWS, para. 712. WT/DS316/R 
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  7.1018  According to the European Communities, th e negotiating history of the SCM Agreement 
confirms its interpretation.
3833  The European Communities asserts that many interventions were made 
in the framework of discussions about the list of non-actionable subsidies (wha t later became Article 8 
of the SCM Agreement), but that the draft text of the Chairman of 2 November 1990 put the "general 
infrastructure" exception into the definition of the subsidy (what is today Article 1.1(a)(1)(iii) of the 
SCM Agreement).3834  The European Communities considers that  this attests to a recognition of the 
fact that measures of general infrastructure could foster a broad range of public policy objectives and should therefore be excluded from the scope of the SCM Agreement.
3835   
7.1019  The European Communities does acknowledge the re levance to the determination whether it 
is "general" infrastructure of "clearly specifi ed" limitations on use of, or access "restricted by 
regulation" to, the infrastructure provided.3836  However, the European  Communities argues that 
merely because the public does not actually use the in frastructure provided, or because use is in fact 
limited, does not suffice to disqualify the infrast ructure in question as "general" infrastructure.3837  
Rather, the European Communities considers that tw o steps must be distinguished: first, governments 
may build general infrastructure, and second, governments may limit the use of that general 
infrastructure to certain companies.3838  In the European Communities'  view, the second step makes 
the infrastructure non-general, but does not invalidate the fact that the first step constitutes provision 
of general infrastructure.  The European Commun ities argues that the second step must be evaluated 
                                                      
3833 EC, FWS, para. 721.  The European Communities first refers to the Note by the Secretariat, listing 
issues for Negotiators in which the Secretariat had advi sed negotiators to make a "clear distinction between 
trade distorting subsidies and subsidies which are designed  to enhance efficiency, facilitate the development of 
infrastructure for industrialization or facilitate structural  adjustment".  (Note by the Secretariat, Checklist of 
Issues for Negotiators, 22 October 1987, MTN.GNG/NG10/W/9, Rev.  2, p. 10.) The European Communities 
also refers to the Statement made by the delegation of Canada at the meeting held on 28-29 June 1988, 
MTN.GNG/NG10/W/22, 7 July 1988, p. 2., which stated that certain subs idy practices should be accepted, 
specifically mentioning subsidies for infrastructure, re search and development and regional development.  In 
addition, the European Comm unities recalls that at that time, the European Communities felt that measures 
concerning "for instance, education, culture, health, soci al welfare and general infras tructure" are normally not 
subsidies, because they merely contribute to setti ng the terms and conditions of a country's economic and 
business environment, but do not alter the competitive position of firms.  (Submission by the European Communities, 27 November 1989, MTN.GNG/NG10/W31, p. 6.).  The European Communities further notes 
that Korea emphasized that subsidies should be non-actionable which supply "social overhead capital" such as 
harbour facilities, electric power, or tran sportation systems.  Measures for esta blishing such social infrastructure 
should not be regarded as subsidies to be disciplined.  (Submission by the Republic of Korea, 18 January 1990, 
MTN.GNG/NG10/W34, p. 4.).  The European Communities highlights the understanding of several Members 
that general infrastructure is characterized by its de signation for public use.  To this end, the European 
Communities refers to the submission by the United States  in which it sought to list certain practices as non-
actionable, among them "basic in frastructure where there are no de jure  or de facto  limitations on use".  
(Submission by the United States, Elements of the Framework for negotiations, 22 November 1989, MTN.GNG/NG10/W/29, p. 6.) Similarly, it refers to the submissions by Canada and India who wished to 
exclude basic infrastructure "for general public use" from the scope of actionable subsidies.  (Submission by 
Canada, 27 June 1989, MTN.GNG/NG10/W/25, p.7; Submission by India, 30 November 1989, MTN.GNG/NG10/W/33, p. 2.). 
3834 EC, FWS, para. 723, citing, Draft Text by the Chairman, 2 November 1990, 
MTN/GNG/NG10/W/38/Rev.  2, p.1. 
3835 In this connection, the European Communities contrasts interventions by the Members relating to 
general infrastructure made in the context of the discussions about the list of non-actionable subsidies (what later became Article 8 of the SCM Agr eement), with the draft text of the Chairman of 2 November 1990, which 
put the "general infrastructure" exception into the definitio n of the subsidy (what today is Article 1.1(a)(1)(iii) of 
the SCM Agreement).  EC, FWS, para. 723, referring to  the Draft Text by the Ch airman, 2 November 1990, 
MTN/GNG/NG10/W/38/Rev.  2, p.1. 
3836 EC, SWS, paras. 333 and 339. 
3837 EC, SWS, para. 333. 
3838 EC, SWS, para. 340.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  on its own, because the existence of limitations on use or access to the infrastructure provided does 
not effect the general character of the infrastruct ure, but only the question of whether there is any 
benefit to the recipient in a limited or exclusive right of use or access.3839   
7.1020  The United States contends that the public-p olicy-focused approach suggested by the 
European Communities' argument does not comport with  the ordinary meaning of the term "general 
infrastructure", read in context and in light of the object and purpose of the SCM Agreement.3840  In 
the United States' view, the European Commun ities' position would create an extremely broad 
exception, undercutting the basic rule that a subsid y may consist of government-provided goods or 
services that confer a benefit.3841  The United States maintains that if any grant of infrastructure were 
deemed to be general infrastructure, so long as it was "fulfilling a public policy objective", then 
virtually every grant of infrastructure would be  excluded from the SCM Agreement's definition of 
"subsidy."3842  According to the United States, th e phrase "general infrastructure" in 
Article 1.1(a)(1)(iii) cannot be interpreted to in clude any infrastructure "fulfilling a public policy 
objective" because that would render redundant the word "general".3843  
(ii) Arguments of Third Parties 
Australia  
7.1021  Australia notes that Article 1.1(a)(1)(iii) of  the SCM Agreement carves out "general 
infrastructure" from the definition of  a "financial contribution".  For Australia "general infrastructure" 
in this context means the provision, by government , of goods and services that are generally available 
or multi-user.  Notwithstanding the carve-out of "general infrastructure" from sub-paragraph (iii), 
Australia considers that the Panel should exam ine whether a benefit has been conferred by 
government.  Australia notes that Article 14(d) of  the SCM Agreement provides the standard for 
determining whether the provision of goods or ser vices confers a benefit, and asserts that if the 
provision of infrastructure relieves an enterprise of a cost it would otherwise have to pay, then it 
should be considered that a subsidy exists.  Th e facts and circumstances surrounding the provision of 
"general infrastructure" need to  be examined to determine whether the provision of infrastructure 
confers a benefit to an enterprise.  Australia offers  the following example by way of illustration:  in 
establishing an industrial park, a government may prov ide general infrastructure to the site.  However, 
it is necessary to assess whether there will be more th an one enterprise located on the site.  If there 
will only be a single enterprise then, in Australia's view, the industrial park cannot be deemed to be 
general infrastructure.  In addition, Australia does not consider that the mere fact that a government 
creates infrastructure for public policy reasons in order to "enable members of the public at large"3844 
(e.g., combating unemployment, fostering econom ic development, raising living standards) 
necessarily makes it "general infrastructure".3845 
7.1022  In response to questions from the Panel, Australia asserted that it  is not possible to 
exhaustively list factors that are relevant to the de termination as to whether infrastructure is "general" 
for purposes of Article 1.1(a)(1)(iii), but consider ed that one relevant factor is whether the 
infrastructure is for exclusive or dominant use by a particular enterprise or enterprises, and that the 
question must be addressed on a case-by-case basis, taking into account all the relevant facts and 
circumstances.  Australia further commented that while the Article 2 specificity test is separate and 
                                                      
3839 EC, SWS, para 340. 
3840 US, SWS, para. 306. 
3841 US, SWS, para 307. 
3842 US, SWS, para 307. 
3843 US, SWS, para 308. 
3844 Australia, Third Party Submission, para. 54, referring to EC, FWS, paras. 716 and 724. 
3845 Australia, Third Party Submission, paras. 53-54. WT/DS316/R 
Page 634  
BCI deleted, as indicated [***] 
 
  distinct, the concept of specificity may be releva nt in determining whether infrastructure is of a 
general nature.
3846  Australia noted that, in assessing whether limiting the provision of goods or 
service only to certain persons or entities might still constitute "general infrastructure", one relevant 
consideration may be the nature of the infrastru cture provided, e.g., whether the infrastructure 
provided allows for its use by a number of entities.   In Australia's view, any such limitation would 
tend to militate against a determination of "general infrastructure" .  Australia also suggested that the 
provision of infrastructure, and the terms and conditi ons attached to use of infrastructure are separate 
questions, e.g., in the establishment of an i ndustrial park involving the provision of goods and 
services, the nature of the infrastructure provided may be a separate consideration by government 
from the terms and conditions by which en tities make use of the industrial park.3847 
Brazil  
7.1023  Brazil considers that, to give full effect to the text of the SCM Agreement, if the Panel finds 
that a government provides a financial contribution under Article 1.1(a)(1)(iii) of the SCM Agreement 
in the form of non-general infrastructure and determ ines that such contribution confers a benefit, it 
must also determine whether such subsidy is sp ecific under Article 2 of the SCM Agreement.  In 
Brazil's view, the Panel should not interpret the re levant provisions to preclude the possibility that 
there may be infrastructure that is not "general" w ithin the meaning of Article 1.1(a)(1)(iii) of the 
SCM Agreement and that is also not specific within the meaning of Article 2 of the SCM Agreement.  
Such infrastructure may not be "general" becau se access is limited to certain entities based on de jure  
or de facto  conditions, such as, for example, requirement s in relation to the licensing and qualification 
of users, quotas on total use, or restrictions intended to protect public health and safety or the 
environment.  However, Brazil considers that a finding that the provision of this non-general infrastructure constitutes a subsidy does not necessarily mean that the subsidy is specific within the 
meaning of Article 2 of the SCM Agreement.  In  Brazil's view, the Panel must conduct an objective 
assessment of the facts to determine whethe r the provision of this infrastructure is de jure  or de facto  
specific.
3848  
7.1024  In Brazil's view, infrastructure to which access is de jure  or de facto  limited to certain persons 
or entities would normally not constitute "gener al infrastructure" within the meaning of 
Article 1.1(a)(1)(iii) of the SCM Agreement.  The fact that particular infrastructure is used predominantly or disproportionately by certain us ers (and other users do not face any restrictions on 
access) would normally not preclude a finding that the infrastructure is "general" within the meaning 
of Article 1.1(a)(1)(iii) of the SCM Agreement.  Brazil considered that th e Panel should make its 
determination regarding whether limitations on access indeed exist, however, on a case-by-case basis.
3849 
Canada  
7.1025  Canada agrees with the European Communities that the term "infrastructure" denotes "basic 
goods and services in a society that underpin its economic performance".3850  Canada notes that the 
word "general" has a number of ordinary meanings, the most relevant of which, in its view, is " not 
specifically limited in application ; relating to a whole class of objects, cases, occasions, etc ".3851  
(emphasis added).  Canada considers that, for so mething to be transformed from "general" to non-
                                                      
3846 Australia, Answer to Panel Third Party Question 8. 
3847 Australia, Answer to Panel Third Party Question 9. 
3848 Brazil, Answer to Panel Third Party Question 8, paras. 13-14. 
3849 Brazil, Answer to Panel Thir d Party Question 9, para. 15. 
3850 Canada, Third Party Submission, para. 32, referring to EC, FWS, para. 714. 
3851 Canada, Third Party Submission, para. 32, citing, Shorter Oxford English Dictionary , 5th ed.  
(Oxford: Oxford University Press, 2002), pp. 1081-82, Exhibit CDA-1.    WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  general or restricted application, the limitation mu st be clearly specified.  Canada considers this 
understanding of "general" is confirmed by the ne gotiating history of the SCM Agreement.  Canada 
thus considers that, that where a government provi des infrastructure and does not specifically limit its 
availability to the public, there is no financial c ontribution for the purposes of the SCM Agreement.  
Moreover, Canada argues that context supports  a broad interpretation which presumes that 
government-provided infrastructure is general unless a gove rnment specifically limits its use so that it 
is not available to the general public.  In this rega rd, Canada notes that, by virtue of its position in 
Article 1 of the SCM Agreement, this is the only ex clusion in that Agreement where the legal analysis 
regarding the SCM Agreement's application to a go vernment measure can be completed without any 
consideration of whether the measure confers a benef it.  Second, Canada considers that the fact that 
general infrastructure is excluded indicates that th e drafters' primary purpose was to ensure that 
exclusion, rather than ensuring that certain infrast ructure was included.  Fina lly, Canada asserts that 
the object and purpose of the broader provision supports a presumption that government-provided infrastructure is general unless its availability is specifically limited.
3852   
7.1026  Canada argues that because "subsidy" and "speci ficity" determinations constitute discrete and 
sequential findings under the SCM Ag reement, it follows that a findi ng under Article 1.1(a)(1)(iii) 
that government-provided infrastructure is not general, cannot be equa ted with a finding under 
Article 2.1 of the Agreement that a resulting subsid y is specific, as this woul d introduce an element of 
redundancy to the analysis.  Therefore, Canada considers that the test for de facto  specificity in 
Article 2.1(c) of the SCM Agreement is not the releva nt test in an analysis under Article 1.1(a)(1)(iii), 
as the application of the de facto  specificity test to government-provided infrastructure available to the 
public would give rise to systemic inequities, disadvantaging Members whose lack of national or regional economic diversification r esults in predominant use of government-provided infrastructure 
by certain enterprises.
3853   
7.1027  Canada also argues that improvements to genera l infrastructure that benefit a limited number 
of users do not change the status of that infrastruct ure so long as it remains generally available to the 
public.  Canada asserts that the public reasonably expects that a government will maintain general 
infrastructure in the public interest, and that impr ovements to general infrastructure that initially 
benefit a single or limited number of users fre quently end up benefiting new economic actors and 
activities that may not have been fo reseen when the improvements were made.  On this basis, Canada 
asserts that the United States has identified no limit ations on the use by the general public of roads 
related to the Aéroconstellation i ndustrial site as a result of the improvements, suggesting that these 
are therefore not "the provision of goods or servi ces other than general infrastructure" within the 
meaning of Article 1.1(a)(1)(iii).3854  Canada notes that different considerations are raised by the 
Bremen runway extension, as specific restricti ons on the use of a distinguishable element of 
infrastructure to certain enterprises could, in appropr iate circumstances, justify separate consideration 
of that element, whether or not it is attached or otherwise connected to general infrastructure.3855  In 
contrast, Canada considers that temporary limitations  on the use of infrastructure to certain users do 
not necessarily deprive that infrastructure of its genera l nature if there is a reasonable expectation that 
general use will resume in the foreseeable future (e.g ., an exclusive use agreem ent for a period before 
public use is practicable or covering a particular  season when public use is not practicable).  A 
temporary right of exclusive use may, however, requi re independent considerati on to determine if that 
conferral of an exclusive right itself constitutes provision of a good (or service).3856   
                                                      
3852 Canada, Third Party Submission, para. 32. 
3853 Canada, Third Party Submission, paras. 33-34. 
3854 Canada, Third Party Submission, para. 36. 
3855 Canada, Third Party Submission, para. 37. 
3856 Canada, Third Party Submission, para. 38. WT/DS316/R 
Page 636  
BCI deleted, as indicated [***] 
 
  7.1028  On the basis of this analysis, Canada proposes that government-provided infrastructure should 
be presumed to be general infrastructure unless th e evidence demonstrates that a government has 
limited its use exclusively to certain users; that Government-provided infrastructure that a government 
has reserved for exclusive use by certain users is not "general" for the purpose of Article 1.1(a)(1)(iii) 
of the SCM Agreement; that the fact that certain enterprises are significant or predominant users of 
government-provided infrastructure does not establish th at such infrastructure is not "general" for the 
purposes of Article 1.1(a)(1)(iii) of the SCM Agre ement; and that government-provided infrastructure 
which is limited to certain enterprises may s till qualify as "general" for the purpose of 
Article 1.1(a)(1)(iii) if the limitations on its use are temporary and where general use is likely to 
resume in the foreseeable future.
3857   
7.1029  In response to a question from the Panel, Canada  emphasized that the fo cus of the inquiry in 
Article 1.1(a)(1)(iii) is on what a government actuall y "provides" to a recipient.  In cases where a 
government has provided something less than comple te and exclusive rights to a given item of 
infrastructure, the focus of the determination whether the government has provided a financial 
contribution to a recipient should not be on the totality of the infrastructure, but on the part of it that is 
actually being provided by the government to the r ecipient.  In the case of the Mühlenberger Loch 
facility, for example, Canada considers that the l ease agreements establish what has been provided to 
Airbus and therefore provide an appropriate basis for determining whether Airbus has received terms 
consistent with those it would have received fro m comparable commercial leases in the prevailing 
market.3858    
Japan  
7.1030  Japan considers that Article 1 of the SCM Agreement does not indicate a presumption that 
"infrastructure" is "general" unless it is specifica lly provided for limited persons or its use is 
specifically limited to such persons.  Japan believes that being "specific" as an antonym of being 
"general" could help inform the de termination of whether infrastructure is "general" for the purpose of 
Article 1.1(a)(1)(iii), in light of the ordinary meani ng of the term "general".  Japan further notes that 
the notion of being "specific" do es not necessarily exclude the concept of "specificity" prescribed 
under Article 2 of the SCM Agreement.3859 
(iii) Evaluation by the Panel 
7.1031  We begin our analysis with the text of the treaty.  We recall that Article 3.2 of the DSU 
provides that Members recognise that the dispute settle ment system serves to clarify the provisions of 
the covered agreements "in accordance with customar y rules of interpretation of public international 
law".  Article 31.1 of the Vienna Convention on the Law of Treaties ('Vienna Convention'),3860 which 
is generally accepted as such a customary rule, provides: 
"A treaty shall be interpreted in good faith  in accordance with the ordinary meaning 
to be given to the terms of the treaty in th eir context and in the light of its object and 
purpose." 
7.1032  We further recall that, pursuant to Article 32 of the Vienna Convention, if interpretation of the 
text of a provision in accordance with Article 31 of the Vienna Convention leaves the meaning of that 
provision "ambiguous or obscure" or "leads to a resu lt which is manifestly absurd or unreasonable", 
                                                      
3857 Canada, Third Party Submission, para. 39. 
3858 Canada, Answer to Panel Third Party Question 9, para. 9. 
3859 Japan, Answer to Panel Third Party Question 8. 
3860 (1969) 8 International Legal Materials 679.  WT/DS316/R 
 Page 637 
 
BCI deleted, as indicated [***] 
 
  recourse may be had to the supplementary means of treaty interpretation within the meaning of 
Article 32 of the Vienna Convention.  3861    
7.1033  Article 1 of the SCM Agreement provides, in pertinent part: 
"1.1 For the purpose of this Agreement, a subsidy shall be deemed to exist if: 
(a)(1) there is a financial contribution by a government or any public body within 
the territory of a Member (referred to  in this Agreement as "government"), i.e.,  
where: ... 
(iii) a government provides goods or services other than general 
infrastructure, or purchases goods; ... 
and 
(b) a benefit is thereby conferred." 
7.1034  In this case, it is not disputed that the a lleged financial contribu tions in question were 
provided by a "government" within the meaning of Article 1.1(a)(1).  In addition, the European 
Communities does not dispute that the measures in question constitute the "provision" of "goods and 
services", in the form of "infrastructure", within  the meaning of Article 1.1(a)(1)(iii).  The 
disagreement between the parti es centers on the meaning of " general  infrastructure" in the context of 
Article 1.1(a)(1)(iii), and in particular on the f actors or circumstances that distinguish between 
infrastructure which is "general" and infrastructure whic h is "other than general".  In order to establish 
a framework for our analysis of the facts in this di spute, we must therefore first consider the meaning 
of the term "general infrastructure".   
7.1035  The meaning of the term "general infrastructure"  has not been considered in any detail in any 
WTO dispute.  In US – Softwood Lumber IV , the Appellate Body emphasized that it is not the 
provision of "infrastructure" per se  that is carved out of the scope  of a financial contribution under 
Article 1(a)(1)(iii), but the provision of "general infra structure" -- that is, infrastructure of a "general" 
nature: 
"In Article 1.1(a)(1)(iii), the only explicit exception to the general principle that the 
provision of "goods" by a government will r esult in a financial contribution is when 
those goods are provided in the form of "gen eral infrastructure".  In the context of 
Article 1.1(a)(1)(iii), all goods that might be used by an enterprise to its benefit—including even goods that might be considered infrastructure —are to be considered 
"goods" within the meaning of the provision, unless they are infrastructure of a 
general nature."
3862 (emphasis original) 
However, this statement does not directly address th e central question at issue here, which is how to 
determine whether the particular provisions of infrastructure by governments in this case are the 
provision of infrastructure that is "other than gene ral infrastructure", and thus whether there has been 
a financial contribution by a government.   
 
7.1036  Dictionaries define the term "infrastructure" as, inter alia , "installations and services (power 
stations, sewers, roads, housing, etc.) rega rded as the economic foundation of a country,"3863 the 
                                                      
3861 Vienna Convention , Article 32(a) and (b). 
3862 Appellate Body Report, US – Softwood Lumber IV , para. 60. 
3863 New Shorter Oxford English Dictionary , (1993). WT/DS316/R 
Page 638  
BCI deleted, as indicated [***] 
 
  "underlying foundation or basic framework (as of a system or organization),"
3864 and the "system of 
public works of a country, state, or region."3865   The term "general" is defined as "including, 
involving, or affecting all or nearly all the parts of a (specified or implied) whole as a territory, community, organization, etc.; completely or near ly universal; not partial, particular, local, or 
sectional"
3866 and "involving, applicable to, or affecting th e whole; involving, relating to, or applicable 
to every member of a class, kind, or group".3867   We consider that the term " general  infrastructure", 
taken in its ordinary and natural m eaning, refers to infrastructure that is not provided to or for the 
advantage of only a single entity or limited group of entiti es, but rather is available to all or nearly all 
entities.  In our view, this interpretation is consiste nt with the ordinary meaning of the term "general" 
when used to modify the word "infrastructure."   However, we consider that it is difficult if not 
impossible to define the concept of "gen eral infrastructure" in the abstract.3868   
7.1037  For us, the existence of limitations on access  to or use of infrastructure, whether de jure  or de 
facto , is highly relevant in determining whether that  infrastructure is "general infrastructure".  
However, we are not persuaded by the Unite d States' argument that the existence of de jure  or de facto  
limitations on access or use is the only legally relevant consideration, and one that will always be 
determinative.  We find no support for such a test in  the words of Article 1.1(a)(1)(iii), and we see no 
reason why other considerations concerning the prov ision of the infrastructure in question should be 
categorically excluded from the analysis.  In ou r view, such additional factors could include, inter 
alia, the circumstances under which the infrastructure in  question was created and the nature and type 
of infrastructure in question.   
7.1038  We do not, however, consider all of the a dditional factors relied upon by the European 
Communities in this case to be relevant.  The European Communities proposes three factors as 
relevant to determining whether infrastructure is "general": 
 "(i) the substance of government action related to basic installations, facilities and 
services needed to support social as well as economic development; (ii) their public 
policy objective and (iii) their designation fo r public use be either being publicly 
                                                      
3864 Merriam-Webster Dictionary online. 
3865 Merriam-Webster Dictionary online. 
3866 New Shorter Oxford English Dictionary , (1993). 
3867 Merriam-Webster Dictionary online.   
3868 Other disputes involving questions of interpre tation of Article 1.1(a)(1) of the SCM Agreement 
have similarly not resulted in precise or absolute defin itions of terms, in the abstract.  Thus, the Panel in US – 
FSC, para. 6.7, addressing the definition of "otherwise due" in Article 1.1(a)(1)(ii) noted that "the application of 
the concept of "otherwise due" in other disputes would require panels to apply their best judgement  on a case-
by-case  basis" and at paragraph 7.93 observed "In the fore going sections, we have concluded that whether 
revenue foregone is "otherwise due" is to be determined on the basis of an examinati on of the fiscal treatment 
that would be applicable "but for" the measures in question.  Of course, as in other areas under the WTO 
Agreement, the application of this te st requires panels to apply their best judgement  on a case-by-case  basis." 
Panel Report, United States – Tax Treatment for "Foreign Sales Corporations" ("US – FSC "), WT/DS108/R, 
adopted 20 March 2000, as modified by Appellate Body Report WT/DS108/AB/R, DSR 2000:IV, 1675 (emphasis 
added).  Similarly, in US – DRAMS , para. 116, the Appellate Body acknowledged the difficulty in formulating 
precise, abstract definition of "entrusts or directs" in the context of Article 1.1(a)(1)(iv)("It may be difficult to 
identify precisely , in the abstract , the types of government actions that constitute entrustment or direction and 
those that do not.  The particular label used to descri be the governmental action is not necessarily dispositive.  
Indeed, as Korea acknowledges, in some circumstances, "guidance" by a government can constitute direction.  
In most cases, one would expect entrustment or direction of a private body to involve some form of threat or 
inducement, which could, in turn, serve as evidence of entrustment or direction.  The determination of entrustment or direction will hinge on the particular facts of the case. " (emphasis added, footnote omitted) 
Appellate Body Report, United States – Countervailing Duty Inves tigation on Dynamic Random Access Memory 
Semiconductors (DRAMS) from Korea ("US – Countervailing Duty Investigation on DRAMS "), 
WT/DS296/AB/R, adopted 20 July 2005, DSR 2005:XVI, 8131  WT/DS316/R 
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  accessible, by enabling access by members of the public at large, or by providing 
common goods to the public."3869 
In our view, the first two factors proposed by the European Communities do not provide useful 
guidance in distinguishing general infrastructure from infrastructure which is not general, and 
certainly cannot be determinative.  The provision of  any infrastructure by a government will generally 
relate to installations, facilities and services needed to support social or economic development of the 
polity, and will have some public policy objective.  Indeed, it would be expected that governments do 
not, as a rule, undertake to grant specific subsidies, whether in the form of providing infrastructure or 
otherwise, without such objectives.  Thus, to base the exclusion of "general" infrastructure from the 
scope of the SCM Agreement disciplines on these cons iderations would result in an exception that 
swallows the principle to which it pertains :  that the provision of goods or services other  than general 
infrastructure constitutes a financial contribution by a government.  We also agree with the United 
States, and consider that the phrase "general infr astructure" in Article 1.1(a)(1)(iii) cannot be 
interpreted to include all infrastructure "fulf illing a public policy objective", because that would 
render redundant the word "general." 
 7.1039  Thus, we do not consider that there is any form or type of infrastructure which is inherently 
"general" per se .  For instance, in our view, such things as railroads or electrical distribution systems 
do not necessarily constitute "general infrastructure".
3870  Rather, the determination whether the 
provision of the good or service in question is "general infrastructure" or not must be made on a case-
by-case basis, taking into account the existence or absence of de jure  or de facto  limitations on access 
or use, and any other factors that tend to demonstr ate that the infrastructure was or was not provided 
to or for the use of only a single entity or a limited group of entities.  Such factors may relate to the 
circumstances surrounding the creation of the infrastru cture in question, consideration of the type of 
infrastructure, the conditions and ci rcumstances of the provision of the infrastructure, the recipients or 
beneficiaries of the infrastructure, and the legal regi me applicable to such infrastructure, including the 
terms and conditions of access to and/or limitations on use of the infrastructure.  If an evaluation of 
relevant facts concerning such factors demonstrates that the infrastructure was provided to a single entity or a limited group of entities, then we be lieve it cannot properly be considered "general" 
infrastructure, and consequently falls within the scope of Article 1.1(a)(1) of the SCM Agreement, 
necessitating further analysis to determine whether a subsidy exists.   
7.1040  We recognize that our interpretation may involve consideration of facts that may be relevant 
to a determination of specificity under Article 2.  However, we note that the question being addressed 
for purposes of Article 1.1(a)(1)(iii) is not whethe r the government is limiting access to a subsidy to 
certain enterprises, but whether it is providing a good  or service in the form of general infrastructure 
or not, and thus whether or not there is a financia l contribution by a government, such that a subsidy 
may exist.  In our view, the fact that similar c onsiderations are relevant to the separate inquiry 
required under Article 2 does not preclude their re levance to the question of determining whether 
infrastructure is "general". 
7.1041  Our conclusion that the determination whether the provision of the good or service in 
question is "general infrastructure" or not must be  made on a case-by-case basis, based on all the facts 
and circumstances concerning relevant factors, flows from the ordinary meaning of the terms of 
Article 1.1(a)(1)(iii), and is supporte d by consideration of their immediate context.  As the Appellate 
Body has observed, Article 1.1(a)(1)(iii) concerns  the provision of goods by a government that might 
                                                     
 
3869 EC, Answer to Panel Questions 186 and 221, paras. 148 and 555, respectively 
3870 Take as an extreme example a 2 kilometer stretch of railway from a mine to a mineral processing 
plant, used for transporting raw ore for processing, on land owned by the mining company.  It seems clear to us 
that the provision by a government of such a railway cannot properly be considered "general infrastructure" simply because it is a railway. WT/DS316/R 
Page 640  
BCI deleted, as indicated [***] 
 
  be used by an enterprise to its benefit.  In addition,  this interpretation is cons istent with Articles 1.1(b) 
and 2, insofar as it does not blur distinct legal elements of  "financial contribution", "benefit", or "specificity".
3871  Moreover, Articles 1.1(a)(1)(i) and ( ii) of the SCM Agreement each illustrate 
specific instances of financial contributions by exam ples.  Thus,  Article 1.1(a)(1)(i) illustrates the 
concept of a "direct transfer of funds" by referring to " e.g.,  grants, loans, and equity infusion", and 
illustrates the concept of a "potential direct transfer of funds or liabilities" by referring to " e.g.,  loan 
guarantees".  Article 1.1(a)(1)(ii) illustrates the con cept of a "government reve nue that is otherwise 
due ...  foregone or not collected" by referring to " e.g.,  fiscal incentives such as tax credits".  The 
absence of any examples of "general infrastructur e" suggests to us that the negotiators of the 
SCM Agreement did not consider that the concep t could be illustrated with concrete examples, 
otherwise they would have done so, as they did with the other concepts in the preceding two 
provisions.  Moreover, the practical impossibility, in our view, of classifying every type of infrastructure as "general" or "other than general", in  the abstract, compels this conclusion.  Finally, 
interpreting the term "general infrastructure" so as to exclude from the scope of Article 1 the provision 
of infrastructure that is provided to or for the benefi t of a single entity or a limited group is consistent 
with the object and purpose of the SCM Agreement: inter alia , to establish disciplines on the use of 
government intervention in the form of subsidies th at distort, or have the potential to distort, 
international trade.
3872  In our view, the provision of "general infrastructure" is excluded from the 
disciplines of the SCM Agreement because the genera l nature of qualifying infrastructure implies a 
lack of such distortion. 
7.1042  The European Communities does acknowledge the re levance of "clearly specified" limitations 
on use of, or government specified limitations on use of, the infrastructure provided to the determination whether it is "general" infrastructure.
3873  Thus, both parties apparently accept that 
de jure  limitations on use is a critical, potentially determinative, factor in establishing whether 
infrastructure provided by a government is "gen eral infrastructure".  However, the European 
Communities argues that merely because the public do es not actually use the infrastructure provided, 
or because use is in fact limited to a single en tity does not suffice to qualify the infrastructure in 
question as other than "general" infrastructure.3874  The European Commun ities considers that two 
steps must be distinguished: first, a government may build general infrastructure, and second, a government may limit the use of that  general infrastructure to certain companies.  In the European 
Communities' view, the second step may make the infrastructure non-general (depending on an 
assessment of benefit), but does not invalidate the fact that the first step constitutes provision of 
general infrastructure.  The European Communities argues that the second step must be evaluated on 
                                                     
 
3871 As noted, merely because the separate analysis under Article 2 may involve consideration of the 
same facts or similar factors as the determination whether infrastructure is "general" do es not in our view render 
Article 2 redundant.   
3872 Panel Report, Canada – Aircraft , WT/DS70/R, para. 9.119.   
We note in this regard that, during the negotiation of the SCM Agreement, the European Communities 
proposed that such measures as education, culture, health , social welfare and general infrastructure be treated as 
"non-actionable".  The European Communiti es explained its rationale as follows: 
"Action in these fields may have an effect on the economy of a country, and thus on the 
international economy, but they are not normally subsidies, because they merely contribute to 
setting the terms and conditions of a country's economic and business environment.  
{T}herefore they do not alter the competitive position of firms." Elements of the Negotiating Framework, Submission by the European Community, 
MTN.GNG/NG10/W/31 (27 November 1989) p. 8.   
We consider that subsidies that "alter the competitive position of firms" do, in fact, distort or have the 
potential to distort, international trade, and thus properly fall within the scope of the SCM Agreement 
disciplines. 
3873 EC, SWS, para. 333. 
3874 EC, SWS, para. 333.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  its own,3875 because the existence of limitations on use or access to the infrastructure provided does 
not effect the general nature of the infrastructure.3876  The United States contends that where the 
government creates infrastructure adapted to the part icular needs of one company and then provides 
the infrastructure to that company fo r its exclusive or preferential use, it is not general infrastructure, 
and it is subject to the SCM Agreement rules.3877   
7.1043  Given our view that there is no infrast ructure that is inherently "general" per se  – a 
proposition with which both parties appear to agree3878 – it logically follows for us that it is not 
possible to determine whether certain infrastruct ure is "general" or not without assessing whether 
there exist any de jure  or de facto  limitations on access to or use of the infrastructure.  That is 
because, in our view, whether access to or use of infr astructure is actually limited is a highly relevant 
consideration in determining whether the infrastruct ure in question is "general".  Thus, we are not 
convinced by the European Commun ities' argument that a distincti on must be drawn between, and a 
two-step analysis conducted in respect of, the "provision" of infrastructure in the sense, as we 
understand it, of creating the infrastructure in questi on, and subsequent limitations on use or access.  
This would imply that the "general" nature of some  infrastructure is inherent and that circumstances 
surrounding the provision of that infrastructure do not change its general nature.  We, however, 
consider that if an evaluation of the circumst ances surrounding the creation of the infrastructure 
demonstrates that it was provided to a single entity or a limited group of entities, this supports the 
conclusion that the infrastructure created is not prope rly considered general.  This is, in our view, 
particularly the case where the infrastructure in qu estion was created for the particular needs of the 
entity or group which has the right to  access or use of that infrastructure. 
7.1044  Finally, if it is correct, as we have concluded, that there is no infrastructure that is "general" 
per se , then it also follows logically, in our view, th at certain infrastructure may be "general" within 
the meaning of Article 1.1(a)(1)(iii) at some point in  time, but not at another.  Thus, for instance, we 
consider that a government may provide infrastructure that is not general when first provided, because 
use or access to it is limited, but may subsequently make that same infrastructure available for public  
use or access, such that it would then become provision of general infrastructure.3879  The opposite 
situation may also obtain – a government may provide  general infrastructure, and subsequently limit 
use or access to it, either permanently or for a pe riod of time, during which it would, in our view, 
cease to be "general" infrastructure.  Such situations  would have to be carefully evaluated, based on 
all the relevant facts in each case, in order to de termine whether the provision of the infrastructure in 
question is general or not, and whet her that determination changes over time.  Thus, we consider that 
the proper point of reference in determining whethe r a provision of goods or services is "other than 
general infrastructure" is the time when the act of provision that is allege d to constitute a subsidy 
takes place.  That may be at the time the infrastru cture in question is created, in the sense of being 
brought into existence, or a subsequent point in time, when the conditions surrounding the provision 
of that infrastructure are changed by the governme nt providing it.  Moreover, the determination of 
                                                      
3875 EC, SWS, para. 340. 
3876 EC, SWS, para. 340.   
3877 US, SWS, para 311. 
3878 We note in this regard that the European Comm unities has referred to public roads as "the example 
par excellence  of a work of 'general infrastructure' within  the meaning of Article 1.1(a)(1)(iii) of the 
SCM Agreement."  EC, FWS, para. 940.  The European Communities also argues that the question of whether 
the infrastructure is "basic" to be re levant, but recognizes the relevance of  public access.  EC, Answer to Panel 
Question  184 at para 131.  However, we do not, ov erall, understand the European  Communities to be arguing 
that certain types of infrastructure are per se  general infrastructure.  See, EC, Answer to Panel Question 186, 
paras. 148-149. 
3879 Of course, any such changes would have to be evaluated on the basis of the facts – it seems clear 
that a purely formalistic change cannot be determinativ e.  Returning to our extreme example from footnote 3870 
above, merely that the government providing the railway described makes it  de jure  available to everyone would 
change nothing, if in fact no  one else can or does use it. WT/DS316/R 
Page 642  
BCI deleted, as indicated [***] 
 
  whether a provision of goods or services is "other than general infrastructure" may involve a time 
period of limited or indefinite duration.
3880  
7.1045  We now turn to the alleged subsidies concerni ng the Mühlenberger Loch industrial site,  the 
Bremen airport runway extension and associated noise reduction measures, and the ZAC 
Aéroconstellation site.  We address first in each cas e the question of whether the measure in question 
is one of general infrastructure, in which case we will conclude it does not  constitute a financial 
contribution within the meaning of Article 1.1 of th e SCM Agreement.  However, if we conclude that 
any of these three measures is not one of general infrastructure, we will go on to address whether a 
benefit is conferred upon Airbus by the subsidy in question, and to the extent relevant, specificity.   
(c) Mühlenberger Loch 
7.1046  According to the United States, when Airbus launched the A380, it decided to establish two 
assembly facilities, one at Toulouse and one at Hamb urg, where Airbus already had existing facilities, 
so as to utilize synergies with the existing facilitie s.  The United States asserts that the existing 
Hamburg facilities, located at Finkenwerder, had no real potential for expansion, as the site was on a 
peninsula in the Elbe river, surrounded by wetlands.3881  The United States argues that the 
transformation of a portion of these wetlands, in th e "Mühlenberger Loch" and "Rüschkanal", into an 
industrial site, including building flood protection, erecting a quay with Roll-on/Roll-off installations, 
and building other facilities and infrastructure required by Airbus on the site, and the provision of that 
site to Airbus for less than adequate remuneration, is a financial contribution that confers a benefit on 
Airbus within the meaning of Article 1.1 of the SC M Agreement that is specific within the meaning of 
Article 2 of the SCM Agreement.   
7.1047  The European Communities argues in  its request for preliminary ruling that the United States' 
request for establishment with regard to the allege d subsidy in connection w ith the Hamburg facilities 
lacks the requisite specificity concerning the me asure subject to challenge.  The European 
Communities considers that the United States' firs t written submission continues to fail to reveal 
exactly what measure is subject to the United States' challenge.3882  The European Communities 
contends that it is unclear whether the United States is concerned with the "creation" of the industrial 
site, i.e., the turning of the wetlands into an industrial s ite, or the "provision" of the site to Airbus, 
including its creation and the allege dly inadequate remuneration received.3883 
7.1048  According to the European Communities, the Mühlenberger Loch project includes three 
distinct elements: (1) turning wetlands into usable  land; (2) building flood protection measures; and 
(3) building special-purpose facilities on the reclai med usable land.  The European Communities 
asserts that it is uncertain which of these measur es is the subject of the United States' challenge.3884   
Assuming that the United States challenges the turnin g of the wetlands into usable land and the lease 
of this land and the special-purpose facilities to Airbus Germany, the European Communities argues 
that the turning of the wetlands into usable la nd and the provision of flood protection constituted 
"general infrastructure" within the meaning of Artic le 1.1(a)(1)(iii) of the SCM Agreement, and that 
these measures do not constitute a subsidy.3885  The European Communities further argues that 
Hamburg, the owner of the land, receives a market-b ased rent from Airbus Germany for the lease of 
                                                      
3880 The provision of infrastructure th e use of or access to which is li mited in time may complicate the 
assessment of the benefit, if any, of the measure in question, but that is a different issue from determining whether the infrastructure is general or not. 
3881 US, FWS, para. 423. 
3882 EC, FWS, para. 746. 
3883 EC, FWS, para. 747.  We have previously explained our reasons for rejecting the European 
Communities' arguments in this regard in our preliminary ruling , see. paragraphs 7.153, 7.155 and 7.158 above. 
3884 EC, FWS, para. 749. 
3885 EC, FWS, para 750.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  the land and the special-purpose facilities, which thus  does not confer any benefit on Airbus Germany 
within the meaning of Article 1.1(b) of the SCM Agreement.3886  
(i) Factual background 
7.1049  In 2000, the City of Hamburg undertook to turn 20 percent of the wetlands in the 
Mühlenberger Loch and Rüschkanal, adjacent to  Airbus' existing facilities in Finkenwerder,  into 
usable land.  Hamburg also undertook to constr uct a number of special-purpose facilities on the 
reclaimed land, and built dykes for the purpose of flood protection.3887  Hamburg set up a company, 
the Realisierungsgesellschaft GmbH  ("ReGe") for the management of the land reclamation project 
and the special-purpose facilities.3888 On completion of the project, Hamburg transferred ownership of 
the land and facilities to a government-owned entity,  Projektierungsgesellschaft Finkenwerder GmbH 
& Co. KG ("ProFi").3889  ProFi, the titleholder of the proper ties, and Airbus Germany entered into a 
series of lease agreements for the land and the special-purpose facilities.3890   
7.1050  As the Mühlenberger Loch was a protected wild life sanctuary, in order to go ahead with the 
land reclamation, the German government was ob liged to, and did, apply for approval from the 
European Commission to undertake the reclamation project.3891  On 19 April 2000, the Commission, 
conditional upon the undertaking of compensatory me asures, approved the project, finding that there 
were imperative reasons of public interest for the project, including job creation.3892  A s  
compensation, Hamburg was obliged to provide  substitute wetland areas elsewhere in Germany.3893  It 
was also required to defend against lawsuits by  environmental groups seeking to halt the project.3894 
7.1051  Work on draining and filling the land began in  February 2001, and was carried out in 
stages.3895  The city of Hamburg upgraded the height of  dykes around the existing Airbus facility, and 
built new dykes to protect the reclaimed land.3896  Hamburg also constructed special-purpose facilities 
on the reclaimed land, consisting of (1) a quay facility, (2) a sluice and pump building, (3) a drainage ditch, (4) a roll-on roll-off ("RoRo") facility, and (5) a sternfender .
3897  The European Communities 
asserts that the aggregate cost of land-filling, fl ood protection, and special-purpose facilities, was 
EUR 693.679 million,3898 asserting that the figure cited by the United States for this work, {EUR 751 
million} is an earlier, now-outdated 2003 estimate.   
7.1052  As noted above, the City of Hamburg - thr ough ProFi - leases the reclaimed land and special-
purpose facilities to Airbus Germany.  The Lease ag reement for the reclaimed land indicates that the 
                                                      
3886 EC, FWS, para. 751. 
3887 EC, FWS, paras. 752-753. 
3888 EC, FWS, para. 753, citing Bürgerschaft der Fr eien und Hansestadt Hamburg, Drs.  16/4734, 
Exhibit EC-545, p. 12.. 
3889 EC, FWS, para. 753, citing Bürgerschaft der Fr eien und Hansestadt Hamburg, Drs.  16/4734, 
Exhibit EC-545, p. 12. 
3890 EC, FWS, para. 753, citing Bürgerschaft der Fr eien und Hansestadt Hamburg, Drs.  16/4734, 
Exhibit EC-545, p. 13. 
3891 EC, FWS, para. 754. 
3892 Commission decision of 19 April 2000, Exhibit EC-547 (BCI) p. 3. 
3893 US, FWS, para. 425, citing A REA, A380-Werkserweiterung im Mühlenberger Loch – Eine Bilanz, 
at 20, 23 (10 August 2004), Exhibit US-182 
3894 US, FWS, para. 425, citing Injunction Sought in Germany's Highest Court to Stop Airbus' 
Destruction of Protected Habitat , PR Newswire, Hamburg (25 April 2001) Exhibit US-185. 
3895 EC, FWS, para. 755. 
3896 EC, FWS, para. 756. 
3897 EC, FWS, para 757.  Hamburg also constructed extensions to the existing runway at the 
Finkenwerder site.  Id. citing Bürgerschaft der Freien und Hansestadt Hamburg, Drs.  16/4734, Exhibit EC-545, 
p. 3. 
3898 Bürgerschaft der Freien und Hansestadt Hamburg, Drs.  18/4115, p. 8, Exhibit EC-548. WT/DS316/R 
Page 644  
BCI deleted, as indicated [***] 
 
  lease is for [***].
3899  The Lease Agreement establishes an annual rent of EUR 3,60/m2, to be adjusted 
annually on the basis of changes in the German c onsumer price index.  The lease foresees a gradual 
increase in the total rent, as successive parcels of the reclaimed land are taken over by Airbus Germany, starting with the first parcel of land s ubject to the lease on 1 October 2002, with possession 
of the whole area scheduled for the end of 2009.
3900  As the reclaimed land was subject to settling, and 
thus was not immediately fully usable by Airbus Ge rmany, an initial reduction in the rent was agreed, 
with the rent to be gradually increased to the full amount as the land fully settled.3901  The full rent of 
EUR 5,156,588 per annum will theref ore only be achieved gradually.3902   
7.1053  ProFi and Airbus Germany also concluded four lease agreements for six special-purpose 
facilities.3903  The term of each of these agreements is 20 years.  According to the European 
Communities, the amount of rent is set to provide th e City of Hamburg with a return of 6.5 % on its 
investment in each of the facilities, including a return on capital for the portion of each facility's 
economic life depleted during the 20 year lease term.3904  The annual rent over the 20 year period for 
the special purpose facilities is EUR 5,619,200, ag ain, to be adjusted upwards in line with 
inflation.3905   The European Communities argues that these rental amounts for the land and the 
special-purpose facilities are consistent with market conditions in Hamburg.3906  
(ii) Arguments of the parties 
United States  
7.1054  The United States notes that Article 1.1(a )(1)(iii) of the SCM Agreement includes the 
provision of goods or services other than general infrastructure among the types of measures that 
constitute financial contributions.  The United States  argues that the provision of the site to Airbus, 
including the transformation of the Mühlenberger  Loch into land fit for production facilities, the 
putting into place and provision of a flood protecti on system, a new quay wall, an extension of the 
runway, other facilities and infrastructure on the s ite, etc., constitutes the provision of "goods or 
services other than general infrastructure," and t hus constitutes a financial contribution within the 
meaning of Article 1.1(a)(1) of the SCM Agreement.3907 
7.1055  The United States also argues that the provision of the Hamburg-Finkenwerder site to Airbus 
confers a benefit on Airbus within the meaning of  Article 1.1(b) of the SCM Agreement, because 
Hamburg created a site that the market would not ha ve created, and provided th at site to Airbus for 
less than adequate remuneration.3908  The United States asserts that Hamburg spent approximately 
EUR 751,000,000 to create the 1.4 square kilometer (or 1,400,000 square meter) site, an investment of 
approximately EUR 536.43 per square  meter.  Relying on a report by the German real estate surveyor 
firm Dr. Keunecke & Stoehr, the United States asserts  that the fair market value for land in the 
                                                      
3899 Exhibit EC-551 (BCI).  [***] . 
3900 EC, FWS, para. 760. 
3901 EC, FWS, para. 761. 
3902 EC, FWS, para. 761, citing Bürgerschaft der Freien  und Hansestadt Hamburg, Drs.  18/33, pp.  6, 
Annex 1, Exhibit EC-562. 
3903 EC, FWS, para. 762.  [***] Addendum No. 1, Exhibit EC-552 (BCI); [***]  Addendum No.  3, 
Exhibit EC-554 (BCI), [***]  Addendum No.  7, Exhibit EC-558 (BCI); [***]  Addendum No.8, Exhibit EC-559 
(BCI). 
3904 EC, FWS, para. 762, citing Bürgerschaft der Freien und Hansestadt Hamburg, Drs.  18/33, pp.  6-7, 
Exhibit EC-562. 
3905 EC, FWS, para. 763, citing Bürgerschaft der Freien und Hansestadt Hamburg, Drs.  18/33, p. 7, 
Exhibit EC-562. 
3906 EC, FWS, paras. 764-771. 
3907 US, FWS, para 430. 
3908 US, FWS, para 431.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  immediate vicinity of the Hamburg site in 2000, the year in which the government decided to create 
and develop the site, ranged between EU R 51.13 and EUR 61.36 per square meter.3909  T h e r e f o r e ,  
according to the United States, the Hamburg governme nt spent EUR 751,000,000 to create a site that 
was worth between EUR 71,600,000 and EUR 85,900,000.3910  The United States maintains that a 
commercial investor in real property in Germany wo uld not have made such an investment, and thus, 
if Airbus had wanted to expand its facilities at Ha mburg-Finkenwerder, it would have had to spend 
the EUR 751,000,000  to create the site itself, thus signi ficantly increasing the costs of the A380 
project.3911  Consequently, the United States argues, the Hamburg government's decision to create the 
land and provide it to Airbus confers a benefit on Air bus within the meaning of Article 1.1(b) of the 
SCM Agreement.  The United States notes that a September 2000 report that the Hamburg 
government provided to the Hamburg Parliament analyzed the project under SCM Agreement rules 
and concluded that the project was a subsidy: 
"It is true that the improvements to the infrastructure of the area and its subsequent 
lease to AI is, in principle, a subsidy with in the meaning of Article 1 (1) (iii) of the 
GATT Subsidy Agreement. ..."3912 
7.1056  The United States asserts that its approach to  analyzing the benefit to Airbus from the 
Hamburg project is virtually identical to the a pproach the European Commission uses to determine 
whether the sale of land constitutes state aid under EU state aid rules.3913  In Scott Paper SA Kimberly-
Clark , for example, the Commission explained that th e sale of land does not confer an "advantage" 
under EU state aid rules if: 
                                                      
3909 US, FWS, para. 432, citing Expert Opinion No. 27649/06, Benchmarks for Land Values concerning 
Hamburg Airbus Site "Mühlenberger Loch," Kreekslag 10, 21129 Hamburg Finkenwerder, 9 October 2006 
(hereinafter "Keunecke Report"), Exhibit US-189.  The relevant portion of the report is on page 5, Exhibit US-
189).  The United States notes that th e office of Dr. Keunecke & Stoehr is on e of the most respected real estate 
surveyors in Germany, whose two partners, Dr. Klaus-Peter Keunecke and Eberhard Stoehr, have been 
appointed and sworn in as public surveyors by the Berlin Chamber of Commerce for the appraisal of developed 
and undeveloped plots of real estate and of leases. 
3910 The United States observes that 1.4 million square meters at EUR 51.13 to EUR 61.36 per square 
meter equals EUR 71,582,000 to EUR 85,904,000.  US, FWS, footnote 516.  The United States further notes 
that the Hamburg government's own reports estimated that the land Hamburg created had a maximum value of 
EUR 61.35 per square meter, citing Ha mburgische Bürgerschaft , Drucksache 16/4734, Mitteilung des Senats an 
die Bürgerschaft, at 12 (5 September 2000)., Exhibit US -183 (explaining that "all the parcels of land that are 
later to be leased, including those owned by the City of Hamburg and those that must still be acquired from the 
German Government, will be transferred to the GmbH & Co.  DG as contributions in kind (fair market value of 
about DM 50 million based on a commercial land value of DM 120/m2)").  The United States converted the amount to Euros using the official Euro/DM conversion rate.  Exhibit US-183. 
3911 In this sense, the United States maintains that the creation of the site is akin to a EUR 665-679 
million grant to Airbus, since Airbus would have spent EUR 751 million to create a site worth only EUR 71.6-85.9 million.  US, FWS, footnote 517. 
3912 US, FWS, para 441, citing Hamburgische Bürgerschaft, Drs.  16/4734, at 3 (in the original German, 
"Bei der infrastrukturellen Herrichtung  der Fläche und der anschliessenden Vermietung an AI handelt es sich 
{…} grundsätzlich { …} um eine Subvention im Sinne des Artikel 1 Absatz 1 (iii) des GATT-
Subventionsübereinkommens"), Exhibit US-183. 
3913 The United States observes that a government measure constitutes state aid under the EC state aid 
rules when it "confers an economic advantage on a reci pient", and asserts that a re quirement to show that a 
measure "confers an economic advantage on the recipi ent" is virtually identical  to the SCM Agreement's 
requirement to show that a financial contribution confers a "benefit" on the recipient.   Therefore, according to 
the United States, a DG-Competition finding that a particular measure is state aid is tantamount to a finding that 
the measure is a subsidy within the meaning of the SCM Agreement.  US , FWS, footnote 518. WT/DS316/R 
Page 646  
BCI deleted, as indicated [***] 
 
  "a private investor, on the basis of fo recast potential profitability and ignoring any 
social, regional or sectoral policy considera tions, would have invested in the land and 
then sold the plot at the same price as  that asked by the local authorities."
3914 
According to the United States, when the Ham burg authorities committed to spend EUR 751 million 
to transform a portion of the Mühlenberger Loch site  into an industrial site, they knew the project 
would result in a loss of several hundred million Euro, an action a private investor would not have undertaken.  Relying on the Scott Paper SA Kimberly-Clark  decision, the United States argues that, by 
enabling Airbus to avoid spending the EUR 751,000, 000 itself, the Hamburg authorities granted a 
subsidy conferring a benefit on Airbus.
3915 
 
7.1057  The United States asserts that another basis for determining whether the government is 
providing the infrastructure for less than adequate remuneration is to determine whether the rent 
Airbus is paying under the lease will allow Hamburg to  recoup its investment plus a market-based rate 
of return.  According to the United States, the Ke unecke report explains that commercial investors in 
real estate in Germany expect to receive an annual re turn on their net investment (including financing 
costs) of between 9 and 12 percent.3916  To obtain even a 9 percent return, the United States asserts 
that Hamburg would need to charge Airbus at le ast EUR 67.5 million per year in rent; to achieve a 
12 percent return, the lease price would need to be set at over EUR 90 million per year.3917   
7.1058  In its first written submission, the United States noted that European Communities and 
Germany had refused to provide a copy of the Leas e to the Annex V Facilitator, so the United States 
did not know the precise amount of rent that Airbus is paying, but asserted that it was "highly 
unlikely" that Hamburg was charging Airbus an ywhere near the amount required to constitute 
adequate remuneration.3918  In this regard, the United States cited a statement by Hamburg's former 
minister for economic affairs: "The investment woul d in fact be unprofitable based on the rent alone.  
The whole thing must be viewed in terms of the public economy."3919  The United States also relied 
on reports by the Hamburg government to the Ha mburg Parliament in late 2003 and early 2006 
regarding the creation of the site which state that  the government expects Airbus to pay a total of 
EUR 29 million in rent through 2007,  only EUR 4.9 - 7.25 million per year, assertedly less than a one 
percent annual return, before inflation.3920  The United States also observed, as noted above, that the 
Hamburg government had considered the project to be a subsidy within the meaning of the 
SCM Agreement.3921   
7.1059  The United States argued that the refusal of  the European Communities and Germany to 
provide any of the information requested by the F acilitator during the Annex V process relating to the 
creation of the site, including the total costs that Ha mburg incurred to create  the site; the terms and 
                                                      
3914 European Commission, Decision of July 12, 2000, Aid to Scott Paper SA Kimberly-Clark, OJ 
(2002) L 12/1, Exhibit US-190, para. 149. 
3915 US, FWS, para. 436, citing European Commission, Decision of July 12, 2000, Aid to Scott Paper 
SA Kimberly-Clark, OJ (2002) L 12/1, paras. 165 (emphasis added), Exhibit US-190. 
3916 US, FWS, para. 438, citing Keunecke Report at 9-10, Exhibit US-189; Immobilienstandort 
Metropolregion Hamburg: Die Logistikbranche boomt dank dem Hafen , Frankfurter Allgemeine Zeitung 
(June 3, 2005) (explaining that German investors expect recovery of their investments, not including financing 
costs or profits, to take 13 years), Exhibit US-191. 
3917 US, FWS, para. 438. 
3918 US, FWS, para 439.   
3919 US, FWS, para. 439, citing, Airbus! Hark Bohm, Verlegen Bauer, Senator Uldall streiten beim 
Abendblatt,  Hamburger Abendblatt (March 2003), Exhibit US-192, at 3.   
3920 US, FWS, para. 440, citing, Hamburgische Bü rgerschaft, Drücksache 18/4115, Mitteilung des 
Senats an die Bürgerschaft (18 April 2006), Exhibit US-184, at 8; Hamburgische Bürgerschaft, Drücksache 
17/3641, Mitteilung des Senats an die Bürgerschaft (11 November 2003), Exhibit US-186, at 8.   
3921 US, FWS, para. 441.  WT/DS316/R 
 Page 647 
 
BCI deleted, as indicated [***] 
 
  conditions of any sale or lease of any portion of th e site to Airbus; and information regarding any 
payments by Hamburg to create the facilities that Ai rbus located on the site gave, rise to a logical 
inference that the information would have supporte d the US claim that the measure is a specific 
subsidy.  The United States suggested that the Panel draw such a logical inference.  In addition, the 
United States suggested that, in  accordance with paragraph 7 of Annex V,  the Panel would be 
justified in drawing an adverse inference that the withheld information demonstrates that the measure 
is a specific subsidy and the United Stat es requested that the Panel so infer.3922 
7.1060  Finally, the United States asserts that the subsid ies are specific to Air bus within the meaning 
of Article 2 of the SCM Agreement (i) because the Hamburg authorities custom-built the Hamburg-
Finkenwerder site to Airbus's sp ecifications in order to provide space for Airbus' A380 assembly 
facility (specificity "in law) and (ii) because Airbus  is the only company located on the site, Airbus is 
the only company that can use the site (the site is  surrounded by water on three sides and by Airbus's 
existing facilities on the land side), and the Hamburg authorities exercised their discretion to create 
the site especially for Airbus (specificity "in fact").3923 
European Communities  
7.1061  The European Communities considers that the recl amation of land in the Mühlenberger Loch 
and Rüschkanal does not fall within the scope of the SCM Agreement.  The European Communities 
maintains that conversion of wetlands into usable land is a typical task of public authorities, and 
constitutes the provision of general infrastructure, and is therefore outside the scope of Article 1 of the 
SCM Agreement.3924  The European Communiti es asserts that, under the constitution of Hamburg, the 
port is of specific importance to the city of Hamburg,3925 noting that the "law on the development of 
the port" ( Hafententwicklungsgesetz ) states that the development of the port is a public task.  
According to the European Commun ities, industrial sites are scarce in Hamburg, and the reclaimed 
land in the Mühlenberger Loch is an economic asset for the city, whet her used by Airbus Germany or 
others.3926  The European Communities maintains that upon the expiry or termination of the lease 
agreement between Airbus Germany and Hamburg,  Hamburg can open the land for public use or 
choose to rent it to another industrial investor, who could use it for instance as a container terminal or 
a car loading facility.3927  
7.1062  Thus, the European Communities argues that the Un ited States' allegation that an investor in 
"the market" would not have created the reclaimed la nd is beside the point, since a private company is 
neither bound by public law to implement certain ta sks, nor charged with expending public resources 
to achieve public policy goals.3928  Moreover, the European Commun ities maintains that in evaluating 
such projects, cost and the projected return in stri ct monetary terms is not of paramount importance.  
Governments may chose to spend more or less public  resources on general infrastructure projects, and 
to frame the expected return in so mething other than mere monetary te rms, for instance,  job creation.  
For the European Communities, under Article 1.1(a )(1)(iii) of the SCM Agreement, the question is 
whether or not the goods or services provided pertain to general infrastructure goals.  Whether or not 
"the market" would have created a similar site is irrelevant.3929  In the European Communities' view, 
                                                      
3922 US, FWS, para. 445. 
3923 US, FWS, para. 444. 
3924 EC, FWS, paras. 775-778. 
3925 EC, FWS, para. 777, citing Preamble of the Co nstitution of the Freie and Hansestadt Hamburg, 
Exhibit EC-569. 
3926 EC, FWS, para. 778. 
3927 EC, FWS, para. 778. 
3928 EC, FWS, para. 779. 
3929 EC, FWS, para. 780. WT/DS316/R 
Page 648  
BCI deleted, as indicated [***] 
 
  the conversion of wetland into generally usable la nd by Hamburg did not confer an advantage on 
Airbus.
3930 
7.1063  The European Communities notes th at the statement of the Hamburg Senate that the creation 
and leasing of the Mühlenberger Loch site constitu tes a subsidy reflects the possibility that Hamburg 
contemplated of renting the reclaimed land to Airbus at a price below the market.3931  However, the 
European Communities asserts that the final lease pr ice reflects the full market rent for the land, and 
the Senate statement is therefore outdated.3932  The European Communiti es also argues that WTO 
subsidy rules and EC State aid rules are not the sam e, and that therefore, any analogy between EC 
State aid practice and Article 1 of the SCM Agreement is not accurate.3933  In particular, the European 
Communities rejects the United States' assertion th at "a DG-Competition finding that a particular 
measure is State aid is tantamount to finding that a measure is a subsidy within the meaning of the 
SCM Agreement".3934  Thus, for the European Communities, the United States' reliance on the 
decision in the Scott Paper  case is misleading.  In any case, the European Communities notes that 
there is no Commission decision that the Hamburg project constituted State aid under EC competition 
rules.3935  The European Communities also asserts that the situations in Scott Paper  and Mühlenberger 
Loch are also substantially different, as Scott Paper  did not deal with measures of general 
infrastructure like the pure creation of land, but rather concerned the transformation of existing 
agricultural land into a tailor-mad e industrial site for the company.3936  According to the European 
Communities, rather than providing general infrastructure, in Scott Paper, the French authorities acted 
in favour of one specific company to whom owne rship of the tailor-made industrial site, including 
specific buildings for the factory, was transferred wi th a sales price that did not cover the investment 
costs.  No private investor would have acted in such a manner.  In the case of Mühlenberger Loch 
however, the European Communities asserts that Ham burg's land reclamation is a measure of general 
infrastructure, and that for such measures a mark et where private investors act does not exist.  
Furthermore,  the European Communities notes that  Hamburg has not sold the reclaimed land to 
Airbus Germany, but rather retains ownership of the property and the possibility to use the reclaimed 
land for other purposes after termination of the lease agreement with Airbus, and receives a market-based return on its investment in leasi ng special purpose facilities to Airbus.
3937 
7.1064  The European Communities also argues that the construction of flood protection measures, 
i.e., the dykes, constitutes general infrastructure whic h falls outside the scope of Article 1 of the 
SCM Agreement.  According to the European Co mmunities, the flood protection measures serve a 
basic infrastructure purpose for the citizens of Hambur g, as part of the public task of the City to 
ensure the safety of its citizens against natural catastrophes according to section 55 of the Water Law 
of Hamburg ( Hamburger Wassergesetz ).3938  The European Communities asserts that the flood 
protection measures implemented around the reclaime d land were part of the federal and regional 
flood protection programme implemented from 2000 to 2002.3939  According to the European 
Communities, all dykes must be seen as a measure for the protection of all inhabitants of Hamburg, 
and there is no specific benefit to single proprietors.   
                                                      
3930 EC, FWS, para. 781. 
3931 EC, FWS, para. 782. 
3932 EC, FWS, para. 782. 
3933 EC, FWS, para. 784. 
3934 EC, FWS, para. 786, citing US, FWS, para. 434, note 518. 
3935 EC, FWS, paras. 784-787. 
3936 EC, FWS, paras. 789-790, citing, European Commission, Decision of 12 July 2000, Aid to Scott 
Paper SA Kimberly-Clark, OJ 2002, L12, 1, Exhibit US-190, para 165. 
3937 EC, FWS, paras. 789-792. 
3938 EC, FWS, para. 794, referring to Hamburger Wassergesetz (Water Law of Hamburg), Exhibit EC-
575. 
3939 EC, FWS, para. 795.    WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  7.1065  For the European Communities, whether or not Hamburg granted a subsidy to Airbus 
Germany within the meaning of the SCM Agreement  depends solely on the terms under which 
Hamburg removed the publicly-owned reclaimed land in the Mühlenberger Loch area from public use 
by renting it to a private company.3940  The relevant inquiry must therefore, in the European 
Communities' view, focus on the terms of the lease, a nd not on the costs of the creation of the site. 
7.1066  The European Communities recalls that a benefit is only conferred if the recipient received a 
financial contribution on terms more  advantageous than those that would have been available to the 
recipient at market.3941  The European Communities asserts that, under the terms of the land lease 
agreements with Airbus Germany, no such advantag eous terms exist, relyin g in this regard on the 
contemporaneous opinion of the Hamburg real estate Experts Committee3942, as well as the Keunecke 
report relied on by the United States.3943  
7.1067  The European Communities points out that at the request of the City of Hamburg, the Experts 
Committee concluded that the value for industrial land in the vicinity was [***].  As the leased land is 
approximately 1,577,388 m² and thus that th e total value of the land was approximately [***].3944  The 
Experts Committee then concluded that an acceptable market-based rate of return for the Land Lease 
Agreement was [***].3945   The European Communities notes that the United States' expert reached 
the same conclusion with regard to the value of the land, concluding that the land value is between 
EUR 1.13/m² and EUR 61.36/m².3946   Based on these figures, the Eu ropean Communities asserts that 
a market rent would be EUR 3.70/m2 per year, or EUR 0.30/m2 per month, which it asserts is in 
accordance with the rent paid by Airbus Germany.3947  
7.1068  Thus, according to the European Communities,  the difference between the conclusions 
reached by the Experts Committee, and the United St ates' position, derives from different assumptions 
concerning the applicable rate of return on real est ate, set at 9 to 12% in the Keunecke Report, as 
opposed to [***] set by the Experts Committee.  In the European Communities' view these two 
percentage values do not measure the same thing and cannot be directly compared, as they result from 
two different definitions of "return."  The Eur opean Communities asserts th at when these values are 
restated and expressed in the same  economic terms, there is very little difference between them.  Any 
remaining difference is the result of assertions by Dr. Keunecke that are unsupported and not relevant 
to the industrial land and facilities at hand.3948   Thus, the European Communities argues, the 
difference between the results of the Keunecke Re port and the European Communities' position lies in 
the United States' view that Hamburg should not only demand a fair price for the current value of the 
land, but should also recover the full costs for the development of the site.3949  However, the European 
Communities considers this to be erroneous, since t hose costs are related to the creation of general 
                                                      
3940 EC, FWS, para. 781. 
3941 EC, FWS, para. 798, citing, Appellate Body Report, Canada – Aircraft , para. 157. 
3942 Real Estate Experts Committees are established by German federal law.  The Hamburg Experts 
Committee issues appraisals regarding th e market value of real property, on request by the City of Hamburg or 
its courts.  EC, FWS, paras 766-767, Exhibit EC-567. 
3943 EC, FWS, para. 798. 
3944 EC, FWS, para. 801, citing, Gutachterausschuss für Grundstückswerte in Hamburg, Gutachten G 
03.0058 M 21, 23 October 2003, p. 4-6, Exhibit EC-563 (BCI). 
3945 EC, FWS, para. 804.  The European Communities notes that the estimate of [***]  coincides with 
the Expert Committee's yearly estimations of property value in Hamburg, referring to Gutachterausschuss für 
Grundstückswerte in Hamburg, Der Grundstücksmarkt in Hamburg 2002, 2003, 2004, 2005, Exhibit EC-565, 
which sets an average return on real estate for th e relevant area at 6,2 %.  EC, FWS, footnote 680. 
3946 EC, FWS, para. 806. 
3947 EC, FWS, para. 807. 
3948 EC, FWS, para. 809. 
3949 EC, FWS, para. 818. WT/DS316/R 
Page 650  
BCI deleted, as indicated [***] 
 
  infrastructure, and therefore, the European Communi ties maintains, fall outside the scope of Article 1 
of the SCM Agreement.
3950 
7.1069  The European Communities further argues that, even if the Panel does not agree that the land 
reclamation was a measure of general infrastructur e, the difference between Hamburg's costs for the 
project and the rent paid by Airbus Germany does not constitute a "benefit" within the meaning of 
Article 1.1(b) of the SCM Agreement, because the re levant standard for dete rmining benefit is the 
benefit to the recipient, and not the cost to the government.3951  The European Communities notes that 
these principles, set out in Part V of the SCM Ag reement, are equally valid with respect to the 
definition of a subsidy in Article 1.  The ques tion under Article 1.1(b) of the SCM Agreement is 
whether a financial contribution confers a "benefit" on a recipient, relative to a market benchmark, 
and not whether the government covers the cost s of delivering that financial contribution.3952  Thus, 
the European Communities argues, the market benchmark serves as a floor in determining whether a 
financial contribution constitutes a benefit, but also  serves as a ceiling on the amount of "benefit" that 
can be found to exist under Article 1.1(b) of the SCM Agreement.3953  While the government is 
entitled to a market-based return , the European Communities argues that it can only earn a market-
based return on the value of the good leased, whic h may or may not be lower than its cost.  The 
European Communities argues, how ever, that the government can earn returns through increased 
employment and other returns that private investors cannot capture.3954 
7.1070  The European Communities argues that the Unite d States' approach ignores this fundamental 
point, and would require that Airbus Germany agree to pay the City rent considerably in excess of 
what the market would demand, based on the cost to reclaim the land.3955  That is, the European 
Communities argues, effectively a resort to a "c ost to government" standard.  According to the 
European Communities, the United States considers th at, regardless of the rental agreement Airbus 
Germany could have received at market, it should pa y rent sufficient for the government to recover 
the costs it incurred in creating the reclaimed land, which position the European Communities argues 
rest on the "cost to government" standard rejected by the Appellate Body.  The European 
Communities urges the Panel to do so as well in this dispute.3956 
7.1071  Turning to the special purpose facilities, the European Communities notes that Hamburg also 
requested the Experts Committee to examine the ma rket consistency of the Quay Facility Lease 
Agreement.3957  The Experts Committee concluded that the ag reed rent for the facilities covered in the 
Quay Facility Lease Agreement was consistent with market; and second, that the other terms of the 
Quay Facility Lease Agreement we re consistent with market.3958  The other special purpose facility 
lease agreements were based on the same pattern, an d the European Communities asserts that they are 
also consistent with the market.3959 
                                                      
3950 EC, FWS, para. 819. 
3951 EC, FWS, para. 821, referring to Article 14(d) of the  SCM Agreement and the decision of the 
Appellate Body in Canada – Aircraft . 
3952 Appellate Body Report, Canada – Aircraft , para. 155. 
3953 EC, FWS, paras. 823-824. 
3954 EC, SWS, para. 1083, footnote 326, EC Comments on US Answers to Panel Questions 154 and 
155, para. 164. 
3955 EC, FWS, para. 826.  The European Communities notes that the United States suggests, at 
paragraph 438 of its first written submission, that Ai rbus Germany should pay an annual rent of EUR 90 
million.  EC, FWS, footnote 687. 
3956 EC, FWS, para. 826. 
3957 EC, FWS, para. 828. 
3958 Gutachterausschuss für Grundstückswerte in Hamburg, Gutachten G 03.0059 M 21, 
23 October 2003, Exhibit EC-564 (BCI) p. 4. 
3959 EC, FWS, paras. 829-845.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  (iii) Evaluation by the Panel 
7.1072  In order to resolve this aspect of the United St ates' claims, we will address first the European 
Communities' contention that the conversion of the M ühlenberger Loch site fro m wetlands into usable 
land constitutes a measure of general infrastructur e, and thus does not c onstitute a subsidy under 
Article 1 of the SCM Agreement.  An underlying premise of the European Communities' argument is 
that the various aspects of the development of the industrial site must be analyzed separately, in contrast to the United States' view, which treats th e entire project as an integrated whole for purposes 
of analysis.  Should we conclude that part or all of the provision to Airbus of the site is not a measure 
of general infrastructure, we will then go on to assess whether the financial contribution represented 
by that measure confers a benefit on Airbus.   
General infrastructure
 
7.1073  As we concluded above,3960 in our view, the question of whether the provision of a good or 
service constitutes a provision of "general infrastruct ure" cannot be answered in the abstract, but 
rather must take into account the existence or absence of de jure  or de facto  limitations on access or 
use, and any other factors that tend to demonstrate that the infrastructure was or was not provided to 
or for the use of only a single entity or a limited group of entities, which may include factors relating to the circumstances surrounding the creation of the infrastructure in question, consideration of the 
type of infrastructure, the conditions and circum stances of the provision of the infrastructure, the 
recipients or beneficiaries of the infrastructure, and the legal regime applicable to such infrastructure, 
including the terms and conditions of access to a nd/or limitations on use of the infrastructure.  
Consideration of these factors in this instance le ads us to conclude that the provision of the 
Mühlenberger Loch/Rüschkanal site does not c onstitute a measure of general infrastructure. 
7.1074  Before addressing these factors, we consider th e issue raised by the European Communities' 
argument that the Mühlenberger Loch project consis ted of three distinct elements, (1) turning of 
wetlands into usable land, (2) building of flood protection measures, and (3) building of special 
purpose facilities, and that these three elements must be considered separately in assessing the issue of 
whether they constitute a provision of general infrastructure.
3961  The United States, on the other hand, 
contends that the creation of the site, and its provisi on to Airbus, are not distinct transactions having 
nothing to do with one another, but are integrally linked.3962  For the United States, the lease of the 
land and special purpose facilities to Airbus cannot be separated from the creation of the land, including the flood protection measures and buildi ng of the special purpose facilities, because it was 
necessary to create the land in the first place in orde r to allow the remainder of the project, including 
the building of the special purpose facilities, to be undertaken.   
7.1075  The European Communities does not, in our unde rstanding, contend that the land reclamation 
was undertaken for reasons unrelated to the needs of  Airbus, and then, afterwards, independently, the 
land was rented to Airbus.  The European Commun ities has submitted no evidence that would suggest 
that the Hamburg authorities would have undertaken the reclamation of wetlands in the Mühlenberger 
Loch and Rüschkanal but for the fact that it was necessary to reclaim the land in order to make 
possible the expansion of Airbus' existing facilities in Hamburg to enable Airbus to assemble the 
A380 at that facility.  Indeed, in its second written submission, the European Communities 
                                                     
 
3960 See, discussion at paras. 7.1036 to 7.1044 above. 
3961 EC, FWS, para. 748. 
3962 US, SWS, para. 315. WT/DS316/R 
Page 652  
BCI deleted, as indicated [***] 
 
  acknowledges that the land reclamation was undertak en to accommodate Airbus' needs in connection 
with assembly of the A380.
3963 
7.1076  The European Communities argues that the fact that the Hamburg authorities "were aware of 
the fact that Airbus would be the first user of th e newly-created land" is not surprising, and considers 
that the United States errs in attaching importance to this undisputed fact.3964  The European 
Communities refers to the law governing the developmen t of the port of Hamburg, suggesting that the 
reclamation was part of that development, but acknowl edges that the site is not, in fact, within the 
harbour area as defined by the port law.3965  The European Communities also suggests that land for 
industrial use is limited in Hamburg, implying that  land reclamation is undertaken in a general effort 
to provide additional sites for industrial, and residential, use.3966   
7.1077  In our view, none of these elements supports th e basic premise of the European Communities, 
that we must consider as distinct elements the la nd reclamation, the building of the dykes, and the 
lease of the land and special purpose facilities.  We agree with the United States that the lease of the 
land and special purpose facilities to Airbus cannot be separated from the creation of the land, 
including the flood protection measures and the build ing of the special purpose facilities, because it 
was necessary to create the land in the first place in order to allow the remainder of the project, 
including the building and subsequent lease of the sp ecial purpose facilities, to be undertaken.  Merely 
because land reclamation and flood control are "typic al task{s} of public authorities, as providers of 
general infrastructure"3967 does not constitute a sufficient basis to conclude that they must be 
considered as distinct elements of the provision of th e Mühlenberger Loch site to Airbus.  In fact, the 
European Communities' argument in this respect is somewhat circular:  because the land reclamation 
and flood control aspects are, in the European Comm unities' view, measures of general infrastructure, 
they must be considered separately from the lease of the land to Airbus, and considered separately, 
they constitute measures of general infrastructure.  However, as noted above,  despite the European 
Communities' arguments to the contrary,3968 it is clear to us that the United States' claim is that the 
entire transaction of creating and providing an industr ial site to Airbus constitu tes the alleged subsidy, 
which it asserts is not a provision of general infrastructure.3969   
7.1078  We consider that there is no legal requirement that we separate the various elements of the 
project for purposes of our analysis, and indeed, the European Communities has not proposed one.  
Nor are we persuaded that there is any factual b asis that necessitates separating the elements as 
proposed by the European Communities.  It is cl ear from the evidence before us that the land 
reclamation in question was undertaken in order to  make possible the expansion of Airbus' existing 
facilities, and not for any independent purpose.  Thus, it is part of an integrated project to provide a 
site adjacent to Airbus' existing Finkenwerder site  for expansion of its facilities.  We therefore 
proceed on the basis of an analysis of the entire project as a single measure. 
                                                      
3963 "Hamburg agreed, ... to fill in wetlands adjacent to the Deutsche Airbus facility (and owned by the 
City) to accommodate the A380 {final a ssembly line}".  EC, SWS, para. 1083. 
3964 EC, SWS, para. 353. 
3965 EC, Answer to Panel Question 93, para 244.  The United States points to evidence that the site was 
specifically excluded from the Harbor Area through an amendment to the Ac t in 1999, because the creation of 
land for the purpose of expanding Airbus' site, accord ing to the Hamburg governm ent, does "not serve any 
harbor purposes."  US, SWS, para. 237, referring to Ha mburgische Bürgerschaft, Mitteilung des Senats an die 
Bürgerschaft, Achtes Gesetz zur Änderung des Hafenentwicklungsgesetzes, hier: Änderung des Hafengebiets im 
Mündungsbereich des Rüschkanals und vor der Aufhöhungsfläche des Mühlenberger Lochs, Drs. 16/2646, p. 1, 
Exhibit US-552). 
3966 EC, Answer to Panel Question 91, para 225. 
3967 EC, FWS, para. 775. 
3968 EC, FWS, paras. 747-749. 
3969 See, paras. 7.153, 7.155 and 7.158 above.  WT/DS316/R 
 Page 653 
 
BCI deleted, as indicated [***] 
 
  7.1079  We recall our interpretation of the term "general infrastructure", where we concluded that that 
the term " general  infrastructure", taken in its ordinary and natural meaning, refers to infrastructure 
that is not provided to or for the advantage of only a single entity or limited group of entities, and that there is no type or form of infrastructure which is inherently "general" per se .
3970    
7.1080  It is clear from the evidence before us that the reclamation of the wetlands adjacent to the 
existing Airbus facility in Finkenwerder was undertak en not merely in the awareness that Airbus 
would be the "first user", as argued by the European  Communities, but specifically in order to enable 
Airbus to expand its existing facilities in a way it  could not do without the creation of the new 
land.3971   The decision of the EC Commission granting approval for the draining of the wetlands 
notes the [***].3972  The flood control measures, i.e., the new dyke, for the reclaimed land would not 
have been undertaken had the land reclamation not  taken place.  While the European Communities 
asserts that the existing flood protection system for the existing Airbus facility in Finkenwerder was 
insufficient, it acknowledges that the land reclamation project provided "a timely opportunity to upgrade" those facilities, in line with the 2002-201 2 flood protection programme for the river Elbe.
3973  
The special purpose facilities, the quay, the ro ll-on-roll-off facility, sluice and pump building, 
drainage ditch, and sternfender, all form part of the creation of an industrial site suitable for the 
expansion of Airbus' existing fac ilities.  There is simply no evidence to suggest that any of this 
development would have been undertaken at the time were it not necessary in order to enable Airbus 
to expand its existing facilities to allow for assembly of the A380 at that site.   
7.1081  We do not doubt that the Hamburg authorities were pursuing a public interest or public policy 
goal in undertaking this large project.  Indeed, th is is clear from the EC Commission decision, which 
granted approval for a project which would destroy a protected wildlife sanctuary in part on the basis 
that it would counterbalance job losses in Hamburg and would have a positive effect on the economic 
and social situation in the region.3974  However, merely that the Hamburg authorities were furthering a 
public interest does not suffice to demonstrate that the project, starting with the reclamation of the 
land, and including the remaining elements of  flood protection and special purpose facilities, 
constitutes general infrastructure.  To the contrary, as we have noted, it is in any event always likely 
to be the case that public authorities will have reasons  of public policy when ex pending public funds.   
7.1082  The European Communities also argues that ther e is public access to the reclaimed land, and 
a potential for other uses, allegedly demonstrating th at that aspect of the project constitutes provision 
of general infrastructure.3975  As discussed above, we do not consider it appropriate to analyse the 
elements of provision of the Mühlenberger Loch site separately.  However, even if we were to do so, 
we would not find the European Communities' argument s in this regard persuasive.  With respect to 
its assertion of public access, the European Communiti es relies primarily on photographic evidence to 
argue that the site is accessible via a publicly owned road, i.e., the dyke lane, which functions as the 
normal traffic road between the Airbus facilities and the village of Cranz, without crossing the Airbus 
facilities.3976  However, at best, the dyke lane provides limited access to the circumference of the site, 
                                                      
3970 See, discussion at paras. 7.1036 to 7.1044 above. 
3971 See, EC, SWS, para. 1083.  We note, moreover, that on 9 July 2004, the City of Hamburg and 
Airbus Deutschland GmbH concluded a contract under which Airbus promised to undertake all investments 
needed for the production and delivery of the A380 Freighter, including investments in the buildings on the 
newly created artificial land in the Mühl enberger Loch.  In addition, Airbus agreed to rent the land needed for 
this purpose, and to pay damages to Hamburg for, inter alia , investments to provide the site, should Airbus 
ultimately not locate A380 production there.  US, SWS, para. 337 , see Exhibits US 562, 563, 564 and 565.   
3972 Commission decision of 19 April 2000, Exhibit EC-547 (BCI). 
3973 EC, FWS, para. 756.  The European Communities provides no evidence to suggest that such an 
"upgrade" would have taken place at that time but for the entire project  being undertaken.   
3974 EC, FWS, para. 754. 
3975 EC, Answer to Panel Question 91, paras. 227-229, 233 and 242-246.   
3976 Exhibit EC-616. WT/DS316/R 
Page 654  
BCI deleted, as indicated [***] 
 
  and not to any of the land leased by Airbus.
3977  More pertinently, as the European Communities 
acknowledges, the dyke lane is open to use only by  Airbus employees and city officials responsible 
for maintenance of the dyke, at least fo r as long as the land is leased to Airbus.3978  Moreover, the 
European Communities has not rebutted the United St ates' arguments concerning the inadequacy of 
the dyke lane as a means of access to the site, other than for limited purposes.3979  The mere possibility 
that at some future time, if Airbus no longer leases the land, there might be access to the site via an 
improved dyke lane, does not, in our view, suffice to  demonstrate that any part of the Mühlenberger 
Loch project constitutes a measure of general infrastructure.   
7.1083  With respect to the assertion that there are pot entially other uses for the site, the European 
Communities argues that if the lease agreement with Airbus were term inated, the site could be leased 
to another company, and specifically, could be used as a container terminal.3980  Our review of the 
lease for the site leads us to conclude that any potenti al other use of the site is, at best, a fairly distant 
future possibility.3981  Moreover, we are not persuaded by the European Communities' arguments that 
there are alternative uses for th e site.  The European Communiti es relies on the land use plan for 
Hamburg ( Flächennutzunsplan ) to argue that the site is not rest ricted to use by aviation industries,3982 
and asserts that due to scarcity of land in Ha mburg, the site constitutes a valuable asset.3983  However, 
the European Communities' argument relies prim arily on the overall land use plan and does not 
address the subsidiary land construction plan ( Bebauungsplan Finkenwerder 37 ), which, as argued by 
the United States, imposes limitations on the use of  the Mühlenberger Loch site for any purpose other 
than Airbus' aircraft assembly facilities.3984  While it is true that these plans are subject to revision by 
the Hamburg authorities, that possibility is not sufficient, in our view, to support the European 
Communities' position, and does not justify a conclusion that the site is available, in any meaningful 
sense, for use by any entity other than Airbus or  for any use other than by aviation industries.3985   
Moreover, merely that land is a valuable asset a dds nothing to the European Communities' argument, 
particularly in view of the evidence rebutting th e European Communities' assertion that there is a 
shortage of land for industrial use in Hamburg.3986 
7.1084  The circumstances surrounding the creation of the Mühlenberger Loch site, including all of 
aspects discussed above, clearly demonstrate to us that the Hamburg authorities were not simply "aware" that Airbus would be the first user of the site, but undertook the entire project specifically in 
                                                     
 
3977 We note that the Land Lease Agreement contains two specific provisions relating to access to the 
site by parties other than Airbus.  In particular, Article 11.3 states that "the lessee is obliged to allow agents of the lessor or representatives of the utilities companies afte r prior agreement with the lessee to enter the leased 
area and undertake any work he consid ers necessary (surveys, building inspections, maintenance, repairs etc.)," 
and Article 11.4 provides that "Contractors of the dyke authority or from other responsible authorities must be 
given access over the leased area to the flood defences at any time in connection with dyke maintenance and 
dyke defence functions."  See, Exhibit EC-551 (BCI). 
3978 EC, Answer to Panel Question 91, para. 229. 
3979 US, SWS, para. 347-348. 
3980 EC, FWS, para. 778, referring to Exhibit EC-571 
3981 The Lease agreement, Exhibit EC-551 (B CI), indicates that the lease is for [***] . 
3982 EC, Answer to Panel Question 91, para. 233, Exhibit EC-617. 
3983 EC, Answer to Panel Question 91, para. 225. 
3984 US, SWS, para 343-344 and references therein. 
3985 We also note that the fact that Hamburg required Airbus to agree to pay damages, including for the 
investment made in the site required by Airbus, should the latter decide not to locate A380 freighter operations in Hamburg supports the conclusion that the city author ities did not consider that there were any other uses for 
the newly created site than the expansion of Airbus' existing operations.  US, SWS, para 337 and footnote 411, 
referring to Exhibits US-562 , US-563, US-564, and US-565. 
3986 Prior to the decision to create the Mühlenberger Loch site, three alternative sites  of comparable 
size in Hamburg were considered.  US, SWS, para 320.  This supports the US contention that there is no 
shortage of industrial land, and thus rebuts the impli cation that creation of the Mühlenberger Loch site was 
somehow necessary apart from enabling Airbus to expand its existing facilities at that location.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  order to enable Airbus to expand its existing f acilities.  The project, including the special purpose 
facilities, was tailor-made for Airbus, enabling it to expand its existing facilities so as to be able to 
benefit from the resulting synergies.  No other bene ficiary was considered at any time – the project 
was undertaken exclusively for Airbus.  Moreover, the terms of the lease agreements, as well as the 
then-existing legislation governing use of the land, li mit the use of the site fo r the foreseeable future 
to Airbus.  In light of these facts, we conclude  that the creation and provision of the Mühlenberger 
Loch industrial site is not a provision of genera l infrastructure, but rather constitutes a financial 
contribution in the form of the provision of goods or  services other than general infrastructure, within 
the meaning of Article 1.1(a)(1)(iii) of the SCM Ag reement.  We therefore go on to consider whether 
it conferred a benefit on Airbus. 
Benefit  
7.1085  The United States asserts that the provision of the Mühlenberger Loch site confers a benefit 
on Airbus (i) because Hamburg authorities created a site that the market would not have created,3987 
and (ii)  because the site is provided to Airbus for less than adequate remuneration.3988   
7.1086  In its first written submission, the United States identified the alleged costs of the 
Mühlenberger Loch project and addressed the que stion of benefit based on publicly available 
information, because, it noted, the European Communities and Germany had refused to provide 
information, as requested by the Facilitator durin g the Annex V process, concerning the creation of 
the site, including total costs incurred by Hamburg to create the site, as well as information on the 
terms and conditions of any sale or lease of the site to Airbus, and information regarding any 
payments by Hamburg to create the facilities located on the site by Airbus.3989  The United States 
argued that the logical inference to be drawn from this refusal was that the information would have 
supported the United States' claim that the measure is a specific subsidy, and that the Panel would be 
justified in drawing an adverse inference pursuant to paragraph 7 of Annex V to that effect.   
7.1087  Paragraph 7 of Annex V provides that a panel "should draw adverse inferences from instances 
of non-cooperation by any party involved in th e information-gathering process".  Although the 
European Communities failed to provide all of the information requested on the Mühlenberger Loch 
project during the Annex V process, it has, duri ng the course of this panel proceeding, submitted 
additional information.  Thus, we are not here faced  with a situation where a party has failed to supply 
any part of the requested information.  As a c onsequence, we cannot simply accept, as the United 
States suggests, that the failure to provide the requested information during the Annex V process 
warrants drawing an adverse inference against the Eur opean Communities.  Rather, we consider that it 
is appropriate to address the evidence that has been  put before us on the issue of benefit.   
7.1088  The United States argues, based on publicly av ailable information, that the Hamburg 
authorities invested EUR 751,000,000 in the creation a nd development of the site, including the land 
reclamation, dykes, and special purpose facilities.  The United States asserts that Hamburg estimated 
that the total cost of the project would be EUR 693,700,0003990 but that "{t}he Hamburg Accounting 
Office criticised this estimate and predicted that the total costs to Hamburg would amount to EUR 
751,000,000".3991  The European Communities, on the other hand, argues that this amount represents 
                                                      
3987 US, FWS, paras. 431-436. 
3988 US, FWS, paras. 437-442. 
3989 US, FWS, para 445. 
3990 US, FWS, para. 428, citing Hamburgische Bu rgerschaft, Drucksache 18/4115, Mitteilung des 
Senats and die Bürgerschaft (18 April 2006), Exhibit US-184, at 11-12 (annex 1) and 13 (annex 2). 
3991 US, FWS, para. 428, citing Hamburgische Burgerschaft, DRs. 17/2267, Report from the Audit 
Office to the Burgerschaft (19 February 2003), Exhibit US-188, at 155, para. 385.   WT/DS316/R 
Page 656  
BCI deleted, as indicated [***] 
 
  an early estimate of the cost of the project, and th at the aggregate costs for the project foreseeable in 
2006 were EUR 693,679,000.
3992   
7.1089  Although the European Communities has now provid ed information concerning the total cost 
of creating the Mühlenberger Loch site that w as not presented during the Annex V process, the United 
States continues to argue that the real costs were approximately EUR 750 million.3993  T h e  U n i t e d  
States argues that the European Communities' cont ention that its calculation is based on a earlier, 
outdated estimate is wrong, and asserts that the Eu ropean Communities fails to  include the cost of 
certain interim financing incurred by ProFi, which it contends should be included, based on the Court 
of Auditors report on which the United States relies.3994  We agree with the United States that the 
European Communities' cost estimates do not in clude the interim financing costs to ProFi. 3995   We 
further agree that those costs are appropriately included  in the total.  Together with the fact that the 
European Communities did not provide the inform ation requested during the Annex V process, we 
therefore consider it appropriate to accept the Unite d States' assertion, based on publicly available 
information, that the cost of the development of  the Mühlenberger Loch site, including the land 
reclamation, flood protection, and special purpose facilities was approximately EUR 751 million.  The 
site is leased to Airbus under a series of leases for the land and the special purpose facilities, for a 
period of [***].  The full rent for the land, which will only be achieved after 2009, after all parcels are 
suitable for use, and the reductions for settling ar e eliminated, will be EUR 5,619,588 per annum, 
while the rent for the special purpose facilitie s is EUR 5,619,200 per annum, both subject to 
adjustment for inflation.   
7.1090  We recall that Article 1.1(b) of the SCM Agre ement does not define the notion of "benefit".  
However, it is well established that a "financial contribution" will confer a "benefit" upon a recipient 
when it places that recipient in a more advantag eous position compared with the position of that 
recipient in the absence of th e "financial contribution".3996  In Canada – Aircraft , both the panel and 
the Appellate Body considered that the basis for making this comparison was the market.  Thus, the 
panel observed that: 
"a financial contribution will only confer a 'benefit', i.e., an advantage, if it is 
provided on terms that are more advantage ous than those that would have been 
available to the recipient on the market".3997 
Similarly, the Appellate Body explained that: 
 
"the marketplace provides an appropriate basis for comparison in determining 
whether a 'benefit' has been 'conferred', because the trade distorting potential of a 
'financial contribution' can be identified by determining whether the recipient has 
                                                      
3992 EC, FWS, para. 758, citing Hamburgische Bu rgerschaft, Drucksache 18/4115, Mitteilung des 
Senats and die Bürgerschaft (18 April 2006), Exhibit EC-548, at 8. 
3993 US, SWS, footnote 367 and paras. 352, 356. 
3994 US, SWS, footnote 439. 
3995 In its report, the Court of Auditors noted that the Hamburg government had not included in its cost 
information certain interim financing cost incurred by the government-owned developer ProFi that should be 
included in the cost. See, Hamburgische Bürgerschaft, Jahresbericht 2003 des Rechnungshofs (2003 Annual 
Report of the Court of Auditors), Drs. 17/2267, para. 385, Exhibit US-188).   
3996 Panel Report, Canada – Aircraft , para. 9.112, cited with approval in Appellate Body Report, 
Canada – Aircraft , para. 149. 
3997 Panel Report, Canada – Aircraft , para. 9.112; Appellate Body Report, Canada – Aircraft , paras. 
157-158; Appellate Body Report, US – Countervailing Measures on Certain EC Products , para. 102.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  received a 'financial contribution' on terms more favourable than those available to 
the recipient on the market."3998  
7.1091  Thus, a benefit will be conferred whenever a fina ncial contribution is granted to a recipient on 
terms more favourable than those available to the reci pient in the market.  In the context of a financial 
contribution in the form of provision of goods or services other than general infrastructure, we 
consider that the appropriate question to be addressed  in resolving the question of benefit is whether a 
market actor would have provided the good or service to the recipient at the time, on the same terms and conditions as the government provision at issue.     
7.1092  In this regard, the European Co mmunities argues that it is incorrect to assess benefit to Airbus 
on the basis of the difference between the cost to the Hamburg government of the project, and the rent 
paid by Airbus for the site.
3999  The United States does not dispute th e basic premise that cost to the 
government is not an appropriate basis for assessme nt of benefit.  However, the United States does 
argue that the circumstances of the case require consideration of the total amount invested by 
Hamburg to create the site in order to determine th e existence and amount of any benefit.  The United 
States argues that this is not a case where the governme nt simply rented an existing parcel of land to 
Airbus.  Rather, in this case the Hamburg author ities specifically created the land that was necessary 
for Airbus' expansion next to its ex isting site at Finkenwerder, and then rented that land to Airbus.  
The United States does not, in the first instance, dis pute that the rent for the land and special purpose 
facilities may well be commensurate with a market benchmark for rental of existing  land in the 
area,4000 but considers that the underlying investment in  reclaiming the land must be included in the 
calculation in this case in order to arrive at a r ealistic approximation of a market benchmark for the 
value of the particular land in question, which must reflect the investment in land .  In the United 
States' view, a calculation of the lease price which does not take into consideration the investment in 
creating the site effectively turns that amount into a grant to Airbus.   
7.1093  The European Communities, on the other hand, argues that Hamburg did not create an 
industrial site for Airbus, but "c onducted mere land reclamation",4001 and then rented that land to 
Airbus at a market-based price, and that no bene fit was conferred upon Airbus thereby.  We have 
already rejected the argument that "mere land reclam ation" is exempt from consideration as a subsidy 
in this dispute, and are considering the entire Mühl enberger Loch project as a whole.  Therefore, we 
consider that the investment by Hamburg in brin ging the site into existence is relevant in our 
assessment of whether a benefit was conferred on Ai rbus.  This does not constitute, as argued by the 
European Communities, a determination of the amount of benefit on the basis of cost to the 
government.  Rather, we consider that it is simply a reflection, in the particular circumstances of this 
measure, of the basis on which a market actor woul d determine the amount of rent to be charged for 
that particular parcel of land, and thus  the appropriate "market" benchmark.   
7.1094  While the parties agree that, in this case, no co mmercial investor would have undertaken the 
project, it is clear to us that this is because the investment necessary in reclaiming the land was 
disproportionately large in comparison to any potentia l returns.  The parties are in general agreement 
as to the market value of industrial land in Hambur g, and the value of the Mühlenberger Loch land - 
between EUR 71,600,000 and EUR 85, 900,000, according to the United States,4002 or approximately 
                                                      
3998 Appellate Body Report, Canada – Aircraft , para. 157. 
3999 EC, FWS, para. 820. 
4000 The United States does, as a second line of argum ent, assert that the rent is insufficient by 
comparison to a market benchmark.  In light of our conclusion, we do not consider it necessary to address this 
line of argument. 
4001 EC, SWS, para. 357. 
4002 US, FWS, para. 432, and Exhibit US-183. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  [***], according to the EC.
4003  It is clear that a market-based rental on land of that value is 
necessarily far less than would be a market based  rental on an investment in land worth EUR 750 
million.  Indeed, the European Co mmunities does not even suggest that  the rental paid by Airbus 
provides a market return on the investment in reclai ming the land.  Yet, in our view, a market actor 
who invested EUR 750 million in land, whether by purchasing it or by creating it through 
reclamation, would, in renting the property, seek a re turn on that investment.  In this situation, the 
"investor" was the Hamburg city authorities, who di rected public funds to create an asset that the 
market would not have created.  To argue, as the Eu ropean Communities effectiv ely does, that in this 
situation, no benefit can be found, would, in our estimation, result in a wholesale circumvention of the 
fundamental purpose of the SCM Agreement's di scipline on subsidies.  Under the European 
Communities' view,  the more a financial contribu tion by a government distorted the allocation of 
resources that the market would otherwise produce,  the less it could be found to be a subsidy.4004  This 
is not an acceptable outcome, as it perverts a fundamental goal of the SCM Agreement.   
7.1095  The European Communities argues that for the United States to successfully argue that the 
cost of the project should be taken into account it must demonstrate that, absent the actions of the 
Hamburg authorities, Airbus would have reclaimed th e land itself, in which case the costs incurred by 
Hamburg would represent the "cost savings" for Airbus.4005  While the European Communities argues 
that Airbus would not have done so, this appears la rgely to be based on its view that land reclamation 
is a government task, and that absent the action of Hamburg to reclaim the land, Airbus would simply have sited its new facility elsewhere.  While it may be true that land reclamation is most commonly 
undertaken by governments, there is nothing in principle that would preclude a private party from 
undertaking such a project, and thus nothing in principle that would have precluded Airbus from 
reclaiming the Mühlenberger Loch site on its own account.
4006  That the cost of the project might have 
persuaded Airbus not to u ndertake it, but rather to site its asse mbly facility elsewhere, as argued by 
the European Communities, in our vi ew simply underscores the fact that the reclamation of this land 
involved, as the European Communities itself sugg ested, a "cost of reclamation that no rational 
investor, including Airbus, would incur for land that Airbus did not need."4007   The fact that Airbus 
had other options, but chose to expand its existi ng facilities at Finkenwerder once the necessary land 
was made available to it thus supports our view  that the financial contribution of the Hamburg 
authorities in reclaiming the land and building speci al purpose facilities for Airbus' use conferred a 
benefit on Airbus.4008   
                                                      
4003 EC, FWS, para. 801 and Exhibit EC-563 (BCI) p. 4-6. 
4004 The European Communities agrees that there are in stances where cost can serve as a surrogate for a 
market price.  However, it asserts that cost may be used  to estimate market prices only in instances where it is 
apparent that generally prevailing market prices at the time of the investment are sufficient to induce private 
investors to undertake the project.  The European Communities argues that cost does not provide a reliable measure of market value where it is apparent that no pr ivate investor would undert ake the investment because 
the rent or price required to provide a market return  exceeds the market value of  the resulting asset.  EC, 
Comments on US Answer to Panel Questions 154 and 155. 
4005 See, EC, SNCOS, paras. 30 & 212. 
4006 Provided, of course, that necessary permission was granted to undertake such a project.  In our 
view, had Airbus sought to undertake the land reclamation on its own account, and been denied permission by 
the Hamburg authorities, which then undertook the project at government expense and provided the reclaimed 
land exclusively to Airbus, this would demonstrate that the provision of the land conferred a benefit, as it would be clear that the government had, by its own action, enabled Airbus to save the expense of reclaiming the land. 
4007 EC, SCOS, para. 20. 
4008 Moreover, not only did the Hamburg authorities have incentive to keep Airbus active at its existing 
facility, which might not have been the case had the expansion for purposes of the A380 project not been 
possible, but Airbus had incentive to site A380 production operations at the site, in order to ensure that it 
obtained LA/MSF from the German government.  The European Communities acknowledges that [***]  was one 
of the reasons Airbus set up two pr oduction sites, despite the asserted [***] that resulted.  EC, SWS, para. 1079.    WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  7.1096  Finally, the European Communities argues that Airbus pays rent for the land and special 
purpose facilities that is commensurate with market rates for like land and facilities in Hamburg, and 
therefore that there is no benefit conferred on Airbus.  However, the European Communities' 
argument is premised on its view that the land recl amation aspect of the project does not constitute a 
financial contribution, which we have rejected.  It is clear, and the European Communities does not 
argue otherwise, that the rent paid by Airbus for the reclaimed land and special purpose facilities does 
not provide a market rate of return on the whole of the investment by the Hamburg authorities to create the Mühlenberger Loch site.  Thus, in our vi ew, whether the rent paid by Airbus for the land 
and special purpose facilities is commensurate with a ma rket rate for rental of existing industrial land 
and facilities in Hamburg is simply not relevant to our analysis of benefit.  We consider that the 
subsidy granted by Hamburg by creating and leasing the Mühlenberger Loch site conferred a benefit 
on Airbus in an amount equivalent to the extent of the difference between the actual rent paid by 
Airbus for the land and facilities in question, and a r easonable rate of return on the investment of the 
Hamburg authorities in creating that land and those facilities.  That investment was many times 
greater than the value of the site reflected in th e actual rental amounts, and thus in our view, the 
provision of the site conferred a very large benefit to Airbus. 
7.1097  Therefore, in our view, the conclusion that the provision of the Mühlenberger Loch site to 
Airbus confers a benefit on Airbus, for whom th e project was undertaken, and thus constitutes a 
subsidy within the meaning of Article 1 of th e SCM Agreement is inescapable.  The European 
Communities does not dispute that the provision of the site was specific to Airbus.  As Airbus is the 
only user of the site, which was developed to fulfil Airbus' needs, we find that the subsidy in question 
is specific to Airbus within the meaning of Article 2.1(a) of the SCM Agreement. 
(d) Bremen Airport Runway 
7.1098  The United States argues that the main runway at Bremen airport was extended by German 
authorities in 1988-89 to accommodate transport fli ghts for Airbus wings manufactured in Bremen.  
According to the United States, the authorities extended the runway specifically for Airbus' 
requirements, and use of the extended portions of th e runway is restricted by regulation to flights 
transporting Airbus parts.  The United States conte nds that the provision of the extended runway to 
Airbus for its exclusive use for less than adequate remuneration is a financial contribution that confers 
a benefit on Airbus within the meaning of Article 1.1 of the SCM Agreement that is specific within 
the meaning of Article 2 of the SCM Agreement.
4009  
7.1099  According to the European Comm unities, the United States' claim fails to adequately identify 
the presumed beneficiary, and falls outside the scope of the SCM Agreement.4010  The European 
Communities argues that the extension of the Br emen airport runway, and the associated noise 
reduction measures, constitute measures of general infrastructure, and therefore do not constitute a 
financial contribution within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.4011  T h e  
European Communities acknowledges that allowing only Airbus to use the  full length of the extended 
runway may constitute the provision of a service with in the meaning of Article 1.1(a)(1)(iii) of the 
SCM Agreement, but contends that granting Airbus a right to use the full length of the runway does not confer a benefit on Airbus because Airbus pays  for this use in accordance with the general fee 
schedule applicable at Bremen Airport.
4012 
                                                      
4009 US, FWS, para. 451. 
4010 EC, FWS, paras. 860-861. 
4011 EC, FWS, paras. 864, 869. 
4012 EC, FWS, paras. 872-873. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  (i) Factual Background 
7.1100  According to the European Communities, German authorities require a safety margin at either 
end of commercial runways, consisting of a 300 me ter area free of all obstacles.  In Bremen, the 
implementation of this requirement had resulted in the shortening of the usable length of the 
runway.
4013  In May 1988, an extension of the runway by 300 meters at either end was authorized.4014  
Consequently, in 1989-90, the runway was extended fr om its existing length of 2,034 meters to 2,634 
meters.4015  At the same time, noise reduction measures were put in place.4016 It is undisputed that, 
with the exception of emergencies, only 2,034 meters of the runway's length is  available for general 
aviation use.  Regular use of the entire length of th e runway, including the 600 meters of extension, is 
permitted only for flights transporti ng Airbus wings from Bremen.   
7.1101  The cost of the runway extension and noise reduction measures was borne by the City of 
Bremen.  The United States asserts that Bremen paid DM 40 million to extend the runway and a 
further DM 10 million for noise reduction measures.4017  The European Communities disputes the 
amounts in question, asserting that Bremen paid [***] for the extension of the runway and [***] for 
noise reduction.4018   
(ii) Arguments of the Parties 
7.1102  The United States argues that the extension of the Bremen airport runway and the provision of 
the runway to Airbus for its exclusive use, incl uding the implementation of noise reduction measures, 
constitutes the provision of goods and services other than general infrastructure within 
Article 1.1(a)(1)(iii) of the SCM Agreem ent, and confers a benefit on Airbus.4019   
7.1103  In response, the European Co mmunities asserts first that th e United States' challenge is 
"overly vague", as it fails to adequately identify th e presumed beneficiary of the alleged subsidy.  In 
this regard, the European Comm unities notes that, at the time of the runway extension, neither 
Airbus SAS nor Airbus Germany existed.4020  We recall our findings that, for the purpose of this 
dispute " a financial contribution provided to any Air bus partner or affiliated entity, or to Airbus GIE, 
in relation to the production of an Airbus LCA, c onfers a benefit on the Airbus Industrie consortium, 
as the producer of Airbus LCA" and that the Unite d States is not required to demonstrate "the "pass-
through" to Airbus SAS of bene fits conferred by financial cont ributions provided to the Airbus 
Industrie consortium."4021  Therefore, we conclude that the Un ited States has sufficiently identified the 
beneficiary of the alleged subsidy.  The European Communities also maintains that this measure falls 
outside the temporal scope of Article 5 of the SC M Agreement and was grandf athered by Article 2 of 
the 1992 Agreement.  These issues we re addressed and the European Communities' arguments in this 
                                                      
4013 EC, FWS, para. 863. 
4014 EC, FWS, para. 863.Senatsbeschluss of 31 May 1988, Exhibit EC-577) (Non-BCI). 
4015 This involved, inter alia , rerouting the river Ochtum, which flowed past the end of the runway.  
Senatsbeschluss of 31 May 1988, Exhibit EC-577) (Non-BCI).   
4016 EC, FWS, para. 863. 
4017 US, FWS, para 453 referring to Bremische Bürgerschaft, Antrag (Entschließung) der Fraktion der 
SPD, Drucksache 12/194, para. 13 (16 May 1988), Exhibit US-195).  The Bremen Parliament approved the 
extension and related expenditures on 18 May 1988.  See, Bremische Bürgerschaft, Plenarprotokoll, 18.  
Sitzung, 12.  Wahlperiode, at 1018, 1028, 1032 (18 May 1988), Exhibit US-196). 
4018 EC, FWS, para. 864. 
4019 US, FWS, para. 451. 
4020 EC, FWS, para. 860. 
4021 See, paras. 7.192 - 7.200 above.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  regard were rejected in our Preliminary Ruling.4022   We therefore will not address these arguments 
further in this section. 
7.1104  Substantively, the European Communities argues that the extension of the Bremen airport 
runway, and the associated noise reduction measures, constitute measures of general infrastructure, 
and therefore do not constitute a financial contributi on within the meaning of Article 1.1(a)(1)(iii) of 
the SCM Agreement.4023   The European Communities argues that the runway extensions fall "within 
the notion of general infrastructure", asserting th at Bremen may provide modern transportation 
facilities, including an airport, whose proper function is subject to questions of capacity, and thus the 
extension of the runway to match demand cons titutes the provision of general infrastructure.4024  The 
European Communities acknowledges that allowing only Airbus to use the  full length of the extended 
runway may constitute the provision of a service with in the meaning of Article 1.1(a)(1)(iii) of the 
SCM Agreement,4025 but contends that granting Airbus a right to use the full length of the runway 
does not confer a benefit on Airbus because Airbus pays for this use in acco rdance with the general 
fee schedule applicable at Bremen Airport.4026 
7.1105  The United States maintains that the extension of  the runway and the implementation of noise 
reduction measures do not constitute the provision of general infrastructure.4027  The United States 
argues that the extension of the runway was undertaken  by the city of Bremen specifically for Airbus, 
to accommodate its need to transport large parts, i.e., aircraft wings, by air, to other Airbus facilities 
elsewhere.  In support of its argument, the United States relies, inter alia , on statements made in the 
Bremen Parliament that described the r unway as a "company runway" for Airbus.4028  The United 
States further argues that the use of the full length of the extended runway is limited to Airbus by 
regulation.4029  In this regard, the United States cites,  inter alia , an order of the Administrative Court 
of Bremen which limits the use of the full length of  the runway to specific aircraft types carrying 
freight consisting of wings for Airbus A330/A340 and future models.4030   
                                                      
4022 See, paras. 7.88 - 7.105 (findings on temporal scope arguments) and paras. 7.138 - 7.158 (findings 
on adequacy of US request for panel establishment) above. 
4023 EC, FWS, paras. 869-870. 
4024 EC, FWS, para 870. 
4025 EC, FWS, para. 872. 
4026 EC, FWS, para. 873.  The European Communities argues that fees for runway usage are based on 
objective criteria (such as the weight and type of aircraft, number of passengers).  According to the European 
Communities, the fact that the fees are not calculated ba sed on the length of runway used by a plane does not 
mean that Airbus should pay an add itional fee simply because it uses th e full length of the runway.  The 
European Communities asserts that aircraft weight is related to the use of the runway extension because heavier 
aircraft require longer runways.  In other words, th e European Communities argues that because the fees are 
levied in part based on the weight of the aircraft, Air bus is paying a higher user fee when it uses the runway 
extension to land heavier aircraft.  EC, Answer to Panel Question 96, para. 257.   
4027 US, SWS, para. 416. 
4028 US, FWS, para. 451, citing Bremische Bürgerschaft, Plenarprotokoll, 18, Sitzung, 12, Wahlperiode 
(18 May 1988) at 1016 (stating also that the expenditure amounts to a subsidy of DM 250,000 per take-off), 
Exhibit US-196; Bremische Bürgerschaft, Antrag (Entschließung) der Fraktion der SPD, Drucksache 12/194 
(16 May 1998), Exhibit US-195. 
4029 US, Answer to Panel Question 20, para. 153, refe rring to the ruling of the Bremen Administrative 
Court concerning the operating restrictions for the use of the extended runway, which provide that it can only be operated for take-offs and solely for transporting airfreight consisting of the wings of Airbus A330 and A340 
aircraft, as well as successive versions thereof, a nd only using Aero Spaceliner 377 Guppy/Super Guppy or 
aircraft with noise levels not exceeding those of these models.  See, pp. 9-13 of the judgment, Exhibit EC-578 
and pp. 9-12 of the translation submitted by the Eu ropean Communities, and Verwaltungsgericht Bremen 
(Administrative Court) (20 December 2001), case no. 2K 2787/00, Exhibit US-199, at 3. 
4030 US, FWS, para 451, referring to the descriptio n in Verwaltungsgericht Bremen (Administrative 
Court) (20 December 2001), case no.  2K 2787/00, Exhibit US-199, at 3; see also, the maps published by the WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  7.1106  The European Communities acknowledges that ther e are limitations on use of the runway, but 
argues that these limitations are based on environm ental concerns about increased air traffic and 
pollution, as well as noise-related concerns.
4031  The European Communities also acknowledges that 
in deciding to extend the runway, the Senate intende d to allow Airbus to u se the extended runway for 
the transport of parts, so as to ensure the maintena nce of an Airbus facility, and 500 associated jobs, in 
the region.4032  In light of this, the European Commun ities acknowledges that allowing only Airbus to 
use the full length of the extended runway may c onstitute the provision of a service within the 
meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.4033  However, the European Communities 
contends that this right does not confer a benef it on Airbus, because Airbus pays for this use in 
accordance with the general fee schedule applicable at Bremen Airport.4034  The European 
Communities also asserts that in practice, the runw ay extensions can be used by any aircraft in 
emergency situations such as interrupted take-o ffs and emergency landings, can be used for the 
transport of parts and components by the aerospace i ndustry and, in particular cases, can be used by 
any private airline.4035  Therefore, the European Communities asserts, all users of the Bremen 
airport may benefit from the extensions.4036 
7.1107  The United States argues that the use of the ex tended runway is limited to Airbus for the 
transport of aircraft parts by law, referring first to the decision of the Bremen government to extend 
the runway.4037  In that decision, the United States argues,  the Bremen government explicitly rejected 
the possibility that the extended runway could be used  for general, non-Airbus related air transport.  
Second, the United States refers to the December 2001 judgment by the Bremen Administrative 
Court, which confirmed that the use of the extende d runway was limited to Airbus, and only for the 
transport of wings for the A330/A340 or future models.4038  The United States maintains that, contrary 
                                                                                                                                                                     
German air traffic control agency Deutsche Flugsicherung in the German AIP (14 and 28 October 2004), 
Exhibit US-193; see also, http://www.fluglaerm.de/bremen/flughafenvertrag _seite_1.htm for a description of 
the history of the extension, Exhibit US-194.  See, also , United States, Answer to Panel Question 20, para. 152. 
4031 The European Communities notes that in January 1989, Bremen concluded a contract with the 
Bremen airport company with  the aim of permanently restricting noise and pollution from the runway, as 
extended, which governs the use of th e runway extensions.  Following a co mplaint about use of the extension 
contrary to the applicable restrictions, the Bremen Administrative court in Decem ber 2001 confirmed the terms 
of the user restrictions, obliging the city of Bremen not  to use the extensions beyond the agreed level.  EC, 
FWS, paras. 865-867, referring to Verwaltungsgericht Bremen, Az.2 K 2787/00, pp. 5-13, Exhibit EC-578) and 
Oberverwaltungsgericht Bremen Az 1A159/02, p.1, Exhibit EC-579. 
4032 EC, FWS, para. 872. 
4033 EC, FWS, para. 872. 
4034 EC, Answer to Panel question 96, para. 257.  See, footnote 4026 above. 
4035 EC, FWS, para. 868. 
4036 EC, FWS, para. 868. 
4037 US, Answer to Panel question 20, para.153 referring to Senatsbeschluss of 31 May 1988, Exhibit 
EC-577, at paras. 1 and 3 (English translation by the European Communities).   
"{1.} The Senate hereby endorses its decision of 8 May 1973, that Bremen Airport, after full 
availability of the existing 2,034m l ong runway has been restored, duly sa tisfies the requirements to be placed 
on it in the interest of ensuring the safety of flight  operations and achieving optimum integration with the 
domestic and European operations network through short and medium haul flights with the exception of minor 
restrictions on load capacity.  The rej ection of an extension to the existing runway for general air traffic remains 
the unchanged foundation of Bremen's airport policy and th e subject of Bremen Airpor t's operating licence in its 
revised form of 7 February 1985. ...  {3.} The Senate resolves, for the purposes of safeguarding Airbus wing assembly operations in Bremen in the long-term and the 500 jobs which are dependent on such operations, to 
extend the paved runway to the west and east of the airport by 300m in each direction by Summer 1990 for the 
exclusive use of super guppy take-offs or take-offs by similarly quiet freight aircraft for MBB intra-factory flights." 
4038 US, Answer to Panel Question 20, para. 153: 
"The operating restrictions set forth in the following nos.  1 to 4 provide, inter alia , that the special 
runway can only be operated for take-offs and solely for transporting airfreight consisting of the wings of Airbus  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  to the European Communities' assertions, the comp lainant in that case was concerned that the use 
restrictions, i.e.,  the limitation to use in transporting Airbus wings, had not been, and might in the 
future not be, strictly enforced.4039  Third, the United States refers to the adoption by the Bremen 
Parliament of a motion reaffirming that the runway  extension was undertaken exclusively for use by 
Airbus to transport Airbus wings.4040  
7.1108  In response to a question from the Panel, the European Communities confirmed that use of 
the full length of the extended runway is "curren tly open only to certain freighters from Airbus and 
not to other companies".4041  The European Communities noted that  the general conditions to use the 
runway of the Bremen airport, including the extens ion, are laid down in the January 1989 contract 
between the City of Bremen and the airport company ("the Flughafenvertrag "), and that in the process 
of extending the runway, Bremen committed to use th e extended runway only in accordance with the 
agreed user restrictions.  Departures exceeding tho se restrictions can only be authorised with the 
consent of the neighbours concerned, with the exception of emergency situations.4042 
7.1109  In this context, the European Communities sought to distinguish the provision of a service 
from limitations on access to a service.  The Europ ean Communities asserts th at the SCM Agreement 
"is not concerned with questions of access to services provided by governments".4043  F o r  t h e  
European Communities, under Article 1.1(a)(1 )(iii) of the SCM Agreement, the provision  of a service 
constitutes a financial contribution, but the Agreem ent is not concerned with potential government 
                                                                                                                                                                     
models A 330 and 340 as well as su ccessive versions thereof and only using Aero Spaceliner 377 Guppy/Super-
Guppy or one with noise levels not ex ceeding those of such model.  The im plementation order of the Senator for 
Building Affairs, which conform with the settlement, was issued on January 14, 1992.  Subsequently, the special runways were built, i.e.,  the main runway was exte nded by 300m at each end."  
Verwaltungsgericht Bremen (Administr ative Court) (20 December 2001),  case no.  2K 2787/00, at 3, 
Exhibit US-199). 
4039 US, Answer to Panel Question 20, para.153.  The United States argues that the European 
Communities omits relevant pages from the Court's decision and that its also omits details and modifies the facts to suit its purposes.  For instance, the United States observes that at para. 867 of its first written submission, the 
European Communities asserts that the complainant had "complained that a Boeing 747 (!) had used the 
extended runway."  The United States argues that in fact, the complaint was triggered primarily by the use of the 
extended runway by Airbus for six test flights with an  aircraft of the type VFW614-ATD.  The complainant was 
concerned, and the Court agreed, that th is regular use of the runway by Airbus for test flights, rather than the 
transport of wings as provided for, indicated that the restriction on the use of the extension was no longer being fully enforced.  See, pp. 9-13 of the judgment, Exhibit EC-578 and pp. 9-12 of the English translation.  The one 
instance in which the extension of the runway was used  by a Boeing 747 was, according to the United States, 
irrelevant to the judgment.  It appears that the runway extension was not used in that instance for either take off or landing, but only for a turning manoeuvre after landing was complete, and the Court did not rely on this event 
in its ruling.  Id. at pp. 5 & 8-9 (English version). 
4040 US, Answer to Panel Question 20, para. 153.  The United States notes that, in a motion submitted 
by the governing party, the SPD, to the Bremen Parliament on 16 May 1988, the Parliament was asked to 
approve the runway extension.  The motion noted that "{t}he extension of the takeoff and landing runway as a 
company runway  at the Bremen Airport is being done exclusively for use in the industrial transport of MBB 
{i.e., the corporate parent of Deutsche Airbus}  Bremen to transport the Airbus wings ." (emphasis added).  The 
motion was adopted on 18 May 1988.  US, Answer to Panel 20, para.153, citing Bremische Bürgerschaft, 
Antrag (Entschließung der Fraktion der SPD), Drs.  12/194, Exhibit US-195 and Bremische Bürgerschaft, 18.  
Sitzung am Mittwoch, dem 18  Mai 1988, Plenarprotokoll, p. 1032, paras. (B) and (C), Exhibit US-196. 
4041 EC, Answer to Panel Question 269, para 146. 
4042 The European Communities clarified that other airport users could request the airport company to 
receive slots for using the extended runway as well.  In order to respond positively, th e contract would have to 
be modified by mutual agreement betw een the City of Bremen and the airp ort company.  The City of Bremen 
can only agree to such modifications, if and to the extent commitments vi s-à-vis the neighbour s not to exceed a 
fixed number of allowed departures on the extended runway would be kept.  EC, Answer to Panel Question 269, 
paras. 144-145. 
4043 EC, Answer to Panel Question 269, para. 147. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  services or with regulating under which conditions  governments may or may not grant exclusive 
rights to companies.  Thus, the Eu ropean Communities maintains, it is immaterial that only a certain 
company can have access to a government service, wh ereas other cannot.  According to the European 
Communities, the SCM Agreement establishes disc iplines on the granting of subsidies, and the 
relevant test is whether the actual
 provision of the service to a certain company is done on favourable 
terms as compared with market conditions so as to  confer a benefit to the company.  Thus, the 
European Communities argues that the relevant an alysis requires a comparison of the user fees 
Bremen collects from Airbus for the service of allo wing it the use of the full length of the extended 
runway, with the fees collected from other compan ies for the service of allowing the use of the 
ordinary length of the runway.4044 
7.1110  The United States asserts that the SCM Ag reement does not support the European 
Communities' position, but rather flatly contradicts it.  The United States argues that Article 2 of the 
SCM Agreement makes clear that "limit{ing} access to a subsidy to certain enterprises" renders that 
subsidy specific and that Article 14(d) provides that the "availability" of, i.e., access to, a government-
provided service is one factor to be considered when examining adequacy of remuneration in the 
context of a benefit determination.  Therefore, th e United States maintains that, where the subsidy at 
issue is, as provided for in Article 1.1(a)(1)(iii), the provision of a service by a government, the extent 
to which other users may access that service is critical to any inquiry under the SCM Agreement.4045 
7.1111  With respect to the noise reduction measures, the European Communities argues that these 
measures are general infrastructure on the grounds that it is a constitutional duty of the city of Bremen 
to protect the public health of its citizens.  Th e European Communities contends that in performing 
this task, the city of Bremen may construct noise reduction measures for the benefit of the public at 
large and may also chose where su ch measures need to be located to be most effective.  More 
specifically, it asserts that construction of the no ise reduction measures in the area surrounding an 
airport is for the benefit of citizens living in the immediate neighbourhood, and is a legitimate choice 
that falls outside the ambit of the SCM Agreement.4046 
7.1112  The United States contends that  the noise reduction measures implemented by the Bremen 
government at the time of the runway extension cannot be seen as general infrastructure measures.  The Unites States argues that these noise reducti on measures were necessary only because of the 
runway extension, which itself was undertaken excl usively for Airbus for the transport of aircraft 
wings.
4047  Thus, rather than protecting the areas adjace nt to the airport against noise from the airport 
generally, these measures were prompted exclusively by the extension of the runway and are, as such, 
for the exclusive benefit of Airbus.  In support of its view, the United States refers to the Bremen 
government's decision authorizing the extension, which describes the government's motivation in 
undertaking the noise reduction measures.4048   In addition, the United States refers to the 
16 May 1988 motion of the SPD, which indicates that, while additional noise reduction measures 
were not formally required, the extension of the runway should be accompanied by an extended noise 
reduction area. 4049  A Bremen Parliamentarian therefore called the cost of the noise reduction 
                                                      
4044 EC, Answer to Panel Question 269, paras. 147-148. 
4045 United States, Comments on EC's Answer to Panel Question 269, para. 133. 
4046 EC, FWS, para. 869. 
4047 US, Answer to Panel Question 22, para. 158. 
4048 "With a view to protecting the resident population living within the proximity of the airport from 
aircraft noise and to improving the general airport environment in its location near to the city, the Senate 
resolves, as a voluntary measure, to reimburse, on application, future expenditure on structural noise protection within the existing noise protection zone 2."  
Senatsbeschluss of 31 May 1988, para. 5, Exhibit EC-577. 
4049 US, Answer to Panel Question 22, para. 159, citing, Bremische Bürgerschaft, Antrag 
(Entschließung der Fraktion der SPD), Drs.  12/194, Exhibit US-195.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  measures "follow-up costs for noise reduction."4050  The above evidence, in view of the United States, 
demonstrates that  the additional noise reduction measures were prompted exclusively by the extension 
of the runway. 
(iii) Evaluation by the Panel 
General infrastructure  
7.1113  We consider first the European Communities'  argument that the provision of the runway 
extension for the exclusive use of Airbus to tran sport aircraft wings, and the noise reduction measures, 
constitute measures of general infrastructure.  In order to address that question, however, we must 
first determine whether the noise reduction measures must be considered separately from the 
extension of the runway per se , and if so, whether the former constitute, as the European 
Communities argues, a measure of general infrastruct ure.  The United States ma intains that the noise 
reduction features were undertaken only as a result of the extension of the runway, and that therefore they constitute a single measure.   
7.1114  We agree with the United States.  The eviden ce before us supports the conclusion that the 
noise reduction measures were considered only as a result of the decision to extend the runway, and 
even in that context were not considered necessar y, but were undertaken as a matter of choice in 
connection with the runway project.
4051  The European Communities has provided no evidence to 
suggest that the noise reduction measures in questio n would have been undertaken but for the decision 
of the Bremen authorities to extend the runway.  While we recognize that measures to reduce noise in 
the area of an urban airport may well benefit the public at large, this does not, in our view, suffice to 
demonstrate that the measures at issue here must be  considered general infrastructure, independently 
from the runway extension.  It would be putting the cart before the horse, in our view, to consider 
whether the noise reduction measures constitute ge neral infrastructure and therefore should be 
considered separately from the runway extension.  We will therefore consider whether the runway 
extension and associated noise reduction measures c onstitute the provision of general infrastructure 
together in our analysis. 
7.1115  As we concluded above,4052 in our view, the determination whether the provision of a good or 
service constitutes a provision of "general infrastruct ure" cannot be answered in the abstract, but 
rather must take into account the existence or absence of de jure  or de facto  limitations on access or 
use, and any other factors that tend to demonstrate that the infrastructure was or was not provided to 
or for the use of only a single entity or a limited group of entities, which may include factors relating 
to the circumstances surrounding the creation of the infrastructure in question, consideration of the 
type of infrastructure, the conditions and circum stances of the provision of the infrastructure, the 
recipients or beneficiaries of the infrastructure, and the legal regime applicable to such infrastructure, 
including the terms and conditions of access to and/or  limitations on use of the infrastructure.   
7.1116  It is clear from the evidence before us that the extension of the runway at Bremen airport, and 
the associated noise reduction measures, were undertaken  by the Bremen city authorities specifically  
for Airbus' needs.  The records of  the decision to extend the runway by 600 meters make it clear that 
this was undertaken in order to enable Airbus to use the runway to transport aircraft wings from its 
Bremen facility to other facilities in the production of LCA.  For instance, the January 1989 contract 
relating to the airport specifies that that the use of  the runway extensions s hould be limited to ensuring 
the transport of Airbus wings assembled in Br emen.  It goes on to provide that should the 
                                                      
4050 US, Answer to Panel Question 22, para. 159, Br emische Bürgerschaft, 18.  Sitzung am Mittwoch, 
dem 18.  Mai 1988, Plenarprotokoll, Exhibit US-196, p. 1016, para. (B). 
4051 See, exhibits cited at footnotes 4038, 4040 and 4048 above. 
4052 See, discussion at paras. 7.1036 to 7.1044 above. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  transportation of wings cease, transportation of othe r goods of the Bremen air and space industry is 
possible to a limited extent, if such transport can not be carried out without use of the "special" 
runway, that is, the extensions, and that should su ch take-offs not be necessary in the future, no other 
take-offs are to be carried out.
4053  A motion in the Bremen Parliament concerning the extensions cited 
costs of DM 40 million for the construction of the "company runway" and DM 9 million for the 
"voluntary additional noise protection measures".  The motion referred to the extension of a "company 
runway at the Bremen Airport ...  being done excl usively for use in the industrial transport of MBB 
Bremen to transport the Airbus wings".4054  The motion notes that "{a}ll other proposed and examined 
alternatives for transport of the wings have b een ruled out" and goes on to observe that while 
"{a}dditional noise protection ...  is not necessary ...  voluntary additional noise protection measures 
should be completed now".4055  During discussions in the Bremen Parliament prior to the eventual 
approval of this motion, it was noted that the plan ned "restrictions in use" limited the use of the 
extensions "only for MBB".4056  The European Communities does not  dispute this evidence, and has 
presented no evidence to suggest that the extension of the runway was not undertaken exclusively for 
Airbus' use.4057 
7.1117  We do not doubt that the Bremen authorities we re pursuing a public interest in undertaking 
the project – indeed, it is clear from the evidence before us that one motivation for the runway 
extension was the desire to ensure that Airbus' Bremen facility, and the associated 500 jobs, would be 
able to continue operations.  Howeve r, a public interest in maintaining jobs in the region is simply not 
sufficient to demonstrate that the project constitutes ge neral infrastructure.  As we have noted, it is in 
any event always likely to be the case that public authorities will ha ve reasons of public policy when 
expending public funds.  Particularly in the face of  evidence to the contrary, a public purpose cannot, 
in our view, be enough to justify a finding that  a measure constitutes general infrastructure. 
7.1118  Moreover, not only was the extension of the runw ay undertaken explicitly to enable Airbus to 
transport wings by air, but it is clear from the eviden ce before us that the use of the full length of the 
extended runway is limited to Airbus by regulation.4058      
                                                      
4053 Exhibit US-194. 
4054 Bremische Bürgerschaft, Antrag (Entschließung) der Fraktion der SPD, Drucksache 12/194 
(16 May 1998), Exhibit US-195, para. 2. 
4055 Bremische Bürgerschaft, Antrag (Entschließung) der Fraktion der SPD, Drucksache 12/194 
(16 May 1998), Exhibit US-195, paras. 6, 11-12. 
4056 Bremische Bürgerschaft, 18.  Sitzung am Mittwoch,  dem 18  Mai 1988, Plen arprotokoll, p. 1032, 
paras. (B) and (C), Exhibit US-196.  We recall our decision that the United States need not demonstrate a "pass 
through" to Airbus , see paras. 7.192 and 7.200 above. 
4057 Thus, for instance, although the European Communities alludes, para. 870 of its first written 
submission, to "questions of capacity" and the "extension of the runways to match demand", it has submitted no 
evidence to suggest that there were any capacity concer ns regarding the Bremen airp ort at the time the decision 
to extend the runway was undertaken.  Certainly, none of the records concerning the decision to extend the runways before us suggest the existence of any capacity concerns, other than Airbus' need for a longer take-off 
runway to transport wings manufactured  in the region to other facilities. 
4058 US, FWS, para 451, referring to the descriptio n in Verwaltungsgericht Bremen (Administrative 
Court) (20 December 2001), case no.  2K 2787/00, at 3, Exhibit US-199; see also, the maps published by the 
German air traffic control agen cy Deutsche Flugsicherung in the German AIP (14 October and 
28 October 2004), Exhibit US-193); see also, http://www.fluglaerm.de/bremen/fl ughafenvertrag _seite_1.htm 
for a description of the history of the extension, Exhibit US-194.  See, also , US, Answer to Panel Question 20, 
paras. 152-153, referring to the ruling of the Bremen Ad ministrative Court concerning the operating restrictions 
for the use of the extended runway, which provide that it can only be operated for take-offs and solely for 
transporting airfreight consisting of the wings of Airbus  models A330 and A340, as well as successive versions 
thereof, and only using Aero Spacelin er 377 Guppy/Super Guppy or aircra ft with noise levels not exceeding 
those of these models.  WT/DS316/R 
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  7.1119  Indeed, the European Communities does not disp ute that the limitation on use of the full 
length of the extended runway may constitute a subsid y, but rather argues that Airbus pays fees for 
this usage and that therefore no benefit is conf erred on Airbus.  The European Communities suggests 
that the right to exclusive use of the full length of the runway, should be considered access to a 
service, and should be distinguished from the provision of a service by a government.4059  It goes on to 
argue that that the exclusive access provided to Airbus does not confer a benefit.4060   
7.1120  Our understanding of the United States' position is that it challenges the provision of the 
extended runway as a good, rather than the provisi on of access to the extended runway as a service, 
and thus the European Communities' argument is ina pposite.  In any event, however, we see no basis 
in the text of the SCM Agreement for the dis tinction the European Communities seeks to draw 
between access to a service or provision of a service,  in the context of Article 1.1(a)(1)(iii) of the 
SCM Agreement.  We see no reason why the provision of a service by a government to a company should be distinguished from the establishment, by a government, of limitations on access to a service – in our view, these two slightly different government  actions have the same consequences, and thus 
fall within our understanding of a g overnment providing services as set out in Article 1.1(a)(1)(iii).   
7.1121  Having found, as a matter of fact, that the runway extension was undertaken to fulfil Airbus' 
specific needs, and that use of the extended runway is de jure  limited to Airbus for the purpose of 
transporting aircraft wings, we do not agree with the European Communities that only the right to 
exclusive use of the extended runway is at issu e here.  Rather, the entire project, extending the 
runway, the associated noise reduction measures, and th e right of exclusive use, constitute a financial 
contribution to Airbus, within the meaning of Article  1.1(a)(1)(iii) of the SCM Agreement.  Thus, in 
view of the specific limitations on access to, i.e., use of the extended runway, and the clear evidence 
demonstrating that the runway extension was undertak en for the use of Airbus, we conclude that it 
does not constitute a measure of general infrastructur e but rather constitutes a financial contribution in 
the form of the provision of goods or services other than general infrastructure, within the meaning of 
Article 1.1(a)(1)(iii) of the SCM Agreement.  We therefore turn to the question of benefit.   
Benefit
 
7.1122  The United States asserts that the provision of the runway confers a benefit on Airbus, 
because (i) Airbus did not reimburse the Bremen aut horities for the costs of extending the runway and 
creating the noise reduction measures, and (ii) Air bus does not pay any additional landing fees for use 
of the extended runway.4061   
7.1123  We recall that Article 1.1(b) of the SCM Agre ement does not define the notion of "benefit".  
However, it is well established that a "financial contribution" will confer a "benefit" upon a recipient 
when it places that recipient in a more advantag eous position compared with the position of that 
recipient in the absence of th e "financial contribution".4062  In Canada – Aircraft , both the panel and 
the Appellate Body considered that the basis for making this comparison was the market.  Thus, the 
panel observed that: 
                                                      
4059 EC, Answer to Panel Question 269, para. 147. 
4060 EC, Answer to Panel Question 270. 
4061 US, FWS, para. 453. 
4062 Panel Report, Canada – Aircraft , para. 9.112, cited with approval in Appellate Body Report, 
Canada – Aircraft , para. 149. WT/DS316/R 
Page 668  
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  "a financial contribution will only confer a 'benefit', i.e., an advantage, if it is 
provided on terms that are more advantage ous than those that would have been 
available to the recipient on the market".
4063 
Similarly, the Appellate Body explained that: 
 
"the marketplace provides an appropriate basis for comparison in determining whether a 'benefit' has been 'conferred', because the trade distorting potential of a 
'financial contribution' can be identified by determining whether the recipient has received a 'financial contribution' on terms more favourable than those available to 
the recipient on the market."
4064  
7.1124  Thus, a benefit will be conferred whenever a fina ncial contribution is granted to a recipient on 
terms more favourable than those available to the reci pient in the market.  In the context of a financial 
contribution in the form of provision of goods or services other than general infrastructure, we 
consider that the appropriate question to be addressed  in resolving the question of benefit is whether a 
market actor would have provided the good or service to the recipient at the time, on the same terms 
and conditions as the government provision at issue.   
7.1125  We note that, during the Annex V process, th e Facilitator asked the European Communities 
and the Airbus governments to provide information re garding the cost of the runway extensions and 
noise reduction measures at the Bremen airport, but that the European Communities refused to 
provide any of the information that the Facilitato r requested.  The United States asks the Panel, in 
accordance with paragraph 7 of Annex V, to draw adverse inferences that the withheld information 
supports the contentions of the United States.4065  The United States has supported its contentions 
concerning benefit with publicly available information.   During the proceedings  before the Panel, the 
European Communities also provided some informati on concerning the costs of the runway extension 
and associated noise reduction measures.   
7.1126  Relying on the records of the Bremen Parlia ment approving the runway extension and noise 
reduction measures, the United States asserts that th e City of Bremen paid DM 40 million to extend 
the runway, and DM 10 million for noise reduction measures.4066  The European Communities does 
not dispute that these figures represent the plan ned expenditures, but contends that the actual 
construction costs were lower than planned.4067  Thus, the European Communities contends that the 
City of Bremen actually paid [***] for the extension of the runway and [***] for noise reduction.4068  
While the European Communities did not origin ally submit any supporting evidence for these 
assertions, in response to a question from the Panel, the European Communities submitted a document indicating that the runway extension accounted for 25.9% of the total amount budgeted for the 
                                                     
 
4063 Panel Report, Canada – Aircraft , para. 9.112; Appellate Body Report, Canada – Aircraft , 
paras. 157-158; Appellate Body Report, US – Countervailing Measures on Certain EC Products , para. 102. 
4064 Appellate Body Report, Canada – Aircraft , para. 157. 
4065 US, FWS, para 455 referring to Questions 48- 55 from the Facilitator to the EC, Exhibit US-4 
(BCI), as well as to EC Answer s to Questions 38-45 from the F acilitator, Exhibit US-5 (BCI).  See, also, US 
Answer to Panel Question 20, para. 157. 
4066 US, FWS, para 453 referring to Bremische Bürgerschaft, Antrag (Entschließung) der Fraktion der 
SPD, Drucksache 12/194, para. 13 (16 May 1988), Exhibit US-195.  The Bremen Parliament approved the extension and related expenditures on 18 May 1988.  See, Bremische Bürgerschaft, Plenarprotokoll, 18.  
Sitzung, 12.  Wahlperiode, at 1018, 1028, 1032 (18 May 1988), Exhibit US-196.  The United States also refers 
to statements in the Bremen Parliament that the City of Bremen expenditure amounts to a subsidy of DM 250,000 per take-off.  US, FWS, para 451 referring to Exhibit US-196, Bremische Bürgerschaft, 
Plenarprotokoll, 18, Sitzung, 12, Wahlperiode (18 May 1988) at 1016. 
4067 EC, Answer to Panel Question 94, para. 250. 
4068 EC, FWS, para 864.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  Bremen runway project.  According to the Eur opean Communities, the entire project included the 
restoration of the full original length of  the runway, as well as the extension.4069  Thus, the European 
Communities estimated the actual costs of the extension by applying the 25.9% portion of the total estimate accounted for by the extension to the final actual costs for the runway project as a whole, and 
arrived at the [***] figure cited above.
4070  The European Communities argues that "{r}ather than 
basing itself on early estimates, the Panel should base its findings on actual data submitted by the 
European Communities in its first written submission...".4071   
7.1127  While we are perturbed that the European Co mmunities did not substantiate its contentions 
until specifically asked by the Panel, the United St ates does not dispute, and we do accept, as a matter 
of fact, that the actual cost of the noise reduction measures was [***] as shown in Exhibit EC-6224072.   
7.1128  On the other hand, while we understand the calculation on which the European Communities 
has based its contentions regarding the actual cost of  the runway extension, we are not satisfied that 
this calculation is sufficient to substantiate the [***] figure cited by the European Communities as the 
actual cost of the extension.  We recall that the "runway project" included the restoration of the full 
length of the runway and rerouting of the river, as well as the extension.  The European Communities 
asserts that the restoration of the runway and the extension were "financed under the same budget 
line, which does not specifically distingui sh between restoration and extension".4073  Thus, the 
European Communities' contention rests on applying the percentage of estimated costs accounted for 
by the extension, 25.9 %, to the actual costs of the entire runway project, to arrive at the [***] figure.  
The European Communities indicates that actual costs of the construction were less than the originally 
estimated costs.4074  In these circumstances, we cannot simply accept that the percentage of the actual 
costs of the entire runway project attributable to the runway extension is necessarily the same as the portion of the estimated costs.  The actual expenditu res were less than the estimated expenditures, and 
we cannot rule out the possibility that the proporti on of the actual expenditures represented by the 
different aspects of the entire project also change d, since we do not know why the costs were lower 
than estimated.  We further note that the failure of  the European Communities to respond at all to the 
Facilitator's questions in this regard, and the Eu ropean Communities' failure to substantiate its 
assertions concerning the costs of the runway extens ion until directly asked to do so by the Panel, 
warrants our accepting the figure proposed by the United States.  We therefore accept the United 
States' allegation of DM 40 million, which as not ed, the European Communities accepts reflects the 
originally estimated cost of the runway extension,  as the cost of the runway extension for purposes of 
our consideration of benefit.
4075  Thus, we conclude that the investment by the City of Bremen in the 
                                                      
4069 EC, Answer to Panel Question 94, para. 249 and Exhibit EC-621 (English translation).  The exhibit 
shows budgeted amounts for "Reinstatement of the full use of the runway ...  Extension of the runway ...  Loan 
to Bremen Airport ...  Grant to Br emen Airport for investments ...  and Noise protection for Airport"  The 
reference to "reinstatement of the full use of the runway" is somewhat perplexing, as the European Communities 
elsewhere stated that the runway was restored to its full length in 1973, EC, FWS, para. 863, citing  
Senatbeschluss of 8 May 1973, Exhibit EC-576, while, the extension of the runway was only undertaken in 1988-89.  In any event, the European Communities does not dispute th at the amounts cited by the United States 
relate only to the extension of the runway and the noise reduction measures. 
4070 EC, Answer to Panel Question 94, paras. 250-252 and Exhibit EC-622.  The European 
Communities relies on this latter exhibit to substantiate its contention regarding the costs of the noise reduction 
measures. 
4071 EC, Comments on US Answer to Panel Question 245, paras. 247-248. 
4072 Exhibit EC-622. 
4073 EC, Answer to Panel Question 94, para. 247. 
4074 EC, Answer to Panel Question 94, para. 250. 
4075 We note that the European Communities argues that, for the same reasons as in connection with 
Mühlenberger Loch,  cost to the government is irrelevant for determining benefit.  EC, FWS, para. 873.  For the same reasons as expressed previously in paragraph 7.1093, we consider that whether the provision of the WT/DS316/R 
Page 670  
BCI deleted, as indicated [***] 
 
  extension of the runway, including the associated  noise reduction measures, constitutes a financial 
contribution in the amount of [***].   
7.1129  The European Communities does not argue that  the Bremen authorities receive a market 
return on their investment in extending the runway , but only that the exclusive right to use the 
extended runway given to Airbus is not on more favourable terms than those in the market, and 
therefore confers no benefit on Airbus.  The European  Communities argues  that since Airbus pays for 
the runway use, including the use of the extens ion, in accordance with the general fee schedule 
applicable at Bremen Airport, there is no benefit to Airbus.
4076  The European Communities maintains 
that the fact that Airbus is the only company allo wed to use the extended runway is irrelevant for 
determining the benefit.4077  The United States maintains that, absen t an arrangement that ensures that 
the City of Bremen is compensated for the cost of  the runway infrastructure created specifically for 
Airbus and available for use only by Airbus, Ai rbus receives a benefit from having been provided 
with this infrastructure.4078    
7.1130  The European Communities observ es that the user fees are calculated on the basis of a 
number of factors including weight of the aircraft, but not on the basis of the length of runway used 
by a plane when taking off or landing.  The Eur opean Communities asserts that because Airbus is 
landing heavier aircraft, it is paying the highest  user fees under the applicable fee schedule.4079  The 
United States acknowledges that the fee is based on the maximum take-off weight of the aircraft, but 
argues that maximum take-off weight has nothing to do with the actual take-off weight, and it is this 
latter fact that determines the actual length of runway needed for take-offs.4080  Therefore, the United 
States asserts that the maximum take off weight, on which the fees are calculated, it is not dispositive 
of whether or not a departing or landing aircraft uses the extended runway.  Moreover, United States 
argues that regardless of the maximum take-off weight  of Airbus aircraft using the extended runway, 
users other than Airbus are not allowed to use the extended runway.  Finally, the United States asserts 
that the European Communities mist akenly suggests that the maximum  take-off weight of the aircraft 
used by Airbus to transport wings from Bremen is particularly high.4081   
                                                                                                                                                                     
extended runway and noise reduction meas ures to Airbus confers a benefit is properly evaluated on the basis of 
the investment by the government in the measure. 
4076 EC, FWS, para 873.  Fees for runway usage are based on objective criteria such as the weight and 
type of aircraft, number of passengers, etc..  According to the European Communities, the fact that the fees are 
not calculated based on the length of runway used by a plane does not mean that Airbus should pay an 
additional fee simply because it uses the full length of  the runway.  The European  Communities asserts that 
aircraft weight is related to the use of the runway extens ion because heavier aircraft re quire longer runways.  In 
other words, because the fees are levied in part based on the weight of the aircraft , Airbus is paying a higher 
user fee when it uses the runway extension to land heav ier aircraft; EC, Answer to Panel Question 96, para. 257.  
See, also, EC, Answer to Panel Question 269, para. 146. 
4077 EC, Answer to Panel Question 270, para. 156 ; see also, the European Communities' answer to 
Panel Question 269, paras. 147-148. 
4078 US, SWS, para 418. 
4079 EC, Answer to Panel Question 96, para. 257. 
4080 US Comment on EC, Answer to Panel Question 270 
4081 US, SWS, para 419.  The United States observes that the Boeing Super Guppy has a maximum 
take-off weight of 77 tonnes; the Airbus Super Transporteur (Beluga) has a maximum take-off weight of 155 
tonnes.  By way of comparison, the A300-600 Freighter has a maximum take-off weight of 170.5 tonnes; the 
A330-200 Freighter has a maximum take-off weight of 233 tonnes; and the A340-200 has a maximum take-off 
weight of 275 tonnes.  See, Airbus, Product Viewer, 18 May 2007, Exhibit US-590; Flugzeuginfo.net, B-377 SG 
Super Guppy, 2006, available at www.flugzeuginfo.net, Exhibit US-591.  The United States observes that the 
European Communities'  "implicit fee" theory would only make sense if the maximum weight of the Airbus-
owned aircraft allowed to use the extended runway - th e Beluga and the Super Guppy - were so extraordinarily 
high that Airbus would have to pay, by definition, a higher fee than any other user of the airport (which is not allowed to use the extension).  If so, the difference between the fee charged for the Beluga and the Super Guppy  WT/DS316/R 
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  7.1131  The United States maintains that Airbus' exclusive use of the extended runway is relevant to 
the determination of benefit, because if Airbus pays  less than adequate remuneration for that exclusive 
use, it is receiving a benefit, referring to Article  14 (d) of the SCM Agreement.  In sum, the 
United States argues that Airbus continues to enjoy the use of the extended runway to the exclusion of 
all other users for a nominal fee that in no way compensates Bremen airport for that use.4082 
7.1132  The European Communities provided no evidence to support the suggestion that the take-off 
weight of Airbus aircraft trans porting wings and using the extended runway is higher than that of 
other aircraft, which are not allowed to and do not use the extended runway.  Thus, there is no factual 
basis on which we could conclude that Airbus pays  a higher fee for use of the extended runway than 
other users pay for the use of the non-extended runway.  Moreover, the European Communities has 
provided no evidence, or even argued, that heavie r Airbus aircraft actually require the use of the 
extended runway – indeed, evidence submitted by the United States suggests that aircraft heavier than 
those used by Airbus on the extended runway use the Bremen airport, but these do not, barring emergencies, use the extended runway.  Thus, no  connection has been established suggesting that 
Airbus pays fees relating to the use of the extended r unway.  It is clear to us that the fees paid by 
Airbus do not relate to the use of the extended runway per se , but are based on the weight of the 
aircraft in question, and thus are indistinguishable fr om the fees paid by other users of the airport for 
the use of the non-extended runway.     
7.1133  As we have already concluded that the subsidy is  not limited to simply the use of the extended 
runway, but rather encompasses the entire investment  by the City of Bremen in extending the runway 
and the associated noise reduction measures, for the be nefit of Airbus, we do not consider that an 
evaluation of the fees paid by Airbus for runway use at  Bremen airport affects our analysis of benefit.  
It is undisputed that Airbus pays runway fees in accordance with the regular fee schedule, applicable 
to all users of the airport, with no additional char ges for the use of the runway extensions, which only 
Airbus is permitted to use, and onl y for certain flights.  Airbus pays no other fees or charges in 
connection with the extended runway.  Thus, it is clear that there is no return to the City of Bremen on 
its investment in the runway extension and no ise reduction measures, and a benefit to Airbus 
conferred by the provision of that extension and noise reduction measures.   
7.1134  Therefore, in our view, the conclusion that the provision of the runway extension and 
associated noise reduction measures confers a benefit on Airbus, for whom the project was undertaken, and which is by regulation the exclusive user, is clear.  As Airbus is the only company 
entitled to regular use of the extended runway, and in view of the fact that the extension was 
undertaken by the Bremen authorities explicitly to fu lfil Airbus' needs in transporting aircraft wings, 
we find that the subsidy in question is specific to Ai rbus within the meaning of Article 2.1(a) of the 
SCM Agreement. 
(e) ZAC Aéroconstellation  
7.1135  The United States asserts that the provision of th e Aéroconstellation site to Airbus, which it  
asserts includes the sale of a portion of the site and the lease of another portion of the site,
 and 
including the provision of certain specialized f acilities (the EIG facilities), constitutes a subsidy 
within meaning of the SCM Agreement because it invol ves a financial contribution in the form of the 
provision of goods and services other than ge neral infrastructure within the meaning of 
                                                                                                                                                                     
(which may use the extension) and "usual" aircraft of other users (which may not use the extension) might be 
seen as an implicit fee for the extension.  The compar ison submitted by the United States shows, however, that 
the maximum weights of the Beluga and the Super Guppy ar e not such as to carry an implicit fee.  US Comment 
on EC, Answer to Panel Question 270, para.137.  Thus, it appears that weight of the aircraft is not relevant to 
the use of the extended runway. 
4082 US Comment on EC, Answer to Panel Question 270, para.139. WT/DS316/R 
Page 672  
BCI deleted, as indicated [***] 
 
  Article 1.1(a)(1) of the SCM Agreement,
4083 that confers a benefit within the meaning of 
Article 1.1(b) of the SCM Agreement.4084  The United States claims that the subsidies provided are 
specific within the meaning of Article 2.1(a) ("specifi city in law") and Article 2.1(c) (specificity "in 
fact").4085  The United States also claims that the impr ovement of roads linking the Aéroconstellation 
site to the "Itinéraire à Grand Gabarit" ("IGG") (t he extra-wide highway) constitutes a subsidy within 
the meaning of Article 1 of the SCM Agreement, wh ich is specific within the meaning of Article 2.4086 
7.1136  The European Communities argues that the creation of industrial land such as the 
Aéroconstellation site is not a financial contri bution for purposes of Article 1.1(a) of the 
SCM Agreement because the provision by the govern ment of any goods or services in the context of 
the creation of the site, including the improvement of  the roads, constitutes the provision of general 
infrastructure.4087  As regards the EIG facilities, the Europ ean Communities contends that the lease for 
these facilities does not confer a benefit within Article 1.1(b) because it is at market rates.4088 
(i) Factual Background 
7.1137  In 1999, French government authorities signed a pr otocol on the development of a site located 
near Toulouse, adjacent to the Toulouse Blagnac ai rport, to be known as th e Aéroconstellation site, 
and to be dedicated to aeronautical activities.4089  The site is designated as a "zone d'aménagement 
concertée" ("ZAC") under French law, a zone in which a public authority buys, improves, and sells 
land for economic development.4090  ZACs of different sorts, e.g., for industrial, housing, and various 
tertiary services,  exist throughout France, cr eated under the same general legal provisions.4091 
7.1138  The development of the ZAC Aéroconstellation required first that the agricultural land in 
question be made suitable for industrial use.  Th is included the creation of drainage, sewage, water 
circulation systems, fencing, fire protection, land scaping and lighting.  Second , in order to make the 
site suitable for the aeronautical activities for wh ich it was intended, certain additional elements, 
including taxiways and roads on the site, aircraft  parking areas, underground technical galleries and 
service areas, were created.  These specialized facilities are collectively known as "équipement 
d'interet général" ("EIG") facilities.4092 
7.1139  After the Aéroconstellation site was prepared , the government-established company charged 
with implementing the project the " Société d'Equipment Toulouse Midi Pyrénées " ("SETOMIP") sold 
all but 11 hectares of the land to different compan ies involved in the aeronautical industry, including 
with the development and production of the A380  aircraft that were to be assembled there.4093  
Purchasers of land in the ZAC included Airbus Fran ce, Air France Industries, the Société industrial 
aéronautique du Midi (SIDMI), CUS-Elyo, Exxon Mobil and STTS.4094  These companies are all 
                                                      
4083 US, FWS, para. 463.   
4084 US, FWS, para. 464. 
4085 US, FWS, para. 479. 
4086 US, FWS, para. 483.  We note that the United Status has not challenged the IGG itself in this 
dispute. 
4087 EC, FWS, para. 922. 
4088 EC, FWS, para 925.   
4089 US, FWS, para. 456 and footnote 544,  citing Exhibits US-201 and US-205. 
4090 EC, FWS, para. 923 and note 747, citing Ar ticle L.311-1 of the French urban code (" Code de 
l'Urbanisme "), http://www.legifrance.gouv .fr/WAspad/ListeCodes.   
4091 EC, FWS, para. 923. 
4092 US, FWS, para. 458, EC, FWS, paras. 912-914. 
4093 EC, FWS, para. 915; US, FWS, paras. 459-460; US, Answer to Panel Question 20; US, SNCOS, 
para. 91; Exhibits US-200, 206-207, 498, 532 and 640. 
4094 EC, FWS, para. 915, footnote 738 and web-site referred to therein, consulted by Secretariat on 
various dates.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  involved, in various ways, with different aspects of  the construction, assembly, testing, maintenance, 
etc. of aircraft.  All purchasers of land in the ZAC paid the same price per square meter for the different sized plots purchased.
4095  In addition, an association of users, the " Association Foncière 
Urbaine Libre " ("AFUL") comprising all the companies that bought land in the ZAC, was created.4096  
The EIG facilities were leased by the Toulouse authorities to the AF UL.  Only AFUL members have 
access to the EIG facilities, and each member of th e AFUL pays rent for the EIG facilities on a pro-
rata, user pays basis, at the same rate per unit of use.4097 
7.1140  At the same time as the Aéroconstellation site was being developed, the French authorities 
undertook the improvement of several public roads around the site, specifically, the RD901, the 
RD902 and the RD963.  These roads serve, inter alia , as access roads linking the Aéroconstellation 
site to the IGG, the extra-wide highway that  enables Airbus to transport A380 components 
manufactured elsewhere from the French coast to  Toulouse.  The improvement of these roads was 
financed and supervised by the French authorities.4098 
(ii) Arguments of the Parties 
Provision of the ZAC Aéroconste llation site and EIG facilities  
United States 
General Infrastructure 
7.1141  The United States argues that the ZAC Aérocons tellation site, including the EIG facilities, is 
not "general infrastructure", asserting that it has be en tailor-made for Airbus, its suppliers and Air 
France.  The United States claims that the Fren ch authorities transformed agricultural land in 
Toulouse into a site suitable for use by Airbus as a production, testing, and delivery site for the A380, 
and then sold the site to Airbus at a belo w-market price, thereby conferring a benefit.4099  The United 
States argues that, even accepting the European Communities' allegations  regarding the price paid for 
the land, that price is lower than the French authorities' investment in preparing the site, including the 
development of the EIG facilities.4100  In addition, the United States ass erts that Airbus appears to be 
the predominant user of the site and the pre dominant or exclusive user of the EIG facilities,4101 noting 
that Airbus occupies the largest single space on the s ite, 51 hectares, more than half of the total 95 
hectares made available for sale.4102  Almost all other occupants are suppliers to Airbus.4103  T h e  
                                                      
4095 EC, FWS, para. 916. 
4096 EC, FWS, para. 917. 
4097 EC, FWS, para. 917. 
4098 The improvement of these roads was originally discussed in July 1996.  The Révision du Schéma 
Directeur de l'Agglomération Toulousaine , discussing the improvement was finalised on 12 July 1996 and 
submitted to the Syndicat Mixte D'Études de l'Agglomération Toulousaine (SMEAT) for its approval on 
11 December 1998.  Révision du Schéma directeur, p.  216, Exhibit EC-125.  The general council of the 
Département de la Haute-Garonne  took the relevant decision on the ro ads in January 1998 to accommodate 
traffic and congestion caused by industrial growth in the Toulouse-Blagnac region.  See, e.g., Décision du 
Conseil Général du Département de la Haute-Garonne, 29 January 1998, Exhibit EC-126). 
4099 US, SWS, para. 399. 
4100 US, SWS, para. 401. 
4101 US, Answer to Panel Question 20, para. 144. 
4102 US, Answer to Panel Question 20, para. 144, referr ing to Atisreal study provided by the European 
Communities as Exhibit EC-18 (BCI) p. 10. 
4103 In support of its position, the United Stat es refers to maps which can be found at 
http://www.grandtoulouse.org/admin/upload/fichier/aerocon stellation.htm (Carte interactive), Exhibit US-218, 
and in particular to the descriptions of the activities of these companies in the maps entitled "La société Capelle", "Le centre technique" and "La station carburant".  See, also, press releases published by ELYO, WT/DS316/R 
Page 674  
BCI deleted, as indicated [***] 
 
  United States contends that, as with the Hamburg site, had the French authorities not created the 
Aéroconstellation site for and provided it to Ai rbus, the company would have had to make the 
investment itself.
4104  The United States also argues that the fact  that the site is a ZAC, created under 
the same legal authority as other similar sites elsewhere in France, lends no support to the European 
Communities' position that provision of the site is a measure of general infrastructure.4105  The United 
States asserts that the site was created specifically  as a location for Airbus A380 facilities, its use is 
expressly limited to the aeronautics industry, and it is used almost exclusively by Airbus and its suppliers.
4106  The United States also refers to th e European Commission's decision in the Scott Paper  
case, arguing that the Commission's conclusion that purchase and transformation of agricultural land 
to industrial use, and its sale at a price that did not recoup costs, would not have been undertaken by a 
private investor, and therefore constituted state aid, supports its view that the provision of the 
Aéroconstellation site constitutes a subsidy.4107 
7.1142  The United States alleges that the revenue from the sale of land in the ZAC constituted less 
than adequate remuneration, thereby conferring a benefit on Airbus, because it does not cover (a) the 
cost of the land improvements, (b) the value of th e unimproved land, and (c) an unspecified return.  
The United States asserts that a private investor would not have improved th e land and sold it at a 
loss.  The United States argues th at the European Communities' fo cus on the market price for 
improved land in the area as the benc hmark ignores that fact that th e site was created expressly for 
Airbus, and that a private investor who prepared land for a particular buyer would not exclude the value of its investment in developing the land from its selling price, which is what the government did 
in providing the Aérocons tellation site to Airbus.
4108  
7.1143  The United States also contends that most of the taxiways on the site exclusively connect 
Airbus assembly and testing facilities to the airport.4109  The only other users of taxiways on the 
Aéroconstellation site are Air France and STTS, whic h use the taxiways to access their buildings.  
The United States, referring to the official map of the site, notes that these build ings are located at the 
entrance to the site from Toulouse-Blagnac Airport at  the very southern end of the site, and argues 
that these taxiways used by Air France and STTS do  not account for even 10 percent of the total 
length of the taxiways.4110  Similarly, Airbus is the exclusive user of most of the aircraft parking space 
on the site.  The United States asserts that the large space in front of Airbus's production hall labelled 
"infrastructure publique" and marked red on the map available from the website of Grand Toulouse is 
used exclusively by Airbus as a testing site for the A380.  Airbus owns the land used for the actual 
testing facilities, marked blue on the map.4111  The United States asserts th at this evidences that the 
infrastructure improvements are not "general " in the sense of Article 1.1.(a)(1)(iii). 
                                                                                                                                                                     
Exhibit US-221, and ExxonMobil, Exhibit US-222,, describing the role of ELYO, ExxonMobil and Spie 
Batignolle. 
4104 US, SWS, para. 402. 
4105 US, SNCOS, para 90. 
4106 US, SNCOS, para 91. 
4107 European Commission, Decision of 12 July 2000, Aid to Scott Paper SA Kimberly-Clark, OJ 2002 
L 12, Exhibit US-190, (hereinafter " Scott Paper ").  US, FWS para. 435-436. 
4108 US, SNCOS, para 92. 
4109 US, Answer to Question 20 of the First Panel Questions, para. 145. 
4110 The United States refers in this regard to the previously cited maps which can be found at 
http://www.grandtoulouse.org/admin/upload/fichier/aerocon stellation.htm (Carte interactive), and which the 
United States submitted as Exhibit US-218 .  On the maps, the sites marked in  blue are the private facilities (each 
marked with the name of the occupant; the areas mark ed in red are the "public" infrastructure: the roads, 
taxiways and airplane parking spaces on the site.  See, also, the satellite photographs of the site at 
http://maps.google.com, Exhibit US-481. 
4111 See, map at http://perso.orange.fr/franceaero/pl an/planaccueil.htm, Exhibit US-219.  See, also, the 
maps at http://www.grandtoulouse.org/admin/upload/fich ier/aeroconstellation.htm (Carte interactive), Exhibit  WT/DS316/R 
 Page 675 
 
BCI deleted, as indicated [***] 
 
  Benefit 
7.1144  The United States made its assertions concerning the alleged benefit associated with the 
provision of the Aéroconstellation site and the EIG on the basis of publicly available information, as 
the European Communities had not provided any of the information requested in this regard during 
the Annex V process.  The United States provides a ra nge of figures for the expenditures to develop 
the Aéroconstellation site, from EUR 158 million4112 to EUR 200 million.4113  The United States also 
asserts that French authorities spent approximately  EUR 77.9 million, that is, EUR 82 per square 
meter, on internal development measures to turn 95 0,000 square meters of agricultural land into land 
fit for industrial use, not including the EIG facilities.4114  The European Communities does not dispute 
these figures.  The United States contends that a commercial owner of the land either would have sold 
the land "as is" or would have asked for a commercial return on the owner's investment in turning the 
land into an industrial site, in addition to  a price reflecting the value of the land.4115  The United States 
argues that the EUR 158 million in site preparation is  akin to a grant, since the French authorities 
spent funds to create a site that Airbus would otherwise have had to create itself.4116  The United 
States originally asserted, based on public information,  that the French authorities sold the land in the 
ZAC to Airbus for between EUR 14 and EUR 27 per square meter,4117 while they sold the remaining 
commercial surfaces in the ZAC for EUR 45.73 per square meter.4118  The United States also points 
out that at the same time that they created th e Aéroconstellation site, the French authorities also 
created the near-by ZAC Andromède, a mixed reside ntial and commercial area developed primarily to 
respond to the residential and commercial needs ar ising from the Aéroconstellation project, and sold 
land in the ZAC Andromède  at EUR 200 per square meter.4119 Thus, in the United States' view, the 
sale of the land in the ZAC Aéroconstellation was fo r less than adequate remuneration, and thus 
confers a benefit on Airbus.   
7.1145  Again relying on publicly available information,4120 the United States asserts that the lease for 
the EIG facilities was based on the total cost of the facilities, as originally estimated in 2002, 
EUR 53.4 million.  The lease, with a term of 40 y ears, was concluded in June 2002.  The rental 
amount was determined by analogy to a loan with a 2.2 percent annual interest rate, with repayment of 
the principal and interest spread  over the 40 year term of the lease. The lease payments were 
progressive, with lower payments in the early years and higher amounts later.4121  By 2003, however, 
                                                                                                                                                                     
US-218, in particular the maps entitled "Les aires indu strielles" and "Les postes extérieurs".  Finally, see the 
[***]  the Atisreal study provided by the European Communities as Exhibit EC-18 (BCI) p. 11. 
4112 US, FWS para. 467, footnote 568. 
4113 US, FWS para 456. 
4114 EUR 77.9 million is the difference between the total EUR 158 million that French authorities spent 
to develop the Aéroconstellation site (US,  FWS, para. 468) and the 80.1 million of that amount attributable to 
EIG facilities (US,  FWS, para. 475). 
4115 US, SWS, para. 406. 
4116 US, FWS, para.468. 
4117 US, FWS, paras. 467-468.   
4118 US, FWS, para.469 referring to Agence d'Urba nisme et d'Aménagement du Territoire Toulouse 
Aire Urbaine, Atlas des Parcs d'Activités de la Haut e-Garonne, available at http://www.auat-toulouse.org, 
Exhibit US-223;  see also, Airbus entame la construction de l'usine Star de l'A380 à Blagnac , Les Echos No.  
18555, at 12 (19 December 2001) (re porting that, as of December 2001, 37 hectares were still available at 
EUR 45.73 per square meter), Exhibit US-212. 
4119 US, FWS, para 470, referring to Atlas des Parcs d'activités de la Haute-Garonne, Blagnac, ZAC 
Andromède, available at http://www.auat-toulouse.or g/cdza_trav/Rcs_swf/loader.php, Exhibit US-224. 
4120 US, FWS, paras. 474, referring to Conseil de Communauté du Grand Toulouse, Délibération no.  
2004-05-ADU-01, 28 May 2004, Exhibit US-214; see also, Les collectivités locales ont investi 172 millions 
d'euros dans la zone Aéroconstellation, Les Echos No.  19155, at 20 (10 May 2004), Exhibit US-213. 
4121 The United States clarifies that when the original cost for the EIG facilities was estimated at 
EUR 53.4 million, the annual rent was expected to be between EUR 1.6 million (in 2007) and EUR 2.8 million (in 2042).   WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  the total estimated cost of the project had increased  to EUR 69.2 million, resulting in a modification 
of the lease, under which EUR 56 million of the cost s were treated like a 40 year loan with a 2.2 
percent annual interest rate, while a 4.5 percent inte rest rate, again over 40 years, was applied to the 
remaining EUR 13.2 million.  In 2004, after costs in creased again, to EUR 80.1 million in total, the 
lease agreement was again modified, to treat EUR 62. 6 million like a 40-year loan with a 2.2 percent 
annual interest rate in accordance with the original lease terms, and applying a 4.5 interest rate to the 
remaining EUR 17.5 million.
4122   
7.1146  The United States argues that these terms are not commercial.  According to the United 
States, a commercial investor in industrial real es tate in the region at the time (2002-2004) would have 
required an initial net return of between 9 and 11  percent on its investment in building the EIG 
facilities, EUR 80.1 million, for a lease price of between EUR 7.2 million and EUR 8.8 million.4123  
The United States also contends that other aspects of the lease demonstrate its non-commercial nature: 
(a) the lease price calculation igno res the value of the 119 hectares of land on which the EIG facilities 
were built; (b) the lease price increases progressive ly, further reducing the effective net initial 
return,4124 and (c) the lease price is not subject to [***], but remains [***] over the 40 years.4125  
According to the United States a commercial investor would not have acted this way, but would have 
asked for an [***] of the lease price to reflect the [***] of money.4126  The absence of an [***] clause 
results in an additional, very large advantage for Airbus.4127 
7.1147  Finally, the United States asserts that the Eur opean Communities' own consultant, Mr. Miller, 
came to the conclusion that the lease agreement conferred a benefit as compared with a market 
benchmark.  According to the United States, Mr. Miller concluded that a commercial investor would 
have asked for a lease price of EUR 4.4 million per year for the EIG facilities plus an additional EUR 1.5 million for the land on which these facilities were built, for a total of EUR 5.9 million per year.
4128  However, the United States asserts, on aver age, Airbus pays an annual lease price of 
EUR 3.1 million,4129 therefore, on average, Airbus pays EUR 2.8 million less per year than what a 
commercial investor would have required it to pay.4130 
7.1148  Responding to the European Communities' argument that the cost of Airbus debt should be 
used as a benchmark, the United States asserts th at, accepting the European Communities' approach, 
                                                      
4122 US, FWS, paras. 474-476, also referring to the Conseil de Communauté de Grand Toulouse, 
Délibération no. 2004-05-ADU-01 (28 May 2004), Exhibit US-214.   
4123 US, SWS, para. 410. 
4124 US, FWS, para. 473. 
4125 US, SWS, paras. 411-413. 
4126 US, SWS, para. 413, citing INSEE, Informations Rapides, Série "Principaux Indicateurs", Indice du 
coût de la construction, 12 January 2007, p. 2: "The cost of construction index is used, in particular, to adjust lease prices agreed in lease agreemen ts for commercial property." ("L'Indice du coût de la construction est 
notamment utilisé pour réviser les loyers des baux commerciaux."), Exhibit US-588. 
4127 US, SWS, para. 413.   The United States notes that, from the third quarter of 1997 to the third 
quarter of 2006, lease prices indexed to the INSEE cost of construction index increased annually by 2.86 percent 
on average, citing INSEE, L'Indice du Coût de la Construction,  Exhibit US-589.  Based on the terms of the 
lease agreement as modified in 2004, the United States contends that Airbus pays, on average, EUR 3.1 million 
over the course of 40 years.  If one ties the annual pa yment of these EUR 3.1 milli on to the INSEE cost of 
construction index, as a private investor would have done, and assumes an average annual increase of cost of construction by 2.86 percent, the United States asse rts that the annual lease price would increase to 
EUR 4.00 million by 2012; EUR 5.30 million by 20 22; EUR 7.02 million by 2023; and EUR 9.31 million 
by 2042.  US., SWS, footnote 517. 
4128 US, Comment on EC, Answer to Panel Question 185, para. 123, referring to EC, SCOS, 
paras. 31-32.   
4129 US, SWS, paras. 408-414. 
4130 US, Comment on EC Answer to Panel Question 185, para. 123.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  and taking Airbus' cost of debt at 6.83 percent,4131 a market-based lease price should have been 
EUR 5.5 million per year4132 – almost double the amount paid by Airbus.  Thus, according to the 
United States, even using the European Communities'  approach to analyzing the lease, including the 
benchmark proposed by it, the United States contends  that Airbus saves at least EUR 2.7 million per 
year from the beneficial terms of the lease of the EIG facilities.4133 
7.1149  The United States also defends its benchmark lease price of between EUR 7.2 million and 
EUR 8.8 million, based on an initial net return of at least between 9 and 11 percent.4134  T h e  
United States asserts that the EIG f acilities lease is no different from any other lease, and if anything, 
its risks are higher than for typical real estat e because the ZAC Aéroc onstellation site and EIG 
facilities are tailor-made for Airbus and the aerona utics industry's needs and are thus extremely 
specialized facilities for which there exists virtually  no other market than Airbus and the associated 
companies that occupy the ZAC.4135  The United States also asserts  that while Airbus France credit 
rating  may have been A1 in 2007, it was rated onl y A2 in 2001 and was downgraded even further to 
A3 in early 2002, when the lease terms were negotiate d and agreed, and that this rating persisted until 
about 2 years past the start date of the EIG facilities lease.4136   
7.1150  The United States considers the European Comm unities' assertion that Airbus France would 
not have agreed to an investor return on the lease that exceeded its own borrowing cost to be at odds 
with economic reality.  In particular, the United States maintains that comp anies regularly prefer 
leases over purchases because a lease keeps the debt in volved off their balan ce sheets.  The United 
States also recalls that the lease was entered into as part of the same package as the Aéroconstellation 
site purchase by Airbus and the other aeronautics companies using it.4137  Thus, it is not clear if Airbus 
even had a choice whether to construct and/or purchase the EIG facilities itself.  Indeed, the 
United States argues that the Eur opean Communities' assertion is di fficult to reconcile with actual 
practice in the market, where lease prices are fre quently higher than purchase prices based on a 
company's cost of borrowing. 
7.1151  In respect of indexation, the United States clarifies that:  (i) due to the time-value of money, 
the fact that larger lease payments are not made un til later results in a lower rate of return for the 
investor/lessor; and (ii) the lack of [***] exposes the investor to the additional risk of further reducing 
his return because of [***].  A [***] lease price would typically demand a premium to compensate for 
this additional risk (in particular in light of the long term of the lease), but the 3.9% return that is 
achieved through the EIG lease does not include su ch a premium.  In the United States' view, 
                                                      
4131 EC, Answer Panel Question 271, para. 160. 
4132 US, Comment on EC, Answer to Panel Question 271, para. 143 and footnote 193, referring to the 
United States' calculation in Exhibit US-686.  The United States observes that it fails to understand how the 
European Communities arrived at the amount of EUR 4.4 million used in EC Answer Panel Question 271, 
para. 161, noting that the European Communities has not explained its calculation method, nor has it revealed its 
calculation. 
4133 US, Comment on EC, Answer to Panel question 271, para. 143.  The United States observes that 
the European Communities suggests that 6.83 percent was Airbus France's average cost of debt throughout the 
entire period (EC Answer Panel Question 271, para. 160), the United States has used previously 6.83 percent for 
the EUR 62.6 million share agreed in 2002 and 6.17 percent for the EUR 17.5 million share agreed in 2004 (US, 
SWS, para. 411, n.512).  Even if calculated on this more conservative basis, the United States considers that the  
lease price would have been EUR 4.3 million for the EUR 62.6 million share and EUR 1.1 million for the EUR 17.5 million share (totaling EUR 4.4 million per year, or EUR 2.2 million per year more than the lease 
price agreed), referring to the calculation in Exhibit US-686. 
4134 US, SWS, para. 411; US, Comments on EC Answer to Panel Question 271, paras. 141 – 150. 
4135 US, Comment on EC, Answer to Panel Question 271, para. 147. 
4136 US Comment on EC, Answer to Panel Question 271, para. 148, referring to Moody's screen-print, 
Exhibit US-688. 
4137 US Comment on EC, Answer to Panel Question 271, para. 149, referring to EC, FWS, n.726. WT/DS316/R 
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  characterization of the lease as debt fina ncing does not "obviate" the need for [***], it simply means 
that while [***] is usually made explicit in lease contracts, it is usually implicit in debt financing.  It 
also means, that, in the case of a 40-year arra ngement like the EIG facilities lease, such "implicit 
[***]" would need to take account of the [***] that comes with a longer term loan, i.e., that the 
premium would be far higher than on the average borrowing of the company.
4138 
7.1152  Thus, the United States maintains that Airbus receives a benefit of at least EUR 4 million to 
EUR 5.6 million per year from the EIG lease, and, in fact, much more.4139  In any event, however, the 
United States notes that the European Communities has admitted that Airbus receives a benefit from 
the terms and conditions of the EIG lease agreement that is worth at least EUR 2.3 million per 
year.4140 
7.1153  The United States claims that the provision of th e site is a subsidy specific "in law" because 
the entire site, including the EIG facilities, was "t ailor-made" for A380 produc tion operations, and is 
explicitly dedicated to the aeronautics industry as a "parc d'activités aéronautiques".  It also claims 
that the provision of the site is a subsidy specifi c "in fact," because only aeronautics companies and 
their suppliers are located on the Aéroconstellation site, and Airbus is the primary or predominant 
user of the site, including the EIG facilities.4141 
European Communities 
General Infrastructure 
7.1154  The European Communities assert that industrial parks like the ZAC Aéroconstellation 
constitute general infrastructure within the meani ng of Article 1.1 of the SCM Agreement because 
creation of such facilities benefits society as a whole and reflects legitim ate economic development 
policies.  According to the European Communities, the creation of an industrial site is a legitimate 
policy choice open to every WTO member.4142  It argues that the creation of an industrial site is 
therefore a public investment for the benefit of the population at large.  The European Communities 
states that any member of the public can participate in the tenders for the sale of the land and lease of 
the EIG facilities, and that such tenders are open an d non-discriminatory.  In return, the companies 
who use the ZAC are then expected to invest and produce at it, with a positive spill-over for 
employment and tax income in the region.  T hus, the European Communities asserts that ZAC 
Aéroconstellation site, like ZACs all over France, is  a typical example of public-private partnership 
for the economic development of the country at  large and constitutes general infrastructure.4143  I n  
addition, the European Communiti es observes that all of the companies which bought land in the ZAC 
Aéroconstellation paid the same price for that land, [***] per square meter, a price the European 
Communities argues is commensurate with ma rket prices for improved land in the area.4144  T h e  
European Communities also argues that Airbus did not lack alternatives to the ZAC Aéroconstellation 
– according to the European Comm unities, Airbus bought "undifferen tiated" industrial land, with 
basic infrastructure allowing it to be used for indus trial purposes, and that similar land is available 
throughout Europe.  Moreover, the European Commun ities asserts that the return to the government is 
not limited to the purchase price of the land, but may include "other forms" of remuneration such as 
higher tax revenues and increased employment, whic h may make it willing to incur what appears to 
be a loss in providing the land in question.  The European Communities mainta ins that consideration 
                                                      
4138 US, Comment on EC, Answer to Panel Question 272. 
4139 See, US, Comment on EC, Answer to Panel Question 272. 
4140 US, Comment on EC, Answer to Panel Question 271, paras. 141 – 150. 
4141 US, FWS, para. 479. 
4142 EC, FWS, para 923.   
4143 EC, FWS, para 925.   
4144 EC, FWS, paras. 927-935, citing Attestation de vente, [***] , Exhibit EC-123 (BCI).  WT/DS316/R 
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  of the cost incurred by the French authorities in preparing the site for industrial use is irrelevant to the 
question of benefit.4145 
7.1155  The European Communities does not argue th at the EIG facilities constitutes general 
infrastructure and their provision is therefore not a financial contribution.  Rather, the European 
Communities asserts that the terms of the lease for these facilities is commensurate with a market 
benchmark, and therefore does not confer a be nefit within the meaning of Article 1.1(b).4146  The 
European Communities asserts that the EIG f acilities enable owners of land in the ZAC 
Aéroconstellation to exploit the efficiencies of using a single, integrated network of facilities, instead 
of each company constructing its own redundant and potentially incompatible infrastructure.4147  I t  
argues that [***], and that the land in the ZAC would have been worthless to Airbus France without 
facilities such as taxiways and aircraft service are as, because these shared f acilities are indispensable 
to Airbus France's A380 final assembly operations. 4148  The European Communities further contends 
that [***].4149  The European Communities also points out that  [***].4150 
Benefit 
7.1156  The European Communities asserts that the pri ce paid by Airbus to purchase land in the ZAC 
Aéroconstellation was at or above prices charged in  other similarly-improved ZACs in France.  For 
instance, at the ZAC de Saint Martin du Touch, wh ich is similarly located near the Toulouse-Blagnac 
airport, the price of comparable industrial land is [***]. 4151  The European Communities disputes the 
appropriateness of the United States' comparison wi th the ZAC Andromède, because the latter does 
not have an industrial purpose, but is dedicated to housing and services, and is thus considerably more 
expensive than land in an industrial ZAC.4152  The European Communities contends that the findings 
of Atisreal, an independent commercial appraisal fi rm, confirm that the price of the land purchased by 
Airbus France in the ZAC Aérocons tellation was consistent with mark et terms.  Atisreal, employing 
both comparative and land cost valuation met hodologies, allegedly in accordance with industry 
standards, concluded that the market price of improved land of the sort purchased by Airbus France 
was between EUR 24/m2 and EUR 27/m2 in 2001. 4153   
7.1157  In this context, the European Communities ar gues that in instances where the government's 
costs are particularly high relative to the value of  the economic resources transferred to the recipient, 
the "benefit to the recipient," market benchmark st andard still applies, and serves as a ceiling on the 
amount of "benefit" that can be assessed under Article  1.1(b) of the SCM Agreement.  This, according 
to the European Communities, means that the gove rnment can only earn a market-based return on the 
value of the thing, which may or may not be lower than its cost.4154  The European Communities 
maintains that the United States erroneously reli es on Article 14(a) of the SCM Agreement, which 
relates to government equity infusions and accord ing to which a benefit is not conferred unless an 
equity infusion is conferred contrary to the "usual  investment practice … of private investors in the 
territory of that Member."  Article 14(d) of the SCM Agreement  prescribes a different standard for the 
provision of goods and services, one that is tied to "prevailing market conditions," such as "price."  
                                                      
4145 EC, SNCOS, paras. 216-217. 
4146 EC, FWS, para 925. 
4147 EC, FWS, para. 922. 
4148 EC, FWS, para. 919 . 
4149 EC, FWS, para. 919  referring to [***] declaration, paras. 4-6, Exhibit EC-17 (BCI); ZAC Protocole 
d'Accord, [***] , Exhibit EC-130 (BCI) [***] . 
4150 EC, FWS, para. 919  referring to  [***] declaration, paras. 4-6, Exhibit EC-13 (BCI); AFUL: Statuts, 
[***] , Exhibit EC-124 (BCI). 
4151 EC, FWS, para. 928, citing Attestation de [***] , Exhibit EC-127 (BCI). 
4152 EC, FWS, para. 928. 
4153 EC, FWS, para. 929, citing [***] , Valuation Certificate [***] , Exhibit EC-18 (BCI). 
4154 EC, FWS, para. 933. WT/DS316/R 
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  Where "prevailing market conditions" dictate a price for the good or service – as with improved 
industrial land – that price serves as the appropria te benchmark for determining whether a "benefit" 
has been conferred.  The European Communities reje cts the United States' argument that a benefit was 
conferred because a private investor would not have  provided the financial contribution in the first 
place, or in the exact form that it ultimately took (e.g., as a sale of improved versus unimproved 
land).
4155  The European Communities disputes the re levance of the EC Commission's decision in 
Scott Paper  to the analysis in this case, as it asserts that EC state aids rules impose different 
disciplines than the SCM Agreement.4156  According to the European Communities, a government 
may incur higher costs than a private investor would,  and even sell land for a loss, without conferring 
a subsidy, because a government can realize othe r forms of remuneration – such as higher tax 
revenues and increased employment.4157   
7.1158  The European Communities acknowledges that th e EIG facilities are indispensable to the 
A380 final assembly operations and were central to  Airbus France's decision to move to the ZAC 
Aéroconstellation.  The European Communities notes that [***].4158  Each member pays the same 
amount per unit of use of a given EIG.4159  The European Communities argues that the United States 
has not provided sufficient evidence to show that th e terms of the lease of the EIG facilities were not 
commercial,4160 although it does not dispute the United States' allegations concerning the calculation 
of the lease price. 
7.1159  In response to the argument of the United Stat es that the lease price calculation ignores the 
value of the land on which the EIG facilities were built, the European Communities asserts, relying on 
the expert conclusion of Mr. Miller, that the benc hmark initial return employed by the United States 
(9-11%) is significantly inflated, and is based on an  inapposite report analyzing initial net returns for 
industrial real estate.4161  According to the Eur opean Communities, the EIG facilities are not typical 
industrial real estate, but are akin to facilities/equi pment project financing.  Therefore, the European 
Communities asserts, unlike a typical industrial real estate lease, the EIG l ease presents a very low 
risk to investors, first because the lease financing is effectively secured by the EIG equipment itself, 
and second because the lease covers the entire economic life of the facilities investment.4162  T h e  
European Communities further asserts that Airbus Fr ance and Air France  provide investors with very 
low credit/default risk.4163  Taken together, the European Co mmunities contends that these factors 
mean that any risk premium applied to the EIG lease would be low.  By contrast, the return on typical 
industrial real estate must capture occupancy and de fault risk.  Moreover, according to the European 
Communities, the long-term nature of the EIG lease makes comparison to a benchmark based on 
initial net returns for industrial real estate par ticularly inappropriate.  The European Communities 
argues that long-term capital leases for the life of an  asset are simply a means of financing what is, in 
effect, an asset purchase.  Thus, in the European  Communities' view, Airbus France would not agree 
to an investor return that ex ceeded its own borrowing cost ( i.e., the cost of financing the purchase of 
these assets), which it asserts the United States recognizes was only 6.83% during the relevant 
                                                      
4155 EC, SWS, paras. 386-391. 
4156 EC, SCOS, para. 394. 
4157 EC, SWS, para. 389. 
4158 EC, FWS, para. 918, referring to Association de Foncière Urbaine Libre de la ZAC 
Aéroconstellation, Statuts [***] , Exhibit EC-124 (BCI) 
4159 EC, FWS, para. 918. 
4160 EC, FWS, paras. 936-938. 
4161 EC, SCOS, para. 29. 
4162 EC, Answer to Panel Question 271, para. 159.  According to the European Communities, this 
means that, at the end of the lease term, investors do not incur occupancy risk –  i.e., the risk that, if there is 
residual value at the end of a lease, the investor will not be able to recover this value by finding a new lessee.   
4163 EC, Answer to Panel Question 271, para. 159, citing Moody's Investor Service, EADS, 
12 March 2007, Exhibit EC-835.  WT/DS316/R 
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  period.4164  Thus, the European Communities maintain s that Airbus France could have simply 
borrowed the EUR 80.1 million required to construct th e EIG facilities, and then sublet a portion of 
the facilities to the other AFUL members.  For a fi nancial lease covering the entire useful life of the 
assets, the European Communities maintains that th e lessor cannot demand a return higher than the 
cost of funds available to the lessee through readil y-available alternative financing mechanisms.  On 
the basis of the above, the European Communities ar gues that the appropriate benchmark for the EIG 
lease is Airbus France's borrowing cost, which refl ects the most likely alternative source of market 
financing. 
7.1160  The European Communities therefore concludes th at under this cost of debt benchmark, the 
average annual lease payment would be approximate ly EUR 4.4 million, far less than the amounts 
asserted by the United States (EUR 7.2 to EUR 8.2 million).  The European Communities argues that 
since debt financing is not indexed (because the borro wing rate captures the total return to the lender), 
any shortfall between this benchmark and the act ual return on the lease would capture the entire 
amount of any "benefit" received by Airbus France.4165 
7.1161   The European Communities also disputes the Un ited States' view that the lease confers a 
benefit because the lease price increases progressively , further reducing the effective net initial return 
to far below the 3.9 percent  nominal rate and is not subject to [***], but remains [***] over the 
course of 40 years, on three grounds.  The Europ ean Communities maintains th at the "benefit" inquiry 
does not hinge on the structural features of a financing instrument.4166  The European Communities 
considers that there is nothing inherently non-comme rcial about instruments that do or do not possess 
features such as a progressive repayment structure or indexation.  The European Communities argues 
that these characteristics are only relevant to the extent  that they affect the investor's rate of return, 
while the "benefit" inquiry asks whether the resu lting effective return on such instruments is 
consistent with a market rate.  Second, the Eu ropean Communities argues that the United States' 
reliance on these two structural features, progressive repayments and the absence of indexation, is 
incoherent because, on the one hand, the Unite d States criticizes the EIG lease's "progressive" 
repayment structure, while on the other, it asserts th at these repayments should, in fact, increase over 
time through indexation to account for the decreasing value of money.4167  Third, the European 
Communities argues that even if the EIG lease could be viewed as not incorporating indexation, this 
would not render the lease "non-commercial."  In th is context the European Communities maintains 
its position that use of a cost of debt benchmark obvi ates the need for indexation; debt financing is not 
indexed.4168 
7.1162  The European Communities does not argue the question of specificity beyond its assertion 
that the provision of the site per se  constitutes general infrastructure,  and thus is not a financial 
contribution and not within the scope of the SCM Ag reement.  With respect to the EIG facilities, the 
European Communities does not make any add itional arguments regarding specificity.   
Provision of roads  
United States 
7.1163  The United States claims that the improvements to the RD901, RD902 and RD963 do not 
constitute provision of general infrastructure.  Th e United States asserts that these improvements are 
                                                      
4164 EC, Answer to Panel Question 271, para. 160. 
4165 EC, Answer to Panel Question 271, para. 161. 
4166 EC, Answer to Panel Question 271, para. 163, referring to EC, FWS, paras. 1640-41; EC, FCOS, 
paras. 14-18 (Statement of Prof.  Whitelaw) ; EC, Answer to Panel Question 65, para. 71. 
4167 EC, Answer to Panel Question 272, paras. 163-164.. 
4168 EC, Answer to Panel Question 272, para. 165.. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  for use only by Airbus and its suppliers.
4169  In support of its assertion, the United States refers to a 
statement by French authorities descr ibing "the access roads for the site",4170 as well as to satellite 
images of the site which, it asserts, demonstrat e that Air France, STTS and SIDMI access the site 
from the south, via the RD901, while improvements cr eated at the site's northern perimeter (at the 
RD963) and at its eastern perimeter (at the RD902,  including the "Diffuseur de Pinot") are for the 
exclusive use of Airbus and its suppliers.  The United States argues that the improvements to the 
roads became necessary as a result of the prepara tion of the Aéroconstellation site.  Thus, the 
United States asserts that the road  works were not undertaken to create general infrastructure, but are 
specifically related to the development of the site, undertaken to provide access to the site for Airbus 
and its suppliers.4171  The United States disputes the Eur opean Communities' assertion that the 
decision to develop the Aérocons tellation site merely brought forward the schedule for road 
improvements in the whole region.  According to  the United States, the construction work on the 
RD901, RD902 and RD963 was either triggered exclusively by the development of the 
Aéroconstellation site for A380 assembly, testi ng and delivery, or the plans were amended 
significantly for that purpose.4172    
7.1164  The United States asserts that the publicly ava ilable information indicates that the French 
authorities spent at least EUR 49 million (approximately EUR 17 million to rebuild the RD901 through and beneath the Aéroconstellation  site, and EUR 33 million to adapt the RD902 to Airbus' 
needs), and provided them to Airbus free of charge.
4173 The United States indicates that it was unable 
to locate any information on the costs of the work on the RD963.4174  In essence, the United States 
argues that the provision of the road improvements is  a grant to Airbus, and thus confers a benefit, 
and thus constitutes a subsidy within the m eaning of Article 1 of the SCM Agreement.4175  
7.1165  The United States asserts that the improvements to the RD901, RD902, and RD963 in 
connection with establishment of the Aéroconstellation site are de facto specific to Airbus, within the 
meaning of Article 2.1(c) of the SCM Agreement.  The United States argues that (i) the overpasses for 
taxiways at the RD901 are, in fact, used exclusiv ely by the users of the Aéroconstellation site and 
primarily by Airbus, and that (ii) the access infrastructure, in particular the traffic circles created at the RD902 and RD963, is used, in fact, exclusively or primarily for access to the Airbus A380 
facilities.
4176 
European Communities 
7.1166  The European Communities argues that building of the access roads linking the 
Aéroconstellation site to the IGG is a classic exam ple of provision of general infrastructure, an 
example " par excellence " of general infrastructure and is, therefore, outside the scope of 
Article 1.1(a)(1)(iii).4177  According to the European Communiti es, the road works were necessary in 
order to alleviate existing traffic congestion, and the decision to develop  the ZAC Aéroconstellation 
                                                      
4169 US, Answer to Panel Question 153, para. 10 7. Thus, the United States does not accept the 
European Communities' view of its position as based on an assertion of predominant use by the companies 
located in the ZAC.   
4170 US, FWS, para. 482. 
4171 US, SNCOS, paras. 93-95. 
4172 US, Answer to Panel Question 20, para. 150. 
4173 US, FWS, para. 484, citing Flash Aéroconstellation, Bulletin d'information des riverains, No. 11 
(November/December 2002), available at http://www. grandtoulouse.org/index.php?pagecode=20, Exhibit 
US-208. 
4174 US, FWS, para. 481. 
4175 US, FWS, para. 484. 
4176 US, Answer to Panel Question 20, paras. 149-151. 
4177 EC, FWS, para. 940, EC, SNCOS, para. 220.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  merely brought forward the schedule for road improvements in the whole region.4178  The European 
Communities further notes that there is no restricti on on the use of the roads in question, and that 
companies located in the Aéroconstellation site  do not have privileged access to the roads. 
7.1167  The European Communities also disputes that th e users of Aéroconstellation site obtain more 
benefit from the improvements than any other users of  the roads.  In this connection, the European 
Communities argues that, considering the practical effects of building a public road, it cannot be 
established that the users of the Aéroconstellation site, let alone one specific user, benefit from the 
improvements more than other users of the roads,  because, according to th e European Communities, 
the road improvements were necessary to alleviate existing traffic congestion, with the establishment 
of several ZACs, noting that access to the ZAC Andr omède is from the same roads.  The European 
Communities also contends that the RD901 and RD902 are central transportation arteries for the Département de Haute-Garonne, a nd their improvement was planned long before the decision to 
develop the ZAC Aéroconstellation was taken.
4179 
7.1168  The European Communities refers to counter vailing duty practice in the United States in 
support of its position.  In particular, it argues that in Stainless Steel Sheet and Strip in Coils from the 
Republic of Korea , the US Department of Commerce ("DOC") concluded that the construction of a 
public highway in the Kwangyang Bay area was not a countervailable subsidy.4180  The DOC found 
that "the reason for the public highway was not to serve [***], but to provide general infrastructure to 
the area as part of the [***] continuing development of the count ry and to relieve a transportation 
bottleneck."4181  The DOC observed that the road "is utilized  by both industries in the area to transport 
goods and by residents living in the Kwangyang Bay area."4182  The same reasoning, according to the 
European Communities, applies with respect to the improvements to the RD901, RD902 and 
RD963.4183 
7.1169  The European Communities contends that the clai m of the United States really only concerns 
the two traffic circles, i.e., the improvements at the site's norther n perimeter (at the RD963) and at its 
eastern perimeter (at the RD902, in particular the "Diffuseur de Pinot").4184  The European 
Communities also argues that the two overpasses (a t the RD901 on the southern perimeter) link 
taxiways on the Aéroconstellation site to the Toulous e airport, and that when a government creates an 
industrial site for the aerospace industry, an important feature is its interconnection with the airport.  It 
therefore believes that theses two elements are confounded with the general infrastructure of the 
public roads RD902 and RD963.4185  In this connection it observes that  the traffic circles related to the 
RD902 and RD963 may be seen as an integral part of the French road network - the fact that these are 
used more often by companies located in ZAC Aéroconstellation is only normal.4186 
                                                      
4178 EC, FWS, paras. 921 and 944. 
4179 EC, FWS, para. 944. 
4180 EC, FWS, para. 941, citing Final Affirmative Count ervailing Duty Determination: Stainless Steel 
Sheet and Strip in Coils from the Republic of Korea, 64 Fed.  Reg.  30636, 30648-49 (18 June 1999) (" Korean 
Stainless Steel "). 
4181 EC, FWS, para. 941, citing Korean Stainless Steel at 30648-49.  Contrary to the suggestion of the 
DOC in Korean Stainless Steel , the status of a measure as "general  infrastructure" does not hinge on the 
subjective intent of public authorities (which is notoriously difficult to establish).  See, e.g., Statement of 
Administrative Action accompanying the Uruguay Round Agreements Act, H.R. 5110, H.R.  Doc. 316, Vol. 1, 103d Congress, 2d sess. (1994), reprinted in 1994 USCCAN 4040, 4242 ("{I}t has long been established that 
intent to target benefits is not a prerequisite for a countervailable subsidy . . . .").   
4182 Korean Stainless Steel at 30648-49. 
4183 EC, FWS, para. 941. 
4184 EC, SWS, para. 370. 
4185 EC, SWS, para. 372. 
4186 EC, SWS, para. 373. WT/DS316/R 
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  7.1170  The European Communities argues that even if the building of the roads constituted a 
financial contribution, the United States has failed to establish that this alleged subsidy is specific 
within the meaning of Article 2.1 of the SC M Agreement, because the improvements are not  specific 
to Airbus France, or even to the entire gr oup of companies in the ZAC Aéroconstellation.
4187  Noting 
that according to Article 2.1 of the SCM Agreement, a subsidy is specific if "the granting authority, or 
the legislation pursuant to which the granting auth ority operates, explicitly limits access to a subsidy 
to certain enterprises", the European Communities observes that RD901, RD902 and RD963 are public roads accessible to anyone, and that French la w requires that departmental roads remain open 
to public traffic.
4188 
7.1171  The European Communities does not appear to dispute the United States' allegations 
concerning the amounts spent by the French authorities on road improvements.   
(iii) Evaluation  by the Panel 
7.1172  In order to resolve this aspect of the United St ates' claims, we will address first the European 
Communities' contention that the provision of the ZAC Aéroconstellation site constitutes a measure of 
general infrastructure, and thus does not constitute a subsidy under Article 1 of the SCM Agreement.  
In this connection we will evaluate whether it is appropriate to consider the provision of the EIG 
facilities separately, as suggested by the European Co mmunities' argument, or as an integral part of 
the creation of the site and its provision to Air bus and other companies, as suggested by the United 
States' argument.  We will then address whet her the improvements to the access roads around the 
ZAC Aéroconstellation site, specifically the RD901,  RD902, and RD963, and including the Diffuseur 
de Pinot and the underpasses beneath the taxiways wh ich connect the ZAC Aéroconstellation with the 
Toulouse-Blagnac airport over the RD901, constitute measures of general infrastructure.  Should we 
conclude that any of these is not a provision of gene ral infrastructure, we will then go on to assess the 
financial contribution re presented by that measure, and whether that measure confers a benefit on 
Airbus, including consideration of the appr opriate benchmark for comparison in assessing the 
question of benefit.   
Provision of the ZAC Aéroconste llation site and EIG facilities  
General infrastructure 
7.1173   As we concluded above,4189 in our view, the determination whether the provision of a good 
constitutes a provision of "general infrastructure" ca nnot be answered in the abstract, but rather must 
take into account the existence or absence of de jure  or de facto limitations on access or use, and any 
other factors that tend to demonstrate that the infrast ructure was or was not provided to or for the use 
of only a single entity or a limited group of entities,  including factors relating to the circumstances 
surrounding the creation of the infrastructure in questi on, consideration of the type of infrastructure, 
the conditions and circumstances of the provision of th e infrastructure, the recipients or beneficiaries 
of the infrastructure, and the legal regime applicab le to such infrastructur e, including the terms and 
conditions of access to and/or limitations  on use of the infrastructure.   
7.1174  Before addressing these factors with respect to  the ZAC Aéroconstellation site and the EIG 
facilities, we consider it appropriate to address wh ether the EIG facilities should be evaluated as a 
separate measure, as implied by the European Co mmunities' argument.  The European Communities 
                                                      
4187 EC, SWS, para. 373. 
4188 EC, FWS, para. 946 referring to Loi no 89-413 du 22 juin 1989 relative au code de la voirie 
routière, Art. L131-2, http://www.legifrance.gouv.fr ; Code de la Voirie Routière, Art. L111-1, L131-1, 
http://www.legifrance.gouv. fr/WAspad/ListeCodes. 
4189 See, discussion at paras. 7.1036 to 7.1044 above.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  does not argue that the provision of the EIG facilitie s does not constitute a financial contribution, and 
thus does not argue that the provision of those fac ilities constitutes general infrastructure.  Rather, the 
European Communities' argument with respect to the se facilities is that they are rented at a market 
price to the owners of the sites in the ZAC, and t hus there is no benefit to Airbus.  The United States, 
while it also disputes the European Communities' conten tion that the rental of the EIG facilities is at a 
market price, considers the provision of the ZAC Aéroconstellation, including the EIG, is not a 
measure of general infrastructure, and c onstitutes a specific subsidy to Airbus.   
7.1175  In our view, the EIG facilities constitute an integr al part of the Aéroconstellation site.  Indeed, 
the European Communities' own arguments indicate that the EIG facilities were a necessary part of 
the development of the site, in order to make it suitable for its intended use by the aeronautics 
industry, including particularly A380 production.  Thus, for instance, the European Communities 
itself asserts that the purchasers of the land in the ZAC [***],4190 and that the land in the ZAC would 
have been worthless to Airbus without EIG faciliti es such as taxiways and aircraft service areas, 
because these shared facilities are indispensable to Airbus France's A380 final assembly operations.  
Moreover, the European Communities itself contends that [***].4191   Thus, we see no basis for an 
analysis of the EIG facilities separate from our consid eration of the provision of the Aéroconstellation 
site as a whole.4192 
7.1176  We recall our interpretation of the term "general infrastructure", where we concluded that that 
the term " general  infrastructure", taken in its ordinary and natural meaning, refers to infrastructure 
that is not provided to or for the advantage of only a single entity or limited group of entities, and that 
there is no infrastructure which is inherently "general" per se .4193  Thus, merely because the 
development of industrial sites such as the ZAC Aéroconstellation "benefits society as a whole" and 
"reflects legitimate economic developm ent policies", as argued by the EC,4194 does not demonstrate 
that the provision in this case of the site constitutes provision of general infrastructure.  Similarly, the 
fact that the ZAC Aéroconstellation was develo ped under the same legislation as other ZACs 
throughout France does not inform our consideration of this issue.4195  The European Communities 
does not argue, as it did in connection with the reclamation of land in the case of the Mühlenberger Loch development, that developm ent of industrial land is a "typical task of public authorities, as 
providers of general infrastructure",
4196 but merely that the creation of an industrial site is a 
"legitimate policy choice".4197  We do not disagree.  However, this fact provides no basis for a 
conclusion that the development of the particular site in question, the ZAC Aéroconstellation, is a 
                                                      
4190 EC, FWS, para. 919, citing [***]  declaration, paras. 5-6, Exhibit EC-17 (BCI).  The European 
Communities notes that the [***] . Exhibit EC-130 (BCI). 
4191 EC, FWS, para. 919  referring to [***]  declaration, paras. 4-6, Exhibit EC-17 (BCI); ZAC Protocole 
d'Accord, [***] , Exhibit EC-130 (BCI) [***] . 
4192 We note that the Europ ean Communities asserts, in discussing  the question of benefit, that an 
appropriate market benchmark for the EIG lease is Airbus' cost of debt .  This is because, the European 
Communities appears to recognize, had the French authori ties not created the EIG facilities, Airbus could have 
done so itself, as they are necessary to its activities in the production of A380 aircraft, as well as those of the other companies purchasing land in the ZAC and involved in the production of that aircraft.  This supports our 
view that the provision of the site a nd the EIG facilities should be considered together, as it is clear that Airbus, 
as well as the French authorities, considered th e EIG facilities an integral part of the site. 
4193 See, discussion at paras. 7.1036 to 7.1044 above. 
4194 EC, FWS, para. 909. 
4195 It may be that the provision of other ZACs constitu tes the provision of general infrastructure, or the 
provision of infrastructure which is not general.  As we have previously concluded, whether a provision of 
infrastructure is "general" or not must be assessed in each  instance on the basis of th e particular facts of the 
specific measure at issue.  Thus, we are not making any ruling concerning the status of any ZAC except the 
ZAC Aéroconstellation which is before us in this dispute.   
4196 EC, FWS, para. 775. 
4197 EC, FWS, para. 923. WT/DS316/R 
Page 686  
BCI deleted, as indicated [***] 
 
  measure of general infrastructure.  The provision of specific subsidies
4198 is equally a legitimate policy 
choice of governments – however, it is one that has potential consequences under the 
SCM Agreement. 
7.1177  The European Communities does not, in our understanding, seriously contend that the 
development of the site was undertaken for reasons unrelated to the needs of Airbus.  There is no 
evidence before us to suggest th at the French authorities would ha ve undertaken the development of 
the site and the construction of the EIG facilities bu t for the fact that it was desirable in order to 
provide a suitable site for Airbus' A380 final assembly  line, adjacent to the Toulouse-Blagnac airport.  
Indeed, it is clear to us that the development of the ZAC Aéroconstellation site  and the construction of 
the EIG facilities was undertaken specifically to enable  Airbus to situate an A380 final assembly line 
in an advantageous location, in France.4199  The ZAC Aéroconstellation is specifically designated as a 
site for aeronautics-related activities, and the sale of  land in the ZAC was limited to companies in the 
aeronautics industry, and the purchasers are compani es concerned specifically with the assembly and 
testing of the A380.4200  The EIG facilities are, as the Europ ean Communities itself argues, necessary 
to the efficient and effective operation of the A380 assembly operations for which the site was 
developed, as well as for other aeronautics related act ivities undertaken at the site.  Moreover, we do 
not accept the European Communities' view that Air bus purchased "undifferen tiated" industrial land, 
and that similar land is available throughout Europe.  It is clear to us that the ZAC Aéroconstellation 
site was, from the outset, uniquely adapted to Airbus ' needs, from its situation next to and connection 
to the Toulouse-Blagnac airport, to  the highly specific EIG facilities. 
7.1178  We do not doubt that the French authorities c onsidered that they were pursuing a public 
interest in undertaking the development of the Aéroco nstellation site.  However, this interest does not 
suffice to demonstrate that the project, starting wi th the development of agricultural land into an 
industrial site, and including the c onstruction of the EIG facilities, constitutes a provision of general 
infrastructure.  As we have noted previously, it is in any event always likely to be the case that public 
authorities will have reasons of public policy when expending public funds.  However, when the 
circumstances of such expenditure demonstrate that it was provided to or for the use of only a single 
entity or a limited group of entities, we do not consider that it can be found to be "general" 
infrastructure. 
7.1179  The European Communities makes no other arguments with respect to the ZAC 
Aéroconstellation site that might suggest that it wa s not created and provided specifically for the use 
                                                      
4198 With the exception of subsidies prohibited under Article 3. 
4199 Indeed, the European Communities argues that the decision by Airbus to establish two A380 
assembly facilities rather than the single site in Toulouse originally contemplated resulted in [***] , implying 
that the ZAC Aéroconstellation site was the most advantageous location.  EC, SWS, para. 1079.  See, also , Les 
élus toulousains réservent un site pour la chaîne d'assemblage de l'Airbus géant , Les Echos, No. 17994, 
28 September 1999 ("This project is a credible and a ttractive alternative to Aérospatiale-Matra's solution for 
integration of the Airbus A3XX for which Toulouse is a candidate.")  Exhibit US-205; Airbus, press release, Airbus' A380 Final Assembly Facility  inaugurated by French President , 16 July 2000, Exhibit US-200;  
http://www.aeroconstellation.com,  "Le Programme Constellation, Quelques Chiffres, La ZAC 
AéroConstellation", Exhibit US-201. 
4200 Exhibit US-218 contains excerpts from the interactive map on the Grand Toulouse web-site, 
http://www.grandtoulouse.org/admin/upload/fichier/aer oconstellation/aeroconstellation.htm describing the 
companies, installations, and activities planned for the site.  That map shows that these include, in addition to 
the "pôle logistique" where ai rcraft parts are received on the site and stored, the large Airbus assembly building 
and outside stations for final testing of A380 aircraft, a building for the Société Capelle, responsible for road 
transport of A380 fuselage parts, a fuel supply insta llation (Exxon), a building for Air France Industries, active 
in aircraft and engine maintenance, a building for S TTS, which paints and waterproofs aircraft, underground 
galleries linking the various sectors and supplying heating, fire suppression, compressed air, communications, etc., and taxiways linking the various parts of the site and linking the site to the Toulouse-Blagnac airport.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  of Airbus, its suppliers, and companies associated with the aeronautics industry for, initially, the 
assembly and testing of A380 aircraft.  The circ umstances surrounding the development of the site, 
including the limitation on the use of the site as a "parc d'activités aéronautiques", and the connections 
between the purchase of land and the required particip ation in the lease of the EIG facilities, makes it 
clear that the development of the ZAC Aéroconste llation, including the EIG f acilities, was undertaken 
to suit Airbus' needs, and in particular, its needs in connection with the assembly and testing of A380 
aircraft.  In light of these facts, we concl ude that the creation and provision of the ZAC 
Aéroconstellation site and EIG fac ilities is not a measure of general infrastructure within the meaning 
of Article 1.1(a)(1)(iii) of the SCM Agreement.  We therefore will go on to consider whether the 
financial contribution of the French authorities in this respect conferred a benefit on Airbus. 
Benefit 
7.1180  The United States contends that the provision of the ZAC Aéroconste llation site and EIG 
facilities confers a benefit on Airbus because (i) th e French authorities sold the land for less than 
adequate remuneration, and (ii) because the authoriti es are leasing the EIG facilities to Airbus for less 
than adequate remuneration.4201 
7.1181  We recall that Article 1.1(b) of the SCM Agre ement does not define the notion of "benefit".  
However, it is well established that a "financial contribution" will confer a "benefit" upon a recipient 
when it places that recipient in a more advantag eous position compared with the position of that 
recipient in the absence of th e "financial contribution".4202  In Canada – Aircraft , both the panel and 
the Appellate Body considered that the basis for making this comparison was the market.  Thus, the 
panel observed that: 
"a financial contribution will only confer a 'benefit', i.e., an advantage, if it is 
provided on terms that are more advantage ous than those that would have been 
available to the recipient on the market".4203 
Similarly, the Appellate Body explained that: 
 
"the marketplace provides an appropriate basis for comparison in determining whether a 'benefit' has been 'conferred', because the trade distorting potential of a 
'financial contribution' can be identified by determining whether the recipient has received a 'financial contribution' on terms more favourable than those available to the recipient on the market."
4204  
7.1182  Thus, a benefit will be conferred whenever a fina ncial contribution is granted to a recipient on 
terms more favourable than those available to the reci pient in the market.  In the context of a financial 
contribution in the form of provision of goods or services other than general infrastructure, we 
consider that the appropriate question to be addressed  in resolving the question of benefit is whether a 
market actor would have provided the good or service to the recipient at the time, on the same terms 
and conditions as the government provision at issue. 
7.1183  In its first written submission, the United States identified the alleged costs of the 
Aéroconstellation site and EIG fa cilities based on publicly available information, because, it noted, 
                                                      
4201 US, FWS, para. 464. 
4202 Panel Report, Canada – Aircraft , para. 9.112, cited with approval in Appellate Body Report, 
Canada – Aircraft , para. 149. 
4203 Panel Report, Canada – Aircraft , para. 9.112; Appellate Body Report, Canada – Aircraft , 
paras. 157-158; Appellate Body Report, US – Countervailing Measures on Certain EC Products , para. 102. 
4204 Appellate Body Report, Canada – Aircraft , para. 157. WT/DS316/R 
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  the European Communities and France had refused , during the Annex V process, to provide the 
requested information relating to the site, which incl uded a copy of the agreement in which the French 
national and regional authorities agreed to develo p the site, a detailed description of the site 
development project, a list of the measures that French authorities undertook and the costs they 
incurred to develop the site, information regard ing the terms and conditions of any purchase by 
Airbus or any other entities of any portion of the si te, and information on Airbus' use of the site.
4205  
The United States contends that the logical infere nce to be drawn from these refusals is that the 
information would have supported the United States' cl aim that the measure is a specific subsidy.  The 
United States suggests that the Panel draw such a logical inference.4206  In addition, the United States 
asserts that in this situation, the Panel would be ju stified, in accordance with paragraph 7 of Annex V, 
in drawing an adverse inference that the withheld  information demonstrates that the measure is a 
specific subsidy, and respectfully requests that the Panel so infer.4207  The United States contends that 
since the European Communities a nd France refused the request for the terms and conditions of the 
lease and the terms and conditions of equivalent comme rcial leases, it is not possible to calculate the 
exact amount of the benefit to Airbus.4208 
7.1184  Paragraph 7 of Annex V provides that a panel "should draw adverse inferences from instances 
of non-cooperation by any party involved in th e information-gathering process".  Although the 
European Communities failed to provide any of  the information requested concerning the 
Aéroconstellation site during the Annex V process, it has, during the course of this panel proceeding, 
submitted some information, in particular concerni ng the price paid by purchasers for land in the ZAC 
and a valuation of that land by Atisreal.  Howeve r, it has not provided any information concerning the 
costs associated with the development of the site.  Nor has it disputed the United States' allegations 
concerning those costs, and it has not contested th e United States' allegations concerning the costs 
associated with the creation of the EIG facilities and the terms of the lease for those facilities.  Thus, 
while we are not here faced with  a situation where a party has fa iled to supply any part of the 
requested information, much of the information before us on the question of benefit is factual 
allegations by the United States based on public in formation which are unchallenged by the European 
Communities.  To the extent reliance on that information may be adverse to the European 
Communities' position in this dispute, we consider that such reliance, which is not in itself an adverse 
inference, is entirely justified.  Moreover, to th e extent the information publicly available to the 
United States and submitted in suppor t of its arguments is insufficient,  we consider that inferences 
favourable to the United States' view are warranted to the extent necessary to reach conclusions, in 
view of the lack of cooperation by the Eu ropean Communities during the Annex V process. 
7.1185  The European Communities contends that the United States' argument  concerning benefit 
conferred by the provision of land in the ZAC effec tively is based on a "cost to government" standard, 
as it is based on the premise that regardless of the ma rket price for industrial land in the area, Airbus 
France should have paid a price sufficient for the government to recover the costs incurred in 
developing the ZAC.  Because the "cost to government" standard has been rejected by the Appellate 
Body, the European Commun ities asks the Panel to do so in this dispute.4209 
7.1186  The United States does not dispute the basic prem ise that cost to the government is not an 
appropriate basis for assessment of benefit, but does argue, as it did with respect to the Mühlenberger 
Loch project, that consideration of the total amount invested by the French authorities is appropriate  
in order to determine the amount of any benefit.  The United States contends that a commercial owner 
                                                      
4205 Questions 56-72 from the Facilitator to the EC, Exhibit US-4 (BCI); EC Answers to Questions 56-
72 from the Facilitator, Exhibit US-5 (BCI). 
4206 Our understanding is that this position does not extend to the development of the roads. 
4207 US, FWS, para 480. 
4208 US, FWS, para 476. 
4209 EC, FWS, para. 935.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  of the land on which the ZAC Aéroconstellation was developed either would have sold the land "as 
is", i.e., in its raw agricultural state, or would have  asked for a commercial return on the owner's 
investment in turning the land into an industrial site , in addition to a price reflecting the value of the 
land.  Thus, the United States' argument is that th e amount of the investment should be considered in 
determining the appropriate market-based benc hmark for assessing the existence of benefit.  
Moreover, the United States argues that the EUR 158 m illion invested in site preparation is akin to a 
grant, since the French authorities spent funds to creat e a site that Airbus woul d otherwise have had to 
create itself.4210    
7.1187  We have already rejected the European Co mmunities' view that the provision of the 
Aéroconstellation site constituted a measure of general infrastructure.  The European Communities' 
arguments concerning the price of the land in th e ZAC Aéroconstellation do not address the question 
of the amount invested in developing raw agricultural land into land suitable for industrial use, but focus on the market price for industrial land in the region, and the fact that all purchasers paid the 
same price per hectare for land in the ZAC.  Howe ver, neither of these arguments directly addresses 
the question before us here.  As  we concluded with respect to the Mühlenberger Loch project,
4211 we 
consider that the investment by the French authoriti es in developing the site to make the land suitable 
for industrial use is the relevant basis for assessi ng whether a benefit was conferred on Airbus.   
7.1188  As previously discussed, this does not constitu te, as argued by the European Communities, a 
determination of the amount of benefit on the basis of  cost to the government.  Rather, it is simply a 
reflection, in the particular circumstances of th is case, of the basis on which a market actor would 
determine the price to be charged for the land to  be sold, and thus the appropriate "market" 
benchmark.  In our view, based on the eviden ce provided by the European Communities, the 
"prevailing market conditions" in the region woul d have led to a sales price for land in the ZAC 
Aéroconstellation that would have been insufficien t to provide an adequate return to cover the 
investment in developing the land for industrial use.   Thus, in our view, a commercial land developer 
would not have undertaken the project.  In th ese circumstances, to argue, as the European 
Communities does, that the market price for improved industrial land is the a ppropriate benchmark for 
determining whether a benefit has been conferred would, in our estimation, result in a wholesale 
circumvention of the fundamental purpose of the SCM Agreement's discipline on subsidies.  Under 
the European Communities' view,  the more a fina ncial contribution by a government distorts the 
allocation of resources that the market would othe rwise produce, the less it could be found to be a 
subsidy.  This is not an acceptable outcome, as it perv erts a fundamental goal of the SCM Agreement.   
7.1189  The European Communities asserts that the retu rn to the government is not limited to the 
purchase price of the land, but may include "other fo rms" of remuneration such as higher tax revenues 
and increased employment, which may make it willing to  incur what appears to be a loss in providing 
the land in question.4212  We do not agree.  In the first pl ace, the European Comm unities has provided 
no evidence to substantiate the possib ility of such other forms of remune ration in this case, or that any 
such other forms of remuneration would make up the difference between the amount invested by 
French authorities in developing the land to be su itable for use by the aeronautics industry, including 
the investment in the EIG fac ilities, and the sales price for th e land and lease price for the EIG 
facilities.  More importantly, we do not consider  that the possibility of higher tax revenues or 
increased employment has any relevance in assessing whether a financial contribution by a 
government confers a benefit on the recipient.  As we have previously noted, government authorities 
would be expected to have a public policy purpo se in making a financial contribution – higher tax 
revenues and increased employment might be among the factors considered in deciding whether a 
particular financial contribution by the government is in the public inte rest.  But the fact that such a 
                                                      
4210 US, FWS, para. 468. 
4211 See, paragraph 7.1093 above. 
4212 EC, SWS, para. 389. WT/DS316/R 
Page 690  
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  contribution is in the public interest, for instance because the government, or the locality, or the public 
at large may benefit from it, simply does not affect whether the recipient of that financial contribution 
benefits from it, which is the question before us he re.  If a financial contri bution confers a benefit on 
the recipient, then it constitutes a subsidy under Ar ticle 1 of the SCM Agreement.  That others, 
including the public at large, may also benefit does not alter that conclusion. 
7.1190  Finally, as discussed above, we consider that the provision of the Aéroconstellation site is 
appropriately considered together with the provisi on of the EIG facilities.  It is clear, and the 
European Communities does not argue otherwise, that  the price paid by Airbus for land in the ZAC 
Aéroconstellation, and the lease for the EIG facilities,  does not provide a market rate of return on the 
investment by the French authorities to develop the site, including the EIG facilities.  Thus, whether 
the lease for the EIG facilities is  commensurate with a market benchmark does not save the provision 
of the site, including the EIG facilities, from conferri ng a substantial benefit on Airbus.  Therefore, we 
conclude that the provision of the ZAC Aéroconste llation, including the EIG facilities, constitutes a 
subsidy within the meaning of Artic le 1 of the SCM Agreement.   
7.1191  The European Communities does not dispute the United States' allegations of specificity, 
other than arguing that the measure constitutes genera l infrastructure, a view we have rejected.  While 
it is true that Airbus is not the sole occupant of th e ZAC or user of the EIG, it is clear that it is the 
main beneficiary, as the other purchasers of land in the ZAC are all suppliers or contractors connected 
to Airbus' activities in producing LCA, in particul ar the A380.  Moreover, the ZAC is specifically 
designated as a site for aeronautics-related activities, and the sale of land (and consequently use of the 
EIG facilities) is limited to companies in the aeronau tics industry.  We therefore consider that the 
provision of the ZAC, including the EIG facilities, is  specific within the meaning of Article 2.1(a) of 
the SCM Agreement.  
Provision of Roads
 
7.1192  We recall once more our interpretation of th e term "general infrastructure", where we 
concluded that that the term " general  infrastructure", taken in its ordi nary and natural meaning, refers 
to infrastructure that is not provided to or for the advantage of only a single entity or limited group of entities, and that there is no form or type of  infrastructure which is inherently "general" per se .
4213  In 
the context of the road improvements alleged to co nstitute subsidies in this  case, the United States 
argues that the improvements to the RD901, RD902, and RD963, were triggered exclusively by, or 
were amended significantly as a result of, the develo pment of the ZAC Aéroconstellation site, and that 
these improvements were undertaken for the use of Airbus and its suppliers in the ZAC 
Aéroconstellation.  In support of this position, the United States relies on the fact that the improvements provide access to the Aéroconstellation site at two points, on the northern perimeter from the RD963, and on the eastern perimeter, from the RD902, and the that the construction of 
underpasses on the southern perimeter for the RD901 allo ws taxiways on the Aéroconstellation site to 
link to the Toulouse-Blagnac airport.
4214  The United States asserts that the access at the northern and 
eastern perimeters is exclusively for Airbus and its suppliers, while the taxiways are principally used 
by Airbus. 
                                                      
4213 See, paragraphs 7.1035 to 7.1044 above. 
4214 While it is not entirely clear from the arguments,  we understand the taxiways themselves to 
constitute part of the development of the ZAC site itself,  including the EIG facilities, rather than a part of the 
road improvements.  Of course, the need for taxiways linking a site for the assembly of aircraft to the airport, or 
in general, to a runway, is obvious, and given the existence of a perimeter road, either level crossings or under- 
or over-passes will have to be created to allow traffi c to flow on the road.  Thus, the road aspect, the 
underpasses, and the taxiway "bridges" are inextricably linked.  WT/DS316/R 
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  7.1193  The European Communities has put before us evid ence that improvements to the roads in the 
area, including the RD901, RD902, and RD963, were under consideration by the local authorities in 
1998, before the decision to develop the ZAC Aéro constellation site was made in September 1999.4215  
Thus, while the specific details of the improvements and the timing of the works appears to have been 
affected as a result of the decision to develop th e Aéroconstellation site, we cannot agree with the 
United States that the road improvements it challe nges were "triggered" by that development.   
7.1194  Nor do we agree with the United States' view that those improvements are exclusively for 
Airbus and its suppliers situated on the site.  Even  assuming the United States is correct that Airbus 
and the other aerospace companies located at the Aéroconstellation site are the primary or 
predominant users of the road improvements, it is clear that there are no express or implied 
restrictions or limitations on the use of the roads, or an y part thereof.  As a matter of French law, they 
are open to all traffic.  Moreover, their use is not limited as a matter of fact to Airbus or the other 
companies located on the site.  Rather, the improve ments to the roads, lik e the roads themselves, 
allow for through traffic, and access to other sites in the region and beyond.  The European 
Communities observes, and the United States does not dispute, that the RD901 and RD902 are central 
transportation arteries for the region.  The Diffuseur de Pinot, the roundabout from which the 
Aéroconstellation site is accessed from the east, al so provides access to the ZAC Andromède, located 
directly across from the entrance to the ZAC Aéroconstellation site.4216  Similarly, while the 
underpasses at the southern perimeter permit aircra ft assembled on the site to access the Toulouse-
Blagnac airport, they also allow traffic on the RD901 to continue to move freely.   
7.1195  Unlike the case of an industrial site developed for a particular purpose and for the use of a 
particular company or industry, in the case of publ icly accessible and publicly used roads that form 
part of the general network of roads in a region, very strong evidence woul d be necessary to support 
the conclusion that improvements to such roads do no t constitute general infrastructure.  Merely that 
some users may benefit more directly or more i mmediately from such improvements than others does 
not, in our view, suffice in this regard.  Moreover , it is not clear that companies situated on the 
Aéroconstellation site use the road improvements more  than other traffic, given that the roads and 
roundabouts in question are part of the general ne twork of roads, allowing and/or improving access to 
all sites in the region, including th e other ZACs and the airport itself.   Thus individuals and businesses 
in the entire region are likely to use the improved roads to a similar degree.  We simply do not 
consider that the United States has submitted suff icient evidence to demonstrate that the road 
improvements were provided to or for the use of only Airbus and/or companies located on the ZAC 
Aéroconstellation site.   
7.1196  We therefore conclude that the road improve ments challenged by the United States in this 
case constitute the provision by the French authorities of general infrastructure within the meaning of 
Article 1.1(a)(1)(iii) of the SCM Agreement.  Th erefore, there is no financial contribution by a 
government in connection with these road improvement s, and they do not constitute a subsidy within 
the meaning of Article 1 of the SCM Agreement.  We  will not consider these measures further in this 
dispute.  
(f) Regional grants  
(i) Arguments of the Parties 
7.1197  These measures concern grants for the constr uction of manufacturing and assembly facilities 
provided by the German Land of Lo wer Saxony and the German govern ment to Airbus in Nordenham 
in Germany, grants provided by the Spanish govern ment and regional and local governments in Spain, 
                                                      
4215 Exhibit EC-126.  See, also, Exhibit US-201. pg. 2. 
4216 Exhibit US-203. pg. 3. WT/DS316/R 
Page 692  
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  supported in some cases by the European Regiona l Development Fund, to Airbus in Sevilla, La 
Rinconada, Illescas (Toledo), Puerto de Santa Maria a nd Puerto Real in Spain, and grants provided by 
the Welsh government to Airbus in Broughton, Wales.
4217  The United States asserts that these grants 
are specific to Airbus under Article 2 of the SCM Agreement4218 and Article 2.2 of the SCM 
Agreement4219 because they were provided to "certain enterprises located within a designated 
geographical region within the jurisdiction of the granting authority".    
7.1198  The United States notes that, during the Annex V process,  the Facilitato r asked the European 
Communities and the Airbus governments to provide  numerous categories of information regarding 
each of the grants referred to above, including the am ount of the grant; the reasons for approval of the 
grant; the terms and conditions of the grant; how Air bus used the grant money; and all agreements or 
other documents providing the legal basis for the gran t, but that the European Communities refused to 
provide any of the information that the Facilitator re quested.  The United States asserts that the logical 
inference to be drawn from this refusal is that th e information would have supported the United States' 
claim that the measures were specific subsidies, and suggests that the Panel draw such a logical 
inference.  In addition, the United States considers that  this would appear to be a situation in which, in 
accordance with paragraph 7 of Annex V, the Pane l would be justified in drawing an adverse 
inference that the withheld information demonstrates  that the measures are specific subsidies and the 
United States requests that the Panel draw such an inference.4220 
7.1199  The European Communities argues that under Artic le 2.2 of the SCM Agreement, a subsidy 
that is limited to certain enterprises within  a designated geographical region within the jurisdiction of 
the granting authority shall be specific (emphasis of the European Communities).4221  The European 
Communities asserts that, a contrario , a subsidy would appear to be non-specific if it is available to  
all enterprises located within a designated geographical  region under the jurisdiction of the granting 
authority.4222  Thus, the European Communities argues, th e United States is wrong when it alleges that 
Article 2.2 of the SCM Agreement renders all regional aid schemes per se specific without inquiring 
whether or not access is limited to certain  enterprises located within the designated regions.4223 
7.1200   The European Communities relies, in addition to its  parsing of the text of Article 2.2, on the 
negotiating history of Article 2 in support of its view.  The European  Communities argues that 
proposed Article 2.1(d) of the Chairman's draft te xt of 6 November 1990 would have rendered all 
subsidies granted by sub-federal authorities specifi c, even if the subsidy was available to all 
enterprises within the authority's territory: 
"A subsidy which is available to all enterprises  located within a designated 
geographical region shall be specific irr espective of the nature of the granting 
authority." (emphasis added)4224 
The European Communities asserts that this provisi on eventually became Article 2.2, which  does 
away with the idea that designation of a geographical  region alone leads to specificity.  Rather, the 
European Communities asserts, there is the additi onal limitation that such regional aid must be 
"limited to certain enterprises ", which establishes that regional aid programmes that are available to 
                                                      
4217 US, FWS, para. 486. 
4218 US, FWS, para. 489 (Nordenham); US, FWS, paras. 491-493 (Broughton). 
4219 US, FWS, paras. 495, 497, 499, 501, 503, 505, 507, 509, 511 and 513 (Spanish grants). 
4220 US, FWS, para. 514. 
4221 EC, FWS, para. 733. 
4222 EC, FWS, para. 733. 
4223 EC, FWS, para. 737. 
4224 EC, FWS, para. 735, citing Draft Text by the Chairman, 2 November 1990, 
MTN/GNG/NG10/W/38/Rev.  2, p.3.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  all enterprises located within a designated region w ithin the jurisdiction of the granting authority are 
non-specific.4225   
 7.1201  As noted, the European Communities asserts that  regional aid programmes that are available 
to all enterprises (as distinct from certain enterp rises) in designated regions are non-specific under an 
e contrario reading of Article 2.2.  In the European  Communities' view, even if regional aid 
programmes were specific under Article 2.1(a) of the SCM Agreement, such programmes could be 
non-specific within the meaning of Article 2.1(b).
4226   Thus, the European Communities asserts that 
even if a regional subsidy were found to be sp ecific under Article 2.2, it could nonetheless be non-
specific within the meaning of Article 2.1(b) of  the SCM Agreement.  That is, the European 
Communities perceives a hierarchical relationshi p, whereby a finding of non-specificity under 
Article 2.1(b) prevails over a finding of specific ity under Article 2.2.  The European Communities 
goes on to assert that the decisive test is whethe r the programme satisfies the "objective criteria" 
element of Article 2.1(b), and maintains that th e regional programmes in questions do satisfy this 
element, and that therefore none of the ch allenged grants constitutes a specific subsidy.4227   
7.1202  The United States disputes the European Commun ities' proposed interpretation of Article 2 of 
the SCM Agreement, which the United States cons iders rests on two mistaken propositions.  The 
United States asserts that the Eu ropean Communities errs in arguing that, under Article 2.2, a subsidy 
is only specific if it is limited to a subset of en terprises within a designated geographical region, and 
in arguing that a subsidy which is specific unde r Article 2.2 may nevertheless be found to be non-
specific under Article 2.1(b).4228  The United States argues that the European Communities' 
interpretation is not supported by the text of the pr ovision, understood in context and in light of the 
object and purpose of the SCM Agreement, by the negotiating history of Article 2.2, or by European Communities' practice under its own countervailing duty law.
4229 
(ii) Arguments of Third Parties 
Australia  
7.1203  Australia disagrees with the European Communities' view that a subsidy is non-specific if it is 
available to all enterprises located  within a designated geographic re gion under the jurisdiction of the 
granting authority.4230  Referring to the European Communities'  argument that Article 2.2 involves a 
two-step test, requiring assessment first whether th e subsidy is limited to  a designated geographic 
region and second whether the subsidy is limited to  certain enterprises within that designated 
geographic region,4231  Australia notes that if such a two-st ep test for regional specificity were 
adopted, it would be difficult to envisage a situation covered by Article 2.2 that would not already be 
covered by Article 2.1(a).4232 
Japan  
7.1204  In response to a question from the Panel, Japan asserts that the first sentence of Article 2.2 
confirms that a subsidy provided by a local gove rnment is treated in the same way as a subsidy 
                                                      
4225 EC, FWS, para. 736. 
4226 EC, FWS, para. 739. 
4227 EC, FWS, para. 740. 
4228 US, SWS, para. 373. 
4229 US, SWS, para. 374. 
4230 Australia, Third Party Submission, para. 55, referring to EC, FWS, para. 733. 
4231 Australia, Third Party Submission, para. 56 , referring to EC, FWS, paras. 733-737. 
4232 Australia, Third Party Submission, para. 56. WT/DS316/R 
Page 694  
BCI deleted, as indicated [***] 
 
  provided by a central government if the subsidy provided by a local government is specific.  Thus, in 
Japan's view, Article 2.1(a) covers situations stipulated in the first sentence of Article 2.2.
4233      
(iii) Evaluation by the Panel 
Factual background  
7.1205  With respect to the United States' allegations c oncerning regional grants in Germany, Spain, 
and Wales, we note that, except as specifically indi cated below, the factual allegations of the United 
States concerning the dates, amounts, and recipients of the challenged grants are not disputed by the 
European Communities.   
Nordenham 
7.1206  The European Communities ac knowledges that on 14 May 2002, the government of the 
German Land of Lower Saxony awarded a grant, co-financed from the EU  budget and the special 
federal budget " Gemeinschaftsaufgabe ", of EUR 6 million to Airbus for the extension of Airbus 
Germany's existing manufacturing site in Nordenham.4234   According to the European Communities, 
the grant was made because it contributed to impr oving economic infrastructure in a region struggling 
with structural difficulties and created additional jobs, complied with the requirements of both 
Objective 2 under the EU Regional Development Funds ("ERDF") and the German Framework 
Programme No. 31.4235  The European Communities acknowledges that the eligibility for the grant is 
restricted to those companies located in specifically designated areas, both under the EU wide 
regional programme and the German "Gemeinschaftsaufgabe".4236   
Sevilla, La Rinconada, Illescas (Toledo), Pu erto de Santa Maria, Puerto Real 
7.1207  The European Communities acknow ledges the provision in 2001 of a grant of EUR 2.2 
million to the EADS-CASA's facility at Tablad a (Sevilla), and the provision of a grant of 
EUR 814,000 linked to an investment at the EADS CASA facility of San Pablo (Sevilla).4237  T h e  
European Communities also acknow ledges that in March 2003, the Spanish Ministry of Economics 
granted EUR 37.9 million to Airbus Spain for its plant of Illescas (Toledo).4238   
7.1208  The European Communities also acknowledges that the Spanish Ministry of Economics 
granted EUR 5.9 million to EADS CASA to invest in a new facility of Puerto Santa Maria and approved a grant of EUR 13.1 million for the Airbus Spain's facility in Puerto Real.
4239  T he l e ga l  
basis for all these grants was the Spanish Law 50/ 1985 on less favourable geographical zones, and, 
with respect to the co-financed pa rt in Toledo, the ERDF regulation.4240 
7.1209  The European Communities further acknowledges that the government of Andalusia 
in July 2001provided a grant of EUR 8.6 million to the EADS CASA facility in Puerto Santa Maria, 
and in July 2002 provided another grant of EUR 35.7 million to EADS CASA for its new facility at 
                                                      
4233 Japan Answer to Panel Third Party Question 5. 
4234 EC, FWS, para. 881. 
4235 EC, FWS, para. 895. 
4236 EC, FWS, para. 897. 
4237 EC, FWS, para. 949.  The United States identified this grant as having been made to EADS 
CASA's facility at La Rinconada.  US, FWS, para. 494.  We do not consider this to undermine the adequacy of 
the United States' allegations regarding this grant. 
4238 EC, FWS, para. 950. 
4239 EC, FWS, paras. 952-953. 
4240 EC, FWS, paras. 949-954.  WT/DS316/R 
 Page 695 
 
BCI deleted, as indicated [***] 
 
  Sevilla.4241 The legal basis for these grants was the Orden of 10 March 2000.  The European 
Communities acknowledges that in July 2003, th e Andalusian government provided a EUR 17.5 
million grant, co-financed by the ERDF, to Airbus Spain for the Puerto Real facility under a regional 
Andalusian scheme for most depressed areas in Andalusia and the ERDF.4242   
7.1210  Finally, the European Communities acknowledg es that in March 2004, the government of 
Castilla-La Mancha, under a regional aid scheme for the entire region of Castilla-La Mancha, 
provided a grant of EUR 7.6 million, co-financed by  the ERDF, with respect to investment in the 
Airbus, Spain plant in Illescas, Toledo.4243  
7.1211  The European Communities disputes the provision of a Spanish government grant of 
EUR 43.1 million to EADS CASA for the facility at La Rinconada in July 2003, asserting that there 
exists no such EADS CASA facility at La Rinconada.4244  The European Communities asserts that 
EADS CASA received the EUR 43.1 million grant in connection with the building of a new facility in the area of Sevilla rather than La Rinconada.
4245  The European Communities acknowledges that the 
Andalusian Government provided a EUR 61.9 milli on grant in October 2004 for the purpose of the 
new EADS CASA facility in Sevilla.4246  However, the European Communities asserts that EADS 
used the proceeds from this grant for purposes unconnected with Airbus LCA.4247  
Broughton, Wales 
7.1212  The European Communities acknowledges that, in  2000, the Welsh government provided two 
grants, of GBP 4.9 million and GBP 14.6 million, to Airbus UK in respect of its facility in Broughton, 
Wales.4248   
Evaluation by the Panel  
Existence of a subsidy under Article 1 of the SCM Agreement 
7.1213  To the extent that the European Communities has not disputed the United States factual 
allegations, as indicated above, we consider that with respect to each of the measures described in 
paragraphs 7.1206 to 7.1212 above, th e United States has made out a prima facie  case that a subsidy 
exists under Article 1 of the SCM Agreement.  Th e European Communities does not dispute that these 
measures all consisted of cash grants benefiting Airbus, with the exception of the October 2004 grant 
by the government of Andalusia, which we addr ess below.  Nor does the European Communities 
dispute that these measures constitute subsidies.     
7.1214  With respect to the October 2004 grant by the government of Andalusia, we must resolve 
certain factual issues under Article 1 of the SCM Ag reement before addressing the question whether it 
is specific under Article 2 of the SCM Agreement.  The European Communities does not dispute that 
                                                      
4241 EC, FWS, para. 955.  The European Commun ities asserts that this latter grant amount is 
erroneously attributed to La Rinconada by the United Stat es.  However, the US asserted that this grant was in 
connection with the EADS CASA facility  in Sevilla.  US, FWS, para. 506. 
4242 EC, FWS, para. 957. 
4243 EC, FWS, para. 959. 
4244 EC, FWS, para. 951. 
4245 EC, FWS, para. 951. 
4246 EC, FWS, para. 958, and Exhibit EC-140 (BCI).  The European Communities asserts that this latter 
grant amount is erroneously attributed to La Rinconada by the United States.  However, the US identified this grant as being made in connection with the EADS CASA  "Sevilla/La Rinconada facility".  US, FWS, para. 512. 
4247 Specifically, the European Communities asserts that the grant funds were used to [***] .  EC, FWS, 
para. 958. 
4248 EC, FWS, para. 986, 989. WT/DS316/R 
Page 696  
BCI deleted, as indicated [***] 
 
  this measure consists of a direct transfer of funds  that confers a benefit, but it does dispute the United 
States' allegation that the grant conferred a benefit on the subsidized product, large civil aircraft.  The 
European Communities argues that th e United States has not established as a matter of fact that this 
grant benefits Airbus Spain's large civil aircra ft activities, asserting that it was provided for the 
purpose of the EADS CASA facilities in Sevilla/La Rinconada, and used exclusively for non-large 
civil aircraft-related activities.
4249   
7.1215  With respect to this issue, we observe that th ese factual allegations were first raised in the 
European Communities' first written submission, in  response to the arguments made by the United 
States in its first written submission, expanding on its  request for establishment.  We further note that 
the United States attempted, during the Annex V info rmation gathering process, to seek more specific 
and detailed information concerning each of these grants, including the amount of the grant, the 
reasons for approval of the grant, the terms and conditions of the grant, how the grant money was 
used, and all agreements or other documents providi ng the legal basis for the grant.  The European 
Communities refused to respond to the United States' questions.  In its first written submission, the 
United States identified the measures in dispute and the respective amounts of funding at stake, 
relying on information that was publicly availa ble.  Although the European Communities has now 
provided information that was not presented durin g the Annex V process, we understand the United 
States to continue to be of the view that the Eur opean Communities has failed to disclose all relevant 
information and that the Panel should draw adverse inferences when establishing the facts 
surrounding a number of its claims. 
7.1216  Paragraph 7 of Annex V provides that a panel "should draw adverse inferences from instances 
of non-cooperation by any party involved in th e information-gathering process".  Although the 
European Communities failed to provide informa tion requested during the Annex V process, it has 
subsequently, during the course of this panel proceed ing, provided much of that information, which 
largely corresponds to the publicly available informat ion relied on by the United States.  Thus, we are 
not here faced with a situation where we cannot draw factual conclusions based on the information 
before us.  We therefore do not consider  it necessary to draw adverse inferences. 
7.1217  In any event, the evidence that  the European Communities provid es fails to substantiate its 
factual assertions concerning the October 2004 grant.  Having reviewed the information before us, it 
is clear to us that the United States has demonstrat ed that the grant in question benefited the EADS 
CASA facilities in question.  Information provided by European Communities demonstrates that work 
is done at the Tablada facility on large civ il aircraft, specifically, A320 and A380 aircraft.4250   We 
note that the European Communities itself asserts that the "overwhelming majority" of activities in 
Tablada concerns military activities, thus ac knowledging that there are LCA activities as well.4251  
Even assuming, as the European Co mmunities asserts, that  only a "minor portion" of revenues is 
derived from sales to Airbus Spain involving the A320 and A380 models, this  fails to demonstrate 
that the grant in question does not benefit Airbus Spain's LCA activities.  In addition, the European 
Communities asserts that the San Pablo facility is "vir tually entirely" dedicated to military activities, 
thus acknowledging that there are some LCA-related activities undertaken as well.4252  None of the 
evidence submitted by the European Communities c oncerning this facility provides any information 
about the grant money or how it was invested or u sed, but it does confirm that work at that facility 
                                                      
4249 Specifically, the European Communities asserts that the grant funds were used to [***] .  EC, FWS, 
para. 958.  
4250 Exhibit EC-139 (BCI) consists of a series of slides dated December 2006, showing the layout of the 
EADS-CASA Tablada plant and summarizing certain projects apparently undertaken at that plant.  Two of the 
slides indicate that work at this plant is done for Airbus's A380 and A320 models. 
4251 EC, FWS, para. 975-976. 
4252 EC, FWS, para. 975-977.  WT/DS316/R 
 Page 697 
 
BCI deleted, as indicated [***] 
 
  includes LCA-related activities.4253  Thus, we conclude that the European Communities has failed to 
rebut the United States' prima facie  case that, as a matter of fact, this grant benefits Airbus. 
7.1218  Our review of the information provided by the parties, and particularly the facts set out by the 
European Communities itself, leads us to conclude that each of the challenged regional grants is a 
financial contribution in the form of a direct tr ansfer of funds and that each confers a benefit on 
Airbus in connection with the production of LCA.  Therefore, each constitutes a subsidy within the 
meaning of Article 1 of the SCM Agreement.   
Specificity  
7.1219  Having concluded that the measures challenge d by the United States constitute subsidies 
within the meaning of Article 1 of the SCM Agreemen t, we now turn to the question of specificity.  
The European Communities raises two arguments in this regard.  First, the European Communities 
makes a legal argument with respect to the meani ng of Article 2.2 of the SCM Agreement, and the 
question whether subsidies provided to enterprises in certain geographic regions within the territory of 
the granting authority are specific.  Second, th e European Communities makes a factual and legal 
argument with respect to the grants by the Welsh government, arguing that they are not specific under 
Article 2.  We turn first to th e legal question under Article 2.2. 
Interpretation of Article 2.2 of the SCM Agreement 
7.1220  We recall that Article 3.2 of the DSU provi des that Members recognise that the dispute 
settlement system serves to clarify the provisions of the covered agreements "in accordance with 
customary rules of interpretation of public interna tional law".  Article 31.1 of the Vienna Convention 
on the Law of Treaties ('Vienna Convention')",4254 which is generally accep ted as such a customary 
rule, provides: 
"A treaty shall be interpreted in good faith  in accordance with the ordinary meaning 
to be given to the terms of the treaty in th eir context and in the light of its object and 
purpose." 
7.1221  There is a considerable body of WTO case law dealing with the application of these 
provisions on treaty interpretation in  dispute settlement in the WTO.  It is clear that interpretation 
must be based above all on the text of the treaty,4255 but that the context of the treaty also plays a role.  
It is also well-established that these principles of  interpretation "neither require nor condone the 
imputation into a treaty of words that are not there or the importation into a treaty of concepts that were not intended."
4256  Thus, all language must have a mean ing.  Furthermore, panels "must be 
guided by the rules of treaty interpretation set out in  the Vienna Convention, and must not add to or 
diminish rights and obligations provided in the WTO Agreement."4257 Finally, the Appellate Body has 
noted that, if after applying Article 31 of the Vie nna Convention, the meaning of a term of the treaty 
remains ambiguous or obscure, or leads to a resu lt which is manifestly absurd or unreasonable, 
                                                      
4253 Specifically, the document indicates that work at this plant involves [***] .  Exhibit EC-138 (BCI).  
There is no evidentiary basis for ap portioning the amount of the grant be tween LCA and other activities, and the 
European Communities has not suggested otherwise. 
4254 Done at Vienna, 23 May 1969, 1155 United Nations Treaty Series 331 (1980); 8 International 
Legal Materials  679 (1969). 
4255 Appellate Body Report, Japan – Alcoholic Beverages II , p. 11. 
4256 Appellate Body Report, India – Patents (US) , para. 45. 
4257 Appellate Body Report, India – Patents (US) , para. 46. WT/DS316/R 
Page 698  
BCI deleted, as indicated [***] 
 
  Article 32 of the Vienna Conventio n allows a treaty interpreter to  have recourse to supplementary 
means of interpretation, including th e preparatory work of the treaty, i.e., its negotiating history.
4258   
7.1222  Article 2.2 of the SCM Agreement provides as follows: 
"2.2 A subsidy which is limited to certa in enterprises located within a designated 
geographical region within the jurisdiction of the granting authority shall be specific.  
It is understood that the setting or change of generally applicable tax rates by all 
levels of government entitled to do so shall not be deemed to be a specific subsidy for 
the purposes of this Agreement." 
Thus, Article 2.2 establishes that a subsidy " shall  be specific" if it is "lim ited to certain enterprises 
located within a designated geographical region within  the territory of the granting authority."  In 
order to resolve the question before us, we must interpret the latter phrase.   
 7.1223  Article 2.2 is not particularly clearly drafted.  It could be understood, based on the text alone, 
as establishing specificity on the basis of a geogra phical limitation on the recipients ("within a 
designated region"), which is the United States' position.  It could also be understood to establish 
specificity on the double basis posited by  the European Communities – "certain", i.e., not all, 
enterprises, "within a designated region".  While th e text, standing alone, is not unambiguous in this 
respect, when the text is considered in its context a nd in light of its object and purpose, it is clear to us 
that Article 2.2 is properly understood to provide that a subsidy available in a designated region 
within the territory of the granting authority is specific,  even if it is available to all enterprises in that 
designated region.   
7.1224  We recall that the European Communitie s argues that under Article 2.2 of the 
SCM Agreement, only a subsidy that is limited to certain enterprises within a designated geographical 
region within the jurisdiction of the granting authority shall be specific.
4259  The European 
Communities' proposed interpretation would entail that, in order to be specific, a subsidy granted by a 
regional authority must not only be limited to a desi gnated region within the territory of the granting 
authority, but must in addition be limited to only a subset of enterprises within that region.  However, 
if a national authority grants a subsidy to a subset  of enterprises within its  territory, whether that 
subset of enterprises is located in a designated re gion or not, such a subsidy would, by definition, 
already be specific under Article 2.1, which provides, in pertinent part:   
"2.1 In order to determine whether a subsidy, as defined in paragraph 1 of 
Article 1, is specific to an enterprise or industry or group of enterprises or industries 
(referred to in this Agreement as "certain en terprises") within the jurisdiction of the 
granting authority, the following principles shall apply: 
(a) Where the granting authority, or the legislation pursuant to which the 
granting authority operates, e xplicitly limits access to a subsidy to certain enterprises, 
such subsidy shall be specific. 
(b) Where the granting authority, or the legislation pursuant to which the 
granting authority operates, establishes objective criteria or conditions2  governing the 
eligibility for, and the amount of, a subsidy, specificity shall not exist, provided that 
the eligibility is automatic and that such crite ria and conditions are strictly adhered to.  
                                                      
4258 Appellate Body Report, European Communities – Customs Classification of Certain Computer 
Equipment ("EC – Computer Equipment "), WT/DS62/AB/R, WT/DS67/AB /R, WT/DS68/AB/R, adopted 
22 June 1998, DSR 1998:V, 1851, para. 86. 
4259 EC, FWS, para. 733.  WT/DS316/R 
 Page 699 
 
BCI deleted, as indicated [***] 
 
  The criteria or conditions must be clearly spelled out in law, regulation, or other 
official document, so as to be capable of verification. 
___________________ 
2 Objective criteria or conditions, as used he rein, 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. 
Thus, the European Communities' proposed reading of  Article 2.2 merely replicates the standard set 
out in Article 2.1(a), and thereby makes Article 2.2 redundant.  As the Appellate Body has stated: 
 
"A fundamental tenet of treaty interpre tation flowing from the general rule of 
interpretation set out in Article 31 is the principle of effectiveness (ut res magis valeat quam pereat).
21   I n  United States - Standards for Reformulated and Conventional 
Gasoline , we noted that "{o}ne of the corollaries of the 'general rule of interpretation' 
in the Vienna Convention is that interpretati on must give meaning and effect to all the 
terms of the treaty.  An interpreter is not free to adopt a reading that would result in reducing whole clauses or paragraphs of a treaty to redundancy or inutility".
22 
___________________________ 21
 See also (1966) Yearbook of the Internationa l Law Commission, Vol.  II, p.  219:  
"When a treaty is open to two interpreta tions one of which does and the other does 
not enable the treaty to have appropria te effects, good faith and the objects and 
purposes of the treaty demand that the former  interpretation should be adopted."    
22 United States - Standards for Reformulat ed and Conventional Gasoline, WT/DS2/9, 
adopted 20 May 1996, p.  23." 
7.1225  The European Communities appears to recognize that its reading of Article 2.2 has the effect 
of making it redundant of Article 2.1(a), but dismisses this as a "structural overlap," which it describes 
as "not uncommon" in treaty-making.4260  However, in our view, there is a perfectly reasonable 
reading of Article 2.2 which avoids this problem, and we consider it appropriate to eschew a reading 
of that provision which raises it.  On this b asis alone, we consider the European Communities' 
proposed interpretation of Article 2.2 to be unsatisfact ory, as it fails to give full effect to the text of 
Article 2 as a whole. 
7.1226  In addition, as the United States points out,4261 the European Communities' reading of 
Article 2.2 also creates a redundancy with Article  8.2(b).  Although Article 8.2(b) has expired 
(pursuant to the provisions of Article 31 of the SCM Agreement), it did form part of the original "traffic light" architecture of the SCM Agreement, and thus provides us with important context for 
understanding the intended sc ope of other provisions.
4262  Article 8.2(b) specifically rendered 
assistance to disadvantaged regions within the terr itory of a Member non-actionable, as long as that 
assistance met certain criteria.  On e of those criteria was that the assistance be "non-specific (within 
                                                      
4260 EC, Answer to Panel Question 97, para. 263. 
4261 US, SWS, para 380. 
4262 The Panel in US – Upland Cotton  noted that provisions of the SCM Agreement that have lapsed 
may nevertheless be useful in understanding the overall architecture of the SCM Agreement with respect to the 
different types of subsidies it sought and seeks to address; Panel Report, US – Upland Cotton , para. 7.907 
(footnote 1086).  A similar view was expressed in the Decision by the Arbitrator, US – FSC (Article 22.6 – US) , 
footnote 66. WT/DS316/R 
Page 700  
BCI deleted, as indicated [***] 
 
  the meaning of Article 2) within eligible regions ."  Under the European Communities' reading of 
Article 2.2, a regional subsidy that is not "limited to certain enterprises" within the region is not 
specific.  Thus, the European Communities' reading of Article 2.2 would have  rendered Article 8.2(b) 
redundant and unnecessary from the outset.  Moreover, Article 8.1(b) provided that subsidies which 
were specific within the meaning of Article 2, but which met all the conditions of Article 8.2, would 
be non-actionable.  Thus, Article 8.2(b) carved out  as non-actionable regiona l development subsidies 
which, presumably, would otherwise have been actiona ble, in part because they were specific.  Given 
that the establishment of particular types of s ubsidies as non-actionable under Article 8, including 
assistance to disadvantaged regions, was a significant achievement of the Uruguay Round 
negotiations, an interpretation of Ar ticle 2.2 which would have rendere d one of the key provisions of 
Article 8 in this regard redundant and useless from th e outset makes no sense to us, and we reject such 
an interpretation. 
7.1227  Thus, in our view, the ordinary meaning of Article 2.2 of the SCM Agreement, read in 
context and in light of its object and purpose, is clear.  As a consequence, there is no need for 
consideration of the negotiating hist ory of the SCM Agreement.     
7.1228  However, even assuming, arguendo , that there were some ambiguity in the interpretation of 
Article 2.2, in our view, the European Commun ities' description of the negotiating history is 
inaccurate and does not lend weight to its position.  An important issue during the negotiation of the 
SCM Agreement was the treatment of subsidies by sub-national authorities – e.g., states or provinces in a federal system.  Some delegations considered that all subsidies granted by sub-national authorities 
should be treated as automatically specific, simp ly because the subsidies were only available to 
enterprises within the geographical region in question.
4263  The European Communities was one of the 
proponents of this view: 
"Indeed, there is no difference, as to their economic effect, between a subsidy granted 
by a regional or local government to all firms in that region on one hand, and the 
same subsidy granted to the same firms in the same region but by the central 
government on the other hand."4264    
Others delegations argued that subsidies granted by sub-national authorities should be treated as 
specific only if they were limited to enterpri ses in a designated geographical region within the 
jurisdiction of the sub-national authority in question.    
7.1229  The 7 November 1990 draft text of the Ne gotiating Group on Subsidies and Countervailing 
Measures reflected the first approach, providing, in Article 2.1(d) that a regional subsidy is specific 
"irrespective of the nature of the granting authorit y."  In other words, regardless of whether the 
granting authority was national or regional, the fa ct that a subsidy was limited to a "designated 
geographical region" would automatically make it specifi c.  The text of Article 2.2 in the Draft Final 
Act also reflected this approach, providing: 
"A subsidy which is available to all en terprises located w ithin a designated 
geographical region shall be specific irr espective of the nature of the granting 
authority.  It is understood that the setting or change of generally  applicable tax rates 
                                                     
 
4263 US, SWS, para. 383 
4264 Elements of the Negotiating Framework, Submission by the European Community, 
MTN.GNG/NG10/W/31, at 6 (November 27, 1989).  WT/DS316/R 
 Page 701 
 
BCI deleted, as indicated [***] 
 
  by all levels of government entitled to do so  shall not be deemed to be a specific 
subsidy for the purposes of this Agreement." 4265   
7.1230  However, the adopted text of the SCM Agreemen t reflects the other approach, that a subsidy 
meets the regional specificity test only if it is  "limited to certain ente rprises located within a 
designated geographical region within the ju risdiction of the granting authority."   
7.1231  The European Communities argues that the adopted text of Article 2.2 eliminates the notion 
of aid to a designated region as a singular basis of a finding of specificity.  However, the European Communities ignores the change from a text wh ich established that any regional assistance, 
irrespective of the granting authority, would always be specific, to a text which linked specificity to 
availability within the jurisdiction of a particul ar granting authority.  This change reflects a 
compromise which accomplished the goal of those dele gations who opposed the text of Article 2.2 in 
the Draft Final Act, and who sought to ensure that, if the granting authority was a regional 
government, a subsidy available to enterprises thro ughout the territory over which that regional 
government had jurisdiction would not be specifi c.  The European Communities argues that the 
negotiators went even further, and added an a dditional limitation that regional aid granted by a 
regional authority would be specific only if it was lim ited to less than all enterprises within the region.  
There does not seem to be any basis for this outco me in the negotiating history, and the European 
Communities has put forward no evidence or argumen ts suggesting reasons why it would have been 
sought by or acceptable to the negotiators. 
7.1232  The United States also points out that the Eu ropean Communities' proposed construction of 
the regional specificity provision in Article 2.2 is contrary to its own practice in countervailing duty 
investigations.
4266  In response to a question from the Pane l, the European Communities asserts that 
this is not the case.4267   However, the only evidence it provides is the EC Basic Regulation governing 
countervailing duty investig ations.  As the European Commun ities recognizes, the Basic Regulation 
transposes the relevant provisions from the SCM Ag reement into EC law.  It does not, however, 
elaborate on how they are to be interpreted or app lied in practice.  The United States has submitted as 
exhibits decisions of the EC Commission, the inv estigating authority in the European Communities, 
and the Council of the European Communities, imposing countervailing duties, finding that aid to designated regions within the territory of a sub-na tional granting authority is countervailable, based 
on finding that such a subsidy is specific.
4268  For instance, the European Communities found that 
certain incentives granted by the regional government in  the Indian state of Maharashtra to enterprises 
in developing and backward regions of that state we re specific, even though they were not limited to a 
subset of enterprises, stating: 
"The scheme is only available to companies having invested within certain designated 
geographical areas within the State of Mahar ashtra.  It is not available to companies 
located outside these areas.  The level of benefit is different according to the area 
                                                      
4265 Draft Final Act Embodying the Results of the Uruguay Round of Multilate ral Trade Negotiations, 
MTN.TNC/W/FA, at I. 3 (20 December 1991) 
4266 US, SWS, para 388. 
4267 EC, Answer to Panel Question 98, paras. 267-269.. 
4268 US, SWS, para. 477, referring to Council Regulation (EC) No 1338/2002 of 22 July 2002 imposing 
a definitive countervailing duty and collecting definitively the provisional countervailing duty imposed on imports of sulphanilic acid originating in India, OJ L 196/1, 25.7.2002, recital 32, Exhibit US-581.  The United 
States also points to Council Regulation (EC) No 1891/97of 26 September 1997 imposing a definitive 
countervailing duty on imports of farmed Atlantic salmon originating in Norway, OJ L267/19, 30.9.1997, recital 26 ("With regard to the business development grants in central regions, investment grants in assisted areas and 
business development grants in assisted areas, access to th e subsidy is limited to ente rprises in certain regions 
and specificity therefore exists."), E xhibit US-582 and recital 28 ("{T}he gr ants which are restricted to certain 
regions are by definition specific."). WT/DS316/R 
Page 702  
BCI deleted, as indicated [***] 
 
  concerned.  The scheme is therefore specifi c in accordance with Article 3(2)(a) and 
Article 3(3) of the basic Regulation."
4269  
While it is clear, as the European Communities asserts, that its countervailing duty determinations are 
not the subject of this Panel,4270 and we are not here addre ssing the consistency of those 
determinations with the SCM Agreement, it is nonetheless clear that the European Communities has 
not, in its own practice, followed the interpretation it urges on us in this dispute.    7.1233  Finally, with regard to the European Comm unities' "hierarchy" argument, we note that 
Article 2.2 provides, "A subsidy which is limited to certain enterprises located within a designated 
geographical region within the jurisdiction of the granting authority shall be specific ."  There is no 
indication in the text of the SCM Agreement that a finding of specificity under Article 2.2 is somehow 
subject to further examination under Article 2.1(b).  There is thus no basis for the inference of a 
hierarchy posited by the European Communities, a nd a reading of the provisions of Article 2 as 
potentially conflicting in this manner is to be avoi ded.  Moreover, non-specificity under Article 2.1(b) 
is based on the existence and application of criteri a or conditions governing eligibility for and amount 
of a subsidy which are neutral, "do not favour cer tain enterprises over others, and which are economic 
in nature and horizontal in application, such as number of employees or size of enterprise."  The European Communities asserts that "the regional ai d programmes themselves satisfy the criteria of 
Article 2.1(b) of the SCM Agreement".
4271  Essentially, the European Communities appears to be 
arguing that because the criteria for designation of the region within which challenged subsidies are 
granted are objective, and the criteria for eligib ility for those subsidies within that region are 
objective, the subsidies granted within that region are non-specific.   
7.1234  If this position were accepted, it would mean th at Article 8.2(b)(ii) of the SCM Agreement 
was redundant from the outset.  That Article provided that, in order for assistance to a disadvantaged 
region to be considered non-actionable, inter alia , the region in question must be determined "on the 
basis of neutral and objective criteria", defined in footnote 32 as "criteria which do not favour certain 
regions beyond what is appropriate for the eliminat ion or reduction of regional disparities within the 
framework of the regional development policy."  Ther e would have been no need for this provision if 
the European Communities' "hierarchy" argument were correct.  Of course, Article 8 has now expired, 
and thus there is no longer a category of non-actio nable subsidies to disadvantaged regions.  The 
European Communities' position effectively woul d re-introduce the expired provisions of 
Article 8.2(b), making regional assistance subsidi es non-actionable on the basis of being non-specific 
under Article 2.1(b), which is not a justifiable outcome. 
7.1235  The European Communities does not contest, and the information before us substantiates, that 
the grants provided by the German Land of Lower Saxony and the German government to Airbus in 
Nordenham in Germany, and the grants provided by the Spanish government to Airbus in Sevilla, La 
Rinconada, Illescas (Toledo), Puerto de Santa Maria a nd Puerto Real in Spain, and grants provided by 
the government of Andalusia to Airbus in Sevilla  and Puerto Real in July 2002, July 2003 and 
October 2004, and by the government of Castilla-La Ma ncha to Airbus in Illescas (Toledo) in March 
2004, were provided to enterprises in designated ge ographical regions within the territory of the 
respective granting authorities.   
                                                      
4269 See, Commission Regulation (EC) No 573/2002 of 3 April 2002 imposing a provisional 
countervailing duty on imports of sulphanilic acid originat ing in India, OJ L87/5, 4.4.2002 ("Sulphanilic Acid 
from India Provisional CVD Regulation"), recital 68, Exhibit US-580.  This finding was confirmed in the 
regulation imposing a definitive countervailing duty.  . 
4270 EC, Answer to Panel Question 98, para. 267. 
4271 EC, FWS, para. 897.  See, also , paras. 948, 981-83.  WT/DS316/R 
 Page 703 
 
BCI deleted, as indicated [***] 
 
  7.1236  In this regard, we note that the grants provide d by the government of Andalusia to Airbus in 
Sevilla and Puerto Real in 2002 and 2003, respectivel y, and by the government of Castilla-La Mancha 
to Airbus in Illescas (Toledo) in 2004, were co-financed by the European Regional Development 
Fund (ERDF).4272  The United States asserts that "subsidi es under the {ERDF} are necessarily limited 
to "certain enterprises located within a designated geographical region within the jurisdiction of the 
granting authority," and thus are specific within the meaning of Article 2.2 of the SCM Agreement".
4273  The European Communities does not dispute that these grants were co-financed by 
the ERDF.  However, the European Communities do es not address the United States' assertion that 
grants co-financed by the ERDF are necessarily sp ecific within the meaning of Article 2.2.  The 
European Communities relies entir ely on its assertion that the programmes under which these grants 
were made were generally ava ilable throughout Andalusia and C astilla-La Mancha, respectively to 
dispute the United States' assertion of speci ficity with respect to these grants.4274  Even accepting this 
as fact4275, it does not undermine the United States' specificity argument.  In our view, the 
United States' argument implies that the ERDF is the granting authoritiy, within the meaning of 
Article 2.2 of the SCM Agreement, for the portions  of these grants which it financed, and that the 
ERDF-financed portions of these grants were th erefore provided to enterprises in designated 
geographical regions within the territory of the granting authority.   Based on the foregoing, we 
consider that the portions of these grants finan ced by the ERDF were provided to enterprises in 
designated geographical regions within the territory  of the granting authority, and therefore, we 
conclude that they are specific unde r Article 2.2 of the SCM Agreement.4276  
7.1237  Turning to the grant provided by the government of Andalusia to Airbus in Puerto Santa 
Maria in July 2001, we reach a different conclusi on.  Although the United States asserts that the grant 
to Puerto Santa Maria was made pursuant to an Andalusian government development plan for the 
Bahía de Cadiz, the evidence cited by the United States does not support this conclusion.4277 The 
United States did not assert any other basis for a findi ng of specificity with respect to this grant.  
Based on the foregoing, we conclude that the gran t provided by the government of Andalusia to 
Airbus in Puerto Santa Maria in July 2001 w as not provided to an enterprise in a designated 
geographical region within the territory of the gran ting authority, and is therefore not specific under 
Article 2.2 of the SCM Agreement.    
GBP 19.5 million grant in 2000 by the government of Wales 
7.1238  With respect to the alleged 2000 grant by th e Welsh government, the European Communities 
asserts that two grants were actually provided, unde r two programmes the terms of which make clear 
that they were not specific within the meaning of Article 2 of the SCM Agreement.  The United States 
asserts that BAE Systems originally applied for a grant under Welsh Assembly's Regional Selective 
                                                      
4272 US, FWS, paras. 506, 508 and 510. 
4273 US, FWS, paras. 507, 509 and 511. 
4274 EC, FWS, paras. 967, 980. 
4275 The United States does not dispute that the governments of Andalusia and Castilla-La Mancha 
"authorized" and "approved" those grants, respectively.  US, FWS, paras. 506, 508 and 510. 
4276 We note in this regard that the information before us indicates that 75 percent of the grant to Sevilla 
was financed by the ERDF, but does not indicate what po rtion of the grants to Puer to Real and Illescas was 
financed by the ERDF.  Thus, the amount of specific subsidy to Puerto Real and Illescas is less than the total amount of those grants, EUR 17.5 and 7.6 million, respectively.  Given our  conclusions with respect to the 
magnitude of the subsidies, see paras. 7.1963 - 7.1976, we consider that the lack of precise quantification of the 
amount of these subsidies does not affect our  overall conclusions. 
4277 Page 14,291 of Exhibit US-240, cited by the United States in this regard, states that that the funds 
were granted "for a plan of action for the Bahía de Càdiz Centre ( Polígono Parque Industrial Bahía )".  Having 
carefully reviewed the evidence, we cannot conclude th at the "Plan" referred to in Exhibit US-240 is an 
Andalusian government development plan for the Bahia de Càdiz. WT/DS316/R 
Page 704  
BCI deleted, as indicated [***] 
 
  Assistance ("RSA") scheme, which application was denied.
4278  The United States asserts that the 
Welsh Assembly, in the face of pressure,4279 in September 2000 agreed to provide ad hoc  a total of  
GBP 19,500,000, in lieu of the assistance initially requested, to BAE Systems in support of A380 
wing production work in Broughton, Wales.4280  The United States argues that Article 2 of the UK 
A380 Launch Aid contract, [***].4281 further demonstrates that these measures are specific.4282   
7.1239  The United States maintains that the circum stances surrounding the GBP 19.5 million grant 
are important to understanding wh y it is a specific subsidy.4283  The United States notes that the 
original grant application was under the RSA progr amme, and asserts that grants under that scheme 
are specific within the meaning of Article 2.2 of the SCM Agreement, as they are limited to certain 
"assisted areas" in Wales.4284  The United States asserts that  an "uproar" following the Welsh 
Assembly's rejection of that original application, including, inter alia , the threat by BAE Systems to 
move A380 wing production from Wales to Germany,4285 led the Welsh Assembly to provide the 
GBP 19.5 million to BAE Systems, albeit formally  under schemes other than the RSA scheme under 
which the original application had been made.4286  In the United States' view, the European 
Communities' approach fails to take into account th e totality of the evidence, focusing only on events 
starting with BAE Systems' application for the grants  that ultimately were provided, and further fails 
to address the [***].4287 
7.1240  The European Communities argues that the Un ited States' allegation that the grant of 
GBP 19.5 million to Airbus UK in Broughton, Wales is specific is based on an application for a grant 
that Airbus UK did not actually receive, and simply assumes, without evidence, that the amount 
actually received was an ad hoc  replacement for that denied grant.4288  According to the European 
Communities, the United States' allegation of specifi city is based entirely on its assumption that the 
amounts actually received were a direct substitute fo r the RSA grant that had been originally sought 
but denied, and argues that the United States has failed to make a prima facie  case of specificity.4289  
The European Communities denies, in any even t, that the RSA programme provides specific 
subsidies.4290  The European Communities disputes the impli cation that the grants actually received by 
Airbus UK in 2000 replaced the denied RSA grant.4291  Therefore, the European Communities 
considers that the A380 contract is not relevant, be cause that contract refers to an amount for RSA, 
which Airbus UK did not receive.  The European Communities argues that, whether RSA is a programme that provides specific subsidies (which the European Communities contends it is not) is not the point, as Airbus received two grants pursuan t to two different programmes, both of which are 
                                                     
 
4278 US, FWS, para. 491. 
4279 According to the United States, inter alia , BAE Systems threatened to move the A380 wing 
production work from Wales to Germany.  US, FWS, para. 493. 
4280 The package included GBP 15,0 00,000 from the Welsh Development Agency for the "general 
infrastructure of a big site" and GBP 4,900,000 for the "development of people."  US, FWS para. 492.   
4281 A380 LA/MSF Contract, Art. 2.1.2, DS -316-EC-BCI-0000556, 0 000562 (blank space in 
parentheses in original).  The United States indicates that it did not know [***]  referenced in the contract, 
because the European Communities redacted the relevant informati on from the copy of the contract that it 
provided to the Annex V Facilita tor.  Exhibit US-79 (BCI). 
4282 US, FWS, para. 492. 
4283 US, SWS, paras. 426-31. 
4284 US,  FWS, para. 491 and footnote 589. 
4285 US,  FWS, para. 492. 
4286 US,  FWS, para. 492. 
4287 US,  FWS, para. 493. 
4288 EC, FWS, para. 984. 
4289 EC, FWS, para. 984. 
4290 EC, FWS, footnote 793. 
4291 EC, SWS, para. 408.  WT/DS316/R 
 Page 705 
 
BCI deleted, as indicated [***] 
 
  generally available in Wales.4292  Neither of these programmes is RSA, which is limited to assisted 
areas, whereas the programmes under which grants we re actually provided are applicable throughout 
Wales.4293  The European Communities considers that th ese grants must be evaluated on the basis of 
the terms and conditions of the programmes under which they were actually provided, and not as 
replacements or surrogates for RSA, which was not granted.4294   
7.1241  While we agree with the United States that the circumstances surrounding the provision of a 
subsidy are relevant to our evaluation of the qu estion of specificity, the starting point for that 
evaluation must, in our view, be the programme(s) pursu ant to which the subsidy at issue is granted.  
Only if, notwithstanding an appearance of non-specificity  in the grant of a particular subsidy, there are 
reasons to believe it may nonetheless be specific, do we  consider it appropriate to focus our attention 
on the factual circumstances surrounding the provision of that subsidy to determine the question of 
specificity.  In this regard, the European Comm unities has provided us with evidence, which the 
United States does not dispute, that the GBP 19. 5 million was granted pursuant to two programmes 
that do not meet the test set forth in Article 2.2.  There is no indication, and the United States does not 
argue otherwise, that subsidies granted under these programmes are limited by sector, region or 
enterprise.  It follows that subsidies provided under those programmes are not "limited to certain enterprises located within a designated geographical  region within the jurisdiction of the granting 
authority", and are therefore not specific under Article  2.2 of the SCM Agreement.  The United States 
has made no other allegations of specificity  with respect to the GBP 19.5 million grant.
4295  
7.1242  We therefore conclude that the GBP 19.5 milli on provided to Airbus UK in respect of its 
operations in Broughton, Wales, is not a specific s ubsidy within the meaning of Article 2.2 of the 
SCM Agreement.     
7.1243  Based on the foregoing, we therefore concl ude that grants for the construction of 
manufacturing and assembly facilities in Nordenham,  Germany, and Sevilla, La Rinconada, Toledo, 
and Puerto Real, Spain, are subsidies within the meaning of Article 1 that are specific within the 
meaning of Article 2.2.  The European Commun ities does not dispute the amounts in question.   
(g) Conclusion 
7.1244  In summary, we conclude that the provision of  the Mühlenberger Loch industrial site, the 
provision of the extended runway at Bremen Airpor t, the provision of the ZAC Aéroconstellation and 
EIG facilities, as well as regional grants by German  authorities in Nordenham and Spanish authorities 
in Sevilla, La Rinconada, Toledo, Puerto Real, cons titute specific subsidies to Airbus.  We further 
conclude that the provision of road improvements by French authorities, the grant provided by the 
government of Andalusia to Airbus in Puerto Sa nta Maria in July 2001 and the grant of GBP 19.5 
million to Airbus UK in respect of its operations in Broughton, Wales, are not specific subsidies to 
Airbus, and we will not consider them further in this dispute.  
                                                      
4292 EC, FWS, para 985. 
4293 EC, SWS, para. 410. 
4294 EC, SWS, para. 409-410. 
4295 We therefore do not address the question of specificity under Article 2.1, or the European 
Communities' arguments concerning de facto  specificity.  EC, FWS, paras. 994, 996. WT/DS316/R 
Page 706  
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  7. Whether the German government's transfer of its ownership share in Deutsche Airbus 
to the Daimler Group is a specific subsidy to Airbus 
(a) Background to the Capital Restructuring of Deutsche Airbus 
7.1245   In this section, we address the United States' cl aims that two specific transactions arising out 
of the Federal German government's restructuring of Deutsche Airbus in the late 1980s constitute 
subsidies to Airbus.  We begin by describing the events that led to the restructuring of Deutsche 
Airbus in 1989, and the specific transactions at issu e before us, before consid ering in greater detail the 
arguments of the United States and the r esponses of the European Communities.   
7.1246  Deutsche Airbus GmbH (Deutsche Airbus), the German partner in the Airbus GIE 
consortium, was founded in 1967 to assume work for the development of a European wide-body 
aircraft that had originally begun in 1965 as a joint venture among five German aerospace 
companies.
4296  By 1989, as a result of the consolidation of various German aerospace firms, Deutsche 
Airbus had become a wholly owned subsidiary of Messerschmitt-Bölkow-Blohm GmbH (MBB), itself the largest aerospace company in West Germany.
4297  The German share of the Airbus Industrie 
consortium's development and series production work  was performed by MBB and Dornier, with 
Deutsche Airbus paying MBB and Dornier for services provided.4298  Deutsche Airbus had been 
insufficiently capitalized by its parent company, MBB, and was largely dependent on financial aid 
from the German government, including guarantees of its private debt.4299     
7.1247  The German government had, for a number of years prior to 1989, been encouraging MBB to 
obtain additional capital for Deutsche Airbus by finding new investors, although MBB's attempts on 
this front had been unsuccessful.4300  By 1989, the German government had committed DM 10.7 
billion to Deutsche Airbus in LA/MSF and financial aid for sales and series production.4301  Deutsche 
Airbus also anticipated that it would require a dditional financing for the A320 programme, and the 
start-up of the A330/A340 programme.4302  During this time, a significant depreciation of the 
US dollar relative to the DM, combined with a vari ety of other factors, had brought Deutsche Airbus 
to the brink of bankruptcy.4303  It is against this background th at the German government implemented 
the 1989 plan to restructure Deutsche Airbus.  The obj ective of the restructuring plan was to gradually 
shift the risks associated with participation in Ai rbus GIE to the private sector.  According to the 
German Federal Ministry of Economics, the restruct uring of Deutsche Airbus was designed to create a 
                                                      
4296 The original companies in question were:  Blohm-Hamburger Flugzegbau GmbH (HFB), 
Messerschmitt AG, Vereinigte Flugtechnische Werke (VFW), Siebel and Dornier. 
4297 By 1969, Messerschmitt, Bölk ow AG and HFB had merged to form Messerschmitt-Bölkow-Blohm 
GmbH (MBB).  MBB originally held 60 percent of the interests in Deutsche Airbus, with Dornier and VFW 
each holding 20 percent.  MBB took over VFW in 1981.  Prior to Daimler-Benz AG acquiring control of MBB 
in 1989, the German federal states of Bavaria, Hamburg and Bremen held 52.3 percent of the capital stock of 
MBB; Monopolkommission, Zusammenschlussvorhaben der Daimler Benz AG mit der Messerschmitt-Boilkow-
Blohm GmbH , Sondergutachten 18, 1989 ( Monopolkommission Report ), Exhibit US-30, para. 138. 
4298 Monopolkommission Report , Exhibit US-30, para. 116. 
4299 Monopolkommission Report , Exhibit US-30, para. 116.  According to the German Federal Cartel 
Office, the German government bore most of the financial risk associated with development and series 
production of the German share of Airb us GIE, with Deutsche Airbus functioning as "a liability and risk barrier" 
for MBB. 
4300 Monopolkommission Report , Exhibit US-30, para. 123. 
4301 Monopolkommission Report , Exhibit US-30, para. 117. 
4302 Monopolkommission Report , Exhibit US-30, para. 124.   
4303 EC, FWS, para. 1177.  WT/DS316/R 
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  "realistic chance of placing the Airbus program  under full private industry responsibility over the 
longer term and thus reduci ng the level of state financial assistance for Airbus." 4304  
7.1248  The restructuring plan involved the industr ial group Daimler-Benz AG (Daimler-Benz) 
acquiring control of MBB (and thus Deutsche Airbus ) through a newly created aerospace subsidiary, 
Deutsche Aerospace AG (Dasa).4305  The restructuring also involved a series of commitments by the 
German government that significantly limited any risk  to Daimler-Benz associ ated with its acquisition 
of the German share of the Airbus consortium.4306  These transactions were set forth in a Framework 
Agreement among the Federal Repub lic of Germany, Daimler-Ben z, MBB and Deutsche Airbus.4307  
The principal elements of the restructuring tr ansactions were as follows: First, the German 
government repaid, on behalf of Deutsche Airbus, DM 1.9 billion of Deutsche Airbus outstanding 
bank debt which had been guarant eed by the German government.4308 In addition, the German 
government agreed to pay up to DM 750 million of De utsche Airbus' guaranteed de bt in respect of the 
A300/A310 programmes that was still outstanding at the end of 1994.4309  Second, the German 
government established an exchange rate loss in surance programme under which it agreed to cover 
future exchange rate losses incurred by Deutsche Airbus.4310  Third, the German government provided 
a DM 165 million loan to finance production of the A320.4311  Fourth, the German government 
rescheduled repayments of LA/MSF previously granted in connection with its financing of 
development costs for the A300, A310, A320 and A 330/A340 pursuant to a (profit-based) income 
adjustment bond, or "debtor warrant".4312  Fifth, the German government, through the government 
development bank, Kreditanstalt für Wiederaufbau (KfW) agreed to make a DM 505 million equity 
infusion to Deutsche Airbus, representing 20 percent of the equity in Deutsche Airbus.  KfW's 
                                                      
4304 Handelsblatt No.  212, November 3, 1988, p. 24 "Dai mler-Benz-MBB / Statement of the German 
Federal Ministry of Economics on the Restructuring of the Aviation Industry," Exhibit US-259. 
4305 In 1989, MBB, Dornier and two other companies, Motorenund Turbinen Union and Telefunken 
System Technik were merged into a newly created aer ospace subsidiary of the German automaker Daimler-
Benz AG (Daimler-Benz), called Deutsche Aerospace AG (Das a), as one part of the restructuring of the German 
aerospace industry; Exhibit EC-26, p. 2.     
4306 Monopolkommission Report , Exhibit US-30, para. 129.   
4307 The Framework Agreement, dated as of 23 March 1989, as amended on 2 September 1989 (the 
"Framework Agreement"), Exhibit EC-887-HSBI.  Th e Framework Agreement was amended a further three 
times between 1992 and 1998.  The la st of those amendments occurred in December 1998, when the parties 
agreed to settle of all of the German government's outst anding repayment claims under the debtor warrant for a 
one-off compensatory payment of DM 1.75 billion.  The United States claims that the 1998 settlement of 
Deutsche Airbus debt to the German government was itself a specific subsidy to Airbus.  We address this claim 
in Section VII.E.8 
4308 Monopolkommission Report , Exhibit US-30, para. 121. 
4309 Monopolkommission Report , Exhibit US-30, para. 131. 
4310 Monopolkommission Report , Exhibit US-30, para. 131. This aspect of the restructuring programme 
was determined to be a subsidy on exports prohibited under the Tokyo Round Subsidies Code, by a GATT 
panel. GATT Panel Report, EEC – Airbus , 4 March 1992, unadopted, SCM /142. 
4311 US, FWS, para. 520, footnote 622; EC, FWS, para. 1180. 
4312 The European Communities translates Besserungsschein  as "debtor warrant";  EC, FWS, 
para. 1179, and we use the same term to refer to the Besserungsschein. We note that in one exhibit, the 
United States has translated the term Besserungsschein as "(profit-based) income-adjustment bond": Exhibit 
US-31, p. 14.  Under the terms of the debtor warrant, the Ge rman government's repayment claims against 
Deutsche Airbus' were to be met from Deutsche Airbus' annual profits ( i.e., the repayment obligations were 
contingent on Deutsche Airbus ha ving earned pre-tax profits in the preceding year); Daimler-Benz Annual 
Report 1997, Exhibit US-262, p. 96.  Moreover, Deutsche Airbus profits were first to be applied to increasing its 
equity capital to DM 1.755 billion and to providing a special reserve for exchange rate losses and a revenue reserve.   According to the Federal Cartel Office, the arrangement for the government's repayment obligations to 
be made pursuant to the terms of the debtor warrant m eant that the repayment claims  of the German government 
were delayed far into the future, leading to a considerable interest rate subsidy; Monopolkommission Report , 
Exhibit US-30, para. 132. WT/DS316/R 
Page 708  
BCI deleted, as indicated [***] 
 
  acquisition of the 20 percent stake in Deutsche Airbus  was originally envisaged to be for a period of 
10 years, with MBB agreeing to purchase the 20 pe rcent stake from KfW by the end of 1999 at the 
latest. 
7.1249  The United States' subsidy claims relate to the fifth element of the restructuring of Deutsche 
Airbus; namely, the acquisition by KfW of the 20 per cent equity interest in Deutsche Airbus in 1989, 
and the subsequent sale of that interest to MBB in 1992.
4313   
(b) Arguments of the parties 
(i) United States 
The purchase by KfW of 20 percent of the shares of Deutsche Airbus  
7.1250  The United States argues that the acquisition by KfW of 20 percent of the shares of Deutsche 
Airbus constitutes a "financial contribution" by the German government in the form of a "direct 
transfer of funds" within the meaning of Article  1.1(a)(1)(i) of the SCM Agreement.  The United 
States argues that the acquisition by KfW of 20 percent of the shares of Deutsche Airbus is an equity infusion by the German government in Deutsche Airbus, and that Article 1.1(a)(1)(i) of the 
SCM Agreement includes equity infusions among th e types of "direct transfers of funds" that 
constitute financial contribu tions under Article 1.1(a)(1).
4314  The United States also  contends that this 
financial contribution conferred a be nefit on Deutsche Airbus within the meaning of Article 1.1(b) of 
the SCM Agreement.  The United States submits th at, while Article 1.1(b) of the SCM Agreement 
does not establish a standard for determining whethe r an equity infusion confers a benefit on the 
recipient, Article 14(a) provides relevant context for such a determination.  In light of Article 14(a), 
the United States submits that if a government's decision to provide equity to a company is 
inconsistent with the usual investment practice of  private investors in the Member's territory, the 
equity infusion confers a benefit within the meaning of Article 1.1(b).4315   
7.1251  Accordingly, the United States argues that th e German government's decision to make the 
DM 505 million equity infusion in Deutsche Airbus was inconsistent with the usual investment 
practice of private investors in Germany.  The Un ited States contends that Deutsche Airbus' financial 
position at the time of the investment by KfW was exceedingly poor.4316  In particular, the United 
States notes that in Deutsche Airbus' 1990 Annual Report, the company reported significant liabilities on its balance sheet, that it continued to face busin ess risks from the DM/dollar exchange rate, lacked 
capital to finance the DM 2 billion costs of prod ucing the A320, A321 and A330/A340 and would not 
be able to borrow the necessary additional fund s without first obtaining additional equity.
4317  T h e  
United States also points to the fact that the KfW in fusion was itself part of a package of financial aid 
                                                      
4313 Although the parties to the Framework Agreemen t had originally agreed that MBB would purchase 
KfW's interest in Deutsche Airbus in 1999, this date was brought forward to 1996 by a September 1989 
amendment to the Framework Agreement. In 1 992, following the adverse GATT Panel Report in EEC – Airbus , 
and the German government's decision to terminate the exch ange rate loss insurance pr ogramme at i ssue in that 
dispute, the Framework Agreement was further amended, inter alia , to require that MBB purchase KfW's 20 
percent equity stake in Deutsche Airbus by 30 September 1992 at the latest, for the purchase price of 
DM [[HSBI ]], the consideration to take the form of a repaym ent claim pursuant to the terms of the debtor 
warrant; EC, FWS, para. 1182. 
4314 US, FWS, paras. 543.   
4315 US, FWS, para. 545. 
4316 In this regard, the United States notes that at the end of 1988, Deutsche Airbus' parent, MBB, had 
reported shareholders' equity of less than DM 900 mill ion, compared to total liabilities in excess of DM 3.6 
billion.  MBB had also reported a consolidated net loss of DM 83.3 million in 1987; US, FWS, para. 546; MBB 
Consolidated Annual Report 1989, Exhibit US-267, p. 51. 
4317 US, FWS, para. 546 ; Deutsche Airbus, Annual Report 1990, p. 18, Exhibit US-268.  WT/DS316/R 
 Page 709 
 
BCI deleted, as indicated [***] 
 
  to MBB (that was a precondition to Daimler-Benz's agreement to acquire control of MBB) as an 
additional relevant fact that confirms the non- commercial nature of the German government's 
investment.4318 
7.1252  Finally, the United States argues that the equi ty infusion is specific to Airbus within the 
meaning of Article 2 of the SCM Agreement, as an  exercise of discretion by the German government 
to provide equity to a single company, Deutsche Ai rbus, as part of a broader aid package for that 
company.4319 
The 1992 sale of KfW's 20 percent interest in Deutsche Airbus to MBB  
7.1253  The United States claims that the 1992 sale by KfW of its 20 percent interest in Deutsche 
Airbus to MBB also constitutes a subsidy to Airbus .  The United States argues that the transfer of 
shares in Deutsche Airbus to MBB is a "financial contribution" because it involves the "direct transfer 
of funds" ( i.e., share capital), within the meaning of Article 1.1(a)(1) of the SCM Agreement.4320  The 
United States asserts that, based on publicly available information, MBB did not appear to have paid 
any consideration for the Deutsche Airbus shares acqui red from KfW, and that the share transfer was, 
effectively, a DM 505 million grant.4321   
7.1254  The United States also points to the background of  the share transfer to MBB as evidence of 
its non-commercial nature.  In this regard, the Un ited States notes that that when KfW acquired the 
20 percent stake in Deutsche Airbus in 1989, it ha d been agreed that MBB would purchase that stake 
from KfW by 1999 at the latest.  In 1990, this ag reed date was changed to 1996.  However, the 
United States alleges that the date for the acqui sition by MBB was then brought forward to 1992 
directly as a result of the findings of the 1992 GA TT panel that the German government's exchange 
rate guarantee scheme was a prohibite d export subsidy to Deutsche Airbus.4322  According to the 
United States, the German government agreed to eliminate the exchange rate guarantee scheme, 
whereupon Daimler-Benz demanded that it be comp ensated, and the German government agreed to 
return its 20 percent stake in Deutsche Airbus to MBB (which had been renamed Dasa) in 1992 
"apparently free of charge".4323  The United States argues that KfW's uncompensated return of 
Deutsche Airbus shares could be considered as conve rting its original provision of a DM 505 million 
equity infusion to Deutsche Airbus into an outright grant.4324   In support of its contention that the 
share transfer to MBB was non-commercial in natu re, the United States also relies on statements by 
Daimler-Benz and the former head of DG Trade of th e European Commission, to  the effect that the 
terms of the 1992 transfer of Deutsche Airbus shar es to MBB was intended to "compensate" Daimler-
                                                      
4318 United States, FWS, para. 547.  The United States also points to a published Answer by the Deputy 
Secretary of Parliament to a question concerning the "subsidies" granted by the Federal government to Airbus, 
which specifically lists the equity infusion as one such subsidy. US, FWS, para. 540; BT-Drs. 13/8409, Exhibit US-31, pp. 13-14. 
4319 US, FWS, para. 548.   
4320 US, FWS, para. 553. 
4321 US, FWS, para. 555. 
4322 GATT Panel Report, EEC – Airbus , 4 March 1992, unadopted, SCM /142. 
4323 US, FWS, para. 550.  The United States notes th at in a 1992 Report, Daimler-Benz explained that, 
following the decision of the GATT Panel, the German  government and Daimler-Benz entered into negotiations 
"with a view to achieving an equally satisfactory solution when  the present assistance ceases.  In the resulting 
agreement, it was decided that, as on e of the compensatory measures, the shares held by the Reconstruction 
Loan Corporation will be transferred to Deutsche Airb us at an earlier date than scheduled…"; Daimler-Benz 
Consolidated Interim Report, January 1-June 30, 1992, p. 7, Exhibit US-272. 
4324 US, Answer to Panel Question 161, para. 160.  Th is is why, if the Panel accepts that the 1992 KfW 
transfer of its 20 percent stake in Deutsche Airbus to MBB was made "free of charge", the United States 
considers it unnecessary for the Panel to make a separate finding regarding the original DM 505 million equity infusion ; see also, US, FWS, para. 552, footnote 668. WT/DS316/R 
Page 710  
BCI deleted, as indicated [***] 
 
  Benz for the German government's withdrawal of the exchange rate guarantee scheme following the 
adverse GATT Panel decision.
4325 
7.1255  The United States also argues that, if the Pane l were to find that KfW's transfer of its 
20 percent equity interest in Deutsche Airbus to MBB was not  free of charge, we should find (i) that 
the original equity infusion constitutes a subs idy (inasmuch as providing that infusion was 
inconsistent with the usual investme nt practice of private investors and thus confers a benefit); and (ii) 
"that, even assuming arguendo , the payment the European Commun ities says KfW received when it 
sold its Deutsche Airbus shares to MBB in 1992, that equity infusion also constitutes a subsidy 
(inasmuch as providing that infusion was inconsistent  with the usual investment practice of private 
investors and thus confers a benefit)."4326 
7.1256  The United States argues that in other disputes concerning restructuring of financially 
distressed companies, panels have considered the absence of independent assessments or going-concern analyses of the company to be relevant  to the commercial reasonableness of government 
provision of equity to such companies.  The United States notes that the European Communities has 
not offered any evidence that the German government  based its decision to provide additional capital 
to Deutsche Airbus on independent assessment stud ies, such as studies comparing the going-concern 
value of Deutsche Airbus with its liquidation value.
4327  The United States also notes that the 
European Communities had refused to respond to qu estions about the terms and conditions of the 
1992 transfer by KfW of its 20 percent equity intere st in Deutsche Airbus posed by the Facilitator 
during the Annex V process.4328  According to the United States, the logical inference to be drawn 
from such a refusal is that the information woul d have supported the United States' claim that the 
measure is a specific subsidy.  The United States requ ests the Panel to draw such an inference, and in 
addition, requests the Panel to draw an adverse infe rence that the withheld information demonstrates 
that the measure is a specific subsidy.4329 
7.1257  Finally, the United States argues that the 1992 shar e transfer is specific to Airbus within the 
meaning of Article 2 of the SCM Agreement b ecause it resulted from a negotiation between the 
German government and a single company to compensate the company from the effects of 
withdrawing the exchange rate guarantee scheme that  was found to be inconsistent with the Tokyo 
Round Subsidies Code.4330 
(ii) European Communities 
The purchase by KfW of 20 percent of the shares of Deutsche Airbus  
7.1258   The European Communities argues that the Unite d States "fails to distinguish between the 
recipient of the alleged subsidy in 1989 and today's LCA manufacturer - Airbus SAS."4331  According 
                                                      
4325 US, FWS, paras. 550-552, 554.  The United States refers to an excerpt from an interview with the 
then head of DG Trade, Peter Carl, in which Carl is quoted as saying:  
"We lost the export subsidy case…But it was settled immediately afterwards.  We agreed with the 
Germans that they had to change their system.  But what happened in reality was the way the German 
government simply changed the way in which it handed out very substantial amounts of money to Deutsche 
Airbus.  Instead of going by route A, it went by route B"; Stephen Aris, Close to the Sun , at 166-167 (2004), 
Exhibit US-23. 
 US, Answer to Panel Question 32, paras. 209-212. 
4326 US, Answer to Panel Question 161, para. 162. 
4327 US, Answer to Panel Question 224, para. 313-317. 
4328 US, Answer to Panel Question 32 , para. 206; Exhibit US-5 (BCI). 
4329 US, Answer to Panel Question 32, para. 212. 
4330 US, FWS, para. 556. 
4331 EC, FWS, para. 1212.  WT/DS316/R 
 Page 711 
 
BCI deleted, as indicated [***] 
 
  to the European Communities, th e United States has attempted to demonstrate that the 1989 
investment by KfW is a subsidy, "without showing how that alleged subsidy passed on to Airbus SAS 
to benefit the production of LCA alleged by the United States to be causing present adverse 
effects."4332  The European Communities submits that the Panel should reject the United States' claim 
on this basis. 
7.1259  The European Communities argues that KfW's equi ty investment in Deutsche Airbus did not 
confer a benefit on Deutsche Airbus.  The Europ ean Communities agrees with the United States that 
Article 14(a) of the SCM Agreement offers contextu al guidance for determining whether a benefit is 
conferred in the context of an equity infusion.4333  Contrary to the assertions of the United States 
however, the European Communities argues that the KfW investment was not inconsistent with the 
usual investment practice of private investors in Germany because Daimler-Benz, "through MBB" 
also acquired shares in Deutsche Airbus at that time  and for the same nominal price per share.   The 
European Communities also conte nds that the evidence adduced by the United States of MBB's 
financial position at the time of the investment is  irrelevant to an assessment of Deutsche Airbus' 
equityworthiness.  According to the European Communities, Deutsch e Airbus was equityworthy at 
the relevant time, as is confirmed by Daimler-Benz's simultaneous purchase of Deutsche Airbus' shares following  Deutsche Airbus' restructuring.
4334      
The 1992 transfer of KfW's 20 percent interest in Deutsche Airbus to MBB  
7.1260  The European Communities contends that the sale by KfW of its 20 percent interest in 
Deutsche Airbus to MBB did not c onfer a benefit on Deutsche Airbus , because the transfer of a 
company's shares from one shareholder to another is of no economic consequence to the company 
itself.4335  In addition, the European Communities argues that MBB, as the purchaser of KfW's 
20 percent interest in Deutsche Airbus (and ther efore as the recipient of any alleged financial 
contribution), did not develop, manufacture or sell any Airbus  LCA in 1992 or subsequently.4336  
According to the European Communities, the Un ited States has failed to demonstrate how the 
acquisition of shares in Deutsche Airbus could have  conferred a benefit on Deutsche Airbus, let alone 
"how the alleged subsidy (benefit) passed from MB B to "Deutsche Airbus" (which was manufacturing 
LCA in the past) or, more pertinently, to Airbus  SAS, which today devel ops, manufactures and sells 
LCA that is alleged to impose present adverse effects on United States' interests."4337   
7.1261  Moreover, the European Communities contends that  the share transfer to MBB was not in fact 
"free of charge" as alleged by the United States.   The European Communities points to independent 
valuations of KfW's 20 percent in terest in Deutsche Airbus by [***] and contends that the fact that the 
value of KfW's 20 percent stake in Deutsche Airbus in 1992 was less than its initial value at the time 
KfW subscribed the shares does not indi cate that there was a subsidy.   
7.1262  The European Communities notes that one of th e terms of the 1989 restructuring was that, 
should the value of KfW's 20 percen t interest in Deutsche Airbus [***].4338  Since the 1992 valuation 
                                                      
4332 EC, FWS, para. 1212. 
4333 The European Communities argues that Appellate Body case law on the relevance of Article 14 to 
the interpretation of Article 1.1(b) of the SCM Agr eement "neither calls for no r suggests a mechanistic, 
automatic and literal application of tests in Article 14 to the issue of determination of existence of benefit in the 
sense of Article 1.1(b)."  However, the European Communities also indicates that in the context of an equity 
contribution by a government, it is implicit in the notion of "benefit" in Article 1.1(b) to inquire into the usual 
investment practice of private investors;  EC, Answer to Panel Question 101, paras. 277, 280. 
4334 EC, FWS,para. 1217. 
4335 EC, FWS, para. 1203; EC, SWS, para. 600. 
4336 EC, FWS, para. 1203. 
4337 EC, FWS, para. 1203. 
4338 EC, FWS, para. 1209. WT/DS316/R 
Page 712  
BCI deleted, as indicated [***] 
 
  of the 20 percent stake by [***] was less than DM 505 million, the German government thereby 
became entitled, above and beyond the [[HSBI ]] value ascribed to the 20 percent stake by  [***], to 
an additional amount of  [[HSBI ]].  According to the Europ ean Communities, the German 
government, Daimler-Benz, MBB and Deutsche Airbus agreed that an amount of [[HSBI ]], 
corresponding to the value of the shares by [***], plus an additional amount of [[HSBI ]], be paid by 
Deutsche Airbus under the terms of the debtor warrant.
4339  The transfer by KfW of its 20 percent 
interest in Deutsche Airbus to MBB was therefore not  "free of charge" and, according to the European 
Communities, did not confer a benefit on Deutsche Airbus. 
7.1263  The European Communities also contends that the United Stat es has agreed that the 1992 
amendment to the 1989 Framework Agreement did not affect the economic position of Deutsche 
Airbus and that, since the 1992 sale of KfW's 20 percent equity interest in Deutsche Airbus to MBB was an element of the 1989 Framework Agreemen t and the 1992 amendment, it likewise cannot be 
held to confer a benefit on Deutsche Airbus.
4340  In addition, the European Communities argues that, if 
the Panel were to find that the KfW acquisition of a 20 percent equity interest in Deutsche Airbus in 
1989 were tantamount to a grant to Deutsche Airbus, it could not then conclude that the 1992 transfer 
of that equity interest to MBB constitutes a sec ond subsidy, because to do so would amount to double 
counting.4341 
(c) Evaluation by the Panel 
(i) Additional factual background to KfW's acquis ition and subsequent sale of the 20 percent 
equity interest in Deutsche Airbus 
7.1264  Before proceeding to evaluate the arguments of th e parties, we consider it helpful to set forth 
additional information concerning the terms on which KfW initially acquired the 20 percent interest in 
Deutsche Airbus in 1989, and the terms on which it ultimately transferred that interest to MBB in 
1992.  As previously indicated, these transactions  were elements of the 1989 restructuring of 
Deutsche Airbus which involved Daimler-Benz acqui ring a majority shareholding in MBB and thus, 
indirectly, Deutsche Airbus' 37.9 percent interest in Airbus Industrie.  
7.1265  In conjunction with the Daimler-Benz acquisition of  a majority interest in MBB, MBB agreed 
to contribute additional capital of approxi mately DM 1 billion to Deutsche Airbus.4342  A l s o  i n  
conjunction with the Daimler-Benz acquisition of a majo rity interest in MBB, KfW agreed to make a 
capital contribution of DM 505 million to Deutsche Ai rbus, representing 20 percent of the outstanding 
equity capital of Deutsche Airbus.  In addition, the German government agreed that, during the 10 
year period in which KfW was orig inally expected to hold its equity  interest in Deutsche Airbus, any 
profits generated by Deutsche Airbus would, for at least  the first eight years, be used first to build up 
Deutsche Airbus' capital base and to form a speci al reserve to compensate Deutsche Airbus for 
exchange rate losses.4343   
                                                      
4339 EC, FWS, para. 1209. 
4340 EC, Comments on US Answer to Panel Question 225, para. 208; referring to US, Answer to 
Question 32, paras. 209-211. 
4341 EC, Comments on US Answer to Panel Question 225, para. 209. 
4342 Of this amount, DM 800 million was to be provided  in cash, DM 5 million was to be provided in 
the form of an in-kind contribution of MBB's transport and commercial aircraft division, and DM 195 million 
was to consist of a special payment to be allocated to a special capital reserve in order to compensate Deutsche 
Airbus for US dollar exchange rate losses.  According to the German Federal Cartel Office, DM 800 million of the DM 1 billion additional capital provided by MBB was attributable to Daimler-Benz's DM 993 million 
capital injection to MBB as part of its acquisition of a majority interest in MBB; Monopolkommission Report , 
Exhibit US-30, paras. 125, 126, 128. 
4343 Monopolkommission Report , Exhibit US-30, para. 132.  WT/DS316/R 
 Page 713 
 
BCI deleted, as indicated [***] 
 
  7.1266  It was originally agreed among the parties to the Framework Agreement that KfW's 
investment in Deutsche Airbus was to be of 10 y ears' duration, with MBB agreeing to acquire the 
20 percent equity interest in Deutsche Airbus from KfW by the end of 1999.4344    The parties to the 
Framework Agreement had agreed that, [***].4345   
7.1267  In 1992, the Framework Agreement was amende d to, among other things, bring forward to 
1992 the date of MBB's purchase of KfW's 20 percent equity interest in Deutsche Airbus, and to 
provide that the purchase price for that stake [***] DM [[HSBI ]] million.  The European 
Communities has provided evidence suggesting that the amount of DM [[HSBI ]] million was 
negotiated between the German government an d MBB based on advice fr om two independent 
accounting firms, [***], and that the value of KfW's 20 percent equity interest in Deutsche Airbus in 
1992 was DM [[HSBI ]] million.4346  This means that the sale price of DM [[HSBI ]] million negotiated 
in 1992 represents [*** [[HSBI ]] ***]. 
(ii) Was the 1992 transfer of KfW's 20 percent equity interest in Deutsche Airbus to MBB "free of 
charge"? 
7.1268  The United States argues that both  the acquisition by KfW of the 20 percent interest in 
Deutsche Airbus and the subsequent sale of that inte rest to Deutsche Airbus' parent MBB, are specific 
subsidies.  In its first written submission, the United St ates indicated that if the Panel were to find that 
the 1992 sale by KfW of its 20 percent interest in De utsche Airbus to MBB amounted to a grant in the 
amount of DM 505 million, it would not be necessary for the Panel to determine whether the original acquisition of the 20 percent stake by KfW in 1989 was also a subsidy.
4347  In response to a question 
from the Panel, the United States subsequently explai ned that the argument which it had formulated in 
its first written submission was based on publicly available information regarding the purchase and 
subsequent sale by KfW of its equity interest in  Deutsche Airbus, because the European Communities 
had not provided any information concerning the 1992 transfer by KfW in the Annex V process.4348  
According to the United States, the logical infe rence to be drawn from the publicly available 
information was that KfW's shares in Deutsche Airbus had been acquired in 1989 for DM 505 million 
and had then effectively been returned to MBB wit hout payment.  As a result, according to the United 
States, the uncompensated return of shares could be considered to have converted the original 
provision of a DM 505 million equity infusion to Deutsche Airbus into an outright grant.4349  On this 
basis, the United States considered that it woul d be unnecessary for the Panel to make a separate 
finding as to whether the 1989 KfW acquisition of shares in Deutsche Airbus amounted to a subsidy.   
7.1269  According to the United States, if the Pane l were to accept the European Communities' 
subsequent contention that the 1992 transfer by KfW of its 20 percent interest in Deutsche Airbus to 
MBB was made for consideration (a contention wh ich the United States regards as unsubstantiated), 
then the Panel should make findings regarding both  the original DM 505 million acquisition by KfW 
of a 20 percent equity interest in Deutsche Airbus a nd the subsequent transfer of that interest to MBB 
in 1992.4350   
                                                      
4344 As previously noted, the Framework Agreement was amended in September 1989 to bring forward 
the date at which MBB was required to purchase KfW's 20 percent interest in Deutsche Airbus to 1996, before 
that date was once again brought forward to 1992. 
4345 EC, FWS, para 1209; Framework Agreement; Exhibit EC-887 HSBI. 
4346 The evidence in question is a letter, dated 1 July 1992, from the accounting firm [***] which 
corroborates the European Communities' contention that [***]  had agreed on a [***[[ HSBI ]] ]; EC, FWS, 
paras. 1208-1209; SWS, para. 601; Exhibit EC-752 HSBI. 
4347 US, FWS, para. 552, at footnote 668. 
4348 US, Answer to Panel Question 161, para. 159. 
4349 US, Answer to Panel Question 161, para. 159. 
4350 US, Answer to Panel Question 161, para. 160. WT/DS316/R 
Page 714  
BCI deleted, as indicated [***] 
 
  7.1270  We are not persuaded that the 1992 transfer of  KfW's equity interest in Deutsche Airbus to 
MBB was "free of charge" as alleged by the United States.  We base this factual finding on the terms of the Framework Agreement, as amended in 1992, which provided that the consideration to be 
provided for the transfer of the shares was DM [[HSBI ]] [***].
4351  As we explain further below, we 
are not in a position to calculate with precision what  would have been the present value, in 1992, [*** 
[[HSBI ]]***].   However, we are satisfied that the value would have been greater than zero.  We are 
therefore unable to conclude that the 1992 transfer  by KfW of its 20 percent equity interest in 
Deutsche Airbus was made "free of charge", or th at it could be considered to have converted the 
whole of KfW's original provision of a DM 505 m illion equity infusion to Deutsche Airbus into a 
grant.4352  This being so, it is necessary for us to co nsider whether the 1989 acquisition by KfW of a 
20 percent stake in Deutsche Airbus and the 1992 sale of that stake to MBB, each  constitutes a 
specific subsidy to Airbus. 
7.1271  Although we will examine both the 1989 and th e 1992 transactions in order to establish 
whether either can be said to amount to a subsidy, we note that the two transactions are related to one 
another and that this circumstance  should be taken into account in our assessment of each of them.  
For example, in assessing whether the 1989 acquisition by KfW of a 20 percent equity interest in Deutsche Airbus constitutes a subsidy, we consider not only the purchase price paid by KfW (DM 505 million) but the fact that one of the terms on which that stake was acquired was that MBB, 
the only other shareholder of Deutsche Airbus, was obligated to purchase that stake from KfW by 1999 according to a particular pricing formula designed to [***].
4353  Similarly, in assessing whether 
the 1992 transfer by KfW of its 20 percent interest  in Deutsche Airbus to MBB constitutes a subsidy, 
we consider the 1992 amendments to  the terms of the debtor warrant [***].  
(iii) KfW's acquisition of a 20 percent equity  interest in Deutsche Airbus in 1989 
7.1272  We consider that the 1989 acquisition by KfW of a 20 percent equity interest in Deutsche 
Airbus constitutes a direct transfer  of funds in the form of an e quity infusion and is therefore a 
financial contribution pursuant to Article 1.1(a)(1)(i) of the SCM Agreement.   
7.1273  In relation to the existence of a benefit confe rred by that financial contribution, we note the 
European Communities' contention that the United States has failed to demonstrate how any "alleged 
subsidy passed on to Airbus SAS to benefit the produ ction of LCA alleged by the United States to be 
causing present adverse effects."4354  By this, we understand the European Communities to argue that 
the United States has failed to demonstrate how a ny benefit conferred on Deutsche Airbus by the 
financial contribution "passed through" to Airbus SA S.  For reasons which we fully explain elsewhere 
in this report, we reject the European Commun ities' arguments that it is necessary for the United 
States to affirmatively demonstrate the "pass-through"  to Airbus SAS of the benefit conferred by a 
financial contribution which is provided to Airbus  GIE or one of the Airbus partners (such as 
Deutsche Airbus).4355   In short, if we find that KfW's acquisition of 20 percent of the shares of 
Deutsche Airbus conferred a benefit on Deutsche Ai rbus, we consider that it will have conferred a 
benefit on the Airbus Industrie c onsortium and thus, Airbus SAS, w ithout requiring the United States 
to affirmatively establish the "pass-through" of any be nefit to the Airbus Industrie consortium, or to 
Airbus SAS. 
                                                      
4351 Second amendment to the Framewor k Agreement; Exhibit EC-889 HSBI. 
4352 Moreover, we note that this claim to repayment was settled by the German government in 1998, 
along with the other debt outstanding under the debtor warrant, as part of the 1998 debt settlement. See, paras. 
7.1315 - 7.1322. 
4353 As originally negotiated, the latest date for the purchase of KfW's stake by MBB was 1999.  The 
first amendment to the Framework Agreement amended that date to 1996, and the third amendment to the 
Framework Agreement amended the date once again, to 1992. 
4354 EC, FWS, para. 1212. 
4355 See, paras. 7.190 - 7.200 above.  WT/DS316/R 
 Page 715 
 
BCI deleted, as indicated [***] 
 
  7.1274  As to whether KfW's acquisition of a 20 percent equity interest in Deutsche Airbus conferred 
a "benefit" on Deutsche Airbus, we note that the SCM Agreement does not set forth when a financial 
contribution in the form of an equity infusion will be  considered to confer a "benefit" for purposes of 
Article 1.1(b).  However, it is we ll established that a financial contri bution confers a benefit within the 
meaning of Article 1.1(b) where the terms on whic h the financial contribution was provided to the 
recipient are more favourable than the terms available to the recipient in the market.4356  Although 
Article 14 of the SCM Agreement sets forth guidelin es for investigating authorities in countervailing 
duty investigations to follow when calculating the amount of benefit to the recipient for purposes of 
Part V of the SCM Agreement, the Appellate Body has held that Article 14 also constitutes relevant 
context for the interpretation of "benefit" in Article 1.1(b).4357  Article 14(a) of the SCM Agreement 
provides: 
"{G}overnment provision of equity capital shall not be considered as conferring a 
benefit, unless the investment decision can be regarded as inconsistent with the usual 
investment practice  (including for the provision of risk capital) of private investors  in 
the territory of that Member."4358 
7.1275  Both the United States and th e European Communities agree that, in assessing whether the 
KfW equity infusion conferred a benefit on Deutsche  Airbus, it is appropriate for us to consider 
whether providing the equity infusion was consiste nt with the usual investment practice of private 
investors in Germany.4359  Our approach to the issue of benefit in the context of KfW's acquisition of a 
20 percent equity interest in Deutsche Airbus is to ask whether the United States has demonstrated 
that a reasonable private investor would not have  made this investment on the same terms and 
conditions based on the information available at that time.    
7.1276  We note that the financial position of Deutsche Ai rbus at the time of the KfW investment was 
exceedingly poor.  For the financial year ended 31 December 1988, Deutsche Airbus reported a loss 
of DM 270.1 million.4360  Deutsche Airbus had also accumulated losses from previous years that, 
together with the 1988 loss, comprised an aggr egate loss of DM 3.37 billion.  The European 
Communities itself acknowledges that in the la te 1980s, "despite Deutsche Airbus' favourable 
commercial prospects (especially as regards the number  of orders received for the A320), a variety of 
external and internal factors, and especially the extreme collapse in the va lue of the US dollar, 
brought Deutsche Airbus to the verge of bankruptcy."4361  In order to avoid insolvency, Deutsche 
Airbus was availing itself of a provision of German  law that permitted creditors to waive claims in 
                                                      
4356 See, e.g.,  Appellate Body Report, Canada – Aircraft , paras. 157-158; Panel Report, United States – 
Countervailing Duty Investigation on Dynamic Random Access Memory Semiconductors (DRAMS) from Korea ("US – Countervailing Duty Investigation on DRAMS" ), WT/DS296/R, adopted 20 July 2005, as modified by 
Appellate Body Report, WT/DS296/AB/R, DSR 2005:XVII, 8243, para. 7.179; Panel Report, European 
Communities – Countervailing Measures on Dynamic Ra ndom Access Memory Chips from Korea ("EC –
 Countervailing Measures on DRAM Chips") , WT/DS299/R, adopted 3 August 2005, DSR 2005:XVIII, 8671, 
paras. 7.173-7.175; Panel Report, Japan – DRAMs (Korea) , para. 7.256. 
4357 Appellate Body Report, Canada – Aircraft , para. 155. 
4358 Emphasis added. 
4359 US, FWS,  paras. 554-555, 561-564; EC, FWS, para. 1215; EC, Answer to Panel Question 101, 
para. 280. 
4360 Jahresabschluss 1988 Daimler-Benz Aerospace Airbus  (Deutsche Airbus Situation Report for the 
1988 Financial Year), Exhibit EC-886.  Management noted that this result (an improvement on the DM 778.6 million loss report in 1987) as due to the pro-rata assumption of responsibility for the losses of 
Airbus GIE (amounting to DM 336.6 million).  However, management also noted that the 1988 figure was 
improved by DM 160.7 million due to the German government's remission of LA/MSF repayments. 
4361 EC, FWS, para. 1177. WT/DS316/R 
Page 716  
BCI deleted, as indicated [***] 
 
  respect of government-guaranteed debt to the ex tent necessary to limit the company's losses to the 
amount of subscribed capital.
4362   
7.1277  We note in addition evidence that the German  government had, by its own account, been 
seeking to obtain private capital for Deutsche Airbus for a number of years prior to 1989.4363  
According to the German government, Daimler-Benz was the only private investor that could be 
secured for long-term industrial management of Deutsche Airbus while accepting a simultaneous 
reduction in state financial aid.4364  In a statement in 1988 announcing the planned restructuring of 
Deutsche Airbus, the German Ministry of Econom ics noted that the German government currently 
bore all of Deutsche Airbus' risk through its provision of guarantees for the costs of the A300/A310 
programmes, and indicated that its overall policy obj ective was to transfer the management and risk 
associated with Deutsche Airbus' operations to the private sector over the long term.4365  In response 
to a Parliamentary question asking why MBB's own negotiations with prospective private investors 
had not resulted in a private investor acquiring an equity interest in MBB/Deutsche Airbus, the German government explained that, while Deut sche Airbus' sales prospects had "improved 
considerably" over the 20 years since its establishm ent, the production of civil aircraft presented 
substantial risks (since invested capital can generally  only be amortized over project terms of up to 20 
years), along with factors such as exchange rate risks.
4366  In addition, statements of the German 
Ministry of Economics indicate that it considered th at the relatively small market share that Airbus 
Industrie enjoyed at that time, coupled with the cu rrency risks, would continue to present difficulties 
for the future profitability of Deutsche Airbus.4367 
7.1278  The European Communities reje cts the United States' arguments that KfW's 1989 acquisition 
of a 20 percent equity interest in Deutsche Airbus was inconsistent with the usual investment practice 
of private investors in Germany.  According to the European Communities, the commercial nature of 
KfW's equity infusion is eviden t from the fact that Daimler-Benz also purchased an interest in 
Deutsche Airbus "on the same terms and conditions as KfW".4368  In other words, the European 
Communities argues that Daimler-Benz is an appr opriate "private investor" whose acquisition 
"through MBB" of an interest in Deutsche Ai rbus on the same terms and conditions as KfW's 
investment demonstrates that the KfW investment was consistent with the usual investment practice 
of private investors in Germany and thus did not confer a benefit on Deutsche Airbus. 
7.1279  The European Communities appears to base its  argument that Daimler-Benz invested in 
Deutsche Airbus "through MBB" on the same terms and conditions as KfW on the fact that, pursuant 
to the Framework Agreement, MBB had agreed that, of the DM 993 million it received from Daimler-
Benz (as the subscription price for 258 million newly issued shares of MBB), it would use 
DM 800 million to purchase 294 million newly issued shares in Deutsche Airbus.4369  We recall that 
the Framework Agreement provided that (i) MBB would contribute DM 800 million in capital to 
Deutsche Airbus to purchase 294 million newly issued Deutsche Airbus shares (representing a 
                                                      
4362 Creditor banks had waived claims agains t Deutsche Airbus worth DM 2.92 billion; 
Jahresabschluss 1988 Daimler-Benz Aerospace Airbus , Exhibit EC-886, notes 9 and 13. 
4363 BT-Drs 11/4375 (German government Answer to a Parliamentary Question), Exhibit US-14. 
4364 BT-Drs 11/4375 (German government Answer to a Parliamentary Question), Exhibit US-14. 
4365 Handelsblatt No.  212, 3 November  1988, p. 24 "Dai mler-Benz-MBB / Statement of the German 
Federal Ministry of Economics on the Restructuring of the Aviation Industry," Exhibit US-259.   
4366 BT-Drs 11/4375 (German government Answer to a Parliamentary Question), Exhibit US-14. 
4367 Handelsblatt No.  212, 3 November  1988, p. 24 "Dai mler-Benz-MBB / Statement of the German 
Federal Ministry of Economics on the Restructuring of the Aviation Industry," Exhibit US-259. 
4368 EC, FWS, para. 276. 
4369 Monopolkommission Report , Exhibit US-30, para. 128; MBB  Consolidated Annual Report, Exhibit 
US-267, p. 51.  MBB also agreed to contribute another DM 5,000,000 to Deutsche Airbus through a 
contribution in kind of one of its operating subsidiaries at a book value of DM 5,000,000; Monopolkommission 
ReportMonopolkommission ReportMonopolkommission Report , Exhibit US-30, para. 126.  WT/DS316/R 
 Page 717 
 
BCI deleted, as indicated [***] 
 
  nominal value of DM 2.72 per share) and (ii) KfW would contribute DM 505 million in capital to 
Deutsche Airbus to purchase 186 million newly i ssued Deutsche Airbus shares (representing  a 
nominal value of DM 2.72 per share).  We understand that it is on the basis of the above analysis that 
the European Communities contends that KfW a nd Daimler-Benz "through MBB" invested in 
Deutsche Airbus on the same terms and conditions.  We are not persuaded by this analysis.       
7.1280  The fact that Daimler-Benz paid DM 993 m illion to acquire 258 million newly issued MBB 
shares suggests that it paid DM 3.849 per share of MBB.  As previously mentioned, MBB owned Deutsche Airbus, in addition to significant defen ce technology operations conducted through other 
MBB subsidiaries.  Although MBB was required to make the DM 800 million capital contribution to 
Deutsche Airbus, in return for the issuance by Deut sche Airbus of 294 million shares to MBB, there is 
no evidence to suggest that Daimler-Benz, in payi ng DM 3.489 per newly-issued MBB share, could 
be deemed (based on the relative valuations of th e operations of Deutsche Airbus and those of the 
other subsidiaries of MBB) to have thereby indirectly  paid the equivalent of DM 2.72 per share for the 
newly issued shares in Deutsche Airbus.  The terms of MBB's capital contribution to Deutsche Airbus 
under the Framework Agreement represent a negotia ted allocation of MBB's funds for purposes of 
building Deutsche Airbus' capital ba se as part of the restructuring arrangement.  They are not 
indicative of the value of MBB's Deutsche Airbus subsidiary relative to the other MBB subsidiaries, 
or of the price that an arm's length private invest or would have been prepared to pay to directly 
acquire shares in Deutsche Airbus.   
7.1281  We reject the European Communities' argument that the 1989 acquisition by KfW of a 
20 percent equity interest in Deutsche Airbus was c onsistent with the usual investment practice of a 
private investor in Germany because Daimler-Benz invested in Deutsche Airbus on the same terms 
and conditions as KfW.  First, we cannot equate Kf W's direct investment in Deutsche Airbus with 
Daimler-Benz's indirect investment in Deutsche Airbus  through its acquisition of a majority interest in 
MBB.  The transaction that the European Communi ties describes as an investment by Daimler-Benz 
in Deutsche Airbus "through MBB" was, in fact , a transaction in which Daimler-Benz acquired a 
majority interest in MBB, the parent company of  Deutsche Airbus, not shares in Deutsche Airbus.  
We note in this regard that MBB was not a mere  holding company for Deutsche Airbus.  MBB was at 
that time West Germany's largest aerospace and defence contractor, active in both the aerospace and 
defence technology sectors.  MBB's defence technol ogy operations were profitable, its aerospace 
operations ( i.e., Deutsche Airbus) were not.
4370  Daimler-Benz's acquisition of shares of MBB was not 
the same, in legal or economic terms, as KfW's acquisition of shares of Deutsche Airbus. 
7.1282  We also consider that, for purposes of asses sing whether the government's investment 
decision can be regarded as inconsistent with the usual practice of private investors, any comparison 
of the terms and conditions on which a government a nd a private investor each invest in a company 
should take account of the differe nt obligations undertaken by the respective parties in connection 
with those investments.  When the specific terms of  the KfW investment are considered, it is clear to 
us that Daimler-Benz can in no sense be considered to have invested in Deutsche Airbus on the same 
terms and conditions as KfW.   The Framework Ag reement provided that the German government 
would instruct KfW to acquire the 20 percent equity interest in Deutsche Airbus and  that MBB would 
then acquire that shareholding from KfW by a specific date.4371  In other words, it was contemplated 
from the outset that the KfW equity infusion would be of a temporary duration.  At the time at which 
KfW acquired the 20 percent interest in Deutsche Air bus, which we consider to  be the relevant time 
for purposes of assessing whether the investment decision was consistent with the usual investment practice of private investors, KfW's shareholding in Deutsche Airbus was to be purchased by MBB in 
                                                     
 
4370 The United States contends that at the time of  Daimler-Benz's investment in MBB, approximately 
75 percent of MBB's total turnover and 100 percent of its profits were generated by its non-Airbus-related 
activities; US, Answer to Panel Question 156, para. 138. 
4371 Framework Agreement, Exhibit EC- 887 HSBI. WT/DS316/R 
Page 718  
BCI deleted, as indicated [***] 
 
  ten years ( i.e., with effect from the end of 1999 at the latest ) at an agreed market-based valuation of 
the 20 percent equity interest at that time, [***].  In addition, the German government had agreed that 
during the time that KfW was originally expected to  hold its interest in Deutsche Airbus, any profits 
generated by Deutsche Airbus would, for at least the first eight of the 10 years of the investment, be 
used first to build up Deutsche Airbus' capital base  and to form a special reserve to compensate 
Deutsche Airbus for exchange rate losses.  In light of  all of the above, it is inconceivable to us that 
Daimler-Benz can be considered to have invest ed in Deutsche Airbus on the same terms and 
conditions as KfW, or that KfW's investment decision can be considered to have been consistent with 
the usual investment practice of private invest ors in Germany on the basis of Daimler-Benz's 
investment in Deutsche Airbus "through MBB". 
7.1283   The European Communities has also presented various arguments throughout its submissions 
suggesting that the KfW and Daimler-Benz investments "took place following  the financial 
restructuring of Deutsche Airbus".
4372  According to the European Communities, provided that, 
following  a financial restructuring, a government inject s capital on equal terms with a private investor, 
the capital injection does not confer a benefit on the recipient company, within the meaning of 
Article 1.1(b).4373  Therefore, the European Communities ar gues that (i) the terms on which Daimler-
Benz, via its subsidiary MBB, invested in Deutsch e Airbus reflect the terms on which a commercial 
investor was willing to put fresh equity capital into  the financially restructured Deutsche Airbus, and 
(ii) the fact that KfW paid the same price as Daimle r-Benz for the newly issued shares in a financially 
restructured Deutsche Airbus, confirm the consiste ncy of that equity infusion with the ordinary 
investment practice of private investors. 
7.1284  In our view, it is not appropriate to approach  the question whether the KfW equity investment 
conferred a benefit on Deutsche Airbus by treating that transaction as an equity investment in a 
restructured Deutsche Airbus ( i.e., as a transaction that occurred subsequent  to the restructuring of 
Deutsche Airbus).  The KfW investment was an in tegral element of the restructuring of Deutsche 
Airbus as set forth in the Framework Agreemen t and as described by the German government.4374  It 
is clear to us that Daimler-Benz would not have made the investment in Deutsche Airbus at all absent 
the restructuring arrangement (one component of  which was the KfW investment, with significant 
other components being the foreign exchange risk loss insurance programme and the rescheduling of 
Deutsche Airbus debt).4375  Daimler-Benz agreed to invest in Deutsche Airbus provided that  the 
German government (i) restructured Deutsche Airbus ' existing debt obligations, delaying the German 
government's repayment claims far in to the future, (ii) agreed to assume a portion of Deutsche Airbus' 
exchange rate risk through an insurance program, and (iii) provided additional equity capital to 
Deutsche Airbus for (an initially contemplated period  of) 10 years, while agreeing to forego rights to 
                                                      
4372 EC, SWS, para. 608 (emphasis added) ; see also, EC, Answer to Panel Question 188, paras. 170-
171. 
4373 EC, Answer to Panel Question 100, para. 273. 
4374 Handelsblatt  No. 212, 3 November  1988,  p. 24 "D aimler-Benz-MBB / Statement of the German 
Federal Ministry of Economics on the Restructuring of the Aviation Industry," Exhibit US-259. We note that the 
European Communities acknowledges elsewhere in its submissions that the 20 percent equity infusion by KfW 
in Deutsche Airbus is part of  the 1989 restructuring arrangement; EC, Answer to Question 187, paras. 152 and 
158. 
4375 The Report of the Federal Cartel Office states: "D aimler-Benz linked its stake in MBB to a series of 
commitments by the federal government, and they significantly limit any risk to Daimler-Benz which is 
associated with the acquisition of the German share of Airbus ", Exhibit  US 30, para. 129 (emphasis added).  In 
a German government Answer to a Parliamentary questio n concerning alternative op tions for raising additional 
capital for Deutsche Airbus, the government responded th at "Daimler-Benz is the only company that could be 
secured for a long-term industrial management in the Airbus program whilst accepting a simultaneous reduction 
in state financial aid .";  BT-Drs 11/4375 (German government Answer to a Parliamentary Question), Exhibit 
US-14.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  payment of dividends from profits for the first eight years of that investment, in order for Deutsche 
Airbus to rebuild its capital base.4376     
7.1285  The European Communities itself acknowledges that, had the German government required 
Daimler-Benz to assume fully Deutsche Airbus' re payment obligations and government-guaranteed 
debt, neither Daimler-Benz nor any other bu yer would have purchased Deutsche Airbus.4377  
However, the European Communities also contends  that the German government's behaviour was 
consistent with that of a rational investor in similar circumstances; i.e., it acted to minimize its losses 
"while providing certain contributions to reba lance the value of Deutsche Airbus' assets and 
liabilities."4378  The European Communities therefore argues that the United States has not established 
that the 1989 restructuring was inconsistent with th e practice of a similarly-situated private creditor of 
Deutsche Airbus, faced with the imminent insolvency of a debtor company.   
7.1286  We make the following observations regarding this argument.  First, we note that the 
European Communities has provided no evidence to  support it; for example, contemporaneous, 
objective evaluations of the German government's prospects of minimizing its losses and/or 
maximizing its recovery if Deutsche Airbus were to  be restructured in the manner described rather 
than liquidated.  Second, we fail to understand, on  the basis of the evidence before us, how the terms 
of the restructuring could have minimized the Ge rman government's losses  and/or maximized its 
returns as the major creditor of a financially dist ressed Deutsche Airbus.  Under the restructuring 
arrangement, the German government paid Deutsc he Airbus' outstanding bank debt, rescheduled 
Deutsche Airbus' government debt pursuant to the [***] "debtor warrant", provided Deutsche Airbus 
with an additional DM 165 million loan to finan ce production of the A320, established an exchange 
rate loss insurance programme (for which the Germ an government had either appropriated in the 
federal budget, or included in its  planning estimates, approximate ly DM 4.1 billion to cover its 
anticipated obligations over the period 1989 to 2000)4379 and provided additional equity capital to 
Deutsche Airbus for an (initially contemplated) peri od of 10 years.   In a 1998 statement announcing 
the planned restructuring of Deutsche Airbus, the German Ministry of Economics noted that the 
German government currently bore all of Deutsche Ai rbus' risk through its provision of guarantees for 
the costs of the A300/A310 programmes, and indicated that its overall policy objective was to transfer 
the management and risk associated with Deutsche Airbus' operations to the private sector over the 
long term.4380  The Ministry also stated that the pursuit of this overall aim, to gradually move 
Deutsche Airbus into private sector management and responsibility, "now justifies an additional 
substantial financial effort" in order to bring it about.4381  The terms of the 1989 restructuring 
arrangement and the German government's comments app ear to us to be far more consistent with a 
government providing a final round of assistance in order to reduce a company's dependence on subsidization over the long term than with a ma jor creditor of a financially distressed company 
seeking to minimize its losses and/or maximize its returns. 
7.1287  Finally, we regard the European Communities' argument, that the United States has failed to 
demonstrate that the 1989 restructuring is inconsiste nt with the practice of a similarly-situated private 
creditor of Deutsche Airbus, faced with the imminent insolvency of a debtor company, as irrelevant to 
the United States' arguments as to "benefit".  Th e United States does not argue that the KfW equity 
infusion is a subsidy because it is part of the 1989  restructuring arrangement.  Nor do we understand it 
                                                     
 
4376 Monopolkommission Report , Exhibit US-30, para. 132. 
4377 EC, Answer to Panel Question 187, para. 163. 
4378 EC, Answer to Panel Question 187, para. 164. 
4379 Monopolkommission Report , Exhibit US-30, para. 131. 
4380 Handelsblatt  No. 212, 3 November 1988, p. 24 "Dai mler-Benz-MBB / Statement of the German 
Federal Ministry of Economics on the Restructuring of the Aviation Industry," Exhibit US-259. 
4381 Handelsblatt  No. 212, 3 November  1988, p. 24 "Dai mler-Benz-MBB / Statement of the German 
Federal Ministry of Economics on the Restructuring of the Aviation Industry," Exhibit US-259. WT/DS316/R 
Page 720  
BCI deleted, as indicated [***] 
 
  to argue that the 1989 restructuring arrangement as a whole constitutes a subsidy.
4382  T h e  U n i t e d  
States argues that no private investor would have i nvested in Deutsche Airbus at the relevant time, 
and that KfW's investment was therefore inconsiste nt with the usual investment practice of private 
investors and conferred a benefit on Deutsche Airbus  within the meaning of Article 1.1(b) of the 
SCM Agreement.  The European Communities atte mpted to rebut the United States' argument by 
demonstrating that the KfW investment was not inc onsistent with the usual investment practice of 
private investors because a private investor, namely , Daimler-Benz, invested in Deutsche Airbus at 
the same time and on the same te rms and conditions as KfW.  It wa s in response to the European 
Communities' rebuttal argument that the United Stat es asserted that the Daimler-Benz investment was 
linked to the restructuring in a way that signi ficantly limited the risk to Daimler-Benz of the 
investment, and thus that the Daimler-Benz invest ment cannot be considered a market benchmark for 
the purpose of assessing the existence of benefit.4383  In the context of a response to the European 
Communities' rebuttal argument, it is not necessary fo r the United States to establish that the German 
government's conduct in regard to the 1989 restruct uring arrangement as a whole was inconsistent 
with the conduct of a similarly-situated private creditor of Deutsche Airbus.  
7.1288  We therefore reject the European Communities'  argument the KfW investment in Deutsche 
Airbus was consistent with the usual investment  practice of private investors because Daimler-Benz 
had invested in Deutsche Airbus, "through MBB", on the same terms and conditions as KfW.  In light 
of the evidence of Deutsche Airbus ' perilous financial condition at th e time of the KfW investment, its 
serious exposure to adverse movements in the US  dollar/DM exchange rate in the absence of a 
government exchange rate insurance programme, its  substantial dependence on government aid for at 
least the short to medium term, evidence that, while Airbus Industrie's sales prospects were 
improving, its future profitability would remain "diffi cult" due to its relatively small market share of 
20 percent, and its inability to attract private inv estment in the absence of government investment and 
rescheduling of government-related debt, we are satisfied that KfW's investment decision was 
inconsistent with the usual investment practice of  private investors in Germany, because no private 
investor seeking a reasonable rate of return on its i nvestment would have made the equity investment 
in Deutsche Airbus which KfW made.  We accordi ngly find that KfW's acquisition of 20 percent of 
the shares of Deutsche Airbus conferred a "benef it" on Deutsche Airbus within the meaning of 
Article 1.1(b) and thus constitut es a subsidy to Deutsche Airbus.4384    
7.1289  For the reasons set forth above, we conclude  that KfW's 1989 acquisition of a 20 percent 
equity interest in Deutsche Airbus was a financial contribution within the meaning of 
Article 1.1(a)(1)(i) of the SCM Agreement, which conferred a benefit on Deutsche Airbus within the 
meaning of Article 1.1(b), and thus constitutes a s ubsidy to the Airbus Indus trie consortium and to 
Airbus SAS.   
7.1290  The United States argues that KfW's acquisition of a 20 percent equity interest in Deutsche 
Airbus is a specific subsidy to Airbus within the meaning of Article 2 of the SCM Agreement because 
it was an exercise of discretion by the German gove rnment to provide equity to a single company, 
                                                      
4382 US, Comments on EC Answer to Panel Question 187, para. 133. 
4383 The United States has pointed out clearly, "the relevance of the fact that the KfW equity infusion 
was part of the broader aid package to Deutsche Airbus is that it undermines the European Communities' 
attempt to use Daimler's investment in MBB (the parent company of Deutsche Airbus) as a market benchmark.  
Daimler would not have made its investment without the aid package that included the equity infusion at issue".  
US, Comments on EC's Answer to Question 187, para. 129.  See, also , US, Answer to Panel Question 157, 
para. 141. 
4384 We have reached our factual conclusions without drawing inferences, logical or adverse, from the 
European Communities' failure to provide information requested by Questions 46, 73-76, 77 and 85-90 of the 
Annex V Facilitator, Exhibit US-4 BCI.  We consider it unnecessary to decide whether the Panel would have 
been entitled to draw such inferences.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  Deutsche Airbus, as part of a broader aid package for that company.4385 Although the United States 
has not identified a particular sub-paragraph of Ar ticle 2 as the basis of its claim, we understand from 
the nature of the argument it advances that its claim is grounded in Article 2.1(a) of the SCM Agreement.  Evidence submitted by the United St ates as to the terms of the KfW investment in 
Deutsche Airbus and of the 1989 restructuring a rrangements more generally confirms the United 
States' assertion that the KfW investment in De utsche Airbus was explicitly limited to Deutsche 
Airbus and was thereby "specific" within the mean ing of Article 2.1(a) of the SCM Agreement. The 
European Communities does not contest the United Stat es' allegation.  We therefore find that KfW's 
1989 acquisition of a 20 percent equity interest in Deutsche Airbus constitutes a specific subsidy to 
Airbus SAS. 
(iv) KfW's transfer of its 20 percent equity int erest in Deutsche Airbus to MBB in 1992 
7.1291  We now turn to the United States' claim that the 1992 acquisition by MBB of KfW's 
20 percent equity interest in Deutsche Airbus was also a subsidy.  We first consider whether the 
transfer by KfW of its shares in Deutsche Airbus to MBB is a "financial contribution" in the sense of 
Article 1.1(a)(1)(i) of the SCM Agreement.  The A ppellate Body has indicated that the term "funds" 
in Article 1.1(a)(1)(i) encompasses not only "money" but also financial resources and other financial 
claims more generally.
4386  We regard shares in a company as financial claims to a stream of income 
(in the form of dividends paid out of a company's profits) and to a share in the capital of the company 
on its liquidation.  Therefore, we consider that shar es in a company fall within the scope of the term 
"funds" in Article 1.1(a)(1)(i), and that a transfer of  shares falls within the sc ope of the term "direct 
transfer of funds".  We thus conclude that the tr ansfer by KfW of its 20 percent equity interest in 
Deutsche Airbus to MBB was a "financial contribution"  within the meaning of Article 1.1(a)(1)(i).   
7.1292  Our approach to the issue of benefit in the cont ext of KfW's transfer of its 20 percent equity 
interest in Deutsche Airbus to MBB is to ask whethe r the terms of that transfer are more favourable to 
MBB than those that would have been  available in the market?  To the extent that they are, then the 
financial contribution in question ( i.e., the transfer by KfW of its 20 percent equity interest in 
Deutsche Airbus) will have conferre d a benefit on MBB within the meaning of Article 1.1(b) of the 
SCM Agreement.   
7.1293  The European Communities argues that th e United States has failed to make a prima facie  
case that the KfW transfer of its 20 percent equity in terest in Deutsche Airbus conferred a benefit on 
Deutsche Airbus or on Airbus.  According to th e European Communities, th e United States has failed 
to demonstrate whether and how any alleged subs idy benefit passed from MBB to Deutsche Airbus, 
as the former manufacturer of LCA, or for that matter, to Airbus SAS, as the present day manufacturer of LCA.  The European Communities ar gues that neither in 1992 nor subsequently did 
MBB develop, produce or sell LCA.
4387  Moreover, the European Communities contends that, from 
Deutsche Airbus' perspective, the transf er of its shares from one shareholder ( i.e., KfW) to another 
(i.e., MBB) is of no economic consequence.4388         
7.1294  We note that prior to 1989, development and series production of the German share of the 
Airbus consortium was performed by MBB on behalf of Deutsche Airbus.4389  Even accepting the 
European Communities' assertion that the corporate entity MBB did not itself develop, produce or sell 
                                                      
4385 US, FWS, para. 548. 
4386 Appellate Body Report, Japan – DRAMs (Korea ), para. 250. 
4387 EC, FWS, para. 1203. 
4388 EC, FWS, para. 1203. 
4389 Monopolkommission Report , Exhibit US-30, para. 116. The German Federal Cartel Office notes 
that German federal government subsidies to Deutsche Airbus were passed on  to MBB and Dornier; 
Monopolkommission Report , Exhibit EC-30, para. 118. WT/DS316/R 
Page 722  
BCI deleted, as indicated [***] 
 
  LCA from 1992 onwards, we are not persuaded by  the proposition that the United States must 
demonstrate that any benefit conferred on MBB by the transfer to MBB of KfW's 20 percent equity 
interest in Deutsche Airbus passed through to Deutsch e Airbus and ultimately, to Airbus SAS.  We 
recall that, prior to KfW's 1989 investment in Deut sche Airbus, Deutsche Airbus was a wholly-owned 
subsidiary of MBB.  MBB thereafter continued to ow n an 80 percent interest in Deutsche Airbus until 
1992, when MBB re-acquired KfW's 20 percent stak e in Deutsche Airbus and Deutsche Airbus once 
again became a wholly-owned subsidiary of MBB.  As we have previously explained, MBB's re-
acquisition of a 20 percent stake in Deutsche Ai rbus was undertaken for the sole purpose of 
facilitating the restructuring of Deutsche Airbus.  Th ere is therefore no doubt that it was inherently 
linked with Deutsche Airbus' ability to continue to  operate in LCA business.  When Daimler Benz 
merged MBB into Daimler-Benz's aerospace subsidia ry, Dasa, later in 1992, Deutsche Airbus became 
a wholly-owned subsidiary of Dasa.  Dasa has since been the parent company of Deutsche Airbus, and following the reorganization of the Airbus consortium in 2000, a controlling shareholder of 
EADS.  Thus, in the light of these facts, we are of the view that absent a demonstration by the 
European Communities that the financial contribu tion which allegedly conf erred a benefit on MBB 
was unrelated to the production of Airbus LC A, MBB along with Deutsche Airbus should be 
considered to be a producer of Airbus LCA for purpo ses of our analysis of the existence of a subsidy 
under the SCM Agreement.
4390   
7.1295  As regards our determination of  a benefit conferred by the 199 2 transfer of KfW's 20 percent 
equity interest in Deutsche Airbus to MBB, we have  already indicated that we are satisfied that the 
transfer was not "free of charge".  However, th e fact that consideration was provided to KfW in 
respect of the transfer does not necessarily mean that  the transfer did not confer a benefit: whether it 
did or did not depends on whether the terms of the transfer were consis tent with what could have been 
obtained in the market. 
7.1296  We note that the price at which KfW sold its 20  percent equity interest in Deutsche Airbus 
consisted of two components.  The first was the ag reed value of the shares as of 1 January 1992, as 
evaluated by two independent accounting firms according to a market-based methodology. The second was the [***].   This price was to be paid, [***[[HSBI ]] ***].
4391 We recall the [***] nature of 
the Deutsche Airbus debt payable pursuant to the debtor warrant; namely, such debt was repayable 
[***].  In addition, [***].4392    
7.1297  Given the [***], it is necessary for us to evaluate whether the principal amount of DM  
[[HSBI ]] of Deutsche Airbus [***] was equivalent to the market value of KfW's 20 percent interest in 
Deutsche Airbus.  Although we are unable to arrive  at a precise estimate, we have no doubt that the 
present value in 1992 of the principal amount of DM  [[HSBI ]] of Deutsche Airbus [***] would have 
been heavily discounted from its face amount in light  of the fact that repayments would not become 
due before 2001 and in any case, would be contin gent on, and paid from 40 percent of, Deutsche 
Airbus' annual pre-tax profits.  Indeed, we are of the view that the principal amount of DM  [[HSBI ]] 
of Deutsche Airbus [***] would have been less than the apprai sed cash value of the 20 percent stake 
                                                      
4390 See, further on the question of pass-through our genera l discussion and conclusions set out at paras. 
7.190  - 7.200 above. 
4391 In response to a question from the Panel asking why or how Deutsche Airbus assumed obligations 
which appear to have been MBB's as purchaser of th e Deutsche Airbus shares from KfW, the European 
Communities replied that, following the German government's cancellation of the exchange rate insurance mechanism in 1992, the parties agreed to amend certain repayment provisions, including the terms of the debtor 
warrant, and to transfer KfW's 20 percent stake in Deutsche Airbus in exchange for Deutsche Airbus
' 
commitment to pay the agreed purchase price under the amended debtor warrant, in order to "maintain the balance of rights and obligations negotiated in the 1989 restructuri ng agreement"; EC, Answer to Panel 
Question 192, para. 190. 
4392 Second Amendment to the Framework Agreement dated 23 March 1989, dated as of 14 July 1992; 
Exhibit EC-888 HSBI.  WT/DS316/R 
 Page 723 
 
BCI deleted, as indicated [***] 
 
  in Deutsche Airbus of DM [[HSBI ]].  We therefore consider that the transfer by KfW of its 20 percent 
interest in Deutsche Airbus to MBB was made on terms considerably more favourable to MBB than 
the market and thus conferred a benefit on MBB.  Our conclusion in this regard is confirmed by 
evidence relating to the context in wh ich the 1992 transfer occurred.   
7.1298  As noted in our discussion of the background to the capital restructuring of Deutsche Airbus, 
KfW's time-limited equity investment in Deutsch e Airbus was one element of a comprehensive 
restructuring plan for Deutsche Airbus that was desi gned to gradually shift the risks associated with 
participation in the Airbus GIE to the privat e sector.  Another element of the restructuring 
arrangement as it had originally been envisaged was the establishment of an exchange rate loss 
insurance programme under which the German governme nt agreed to guarantee against exchange rate 
losses incurred by Deutsche Airbus.  The German gove rnment had either appropriated in the federal 
budget, or included in its planning  estimates, approximately DM 4.1 billion to cover its anticipated 
obligations under the exchange rate loss insura nce programme over the period 1989 to 2000.4393  
When the German government subsequently cancelled the exchange rate loss insurance programme in 
1992, it had already made payments under the programme of approximately DM 1.48 billion.4394  We 
consider it reasonable to infer that the cancellati on of the exchange rate loss guarantee programme 
resulted in Deutsche Airbus potentially losing appr oximately DM 2.6 billion in assistance that it had 
anticipated in 1989 that it would receive through to 2000.  The European Communities acknowledges 
that the 1992 amendments to the Framework Agreem ent, including the amendments to the terms of 
the debtor warrant and the transfer of KfW's 20 percen t equity interest in Deutsche Airbus to MBB in 
exchange for Deutsche Airbus' commitm ent to pay the agreed purchase price [***] were agreed 
between the parties in order to "maintain the rights and obligations negotiated in the 1989 restructuring agreement".
4395  In addition, the United States points to statements by Daimler-Benz to 
the effect that the early transfer of KfW's 20 per cent equity interest in Deutsche Airbus to MBB was 
one of the measures designed to compensate Deut sche Airbus/Daimler-Benz for the loss of assistance 
which had been anticipated under the exchange rate loss insurance scheme.4396   
7.1299  As we have previously noted, we are unable, on the basis of the evidence before us, to find 
that the sale of the KfW stake in Deutsche Airbus  to MBB was "essentially for free".  However, on 
the basis of the [***], we conclude that KfW transferred its 20 percent equity interest in Deutsche 
Airbus to MBB for considerably less than its  market value, which we consider to be [[HSBI ]] in 
accordance with the appraisal performed by [***].  We therefore find that the 1992 transfer by KfW 
of its 20 percent equity interest in Deutsche Air bus to MBB conferred a benefit on MBB within the 
meaning of Article 1.1(b) of the SCM Agreement.4397 
7.1300  We therefore conclude that KfW's 1992 transfer of a 20 percent equity interest in Deutsche 
Airbus to MBB was a financial contribution with in the meaning of Article 1.1(a)(1)(i) of the 
SCM Agreement, which conferred a benefit on MBB w ithin the meaning of Article 1.1(b) and thus 
constitutes a subsidy to the Airbus Indus trie consortium and to Airbus SAS. 
7.1301  The United States argues that KfW's transfer of  its 20 percent equity interest in Deutsche 
Airbus to MBB is a specific subsidy to Airbus with in the meaning of Article 2 of the SCM Agreement 
                                                      
4393 Monopolkommission Report , Exhibit US-30, para. 131. 
4394 BT-Frs. 13/8409, Exhibit US-31, para. 21. 
4395 EC, Answer to Panel Question 192, para. 190. 
4396 US, FWS, para. 550; Daimler-Benz, Consolidated Interim Report, January 1-June 30, 1992, Exhibit 
US-272, at 7.  The United States refers  to similar statements attributed to Peter Carl, then head of the European 
Communities' DG-Trade; Stephen Aris, Close to the Sun , Exhibit US-23, at 166-167. 
4397 We have reached our factual conclusions without drawing inferences, logical or adverse, from the 
European Communities' failure to provide information requested by Questions 46, 73-76, 77 and 85-90 of the 
Annex V Facilitator, Exhibit US-4 (BCI).  We consider it unnecessary to decide wh ether the Panel would have 
been entitled to draw such inferences. WT/DS316/R 
Page 724  
BCI deleted, as indicated [***] 
 
  because it resulted from a negotiation between th e German government and a single company to 
compensate the company for the effects of withdraw ing the exchange rate guarantee scheme that was 
found to be inconsistent with  the Tokyo Round Subsidy Code.
4398 Although the United States has not 
identified a particular sub-paragr aph of Article 2 as the basis of its claim, we understand from the 
nature of the argument it advances that its claim is grounded in Article 2.1(a) of the SCM Agreement.  
Evidence before us as to the terms of the 1992 share transfer confirms the United States' assertion that 
share transfer to MBB was explicitly limited to M BB and was thereby "specifi c" within the meaning 
of Article 2.1(a) of the SCM Agreement. The European Communities does not contest the United 
States' allegation.  We therefore find that KfW's 1992 transfer of its 20 percent equity interest in 
Deutsche Airbus to MBB constitutes a specific subsidy to Airbus SAS. 
(d) Conclusion 
7.1302  In conclusion, we find that the 1989 acquisitio n by KfW of a 20 percent equity interest in 
Deutsche Airbus constitutes a subsidy to Airbus b ecause it involves a financial contribution, in the 
form of a direct transfer of funds, pursuant to Article 1.1(a)(1)(i) of the SCM Agreement, which 
conferred a benefit on Deutsche Airbus because the investment decision was inconsistent with the 
usual investment practice of private investors in Ge rmany.   We further find that this subsidy is 
specific within the meaning of Article 2 of the SCM Agreement.    We also find that the 1992 transfer 
by KfW of its 20 percent equity interest in Deut sche Airbus to MBB constitutes a subsidy to Airbus 
because it involves a financial contribution, in the form  of a  direct transfer of funds, within the 
meaning of Article 1.1(a)(1)(i) of the SCM Agre ement which conferred a benefit on MBB because the 
consideration provided in respect of the transfer wa s less than the market value of the shares.  We 
further find that this subsidy is specific within the meaning of Article 2 of the SCM Agreement.      
7.1303  We now consider the parties' arguments concerning the 1998 settlement of the German 
government's outstanding clai ms against Deutsche Airbus. 
8. Whether the German government has subsidized Airbus by forgiving at least 
DM 7.7 billion of Deutsche Airbus' government debt 
(a) Background to the 1998 debt settlement 
7.1304  We recall our previous discussion of the key el ements of the 1989 restructuring of Deutsche 
Airbus.4399  In particular, we note that, pursuant to  the 1989 Framework Agreement, the German 
government (i) paid DM 1.9 billion in Deutsche Ai rbus' guaranteed bank debts and agreed to pay up 
to DM 750 million of LA/MSF debt in respect of the A300/A310;4400 (ii) made a loan of DM 
165 million to finance production of the A320; (iii) agreed to reschedule repayments of government 
financing of development costs for the A300, A310,  A320, A330/A340; and (iv) made a time-limited 
equity investment in Deutsche Airbus through KfW.4401  The payments made by the German 
government in items (i) through (iii), as well as am ounts owed to the German government as a result 
of the exchange rate insurance mechanism be tween 1989 and 1992, were to be conditionally 
repayable by Deutsche Airbus, in that they would give rise to claims to repayment to the German 
government pursuant to the terms of the debtor wa rrant.  Under the debtor warrant, Deutsche Airbus' 
repayment obligations were to be contingent on De utsche Airbus recognizing pre-tax profits, were to 
be payable only from such profits, and were to be payable from such profits only after any profits had 
                                                      
4398 US, FWS, para. 556. 
4399 See, paras. 7.1264 - 7.1302 above. 
4400 Exhibit US-30, paras. 121 and 131.  Of the DM 750 million, only DM 426 million was actually 
paid, bringing the total of Deutsche Airbus bank debt which was paid by the German government to 
approximately DM 2.33 billion; Exhibit US-31, para. 21; EC, FWS, para. 1184. 
4401 Exhibit US-31, p. 14.    WT/DS316/R 
 Page 725 
 
BCI deleted, as indicated [***] 
 
  first been applied to rebuilding Deutsche Airbus' capital base and to fu nding a reserve to cover future 
exchange rate losses.4402   
7.1305  In 1992, following the GATT Panel report in EEC- Airbus , KfW transferred its 20 percent 
equity interest in Deutsche Airbus to MBB, in re turn for the German government holding a claim to 
repayment against Deutsche Airbus, in the amount of [[HSBI ]], [***].  In addition, the repayment 
terms of the debtor warrant were themselves amende d to provide that Deutsche Airbus would only be 
required to begin making repayments  from 2001, and then only from 40 percent of its pre-tax profits, 
with the annual repayment obligation being con tingent on Deutsche Airbus having earned pre-tax 
profits in the previous year, and such pre-tax prof its being subject to reduction by the application of 
prior years' cumulative loss carryforwards.4403 
7.1306  In 1997, pursuant to the third amendment to the 1989 Framework Agreement, the German 
government agreed to accept a payment of DM 1.4 bi llion from Deutsche Airbus to fully discharge all 
of the German government's repayment claims in  respect of development financing for the A320.4404   
7.1307  Finally, pursuant to the fourth amendment to the Framework Agreement, the German 
government agreed, on 30 December 1998, to treat  as satisfied the rema inder of the German 
government's existing and/or projected payment and ot her claims against Deutsche Airbus pursuant to 
the Framework Agreement, and in respect of de velopment financing for the A300 and A310 from 
2001 onwards, and for the A330/A340 from July 20 04 onwards, in return for a one-off compensation 
payment of DM 1.75 billion, representing the pr esent value of those claims on 1 January 1999.4405 
7.1308  The United States argues that the total accumulated principal amount of debt which Deutsche 
Airbus owed the German government by the time of the 1998 transaction was at least DM 9.4 
billion.4406 According to the United States, settlement of DM 9.4 billion in debt for a payment of DM 
1.735 billion equates to debt forgiveness in the amount of DM 7.7 billion.4407  The United States 
therefore argues that the 1998 transaction should be ch aracterized as "debt forgiveness" and therefore, 
a financial contribution within Article 1.1(a)(1)(i) of the SCM Agreement.4408   
                                                      
4402 Exhibit US-30, para. 132. 
4403 Daimler-Benz Annual Report 1997, Exhibit US-262, p. 96. 
4404 EC, FWS, para. 1183; Third Amendment to the Framework Agreement of 23 March 1989, dated 
22 December 1997, Exhibit EC-889 HSBI.  The United Stat es does not challenge the 1997 settlement effected 
by the Third Amendment to the Framework Agreement in  this dispute; US, Answer to Panel Question 30, 
para. 195. 
4405 Fourth Amendment to the Framework Agreement of 23 March 1989, dated as of 
30 December 1998, Exhibit EC-890  HSBI; EC, FWS, para. 1187. 
4406 US, FWS, para. 516.  The United States alleges th at this debt consisted of DM 5.4 billion principal 
amount of debt in respect of LA/MSF for the A300/A310 and A330/A340 programs; a DM 165 million loan 
provided by the German government in 1988 to underwrite the costs of producing the A320, which was 
repayable pursuant to the debtor warrant; and DM 3.8 billion in additional loans arising out of the 1989 
restructuring; US, FWS, paras. 518-521.   
4407 US, FWS, para. 531. 
4408 US, FWS, paras. 532-533.  The United States refers to the Panel Report in Korea – Commercial 
Vessels , where the Panel stated that debt forgiveness is compar able to a cash grant, as funds that were previously 
provided as a loan, against interest, are now provided for free, given the removal of the repayment obligation; 
Panel Report, Korea – Measures Affecting Trade in Commerc ial Vessels ("Korea – Commercial Vessels "), 
WT/DS273/R, adopted 11 April 2005, DSR 2005:VII, 2749, para. 7.413. WT/DS316/R 
Page 726  
BCI deleted, as indicated [***] 
 
  (b) Arguments of the parties 
(i) United States 
7.1309  The United States alleges that in 1998, the German government agreed to accept a payment of 
DM 1.735 billion from Deutsche Airbus in full settle ment of DM 9.4 billion outstanding debt owed by 
Deutsche Airbus to the German government.  The Un ited States contends that in 1997, Deutsche 
Airbus and the German government entered into  an agreement pursuant to which the German 
government agreed to accept a payment of DM 1.4 billion to settle the outstanding amount of DM 1.5 billion outstanding debt of Deutsc he Airbus in respect of LA/MSF for the A320.  Then in 1998, 
Deutsche Airbus and the German government entere d into another agreement in which the German 
government agreed to accept a further payment of DM 1.735 billion to settle the remainder of 
Deutsche Airbus' DM 9.4 billion outstanding debt.  According to the United States, both the 1997 and 
1998 debt settlements were designed to strengthen Deutsche Airbus' bala nce sheet in anticipation of a 
merger of the Airbus partners to form an Airbus single corporate entity.
4409   The United States argues 
that the 1998 settlement thus constitutes debt fo rgiveness in the amount of DM 7.7 billion (excluding 
interest), and is a financial contribution with in the meaning of Article 1.1(a)(1)(i) of the 
SCM Agreement.4410   
7.1310  The United States argues that the 1998 settlement also confers a benefit on Deutsche Airbus 
within the meaning of Article 1.1(b) of the SCM Ag reement.  According to the United States, because 
debt forgiveness is comparable to a cash grant, it likewise places the recipient in a better position than 
it otherwise would have been in the marketplace.4411  The United States further argues that 
Article 6.1(d) of the SCM Agreement confirms th at debt forgiveness confers a benefit, and thus 
constitutes a subsidy, as debt forgiveness is one of only four types of transactions that are explicitly 
defined as subsidies which are deemed to cause serious prejudice.4412  According to the United States, 
Deutsche Airbus received an additional "intangibl e" benefit from the 1998 settlement, in the sense 
that the 1998 settlement removed the commercial uncertainty as to the period of time over which 
Deutsche Airbus was to be able to enjoy the bene fit of DM 9.4 billion of debt interest free, as 
Deutsche Airbus' repayment obligations were s ubject to Deutsche Airbus' post-2001 profitability.4413 
7.1311  Finally, the United States argues that the 1998 se ttlement is specific within the meaning of 
Article 2 of the SCM Agreement.  The Unite d States contends that the 1998 settlement was 
effectuated through an ad hoc  agreement between the German g overnment and Deutsche Airbus to 
settle all of the company's outstanding repayment oblig ations for all of the support it had previously 
received from the government.  The United States not es that this debt forgiveness was specifically 
limited to Deutsche Airbus and no other company participated in the transaction.4414 
(ii) European Communities 
7.1312  The European Communities argues th at there was no forgiveness of debt arising out of the 
1998 settlement; rather, the settlement amount represen ts the present value in 1998 of the obligation 
to repay outstanding debt negotia ted as part of the 1989 restructuring, as modified in 1992.  
According to the European Communitie s, even if a "benefit" had been conferred on Airbus as a result 
                                                      
4409 US, FWS, paras. 530-531. 
4410 US, FWS, para. 515.  The United States refers to the Panel's determination in Korea – Commercial 
Vessels , that debt forgiveness is "comparable to a cash grant, as funds that were previously provided as a loan, 
against interest, are now provided for free, given th e removal of the repayment obligation"; Panel Report, Korea 
– Commercial Vessels , para. 7.413. 
4411 US, FWS, para. 534. 
4412 US, FWS, para. 535. 
4413 US, Answer to Panel Question 30, para. 200. 
4414 US, FWS, para. 536.  WT/DS316/R 
 Page 727 
 
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  of the 1989 restructuring (which it denies), all th at Deutsche Airbus received in 1998 was the present 
value (in 1998) of the benefits that had been conferred pursuant to the 1989 restructuring.4415  
According to the European Communities, the 1998 se ttlement did not constitute  the "forgiveness" of 
outstanding debt owed by Deutsche Airbus to the German government; rather, the 1998 settlement 
simply fixed the present fair value (in 1998) of th e debt that would become due under the repayment 
obligations that had been negotiated in 1989.4416  The European Communities contends that in 
purporting to challenge the 1998 settlement as debt fo rgiveness of DM 7.7 billion,  the United States is 
in reality seeking to challenge the terms of the 1989 restructuring arrange ment, which constitutes a 
new claim that is outside the te rms of reference of this Panel.4417  In addition, the European 
Communities argues that it would be seriously prejudiced  and injured in its rights, as a defendant, if it 
were required to defend itself against such a legally  and factually complex claim that was being raised 
for the first time after the first written submissions had been filed and the first substantive meeting of 
the Panel had been held.4418 
7.1313  The European Communities also disputes that in 1998 Deutsche Airbus owed DM 9.4 billion 
to the German government.4419  The European Communities asserts that in 1989, the German 
government negotiated a restructuring arrangeme nt that involved, among other things, the deferral  of 
outstanding debt of Deutsche Airbus, through a profit-sharing arrangement (as amended in 1992) 
known as the Besserungsschein (the "debtor warrant").4420  According to the European Communities, 
the terms of this debt instrument were such th at Deutsche Airbus' repayment obligations were not 
triggered before 2001 (and on reaching certain fina ncial milestones).  In other words, in 1998, 
Deutsche Airbus' repayment obligations under the debt instrument had not yet been triggered, and the 
European Communities contends that it is therefor e not correct to say that in 1998, the German 
government was entitled to repayment of DM 9.4 billion.4421 
7.1314  The European Communities further disputes the United States' assertion that there was an 
additional "intangible" benefit conferred by the 19 98 settlement, in the sense that the high level of 
uncertainty about the claims that would accrue to the German government was removed.  The 
European Communities argues that, although the import of such an argument is unclear, it is 
theoretically possible that such a conversion might result in a "benefit" if undertaken for an amount 
that does not reflect the fair market value of the converted cash flow stream in light of the risk 
associated therewith.  However, th e European Communities contends, to avoid such a possibility in 
the present case, an independent international auditing firm, [***], valued the German government's 
claims against Deutsche Airbus through the appl ication of the most commonly used corporate 
evaluation method – a discounted cash flow analysis.4422  The European Communities argues that the 
report prepared [***][***]in 1998 at the request of the German government in order to [***], used 
discount rates and assessed delivery forecasts and exchange rates in order to neutralize the 
uncertainties to which the United States refers, in order to determine the likely value of future 
                                                      
4415 EC, SWS, para. 574. 
4416 EC, SWS, para. 579. 
4417 EC, SWS, paras. 571, 584, 585-591. 
4418 EC, Answer to Panel Question 103, paras. 297-298.  In this regard, the European Communities 
submits that it has never understood the United States to be challenging the terms of the 1989 restructuring.  
According to the European Communities, the terms of reference of a panel "are not a moving target that can be 
adjusted as the complainant likes, an d at the expense of the defending party".  EC, RPQ 103, para. 297 and 
footnote 179. 
4419 EC, SWS, para. 567. 
4420 As previously indicated, the European Communities translates the term Besserungsschein  as 
"debtor warrant".  The European Communities notes that the 1989 package involved the deferral  rather than a 
write-off of debts of Deutsche Airbus to the German government; EC, FWS, para. 1179. 
4421 EC, SWS, paras. 568-570.    
4422 EC, SNCOS, para. 245. WT/DS316/R 
Page 728  
BCI deleted, as indicated [***] 
 
  repayments under the 1989 restructuring, discounted to their present value in 1998.
4423  The European 
Communities asserts that the settlement amount agreed  by the parties ultimately exceeded the value 
placed on the German government's claims by [***].4424 
(c) Evaluation by the Panel   
7.1315  The United States has clarified the claim pertai ning to the 1998 debt settlement, which it 
explains in the following terms:  
"{T}he U.S. "claim" is that the European Communities has violated Article 5 of the 
SCM Agreement through the 1998 settlement  agreement, which amounted to a 
financial contribution that provided a benef it to Deutsche Airbus within the meaning 
of Article 1, that is specific within the meaning of Article 2, and that causes adverse 
effects to U.S. interests."4425 
7.1316  The United States argues that the 1998 settle ment agreement amounts to a financial 
contribution within the meaning of Article 1. 1(a)(1)(i) of the SCM Agreement; namely, debt 
forgiveness of DM 7.7 billion.  The European Communities argues that in 1998, there was no debt 
due to the German government that could be forgiv en: Deutsche Airbus did not "owe" anything to the 
German government, because the obligation to begi n repaying financing provided by the German 
government did not arise until 2001.4426  The European Communities' argument suggests that debt can 
only be "forgiven" when it is otherwise due and pa yable.  We are unable to accept such a proposition.  
We accept the factual evidence submitted by the Un ited States, and not specifically rebutted by the 
European Communities, that as of 1998, the Germ an government had advanced at least DM 9.4 
billion to Deutsche Airbus which Deutsche Airbus was obliged to repay to the German government 
pursuant to the terms of the debtor  warrant and of LA/MSF arrangements.4427  As of 1998, this amount 
was owed by Deutsche Airbus to the German govern ment and was therefore a debt, notwithstanding 
that the parties had agreed to defer repayments on th is debt so that the first repayment would not be 
due until 2001, assuming the prerequisite financial conditions were satisfied.   
7.1317  The United States characterizes  the financial contribution arising out of the 1998 debt 
settlement as "debt forgiveness". Ou r approach is, rather, to determine first, whether the 1998 debt 
settlement involves a financial contribution with in the meaning of Article 1.1(a)(1) of the 
SCM Agreement, and second, whether that fina ncial contribution confers a benefit on Deutsche 
                                                      
4423 EC, SWS, para. 576.  The European Communities notes that the United States does not offer any 
basis on which to question whether [***]  independent assessment of the value in 1998 of these future repayment 
was properly undertaken; nor does the United States argue that the amount arrived at by [***]  underestimated 
the present value of those future claims. 
4424 EC, SNCOS para. 246.  According to the European Communities, the discount rate implied in the 
actual settlement amount implies that the future cash fl ow stream was converted at the risk free German 
government borrowing rate, meaning that Deutsche Airbus had effectively agreed, in its negotiations with the 
German government, to settle the repaym ent claims as if there were virtually no risk that repayments would be 
delayed compared with current projections, or would not be made at all.  The European Communities contends 
that the parties effectively assumed, in other words, that the amount and timing of Deutsche Airbus' future 
payments on the claims held by the German govern ment was as certain as the payment on a German 
government bond; EC, SNCOS, para. 246. 
4425 US, Answer to Panel Question 31, para. 204, footnote 241; FWS, paras. 515-536;. 
4426 EC, SWS, para. 567. 
4427 Frankfurter Allgemeine Zeitung , 16 June 1997, reporting a stat ement by the CEO of Dasa that 
Deutsche Airbus owed DM 10.5 billion under the profit-sharing arrangement ( i.e., the debtor warrant, and DM 1 
billion through LA/MSF delivery-base d repayments), Exhibit US-263; Frankfurter Allgemeine Zeitung , 
24 May 1997, reporting a statement by the Federal Minister of Finance that the German government had 
repayment claims under debtor warrants in respect of DM  10.4 billion in German federal government subsidies 
to Airbus; Exhibit US-264.    WT/DS316/R 
 Page 729 
 
BCI deleted, as indicated [***] 
 
  Airbus within the meaning of Article 1.1(b) of the SCM Agreement.  If we conc lude that the financial 
contribution confers a "benefit"  on Deutsche Airbus, then it may be that the subsidy in question could 
be described as "debt forgiveness" in an amount equal to the amount of benefit found to have been 
conferred.  However, the first issue for us to de termine is whether the 1998 debt settlement constitutes 
one of the forms of financial contribution set forth in Article 1.1(a)(1).  We conclude that the 1998 
debt settlement constitutes a financia l contribution in the form of a "direct transfer of funds" within 
the meaning of Article 1.1(a)(1)(i) of the SCM Agreement.  We note that, in Japan – DRAMS , the 
Appellate Body interpreted the term "funds" in Ar ticle 1.1(a)(1)(i) broadly, as encompassing not only 
"money" but also "financial resources and other financial claims  more generally."4428  Debt owed to 
the government is an asset held by the government consisting of certain financial claims  (i.e., rights to 
payment of money or equivalents) that the government has against a debtor.  A settlement of government-held debt essentially involves the transfer to the debtor of the government's financial 
claims against that debtor, resulting in the cancellati on of the debt.  We therefore regard a settlement 
of debt as a "direct transfer of funds" by a government, and thus a "financial contribution" within the 
meaning of Article 1.1(a)(1)(i) of the SCM Agreement.     
7.1318  We now consider whether the 1998 debt settleme nt conferred a benefit on Deutsche Airbus 
within the meaning of Article 1.1(b) of the SCM Agreement.  The United States alleges that by the 
end of 1998, Deutsche Airbus had accumulated DM 9.4 billion in debt to the German government, 
consisting of (i) DM 5.4 billion in LA/MSF that the German government ha d provided to Deutsche 
Airbus in respect of the A300/A310 and A330/A340 programs;
4429 (ii) a DM 165 million loan that the 
German government had provided to Deutsche Airbus  in 1988 to underwrite costs of producing the 
A320;4430 and (iii) approximately DM 3.8 billion in a dditional loans that the German government had 
provided to Deutsche Airbus in the 1980s and early 1990s, which had their genesis in the 1989 restructuring of Deutsche Airbus.
4431  The German government and Da imler-Benz negotiated to settle 
Deutsche Airbus' outstanding repayment obligations  under the debtor warrant and LA/MSF on the 
basis of a report prepared by the accounting firm [***].  In the [***] Report, [***] attempted to 
calculate a present value for two categories of condi tional repayment obligations of Deutsche Airbus.  
The first category comprised claims that were base d on future deliveries of LCA, such as German 
government development financing for the A300 and A310 (from 2001 onwards) and for the 
A330/A340 from July 2004 onwards.  The second category comprised amounts repayable under the 
debtor warrant (which were repayable from 40 per cent of Deutsche Airbus' annual pre-tax profits 
from 2001 onwards).  The [***] Report used a discounted cash flow methodology to calculate 
[***].4432  The settlement amount ultimately negot iated between the German government and 
Daimler-Benz was higher than the upper end of the range of the values [***].   
7.1319  The United States argues th at, even if one assumes arguendo  that DM 1.7 billion represented 
the present fair value of the German government's clai ms at the time of the settlement, the effect of 
                                                      
4428 Appellate Body Report, Japan – DRAMs (Korea) , para. 250. 
4429 The United States notes that figure of DM 5.4 billion represents principal only; US, FWS, 
para. 519. 
4430 US, FWS, para. 520.  The United States refers to  German budget documents as indicating that the 
DM 165 million loan was originally part of a total loan of DM 670 million which the German government had 
decided to provide to Deutsche Airbus for the production of the A320.  According to the United States, the 
German government converted DM 505 million of the loan into a DM  505 million capital investment in 
Deutsche Airbus in 1989.  As previously indicated, th e United States challenges the DM 505 million capital 
investment by the German government as a specific subsidy. See, paras. 7.1264 - 7.1302 and paras. 7.1315 - 
7.1322 above. 
4431 US, FWS, para. 521. 
4432 [***] also provided the German government with  a document confirming its view that the 
settlement amount did not amount to alteration of existin g contractual obligations to advantage the beneficiary, 
but represented an adequate amortization of those obligations on the basis of the various assumptions on which the settlement amount was based; [***]  Letter, dated 26 July 1999, Exhibit EC-HSBI-0000205. WT/DS316/R 
Page 730  
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  settling the debt for a payment of DM 1.7 billion was to confer on Airbus a one time benefit of 
DM 7.7 billion, as opposed to receiving the benefit of  the below-market interest rate embedded in the 
debtor warrant over a period of decades from 1989.  According to the United States, in ascertaining 
whether Deutsche Airbus received an advantage re lative to what would have been accorded by a 
market-based creditor, it is necess ary to consider also the "non-market based terms of the underlying 
claims".  Thus, in the United States' view, the fair  market value of a market -based creditor's claims 
against Deutsche Airbus would have  been higher than the fair market value of the non-market based 
claims that the German government had against Deutsche Airbus.  The United States argues that, by 
discounting the preferential repayment obligations in herent in LA/MSF and the other outstanding debt 
effective as of 1 January 1999, the German governme nt converted the loans and repayable grants, and 
the future benefit associated with them, to a ne t present repayment obligation of DM 1.7 billion and 
therefore a net present benefit of DM 7.7 billion.
4433 
7.1320  Consideration of this issue involves two levels of transactions that could potentially constitute 
subsidies to Deutsche Airbus; namely, (i) the origin al transactions between the German government 
and Deutsche Airbus that resulted in Deutsche Airbus  being obligated to repay, as of December 1998, 
DM 9.4 billion to the German government; and (ii) the settlement by the German government of those 
repayment claims in return for a payment of DM  1.75 billion. The United States has challenged the 
latter as a specific subsidy to Deutsche Airbus.4434  We do not agree with the United States that it is 
appropriate to consider the terms of the original transactions that resulted in the repayment claims 
totalling DM 9.4 billion in determining whether the te rms of the settlement of those repayment claims 
are consistent with the terms on which a market-bas ed creditor would have settled such claims.  We 
are aware of the possibility that the underlying tr ansactions were themselves subsidies, and indeed, 
certain of them have been challenged as, and in  some cases found to be, subsidies in this dispute.4435  
However, in light of the specific circumstances of  the 1998 debt settlement, we do not consider the 
fact that the underlying transactions may be subsid ies to be relevant to the question whether the 
"financial contribution" at issue before us here; i.e., the transfer of the German government's financial 
claims against Deutsche Airbus to Deutsche Airbus  for a specified amount, conferred a "benefit" on 
Deutsche Airbus, within the meaning of Article 1.1(b).4436  For purposes of assessing any benefit 
conferred as a result of the 1998 debt settlement, th e relevant question is whether the terms of the 
transfer of the financial claims were consistent with those that Deutsche Airbus would have obtained 
from a market-based creditor.   
7.1321  The European Communities has pr esented evidence that the DM 1.75 billion settlement 
amount negotiated between the German governme nt and Daimler-Benz was based on the present 
value of the financial claims, a nd was consistent with the terms that Deutsche Airbus could have 
                                                      
4433 US, Answer to Panel Question 30, para. 199. 
4434 Although the United States has challenged certain  of the underlying transactions as specific 
subsidies in this dispute, including elements of the 1989 restructuring arrangement, namely KfW's acquisition of 
a 20 percent equity interest in Deutsche Airbus in 1989 a nd subsequent transfer of that  interest to MBB in 1992, 
we note that the United States do es not challenge the 1989 restructur ing arrangement as a whole.  The 
United States has made clear that its challenge is confined  to "the 1998 transaction that led to the elimination of 
DM 9.4 billion in debt that Deutsche Airbus owed to the German government in exchange for a one-time 
payment of DM 1.7 billion"; US, Comments on EC Answer to Panel Question 187, para. 133. 
4435 The United States has challenged certain of the underlying transactions that gave rise to the 
repayment claims as themse lves involving subsidies; e.g.,  LA/MSF in respect of the A300/A310, A320 and 
A330/A340 and the 1992 sale of KfW's 20 percent equity interest in Deutsche Airbus to MBB.  We have found 
that these are specific subs idies in this dispute. See, paras. 7.497 and 7.1302 above.  If, having found that these 
underlying transactions constituted subsidies, we were to then find that settlement of financial claims created by those underlying transactions constituted subsidies because the underlying transactions constitute subsidies , we 
would be double-counting the same subsidies. 
4436 We express no view as to whether, in other fact ual circumstances, it may be relevant to the question 
whether a settlement of debt conferred a benefit that the debt in question related to previously granted subsidies.      WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  obtained in the market for the settlement of tho se claims.  The United States has not challenged the 
assumptions employed or range of estimates arrived at in the [***] Report, nor has it argued that the 
settlement amount of DM 1.75 billion was less than  the fair value, in 1998, of the German 
government's outstanding claims.  On the basis of the unrefuted evidence presented by the European 
Communities that the amount of DM 1.75 billion is  consistent with the present value in 1998 of 
Deutsche Airbus' outstanding indebtedness to the Ge rman government, we consider that the United 
States has not established that the German governme nt's 1998 settlement of outstanding debt of 
Deutsche Airbus for DM 1.75 billion conferred a be nefit on Deutsche Airbus within the meaning of 
Article 1.1(b) of the SCM Agreement.   
(d) Conclusion 
7.1322  We conclude that the 1998 settlement by the German government of all of Deutsche Airbus' 
outstanding repayment obligations to the German gove rnment in exchange for a payment of DM 1.75 
billion is a financial contribution in the form of a "direct transfer of funds" within the meaning of 
Article 1.1(a)(1)(i) of the SCM Agreement.  We  are not satisfied, however, that the financial 
contribution conferred a "benefit" on Deutsche Airbus  within the meaning of Article 1.1(b) of the 
SCM Agreement.  We therefore reject the Un ited States' claim that the 1998 debt settlement 
constitutes a specific subsidy to Airbus. 
9. Whether the equity infusions that the French  government provided to Aérospatiale are 
specific subsidies 
(a) The French government's capital investme nts in Aérospatiale between 1987 and 1994 
(i) Factual background 
7.1323  In this section, we address the United States' claims that four capital contributions made by 
the French government to Aérospatiale between the years 1987 and 1994, constitute specific subsidies 
to Airbus.  We briefly recount the facts concerni ng those capital contributions, before addressing the 
parties' arguments and setting forth our evaluation of the relevant legal issues and our findings.   
7.1324  We recall that, from its inception in 1970 until 1999, Aérospatiale was wholly-owned, either 
directly or indirectly, by the French government.4437  In 1987, the French government made a capital 
contribution in the amount of FF 1.25 billion to Aérospatiale.  This amount was integrated into 
Aérospatiale's financial statements for the year e nded 31 December 1987, although it was not paid in 
until the beginning of 1988.4438  The French government made a further capital contribution of 
FF 1.25 billion to Aérospatiale in 1988.4439  Then, in 1992, Crédit Lyonnais, which was at that time 
                                                      
4437 The French government's indirect interests in  Aérospatiale were held through SOGEPA and 
(following its equity investment in 1992), Crédit Lyonnais.  In 1999, Aérospatiale merged with Matra Hautes 
Technologies to form Aérospatiale-Matra; see, footnote 2054. 
4438 Aérospatiale Results 1987, p. 2, Exhibit US-32, p. 2; French Senate Report No.  88, Project de loi 
des finances pour 1989, Tome III, Annexe 34 due 21/11/1988, Transports et mer II/Aviation civile 
III/Météorologie, Exhibit US-279, p. 33. 
4439 French Senate Report No.  85, Project de loi des finances pou r 1991, Tome III, Annexe 19 
Equipement, logement, transport et mer, Exhibit US-281, p. 46, which records a contribution of 
FF 1,250 million being made by the French government to Aérospatiale in 1987 and an additional capital 
contribution of FF 1,250 million being made by the French government to Aérospatiale in 1988; Aérospatiale 
1988 Annual Report, Exhibit US-282, pp. 5, 25; Aérospatiale, Comptes de l'Exercise 1988, at 5, referring to a "second tranche" of FF 1.25 billion bein g received by Aérospatiale in 1988. WT/DS316/R 
Page 732  
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  controlled by the French government, acquired a 20 percent equity interest in Aérospatiale.
4440  This 
transaction involved Crédit Lyonnais subscribing fo r FF 1.4 billion in newly-issued Aérospatiale 
shares, as well acquiring existing Aérospatiale shar es from the French government, in exchange for 
the issuance to the French government of approximately two percent of Crédit Lyonnais' share 
capital.4441  On 1 February 1994, the French government made a further capital transfer of FF 2 billion 
to Aérospatiale.4442     
7.1325  We note that in its first written submission, the European Communities indicates that the 
relevant amounts and dates of the capital contribu tions made by the French government are: FF 1.48 
billion in 1988; FF 1.25 billion in 1989;1.439 billion in 1992 and FF 2 billion in 1994.4443  Thus, 
although the parties agree generally as to the amounts and timing of the 1992 and 1994 capital 
contributions, the United States alleges that the Fr ench government made a capital contribution of 
FF 1.25 billion in 1987, whereas the European Communities considers this capital contribution to 
have been in the amount of FF 1.48 billion in 198 8.  Similarly, the "second" FF 1.25 billion capital 
contribution, which the United States alleges was ma de in 1988, the European Communities considers 
to have been made in 1989.  The exhibits to whic h the European Communities refers in support of its 
assertions that the relevant dates of the two capita l contributions are 1988 and 1989, rather than 1987 
and 1988 as alleged by the United States, actually record the capital contributions as having been 
made in 1987 and 1988.  As for the apparent discrepancy over the amount of the 1987 capital 
contribution, the United States notes that, alt hough Aérospatiale's 1987 Annual Report records a 
FF 1.48 billion "capital stock increase in process", it ca n be assumed that this larger amount includes a 
FF 230 million capitalized advance which was provided in  1986.  We are satisfied that the French 
government made a capital contribution of FF 1.25 billion to Aérospatiale in 1987 and a further 
capital contribution in the same amount in 1988 and we shall proceed to examine the United States' 
claims on that basis. 
7.1326  The United States argues that each of the cap ital contributions made by the French 
government to Aérospatiale in 1987, 1988, 1992 (m ade by Crédit Lyonnais), and 1994, are financial 
contributions within the meaning of 1.1(a)(1) of the SCM Agreement, which conferred a benefit on 
Aérospatiale within the meaning of Article 1.1(b).  The United States further alleges that each of the 
above-referenced transactions cons titutes a specific subsidy within the meaning of Article 2 of the 
SCM Agreement.  As will be apparent from our discussion of the respective arguments of the United 
States and the European Communities, the parties'  disagreement over whether the transactions in 
question are specific subsidies centres on the issue of  whether they can be said to have conferred a 
"benefit" on Aérospatiale, within the meaning of Arti cle 1.1(b) of the SCM Agreement.  This in turn, 
involves a consideration of the appropriate standa rd for determining the existence of a benefit 
conferred by a financial contribution in the form of  an equity infusion, and the nature of evidence 
sufficient to establish (and rebut) the existence of benefit.   
                                                      
4440 Immediately preceding the 1992 capital investment by Crédit Lyonnais, the French government 
held a 54.3 percent interest in Crédit Lyonnais.  Following the capital investment, its stake increased to 
56.1 percent. 
4441 The transaction occurred in two stages: (i) Crédit Lyonnais, acting through its subsidiary Crédit 
Lyonnais Industrie-Clindus, acquired 3,570,884 newly issued shares in Aérospatiale (representing a 
FF 1,439 million increase in Aérospatiale's equity capital); and (ii) the French government contributed 4,637,931 of its shares in Aérospatiale to Crédit Lyon nais, in exchange for an increase in Crédit Lyonnais' 
capital reserved for the state; Aérospatiale Group Annual Report 1992, Exhibit EC-174, p. 74. 
4442 Aérospatiale 1993 Annual Report, Exhibit EC-186, p. 42. 
4443 EC, FWS, para. 1132.  WT/DS316/R 
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  (ii) Arguments of the parties  
United States  
The appropriate standard for determin ing the existence of "benefit" under 
Article 1.1(b) 
7.1327  The United States notes that Article 1.1(b) of the SCM Agreement does not establish a 
standard for determining whether an equity  infusion confers a benefit on its recipient.4444  T h e  
United States contends that Article 14(a) provides re levant context for determining how to make such 
a determination, however, as it provides a standa rd for purposes of Part V of the SCM Agreement.4445  
In light of Article 14(a), the United States argues that , "if a government's decision to provide equity to 
a company is inconsistent with the usual investment  practice of private investors in that Member's 
territory, the infusion confers a benefit with in the meaning of Article 1.1(b) of the 
SCM Agreement."4446  Thus, according to the United States, if under the usual investment practice of 
private investors in the territory of the subsidizing Member, the equity infusion would not have been provided, or if the government equity infusion is made on better than commerc ial terms, the equity 
infusion confers a benefit and constitutes a subsidy.
4447 
7.1328  According to the United States, where a recipi ent company's shares are not publicly traded, 
the question whether an equity infusion is consiste nt with the usual investment practice of private 
investors in the territory of the Member involves an analysis of the company's financial state and 
performance to determine whether the government had a realistic expectation of a reasonable return 
on the investment, or if private investors would have undertaken such an investment at all.4448  The 
United States contends that the usual practice of priv ate investors considering whether to invest in a 
company is to analyze indicators of the company' s financial and commercial health and performance, 
as reflected in the company's financial statements, and to conduct an objective analysis and in-depth 
"due diligence" on the company.  The United States c ontends that a market investor, with virtually 
limitless options for investing its capital, is interested  in maximizing its returns, regardless of whether 
that interest coincides with the interest of a particular company in meeting ongoing capital 
requirements.4449    
The 1987 and 1988 capital contributions 
7.1329  The United States argues that the capital contributions made by the French government to 
Aérospatiale in 1987 and 1988 are direct transfer s of funds in the form of equity infusions and 
therefore constitute financial contributions with in the meaning of Article 1.1(a)(1)(i) of the 
SCM Agreement.4450  The United States argues that each of these financial contri butions conferred a 
benefit on Aérospatiale and thus c onstitutes a subsidy to Aérospatiale.4451  Finally, the United States 
argues that these subsidies are speci fic to Aérospatiale within the meaning of Article 2 of the 
                                                      
4444 US, FWS, para. 544. 
4445 US, FWS, para. 544. 
4446 US, FWS, para. 545. 
4447 US, FWS, para. 562. 
4448 US, FWS, para. 563. 
4449 For this reason, the United States contends that it is beside the point that the French 
government may have considered the capital contributions to be necessary to meet Aérospatiale's ongoing 
capital requirements; US, Answer to Panel Question 224, para. 322. 
4450 US, FWS, para. 567. 
4451 US, FWS, para. 561. WT/DS316/R 
Page 734  
BCI deleted, as indicated [***] 
 
  SCM Agreement, as they are ad hoc  infusions into the company by the French government and are 
explicitly limited to Aérospatiale.
4452   
7.1330  In support of its argument that the 1987 and 1988 equity infusions were inconsistent with the 
usual investment practice of private investors in France, and therefore conferred a benefit on 
Aérospatiale, the United States cont ends that Aérospatiale was "in serious financial trouble", at the 
relevant times at which the French government woul d have been considering whether or not to make 
the investments.  The United States points to Aérospa tiale's total shareholders' equity in 1986 (which 
was slightly more than FF 3.3 billion) compared to its long-term borrowings of FF 8.7 billion and 
total liabilities of approximately FF 36.7 billion.4453  The United States also presents evidence of 
certain key financial ratios of Aérospatiale compared  with those of an alleged peer group of French 
aerospace and defence companies.4454  The United States notes that Aérospatiale's debt-to-equity ratio 
in 1986 was 10.9, compared with an average of 6.2 for the peer group companies.  Aérospatiale's debt 
coverage ratio was 0.1 in 1986 and zero in 1987, co mpared with a peer group average of 1.1 and 1.6, 
respectively.4455  Finally, the United States notes that Aérosp atiale's return on equity in 1986 and 1987 
was 9.8 percent and 4 percent, respectively, comp ared with peer group averages of 45.2 percent and 
17.2 percent.  In sum, the United States argues that "in 1987 and 1988, Aérospatiale had a liquidity 
crisis; the investments were insufficient to resolv e the crisis; it had been a poor investment in the 
years preceding the equity infusions."4456   
7.1331  In addition, the United States notes that the A nnex V Facilitator had requested the European 
Communities to indicate whether any prior evaluati on had been made of the equity infusions or 
Aérospatiale shares during this period and to provide  any contemporaneous reports or analyses of the 
financial situation or prospects of Aérospatiale.4457  The United States contends that the European 
Communities neither provided such information nor  indicated whether such information exists.  
Accordingly, the United States argues that the Eur opean Communities' failure to respond gives rise to 
a logical inference that there are no such contemporaneous analyses (indicating behaviour at variance 
with that of the usual investment practice of a private investor), or that such contemporaneous 
analyses contain information adver se to the European Communities' case.4458 
The 1992 capital contribution 
7.1332  The United States asserts that Crédit Lyonnais, as an entity that was controlled by the French 
government at the relevant time, is a "public body" within the meaning of Article 1.1(a)(1) and thus 
that the FF 1.4 billion investment in Aérospatiale by  Crédit Lyonnais constitute s a direct transfer of 
funds (in the form of an equity infusion) by a public  body within the meaning of Article 1.1(a)(1)(i) of 
                                                      
4452 US, FWS, para. 574. 
4453 US, FWS, para. 569. 
4454 Exhibit US-274.  The alleged key financial ratios are return on equity, debt-to-equity ratio and debt 
coverage ratio.  The alleged peer group companies are Aviation Latécoère, Dassa ult Aviation S.A., SAFRAN 
S.A., Thales S.A.  and Zodiac S.A. 
4455 The United States notes that, as a ratio of one or  above is necessary in order for a company to be 
able to cover its outstanding short-term debt, Aérospatia le's debt coverage ratios indicate that it was "in serious 
financial trouble" at the time. 
4456 US, FWS, para. 573.  The United States notes that the European Communities' evidence concerning 
an expected recovery in the LCA market dates only from 1994 and that the European Communities did not 
provide any evidence of contemporaneous studies or analyses undertaken by the French government on the investment prospects of Aérospatiale in 1988, 1989, 1992 or 1994; United States, Answer to Question 27 of the 
First Questions of the Panel, para. 174. 
4457 Question 94(h)-(i) from the Facilitator to the EC, Exhibit US-4 BCI. 
4458 US, FWS, para. 572.  WT/DS316/R 
 Page 735 
 
BCI deleted, as indicated [***] 
 
  the SCM Agreement.4459  The United States argues that this fi nancial contribution conferred a benefit 
on Aérospatiale because Crédit Lyonnais' decision to invest in Aérospatiale in 1992 was inconsistent 
with the usual investment practice of private investor s.  Finally, the United States argues that the 1992 
equity infusion is specific to Aérospatiale within  the meaning of Article 2 of the SCM Agreement 
because it is an ad hoc  infusion by a public body and is e xplicitly limited to Aérospatiale.4460 
7.1333  In support of its argument that the 1992 equity infusion by Crédit Lyonnais was inconsistent 
with the usual investment practice of private inv estors in France and therefore conferred a benefit on 
Aérospatiale, the United States points to certain ev idence of Aérospatiale's financial health and 
performance, as reflected in its financial statements, and its comme rcial outlook at the time of the 
1992 equity infusion.  In this regard, the United States notes that Aérospatia le's total liabilities had 
increased from FF 33.2 billion in 1989 to FF 60.2 bill ion in 1991, of which debt maturing within one 
year had increased from FF 3. 6 billion to FF 8.4 billion.4461  Aérospatiale's debt coverage ratio was 
0.1, -0.5 and 0.2 for the years 1989, 1990 and 1991,  respectively, compared to corresponding peer 
group averages of 2.4, 1.5 and 1.3, respectively.4462  Aérospatiale's debt-to-equity ratio was 6.5 in 
1989, 10.5 in 1990 and 12.3 in 1991, compared to peer group averages of 4.0, 4.3 and 3.7, 
respectively, over the same periods.4463  The United States considers th ese results to be evidence that, 
"prior to the 1992 decision to provide yet another equity infusion, Aérospatiale was sinking deeper 
into debt, with less ability to pay its short-term liabilities and with its capital under constant pressure 
from sustained losses."4464 
7.1334  In addition, the United States notes that Aérosp atiale had sustained a net operating loss in 
1990 and had reported a positive result in 1991 only because  of the effect of two extraordinary income 
items not related to its Airbus operations.4465  According to the United Stat es, Aérospatiale's return on 
equity was "dismal" in the years preceding the 1992 equity infusion.4466  Moreover, the United States 
notes that contemporaneous press reports had questi oned how the investment in Aérospatiale made 
sense for Crédit Lyonnais.4467  In sum, the United States argues that  Aérospatiale's financial results at 
the time of the 1992 equity infusion would have deterred private investors from injecting further 
equity into the company.  According to the Un ited States, Aérospatiale was undergoing a liquidity 
crisis, it had been a poor investment in the years preceding the infusion and the situation in the aeronautics industry did not indicate that its prospects would soon improve.
4468 
7.1335  Finally, the United States notes that, in respon se to requests from the Annex V Facilitator to 
provide contemporaneous reports, studies or analy ses of Aérospatiale's financial situation or 
expectations with respect to the investment, the European Communities had replied that the 
transactions in question were carried out consisten tly with the French govern ment's practice and in 
                                                      
4459 US, FWS, para. 580.  The United States notes  that in the Annex V process, the European 
Communities confirmed that Crédit Lyonnais was controlled by the French government at the time of the 1992 
equity infusion; EC, Answer to Q99 from the Facilitator, Exhibit US-5 BCI. 
4460 US, FWS, para. 590. 
4461 US, FWS, para. 583, referring to Aérospatiale, Annual Report 1989, Exhibit US-287 and 
Aérospatiale, Annual Report 1991, Exhibit US-273. 
4462 US FWS; para. 583; Ratio Comparison Chart, Exhibit US-274. 
4463 US, FWS, para. 583; Ratio Comparison Chart, Exhibit US-274. 
4464 US, FWS, para. 583. 
4465 US, FWS, para. 583; Aérospatiale, Annual Report 1991, Exhibit US-273; Aérospatiale, Annual 
Report 1990, Exhibit US-289. 
4466 US, FWS, para. 585.  The United States notes that  Aérospatiale's return on equity was 2.2 percent 
in 1989, negative 7.7 percent in 1990, and 4.5 percent in 1991, compared with peer group averages of 15.8 
percent, 14.5 percent and 15.2 percent over the corresponding periods. 
4467 US, FWS, para. 586. 
4468 US, FWS, para. 589. WT/DS316/R 
Page 736  
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  full accordance with French law.
4469  The United States contends that the European Communities' 
response suggests that the equity infusion was cons istent with French government practices, not the 
usual investment practice of private investors, and that the European Communities' refusal to provide 
the information sought by the Annex V f acilitator further supports this conclusion. 
The 1994 capital contribution 
7.1336   The United States alleges that in February 1 994, the French government transferred a further 
FF 2 billion to Aérospatiale as an advance on a capital increase which took place in April 1994.4470  
According to the United States, this capital contri bution constitutes a financial contribution as it is a 
direct transfer of funds in the form of an equity infusion within the meaning of Article 1.1(a)(1)(i) of 
the SCM Agreement.4471  The United States argues that the 1994 equity infusion conferred a benefit 
on Aérospatiale because, based on an analysis of Aérospatiale's financial condition and performance 
prior to the capital contribution, such an investme nt was inconsistent with the usual investment 
practice of private investors in France.  Finally,  the United States argues that the 1994 equity infusion 
is specific within the meaning of Article  2 of the SCM Agreement because it was an ad hoc  infusion 
which was explicitly limited to Aérospatiale. 
7.1337  In support of its argument that the 1994 equity  infusion was inconsistent with the usual 
investment practice of private investors in France,  and therefore conferred a benefit on Aérospatiale, 
the United States points to Aérospatiale's reported fi nancial results and financial ratios in the periods 
preceding the 1994 equity infusion.  In that regard, the United States notes that Aérospatiale reported 
consolidated net losses of FF 2.38 billion and FF 1.4 billion in 1992 a nd 1993, respectively.4472  In 
addition, the United States notes that Aérosp atiale's financial ra tios "remained dire".4473  The United 
States also refers to various media reports sugges ting that Aérospatiale's serious financial condition 
was common knowledge at the time of the 1994 equity infusion, including a statement by Aérospatiale's then-Chairman, Louis Gallois in Febr uary 1994, that from an investor's point of view, 
Aérospatiale was probably still "rep ellent" and suggesting that priv atization of Aérospatiale was 
unlikely to occur in 1994 or even in 1995.
4474  Moreover, the United States argues that Aérospatiale's 
prospects at the time of the 1994 equity infusi on were also unpromising, noting management's 
prediction in Aérospatiale's 1993 Annual Report that  economic conditions woul d remain very difficult 
in 1994.4475 
7.1338  The United States further notes that the Eur opean Commission examined the 1994 equity 
infusion under the EC state aid rules and that, d espite the Facilitator's request during the Annex V 
process that the European Communities provide information with respect to the European 
                                                      
4469 US, FWS, para. 588; citing to EC, Answer to Pa nel Question 100(g) from the Facilitator, Exhibit 
US-5 BCI. 
4470 US, FWS, para. 594. 
4471 We understand that the United States challenges the capital investment made by the French 
government and that this transaction took the form of an advance contribution of cash to Aérospatiale in February 1994 against the issuance of new shares in Aérospatiale which occurred in April 1994. 
4472 US, FWS, para. 598. 
4473 US, FWS, para. 599.  Aérospatiale's debt-to-equity ratios were 16.6 and 25.5 in 1992 and 1993, 
respectively, which the United States co ntrasts to peer group averages for the corresponding periods of 3.2 and 
3.1.  The United States also notes that Aérospatiale had a debt coverage ratio of -1.3 and – 0.7 in 1992 and 1993, respectively, which it contrasts with peer group averages for the corresponding periods of 1.1 and 0.7.  
According to the United States, the negative debt covera ge ratios indicate that Aérsospatiale's assets were 
"grossly insufficient" to cover its current borrowings.  In addition, Aérospatiale's return on equity was -48.5 
percent in 1992 and -37 percent in 1993, which the United States contrasts with peer group averages for the 
corresponding periods of 13.2 percent and 8.3 percent, respectively. 
4474 US, FWS, para. 603; Exhibit US-275. 
4475 US, FWS, para. 603.  WT/DS316/R 
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  Commission's review (including the Commission's c onclusion and reasons as to whether the infusion 
constituted state aid), the European Communities re fused to provide the information.  The United 
States requested the Panel to use its authority unde r Article 13 of the DSU to request the information 
on the European Commission's state aid review of  the 1994 equity infusion that the European 
Communities had failed to provide to the Facilitator in the Annex V process.4476  
European Communities  
7.1339  The European Communities ar gues that the United States has failed to make out a prima facie  
case that any of  the four capital contributions ma de by the French government to Aérospatiale 
between 1987 and 1994, which the United States a lleges are subsidies to Aérospatiale, "have 
benefited Airbus SAS, which is the only comp any that produces Airbus LCA in the European 
Communities".4477    
7.1340  The European Communities contends that the pr ovisions of Article 14 of the SCM Agreement 
are simply guidelines for investigating authorities to  follow in calculating the benefit to the recipient 
conferred pursuant to Article 1.1 in the context of countervailing duty investigations and, as such, 
serve as "guidelines" providing "relevant contex t" for Article 1.1(b) of the SCM Agreement.4478  
According to the European Communities, Article 14 is not supposed to provide a "cut and paste" legal 
test for the purposes of Article 1.1(b).4479  However, the European Comm unities considers that, in the 
context of an equity contribution by a government, it is implicit in the notion of "benefit" in Article 1.1(b) of the SCM Agreement to inquire into the usual investment practice of private 
investors.  The European Communities argues that in  determining what the usual investment practice 
of private investors would have been, it is necessa ry to take account of the factual circumstances 
surrounding the making of the financial contribution.
4480  According to the European Communities, 
private investor "practice" will differ depending on such factors as whether the investment target is 
solvent and the private investor is an existing creditor, whether "countercyclical investment" is 
considered important or unwise in the sector in wh ich the investment target operates, and whether the 
investment target is a candidate for sale, merger or other consolidation.4481   
7.1341  The European Communities argues that determin ing the benchmark of the usual investment 
practice of private investors requires an assessment of  an investment target's prospects for the future, 
rather than an undue focus on its past performance.  Private investors decide whether or not to commit 
capital based on an assessment of prospects, rather than past performance because, according to the 
European Communities, "fundamentally the value of  a business today is the present value of its 
anticipated future free cash flow ava ilable for distribution or reinvestment."4482  T h e  E u r o p e a n  
Communities contends that the United States' conclusion that the French government acted 
inconsistently with the usual investment practice of private investors in France in making the capital 
contributions between 1987 and 1994 is, in each instance, based solely on data concerning 
Aérospatiale's past financial performance.  The European  Communities contends that the United 
States' arguments concerning the existence of be nefit allegedly conferre d by the various capital 
                                                      
4476 US, FWS, para. 593. 
4477 EC, FWS, para. 1109; EC, FNCOS, para. 101. 
4478 EC, Answer to Panel Question 101, para. 277. 
4479 EC, Answer to Panel Question 101, para. 277. 
4480 EC, Answer to Panel Question 224, para. 567. 
4481 EC, Answer to Panel Question 224, para. 568. 
4482 EC, FWS, para. 1140.  The European Communities notes, for example, that during the early 1990s, 
when the commercial airline industry was depressed an d Boeing's commercial aircraft revenue and operating 
profit were in decline, Boeing increased its investment in total assets and assumed significant additional risk.  
According to the European Communities, Boeing's management understood that in the LCA industry, with its 
long and costly development cycle, increased investment is imperative even during depressed periods in order to position the company to be competitive when the market recovers.  EC, FWS, para. 1115. WT/DS316/R 
Page 738  
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  contributions are flawed because of this undue fo cus on Aérospatiale's past financial performance 
rather than its prospects, and moreover, because the United States exaggerates Aérospatiale's past 
financial difficulties. 
7.1342  The European Communities argues that, at the ti me of the capital contributions made by the 
French government between 1987 and 1994, Aérospatia le needed additional equity capital to fund 
product development.  According to the European Communities, the French government's decision to 
provide that equity capital was "informed by its know ledge that countercyclical investment is critical 
in the LCA sector."
4483   The European Communities contends that a similarly knowledgeable private 
investor would have considered data related to Aé rospatiale's past financial performance in light of 
the need to invest countercyclically in LCA development.4484  The European Communities argues, 
moreover, that a private investor considering whether to make the capital contributions under 
consideration would evaluate Aérospatiale's future prospects.4485     
The capital contributions made between 1987 and 1994 
7.1343  The European Communities does not dispute the United States' position that the capital 
contributions made by the French government to Aérospatiale between 1987 and 1994 (including the 
1992 capital contribution made by Crédit Lyonnais) are dir ect transfers of funds in the form of equity 
infusions and thus constitute financ ial contributions within the meaning of Article 1.1(a)(1)(i) of the 
SCM Agreement.  However, the European Comm unities does dispute the United States' contention 
that the various equity infusions conferred a benefit on Aérospatiale within the meaning of 
Article 1.1(b) of the SCM Agreement.   
7.1344    The European Communities argues that, although Aérospatiale posted losses from 1992 
through 1995 when the industry was in recession, it had been consistently profitable for the fiscal 
years 1987 through 1991 (covering the years leading up to the 1987, 1988 and 1992 capital increases), returned to profitability in 1996, and remained pr ofitable through the merger with Matra Hautes 
Technologies in 1999 and the creation of EADS in 2000.
4486   
7.1345  More specifically, the European Communities di sputes as a factual matter the United States' 
assertion that the 1987, 1988 and 1 992 capital contributions were ma de when Aérospatiale was not 
"equityworthy".  The European Co mmunities argues that at the releva nt times at which the French 
government was assessing whether to make th e 1987, 1988 and 1992 capital contributions, 
Aérospatiale was profitable, even though its fina ncial performance "may not have been as robust as 
the company would have liked".4487  The European Communities argues that in producing the A320 
(which entered commercial service in March 1988) Aé rospatiale had made significant investments in 
specialized capital and facilities, in addition to in vesting in increasing levels of work-in-process 
                                                      
4483 EC, Comments on US Answer to Panel Question 224, para. 415.  The European Communities 
argues that both parties agree that, given the long and costly development cycle in the LCA industry, increased 
investment in aircraft development is imperative, "par ticularly during a period of trying financial performance 
driven by weak sales" so that an LCA manufacturer is poised to be competitive when the market recovers.  EC, 
Comments on US Answer to Panel Question 224, para. 415. 
4484 EC, Comments on US Answer to Panel Question 224, para. 415. 
4485 The European Communities argues that it has provided "reams of contemporaneous documents" 
establishing that at the time that the French government made the capital contributions in question, Boeing, Airbus GIE and the US government itself had forecast co mmercial airline traffic grow th and "robus t, untapped 
demand for LCA well into the future"; EC, Comments on US Answer to Panel Question 224, para. 416; EC, 
SWS, paras. 534-535; see also the evidence discussed in paragraphs 7.1344 through 7.1350, 7.1365, 7.1369, and 7.1373. 
4486 EC, FWS, para. 1136; Aérospatiale Annual Report 1990, Exhibit EC-177, at p. 60; Aérospatiale 
Annual Report 1991, Exhibit EC-179, at p. 85; Aérospatiale 1998 Financial Statements, Exhibit EC-180, at p. 6. 
4487 EC, FWS, para. 1137.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  inventory as production ramped up.4488  According to the European  Communities, these investments 
put considerable strain on the financial resources of the company, in response to which it incurred 
additional debt and discussed with its sole shar eholder, the French government, the need for 
additional equity capital.4489 As regards the period between 1992 and 1995, the European 
Communities argues that Aérospatiale's financial performance was driven by  the depressed state of 
the commercial airline industry, which had also adversely affected Boeing's financial performance 
during this period.4490   
7.1346  According to the European Comm unities, the fact that Aérospatiale's financial performance 
"was not robust in certain of the years in which capital contributions were made by the French 
government" does not suggest that the French gove rnment could not or did not have a realistic 
expectation of a reasonable return on the investment, or that it had no basis on which to conclude that 
its return on equity would improve significantly in the coming years.4491  The European Communities 
contends that, at the time of the challenged cap ital contributions in 1987, 1988, 1992 and 1994, an 
informed investor with an understanding of th e LCA development cycle would have considered 
Aérospatiale to be equityworthy, on the basis of  "objectively measurable positive prospects for the 
firm".4492  The European Communities argues that, ju st as Boeing dramatically increased its 
investment in commercial aircraft assets and assumed additional debt, notwithstanding its own 
"abysmal financial performance in the early 1990s",  so too Aérospatiale and the French government, 
based on their assessment of positive future prospects driven by dramatic growth in LCA passenger 
demand, decided to look beyond Aérospatiale's re cent performance and increase investment in the 
future.4493  According to the European Communities "a strong order book in the late 1980s, and robust 
forecasts for the new A320 and for the A330/A340 programme then under development, meant that 
management and the company's shareholder had ample evidence that the company's performance 
would improve significantly."4494   
                                                      
4488 EC, FWS, paras. 1134; SWS, para. 524; Aérospatiale Annual Report 1990, Exhibit EC-177, at p. 4.  
The European Communities argues that a further factor that caused Aérospatiale's debt-to-equity ratio to 
deteriorate in 1986 and 1987 was its  accounting practice of e xpensing losses incurred in  production of LCA at 
the beginning of the learning curve when production costs are significantly higher than revenue from sales.  The 
European Communities notes that, in contrast, Boeing employs an accounting method known as "program 
accounting" in which early productio n losses are classified as an asset; EC, SWS, paras. 525-526. 
4489 EC, SWS, para. 524. 
4490 EC, FWS, para. 1138; Trends and Challenges in Aerospace Offsets, Proceedings and Papers, 
Charles W. Wessner, Editor, Board on Science, Technology, and Economic Policy, National Research Council, 
National Academy Press, Washington, D.C., 1999, Exhibit EC-181, p. 134; Five-Year Summary, 1994 Boeing 
10-K, Exhibit EC-169, at p. 56.   
4491 EC, FWS, para. 1116. 
4492 EC, SWS, para. 531. 
4493 EC, SWS, paras. 532-533.  The European Communities submits that, in the early 1990s, Boeing's 
commercial aircraft revenue and operating profit declined precipitously, by 30 percent, and 49 percent, respectively, between 1992 and 1994, reflecting the depressed state of the commercial aircraft industry; 
however, despite such less than robust financial perfor mance, Boeing dramatically in creased its investment in 
commercial aircraft assets (by 82 percent between 1991 through 1995) and assumed additional debt.  Indeed, the 
European Communities notes, Boeing launched the 777 programme in October 1990 and continued its 
development during a very depressed period of demand, with the first commercial flight in 1995, while in 1993, it launched the 737 Next Generation programme.  EC, FWS, paras. 1114 – 1115,  1142; 1993 Boeing 10-K, 
Exhibit EC-184, at p. 57; 1994 Boeing 10-K, Exhibit EC-169, at p. 56; 1995 Boeing 10-K, Exhibit EC-185, at 
pp. 41, 61. 
4494 EC, FWS, para. 1117.  The European Communities refers to management's discussions of Airbus 
LCA deliveries, orders and options in its Annual Reports for 1987, 1988 and 1989 as reinforcing the company's 
prospects and underscoring the legitimate basis on which the French government acted in deciding to make the capital contributions in 1988, 1989 and 1992; paras. 1145-1149 WT/DS316/R 
Page 740  
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  7.1347  The European Communities argues that Aérospa tiale's financial results for 1990 and 1991 
were adversely affected by three major ev ents unrelated to Aérospatiale's business.
4495  According to 
the European Communities, Aéro spatiale's "underlying trends  were robust for Airbus", 
notwithstanding these events.4496  Although airline deregulation, a global recession and reduced 
military spending had combined to result in losses at Aérospatiale in 1992 and 1993, the European 
Communities notes that the company was predicting that most of its markets would grow in the longer term.  The European Communities argues that the decision by Crédit Lyonnais to provide the 1994 
equity infusion was based on the ra tionale that the additional equity  capital was necessary in order to 
ensure that Aérospatiale would continue to e nhance its product line and increase its competitiveness 
for the future, in anticipation of the future recovery of the LCA market.
4497   
7.1348  The European Communities argues that the French  government was, at all relevant times, 
closely informed about the business plans and prospects of Aérospatiale.  In this regard, the European 
Communities notes that French law required that th e French government, as shareholder, be provided 
with certain information in order to enable it decide on how to vote on the proposed capital 
contributions.4498 Moreover, the European Communities su bmits that the French government's 
assessment of Aérospatiale's prospects at the times of the various capital contributions "proved to be 
prescient" given that, through the privatization of Aérospatiale in 1999 and formation of EADS in 
2000, the French government earned an annual rate of return of [***] percent on the capital 
investments it made between 1988 and 1994.4499   
7.1349  The European Communities also contends that, even if past financial performance were 
determinative of investor behaviour, the United States "distorts the significance of the debt-to-equity 
relationship."  The European Communities argues th at the significant indebtedness of Aérospatiale 
during the late 1980s can be explained by refere nce to the financial demands of developing and 
manufacturing the A320 and its decision to expense as losses recurring costs in excess of revenues (in 
contrast to way in which Boeing accounts for these costs) which exaggerated the negative effect on 
the firm's debt-to-equity ratio in 1986 and 1987.4500 
7.1350  In sum, the European Communities contends th at it has demonstrated that the challenged 
capital contributions are WTO-consistent, even on th e basis of the legal test proposed by the United 
States.  For this reason, the European Communities s ubmits that there is no need for the Panel or the 
United States to request the information related to the European Commission's review of the 1994 
capital contribution under the European Communities' state aid rules.  According to the European 
                                                      
4495 EC, FWS, para. 1151.  These even ts were the significant drop in the US dollar, the Gulf War and 
consequent write off of Iraqi recei vables and a strike at BAE System s which delayed Airbus deliveries; 
Aérospatiale Annual Report 1990, Exhibit EC-177, at p. 3; Aérospatiale Comptes de l'Exercise 1988, Exhibit EC-172, at p. 3. 
4496 EC, FWS, para. 1152.  The European Communities notes, for example, that adjusted for the 
decrease in the value of the US dollar, Aérospatiale's  sales volume increased 10 percent in 1990 (from 1989) 
and again in 1991 (from 1990).  Aérospatiale Annual Report 1990, Exhibit EC-177, at p. 18; Aérospatiale 
Annual Report 1991, Exhibit EC-179, at p. 4. 
4497 EC, FWS, para. 1159; "France Pledges Subs idy to Aerospace Group", New York Times, 3 
February, 1994, Exhibit US-298. 
4498 EC, SWS, paras. 546-550; Aérospatiale, Procès Verbal de l'Assemblé Générale Exraordinaire du 27 
avril 1988, Exhibit EC-746, at p. 2; Décret 67-236 du 23 mars 1967, sur les sociétés commerciales, §§133, 135, 
Exhibit EC-751; Aérospatiale, Rapport du conseil d'admi nistration à l'assemblé générale extraordinaire du 10 
février 1989, Exhibit EC-747, pp. 4,3; Aérospatiale, Rapport du Conseil d'Administration à l'assemblée générale extraordinaire relative à l'augmentation du capital, E xhibit EC-748, p. 5; Aérospatiale, Procès-Verbal de 
l'Assemblée Générale Extraordinaire du 27 avril 1994, Exhibit EC-749, p. 2. 
4499 EC, FWS,para. 1122; Return from Equity Infusions – French Government, Exhibit EC-171 (BCI). 
4500 EC, SWS, para. 525.  WT/DS316/R 
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  Communities, the EC state aid regime is based on distinct concepts that are different from WTO law 
and have no bearing on the WTO-consistenc y of a particular commercial operation.4501 
(iii) Evaluation by the Panel 
7.1351  The parties have advanced general horizontal ar guments as to the existence of a requirement 
to demonstrate the pass-through to Airbus SAS of an y benefit conferred on Aéro spatiale by a financial 
contribution and the standard against which the pr esence of absence of a "benef it" within the meaning 
of Article 1.1(b) is assessed.  We consider these general, horizontal questions first followed by the 
specific arguments and evidence pertaining to each  of the challenged capital investments.   
Pass-through  
7.1352  We reject the European Communities' argument that the United States has failed to make out 
a prima facie  case that any of the four capital contribut ions made by the French government to 
Aérospatiale between 1987 and 1994 are subsidies to Airbus SAS because the United States has not 
demonstrated how the benefit conferred by the respective financial contributions provided to 
Aérospatiale passed through to Airbus SAS.  Our reasons for rejecting the European Communities' 
"pass-through" arguments are set forth in detail elsewhere in this report.4502  In short, if we find that 
any of the capital contributions is a "financial  contribution" which conferred a "benefit" on 
Aérospatiale within the meaning of Article 1.1(b), we consider that such financial contribution also 
conferred a benefit on the Airbus Industrie consortium (and therefor e Airbus SAS), without requiring 
the United States to affirmatively establish the "pass- through" of any such benefit from Aérospatiale 
to Airbus Industrie or to Airbus SAS. 
Determining the existence of a benefit conferred by a financial contribution in the form of an 
equity infusion  
7.1353  A "financial contribution" provided by a government only constitutes a subsidy if it confers a 
"benefit" on a recipient.  As we have already not ed in the context of our evaluation of the United 
States' claims concerning the capital restructuring of Deutsche Airbus by the German government, the 
SCM Agreement does not contain a definition of the te rm "benefit" as it is used in Article 1.1(b).  
However, it is well established that a financial c ontribution confers a benefit within the meaning of 
Article 1.1(b) where the terms of the financial contribution are more favourable than the terms 
available to the recipient in the market.4503 
7.1354  Accordingly, in order to determine whether the capital contributions made by the French 
government (including Crédit Lyonnais) to Aérospatia le conferred a benefit on Aérospatiale, we must 
evaluate whether the terms on which those capital c ontributions were provided to Aérospatiale were 
more favourable than those that would have been available to Aérospatiale  on the market at the 
relevant times. 
7.1355  The SCM Agreement does not set forth methodologies that panels may use in assessing 
whether the terms on which an equity infusion was made by a government were more favourable than 
those that would have been available on the market.  Nor does it indicate the nature of evidence that is 
necessary or sufficient to establish those market-ba sed terms.  Article 14 of the SCM Agreement, 
entitled "Calculation of the Amount of a Subsidy in Te rms of the Benefit to the Recipient", sets forth 
                                                      
4501 EC, FWS, para. 1163. 
4502 See, paras. 7.193 - 7.200 above. 
4503 See, e.g.,  Appellate Body Report, Canada – Aircraft , paras. 157-158; Panel Report, US – 
Countervailing Duty Investigation on DRAMS , para. 7.179; Panel Report, EC – Countervailing Measures on 
DRAM Chips , paras. 7.173-7.175; Panel Report, Japan – DRAMs (Korea ), para. 7.256. WT/DS316/R 
Page 742  
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  guidelines for methods used by investigating auth orities in countervailing duty investigations to 
calculate the benefit to a recipient for th e purposes of Part V of the SCM Agreement. 
7.1356  As we have previously noted, panels a nd the Appellate Body ha ve acknowledged that, 
although the introductory words of Article 14 state that the guidelines it establishes apply for purposes 
of Part V of the SCM Agreement, Article 14 nonetheless constitutes relevant context for the 
interpretation of "benefit" in Article 1.1(b).
4504    
7.1357  The parties agree generally that Article 14(a), a lthough not directly applicable to Part III of 
the SCM Agreement, nevertheless provides guidan ce for the interpretation of Article 1 of the 
SCM Agreement as regards claims not involving Part V.4505  Accordingly, the United States argues 
that the capital contributions in question confe rred a benefit on Aérospatiale because they were 
inconsistent with the usual investment practice of  private investors in France.  We understand the 
United States to argue that Aérospatiale was not e quityworthy at the times of the equity infusions by 
the French government, in the sen se that Aérospatiale was, or would have been, unable to attract 
investment capital from a private investor.  Th e French government's decision to provide such 
investment capital was, therefore, inconsistent with the usual investment practice of private investors.  
Conversely, the European Communities has sought to  rebut the United States' allegations that the 
financial contributions conferred a benefit on Aérospatiale on the b asis that Aérospatiale's positive 
future prospects at the times of the various equi ty infusions justified the commitment of additional 
capital, and that in providing that capital, the Fren ch government anticipated a reasonable return on its 
investment and was thus was acting consistently with the usual investment practice of private 
investors.   
7.1358  Our approach to the issue of benefit in th e context of the French government's capital 
investments in Aérospatiale is to ask whether th e United States has demonstrated that a private 
investor would not have made the capital investme nts in question based on the information available 
at that time.  In this regard, we note that a priv ate investor evaluating an equity investment in an 
enterprise will be seeking to achieve a reasonable rate of return on its investment.  Information 
relevant to such an evaluation would include current  and past indicators of an enterprise's financial 
performance (including rates of return on equity) calcu lated from the enterprise's financial statements 
and accounts, information as to the future financia l prospects of the enterprise, including market 
studies, economic forecasts and project appraisals, equi ty investment in the enterprise by other private 
investors, and marketplace prospects for the products produced by the enterprise. 
The capital contributions to Aérosp atiale made be tween 1987 and 1994  
Financial contribution 
7.1359  We consider that the capital contributions made by the French government to Aérospatiale in 
1987, 1988 and 1994 are direct transfers of funds in  the form of equity infusions and therefore 
constitute "financial contributions" within the meani ng of Article 1.1(a)(1)(i) of the SCM Agreement.  
The European Communities does not dispute that, at the relevant time, Crédit Lyonnais was a "public 
body" within the meaning of Article 1.1(a)(1) of th e SCM Agreement.  We consider that, at the time 
of its 1992 investment in Aérospatiale, Crédit L yonnais was controlled by the French government and 
                                                      
4504 See, e.g., Appellate Body Report, Canada – Aircraft , para. 155; Appellate Body Report, Japan – 
DRAMs (Korea) , para. 173. 
4505 US, FWS, paras. 544-545, 561-564; EC, FWS, para. 1215; EC, SNCOS, para. 267; EC, Answer to 
Question 101, para. 280; EC, SWS, para. 520.  In its Answer to Question 101, the European Communities states 
that WTO case law does not suggest a "mechanistic, automatic, literal application of tests in Article 14 to the 
issue of determination of the existence of benefit in th e sense of Article 1.1(b)".  According to the European 
Communities, the Panel should apply this test taking due account of the sector and type of operations; para. 277.  WT/DS316/R 
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  was a "public body" for purposes of Article 1.1(a)(1 ) of the SCM Agreement.  As a result, the FF 1.4 
billion capital contribution which Crédit Lyonnais made  to Aérospatiale in 1992 also constitutes a 
financial contribution ( i.e., a direct transfer of funds in the form  of an equity infusion) by a public 
body within the meaning of Article 1.1(a)(1)(i) of the SCM Agreement.   
Benefit  
7.1360  The United States has submitted evidence of Aéro spatiale's financial performance (expressed 
in terms of certain key financial ratios) during the relevant periods compared to the financial 
performance of certain alleged peer group companies over the same periods.4506  This evidence 
indicates that between 1985 and 1994, Aérospatiale's financial ratios were uniformly and, in many 
cases, significantly inferior to the corresponding aver age ratios of its peer group of companies.  We 
are aware that investors employ a variety of met hodologies to estimate the expected rate of return 
from a potential investment and that measures of a firm's past financial performance are often 
relevant, at least as a starting point, to making su ch estimates.  Moreover, there are many different 
ways of measuring a firm's financial performan ce.  The United States has submitted evidence of 
Aérospatiale's financial performance measured ag ainst the performance of alleged peer group 
companies in terms their respective return on equity , debt-to-equity and debt  coverage ratios.  The 
European Communities has not disputed that the so -called "peer" companies identified by the United 
States are appropriate comparators for evaluating Aé rospatiale's financial performance in the context 
of the industries in which it operates.  While we would be reluctant to place undue reliance on a single 
measure of financial performance in isolation, recogn izing that any particular financial ratio may be 
affected by accounting or other factors unrelated  to a firm's underlying financial condition and 
performance, we note that the Eur opean Communities has not challenged the relevance, accuracy or 
appropriateness of evaluating Aérospatiale's financia l performance on the basis of the financial ratios 
selected by the United States, nor has it suggested any alternative bases for evaluating Aérospatiale's 
financial performance in comparison to its peer group of companies.  Owing to the cyclical nature of 
the markets in which Aérospatiale operates, we regard indicators of Aé rospatiale's financial 
performance in relation to the performance of other firms operating in the same industries, 
presumably subject to similar business risks and cycles as Aérospatiale, as particularly probative of the question whether a private investor would ha ve chosen to make the capital investments in 
Aérospatiale at issue in this dispute.   
7.1361  The European Communities has submitted eviden ce purporting to demonstrate that at the 
times at which the French government made the va rious equity infusions, Aérospatiale had positive 
future prospects which, when coupled with the company's commitment to invest in product 
development, justified the commitment of expansion capital.
4507  This evidence covers the period 
between 1985 and 1994 and consists of (i) statemen ts in various Aérospatiale Annual Reports as to 
the status of aircraft deliveries, orders and back log, revenue, profits and tu rnover; (ii) market and 
business forecast reports prepared by Airbus GIE predicting increases in demand for LCA and 
increases in Airbus GIE's market share; and (iii)  Boeing market forecasts and a US government 
publication predicting increased long-term growth fo r the LCA industry.   For reasons which we 
discuss in paragraphs 7.1366, 7.1 370 and 7.1374, in assessing whether a private investor would have 
made the capital investments in question, we are inc lined to accord the eviden ce in the latter two of 
these categories relatively less weight  than evidence of Aérospatiale's  past financial performance in 
comparison to that of its peers, coupled with ma nagement's statements as  to expectations and 
prospects for the company contained in  Aérospatiale's annual reports.  
7.1362  We have considered the evidence carefully, and in its totality, and set forth below our factual 
findings with respect to the financial condition and prospects of Aérospatiale on the basis of 
                                                      
4506 Exhibit US-274. 
4507 EC, SWS, para. 534. WT/DS316/R 
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  information that existed at the time at which the French government made the various capital 
investments in Aérospatiale.    
7.1363  First, in relation to the 1987 and 1988 capital contributions , we note that Aérospatiale 
reported a profit of FF 50 million for 1987 and FF 93 million in 1988.  Noting that sales for 1987 had 
continued to be affected by the crisis that hi t the aeronautics sector in 1982-1983, Aérospatiale 
described 1987 as marking a tu rning point for the company.
4508  However, Aérospatiale also noted that 
with over one quarter of its production billed in US dollars, the continued drop of the US dollar since 
1985 weighed considerably against sales in French  francs.  Aérospatiale noted positive factors 
affecting its outlook, such as strong growth in comme rcial air traffic, military  budgets that allowed 
scope for modernization of military equipment, the commencement of strategic new programmes by 
Airbus GIE such as the launch of the A330/340 programmes, and the launch of the Arian 5 and 
Hermès satellites.4509  On the other hand, Aérospatiale warned  that it was vulnerable to declines in the 
US dollar, to market volatility as a result of economic instability and an economic situation 
approaching stagnation, and to increased competition.  Aérospatiale also indicated that in 1987 its 
working capital had declined due to a reduction in in-house funding and an increase in investments, 
while its working capital requirements had increased as a result of higher business levels and the need 
to make increased deliveries in futu re years. According to Aérospatia le, this "need to re-establish a 
balanced financial position" led to the French  government making the FF 1.25 billion capital 
contribution in 1987.4510  In sum, Aérospatiale predicted that the future would not be any less difficult 
than the previous year had been.  Finally, we note that during the period leading up to the French 
government's capital investments, Aérospatiale's retu rn on equity, debt to equity and debt coverage 
ratios were consistently inferior to the corr esponding average ratios for its peer group of 
companies.4511   
7.1364  The European Communities explains that Aérosp atiale required additional equity capital in 
1987 and 1988 in order to fund new investments, such as the ramp-up for manufacture of the A320 
(with first delivery due in 1988) and the launch of the A330/A340 in 1987 (with first delivery due in 
1993).4512  In our view, the fact that additional capita l may have been necessary from the perspective 
of the recipient enterprise does not mean that the pr ovision of such additional capital made sense from 
the perspective of an investor seeking to achieve a r easonable rate of return on its investment.  On the 
other hand, we do not regard the fact that Aé rospatiale was undercapitalised by the French 
government, its sole shareholder, to necessarily mean that a private investor would not have provided 
capital to the company.     
7.1365  Aside from excerpts from Aérospatiale's 1987 an d 1988 Annual Reports (detailing increases 
in revenue, net income and orders between 1987 and 1988, and providing details as to Aérospatiale's 
backlog and levels of orders a nd options for the A320 and A330/34 0), the European Communities has 
provided two types of evidence which it claims to be objective evidence demonstrating positive future 
prospects for Aérospatiale that would have provide d a basis for a private in vestor to anticipate a 
reasonable return on an equity investment in Aérosp atiale at the relevant times.  This evidence 
consists of  (i) Airbus GIE market and business outlook forecasts;4513 and (ii) Boeing market outlook 
forecasts.4514  
                                                      
4508 Aérospatiale Annual Report 1987, Exhibit US-32, at 2. 
4509 Aérospatiale SNI Compte de L'Exercise  1987, Exhibit EC-176, at 12. 
4510 Aérospatiale Annual Report 1987, Exhibit US-32, at 2. 
4511 Exhibit US-274. 
4512 EC, FWS, paras. 1134-1135. 
4513 Airbus GIE, A View of the Future , April 1985, part C and Chart C2, Exhibit EC-727; Airbus GIE, 
Market and Business Forecasts  1986-2005, Exhibit EC-7 28; Airbus GIE, Global Market Forecast 1987-2006, 
Exhibit EC-729.  The Airbus GIE documents predict that, by 2004/2005, Airbus will achieve its long term strategic objective of securing a 30 percent share of the world's major commercial air line supply business, while  WT/DS316/R 
 Page 745 
 
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  7.1366  However, this evidence generally  relates to overall market conditions and contains very little 
explanation of the basis for the assumptions and fo recasts.  In addition, the forecasts do not relate 
specifically to Aérospatiale's business operations , but to those of Airbus GIE, whose business 
comprises only one component of Aérospatiale's opera tional activities.  In this  regard, the evidence is 
potentially relevant to prospects for Aérospatiale's Ai rcraft Division, but is not indicative of prospects 
for Aérospatiale's Missiles, Space and Defence and Helicopters divisions, which would also be 
relevant to an investor contemplating an investment in the company as a whole.  We attribute relatively less weight to the evidence contained in market and business outlook forecasts for Airbus 
GIE and market outlook forecasts for Boeing as we do not regard this evidence to be particularly 
probative of the question whether a private investor contemplating a capital investment in 
Aérospatiale at the relevant time could have expect ed to achieve a reasonable rate of return on its 
investment.  We note also that the European  Communities has not submitted information as to 
Aérospatiale's actual projected earnings figures for 1988 and subsequently, or any other Aérospatiale 
financial projections or budgets which presumably were made available to the French government 
prior to its decision to provide the additional equi ty capital to Aérospatiale in 1987 and 1988.  Such 
evidence might potentially have supported a rebutta l by the European Communities of the United 
States' case by demonstrating that a private investor contemplating a capital investment in 
Aérospatiale at the relevant time could have expected  to achieve a reasonable rate of return on such an 
investment.
4515   
7.1367  We conclude that a private investor would no t have made capital investments of FF 1.25 
billion in Aérospatiale in 1987 and 1988.  We reach  this conclusion after considering all of the 
evidence in its totality in respect  of the French government's 1987 and 1988 capital contributions to 
Aérospatiale.4516 Accordingly, we consider that the Un ited States has established that the French 
government's investment decisions  with respect to the FF 1.25 billion equity infusions in 1987 and 
1988 were inconsistent with the usual investment pr actice of private investors in France and conferred 
a benefit on Aérospatiale within the meaning of  Article 1.1(b) of the SCM Agreement.    
7.1368  As regards the 1992 capital contribution by Crédit Lyonnais , we note that in 1991, 
Aérospatiale had reported net income of FF 1, 829 million, compared with FF 38 million in 1990 and 
FF 204 million in 1989.  However, allowing for the e ffect of extraordinary items, the company had 
actually posted a net loss in 1991.4517  Moreover, in late 1992 Aérospatiale had announced a loss of 
FF 477 million for the first half of 1992, plus a provision of FF 300 million for an employment 
adaptation plan which was expected to affect 1,150 employees.4518  Aérospatiale had noted in its 1991 
Annual Report that its order books were deeply affect ed by a year-long atmosphere of crisis resulting 
from the drop-off in air traffic and heavy losses in curred by airlines, the general economic slowdown 
and budgetary restrictions which affected buyers.  Although orders for commercial aircraft were then 
                                                                                                                                                                     
also forecasting traffic growth of an average of 5.6 percent per annum over  the period 1985-2004 and significant 
increases in demand over the 1987-2006 period. 
4514 Airbus GIE, A View of the Future , April 1985, part C and Chart C2, Exhibit EC-727. 
4515 We note, however, that the weight that we woul d accord to any such evid ence would depend on the 
evidence itself. 
4516 We recall that the United States requested the Pa nel to draw certain logical inferences from the 
European Communities' failure to respond to requests from the Annex V Facilitator related to whether there had 
been any prior evaluation of the equity infusions or Aérospatiale shares during this period and to provide any 
contemporaneous reports or analyses of the financial situation or prospects of Aérospatiale.  Given our conclusions with regard to the evidence presented in this dispute, we do not find it necessary to draw the logical 
inferences requested by the United States. 
4517 Aérospatiale Annual Report 1991, Exhibit EC-179 , at 13.  The extraordinary items were a capital 
gain of FF 3,316 million from the spinoff of the company's helicopter business and a FF -815 provision for 
retirement indemnities. 
4518 Les Echos, Accord annonce en juillet dernier – Le Crédit Lyonnais finalise son entrée dans 
Aérospatiale , Exhibit US-283, at 1. WT/DS316/R 
Page 746  
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  at three to four years' production, the backlog situ ation for both helicopters and missiles was described 
as a cause for concern.  In addition, the cancella tion of the S-45 strategic missile programme was 
described as profoundly changing the outlook fo r the Space and Defence Division, while the 
company's position in the regional aircraft market was described as "vulnerable" due to the European 
Commission's refusal to approve Aérosp atiale's acquisition of de Havilland.
4519 Finally, we note that 
during the period leading up to Crédit Lyonnais' capita l investment, Aérospatiale's return on equity, 
debt to equity and debt coverage ratios were cons istently inferior to the corresponding average ratios 
for its peer group of companies.4520   
7.1369  The evidence provided by the European Co mmunities consists of information from 
Aérospatiale's Annual Reports rela ting to reported net income, turnove r, backlog and orders and credit 
ratings, Airbus GIE's planning and market and delivery forecasts,4521 and Boeing market outlook 
documents.  The European Communities also pointed  to statements by a Crédit Lyonnais executive 
following the announcement of the capit al investment in August 1992 to the effect that the investment 
was justified by the good prospects for the A330/A340 programme, which would start generating 
substantial revenue in 1994 and that Crédit Lyonnais  considered the Aérospatiale investment to be a 
long term investment.4522 
7.1370  However, aside from the evidence concerning Aéro spatiale's reported financial results, this 
evidence generally relates to overall market conditions  and contains very little explanation of the basis 
for the assumptions and forecasts.  In addition,  the market and delivery forecasts do not relate 
specifically to Aérospatiale's business operations, but  relate to those of Airbus GIE, whose business 
comprises one component of Aérospatiale's operationa l activities.  In this regard, the evidence is 
potentially relevant to prospects for Aérospatiale's Ai rcraft Division, but is not indicative of prospects 
in Aérospatiale's Missiles, Space and Defence and He licopters divisions, which would also be relevant 
to an investor contemplating an investment in th e company as a whole.  We attribute relatively less 
weight to the evidence contained in market and de livery forecasts for Airbus GIE and market outlook 
forecasts for Boeing as we do not regard this eviden ce to be particularly probative of the question 
whether a private investor contemplating a capital i nvestment in Aérospatiale at the relevant time 
could have expected to achieve a reasonable rate of  return on its investment.  We note also that the 
European Communities has not submitted information as to Aérospatiale's actual projected earnings 
figures for 1992 and subsequently, or any other Aéro spatiale financial projections or budgets which 
presumably were made available to Crédit Lyonna is and to the French government prior to the 
decision to provide the capital contribution to Aéro spatiale in 1992.  Such evidence may potentially 
have supported a rebuttal by the European Communities of the United States' case by demonstrating that a private investor contemplating a capital invest ment in Aérospatiale at the relevant time could 
have expected to achieve a reasonable ra te of return on such an investment.
4523   
7.1371  We conclude that a private investor woul d not have made a capital investment of 
FF 1.4 billion in Aérospatiale in 1992.  We reach this  conclusion after considering all of the evidence 
in its totality in respect of Crédit Lyonna is' 1992 capital investment in Aérospatiale.4524  Accordingly, 
                                                      
4519 Aérospatiale, Annual Report 1991, Exhibit EC-179, at 3. 
4520 Ratio Comparison Chart, Exhibit US-274. 
4521 Airbus GIE Operational Plan & Budget 1989-1991, Exhibit EC-724; Airbus GIE Market and 
Delivery Forecasts 1990-2009, Exhibit EC-730; Airbus GIE Global Market Forecast 1990-2009, Exhibit EC-
731; Airbus GIE Forecast, Exhibit EC-725; Airbus GIE Market Perspectives for Civil Jet Aircraft, Exhibit EC-732; Airbus GIE Market Perspectives for Civil Jet Aircraft June 1991, Exhibit EC-733. 
4522 Aviation Week & Space Technology, Crédit Lyonna is to Buy 20% Stake in Aérospatiale from 
French Government, 3 August 1992, Exhibit US-284. 
4523 We note, however, that the weight that we woul d accord to any such evid ence would depend on the 
evidence itself. 
4524 We recall that the United States requested the Pa nel to draw certain logical inferences from the 
European Communities' failure to respond to requests from the Annex V Facilitator related to whether there had  WT/DS316/R 
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  we consider that the United States has establishe d that Crédit Lyonnais' investment decision with 
respect to the FF 1.4 billion equity infusion in 1994 was inconsistent with the usual investment 
practice of private investors in France and conferred a benefit on Aérospatiale within the meaning of 
Article 1.1(b) of the SCM Agreement.    
7.1372  Finally, regarding the French government's FF 2 billion capital investment in 1994 , we 
note that, in the period leading up to that investme nt, Aérospatiale had poste d a consolidated loss of 
FF 1.42 billion in 1993, which it considered to be  an improvement over the FF 2.38 billion loss in 
1992.4525  In its 1993 Annual Report, Aérospatiale indicat ed that in general, market conditions in 1993 
were worse than in 1992, with markets shrinking sign ificantly under the impact of a dual crisis in civil 
and military demand, which had created surplu s production capacity and augmented pressure on 
prices.  Aérospatiale said that it was continuing to  suffer from the crisis which had reigned in the 
world's aerospace industry for several years.  Uncontrolled airline deregulation and the global 
recession had led to cancellations of aircraft orders during 1993, military orders from Western 
countries experienced a sharp drop and th e civil helicopter market had collapsed.4526 Aérospatiale 
reported that "{t}he crisis in the aerospace industry is global, and our markets have never been as 
seriously affected as they are today."4527  Aérospatiale described the ou tlook for its Aircraft division as 
"very pessimistic", and predicted that there would be  "no significant recovery" in aircraft orders until 
1996 or 1997.4528  Aérospatiale predicted that its missile  division business for the next three years 
would be comparable to 1993 levels.  The civil heli copter market had experienced its worst year for 
helicopter sales since 1967, with Aérospatiale in dicating that no significant recovery could be 
expected in the short term.4529  As a result of what Aérospatia le described as its "poor medium-term 
outlook", Aérospatiale decided to adopt a new empl oyment adaptation plan involving the elimination 
of 2,240 jobs in 1994, in addition to the 1,800 jobs  which had been eliminated in 1993.  Its expressed 
goal was to return to profitability by 1995 at the latest.4530  We note also that during the period leading 
up to the French governments' capital investment, Aéro spatiale's return on equity, debt to equity and 
debt coverage ratios were consiste ntly inferior to the corresponding average ratios for its peer group 
of companies.4531  By March 1994, the media was reporting that Aérospatiale's 1993 results, along 
with a poor outlook for military and civil sales until 1996, had prompted the French Prime Minister to 
rule out the possibility of privatizi ng Aérospatiale in the near future.4532  
7.1373  The European Communities refers to Aérospa tiale's 1992 Annual Report which reported sales 
increases of 10 percent over the previous year and a year-end backlog of four years' of production.  
The European Communities also provided evidence of  Airbus GIE forecasts of significant increases in 
civil aircraft demand over the 1992-2011 period (with Airbus orders announced by 1992 amounting to 
20 percent of that demand),4533 evidence that the French government considered that there would be a 
                                                                                                                                                                     
been any prior evaluation of the equity infusions or Aérospatiale shares during this period and to provide any 
contemporaneous reports or analyses of the financial situation or prospects of Aérospatiale.  Given our 
conclusions with regard to the evidence presented in this dispute, we do not find it necessary to draw the logical 
inferences requested by the United States. 
4525 Aérospatiale Annual Report 1993 , at 5.  Although Aérospatiale had succeeded in reducing its net 
debt to FF 3.7 billion, it also noted that the undervalued US dollar, changes in the repayment terms of 
government loans for financing aircraft development and a charge of FF 724 million to cover the employment 
adaptation plan to be executed in 1994, all had a negative impact on operating results. 
4526 Aérospatiale Annual Report 1993, Exhibit EC-186, at 42. 
4527 Aérospatiale Annual Report 1993, Exhibit EC-186, at 3. 
4528 Aérospatiale Annual Report 1993, Exhibit EC-186, at 12. 
4529 Aérospatiale Annual Report 1993, Exhibit EC-186, at 30. 
4530 Aérospatiale Annual Report 1993, Exhibit EC-186, at 7. 
4531 Exhibit US-274. 
4532 Flight International, France rules out Aérospatiale sell-off, Exhibit US-299. 
4533 Airbus GIE Forecast 19 86-2006, Exhibit EC-723. WT/DS316/R 
Page 748  
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  gradual recovery in aerospace markets from which Aérospatiale could be expected to benefit,
4534 
evidence that Aérospatiale had predicted in 1993 th at most of its markets would grow in the longer 
term, notwithstanding their weakness in the short term,4535 and Boeing market outlook forecasts as 
well as a US National Research Council publication pr edicting substantial increases in traffic growth 
and deliveries in the longer term.4536 
7.1374  Although the European Communities has pointed to general statements about expectations for 
a recovery in the market in the longer term, this evidence must be considered  against the evidence of 
Aérospatiale's poor results in the years leading up to the 1994 capital contribution (both absolute and 
relative to its peer group of companies) and the very pessimistic statements made by management in 
its annual reports about prospects for recovery in th e short to medium term.  For the reasons we have 
previously explained, we attribute relatively less weight to the evidence contained in market and 
business outlook forecasts for Airbus GIE and market outlook forecasts for Boeing as we do not regard this evidence to be particularly proba tive of the question whether a private investor 
contemplating a capital investment in Aérospatiale at  the relevant time could have expected to achieve 
a reasonable rate of return on its investment.  We  note also that the Eur opean Communities has not 
submitted information as to Aérospatiale's ac tual projected earnings figures for 1994 and 
subsequently, or any other Aérospa tiale financial projections or bu dgets which presumably were made 
available to the French government prior to its decision to provide the additional equity capital to 
Aérospatiale in 1994. Such evidence might potenti ally have supported a rebuttal by the European 
Communities of the United States' case by demonstrating that a private investor contemplating a 
capital investment in Aérospatiale at the relevant  time could have expected  to achieve a reasonable 
rate of return on such an investment.
4537   
7.1375  We conclude that a private investor would not have made capital investment of FF 2 billion in 
Aérospatiale in 1994.  We reach this conclusion afte r considering all of the evidence in its totality in 
respect of the French government's 1994 capital contribution to Aérospatiale.4538  Accordingly, we 
consider that the United States ha s established that the French govern ment's investment decision to 
make the FF 2 billion equity infusion in 1994 was in consistent with the usual investment practice of 
private investors in France and conferred a be nefit on Aérospatiale within the meaning of 
Article 1.1(b) of the SCM Agreement. 
The relevance of the absence of contemporane ous, objective assessments of an enterprise's 
financial condition and prospects  
7.1376  We note that the United States also argues that  contemporaneous independent analyses of the 
finances and prospects of an investment target ar e among the "key types of evidence" available to 
show whether an equity infusion was consistent with the usual investment practice of private 
                                                      
4534 New York Times, France Pledges Subsidy to Aerospace Group , 3 February 1994, Exhibit US-298. 
4535 Financial Times, Aérospatiale Posts FFr 2.3 bn loss , 26 March 1993, Exhibit US-295. 
4536 Boeing 1991 Current Market Outlook, Exhibit EC-742; Boeing 1992 Current Market Outlook, 
Exhibit EC-743; Boeing 1993 Current Market Outlook, Exhibit EC-744; Boeing 1994 Current Market Outlook, 
Exhibit EC-745;High-Stakes Aviation: US-Japan Tech nology Linkages in Transp ort Aircraft, Committee on 
Japan, Office of Japan Affairs, Office of Internationa l Affairs, National Research Council, National Academy 
Press, Washington, D.C.  1994, Exhibit EC-170.   
4537 We note, however, that the weight that we woul d accord to any such evid ence would depend on the 
evidence itself. 
4538 We recall that the United States requested the Pa nel to draw certain logical inferences from the 
European Communities' failure to respond to requests from the Annex V Facilitator related to whether there had been any prior evaluation of the equity infusions or Aérospatiale shares during this period and to provide any 
contemporaneous reports or analyses of the financial situation or prospects of Aérospatiale.  Given our 
conclusions with regard to the evidence presented in this dispute, we do not find it necessary to draw the logical 
inferences requested by the United States.  WT/DS316/R 
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  investors.4539  According to the United States, conversely, the absence  of contemporaneous 
independent analyses "tends to show that an investment decision is not  consistent with the usual 
investment practice of private investors; that is, it is not based on commercial considerations4540 and 
suggests that the government made an investment decision without the "analytical foundation private 
investors would ordinarily require".4541   
7.1377  The European Communities argues that basing a fi nding of "benefit" within the meaning of 
Article 1.1(b) on the absence  of contemporaneous, independent fi nancial analyses is tantamount to 
reversing the burden of proof, requiring a defe nding Member (or a respondent in domestic 
countervailing duty proceedings) to affirmatively dem onstrate that the financial contribution did not 
confer a benefit.4542  In this regard, the European Comm unities distinguishes between the standard 
against which the presence or absence of a "benefit"  is to be assessed, on the one hand, and evidence 
relevant to that assessment, on the other.4543  As to the former, the Eu ropean Communities contends 
that the standard for assessing the pr esence or absence of a benefit is the market, and that nothing in 
Article 1.1(b) or Article 14 makes a government's "considerations" the lodestone of that standard.4544  
The European Communities argues that contemporaneous, independent financial analyses of an 
investment target's financial condition and prospects are but one (and by no means the only or necessary) example of evidence that a defending Me mber may offer in order to establish that the 
Member's investment decision was consistent w ith the usual investment  practice of private 
investors.
4545 
7.1378  We do not preclude the possibility that the absence of any evidence that a government 
evaluated an equity investment in a manner consis tent with the manner in which a private investor 
would evaluate the same investment may, in par ticular circumstances, be probative of the question 
whether the government's investment  decision was consistent with the usual investment practice of a 
private investor.  However, as is clear from our  discussion of the evidence in paragraphs 7.1353 - 
7.1358 above, the evidence as to Aéro spatiale's financial condition and prospects at the relevant times 
has persuaded us that each of the French govern ment's equity investments in 1987, 1988, 1992 and 
1994 was inconsistent with the usual investment pr actice of private investors without attributing 
weight to the fact that the European Communiti es has not submitted evidence of contemporaneous, 
objective assessments of a Aérospatiale's financial condition and prospects undertaken by or provided 
to the French government at the times of the contemplated investments.   
                                                      
4539 US, FWS, para. 564. 
4540 US, Answer to Panel Question 280, para. 110. 
4541 US Comment on EC, Answer to Panel Question 260, para. 44 ; see also, US, Answer to Panel 
Question 280, para. 110.  The United States refers to vari ous disputes in which it contends that other panels have 
found a financial contribution was not provided on the basis of commercial considerations, as evidenced by the 
absence of contemporaneous, independent financial analysis: Panel Report, EC – Countervailing Measures on 
DRAM Chips , para. 7.208; Panel Report, Japan – DRAMs (Korea) , para. 7.276; Panel Report, Korea – 
Commercial Vessels , para. 7.437. 
4542 EC, Answer to Panel Question 280, para. 182.  The European Communities asserts that the United 
States has erroneously converted a finding by the Panel in Korea – Commercial Vessels  regarding the relevance 
of contemporaneous government studies or  analyses into a requirement that su ch studies or analyses be provided 
in order for the European Communities to successfully defend the French go vernment's capital contributions to 
Aérospatiale; EC, SWS, para. 543. 
4543 EC, Answer to Panel Question 280, para. 183. 
4544 EC, Answer to Panel Question 280, para. 184.  The European Communities argues that if the terms 
on which a financial contribution is provided are consistent  with market, no "benefit" is conferred, regardless of 
the government's "considerations" in providing the financial contribution. 
4545 EC, Answer to Panel Question 280, para. 186.  According to the European Communities, 
contemporaneous, objective evidence demonstrating the cons istency of a transaction with market is sufficient; 
EC, Answer to Panel Question 260, para. 39. WT/DS316/R 
Page 750  
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  Specificity 
7.1379  The United States argues that the 1987, 1988, 1992 and 1994 capital contributions are 
subsidies which are specific to Aérospatiale within  the meaning of Article 2 of the SCM Agreement 
as they are ad hoc  infusions into the company by the Fr ench government (and as regards the 1992 
contribution by Credit Lyonnais, a public body) and are explicitly limited to Aérospatiale.
4546  
Although the United States has not identified a particul ar sub-paragraph of Article 2 as the basis of its 
claims, we understand from the nature of the argu ment it advances that its claims are grounded in 
Article 2.1(a) of the SCM Agreement.  Evidence submitted by the United States as to each of the 
challenged capital contributions to Aérospatiale  between 1987 and 1994 more generally confirms the 
United States' assertion that these capital contribu tions were explicitly limited to Aérospatiale and 
were thereby "specific" within the meaning of Artic le 2.1(a) of the SCM Agreement.  The European 
Communities does not contest the United States' allegations.  We therefore find that each of the challenged capital contributions to Aérospatia le made between 1987 and 1994 constitutes a specific 
subsidy to Aérospatiale and thus to Airbus SAS.  
Conclusion
 
7.1380  In conclusion, we find that each of the capital contributions to Aérosp atiale made by the 
French government in 1987, 1988 and 1994, and th e capital contribution to Aérospatiale made by 
Crédit Lyonnais in 1992, constitutes a subsidy to Aéro spatiale.   Each involves a "direct transfer of 
funds" in the form of an equity infusion, a nd therefore a financial contribution pursuant to 
Article 1.1(a)(1)(i), which conferred a benefit on Aérospatiale because the investment decision was 
inconsistent with the usual investment practice of private investors in France.  We further find that 
each of these subsidies is specific within the meaning of Article 2 of the SCM Agreement.  
(b) The 1998 transfer of the French government's 45. 76 percent interest in Dassault Aviation to 
Aérospatiale 
(i) Background to the French government's transf er of its 45.76 percent equity interest in 
Dassault Aviation to Aérospatiale 
7.1381  In this section, we address the United States ' claims that the 1998 tr ansfer by the French 
government of its 45.76 percent equity interest in  Dassault Aviation to Aérospatiale is a specific 
subsidy to Aérospatiale within the meaning of Artic le 1 and 2 of the SCM Agreement.  We begin by 
describing the transaction and the context in which it occurred, before addressing the arguments of the 
parties and setting forth our evaluation of the relevant legal issues and our findings.   
7.1382  Dassault Aviation is a French aircraft manuf acturer of military, regional and business jets. 
Until 1978, almost all of its capital was privately held by the Dassault fa mily through the entity 
Dassault Industries.  In 1978, the French government  acquired a 45.76 percent equity interest in the 
company.4547  Although the French government  held less than a majority interest in Dassault Aviation, 
it was able to exercise 55 percent of the voting rights of the company owing to double voting rights 
attached to certain of its shares.  On 30 Dece mber 1998, the French gove rnment transferred its 
45.76 percent interest in Dassault Aviation to Aérospatiale, in exchange for new shares of 
Aérospatiale to be issued at a later date followi ng the fixing of an exchange ratio by a panel of 
independent experts.4548   The panel of independent experts delivered its report on 19 March, 1999, 
approving the contribution of the Dassault Aviation sh ares to Aérospatiale at an amount equal to their 
                                                      
4546 US, FWS, paras. 574, 590, 605. 
4547 Dassault Industries held 49.9 percent of the shar es in Dassault Aviation, with the remaining 4.34 
percent being held by the public. 
4548 Aérospatiale Matra Offering Memorandum, dated 25 May 1999, Exhibit EC-53, p. 24.    WT/DS316/R 
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  net book value of FF 2,658 million.  On the basis of this report, on 6 May, 19 99, Aérospatiale issued 
9,267,094 new shares to the French government (b ased on an exchange ratio of two Aérospatiale 
shares for each Dassault Aviation share).4549 
7.1383  The French government's transfer of its 45. 76 percent interest in Dassault Aviation to 
Aérospatiale in late 1998 was a preliminary step  in the planned consolidation of the French 
aeronautical, defence and space industries through the combination of Aérospatiale and Matra Hautes 
Technologies (MHT) to create Aérospatiale-Matra, a nd the public offering of shares in Aérospatiale-
Matra.4550  In 1999, Aérospatiale and MHT were comb ined to create Aérospatiale-Matra, and the 
French government thereupon sold a portion of its shareholding in Aérospatiale-Matra in a public 
offering.  Following the public offering in 1999 , the French government held approximately 
48 percent of the shares in Aérospatiale-Matra.4551  
7.1384  When the French government acquired its inter est in Dassault Aviation in 1978, it had agreed 
with the Dassault family that the special control rights (double voting rights) attaching to certain of 
the French government's shares would not be transferred to private entities.4552  When the French 
government transferred its 45.76 percent interest in  Dassault Aviation to Aérospatiale, in anticipation 
of Aérospatiale's combination with MHT and the privatization of Aérospatiale-Matra, the French 
government agreed to the cancellation of the double vo ting rights which had attached to certain of the 
its shares in Dassault Aviation, and the Dassault fam ily thus regained effective control of Dassault 
Aviation.4553 
(ii) Arguments of the parties 
United States  
7.1385  The United States argues that the 1998 transfer by the French government of its 45.76 percent 
interest in Dassault Aviation to Aéro spatiale is a "direct transfer of funds" within the meaning of 
Article 1.1(a)(1)(i) of the SCM Agreement, and constitutes a financial contribution within the 
meaning of Article 1.1(a)(1) of the SCM Agreement.4554  The United States further argues that the 
share transfer conferred a "benefit" on Aérospatiale , within the meaning of Article 1.1(b) of the 
SCM Agreement, because it was inconsistent with  the usual investment practice of private 
investors.4555  In addition, the United States argues that the 1998 share transfer is specific within the 
                                                      
4549 Aérospatiale recorded the difference between the net book value of the Dassault Aviation shares 
and the nominal value of the Aérospatiale shares (FF 100  nominal value per share) as additional paid-in capital 
of approximately FF 1,731 million; Aérospatiale Matra Offering Memorandum, dated 25 May 1999, Exhibit 
EC-53, p. 24. 
4550 The consolidation of the French aeronautical, de fence and space industries was itself undertaken in 
preparation for the creation of  EADS; EC, FWS, para. 1165 ; see , paras. 7.183 and 7.199 and Section VII.E.1 
Attachment, following para. 7.289  above. 
4551 A private company, Lagardère, held 33 percent of Aérospatiale-Matra and exercised control over 
Aérospatiale-Matra jointly with the French government.  The remaining shares were held by the public and 
Aérospatiale-Matra employees. 
4552 EC, SNCOS, paras. 274-277; Avis du Conseil d'Etat, no. 362-610 , Exhibit EC-846.  Although 
French law would theoretically have allowed the French government to transfer its double voting rights to a 
third person following a two-year waiting period, the French government agreed that the double voting rights would not be exercised, even after the expiration of the two year period required by French law; EC, SNCOS, 
para. 275; Loi no. 66-537 du 24 juillet 1966 sur les sociétés commerciales, Article 175, Exhibit EC-845. 
4553 EC, SNCOS, paras. 274-277; The current share ownership of Dassault Aviation is as follows: 
Groupe Industriel Marcel Dassault, 50.21 percent; EADS, 46.30 percent; public, 3.49 percent; EC, FWS, para. 
1169, footnote 942; Exhibit EC-845; Exhibit EC-846. 
4554 US, FWS, para. 608. 
4555 US, FWS, para. 609. WT/DS316/R 
Page 752  
BCI deleted, as indicated [***] 
 
  meaning of Article 2 of the SCM Agreement because it is an ad hoc  transfer from the French 
government which is explicitly limited to Aérospatiale.
4556 
7.1386  The United States argues that, if under the usual investment practice of private investors in 
the territory of the subsidizing Member, an equity infusion would not have been provided, or if the 
government equity infusion is provided on better th an commercial terms, it confers a benefit within 
the meaning of Article 1.1(b) of the SCM Agreement and constitutes a subsidy.4557  The United States 
argues that the French government's transfer of  its 45.76 percent interest in Dassault Aviation to 
Aérospatiale conferred a benefit on Aérospatiale because Aérospatia le received what amounts to a 
FF 5.28 billion equity infusion (which increased Aéro spatiale's consolidated capital by approximately 
20 percent) through a transaction that was inconsiste nt with the usual investment practice of private 
investors in France.4558  According to the United States, a private investor would not have engaged in 
the transaction that resulted in Aérospatiale's receipt of the Dassault Aviation shares, given 
Aérospatiale's "dire financial circumstances" at the time, the uncompensated loss of control over 
Dassault Aviation which the transaction entailed, and the absence of any contemporaneous studies 
suggesting that such loss would be outweighed by gains that could be expected from the eventual 
public offering of Aérospatiale-Matra.4559   
7.1387  The United States argues that Aérospatiale's  financial condition and commercial outlook 
"remained serious" in the late 1990s.4560 In 1997, Aérospatiale reporte d total liabilities of more than 
FF 56 billion, compared with share holders' equity of FF 5.3 billion.4561    In addition, the United States 
alleges that Aérospatiale's financia l ratios were very poor in compar ison with those of its peer group 
of companies.4562  The United States alleges that, following a negative market reaction to the news 
that the French government was considering the priv atization of Aérospatiale, the French government 
decided instead to pursue a partial merger betw een Dassault Aviation and Aérospatiale through the 
transfer of its 45.76 percent interest in Dassault Aviation.4563  According to the United States, the 
transfer of the 45.76 percent equity interest in Dass ault Aviation to Aérospatiale "led to a considerable 
benefit to Aérospatiale".4564  The United States refers to a report of the French Sénat  indicating that 
the transaction would benefit Aérospatiale by rein forcing its financial position through an equity 
participation in Dassault Aviation (a company with  superior operating margins), as well as amounting 
to a 20 percent increase in Aérospatiale's equity.4565   
7.1388  The United States also notes that in transferring its stake in Dassault Aviation to Aérospatiale, 
the French government relinquished double voting right s attaching to certain of its shares, which had 
enabled it to exercise control of Dassault Aviation d espite holding less than a majority interest.  The 
                                                      
4556 US, FWS, para. 620. 
4557 US, FWS, para. 562. 
4558 US, SWS, para. 480; Answer to Question 159, para. 153. 
4559 US, Answer to Panel Question 159, para. 153. 
4560 US, FWS, para. 610. 
4561 US, FWS, paras. 610-614.  The United States also refers to a 1987 report of the French Sénat  that 
states that Aérospatiale did not have sufficient equity for its development; 1987 Senate Report, Exhibit US-18, 
p. 78. 
4562 US, FWS, para. 611.  Aérospatiale's debt-to-equity  ratios were 13.5, 10.7 and 7.3 percent in 1996, 
1997 and 1998, respectively, compared with averages for its peer group of 2.6, 2.1 and 2.2 percent, respectively 
over the corresponding periods.  Aérospatiale's debt coverage ratios were 0.6, 1.5 and 1.1 percent in 1996, 1997 and 1998, respectively, compared with peer group averag es of 4.3, 7.7 and 6.5, respectively over the same 
periods; Ratio Comparison Chart, Exhibit US-274. 
4563 US, FWS, para. 613; Aérospatiale on Credit Watch negative – S&P, AFX News, 29 May 1998, 
Exhibit US-307. 
4564 US, FWS, para. 613. 
4565 US, FWS, para. 614; Senate Report No. 89 , Exhibit US-302, p. 55; US, Answer to Panel Question 
29, para. 189.  WT/DS316/R 
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  United States contends that the French government's  ceding control over Dassault Aviation as a result 
of the transfer of its stake in that company to  Aérospatiale was not co mpensated by the Dassault 
family, owners of the rest of the shares in the co mpany who thus regained c ontrol, and resulted in the 
French government incurring a substantial financial loss.4566  The United States acknowledges that a 
private investor might knowingly incur such a loss where it has a "reasonable expectation of an 
offsetting financial gain".  However, the United States argues that such an expectation should be 
based on prior studies undertaken in order to de termine the financial benefit that could be 
expected.4567 The United States notes that the French govern ment failed to undertake any such studies 
and that the European Communities has not identifie d any basis for the French government to have 
expected that its profit from the formation of Aé rospatiale-Matra would outweigh its loss from ceding 
control of Dassault Aviation without compensation.4568 
7.1389  The United States argues that two further consider ations help to reinforce the conclusion that 
the 1998 share transfer to Aérospatiale was not c onsistent with the usual investment practice of 
private investors.  First, in addition to ceding control of Dassault Aviation to the Dassault family as a 
consequence of the transfer of its equity stak e in Dassault Aviation to Aérospatiale, the French 
government also agreed to grant Dassault a significan t participation in the merged entity Aérospatiale-
Matra in the hope of persuading the Dassault family to consent to a full merger between Aérospatiale 
and Dassault Aviation.4569 According to the United States, th is additional cost to the French 
government should increase the offsetting gain that it would have been reasonable for the French 
government to expect from the formation of Aérospa tiale-Matra and its subsequent privatization, in 
order for the 1998 share transfer to be considered consistent with the usual investment practice of 
private investors.4570  Second, the United States argues that th e French government's transfer of its 
45.76 percent interest in Dassault Aviation to Aéro spatiale was motivated by political and industrial 
policy concerns, rather than an interest in re ceiving a commercial return on its investment.4571  
According to the United States, evidence of the French government's political and industrial policy 
motivations explains the absence of cost-benefit analyses that would have been undertaken by a 
private investor and further demonstrates that the 1998 share transfer to Aérospatiale was not 
consistent with the usual investment practice of private investors.4572   
European Communities  
7.1390  The European Communities contends that, unlik e the capital investments which the French 
government made in Aérospatiale  between 1987 and 1994, the contri bution to Aérospatiale of the 
French government's 45.76 percent interest in D assault Aviation was made, not to fund the expansion 
                                                      
4566 US, Answer to Panel Question 158, para. 146.  The United States has furnished an expert report 
that calculates that the French government's relinquishment of control of Dassault Aviation without 
compensation translat ed into a loss of [[HSBI ]] to the French government. Lauren  D.  Fox, 1998 Dassault Share 
Transfer Valuation Report, Exhibit US-595 HSBI. 
4567 US, Answer to Panel Question 158, para. 147. 
4568 US, Answer to Panel Question 158, para. 148.  Th e United States notes that  by the end of the 13-
month period following the formation of Aérospatiale-M atra (during which Aérospatiale-Matra shares were 
publicly traded) the value of the French government's interest in Aérospatiale-Matra substantially declined, 
compounding the loss which the French government had already incurred in ceding control of Dassault Aviation 
without compensation.   
4569 US, FWS, para. 616. 
4570 US, Answer to Panel Question 158, para. 150. 
4571 US, FWS, para. 615; US, Answer to Panel Question 158, para. 151.  The United States alleges that, 
at the time of the 1998 share transf er, the French government had foreseen  the consolidation of the European 
aerospace industry through th e creation of Airbus SAS and wanted to strengthen Aérospatiale's balance sheet 
(and thus its relative position in negotiations with th e other members of the Airbus consortium) and protect 
French interests in the anticipated consolid ation of the European  aerospace industry. 
4572 US, Answer to Panel Question 158, para. 151. WT/DS316/R 
Page 754  
BCI deleted, as indicated [***] 
 
  of Aérospatiale's product lines, but to facilitate th e consolidation and privatization of the French 
aerospace industry ( i.e., the combination of Aérospatiale with  MHT to form Aérospatiale-Matra and 
the public offering of shares in Aérospatiale-Matra).
4573   
7.1391  The European Communities notes that, prior to its c ontribution to Aérospatiale of its shares in 
Dassault Aviation, the French government owned 100 percent of Aérospatia le and independently 
owned a 45.76 percent interest in Dassault Aviati on.  According to the European Communities, the 
French government's transfer of its  stake in Dassault Aviation to Aéro spatiale in exchange for newly 
issued shares of Aérospatiale amounted to "changin g the form but not the substance" of the French 
government's ownership of both Aéro spatiale and its stake in Dassault Aviation.  In other words, the 
French government continued to own its 45.76 percen t equity interest in Dassault Aviation, only now 
through its 100 percent ownership of Aérospatiale.4574  The European Communities asserts that, to the 
extent that the French government transferred anything "the transfer was to itself."4575  Accordingly, 
the European Communities considers that the transac tion was purely mechanical and practical, in that 
it enabled the French government to sell a signifi cant interest in both Aérospatiale and Dassault 
Aviation in a single sale transaction through the public offering of Aérospatiale-Matra 
in June 1999.4576 
7.1392  The European Communities argues that if Aéro spatiale-Matra had sold the Dassault Aviation 
shares at the time at which they were transferred to  Aérospatiale or shortly thereafter, the French 
government's contribution of the 45.76 percent interest  in Dassault Aviation to Aérospatiale "could be 
considered equivalent to a cash equity contribution by the French government."4577 However, because 
Aérospatiale, then Aérospatiale-Mat ra, and subsequently, EADS, retained the 45.76 percent interest in 
Dassault Aviation, the French governme nt's transfer of the 45.76 per cent interest in Dassault Aviation 
should not be characterized as a "new investment" in  Aérospatiale, but simply as the combination of 
two of its existing investments ( i.e., the French government's equity  stakes in Aérospatiale and 
Dassault Aviation, respectively) under the corporate entity Aérospatiale, in anticipation of the sale of 
a majority interest in the combined entity , Aérospatiale-Matra, to private investors.4578 
7.1393  According to the European Communities, for th e United States to sustain its argument that 
this pooling of assets by the French government in anticipation of the privatization of those assets is 
inconsistent with the usual investment practice of a private investor, it would need to present evidence 
as to what a private investor would have done  in the context of the specific investment.4579  In other 
words, the United States would need to demonstrate th at it is inconsistent with the usual investment 
practice of an owner to pool wholly-owned assets toge ther in anticipation of a combined sale of those 
assets, for which the owner is compensated on market terms.4580  The European Communities argues 
that a market-based parent entity would consolidate holdings in order to realize synergies and create 
wealth, and that the United States has failed to dem onstrate that it is inconsistent with the usual 
                                                      
4573 EC, FWS, para. 1165. 
4574 EC, FWS, para. 1166. 
4575 EC, Answer to Panel Question 102, para. 282 ; SWS, para. 553 ; SNCOS, para. 264. 
4576 EC, FWS, para. 1167. 
4577 EC, FWS, para. 1170. 
4578 EC, FWS, para. 1170.  According to the Europe an Communities, the French government's interests 
in both "assets" remained the same: It owned 100 percent of its 45.76 percent stake in Dassault Aviation before 
the transfer to Aérospatiale and 100 pe rcent of that stake after the transfer to Aérospatiale.  Similarly, it owned 
100 percent of Aérospatiale before the contribution of its interest in Dassault Aviation, and 100 percent of 
Aérospatiale after the contribution of its interest in  Dassault Aviation; EC, Answer to Panel Question 102, 
para. 281. 
4579 EC, Answer to Panel Question 102, para. 282; EC, SWS, para. 554. 
4580 EC, Answer to Panel Question 102, para. 282; EC, SWS, paras. 513, 554.  WT/DS316/R 
 Page 755 
 
BCI deleted, as indicated [***] 
 
  investment practice of a private investor to pool wholly-owned assets together where doing so would 
realize synergies and create wealth.4581       
7.1394  The European Communities contends that the United States' argument that the French 
government knowingly incurred financial losses in transf erring its 45.76 percent interest in Dassault 
Aviation to Aérospatiale is irrelevant to the ques tion whether, for purposes of Article 1.1(b) of the 
SCM Agreement, Aérospatiale received the Dassault  Aviation shares on better terms than would have 
been conferred by a market-based owner of those shares.4582  According to the European 
Communities, the United States has acknowledged that the beneficiary of any allegedly 
uncompensated sacrifice by the French government  of voting control over Dassault Aviation was the 
Dassault family, rather than Aérospatiale.  Th e European Communities argues that, if anything, 
ceding the double voting rights reduced, rather than  enhanced, the value of the Dassault Aviation 
shares received by Aérospatiale.4583  The European Communities al so rejects the United States' 
argument that, in ceding its double voting rights to the Dassault family, the French government 
incurred a loss because it was not comp ensated for the value of the double voting rights.  According to 
the European Communities, the double voting rights c ould not be acquired by private entities (due to 
the contractual arrangements between the French go vernment and Dassault Industries) and therefore 
had no "market" value.4584 
7.1395  Moreover, the European Communities contends that the French government was adequately 
compensated for the value of its 45.76 percent in terest in Dassault Aviation in the subsequent 
privatization of Aérospatiale-Matra.4585  The European Communities point s to the separate valuations 
of Aérospatiale's 45.76 percent interest in Dassau lt Aviation carried out by several investment banks 
in conjunction with the combination of Aérosp atiale and MHT in 1999. These valuations were 
undertaken in order to estimate a value for the comb ined Aérospatiale-Matra entity, and thus a public 
offering price for shares in Aérospatiale-Matra.4586  The European Communities acknowledges that 
the valuations were not "fairness opinions" on the tran sfer of the 45.76 percent equity interest in 
Dassault Aviation to Aérospatiale; rather, they rela ted to the valuation of Aérospatiale-Matra for 
purposes of establishing a public offering price for the shares of that entity.4587  H o w e v e r ,  t h e  
European Communities contends that they demons trate that the French government did not leave 
Aérospatiale-Matra, the successor to  Aérospatiale, with any residual value from the 45.76 percent 
stake in Dassault Aviation for wh ich the French government was not compensated through the public 
offering of shares in Aérospatiale-Matra.4588 
7.1396  The European Communities also argues that the United States has distorted the facts 
concerning Aérospatiale's financial condition at th e time of the Dassault Aviation transfer.  The 
European Communities notes that Aérospatiale's annual orders ha d grown from EUR 9.6 billion in 
1996, to EUR 12.2 billion in 1997 and EUR 13.3 b illion in 1998 and that its backlog had also 
increased substantially, from EUR 19.8 billion in 1996, to EUR 24.5 billion in 1997 and EUR 27.2 
billion in 1998.4589   The European Communities further notes that Aérospatiale had reported profits 
of EUR 93 million, EUR 217 million and EUR 175 m illion in 1996, 1997 and 1998, respectively, 
while at the same time incurring almost EUR 5 billion in research and development expenses.4590  
According to the European Communities, the fina ncial ratios referred to by the United States as 
                                                      
4581 EC, SWS, para. 555. 
4582 EC, Comments on US Answer to Panel Question 158, para. 186. 
4583 EC, Comments on US Answer to Panel Question 158, para. 186. 
4584 EC, Comments on US Answer to Panel Question 158, para. 188. 
4585 EC, Answer to Panel Question 102, para. 283. 
4586 EC, SWS, para. 558.   
4587 EC,  SNCOS, para. 266. 
4588 EC, SNCOS, para. 266; Answer to Question 102, paras. 283-284; SWS, para. 558. 
4589 EC, Comments on US Answer to Panel Question 158, para. 190. 
4590 EC, Comments on US Answer to Panel Question 158, para. 190. WT/DS316/R 
Page 756  
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  evidence of Aérospatiale's "dire" financial conditi on relate to Aérospatiale 's need for additional 
capital, and the implication of the United States' argumen ts is that, if a company needs capital, it is by 
definition not equityworthy.  However, the Europ ean Communities contends that the fact that a 
company may require additional capital says nothing about whether or not it is equityworthy.  Rather, 
the relevant question is whether, from the perspectiv e of a private investor, an investment holds out 
the prospect of good returns.
4591   
7.1397  In this regard, the European Communities refers  to a number of studies of the potential costs 
and benefits of the anticipated combination of  Aérospatiale and MHT and public offering of 
Aérospatiale-Matra conducted by i nvestment banks on behalf of th e French government, Aérospatiale 
and Lagardère.4592  The European Communities notes that certa in of the reports of these investment 
banks "confirm" that Aérospatia le undertook an "extensive due diligence exercise" including 
the September 1998 exchange of Aérospatiale's a nd MHT's respective sector-by-sector business plans 
for the period 1998 to 2003.  According to the European Communities, these business plans contained 
financial projections as well as past and projected da ta which were the subject of intensive review and 
assessment by the investment banks.4593  The European Communities contends that the investment 
banks had valued synergies expected to result from the combination of Aérospatiale and MHT at an 
amount that significantly exceeded any loss of value th at the United States has a ttributed to the French 
government's loss of the double voting rights attached  to its Dassault Aviation stake, and that this 
evidence shows that the French government e xpected synergies from the Aérospatiale-MHT 
combination that would offset any such loss.4594 
7.1398  The European Communities also refers to the de tailed information concerning Aérospatiale in 
the 1999 offering memorandum prepared for the public  offering of Aérospatiale-Matra, "setting out 
positive future prospects" for Aérospatiale and Aéro spatiale-Matra, as well as the terms of Lagardère's 
association with Aérospatiale-Matra and the res ponse of retail and institutional investors to the 
Aérospatiale-Matra public offering, as evidence that private investors held reasonable expectations of 
financial gains in the anticipated combination of Aérospatiale and MH T and public offering of 
Aérospatiale-Matra.4595 
7.1399  The European Communities thus requests that th e Panel reject the United States' claim that 
the contribution to Aérospatiale of the French  government's shareholding in Dassault Aviation 
conferred a "benefit" on Aérospatia le and thus constitutes a subsidy.4596   
(iii) Evaluation by the Panel 
Financial contribution   
7.1400  The United States argues that the 1998 transfer by the French government of its 45.76 percent 
shareholding in Dassault Aviation to Aérospatiale  is a "direct transfer of funds" and therefore 
constitutes a financial contribution for purposes of Article 1.1(a)(1)(i) of the SCM Agreement.   
                                                      
4591 EC, Comments on US Answer to Panel Question 158, para. 192. 
4592 EC, FWS, paras. 233-236; Comments on US, Answer to Panel Question 158, para. 194; [***]  
assessment (HSBI Annex V, EC-HSBI-0001531); [***]  assessment (HSBI Annex V, EC-HSBI-0001652); [***]  
assessment (HSBI Annex V, EC-HSBI-0000903); [***]  assessment (HSBI Annex V, EC-HSBI-0000727); [***]  
assessment (HSBI Annex V, EC-HSBI-0000235); [***]  assessment (HSBI Annex V, EC-HSBI-0000543); [***]  
assessment, Exhibit EC-544 HSBI.   
4593 EC, Comments on US Answer to Panel Question 158, para. 195. 
4594 EC, Comments on US Answers to Question 158, para. 196. 
4595 EC, Comments on US Answers to Question 158, paras. 199-203. 
4596 EC, FWS, para. 1171.  WT/DS316/R 
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  7.1401  The European Communities argues that the transfer should not be characterized as a "new 
investment" by the French government, but simply as the combination of two of its existing investments under the corporate entity, Aérospatiale, in anticipation of the sale of a majority interest 
in Aérospatiale's successor  entity, Aérospatiale-Matra.
4597  I t  m a y  b e  possible  to understand the 
European Communities to argue that the French govern ment's transfer of its 45.76 percent interest in 
Dassault Aviation to Aérospatiale is not a financial contribution  within the meaning of 
Article 1.1(a)(1), because it is simply a change in  the form in which the French government held its 
investment in Dassault Aviation, and not a "new inv estment".  Such an argument would, we believe 
require us to accept the proposition that a government  cannot provide a financial contribution to an 
entity of which it is already the owner; i.e., one cannot make a "financial contribution" to oneself.   
We are unable to accept such a proposition.  We  note that a similar argument in relation to 
transactions involving debt-for-equity sw aps was rejected by the Panel in Korea – Commercial 
Vessels .4598   
7.1402  The European Communities does not expressly ar gue that the contribution by the French 
government of its 45.76 percent interest in Dassau lt Aviation to Aérospatiale is not a "financial 
contribution".  On the contrary, the European Co mmunities argues that, had Aérospatiale-Matra sold 
the Dassault Aviation stake at the time at which it was transferre d by the French government, or 
shortly thereafter, the contribution of the Dass ault Aviation shares to Aérospatiale "could be 
considered equivalent to a cash equity infusion by the French State", which suggest that the European 
Communities considers that the transaction could, in certain circumstances, constitute a financial 
contribution.4599  However, we do not consider that the or dinary meaning of Article 1.1(a)(1) permits 
us to characterize a transaction as a "financial contribution" according to the behaviour of the 
recipient subsequent to the transaction.  If the tran sfer of the 45.76 percent interest in Dassault 
Aviation to Aérospatiale constitutes an equity  infusion and falls within the meaning of 
Article 1.1(a)(1)(i), it will do so regardless of whet her or not Aérospatiale or  Aérospatiale-Matra as 
the recipient retained the transferred Dassault Aviati on shares or subsequently sold them to a third 
party.4600 
7.1403  Article 1.1(a)(1)(i) of the SCM Agreement provi des that a "financial contribution" exists 
where there is a "direct transfer of funds ( e.g., grants, loans, and equity infusion), potential direct 
transfers of funds or liabilities ( e.g., loan guarantees)."  The first issue we consider is whether a 
contribution of shares in a company (rather than a cash contribution) in exchange for newly-issued 
shares in the recipient company is a "direct transfer of funds" within the meaning of 
Article 1.1(a)(1)(i) of the SCM Agreement.  We ag ree with the Appellate Body that the term "funds" 
in Article 1.1(a)(1)(i) encompasses not only "money" but also financial resources and other financial 
claims more generally.4601  Moreover, as the Appellate Body has noted, the words "grants, loans, and 
                                                      
4597 EC, FWS, para. 1170; EC, Answer to Panel Question 102, para. 281. 
4598 See, Panel Report, Korea – Commercial Vessels , paras. 7.419-7.423, where the panel noted that the 
fact that equity infusions are explicitly designated as "financial contributions" suggests that the SCM Agreement 
does not preclude the owner of a company from making a "financial contribution" to that company (at para. 7.420).    
4599 EC, FWS, para. 1170. 
4600 During the Second Meeting of the Panel, while the European Communities stated that, to the extent 
that the French government transferred anything in connection with the Dassault Aviation transaction, the 
transfer was to itself, this statem ent, along with the Europ ean Communities' arguments concerning the proper 
characterization of the transaction as a combination of existing investments ra ther than as a "new investment", 
were made in the context of rebutting the United States' allegations that the transfer conferred a benefit on 
Aérospatiale, and thus appear to be directed to the issue of benefit within the meaning of Article 1.1(b) ; see EC, 
SNCOS, paras. 264-279.  See, also, EC, SWS, paras. 552-553, where the European Communities makes the 
same statement as part of its argume nt that the transaction could not have conferred a "benefit" within the 
meaning of Article 1.1(b). 
4601 Appellate Body Report, Japan – DRAMs (Korea) , para. 250. WT/DS316/R 
Page 758  
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  equity infusion" in Article 1.1(a)(1)(i) are preceded  by the abbreviation "e.g." which indicates that 
grants, loans and equity infusion are cited examples of transactions falling within Article 1.1(a)(1)(i), 
and transactions which are similar to those expressly listed are also covered by the provision.  As we 
have indicated previously, we regard shares in a co mpany as financial claims to a stream of income 
(in the form of dividends paid out of a company's profits) and to a share in the capital of a company 
on its winding up.
4602  Therefore, we consider shares in a co mpany to fall within the scope of the term 
"funds" in Article 1.1(a)(1)(i), and a transfer of sh ares to fall within the sco pe of the term "direct 
transfer of funds" within the meaning of Article 1.1(a)(1)(i) of the SCM Agreement.4603  We conclude 
that the French government's transfer of its 45.76 percent stake in Dassault Aviation to Aérospatiale 
constitutes a "financial contribution" within the meaning of Article 1.1(a)(1)(i) of the 
SCM Agreement.   
7.1404  We next consider whether that financial cont ribution conferred a "benefit" on Aérospatiale 
within the meaning of Article 1.1(b) of the SCM Agreement.    
Benefit  
7.1405  We have previously indicated that it is well es tablished that a financial contribution confers a 
benefit within the meaning of Article 1.1(b) wher e the terms of the financial contribution are more 
favourable than the terms available to the recipient in the market.4604  We have also noted that the 
Appellate Body has held that Article 14 constitutes re levant context for the interpretation of "benefit" 
in Article 1.1(b).4605  Moreover, the United States and Eur opean Communities both agree generally 
that Article 14(a), although not directly applicab le to Part III of the SCM Agreement, provides 
guidance for the interpretation of Article 1 of th e SCM Agreement as regards claims not involving 
Part V.4606   
7.1406  The United States does not argue that the tr ansfer by the French government of its 
45.76 percent interest in Dassault Aviations to  Aérospatiale, in exchange for the issuance by 
Aérospatiale to the French government of an add itional 9,267,094 shares in Aérospatiale, conferred a 
benefit on Aérospatiale because the value of the ne wly issued shares in Aérosp atiale was less than the 
value of the 45.76 percent interest in Dassault Aviation.4607  The United States argues that the 
transaction conferred a benefit on Aérospatiale b ecause it constituted an equi ty infusion that was 
inconsistent with the usual investment practice of private investors in France.     
7.1407  Our approach to the issue of benefit in the context of the French government's 1998 equity 
infusion to Aérospatiale (through the transfer of its 45.76 percent interest in Dassault Aviation to 
Aérospatiale in exchange for newly-issued shares in  Aérospatiale) is to ask whether the United States 
has demonstrated that a private investor would not have made the equity investment in question based 
on the information available at the time.  In this  regard, we consider that a private investor 
contemplating such an investment would be seeking to achieve a reasonable rate of return on its 
investment.  The United States has not presented evid ence as to the rates of re turn which the French 
                                                      
4602 See, para. 7.1291 above. 
4603 See, para. 7.1291 above. 
4604 See, e.g.,  Appellate Body Report, Canada – Aircraft,  paras. 157-158; Panel Report, US – 
Countervailing Duty Investigation on DRAMS,  para. 7.179; Panel Report, EC – Countervailing Measures on 
DRAM Chips , paras. 7.173-7.175; Panel Report, Japan – DRAMs (Korea) , para. 7.256. 
4605 Appellate Body Report, Canada – Aircraft , para. 155. 
4606 US, FWS, paras. 544-545, 561-564; EC, FWS, pa ra. 1215; SNCOS, para. 267; Answer to Panel 
Question 101, para. 280; SWS, para. 520. 
4607 US, Answer to Panel Question 159, para. 152.  The United States agr ees with the European 
Communities that the ratio at which the French governm ent exchanged its Dassault Aviation shares for newly-
issued shares in Aérospatiale is of "no economic significance" due to the French government's ownership of Aérospatiale and the Dassault Aviation shares.  WT/DS316/R 
 Page 759 
 
BCI deleted, as indicated [***] 
 
  government could reasonably have expected to achieve from what the United States contends is 
effectively a FF 5.28 billion equity infusion to Aéro spatiale.  Instead, the United States argues that a 
private investor would not have made such an equi ty infusion because Aérospat iale was, at the time, 
in "dire financial circumstances", the transaction invo lved considerable costs associated with ceding 
control of Dassault Aviation, and there is nothing to s uggest that, at the time of the transaction, those 
costs appeared to be outweighed by gains that could be expected from  the subsequent sale of shares of 
Aérospatiale-Matra.4608   
7.1408  In this regard, the United States refers to Aéro spatiale's reported total liabilities of more than 
FF 56 billion in 1997, compared with shareholders ' equity of FF 5.3 billion, along with its poor 
financial ratios as compared with those of its peer group companies.4609  The United States also refers 
to evidence indicating that Aérospatiale was ser iously undercapitalized at the relevant time.4610  We do 
not regard the fact that Aérospatiale was undercap italized by the French government, as its sole 
shareholder, to necessarily mean that a private investor would not have provided capital to the company.
4611  Although the United States refers to a 1997 report of the French Sénat  which stated that 
Aérospatiale had insufficient capital for its developm ent, we note that the report also explained that, 
despite its undercapitalization, Aérospatiale ha d reasonable levels of indebtedness and cost 
management.4612  Indeed, while Aérospatiale's debt to equity ratios and debt coverage ratios in 1995 
and 1996 continued to be inferior to the av erage ratios of its peer group of companies,4613 unlike the 
period between 1987 and 1995, Aérospatiale's retu rn on equity in 1996 and 1997 exceeded the 
average return on equity for its peer group of companies.4614 However, we are unable, on the basis of 
the arguments and evidence before us, to de termine whether the relative improvement in 
Aérospatiale's return on equity ratios is primarily due  to increased revenues, or is at least partially the 
result of other factors that are not necessarily indicat ive of an improvement in financial performance.  
In any case, we note that Aérospatiale reported profits of EUR 93 million in 1996, and EUR 217 in 
1997, along with growth in annual orders from EUR 9.6 billion in 1996 to EUR 12.2 billion in 1997 
and consider that this evidence demonstrates that Aérospatiale's financial condition and prospects in 
1996 and 1997 had improved over prior periods.4615  
7.1409  Despite this improvement over prior periods, howev er, it is clear to us that the increase in 
Aérospatiale's capitalization brought about by the transfer of the French government's 45.76 percent 
interest in Dassault Aviation (representing a 20 percen t increase in Aérospatiale's total consolidated 
capital) was necessary in order to increase the chances that the planned privatization of Aérospatiale 
could occur as soon as possible.4616 Moreover, we are satisfied that  the planned privatization of 
Aérospatiale was regarded as necessary to im prove the French government's position in its 
negotiations with other Airbus governments over th e terms of the consolidation of the European 
                                                      
4608 US, Answer to Panel Question 159, para. 153. 
4609 See, para. 7.1387 above. 
4610 US, FWS, paras. 610-611. 
4611 Aérospatiale's undercapitalization by the French government can therefore be  contrasted with the 
undercapitalization of Deutsche Airbus by MBB, a private shareholder; see, paras. 7.1291 - 7.1302 above. 
4612 Exhibit US-18, p. 77. 
4613 In 1996 and 1997, Aérospatiale's debt to equity ratios were 13.5 and 10.7, respectively, compared 
with average peer group ratios of 2.6 and 2.1, respectively.  Over the same periods, Aérospatiale's debt coverage 
ratios were 0.6 and 1.5, respectively, compared with av erage peer group ratios of 4.3 and 7.7, respectively. 
4614 In 1996, Aérospatiale's return on equity was 27.7 percent compared with an average of 15.0 percent 
for its peer group of companies, and in 1997, its return on equity was 37.4 percent compared with a peer group 
average of 17.8 percent. 
4615 EC, Comments on US Answer to Panel Question 158, para. 190.  In addition, the European 
Communities notes that Aérospatiale's backlog increased  from EUR 19.8 billion in 1996 to EUR 24.5 billion in 
1997. 
4616 Exhibit US-276. WT/DS316/R 
Page 760  
BCI deleted, as indicated [***] 
 
  aerospace industry.
4617  This being so, we consider that Aéro spatiale's financial position and prospects 
immediately prior to the French government's tr ansfer of its 45.76 percent interest in Dassault 
Aviation, while improved, were not improved to a degree that would have  enabled Aérospatiale, 
absent the addition of the 45.76 percent interest  in Dassault Aviation (representing a 20 percent 
increase in its total consolidated cap ital), to attract private capital.  
7.1410  The European Communities argues that the appr opriate focus of inquiry in evaluating the 
consistency or otherwise of the Dassault Aviation transfer with the usual investment practice of 
private investors is to ask whether a private owner  would consolidate its wholly-owned investments in 
advance of the sale of those assets.4618  In the context of the French government's transfer of its 
45.76 percent interest in Dassault Aviation to Aé rospatiale, the European  Communities argues that 
this standard requires that the United States dem onstrate that it is inconsistent with the usual 
investment practice of private owners to pool w holly-owned assets together in anticipation of a 
combined sale of those assets, for which the owner is compensated on market terms.4619  
7.1411  We do not reject the possibility that a party may successfully rebut a cl aim that an equity 
infusion conferred a benefit because it was inconsistent with the usual investment practice of private 
investors by showing that the transaction in question was a preliminary step in, or otherwise part of, a restructuring or consolidation project and that, considered in the context of the overall returns 
expected to be generated from that restructuring or consolidation project, the equity investment was 
consistent with the usual investment practice of a private investor.  As we have indicated, we are 
satisfied as a factual matter that the French governme nt's transfer of its 45.76 percent interest in 
Dassault Aviation to Aérospatiale was envisaged as a preliminary step in the consolidation of the 
French aeronautics industry, in preparation for the eventual consolidation of the European aeronautics 
industry.  However, the European Communities has presented no evidence to persuade us that, at the 
time at which the French governme nt was contemplating transferring its 45.76 percent interest in 
Dassault Aviation to Aérospatiale, it had a rational basis for believing that the overall returns it could 
expect from a public offering of shares in an entity th at combined the French government's interests in 
Dassault Aviation with Aérospatiale, exceeded the ra te of return it could expect from retaining its 
46.75 percent equity interest in Dassault Aviati on (including the double voting rights attached to 
certain of those shares) separately from its ownership of Aérospatiale.   
7.1412  The European Communities has provided evidence to the effect that the Dassault Aviation 
stake received by Aérospatiale had been valued separately from Aé rospatiale in the context of 
calculating a public offering price for Aérospatiale-M atra.  We note, however, that the transfer by the 
French government of its 45.76 percent interest  in Dassault Aviation occurred in December 1998.
4620  
The assessments to which the Eu ropean Communities refers concern the relative valuations of 
Aérospatiale, Aérospatiale's 45.76 percent interest  in Dassault Aviation, and MHT for the purpose of 
establishing a public offering price for the Aérospatia le-Matra shares, which occurred in 1999.  These 
valuations are all dated either Fe bruary, March or April 1999; in ot her words, they were all made after  
the French government had decided to transfer its  45.76 percent interest in Dassault Aviation to 
Aérospatiale.  Moreover, the assessments do not anal yze the relative merits of the French government 
retaining its separate holdings of  Dassault Aviation (including the French government's double voting 
rights) and Aérospatiale, on the one hand, as oppo sed to combining those holdings (and cancelling the 
                                                      
4617 In announcing the French government's decision to transfer its interest in Dassault Aviation to 
Aérospatiale, the French Finance Ministry said that the agreement between Aérospatiale and Dassault Aviation 
was designed to promote a concerted strategy for the French aeronautics industry in the broader context of 
alliances that need to be concluded in the near-term between the principal European actors; French Finance 
Ministry, Communiqué de presse , 15 May 1998, Exhibit US-304.  Similar views are expressed in media reports: 
Exhibit US-307; Exhibit US-309; Exhibit US-310; Exhibit US-312; Exhibit US-596.    
4618 EC, Comments on US Answer to Panel Question 224, para. 421.  Emphasis added. 
4619 EC, SWS, paras. 554-555. 
4620 Aérospatiale-Matra Offering Memorandum, dated 25 May 1999, Exhibit EC-53, p. 24.  WT/DS316/R 
 Page 761 
 
BCI deleted, as indicated [***] 
 
  double voting rights attached to the Dassault Aviati on shares) and merging them with MHT with a 
view to a subsequent public offering of the merged entity.  Rather, the assessments are valuations of 
Aérospatiale and MHT and estimates of the syne rgies that could be expected from their 
combination.4621 We therefore do not consider any of the assessments submitte d by the European 
Communities to support the proposition that the French  government had a rational basis for believing 
that the overall returns it could expect from a public  offering of shares in an entity which combined 
the French government's interests in Dassault Aviation (minus the double voting rights) with 
Aérospatiale exceeded the rate of return it could e xpect from holding its 45.76 percent equity interest 
in Dassault Aviation (including the double voting rights  attached to certain of those shares) separately 
from Aérospatiale.  We are satisfied that the French government's transfer of its 45.76 percent equity 
interest in Dassault Aviation in exchange for newly issued shares in Aérospatiale was inconsistent 
with the usual investment practice of a private i nvestor in France, because a private investor would 
not have made the investment, and that the transac tion therefore conferred a benefit on Aérospatiale 
within the meaning of Article 1.1(b) of the SCM Agreement. We reach this conclusion after 
considering all of the evidence in its totality in r espect of the French governme nt's 1998 transfer of its 
45.76 percent interest in Dassault Aviation to Aérospatiale.       
Specificity  
7.1413  The United States argues that the 1998 transfer by the French government of its 45.76 percent 
interest in Dassault Aviation to Aérospatiale is a s ubsidy which is specific to Aérospatiale within the 
meaning of Article 2 of the SCM Agreement as is an ad hoc  transfer from the French government 
which is explicitly limited to Aérospatiale.4622 Although the United States has not identified a 
particular sub-paragraph of Article 2 as the basis of its argument, we understand from the nature of 
the argument it advances that it is grounded in Ar ticle 2.1(a) of the SCM Agreement.  Evidence 
submitted by the United States as to the 1998 transfer  of a 45.76 percent inter est in Dassault Aviation 
to Aérospatiale more generally confirms the United States' assertion that this transfer was explicitly 
limited to Aérospatiale and was thereby "specific"  within the meaning of Article 2.1(a) of the 
SCM Agreement.  The European Communities does not  contest the United States' allegations.  We 
therefore find that the 1998 transfer by the French government of its 45.76 percent interest in Dassault 
Aviation to Aérospatiale constitutes a specific subsidy to Aérospatiale. 
(iv) Conclusion 
7.1414  In conclusion, we find that the French governme nt's 1998 transfer of its 45.76 percent equity 
interest in Dassault Aviation to Aérosp atiale in exchange for the issuan ce by Aérospatiale of shares to 
the French government constitutes a subsidy to Aérosp atiale because it involves a "direct transfer of 
funds" comparable to an equity infusion and is th erefore a financial contribution within the meaning 
of Article 1.1(a)(1)(i), which conferred a benefit on Aérospatiale because the investment decision was 
inconsistent with the usual investment practice of private investors in France.  We further find that 
this subsidy is specific within the meaning of Article 2 of the SCM Agreement. 
 
                                                      
4621 We also note that certain of the assessments were performed by investment banks that had been 
retained to advise parties other than the French government in connection with the Aérospatiale-MHT offering, 
and therefore cannot necessarily be pr esumed to be information known to , or advice received by, the French 
government in the context of its decision to effect the transfer of its interest in Dassault Aviation to 
Aérospatiale.  For example,  [***]  advised Aérospatiale, Exhibit EC-HSBI0000543; Exhibit EC-HSBI0000235, 
while [***]  advised Lagardère, Exhibit EC-HSBI0000727; Exhibit EC-HSBI0000905. 
4622 US, FWS, para. 620; Aérospatiale Annual Report 1998, Exhibit US-301, p. 28. WT/DS316/R 
Page 762  
BCI deleted, as indicated [***] 
 
  10. Whether research and technological development funding that the European 
Commission and the member States provide to Airbus are specific subsidies 
(a) Introduction 
7.1415  The United States challenges multiple instances of research and technological development 
("R&TD") funding provided or committed to Ai rbus by the European Co mmunities, the French, 
German, Spanish and UK governments and three Ge rman sub-federal public entities between 1986 
and 2007. In the vast majority of cases, the cha llenged funding measures take the form of grants. 
However, in two instances, the United States' complaint focuses on loans. The United States claims 
that each of the challenged measures amounts to a specific subsidy within the meaning of Articles 1 
and 2 of the SCM Agreement. The R&TD measures that  are subject to the United States' claims are: 
(i) EC grants for LCA-related R&TD proj ects in which Airbus participated 
pursuant to the: 
- Second Framework Programme for Community Activities in the Field of 
Research and Technological Development (1987-1991) ("Second Framework 
Programme" or "2
nd FP"),4623  
- Third Framework Programme for Community Activities in the Field of 
Research and Technological Development (1990-1994) ("Third Framework Programme" or "3
rd FP"),4624  
- Fourth Framework Programme of the European Community Activities in the 
Field of Research and Technological Development and Demonstration (1994-
1998) ("Fourth Framework Programme" or "4th FP"),4625  
- Fifth Framework Programme of the European Community for Research, 
Technological Development and De monstration Activities (1998-2002) 
("Fifth Framework Programme" or "5th FP");4626 and  
- Sixth Framework Programme of the European Community for Research, 
Technological Development and Demonstr ation Activities, Contributing to 
the Creation of the European Research  Area and to I nnovation (2002-2006) 
("Sixth Framework Programme" or "6th FP");4627 
(ii) French government grants for LCA-rela ted R&TD projects in which Airbus 
participated, between 1986 and 2005.4628 
(iii) German federal government grants for LCA-related R&TD projects in which 
Airbus participated under the: 
- Luftfahrtforschungsprogramm I ("LUFO I") (1995-1998),4629 
Luftfahrtforschungsprogramm II ("LUFO II") (1998-2002)4630 and 
Luftfahrtforschungsprogramm III ("LUFO III") (2003-2007);4631 
                                                      
4623 US, FWS, para. 628.  Exhibit EC-200.   
4624 US, FWS, para. 631.  Exhibit EC-201. 
4625 US, FWS, para. 636.  Exhibit EC-202. 
4626 US, FWS, para. 641.  Exhibit EC-203. 
4627 US, FWS, para. 646.  Exhibit EC-204. 
4628 US, FWS, para. 680.  Exhibits US-337, EC-205, EC-206, EC-207-BCI-, EC-208-BCI and EC-209-
BCI.  WT/DS316/R 
 Page 763 
 
BCI deleted, as indicated [***] 
 
  (iv) Grants from three German sub-federa l public entities for LCA-related R&TD 
projects in which Airbus participated under the: 
- Offensive Zukunft Bayern (1995),4632 
- Offensive Zukunft Bayern II (1996),4633 
- Bayerisches Luftfahrtforschungsprogram (2000),4634   
- Hightechoffensive Bayern (1999-2003),4635 
- Airbus Materials & System Technology Centre Bremen ("AMST I") (2000-
2002),4636 
- Airbus Materials & System Technology Centre Bremen II ("AMST II") 
(2002-2006),4637 and  
- Luftfahrtforschungsprogramm (2000-2005) Hamburg;4638  
(v) Spanish government loans for LCA-rela ted R&TD projects in which Airbus 
participated, in particular loans made under : 
- the Plan Tecnológico Aeronáutico ("PTA") (1993-2003),4639 and  
- the Programa de Fomento de la Investigación Técnica ("PROFIT") (2000-
2007);4640 in particular the Programa Naci onal de Aeronáutica of PROFIT 
(2000-2003)4641 and the Subprograma Nacional de Transporte Aéro of 
PROFIT (2004-2007);4642 
(vi) UK government grants for LCA-relate d R&TD projects in which Airbus 
participated under the  
- Civil Aircraft Research and De velopment Progra mme ("CARAD") 
(subsequently renamed the Aeronautics Research Programme ("ARP") (1992-2004),
4643 and Technology Program ("TP") (2004-2005).4644 
7.1416  In responding to the United States' claims, th e European Communities has presented multiple 
arguments, two of which have already been set  out and addressed in our Preliminary Ruling.4645 A 
                                                                                                                                                                     
4629 US, FWS, para. 659.  Exhibit US-327. 
4630 US, FWS, para. 659.  Exhibit US-327. 
4631 US, FWS, para. 659.  Exhibit US-327. 
4632 US, FWS, para. 668.  Exhibits US-330, US-331. 
4633 US, FWS, para. 668.  Exhibits US-330, US-331. 
4634 US, FWS, para. 668.  Exhibits US-330, US-331. 
4635 US, FWS, para. 668.  Exhibits US-330, US-331. 
4636 US, FWS, para. 674.  Exhibit US-334. 
4637 US, FWS, para. 674.  Exhibit US-334. 
4638 US, FWS, para. 671.  Exhibit US-333. 
4639 US, FWS, para. 693.  Exhibit US-344-BCI. 
4640 US, FWS, para. 697.  Exhibits US-349; Exhibit US-355. 
4641 US, FWS, para. 697.  Exhibit US-349. 
4642 US, FWS, para. 697.  Exhibit US-355. 
4643 US, FWS, para. 686.  Exhibit US-341 (BCI). 
4644 US, FWS, para. 687.  Exhibit US-495. WT/DS316/R 
Page 764  
BCI deleted, as indicated [***] 
 
  third argument relates to the extent to which R&TD measures involving the participation of 
companies other than Airbus SAS and its subsidiaries are within the scope of this dispute.  As we 
have noted elsewhere,
4646 the European Communities argues that the only companies that can be the 
subject of the United States' adverse effects complaint are those that produce Airbus LCA, i.e., the 
product which in the United States' view causes ad verse effects to United States interests.  Thus, 
according to the European Communitie s, to the extent that the United States has sought to contest 
R&TD measures that did not involve the participation of Airbus SAS or any of its subsidiaries, it has 
overstated the amount of R&TD support that  can be rightfully challenged under the 
SCM Agreement.4647 
7.1417  We recall our findings on the "relevant companies"  for the purpose of this dispute: we do not 
consider that the changes to the corporate struct ure of the producer of Airbus LCA are such as to 
require the United States to demonstrate, as part of its prima facie  case, the "pass-through" to the 
entity Airbus SAS of benefits c onferred by financial contributions  that had been provided to the 
Airbus Industrie consortium.  If we find that any of  the alleged financial cont ributions provided to the 
Airbus Industrie consortium confe rred a benefit within the meani ng of Article 1.1(b), and thus 
constitute subsidies, we would be satisfied that t hose subsidies do, in fact, subsidize Airbus LCA for 
purposes of our adverse effects analysis under Articles 5 and 6.4648  Thus, we will proceed to examine 
the United States' claims with this  understanding of Airbus in mind. 
(b) Terms of Reference 
7.1418  Another issue raised by the European Comm unities (for the first time in its first written 
submission) relates to our terms of reference.  According to the European Communities, the United 
States' complaint against the Spanish government loans provided to Airbus under the PROFIT is 
outside our terms of reference be cause the measures at issue were not adequately identified in the 
United States' panel request, in accordance with Article 6.2 of the DSU.4649  The United States rejects 
the European Communities' contention, arguing that its  panel request clearly identifies the measures at 
issue in conformity with Article 6.2 of the DSU.4650  
7.1419  The relevant section of the United States' panel request reads:  
"The measures of the EC and the member States that are the subject of this panel 
request include: 
... (6) The provision by the EC and the member States of financial contributions for 
aeronautics-related research, development,  and demonstration ("R&D"), undertaken 
by Airbus, whether alone or with others, or in any other way to the benefit of Airbus, 
including: 
... (d) Funding from the Spanish government, including regional and local 
authorities, since 1993 for civil aeronautics-related R&D projects in which Airbus 
                                                                                                                                                                    
 
4645 See, paras. 7.65 and 7.105 (findings on temporal scope arguments) and paras. 7.117, 7.137 and 
7.158 (findings on adequacy of US request for panel establishment) above. 
4646 See, paras. 7.185 - 7.186 above. 
4647 EC, FWS, para. 1219. 
4648 See, para. 7.200 above. 
4649 EC, FWS, para. 1315. 
4650 US, SWS, paras. 516-517.  WT/DS316/R 
 Page 765 
 
BCI deleted, as indicated [***] 
 
  participated, including loans and other financial support provided under the Plan 
Tecnológico Aeronáutico I and the Plan Tecnológico Aeronáutico II." 
7.1420  The language in Section (6)(d) of the panel request identifies the measures subject to the 
United States' complaint as "funding from the Sp anish government, including regional and local 
authorities since 1993 for civil aeronautics-related R&D projects in which Airbus participated".  This 
description indicates: the provider ("the Spanish government, including regional and local authorities"); the timing ("since 1993"); the purpos e ("for civil aeronautics-related R&D projects"); 
and the subject ("in which Airbus participated"), of the funding at issue. Thus, the focus of the 
United States' complaint is not all Spanish governme nt funding to Airbus fo r LCA-related activities; 
rather only funding provided "since 1993" "for civil aeronautics-related R&D projects".  
Section (6)(d) explains that such funding includes  "loans and other fina ncial support provided under 
the" PTA I and PTA II.  It is clear to us from the use of the word "including" that the United States' 
challenge is not limited to loans under the PTA I and PTA II. 
7.1421  The United States' request for the establis hment of the present Panel was made on 
31 May 2005.  On 23 September 2005, the Dispute Se ttlement Body initiated Annex V procedures.  
On the same day, the parties exchanged draft ques tions requesting a range of information each party 
considered relevant to the dispute. These in cluded a series of detailed questions from the 
United States to the European Communities on lo ans made under the PROFIT . The United States' 
questions on the PROFIT followed, in numerical order, from a similar set of questions asked in 
respect of loans granted under the PTA I and PTA II.  Final versions of these questions were provided 
to the European Communities on 7 October 2005.   
7.1422  On 25 October 2005, the European Communitie s requested the Panel (which had been 
composed on 17 October 2005) to make a number of  preliminary rulings on a series of matters, 
including whether certain aspects of the United States ' panel request satisfied the standards of clarity 
required by Article 6.2 of the DSU. Although, at the time, the European Co mmunities was aware that 
the PROFIT was one of the two Spanish government  R&TD loan programmes about which the United 
States was interested in collecting information, th e European Communities' request for a preliminary 
ruling did not raise any issue about the adequacy of the United States' identification of those measures 
in the panel request. Likewise, despite asserting in it s answer of 18 November 2005 to question 279 of 
the Facilitator during the Annex V process that "the PROFIT scheme" fell outside the Panels terms of 
reference, the European Communities did not obj ect to the United States' claims in the updated 
request for a preliminary ruling it presented on 7 November 2006.  By that stage, the European 
Communities could have had no doubt that the PROF IT loans formed part of the United States' 
complaint, given that they had been explicitly identified in the addendum to the United States' 
consultations request, filed nine months prior to  the European Communities' updated request for a 
preliminary ruling.
4651 Thus, when considered as a whole and in light of the attendant 
circumstances,4652 we find that Section (6)(d) of the United States panel request presents the 
United States' claim against the PROFIT loans in a manner that is sufficiently clear to meet the 
standards of Article 6.2 of the DSU. 
                                                      
4651 The addendum to the United States' reques t for consultations was communicated on 
31 January 2006, in WT/DS316/1/Add.1.  In this communication, the United States expressed the view that its 
updated request for consultations might "help to clarify, and if possible, resolve, the issues in the EC's 
preliminary ruling request".  Subsequently, and with reference to inter alia, this communication, the 
United States requested the establishment of a new panel, in WT/DS316/6.  Both of these documents were later 
renumbered, respectively, WT/DS347/1 and WT/DS347/3 , and the words "Second Complaint" added to the 
titles. 
4652 Other attendant circumstances are referred to in  our Preliminary Ruling, where we addressed and 
dismissed the European Communities' allegation that the United States' complaint against French government 
R&TD measures was outside the Panel's terms of refere nce because it failed to identify those measures with 
sufficient precision in its panel request.  See, para. 7.149 above.  See, also , US, SWS, paras. 18-24. WT/DS316/R 
Page 766  
BCI deleted, as indicated [***] 
 
  (c) The Measures At Issue 
7.1423  A final matter that we believe must be addressed  before evaluating the merits of the United 
States' claims is the not insignificant issue of the precise identity of the R&TD measures being 
challenged and, in particular, the amount of funding provided to Airbus. 
(i) Background 
7.1424  During the Annex V process, the United Stat es, through the Facilitator, posed over 300 
questions, including at least as many detailed sub- questions, to the European Communities on a range 
of issues relating to alleged instances of European Communities and EC member State funding of Airbus LCA-related research and development activities. These questions included requests for 
information on the precise identity of the alleged measures and the related amounts of funding. The 
European Communities refused to pr ovide any of the requested inform ation in respect of the Second 
EC Framework Programme and French government R&TD funding from 1986 to 1994 because it 
considered that some of the United States' request s in respect of these measures related to funding 
activities that were outside the temporal scope of the dispute.
4653  It also refused to provide any of the 
requested information with respect to the Spanish government PROFIT programme, because it 
considered this programme to be outsi de of the Panel's terms of reference.4654  Where the European 
Communities did provide information, it was limited to projects involving the Airbus corporate entities that it considered were relevant to the dispute.
4655   
7.1425  In its first written submission, the United St ates identified the measures in dispute and the 
respective amounts of funding at stake, relying in part on information submitted by the European 
Communities during the Annex V process and in part on information that was publicly available.  In 
elaborating its claims, the United States has, in a number of instances, asked the Panel to draw 
adverse inferences, in accordance with paragraph 7 of Annex V, from the fact that the European 
Communities did not provide all of the data that was requested during the Annex V process.4656  
Although the European Communities has now provided information that was not presented during the 
Annex V process, we understand the United States to c ontinue to be of the view that the European 
Communities has failed to disclose all relevant in formation and that the Pa nel should draw adverse 
inferences when establishing the facts surrounding a number of its claims.4657 
7.1426  With this background in mind, we now review th e facts that have been presented in respect of 
each category of R&TD measures that is the subject of the United States complaint with a view to 
identifying the precise R&TD measures and funding amounts that are in dispute. 
(ii) Grants under the Second Framework Programme 
7.1427  The United States asserts that publicly availa ble information shows that the European 
Communities funded 28 LCA-related projects under the Second Framework Programme, providing a 
total of EUR 35 million to all participating entities.4658  The United States submits that Airbus was 
                                                      
4653 E.g., EC, Answers to Questions by the Facilitator under Annex V, para. 9, Question 132, Sections 
VI.A.2, VI.A.3, VI.D and VI.D.2. 
4654 EC, Answers to Questions by the Facilitator under Annex V, Questions 279-281. 
4655 E.g., EC, Answers to Questions by the Facilitator under Annex V, Question 132. 
4656 US, FWS, paras. 630, 635, 640, 645, 650, 676, 684, 690 and 702. 
4657 US, Answer to Panel Question 34; US, Comments to EC, Answer to Panel Questions 277 and 278. 
4658 US, FWS, paras. 628 referring to Commission of  the European Communities, Directorate-General 
for Science, Research and Development, BRITE/EURAM Area 5 – Specific Activities Relating to Aeronautics – 
Synopses of Projects Supported under the Call for Proposals 1989 , October 1990, Exhibit US-317.  WT/DS316/R 
 Page 767 
 
BCI deleted, as indicated [***] 
 
  involved in 15 of these projects, and that it received EUR 18.75 million.4659  The European 
Communities rejects the United States' assertions.  According to the European Communities, 53 
aeronautic sector projects were funded under the S econd Framework Programme, with the "relevant" 
Airbus entities participating in [***].  In total, the data submitt ed by the European Communities 
indicates that the "relevant" Airbus entities received just over ECU [***].4660  The European 
Communities asserts that it derived the relevant information from "original source documents, notably 
contracts and payment records".4661   
7.1428  The United States argues that the informa tion submitted by the European Communities 
cannot be relied upon as an accurate reflection of th e full amount of funding Airbus received because 
the European Communities has failed to disclose the da ta from which it was derived.  In other words, 
the United States considers the EC' information to be unreliable because it does not identify all of the 
LCA-related projects or the full list of pa rticipants funded under the Second Framework 
Programme.4662  The United States recalls that during the Annex V procedure, the European 
Communities refused to provide any information on  the projects and participants funded under the 
Second Framework Programme in response to the Facilita tor's questions.  In the light of this refusal, 
the United States asks the Panel to draw the adverse inference, pursuant to paragraph 7 of Annex V, 
that Airbus obtained funding in the amount of EUR 18.75 million under the Second Framework 
Programme.4663 
7.1429  Our review of the information submitted by the pa rties leads us to conclude that there are a 
number of discrepancies in the data presented by the European Communities suggesting that the total 
value of the LCA-related funding received by Airbus under the Second Framework Programme has 
not been disclosed.  The Europ ean Communities asserts that the lis t of projects it has identified 
"coincide with publicly available data".4664  However, the publicly available information submitted by 
the United States, which the European Commun ities has not contested, identifies one project 
involving Airbus' participation which was not included in the list of projects that was submitted by the 
European Communities – the "Advanced Study for Active Noise Control in Aircraft (ASANCA)" 
project.4665  Furthermore, in respect of two of the projects identified in the European Communities' 
list, funding provided to British Aerospace and CASA was not disclosed, even though publicly 
available information indicates that these co mpanies participated in the two projects.4666  The 
                                                      
4659 US, FWS, paras. 628-630. The United States arrived at this figure by apportioning 15/28ths of the 
total amount of funding made available to all entities under the Programme to Airbus, reflecting its alleged 
participation in 15 of the 28 funded projects. US, FWS, para. 630, footnote 774. 
4660 EC, FWS, paras. 1231 and 1234; EC, Answer to Panel Question 277 citing Exhibits EC-189 (BCI) 
and EC-968 (BCI).  The precise amount disclosed in th e information submitted by the European Communities is 
ECU [***] .  We note that in Panel Question 277, we specifically asked the European Communities to provide "a 
break-down of all LCA-related  projects in which the entities identified in Answer to Questions 273 to 275 
participated" (emphasis added).  Although the European Communities appears to sugges t in its answer to Panel 
Question 277 and elsewhere (e.g., EC, FWS, para. 1228) that the list of projects it has submitted is over-
inclusive in the sense that it contains funding for non- LCA-related activities, it has not specifically identified 
which projects must not be taken into account.  Neither has it explained exactly why any such projects do not relate to LCA.  In the absence of any such identification or explanation, and given the very specific nature of our 
question, we have treated all of the projects iden tified by the European Communities as LCA-related. 
4661 EC, FWS, para. 1221. 
4662 US, Answer to Panel Question 34; US, Comments to EC, Answer to Panel Questions 277 and 278. 
4663 US, FWS, para. 630. 
4664 EC, FWS, para. 1231. 
4665 Exhibit US-317 lists the German company "MBB" as one of the project's "partners". As noted 
above, MBB was part of the Airbus Industrie Consortium and was involved in the development, production and sale of LCA up until at least 1992.  See, para. 7.1294 above. 
4666 Exhibit US-317 indicates that CASA was one of the "EUROMESH" project "partners" and that 
British Aerospace as was one of the "All Electric Aircraft" project "partners".  The in formation provided by the 
European Communities indicates that these two Airbus companies received no funding under these projects. WT/DS316/R 
Page 768  
BCI deleted, as indicated [***] 
 
  European Communities has provided no valid e xplanation for these apparent discrepancies.  
Moreover, in the light of Panel Question 277, we are particularly puzzled as to why the European 
Communities omitted to provide any details about th e ASANCA project, when it had previously, in its 
first written submission, identified this project and noted that MBB, a company we have found forms 
part of the Airbus consortium, was a recipient of funding.
4667  Finally, we note that the total amount of 
Airbus funding disclosed in Exhibit EC-968  (BCI) is miscalculated, because it does not include one 
contribution (amounting to ECU [***]) identified in the same Exhib it as having been provided to a 
relevant Airbus entity.  Thus, the total amount of funding to Airbus actually disclosed by the European Communities must be increased by this same amount.
4668  For all of these reasons, we 
cannot accept that the information the European  Communities has submitted on funding amounts 
covers all of the relevant monies granted to  Airbus under the Second Framework Programme. 
7.1430  We recall that the European Communities ha s not contested the publicly available 
information submitted by the United States in Exhibit US-317.  This information indicates that Airbus 
participated in [***] projects for which the European Commun ities has provided either no information 
or incomplete details on the paymen ts to all relevant Airbus entities.4669  The missing information 
relates to [***] contributions that were apparent ly made to three Airbus entities.4670  In our view, these 
contributions should be added to the funding the European Communities has confirmed Airbus 
obtained through its participation in the [***] projects it has already identified.4671 
7.1431  Paragraph 7 of Annex V provides that a panel "should draw adverse inferences from instances 
of non-cooperation by any party involved in th e information-gathering process".  Although the 
European Communities failed to provide informa tion on the funding amounts received and projects 
undertaken by Airbus under the Second Framewor k Programme during the Annex V process, it has 
subsequently, during the course of this panel procee ding, both on its own initiative and in response to 
Panel Question 277, submitted information that it cons iders discloses all of the relevant data.  Thus, 
we are not here faced with a situation where a pa rty has failed to supply any part of the requested 
information.  Moreover, we observe that to dr aw the adverse inference that Airbus received 
EUR 18.75 million in funding under the Second Framew ork Programme would, in effect, be to accept 
that Airbus received [***] as much of the funding obtained from [***] projects (that is, over 
EUR [***]) from one individual project and contributi ons to two Airbus companies under two other 
projects.  In our view, there is enough factual evid ence before us to indicate that such an outcome 
would be overly speculative and unreasonable.4672 
                                                      
4667 Exhibit EC-194 (BCI).  We recognize that the Eu ropean Communities explained in this Exhibit that 
it had not provided any details in re spect of this project because it c onsidered MBB was not a "relevant" 
company.  However, in Panel Question 277, we asked the European Communities to provide "a break-down of 
all LCA-related projects in which the entities identified in Answer to Questions 273 to 275 participated".  As 
MBB was one of the companies identified in the Answers to those questions, information on funding it received 
under the Second Framework Programme should have been provided.  Indeed, this is exactly what the European 
Communities did for eight other projects funded under the Second Framework Programme which involved 
MBB.  Therefore, we do not understand why the Eu ropean Communities did not also provide the amounts 
received by MBB unde r the ASANCA project. 
4668 Therefore, the precise amount of funding the Eu ropean Communities disclosed went to Airbus is 
ECU [***] . 
4669 These projects are (by acronym): "EUROMES H"; "All Electric Aircraft"; and "ASANCA". 
4670 These entities were: CASA ("EUROMESH" project ); British Aerospace (" All Electric Aircraft" 
project); and MBB ("ASANCA" project). 
4671 See, para. 7.1427 above. 
4672 The European Communities disclosed that the monies made available to Airbus for the ASANCA 
II project under the Third Framework Programme amounted to EUR [***] .  Information on the "EUROMESH" 
and "All Electric Aircraft" projects indicates that Airbus entities other than British Aerospace and CASA 
received individual grants that ranged from ECU [***]  to ECU [***] .  In our view, this evidence strongly 
suggests that for Airbus to have received over EUR [***]  from its participation in the ASANCA project and the  WT/DS316/R 
 Page 769 
 
BCI deleted, as indicated [***] 
 
  7.1432  We note that the average amount of funding obtained by Airbus for each contribution 
received pursuant to [***] projects under the Second Framework Programme was ECU [***].4673  On 
this basis, the sum total of the [***] contributions to Airbus under the [***] projects that we believe 
must be accounted for in the total amount of funding at issue is ECU [***].  In our view, it would 
therefore be reasonable, in the light of the parties'  positions and the factual information that is before 
us, to find that the total amount of funding granted to Airbus under the Second Framework 
Programme amounted to approximately ECU [***], covering [***] separate projects. A list setting 
out our findings in respect of the [***] individual projects that are the subject of the United States' 
complaint is contained in Annex I.1 to  this Section, following para. 7.1609. 
(iii) Grants under the Third Framework Programme 
7.1433  The United States asserts that publicly availa ble information shows that the European 
Communities funded 27 aeronautics-related research  projects under the Third Framework Programme, 
providing a total of EUR 56 million to all participating entities.4674  The United States asks the Panel 
to find that Airbus participated in 18 of these projects, receiving a total of EUR [***].4675  T h e  
European Communities rejects th e United States' assertions.  According to the European 
Communities, 61 aeronautics-related projects were  funded under the Thir d Framework Programme, 
with the "relevant" Airbus entities participating in [***] of those projects.4676  The European 
Communities contends that total funding allocated to the aeronautics research sector amounted to 
EUR 130 million of which the "relevant" Airbus entities received EUR [***].4677 Again, the European 
Communities explains that the funding data it submitted was derived from "original source 
documents, notably contracts and payment records".4678 
7.1434  The United States argues that the informa tion submitted by the European Communities 
cannot be relied upon as an accurate reflection of th e full amount of funding Airbus received because 
                                                                                                                                                                     
two distributions made to British Aerospace and CASA  under the "EUROMESH" an d "All Electric Aircraft" 
projects, would be extraordinary. 
4673 Derived from information contained in Exhibit EC-968 (BCI) (EUR [***]  / [***] contributions). 
4674 US, FWS, paras. 631-634 referring to European Commission, Industrial and Materials 
Technologies Programme: Area 3, Aeronautics: Synopses of Current Aeronautics Projects (1993), 
Exhibit US-319. 
4675 The United States arrives at the EUR [***]  figure by adding (i) the amount of funding it alleges the 
European Communities disclosed, during the Annex V pro cess, was provided to "A irbus research consortia" 
participating in 16 aeronautics-related projects (EUR [***] ) to (ii) an amount representing Airbus' participation 
in the two additional projects (EUR [***] ), constructed on the basis of the average funding received by "Airbus 
research consortia" under the 16 projects confirmed by the European Communities ( i.e., EUR [***]  / 16 projects 
= EUR [***] ).  US, FWS, paras. 631-632, 635 and footnote 780.  During the Annex V process, the European 
Communities disclosed that EUR [***]  was provided for 16 projects in which Airbus entities participated, with 
those entities directly receiving EUR [***] . 
4676 EC, FWS, paras. 1231 and 1236, Exhibits EC-190 (BCI) and EC-194 (BCI). 
4677 EC, Answer to Panel Question 277 citing Exhibit EC-969 (BCI); EC, Letter to Panel of 
19 February 2008, referring to revisions made in Exhibit EC-993 (BCI). The precise amount disclosed in the 
information submitted by the European Communities is EUR [***] .  Again, we note that in Panel Question 277, 
we specifically asked the European Communities to provide  "a break-down of all LCA-related  projects in 
which the entities identified in Answer to Questions 273 to 275 participated" (emphasis added).  Although the 
European Communities appears to suggest in its answer to Panel Question 277 and elsewhere (e.g., EC, FWS, 
para. 1228) that the list of projects it has submitted is over -inclusive in the sense that it contains funding for non-
LCA-related activities, it has not specifically identified wh ich projects must not be taken into account.  Neither 
has it explained exactly why any such projects do not relate to LCA.  In the absence of any such identification or 
explanation, and given the very specific nature of our question, we have treated all of the projects identified by 
the European Communities as LCA-related. 
4678 EC, FWS, para. 1221. WT/DS316/R 
Page 770  
BCI deleted, as indicated [***] 
 
  the European Communities has failed to di sclose the data from which it was derived.
4679  In addition, 
the United States argues that the European Co mmunities made no attempt to reconcile the 
discrepancies between publicly available informat ion and the information it submitted during the 
Annex V process.4680  According to the United States, these discrepancies suggest that the European 
Communities has not reported all of the funding that Airbus entities received under the Third 
Framework Programme.  For instance, the United Stat es asserts that publicly available information 
establishes that monies under the Third Framew ork Programme were pr ovided to CASA for 
participating in two projects – the "Basic Research in Aircraft Interior Noise" and "Crashworthiness 
for Commercial Aircraft" projects.4681  However, the information presented by the European 
Communities indicates that CASA [***], without explaining why the publicly available information 
submitted by the United States indicates otherwise.   Thus, the United States concludes that the 
information it submitted, showing that Airbus participated in [***] projects under the Third 
Framework Programme, provides the most reliable basi s for the Panel to conduct its inquiry into the 
relevant subsidies.4682  As we understand it, the United States therefore asks the Panel to find, 
pursuant to paragraph 7 of Annex V,  that Airbus participated in [***] projects under the Third 
Framework Programme, receiving funds in the amount of EUR [***]. 
7.1435  Our review of the United States' and EC' subm issions has revealed shortcomings in the 
information presented by both parties.  For instance,  the list of beneficiaries the United States asserts 
were funded under the Third Framework Programme includes Airbus entities that allegedly received 
contributions under four projects which cannot be fo und in the information in the publicly available 
document submitted as Exhibit US-319.4683  Although the European Communities acknowledges the 
existence of all four projects, it does not accept that  it has failed to disclose payments made to all 
Airbus entities that partic ipated in those initiatives.4684  Thus, we are unable to confirm the United 
States' contention in respect of the alleged beneficiaries under these four projects.  Similarly, the information submitted by the European Communities indicates that Airbus did not receive any 
funding pursuant to four projects, which the public ly available information presented by the United 
States indicates did involve Airbus participation.
4685  Moreover, when compared to the same publicly 
available information, the funding data submitted by the European Communities is incomplete in 
respect of three other projects because it omits f unding that Exhibit US-319 indicates was allocated to 
CASA.4686 Again, the European Commun ities has provided no valid e xplanation for these apparent 
discrepancies. 
                                                      
4679 US, Answer to Panel Question 34; US, Comments to EC, Answer to Panel Questions 277 and 278. 
4680 US, FWS, para. 633. 
4681 US, Comments on EC Answer to Panel Question 277, referring inter alia, to European 
Commission, Industrial and Materials Technologies Programme: Area 3, Aeronautics: Synopses of Current Aeronautics Projects (1993), Exhibit US-319. 
4682 US, Comments on EC Answer to Panel Question 277. 
4683 The United States identifies these projects  (by acronym) as: "ASANCA II"; "BREZ-0313"; 
"BREZ-0151"; and "BREZ-0169 DICANT".  Exhibits US-485 and US-689.  In respect of the latter three 
projects, we understand the United States to be re ferring to the projects the European Communities has 
identified as "BRE2-0313"; "BRE2-0151"; and "BRE2-0169 PICANT".  We have assumed that the reference to 
"ECARD" in Exhibit US-689 is intended to mean what is identified in Exhibit US-319 and by the European 
Communities as "ECARP". 
4684 See, e.g., Exhibit EC-194 (BCI). 
4685 These projects are (by acronym): "SNAAP"; "N S Solvers"; "FANPAC"; and "AERONOX".  We 
note that the European Communities did identify a projec t described as "Aeroacoustic Methods for Fan Noise 
Prediction and Control (FANPAC)" in its submissions.  However, the associated contract number, proposal 
number and acronym provided by the European Communities for this project did not match the publicly 
available information. Compare Exhibit EC-969 (BCI) (line 6) with Exhibit US-319 (p.15). 
4686 The projects are (by acronym): "BRAIN"; "CRASHWORTHINESS"; and "IMAGES 2000".  WT/DS316/R 
 Page 771 
 
BCI deleted, as indicated [***] 
 
  7.1436  We recall that the European Communities ha s not contested the publicly available 
information submitted by the United States in Exhibit US-319.  This information indicates that Airbus 
participated in [***] projects for which the European Commun ities has provided either no information 
or incomplete details on the paymen ts to all relevant Airbus entities.4687  The missing information 
relates to [***] contributions that were apparen tly made to five Airbus entities.4688  In our view, these 
contributions should be added to the funding the European Communities has confirmed Airbus 
obtained through its participation in the [***] projects it has already identified.4689 
7.1437  Paragraph 7 of Annex V provides that a panel "should draw adverse inferences from instances 
of non-cooperation by any party involved in th e information-gathering process".  Although the 
European Communities failed to provide all of the information requested on the funding amounts 
received and projects undertaken by Airbus unde r the Third Framework Programme during the 
Annex V process, it has subsequently, during the cour se of this panel proceeding, both on its own 
initiative and in response to Panel Question 277, s ubmitted additional information that it considers 
discloses all of the relevant data.  Thus, we are not here faced with a situation where a party has failed 
to supply any part of the requested information.  Moreover, we observe that, as with the Second 
Framework Programme, publicly available information shows that Airbus participated in the Third 
Framework Programme research initiatives as one of several entities (the number of parties involved in each of the relevant projects ranged from eight to 35).  Thus, we cannot simply accept, as the United States suggests, that the full amount of fund ing provided to all participants under each of the 
projects must be allocated to Airbus.   
7.1438  We note that the average amount of funding obtained by Airbus for each contribution 
received pursuant to [***] projects under the Third Framework Programme was EUR [***].
4690  On 
this basis, the sum total of the [***] contributions to Airbus under the [***] projects that we believe 
must be accounted for in the total amount of funding at issue is EUR [***].  In our view, it would 
therefore be reasonable, in the light of the parties'  positions and the factual information that is before 
us, to find that the total amount of funding grante d to Airbus under the Third Framework Programme 
amounted to approximately EUR [***], covering [***] separate projects.  A list setting out our 
finding in respect of the [***] individual projects that are the subject of the United States' complaint is 
contained in Annex I.2 to this Section, following para. 7.1609.  
(iv) Grants under the Fourth Framework Programme 
7.1439  The United States asserts that publicly availa ble information shows that the European 
Communities funded 139 aeronauti cs-related research projects  under the Fourth Framework 
Programme, providing a total of EUR 245 million to all participating entities.4691  The United States 
asks the Panel to find that Airbus participated in 71 of these projects, receiving a total of 
                                                      
4687 These projects are: (by acronym): "SNAAP"; "NS Solvers"; "FANPAC" ; and "AERONOX" (no 
information); "BRAIN"; "CRASHWORTHINESS"; and "IMAGES 2000" (information on contributions to CASA missing). 
4688 These entities were: Aérospatiale ("SNAA P", "NS Solvers", "F ANPAC", "EUROSHOCK" 
projects); Bae Airbus ("AERONOX", "EUROSHOCK" projects); B ae Sowerby Research Center ("NS Solvers" 
project); Deutsche Aerospace Airbus GmbH ("FANP AC", "EUROSHOCK" projects); and CASA ("BRAIN", 
"CRASHWORTHINESS", "IMAGES 2000", "EUROSHOCK" projects). 
4689 See, para. 7.1433 above. 
4690 Derived from information contained in Exhibits EC-969 (BCI) and  EC-993 (BCI) (EUR [***]  / 
[***] contributions). 
4691 US, FWS, para. 636 referring to European Commission, Fourth Framework Programme, 
Aeronautics Related Research, Synopses of Current Projects Selected Under the 1995 Call for Proposals, at xix, 
xxi (Area 3A Aeronautics Technologies) (1996), Exhibit US-314, and European Communities online project synopses at www.cordis.europa.eu.  WT/DS316/R 
Page 772  
BCI deleted, as indicated [***] 
 
  EUR [***].
4692  The European Communities rejects the Un ited States' assertions.  According to the 
European Communities, 126 aeronautics-related proj ects were funded under the Fourth Framework 
Programme with the "relevant" Airbus entities participating in [***] of those projects.4693  O f  t h e  
EUR 245 million in funding allocated to the aerona utics research sector, the European Communities 
asserts that the "relevant" Airbus entities received EUR [***].4694 Again, the European Communities 
explains that the funding data  it submitted was derived from "original source documents, notably 
contracts and payment records".4695 
7.1440  The United States argues that the informa tion submitted by the European Communities 
cannot be relied upon as an accurate reflection of  the full amount of funding Airbus received under 
the Fourth Framework Programme because it does not id entify all of the LCA-related projects or the 
full list of participants funded.4696  Moreover, the United States argu es that the European Communities 
made no attempt to reconcile the discrepancies between publicly available information and the 
information it submitted during the Annex V process.4697  According to the United States, these 
discrepancies suggest that the Eu ropean Communities has not reported all of the funding that Airbus 
entities received under the Fourth Framework Progra mme.  Thus, the United States argues that the 
publicly available information it submitted, showing th at Airbus participated in 71 projects under the 
Fourth Framework Programme, provi des the most reliable basis for the Panel to conduct its inquiry 
into the relevant subsidies.4698  As we understand it, the United States therefore asks the Panel to find, 
pursuant to paragraph 7 of Annex V, that Airbus  participated in 71 projects under the Fourth 
Framework Programme, receiving funds in the amount of EUR [***]. 
7.1441  Our review of the United States' and EC' subm issions has revealed shortcomings in the 
information presented by both parties.  For instan ce, the United States identifies one project and 
three beneficiaries of other projects under the Four th Framework Programme that cannot be verified 
in the publicly available information.4699  In addition, the United States ' latest submission incorrectly 
                                                      
4692 The United States arrives at the EUR [***]  figure by adding (i) the amount of funding it alleges the 
European Communities disclosed, during the Annex V pro cess, was provided to "A irbus research consortia" 
participating in [***]  aeronautics-related projects (EUR [***] ) to (ii) an amount representing Airbus' 
participation in the 39 additional projects (EUR [***] ), constructed on the basis of the average funding received 
by "Airbus research consortia" under the [***]  projects confirmed by the European Communities ( i.e., 
EUR [***]  / [***]  projects = EUR [***]  / project).  US, FWS, paras. 636-637, 640 and footnote 786.  During 
the Annex V process, the European Communities disclosed that EUR [***]  was provided for [***]  projects in 
which Airbus entities participated, with  those entities directly receiving EUR [***] . 
4693 EC, FWS, paras. 1231 and 1238. 
4694 EC, Answer to Panel Question 277 citing Exhibit EC-970 (BCI). The precise amount disclosed in 
the information submitted by the European Communities is EUR [***] . Again, we note that in Panel Question 
277, we specifically asked the European Communities to provide "a break-down of all LCA-related  projects in 
which the entities identified in Answer to Questions 273 to 275 participated" (emphasis added).  Although the 
European Communities appears to suggest in its answer to Panel Question 277 and elsewhere (e.g., EC, FWS, 
para. 1228) that the list of projects it has submitted is over -inclusive in the sense that it contains funding for non-
LCA-related activities, it has not specifically identified wh ich projects must not be taken into account.  Neither 
has it explained exactly why any such projects do not relate to LCA.  In the absence of any such identification or 
explanation, and given the very specific nature of our question, we have treated all of the projects identified by 
the European Communities as LCA-related. 
4695 EC, FWS, para. 1221. 
4696 US, Answer to Panel Question 34; US, Comments to EC, Answer to Panel Questions 277 and 278. 
4697 US, FWS, para. 638. 
4698 US, Comments on EC Answer to Panel Question 277. 
4699 These discrepancies relate to: (i) the "AEROJET" pr oject, the existence of which cannot be verified 
in the publicly available information submitted by th e parties; and (ii) the "A ERONET", "AFMS" "GASCA", 
"INGENET", "ADSTREFF" projects, where the alleged beneficiaries under the project, EADS, GIE and 
EADS-CASA, cannot be found in the publicly available information submitted by the parties.  (We have assumed that the United States reference to the "ADSTREFFE X" project is intended to be a reference to what is  WT/DS316/R 
 Page 773 
 
BCI deleted, as indicated [***] 
 
  asserts that the European Communities failed to disclose funding amounts provided to six Airbus 
entities, which the European Comm unities has in fact disclosed.4700  Similarly, the information 
submitted by the European Communities fails to di sclose the funding received by Airbus under 11 
projects, which the publicly available information presented by the United States indicates involved 
Airbus participation.4701  Moreover, when compared to the sa me publicly available information, the 
funding data submitted by the European Communities is incomplete in respect of six additional 
projects because it fails to identify the funding that  went to BAE Systems Aviones Ltd., EADS GIE, 
CASA and DASA Airbus, whose participation in the "ENHANCE", "EDAVCOS", "ELGAR", "EUROSUP", "ISAWARE" and "PROFOCE" projects was confirmed in the publicly available 
information. Again, the European  Communities has provided no valid explanation for these apparent 
discrepancies between the data it has provide d and the publicly available information.  
7.1442  We recall that the European Communities ha s not contested the publicly available 
information relied upon by the United States.  This in formation indicates that Airbus participated in 
[***] projects for which the European Communities has provided either no information or incomplete 
details on the payments to all relevant Airbus entities.
4702  The missing information relates to [***] 
contributions that publicly available informati on suggests were made to eight Airbus entities.4703  In 
our view, these contributions s hould be added to the funding the European Communities has 
confirmed Airbus obtained through its participation in the [***] projects it has already identified.4704 
7.1443  Paragraph 7 of Annex V provides that a panel "should draw adverse inferences from instances 
of non-cooperation by any party involved in th e information-gathering process".  Although the 
European Communities failed to provide all of the information requested on the funding amounts 
                                                                                                                                                                     
identified in the publicly available information as th e "ADSTREFF" project). Compare Exhibit US-689 with 
information contained in Exhibits US-314 and EC-970 (BCI) and the relevant Programme synopses of projects 
at http://www.cordis.europa.eu.  
4700 The six beneficiaries are: CASA, under th e "ENIFAIR" "ENHANCE" and "HYLDA" projects; 
Aérospatiale-Matra SA, under the "ADSTREFF" pr oject; BAE Systems (Operations) Ltd., under the 
"ADSTREFF", "HYLTEC" and "BRPR-97-0551" projec ts; Airbus UK, under the "ENHANCE" project; 
Daimler Benz Aerospace AG, under the "ENHANCE" and CEDIX projects; and Airb us Industrie, under the 
"HYLDA" projects. (We note that fo r the "ENHANCE", "HYLDA" and CEDIX projects, the United States and 
publicly available information identifies Daimler Benz Aerospace AG and Airbus Industrie as the beneficiaries, 
whereas the European Communities identifies Airbus Deut schland, Airbus France and EADS Deutschland.  We 
have assumed that the European Communities' disclosu re includes the amounts of funding obtained by the 
beneficiaries identified in the publicly available info rmation.) Compare Exhibits US-689 and EC-970 (BCI). 
4701 These projects are (by acronym): "AIRDATA" ; "AERONET"; "AEROJET II"; "AEROPROFILE"; 
"AFMS"; "VINTHEC"; Investigation of the Viability of MEMS Technology  for Boundary Layer Control on 
Aircraft (this project has no acronym, we have assumed that it is the project the US refers to with the acronym 
"MEMS"); "DAMASCOS"; "HICAS"; "WAVENC" and Non- Intrusive Measurements of Aircraft Engine 
Emissions (this project has no acronym). Compare Exhibit EC-970 (BCI) with Exhibit US-314 and the relevant 
Programme synopses of projects at www.cordis.europa.eu  
4702 These projects are (by acronym): "AIRDATA" ; "AERONET"; "AEROJET II"; "AEROPROFILE"; 
"AFMS"; "GASCA"; "INGENET"; "VINTHEC"; "DAMASCO S"; "HICAS"; "WAVENC"; Investigation of the 
Viability of MEMS Technology for Boundary Layer Cont rol on Aircraft (this project has no acronym); Non-
Intrusive Measurements of Aircraft Engine Emissions (this project has no acronym); and "ENHANCE"; 
"EDAVCOS"; "ELGAR"; "EUROSUP"; ISAWARE" and "PROFOCE" (information on contributions to BAE 
Sytems Aviones Ltd., EADS GIE, CASA and DASA Airbus missing). 
4703 These entities were: BAE Systems (Operations ) Ltd ("AIRDATA", "AER ONET", "AEROJET II", 
"AEROPROFILE", "VINTHEC", Investigation of the Viability of MEMS Technology for Boundary Layer 
Control on Aircraft, "HICAS" and Non-Intrusive Measurements of Aircraft Engine Emissions (this project has no acronym)); BAE Sowerby Research Centre ("AIRDAT A"); DASA ("AFMS"); Daimler Benz Aerospace AG 
("DAMASCOS"); BAE Sytems Aviones Ltd ("ENHANCE" and "ISAWARE"); EADS GIE ("EDAVCOS" and 
"PROFOCE"); CASA ("ELGAR"); DASA Airbus ("EUROSUP" ); Aérospatiale-Matra ("WAVENC"). 
4704 See, para. 7.1439 above. WT/DS316/R 
Page 774  
BCI deleted, as indicated [***] 
 
  received and projects undertaken by Airbus unde r the Fourth Framework Programme during the 
Annex V process, it has subsequently, during the cour se of this panel proceeding, both on its own 
initiative and in response to Panel Question 277, s ubmitted additional information that it considers 
discloses all of the relevant data.  Thus, we are not here faced with a situation where a party has failed 
to supply any part of the requested information.  Moreover, we observe that, as with the previous 
Framework Programmes, publicly available information shows that Airbus participated in the Fourth 
Framework Programme research initiatives as one of several entities (the number of parties involved in each of the relevant projects ranged from five to  24).  Thus, we cannot simply accept, as the United 
States suggests, that the full amount of funding provid ed to all participants under each of the projects 
must be allocated to Airbus.   
7.1444  We note that the average amount of funding obtained by Airbus for each contribution 
received pursuant to [***] projects under the Fourth Framework Programme was EUR [***].
4705  On 
this basis, the sum total of the [***] contributions to Airbus under the [***] projects that we believe 
must be accounted for in the total amount of funding at issue is EUR [***].  In our view, it would 
therefore be reasonable, in the light of the parties'  positions and the factual information that is before 
us, to find that the total amount of funding grante d to Airbus under the Fourth Framework Programme 
amounted to approximately EUR [***], covering [***] separate projects.  A list setting out our 
finding in respect of the [***] individual projects that are the subject of the United States' complaint is 
contained in Annex I.3 to this Section, following para. 7.1609.  
(v)  Grants under the Fifth Framework Programme 
7.1445  The United States asserts that publicly availa ble information shows that during the Fifth 
Framework Programme, the European Communities allocated EUR 700 million to aeronautics-related 
research projects.4706  According to the United States, th e same publicly available information 
indicates that "Airbus research consortia" par ticipated in 72 of these projects, receiving 
EUR 509 million.  In the absence of more detailed and precise information on Airbus' participation in 
these projects, the United States asks the Panel to  attribute the full amount of EUR 509 million to 
Airbus.4707  The European Communities rejects the Un ited States' assertions.  According to the 
European Communities, 152 aeronautics-related pr ojects were funded under the Fifth Framework 
Programme, with the "relevant" Airbus entities participating in [***] of those projects.4708  O f  t h e  
EUR 700 million in funding allocated to the aerona utics research sector, the European Communities 
asserts that the "relevant" Airbus entities received EUR [***].4709 Again, the European Communities 
                                                      
4705 Derived from information contained in Exhibit EC-970 (BCI) (EUR [***]  / [***]  contributions). 
4706 US, FWS, para. 641 referring to European Commission, The Competitive and Sustainable Growth 
Programme, 1998-2002 Project Synopses: New Perspectives in Aeronautics (2003), at xi, Exhibit US-322, and 
European Communities online project synopses at www.cordis.europa.eu . 
4707 US, FWS, para. 645. 
4708 EC, FWS, paras. 1231 and 1240. 
4709 EC, Answer to Panel Question 277 citing Exhibit EC-971 (BCI).  The precise amount disclosed by 
the European Communities is EUR [***] .  Again, we note that in Panel Qu estion 277, we specifically asked the 
European Communities to provide  "a break-down of all LCA-related  projects in which the entities identified in 
Answer to Questions 273 to 275 participated" (empha sis added).  Although the European Communities appears 
to suggest in its answer to Panel Question 277 and elsewh ere (e.g., EC, FWS, para. 1228 ) that the list of projects 
it has submitted is over-inclusive in the sense that it co ntains funding for non-LCA-related activities, it has not 
specifically identified which projects mu st not be taken into account.  Neith er has it explained exactly why any 
such projects do not relate to LCA.  In the absence of any such identification or explanation, and given the very 
specific nature of our question, we have treated all of the projects identified by the European Communities as LCA-related.  WT/DS316/R 
 Page 775 
 
BCI deleted, as indicated [***] 
 
  explains that the funding data  it submitted was derived from "original source documents, notably 
contracts and payment records".4710 
7.1446  The United States argues that the informa tion submitted by the European Communities 
cannot be relied upon as an accurate reflection of  the full amount of funding Airbus received under 
the Fifth Framework Programme because it does not identify all of the LCA-related projects or the 
full list of participants funded.4711  Moreover, the United States argu es that the European Communities 
made no attempt to reconcile the discrepancies between publicly available information and the 
information it submitted during the Annex V process.4712  According to the United States, these 
discrepancies suggest that the Eu ropean Communities has not reported all of the funding that Airbus 
entities received under the Fifth Framework Progra mme.  Thus, the United States argues that the 
publicly available information it submitted, showing that Airbus participated in [***] projects under 
the Fifth Framework Programme, provides the most reliable basis for the Panel to conduct its inquiry into the relevant subsidies.
4713  As we understand it, the United States therefore asks the Panel to find, 
pursuant to paragraph 7 of Annex V,  that Airbus participated in [***] projects under the Fifth 
Framework Programme, receiving funds in the amount of EUR 509 million. 
7.1447  Our review of the United States' and EC' subm issions has revealed shortcomings in the 
information presented by both parties.  For instan ce, the United States identifies one project and four 
beneficiaries of other projects under the Fifth Fram ework Programme that cannot be verified in the 
publicly available information.4714  In addition, the United States' latest submission incorrectly asserts 
that the European Communities has failed to disclose funding amounts provided to two Airbus 
entities, which the European Comm unities has in fact disclosed.4715  Similarly, the information 
submitted by the European Communities fails to di sclose the funding received by Airbus under seven 
projects, which the publicly available information presented by the United States indicates involved Airbus participation.
4716  ""The European Communities has provi ded no valid explanation for these 
apparent discrepancies between the data it has pr ovided and the publicly available information.  
Finally, we note that the total amount of Airbus funding disclosed in Exhibit EC-971 (BCI) is 
miscalculated, because it does not include various sums of monies (amounting to EUR [***]) 
identified in the same Exhibit as having been provide d to individual Airbus entities.  Thus, the total 
amount of funding to Airbus actually disclosed by the European Communities is approximately 
EUR [***]4717 not EUR [***]. 
7.1448  The European Communities has not contested th e publicly available information submitted by 
the United States in Exhibit US-322.  This info rmation indicates that Airbus participated in [***] 
                                                      
4710 EC, FWS, para. 1221. 
4711 US, Answer to Panel Question 34; US, Comments to EC, Answer to Panel Questions 277 and 278. 
4712 US, FWS, para. 643. 
4713 US, Comments on EC Answer to Panel Question 277. 
4714 These discrepancies relate to: (i) the "COMPO SIT" project, the existe nce of which cannot be 
verified in the publicly available information submitte d by the parties; (ii) the "ADAMS2" project, where the 
United States identifies BAE Systems (Operations) Ltd. as a beneficiary, but publicly available information and 
the European Communities identify the beneficiary as Airbus UK; and (iii) the "ENABLE", "FUBACOMP" and 
"MA-AFAS" projects, where the allege d beneficiaries under the respective projects, EADS Deutschland GmbH, 
GIE EADS and BAE Systems (Operations) Ltd., cannot be found in the publicly available information 
submitted by the parties.  Compare Exhibit US-689 with  information contained in Exhibits US-322 and EC-
972 (BCI) and the relevant Programme synopses of projects at www.cordis.europa.eu . 
4715 The two beneficiaries are GIE Airbus Industrie  under the "AERONET II" project and EADS GIE 
under the "EECS" project. Compare Exhibits US-689 with EC-972 (BCI). 
4716 These projects are (by acronym): "AEROFIL "; "FUBACOMP"; "HEACE"; "HiAER"; "MA-
AFAS"; "MOB" and "VINTHEC II".  Compare Exhibit EC -971 (BCI) with Exhibit US-322 and the European 
Communities online project synopses at www.cordis.europa.eu . 
4717 The precise amount is EUR [***] . WT/DS316/R 
Page 776  
BCI deleted, as indicated [***] 
 
  projects for which the European Communities has provided either no information or incomplete 
details on the payments to all relevant Airbus entities.
4718  The missing information relates to [***] 
contributions that publicly available informati on suggests were made to five Airbus entities.4719  In our 
view, these contributions should be added to the funding the European Communities has confirmed 
Airbus obtained through its participation in the [***] projects it has already identified.4720 
7.1449  We recall that paragraph 7 of Annex V provides that a panel "should draw adverse inferences 
from instances of non-cooperation by any party i nvolved in the information-gathering process".  
Although the European Communities failed to provide all of the information requested on the funding 
amounts received and projects undertaken by Air bus under the Fifth Framework Programme during 
the Annex V process, it has subsequently, during the course of this panel proceeding, both on its own 
initiative and in response to Panel Question 277, s ubmitted additional information that it considers 
discloses all of the relevant data. Thus, we are not he re faced with a situation where a party has failed 
to supply any part of the requested information. Moreover, we observe that, as with all previous 
Framework Programmes, publicly available informati on shows that Airbus participated in the Fifth 
Framework Programme research initiatives as one of several entities (the number of parties involved 
in each of the relevant projects ranged from six to 48). Thus, we cannot simply accept, as the United States suggests, that the full amount of funding provid ed to all participants under each of the projects 
must be allocated to Airbus.   
7.1450  We note that the average amount of funding obtained by Airbus for each contribution 
received pursuant to [***] projects under the Fifth Framework Programme was EUR [***].
4721 On 
this basis, the sum total of the [***] contributions to Airbus under the [***] projects that we believe 
must be accounted for in the total amount of funding at issue is EUR [***]. This compares with a total 
European Communities contribution to all 98 participants in the same [***] projects of 
EUR 30.5 million.4722 In our view, it would therefore be reasonable, in the light of the parties' 
positions and the factual information that is before us, to find that the total amount of funding granted 
to Airbus under the Fifth Framework Pr ogramme amounted to approximately EUR [***], covering 
[***] separate projects.  A list setting out our finding in respect of the [***] individual projects that 
are the subject of the United States' complaint is c ontained in Annex I.4 to this Section, following 
para. 7.1609. 
(vi) Grants under the Sixth Framework Programme 
7.1451  The United States asserts that publicly availa ble information shows that during the Sixth 
Framework Programme, EUR 840 million was used by the European Communities to fund 
aeronautics-related research projects.4723  According to the United Stat es, the same publicly available 
information indicates that "Airbus research consortia " participated in 61 of these projects, receiving 
EUR 450 million.  In the absence of more detailed and precise information on Airbus' participation in 
these projects, the United States asks the Panel to attribute the full amount of EUR 450 million to 
Airbus.4724  The European Communities rejects the Un ited States' assertions. According to the 
                                                      
4718 These projects are (by acronym): "AEROFIL "; "FUBACOMP"; "HEACE"; "HiAER"; "MA-
AFAS"; "MOB"; and "VINTHEC II".   
4719 These entities were: GIE EADS ("AEROFIL");  EADS Deutschland GmbH ("HEACE" and 
"HiAER"); BAE Systems (Operations) Ltd ("VINT HEC", "MOB" and "FUBACOMP"); BAE Systems 
Avionics Ltd. ("MA-AFAS") and Da imler-Chrysler Aerospace ("MOB"). 
4720 See, para. 7.1445 above. 
4721 Derived from information contained in Exhibit EC-971 (BCI) (EUR [***]  / [***] contributions). 
4722 Exhibit US-322. 
4723 US, FWS, paras. 646, referring to Europe an Commission, Aeronautics Research 2003-2006 
Projects, Project Synopses – Volume 1, Research Projects from the First and Second Calls (2006), Exhibit US-
324, and European Communities' online project synopses at www.cordis.europa.eu.  
4724 US, FWS, paras. 646 and 650.  WT/DS316/R 
 Page 777 
 
BCI deleted, as indicated [***] 
 
  European Communities, 93 aeronautics-related pr ojects were funded under the Sixth Framework 
Programme, with the "relevant" Airbus entities participating in [***] of those projects.4725  The 
European Communities contends that total fundin g allocated to the aeronautics research sector 
amounted to EUR 840 million, of which the "relevant" Airbus entities received EUR [***].4726  Again, 
the European Communities explains that the fundi ng data it submitted was derived from "original 
source documents, notably contracts and payment records".4727 
7.1452  The United States argues that the informa tion submitted by the European Communities 
cannot be relied upon as an accurate reflection of th e full amount of funding Airbus received because 
the European Communities has failed to di sclose the data from which it was derived.4728  In addition, 
the United States argues that the European Co mmunities made no attempt to reconcile the 
discrepancies between publicly available informat ion and the information it submitted during the 
Annex V process.4729 According to the United States, these discrepancies suggest that the European 
Communities has not reported all of the funding that Airbus entities received under the Sixth Framework Programme. Thus, the United States concl udes that the information it submitted, showing 
that Airbus participated in 61 projects under th e Sixth Framework Programme, provides the most 
reliable basis for the Panel to conduct it s inquiry into the relevant subsidies.
4730  As we understand it, 
the United States therefore asks the Panel to find, pur suant to paragraph 7 of Annex V, that Airbus 
participated in 61 projects under the Sixth Framew ork Programme, receiving funds in the amount of 
EUR 450 million. 
7.1453  Our review of the United States' and EC' subm issions has revealed shortcomings in the 
information presented by both parties. For inst ance, the United States identifies two alleged 
beneficiaries of four separate projects under the Sixth Framework Programme that cannot be verified in the publicly available information.
4731 In addition, the United States' latest submission incorrectly 
asserts that the European Communities failed to disclose the funding amount provided to one other Airbus entity, which the European Communities has in fact disclosed.
4732 Similarly, the information 
submitted by the European Communities indicates that Airbus did not receive any funding pursuant to 
twenty projects, which the publicly available in formation presented by the United States shows did 
involve Airbus participation.4733 Moreover, when compared to  the same publicly available 
                                                      
4725 EC, FWS, paras. 1231 and 1236, Exhibits EC-193 (BCI) and EC-194 (BCI). 
4726 EC, Answer to Panel Question 277 citing Exhibit EC-972 (BCI). The precise amount disclosed in 
the information submitted by the European Communities is EUR [***] .  Again, we note that in Panel Question 
277, we specifically asked the European Communities to provide "a break-down of all LCA-related  projects in 
which the entities identified in Answer to Questions 273 to 275 participated" (emphasis added).  Although the 
European Communities appears to suggest in its answer to Panel Question 277 and elsewhere (e.g., EC, FWS, 
para. 1228) that the list of projects it has submitted is over -inclusive in the sense that it contains funding for non-
LCA-related activities, it has not specifically identified wh ich projects must not be taken into account.  Neither 
has it explained exactly why any such projects do not relate to LCA.  In the absence of any such identification or 
explanation, and given the very specific nature of our question, we have treated all of the projects identified by 
the European Communities as LCA-related. 
4727 EC, FWS, para. 1221. 
4728 US, Answer to Panel Question 34; US, Comments to EC, Answer to Panel Questions 277 and 278. 
4729 US, FWS, para. 648. 
4730 US, Comments on EC Answer to Panel Question 277. 
4731 These alleged beneficiaries are: EADS Deut schland GmbH under the "DINAMIT" project; and 
GIE EADS under the "DEEPWELD", "ITOOL" and "IFATS" projects. 
4732 This entity is: GIE EADS CCR under the "DIALF AST" project. Compare Exhibits US-689 and 
EC-972 (BCI). 
4733 These projects are (by acronym): "ADL AND"; "ARTIMA"; "ATENAA"; "B-VHF"; 
"DEEPWELD"; "DESIDER"; "EMMA";  "HILAS"; "HISAC"; "IFATS";  "IPAS"; "iTOOL"; "MESEMA"; 
"MOWGLY"; "RETINA"; "UFAST"; "S EFA"; "WISE"; "ASAS-TN2"; and "C-ATM (PHASE 1)".  For the 
purpose of this list, we have assumed that the United States' reference to a project identified as "ATEENA" was WT/DS316/R 
Page 778  
BCI deleted, as indicated [***] 
 
  information, the funding data submitted by the Europ ean Communities is incomplete in respect of two 
other projects because it omits funding that the public ly available information shows was allocated to 
Airbus Spain and Airbus France.
4734 Again, the European Communities has provided no valid 
explanation for these apparent discrepancies. 
7.1454  We recall that the European Communities ha s not contested the publicly available 
information relied upon by the United States. This in formation indicates that Airbus participated in 
[***] projects for which the European Communities has provided either no information or incomplete 
details on the payments to all relevant Airbus entities.4735  The missing information relates to [***] 
contributions that were apparently made to eight Airbus entities.4736 In our view, these contributions 
should be added to the funding the European Comm unities has confirmed Airbus obtained through its 
participation in the [***] projects it has already identified.4737 
7.1455  Paragraph 7 of Annex V provides that a panel "should draw adverse inferences from instances 
of non-cooperation by any party involved in the information-gathering process". Although the 
European Communities failed to provide all of the information requested on the funding amounts 
received and projects undertaken by Airbus unde r the Sixth Framework Programme during the 
Annex V process, it has subsequently, during the cour se of this panel proceeding, both on its own 
initiative and in response to Panel Question 277, s ubmitted additional information that it considers 
discloses all of the relevant data.  Thus, we are not here faced with a situation where a party has failed 
to supply any part of the requested information. Mo reover, we observe that, as with all the Framework 
Programmes, publicly available information shows th at Airbus participated in the Sixth Framework 
Programme research initiatives as one of several entities (the number of parties involved in each of 
the relevant projects ranged from seven to 62).  Th us, we cannot simply accept, as the United States 
suggests, that the full amount of funding provided to  all participants under each of the projects must 
be allocated to Airbus.   
7.1456  We note that the average amount of funding obtained by Airbus for each contribution 
received pursuant to [***] projects under the Sixth Framework Programme was EUR [***].4738  On 
this basis, the sum total of the [***] contributions to Airbus under the [***] projects that we believe 
must be accounted for in the total amount of funding at issue is EUR [***].  This compares with a 
total EC contribution to all [***] participants in the same [***] projects of EUR [***]. In our view, it 
would be reasonable, in the light of the parties' pos itions and the factual information that is before us, 
to find that the total amount of funding grante d to Airbus under the Sixth Framework Programme 
amounted to approximately EUR [***], covering [***] separate projects.  A list setting out our 
                                                                                                                                                                     
intended to be the "ATENAA" project. Compare Exhibit EC-972 (BCI) with Exhibit US-324 and the relevant 
Programme synopses of projects at www.cordis.europa.eu.  
4734 The projects are (by acronym): "TATEM" and "SMIST". 
4735 These projects are: (by acronym): "ADLAND"; "ARTIMA"; "ATENAA"; "B-VHF"; 
"DEEPWELD"; "DESIDER"; "EMMA";  "HILAS"; "HISAC"; "IFATS";  "IPAS"; "iTOOL"; "MESEMA"; 
"MOWGLY"; "RETINA"; "UFAST"; "SEFA"; "WISE" ; "ASAS-TN2"; and "C-ATM (PHASE 1)" (no 
information); "TATEM" and "SMIST" (information on contributions to Airbus Spain and Airbus France 
missing). 
4736 These entities were: EADS Deutschland ("AD LAND", "ARTIMA", "A TENAA", "DESIDER", 
"HISAC", "iTOOL", "MES EMA", "RETINA", "UFAST",  "SEFA" and "WISE" projects ); BAE Systems 
(Operations) Ltd. ("B-VHF", "HILAS", "IPAS" and "ASAS-TN2" projects); Airbus France ("EMMA", 
"SMIST" and "C-ATM (PHASE 1)" projects); Airbus Deutschland ("MOWGLY" project); EADS CCR 
("IPAS" and "DEEPWELD" projects); Airbus Spain ("TATEM" project); BAE Systems Avionics Ltd. ("EMMA" and "C-ATM (PHASE 1)" projects ); EADS Systems and Defence Electronics SA ("IFATS" 
project); EADS Astrium ("IPAS" project). 
4737 See, para. 7.1451 above. 
4738 Derived from information contained in Exhibit EC-972 (BCI) (EUR [***]  / [***] contributions).  WT/DS316/R 
 Page 779 
 
BCI deleted, as indicated [***] 
 
  finding in respect of the [***] individual projects that are the subject of the United States' complaint is 
contained in Annex I.5 to this Section, following para. 7.1609.  
(vii) German Federal government grants 
7.1457  The United States challenges the German Fe deral government's alleged provision of 
EUR 217 million to Airbus for civil aeronautics re search under the LuFo I, LuFo II and LuFo III 
programmes.4739  The European Communities argues the amount of alleged German Federal 
government subsidization under the LuFo programmes that may be properly challenged is limited to 
EUR [***].4740  According to the European Communities,  this amount is the maximum level of 
funding that may be challenged becau se it represents the monies actually disbursed  by the German 
Federal government to Airbus under the LuFo programme s as of 1 July 2005 (the alleged cut-off date 
used by the United States in its first written submission)4741.  While the European Communities 
acknowledges that as of 1 July 2005, the German Federal government had committed  to provide 
Airbus with approximately an additional EUR [***] (bringing the total amount of funding to 
EUR [***]),4742 the European Communities does not accept that this additional EUR [***] can be 
properly challenged in this dispute.4743 
7.1458  As we understand it, the European Communities'  position is premised on the view that a 
government practice involving the commitment  of funds, without any actual disbursement of those 
funds, cannot amount to a "financial contribution" within the meaning of Article 1.1(a)(1)(i) of the SCM Agreement. We will address the merits of this  position in the substance of our evaluation of the 
United States' claims against the LuFo programmes.
4744 
(viii) German sub-federal government grants 
Bavaria  
7.1459  The United States asserts that the government of  Bavaria has, since 1990, provided Airbus 
with at least EUR [***] in R&TD grants under various civil aeronautics programmes including the 
Offensive Zukunft Bayern (established in 1995), the Offensive Zukunft Bayern II (established in 
1996) and the Bayerisches Luftfahrtforschungsprogramm (established in 2000).4745  The European 
Communities acknowledges that the Bavarian govern ment awarded nine project grants, totalling 
EUR [***], to Daimler Benz Aerospace ("Dasa") and EADS Deutschland in the period 1997 to 
2006.4746  However, it argues that these grants cannot be  properly challenged in this dispute because 
Daimler Benz Aerospace and EADS Deutschland are not relevant Airbus companies and the United States has failed to show how they  have benefited Airbus Germany.
4747 
7.1460  We recall that in Section VII.E.1 of this Re port, we rejected the European Communities' 
contentions, finding that a financial contribution provided to any Airbus partner or affiliated entity, or 
to Airbus GIE, in relation to the development and/ or production of an Airbus LCA, potentially confers 
a benefit on the Airbus Industrie consortium, as the "producer" of Airbus LCA, and Airbus SAS as the 
                                                      
4739 US, FWS, para. 664; US, SWS, para. 513. Full titles of the Programmes are set out at para. 7.1415 
above. 
4740 EC, FWS, para. 1258; EC; SWS, para. 630; EC, Answer to Panel Question 108. 
4741 EC, FWS, para. 1256. 
4742 EC, FWS, paras. 1255-1258; EC, SWS, para. 630. 
4743 EC, FWS, para. 1258; EC; SWS, para. 630; EC, Answer to Panel Question 108. 
4744 See, paras. 7.1493-7.1494 below. 
4745 US, FWS, paras. 668-669, referring to grants listed in Exhibit US-329 (BCI). 
4746 EC, FWS, para. 1261 and Exhibit EC-210 (BCI). 
4747 EC, FWS, para. 1262. WT/DS316/R 
Page 780  
BCI deleted, as indicated [***] 
 
  successor corporate entity.
4748  As we have previously explained, Dasa was a member of the Airbus 
Industrie consortium.  Likewise, EADS Deutschland was a subsidiary of Dasa, later contributed to 
EADS.4749  Moreover, we note that the European Co mmunities does not assert that the R&TD grants 
at issue were not intended to support LCA developm ent.  Accordingly, we will proceed to examine 
the merits of the United States' claims against all nine Bavarian government R&TD grants of 
EUR [***] identified in the parties'  first written submissions. 
Bremen  
7.1461  The United States asserts that publicly availabl e information confirms that, between 1999 and 
2006, the government of Bremen provided a total of EUR 11 million in grants to Airbus for 
aeronautics-specific research under the Airbus Mate rials and System Technology I and II programmes 
("AMST I" and "AMST II").4750 According to the United States, the European Communities has failed 
to explain the discrepancy between the amount of  funding it conceded, during the Annex V process, 
was received by Airbus (EUR [***]), and the EUR 11 million that publicly available information 
shows was provided by the government of Bremen.  In  this light, the United States asks the Panel to 
find, in accordance with paragraph 7 of Annex V, that the government of Bremen provided Airbus 
with EUR 11 million in subsidies under the AMST I and AMST II programmes.4751 
7.1462  The European Communities submits that Airbus Germany received EUR [***] for 
participating in nine projects under the AMST I programme and a further EUR [***] for five projects 
under the AMST II programme, bringing the total amount of R&TD funding obtained by Airbus 
Germany under both programmes to EUR [***].4752 According to the Eur opean Communities, the 
alleged level of funding set out in the United St ates' submissions overstates the amount of funding 
actually provided to Airbus Germany because it includes payments to recipients other than Airbus. In 
particular, the European Communities asserts th at under the AMST I programme, monies were made 
available to three research institu tes, namely the Fraunhofer Institute for Manufacturing Technology 
and Applied Materials Research, the Bremen Institu te for Applied Jet-Propulsion Technology, and the 
Institute for Materials Technology.4753 The European Communities discloses the precise amounts it 
alleges were received by these institutes (approximately EUR [***]) in a table set out in its first 
written submission. Thus, the European Communities asks the Panel to find that the R&TD support to 
Airbus Germany under AMST I and AMST II was limited to EUR [***].4754  
7.1463  As we understand it, the publicly available info rmation that the United States relies upon to 
establish that Airbus received EUR 11 million unde r the AMST programmes is a press release issued 
by a Senator of Economics of the City of Bremen, Dr Peter Gloystein. This press release appears to 
repeat a speech made by Senator Gloystein at th e "'Richtfest' (topping-out ceremony) of the new Halls 
                                                      
4748 See, paras. 7.192 - 7.200 above. 
4749 We recall that prior to the EADS combination, the LCA-related assets and activities of Dasa were 
reorganized into various subsidiaries , including (i) a subsidiary called DaimlerChrysler Aerospace Beteiligungs 
GmbH, which held 99.99 percent of th e shares in DaimlerChrysler Aerospace Airbus GmbH, which in turn held 
37.9 percent of the membership rights in Airbus GIE; and (ii) a subsidiary called EADS Deutschland GmbH, to 
which various other assets and liabilities of Dasa were  contributed.  These Dasa subsidiaries were then 
contributed to EADS.  See, footnote 2187 above.   
4750 US, FWS, para. 674, referring to Exhibits US-334 (Bremische Bürgerschaft, Drucksache 
15/1115, April 16, 2002, Mitteilung des Senats vom 16.  April 2002 - Technologieoffensive für das Land 
Bremen, Annex, InnoVision 2010 - Bremer Innivationsoffensive, April 2002, p. 20) and US-335 (Freie 
Hansestadt Bremen, Wirtschaftssenator Dr. Peter Gloystein: "Luftfahrzeugbau eine der Schlüsselindustrien in 
Bremen," press release of October 8, 2004). 
4751 US, FWS; para. 676; US, SWS, paras. 508-509. 
4752 EC, FWS, para. 1272, referring to Exhibit EC-212 (BCI). 
4753 EC, FWS, paras. 1269 and 1272; EC, SWS, para. 637. 
4754 EC, FWS, para. 1272; EC, SWS, paras. 637-638.  WT/DS316/R 
 Page 781 
 
BCI deleted, as indicated [***] 
 
  400 and 57 at Airbus Bremen". Its title is "Aircraft construction one of the key industries in Bremen".  
The particular passage that indicates the amount of fu nding allegedly provided to Airbus reads: "The 
Senate is making a palpable contribution to im proving the performance and competitiveness of the 
Bremen Airport plant and therefore to safeguard ing and creating permanent jobs – which involves 
considerable financing. For example, the Sena tor of Economics has provided some EUR 26 million 
for the AMST ('Airbus Material & System Te chnology-Center Bremen'), of which around 
EUR 11 million will go to Airbus Bremen."4755  We note that this extract does not categorically state 
that EUR 11 million has been provided to Airbus Br emen, but that "around" this amount "will go" to 
Airbus.   
7.1464  The publicly available information also confirms  that the three research institutes identified 
by the European Communities did in fa ct participate in the AMST programmes.4756 There is, however, 
no indication in the publicly available informati on of how much funding these institutes actually 
obtained.  Although the European Communities pr ovided a breakdown of the alleged amounts in a 
table in its first written submission, it has provide d no evidence to substantiate the information 
contained therein. In the light of the United States ' insistence on the European Communities' failure to 
disclose all relevant information and appropriate ly explain the discrepancy between the publicly 
available information and its fact ual assertions, we are surprised that the European Communities has 
provided no evidence in support of the funding discl osures made in respect of the three research 
institutes.  In the absence of any such evid ence, we cannot accept the European Communities' 
tabulation of the amounts of monies received by Ai rbus Germany and other participants under the 
AMST programmes.  In these circumstances, we consider it appropriate to base our factual finding on 
the publicly available information submitted by th e United States, and accord ingly find that Airbus 
received EUR 11 million from the government of Bremen under the AMST programmes. 
Hamburg  
7.1465  The United States asserts that, between 2001 and 2005, the government of Hamburg provided 
Airbus with at least EUR [***] in aeronautics-specific R&TD grants under the Hamburger 
Luftfahrtforschungsprogramm.4757 The European Communities argues that the funding amounts 
referred to by the United States include EUR [***] provided to EADS Airbus GmbH. The European 
Communities submits that this amount should be ex cluded from the total amount of funding at stake 
because the United States has not explained how the monies to EADS Airbus GmbH have benefited Airbus Germany. Thus, according to the European Communities, the total amount of funds that may 
be properly challenged in this dispute is EUR [***].
4758 
7.1466  We recall that in Section VII.E.1 of this Re port, we rejected the European Communities' 
contentions, finding that a financial contribution provided to any Airbus partner or affiliated entity, or 
to Airbus GIE, in relation to the development and/ or production of an Airbus LCA, potentially confers 
a benefit on the Airbus Industrie consortium, as the "producer" of Airbus LCA, and Airbus SAS as the 
successor corporate entity.  The Eu ropean Communities has at no stage argued that EADS Airbus 
GmbH is not a company involved  in the Ai rbus LCA business.  Moreover, the European 
Communities has not asserted that the R&TD grant at  issue  was not intended to support Airbus LCA 
development activities. Accordingly, we will proceed  to examine the merits of the United States' 
claims against all of the Hambur g government R&TD grants of EUR [***] identified in the parties' 
first written submissions.   
                                                      
4755 Exhibit US-335. 
4756 Exhibit US-334. 
4757 US, FWS, paras. 671-672, referring to Exhibit US-332 (BCI). 
4758 EC, FWS, para. 1266 and Exhibit EC-211 (BCI); EC, SWS, paras. 634-636. WT/DS316/R 
Page 782  
BCI deleted, as indicated [***] 
 
  (ix) French government grants  
7.1467  The United States asserts, on the basis of public ly available information, that between 1986 
and 2005, the French government budgeted over EUR 1. 2 billion in grants to the aeronautics industry 
for civil aeronautics research and development activities.  In particular, the United States contends that 
French authorities budgeted EUR 391 million for the period 1986 to 1993; and EUR 809 million for 
the period 1994 to 2005.
4759   
7.1468  The United States recalls that the Europ ean Communities refused, during the Annex V 
process, to provide any information on the fundi ng received by Airbus between 1986 and 1993.  
Consequently, in its first written submission, the Un ited States asks the Panel to either request this 
information from the European Communities, or el se find, in accordance with paragraph 7 of 
Annex V, that Airbus received EUR 391 million in  LCA-related research and development grants 
from the French government for the period 1986 to 1993.4760  In respect of the grants made between 
1994 and 2005, the United States recalls that th e European Communities acknowledged, during the 
Annex V process, that Airbus was a beneficiary of EUR [***].  However, the United States doubts the 
accuracy of the European Communities' disclosur e, citing the European Communities' alleged 
consistent under-valuation of Airbus f unding under the EC Framework Programmes.4761  I n  t h e  
absence of more reliable information from the European Communities on the amount of funding actually obtained by Airbus, the United States asks the Panel to attribute the full amount of 
EUR 809 million to Airbus, in accordance with para graph 7 of Annex V.  Thus, according to the 
United States, the logical inference to be drawn fro m the European Communities' continued refusal to 
provide all of the information needed to confir m the precise amount of French government Airbus 
LCA-related research and developmen t expenditure, is that the entire amount of EUR 1.2 billion for 
the period 1986 to 2005 must be allocated to Airbus.
4762 
7.1469  The European Communities rejects the United St ates' assertions. In respect of the alleged 
subsidies granted between 1986 and 1994, the Euro pean Communities initially argued that these fell 
outside of the temporal scope of this dispute.4763  However, following our preliminary ruling on this 
issue, we asked the European Communities to pr ovide a break-down of all Airbus LCA-related 
projects funded by the French government between 1986 and 1993.4764  In response, the European 
Communities stated that it was unable to provide the requested information as neither the French 
government nor Airbus were able to locate an y of the research contracts for this period.4765  However, 
the European Communities explained that:  
"the amount of EUR 391 million to which the United States refers in its First Written 
Submission ... constitutes a budgeted figure for the entire aeronautics sector (comprising LCA and non-LCA activities, such as helicopters and engines).  Therefore, the amount that Airbus would have received for LCA-related R&T during 
this period would inevitably have been far be low this figure. This is illustrated by the 
fact that out of the EUR 809 million bud geted by the French Senate for R&T 
programmes in the aeronautics field for the period 1994 to 2005, only EUR [***] 
went to Airbus."
4766 
                                                      
4759 US, FWS, para. 678 referring to French Government Funding for Civil Aeronautics Research and 
Development (yearly budgets), Exhibit US-337. 
4760 US, FWS, para. 684. 
4761 US, FWS, paras. 682-683. 
4762 US, SWS, para. 511; US, Comments on EC Answer to Panel Question 278. 
4763 EC, FWS, para. 1275; EC, SWS, para. 639. 
4764 Panel Question 278. 
4765 EC, Answer to Panel Question 278. 
4766 EC, Answer to Panel Question 278.  WT/DS316/R 
 Page 783 
 
BCI deleted, as indicated [***] 
 
  7.1470  For the years 1994 to 2005, the European Co mmunities maintains that the information 
provided during the Annex V process accurately refl ects the funding obtained by Airbus over this 
period.4767  According to the European Communities,  the EUR 809 million figure advanced by the 
United States includes the entire French government  R&TD budget for all projects undertaken in the 
civil aeronautics sector (comprising LCA and non-LCA activities) between 1994 and 2005.4768  
Therefore, the European Communities maintains, it is  not all relevant to this dispute and cannot be 
allocated in its entirety to Airbus. In the Europ ean Communities' view, the correct amount of funding 
provided to Airbus by French authorities is di sclosed in the project-by-project breakdown submitted 
during the Annex V process showing that Airbus received EUR [***] in LCA-related R&TD grants 
from 1994 to 2005.4769   
7.1471  The publicly available information relied upon by the United States takes the form of a 
compilation of extracts of seven French Senate reports that reveal the amounts of R&TD funding provided to the French civil aeronautics sector. It is  clear from these reports that the funding amounts 
disclosed pertain to monies distributed to the Fren ch civil aeronautics sector as a whole, including but 
not limited to Airbus and, in some cases for non-LCA activities.
4770  For the period 1986 to 1993, the 
information indicates that FF 2,565 million, or EUR 391 million, was disbursed for civil aeronautics research undertaken by the participating French entities. The European Communities does not contest 
that the French government disbursed this amount of funding to the civil aeronautics sector between 1986 and 1993.  However, it has provided no information on the share of this funding going to Airbus.  Moreover, in response to a specific question from the Panel asking it to disclose the projects and 
amount of French government R&TD funding  going to Airbus during this period,
4771 the European 
Communities provided no information, citing the inab ility of both the French government and Airbus 
to find the relevant research contracts. 
7.1472  We appreciate that obtaining information from up to 22 years ago may not always be a simple 
task.  However, where a party that is the obvious or iginator of requested information is faced with 
such difficulties, we believe it is incumbent upon that party to not only explain why it cannot submit 
the requested information, but also to do its best to provide an appropriate proxy for the missing information.  In our view, the explanation the Eu ropean Communities has provided for its failure to 
submit the requested information a nd the approach it suggests might be adopted by the Panel in order 
to arrive at an appropriate R&TD figure are less than  satisfactory.  In particular, we are not convinced 
that, even in the absence of the actual contracts, there was no public (or co nfidential) information 
available to the French government and Airbus that might have usefully guided us in our deliberations 
on the amount, or approximate amount, of actual R&TD  funding received by Airbus. Simply stating 
that Airbus "inevitably" received an amount "far below" the total funding provided to the aeronautics 
sector as a whole ( i.e., "far below" EUR 391 million) because the evidence from a subsequent period 
of funding (1994 to 2005) shows that this was the case  in that subsequent peri od, is guidance of a kind 
that is so general that in practice it provides very little assistance at all.  In the absence of a more 
acceptable suggestion on the part of the European Co mmunities for how to fill the evidentiary gap, the 
only information we have available to us on the French government R&TD contributions to Airbus 
between 1986 to 1993 is that contained in Exhibit US-337. Although we are fully aware of its limitations, we believe that in these particular circum stances, we are left with no alternative but to use 
                                                     
 
4767 EC, SWS, para. 640; EC, Answer to Panel Question 279. 
4768 EC, FWS, para. 1278. 
4769 EC, FWS, para. 1279; EC, SWS, para. 640, both referring to Direction des Programmes 
Aéronautiques et de la Coopération ("DPAC"), Soutiens Versés au Titre des Etudes et Recherches portant sur 
les Avions de 10 place et plus de 1992 à 20 05, 2 novembre 2005, E xhibit EC-209 (BCI). 
4770 For instance , see Budget 1997: Sénat, No. 89 (session ordinaire de 1999-2000), Rapport Général, 
Commission des Finances du Contrôle Budgétaire et des Comptes Economiques de la Nation sur le projet de loi 
de finances pour 2000, Tome III, Annexe No. 25, Equipment, Transports et Logement; III. – Transports; 
Transport Aérien et Météorolgie et Aviation Civile, p. 88, in Exhibit US-337. 
4771 Panel Question 278. WT/DS316/R 
Page 784  
BCI deleted, as indicated [***] 
 
  it as the basis of our factual finding.  In this re gard, we recall that where a party refuses to supply 
information requested by a panel, it is open to  that panel to draw inferences from the full 
configuration of facts that are before it.
4772  Accordingly, on the basis of the full configuration of the 
facts that are before us, we find that Airbus received a maximum of EUR 391 million in French 
government R&TD grants between 1986 and 1993. 
7.1473  We come to a different conclusion in respect of the funding provided to Airbus between 1994 
and 2005.  The information submitted by the Euro pean Communities showing that Airbus was the 
recipient of EUR [***] is derived from a document authored by the DPAC, the authority that 
administered the French government funding programmes.4773  This document provides a project-by-
project break-down of French government R&TD  funding to all recipients from 1994 to 2005.4774  We 
are satisfied that this document provides a suitabl e basis for our factual finding in respect of the 
monies Airbus received from the French government  for R&TD activities over this period. Although 
the United States has expressed doubt about whethe r this document captures all such funding 
provided to Airbus, it has pointed to no inconsiste ncy between the data cont ained in this document 
and, for example, publicly availabl e information to suggest that it is unreliable. Thus, we find the total 
amount of French government R&TD funding to  Airbus between 1994 and 2005 to be EUR [***].  
(x) Spanish government loans 
Plan Tecnológico Aeronáutico  
7.1474  The United States asserts that, between 1993 and 2003, the Spanish government provided 
Airbus with below-market research and development loans in the amount of EUR [***] under two 
phases of the Plan Tecnológico Aeronáutico ("PTA") . Under the first phase, PTA I, which ran from 
1993 to 1998, the United States contends that Airbus received loans in the amount of EUR [***]. In 
the second phase, PTA II, which ran from 1999-2003, th e United States submits that Airbus obtained 
EUR [***] in loans.4775 The European Communities does not cont est that Airbus received loans of 
EUR [***] under the PTA. However, according to th e European Communities, the disbursements 
under PTA I and II which took place from 1993 to 1994 fall outside the temporal scope of Article 5 of 
the SCM Agreement.  According to the European Communities, these payments must be disregarded 
by the Panel, bringing the total amount of relevant funding under the PTA to EUR [***].4776 
7.1475  We recall that in Section VII.C.2 of this Report, we rejected the European Communities' 
arguments on the temporal scope of this dispute.4777 Accordingly, we will proceed to examine the 
merits of the United States' claims agains t the Spanish government's provision of EUR [***] in 
R&TD loans under the PTA. 
Programa de Fomento de Innovación Técnica  
7.1476  The United States asserts that the Spanish gove rnment provided Airbus with below-market 
research and development loans under two phases of  the Programa de Fomento de Innovación 
Técnica ("PROFIT"), first established in 2000. A ccording to the United States, publicly available 
information demonstrates that Airbus received loans under the first phase of the PROFIT in the 
                                                      
4772 Appellate Body Report, Canada – Aircraft , para. 203. 
4773 US, FWS, para. 678; EC, FWS, para. 1277. 
4774 See, footnote 4770 above. 
4775 US, FWS, para. 693 referring to Exhibit US-344 (BCI), setting out information on the amounts of 
Airbus funding under the PTA disclosed by the European Communities during the Annex V process. 
4776 EC, FWS, para. 1312. 
4777 See, paras. 7.65 and 7.105 above.  WT/DS316/R 
 Page 785 
 
BCI deleted, as indicated [***] 
 
  amount of EUR 1.5 million.4778 In addition to this amount that allegedly went directly to Airbus, the 
United States asserts that the Spanish aeronauti cs industry received an additional EUR 62 million in 
loans under both phases of the programme.4779 The United States recalls that the European 
Communities did not respond to the Facilitator's requ est for recipient-specific funding information 
under the PROFIT.  In this light, the United St ates asks the Panel to request the European 
Communities to provide the information the Facilita tor requested, or else find, in accordance with 
paragraph 7 of Annex V, that the Spanish governme nt provided Airbus with loans in the amount of 
EUR 63.5 million.4780 
7.1477  As we have noted above, the European Commun ities has consistently argued that the PROFIT 
loans challenged by the United States fall outside the terms of reference of the present dispute.4781 
Because of this, the European Communities initially refused to provide any information on payments 
under the PROFIT.  However, following the first subs tantive meeting with the parties, the Panel asked 
the European Communities to provide informati on on the loan payments made under the PROFIT.4782  
This request was made in the context of the statem ent of the European Communities in its first written 
submission, that it would provide the Panel with "information regarding loans and grants" under the 
PROFIT were the Panel to determine that the Un ited States' claims fell within the Terms of 
Reference.4783  In response, the European Communities s ubmitted information on what appears to be a 
selection of payments made under a series of PROFIT sub-programmes in the years 2004 and 2005 "in the spirit of good cooperation and without prejudi ce to its" position that th e United States' claims 
fell outside of the Panel's terms of reference.
4784  The European Communities subsequently 
characterized this information as "relevant in formation on payments made under the PROFIT 
programme".4785 However, it is less than apparent to us  how the figures supplied by the European 
Communities are in fact "relevant" to our request for information. First, it is unclear whether the information provided by the European Communitie s relates to all sub-pr ogrammes funded under the 
PROFIT or just a selection, because the European  Communities has not specified exactly how much 
payment data it has supplied. Second, the informati on does not identify the recipients of the funding 
amounts, making it impossible to determine how much of the disclosed monies involved loans to Airbus.   
7.1478  The European Communities noted that "{i}n vi ew of the immense scope of the programme, 
the European Communities respectfu lly requests the Panel, should it d ecide that PROFIT falls within 
the terms of reference, quod non , and desire additional information concerning the programme, to 
specify the information it would like to obtain so that  such information could be prepared in the most 
                                                     
 
4778 US, FWS, para. 698, referring to PROFIT 2003, Comites de Evaluaci ón de 21 y 22/4/03, Proyectos 
y entidades con propuesta favorable de ayuda, P.N. Aeronáutico , Exhibit US-351. 
4779 US, FWS, para. 698, referring to Javier Alfonso Gil, Antonia Sáez Cala and Maricruz Lacalle 
Calderón, EADS y las Estrategias Territoriales del Sudoeste Europeo: Informe de la Región de Madrid, Universidad Autonoma de Madrid (undated) , at 70, Exhibit US-352; and Ramon Herrero, Ministerio de 
Industria, Turismo y Comercio, Aeronautics Rese arch and Development in Spain, ACARE AeroDays , 
March 31, 2005, at 25, Exhibit US-353. 
4780 US, FWS, para. 702. 
4781 See, para. 7.1418 above; EC, FWS, para. 1315; EC, Answer to Panel Question 109; EC, SWS, 
para. 647. 
4782 Panel Question 109. 
4783 EC, FWS, para. 1318.  We note that the European Communities made this statement under the 
"Payments" sub-heading within its discussion of the PROFIT.  Elsewhere, where the European Communities 
used the same "Payments" sub-heading it revealed what it considered to be the amount of alleged subsidization 
received by Airbus, for instance, at paras. 1312 (grants under the PTA I and II); 1289-1290 (grants and loans 
under the CARAD and ARP Programmes); 1278-1279 (French government R&TD grants); and 1271-1272 
(Bremen authorities' R&TD grants). 
4784 EC, Answer to Panel Question 109, submitting Exhibit EC-624 (BCI). 
4785 EC, SWS, para. 648. WT/DS316/R 
Page 786  
BCI deleted, as indicated [***] 
 
  efficient way possible."
4786 We are puzzled by the European Communities' response. Although we 
recognize that the question posed to the European Communities was not as specific as it could have 
been, it is our view that, in the context of the European Communities' statement at paragraph 1318 of 
its first written submission,4787 the United States' claims and factual assertions, as well as the 
Facilitator's previous Annex V information requests, it was reasonably clear th at the information we 
requested was information pertaining to loan payments  to Airbus under the PROFIT.  The fact that we 
had not yet ruled on whether the United States' claims  fell within our terms of reference at the time of 
our request is, in our view, not a valid reason for fa iling to provide the requested information. In this 
regard we observe that the European Communitie s did not consider the absence of any terms of 
reference ruling problematic when it voluntarily, on a without prejudice basis, provided information 
on the amount of French government R&TD funding gran ted to Airbus in its first written submission, 
even though it had also consistently argued that such funding fell outside of our terms of reference.4788   
7.1479  The publicly available information submitted by the United States takes the form of: (i) two 
Spanish government decrees establishing the PROFIT;4789 (ii) a table of unknown origin setting out 
various items of information on loans provi ded under the PROFIT (Programa Nacional de 
Aeronautica) in 2003; (iii) one page from a Repor t prepared by the Universidad Autonoma de Madrid; 
and (iv) one page from what appears to be a Power point presentation prepared by an official of the 
Spanish Ministerio de Industria, Turismo y Comerc io.  The Spanish government  decrees confirm that 
the PROFIT was established with a view to  running under two phases from 2000 to 2007.4790  The 
next above-cited document submitted by the United States indicates that Airbus obtained two loans in 
2003 of approximately EUR 1.5 million.4791  We note that the European Communities has 
acknowledged that Airbus recei ved this amount of funding.4792  However, the European Communities 
does not accept that Airbus received the remai nder of the funding the United States asserts was 
provided to Airbus.  In this regard, the inform ation supplied by the United States indicates that 
EUR 2.58 million and EUR 2.76 million in "antic ipos reembolsables", and EUR 0.5 million and 
EUR 0.7 million in "subvenciones", was provided to all participants under the "Programa Nacional de 
Aeronautica" of the PROFIT in 2001 and 2002.4793  In addition, the last of the above-cited documents 
submitted by the United States indicates that EUR 55 .5 million in loans was provided to the Spanish 
aeronautics sector in 2004.4794  The United States contends that, in the light of the European 
Communities' refusal to provide more specific inform ation on the funding obtained by Airbus, the full 
value of these amounts (EUR 62 million, i.e., EUR 6.54 million in 2001 and 2002 plus 
EUR 55.5 million in 2004) must be added to the EUR 1.5 million accepted by the European 
Communities and allocated to Airbus for the year 2003. 
                                                      
4786 EC, Answer to Panel Question 109. 
4787 Including the context described in footnote 4783. 
4788 EC, FWS, paras. 1274 and 1276. 
4789 Orden de 7 de marzo de 2000 por la que se regulan las bases, el régimen de ayudas y la gestión del 
Programma de Fomento de la Investigación Técnica (PROFIT), incluido en el Plan Nacional de Investigación 
Cientfíca, Desarrollo e Innovación Tecnologíca (2000-2003) , BOE núm. 59 (9 March 2000), at 9855-62, 
Exhibit US-349, ("Order of 7 March 2000"); Orden PRE/690/2005, de 18 marzo, par la que se regulan las 
bases, el régimen de ayudas y la gestión del Plan Nacional de Investigación Cientifíca, Desarrollo e Innovación 
Tecnológica (2004-2007) en la parte dedicada al fomento de la investigación técnica , BOE núm. 67 
(19 March 2005), at 9670, Exhibit US-350, ("Order of 18 March 2005"). 
4790 Exhibits US-349 and 350. 
4791 The actual loan amount is EUR 1,554,622.60.  PROFIT 2003. Comites de Evaluación de 21 y 
22/4/03, Proyectos y entidades con propuesta favorable de ayuda, P.N. Aeronáutico , Exhibit US-351. 
4792 EC, SCOS, HSBI-Redacted Version, Table at para. 36. 
4793 Javier Alfonso Gil, Antonia Sáez Cala and Mari cruz Lacalle Calderón, EADS y las Estrategias 
Territoriales del Sudoeste Europeo: Informe de la Región de Madrid, Universidad Autonoma de Madrid 
(undated) , at 70, Exhibit US-352. 
4794 Ramon Herrero, Ministerio de Industria, Tu rismo y Comercio, Aeronautics Research and 
Development in Spain, ACARE AeroDays , March 31, 2005, at 25, Exhibit US-353.  WT/DS316/R 
 Page 787 
 
BCI deleted, as indicated [***] 
 
  7.1480  We recognize that the bulk of the information the United States is asking us to rely upon 
discloses industry-wide funding and not individual lo ans granted to Airbus. However, due to the 
European Communities' failure to provide any speci fic information on the value of the loans obtained 
by Airbus under the PROFIT in response to th e Facilitator's and our own requests, the publicly 
available information submitted by th e United States is the only data we  have to consider.  In this 
regard, we note that the European Communities has at no stage challenged the credibility of the 
information contained in these publicly available doc uments. Thus, we have no reason to doubt that 
the Spanish aeronautics industry received EUR 62 m illion in funding under the PROFIT. In this light, 
and in accordance with paragraph 7 of Annex V, we believe it is appropriate to base our findings on 
the amount of loans obtained by Airbus under the PROFIT on the publicly available information, 
submitted by the United States.  In doing so, we ob serve that given the focus of the United States 
complaint on "anticipos reembolsab les", we believe that it would be inappropriate to consider 
allocating the amounts (EUR 1.2 million) descr ibed as "subvenciones" in Exhibit US-352 to 
Airbus.4795 Therefore, in accordance with paragraph 7 of Annex V, we find that Airbus was the 
recipient of approximately EUR 62.2 million in loans under the PROFIT.   
(xi) UK government grants 
Civil Aircraft Research and Demonstration Programme / Aeronautics Research Programme  
7.1481  The United States asserts that, between 1992 and 2005, the UK Department of Trade and 
Industry ("DTI") agreed to provide Airbus with GBP [***] in LCA-related research grants under the 
Civil Aircraft Research and Demonstration Programme ("CARAD"), which it alleges was later 
renamed the Aeronautics Research Programme ("ARP" ). In particular, the United States asserts that, 
over this period, the UK DTI disbursed approximately GBP [***] and committed to disburse a further 
GBP [***].4796 According to the European Communities, the total amount of LCA-related research 
grants that Airbus received between 1992 a nd 2005 under the CARAD programme and ARP was 
approximately GBP [***]. However, the European Communities ar gues that not all of this amount is 
properly within the scope of this disp ute because it includes payments of GBP [***] that were granted 
prior to 1995, and therefore outside of  the temporal scope of this dispute.4797 Thus, the European 
Communities submits that the amount of funding that is properly within the scope of the United States 
complaint is limited to GBP [***].4798  
7.1482  We recall that in Section VII.C.2 of this Report, we rejected the European Communities' 
arguments on the temporal scope of this dispute.4799 Therefore, we will include payments made under 
the CARAD programme between 1992 and 1995 in our analysis. 
7.1483  In reviewing the parties' submissions on the actual amount of funding received by Airbus 
under the CARAD programme, we have identified a num ber of discrepancies.  In the first instance, 
we note that the factual basis of the United States assertion that Airbus received GBP [***] is 
information submitted by the European Communitie s during the Annex V process.  However, the 
European Communities relies upon the same data to conclude that Airbus received only GBP [***].   
7.1484  Payments made to Airbus under th e CARAD programme between April 1997 
and October 2005 are specified in one table, submitted by the United States as Exhibit US-339 (BCI) 
                                                      
4795 See, e.g., US, FWS, para. 697 and footnote 859, which refers to Article 7.4 paras. a) to c) of the 
Spanish government decree establishing the PROFIT (2000 to 2003), Exhibit US-349. 
4796 US, FWS, para. 686, citing Exhibit US-339, which reproduces information supplied by the 
European Communities during the Annex V process. 
4797 EC, FWS, paras. 1281 and 1289. 
4798 EC, FWS, para. 1289. 
4799 See, paras. 7.65 and 7.105 above. WT/DS316/R 
Page 788  
BCI deleted, as indicated [***] 
 
  and the European Communities as Exhibit EC-233 (BCI).   This table sets out the relevant payments 
on a project-by-project basis, in each financial year (1 April to 31 March) starting from 1997/1998 to October 2005. These individual payments are al so summed and presented in a separate column as 
the total amount of funds received per-project as well as the total overall amount obtained by Airbus 
under the entire programme. The difference in how the parties have interpreted the data contained in 
this table may be explained by a calculation error.   In arriving at an amount of funding of GBP [***], 
the United States used a figure of GBP [***], which was identified in the ta ble as the total value of all 
payments made to Airbus under the CARAD programme . This figure was calculated by adding all of 
the per-project payment amounts listed in the same co lumn. However, we have found that for eleven 
of the projects, the total amount of payments made to Airbus listed in the "Payments to Airbus to 
Date" column overstates what the same table shows w as actually paid in each of the relevant financial 
years. When these errors are taken into account, the correct figure should be GBP [***]. 
7.1485  In addition, the United States' assertion that  the UK DTI made a commitment to provide 
Airbus with an additional GBP [***] in grants under the CARAD programme appears to involve 
double-counting.  As we understand its submission, the United States relies on the table contained on 
the last page of Exhibit US-339 (BCI) to justify it s assertion.  However, it appears to us that the 
contributions that the United States relies upon, which added together come to approximately GBP [***],
4800 are already accounted for as payments in the financial years listed in the table the United 
States uses to justify that Airbus received GBP [***].  Therefore, we cannot accept the United States' 
assertion in respect of the alleged commitment of GBP [***]. 
7.1486  Finally, in arguing that Airbus received GBP [***] in grants under the CARAD programme, 
the European Communities relied upon a series of tables setting out payments made to Airbus 
between 1992 and 1996 presented in Exhibits EC-2 32 (BCI) and US-339 (BCI). However, in doing 
so, the European Communities incorrectly transp osed two of the values shown in the tables ( [***] and 
[***]). 
7.1487  Thus, in the light of the information before us, we find that Airbus received GBP [***] in 
grants under the CARAD programme and ARP between January 1992 and October 2005.   
Technology Programme  
7.1488  The United States initially asserted that Airbus research consortia received GBP [***] in 
grants under the Technology Programme ("TP"), which ran from 2004.4801 The European 
Communities indicated in its first written subm ission that, as of November 2005, Airbus had 
participated in 18 projects under the Tec hnology Programme, receiving a total of GBP [***].4802 The 
United States appears to be satisfied that this am ount of funding is an a ccurate reflection of the 
monies Airbus received under the TP. Thus, we find that there is no dispute between the parties as to 
the amount of funding Airbus received under the TP.  
                                                      
4800 The actual amount is GBP [***] . 
4801 US, FWS, para. 687, citing Exhibit US-340, which reproduces information supplied by the 
European Communities during the Annex V process. 
4802 EC, FWS, para. 1292, citing Exhibit EC-235  (BCI), showing that Airbus received GBP [***]  in 
grants under the programme.  WT/DS316/R 
 Page 789 
 
BCI deleted, as indicated [***] 
 
  (d) Whether each of the challenged R&TD measures individually constitutes a subsidy within the 
meaning of Article 1 of the SCM Agreement 
(i) Arguments of the Parties 
United States  
7.1489  The United States alleges that each of the cha llenged R&TD measures constitutes a "financial 
contribution" that confers a "benefit" on Airbus, and therefore amounts to a subsidy, within the 
meaning of Article 1.1 of the SCM Agreement.   
7.1490  To the extent that the measures at issue take th e form of grants or loans, the United States 
contends that they fall explicitly within the definition of a "financial contribution" set out in 
Article 1.1(a)(1)(i) of the SCM Agreement.4803  According to the United States, it is well established 
that a grant confers a benefit because, as the panel stated in United States – Cotton , it "place{s} the 
recipient in a better position than the recipient otherwise would have been in the marketplace".4804  
Thus, the United States argues that the R&TD grants  at issue in this dispute necessarily confer a 
benefit on Airbus and, consequent ly, constitute subsidies within the meaning of Article 1.1 of the 
SCM Agreement.4805 
7.1491  As far as the Spanish government loans are c oncerned, the United States argues that when a 
loan is provided to a recipient on terms that are better than those available in the commercial 
marketplace, a benefit is conferred.4806  Thus, according to the United States, because the loans at 
issue are provided to Airbus [***], they confer a benefit upon Airbus.  The United States submits that 
it is not necessary to quantify the amount of this benefit because the [***] terms are alone sufficient to 
establish the existence of a benefit.4807  Furthermore, the United States argues that the deferred 
repayment terms provided for under th e challenged loans further evidence the existence of a benefit to 
Airbus.4808 
European Communities  
7.1492  The European Communities explicitly acknowledg es that Airbus received subsidies under the 
LuFo I, LuFo II, LuFo III, the AMST I, AMST II and the CARAD/ARP programmes.4809  However, it 
disputes whether funds committed  but not disbursed  to Airbus under the LuFo III programme as of 
1 July 2005 should be taken into account in establishing the amount  of subsidy provided to Airbus 
under this programme.4810  For all of the remaining R&TD measures at issue, the European 
Communities does not contest that they constitute financial contributions within the meaning of 
                                                      
4803 US, FWS, paras. 626 (grants under the EC Framework Programmes); 680 (French government 
grants); 655 (German Federal government and Sub-Federal government grants); 694, 700 (Spanish government loans); and 688 (UK government grants). 
4804 Panel Report, US – Upland Cotton , para. 7.1116. 
4805 US, FWS, paras. 627 (grants under the EC Framework Programmes); 681 (French government 
grants); 656 (German Federal government and Sub-Federal government grants); and 689 (UK government 
grants). 
4806 US, FWS, paras. 695 (PTA loans) and 701 (PROFIT loans), relying upon Appellate Body Report, 
Canada  - Aircraft , para.157.   
4807 US, Answer to Panel Question 38. 
4808 US, FWS, paras. 693 and 695 ( [***]  for PTA loans) and 697 and 701 (up to 15 years for PROFIT 
loans); US, SWS, para. 514. 
4809 EC, Answer to Panel Question 108. 
4810 EC, FWS, para. 1256-1257; EC, SWS, para. 630; EC, Answer to Panel Question 104. WT/DS316/R 
Page 790  
BCI deleted, as indicated [***] 
 
  Article 1.1(a)(1)(i) of the SCM Agreement.
4811  Moreover, the only United States allegation of benefit 
that the European Communities e xplicitly contests relates to Span ish government loans under the 
PTA.  According to the European Communities, the United States has failed to establish that these 
loans confer a benefit on Airbus because it failed to  undertake an appropriate comparison between the 
terms of the PTA loans and loans available on the marketplace.4812 
(ii) Evaluation by the Panel 
Do the Challenged Measures involve a "Financial contribution"?  
7.1493  The European Communities argues that funds committed to Airbus, but not disbursed , under 
the LuFo III programme as of 1 July 2005 ( i.e., the cut-off date used by the United States in its first 
written submission) should be excluded from our c onsideration.  According to the European 
Communities, this would reduce the amount of fu nding at issue under the three LuFo programmes 
from EUR [***] to EUR [***] (a difference of approximately EUR [***]).4813  The United States 
argues that the amount of funding at stake under the three LuFo programmes is EUR 217 million.  The United States appears to derive this amount from the Förderkatalog .
4814  According to the 
United States, the Förderkatalog  is an electronic R&D subsidy catalogue maintained by the German 
Federal government which records R&D funding pr ovided by the German Federal Ministry for 
Research and Technology and the Ge rman Federal Economics Ministry.4815  The United States argues 
that the Förderkatalog  demonstrates that a firm commitment had been made as of 1 July 2005 to 
disburse the EUR [***], which the European Communities cont ends should not be considered, and 
that there is no indication that such money has not been and will not be disbursed.  The United States 
notes that a subsidy within the meaning of Article 1 of the SCM Agreement includes "potential direct 
transfers of funds" as well as actual direct transfers of funds.  Thus, even if the European Communities were correct in characterising cer tain amounts as "commitments" rather than 
"disbursements" that would not be a basis fo r excluding those amounts from the Panel's 
consideration.
4816  
7.1494  The European Communities does not contest the United States' allegation that funding 
granted to Airbus under the LuFo programmes up to 1 July 2005 constitutes a "financial contribution" 
within the meaning of Article 1.1(a)(1)(i) of the SC M Agreement.  In our view, there is no doubt that 
such amounts represent a "direct transfer of funds" a nd therefore fall squarely within the definition of 
a "financial contribution" that is set out in Article  1.1(a)(1)(i) of the SCM Agreement.  Thus, we are 
satisfied that the evidence submitted by the United St ates, to the extent corroborated by the European 
Communities on the basis of information obtained fr om the German Federal Ministry of Economics 
and Industry, establishes that as of 1 July 2005, th e German Federal government provided a "financial 
contribution" to Airbus under the LuFo programmes in the amount of EUR [***].4817 
                                                      
4811 EC, FWS, paras. 1218-1319; EC, SWS, paras. 610-649; EC, Answer to Panel Question 104, where 
the European Communities recognizes that to the extent th at they are shown to confer a benefit on Airbus, the 
challenged measures would constitute subsidies within  the meaning of Article 1 of the SCM Agreement. 
4812 EC, FWS, para. 1313.  The European Communities makes no similar argument on the question of 
the existence of benefit in respect of the United States complaint against the PROFIT loans.  EC, FWS, paras. 
1314-1319; EC, SWS, paras. 646-649. 
4813 EC, FWS, para. 1258. 
4814 US, FWS, para. 663. 
4815 US, FWS, footnote 806 and Exhibit US-326.  The European Communities describes the 
Förderkatalog  as a public database which lists all the recipients of research grants in al l areas where funding is 
provided by the German government.  EC, FWS, para. 1255. 
4816 US, SWS, para. 514. 
4817 EC, FWS, para. 1257.  The BCI table presented following para. 1257 of the European 
Communities' first written submission identifies amounts of  funding under each of the three LuFo programmes,  WT/DS316/R 
 Page 791 
 
BCI deleted, as indicated [***] 
 
  7.1495  In respect of the funding that was comm itted, but not disbursed under LuFo III as of 
1 July 2005, the European Communities' principal ar gument in response to th e United States' claims 
amounts to the submission that a government commitm ent of funds, without any actual disbursement 
of those funds, cannot amount to a "financial contri bution".  However, as we have noted elsewhere in 
this Report, a commitment to provide funds may well be  a "financial contribution" if in the form of a 
"potential direct transfer of funds".4818  As we understand it, the Unite d States argues that the funds 
that were committed but not disbursed to Airbus  under the LuFo III programme represent precisely 
this form of "financial contribution".  We agree.  Ju st as the disbursement of funds is a "direct transfer 
of funds", a commitment – or a promise – to disburse funds may be properly characterized as a 
"potential direct transfer of funds" falling within the definition of a "financial contribution" set out in 
Article 1.1(a)(1)(i) of the SCM Agreement.  Thus, on the basis of the parties' submissions and the 
evidence that has been presented, we find that as of 1 July 2005, the German Federal government 
provided Airbus with a "potential direct transfer of funds" in the form of a commitment to transfer approximately EUR [***] to Airbus under the LuFo III programme.
 4819 
7.1496  As regards the remaining R&TD measures at issue,4820 we agree with the United States that to 
the extent they are grants involving direct transfer s of funds or loans, they explicitly fall within the 
definition of a "financial contribution" under Article 1.1(a)(1)(i) of the SCM Agreement. 
Do the challenged Measures confer a "Benefit" on Airbus?  
7.1497  The European Communities has not contested th e United States' allegation that the R&TD 
grants confer a benefit upon Airbus.  However,  it has disputed whether the United States has 
established that Airbus received any benefit fro m the Spanish government loans provided under the 
PTA.  The basis of the European Communities' view is that, consistent with the Appellate Body's 
views in Canada – Aircraft , the United States must demonstrate the existence of a benefit to Airbus 
by undertaking "some kind of comparison" between  the loans obtained by Airbus and comparable 
loans available on the marketplace.  The United Stat es argues that the very fact that the loans in 
question were made at a [***] interest rate is enough to establish that they were made on preferential 
terms compared with the marketplace and, theref ore, that they confer a benefit on Airbus.4821 
7.1498  The Spanish government loans that are the subject of this part of the United States' complaint 
were provided to Airbus between 1993 and 2003 unde r two phases of the PTA (PTA I and PTA II).  
PTA I ran from 1993 to 1998 and PTA II ran from 1999 to 2003.  The evidence submitted by the 
                                                                                                                                                                     
distinguishing between "project grants to Airbus Ge rmany" and "amount{s} received by Airbus Germany as of 
1 July 2005", listing the latter as an amount of EUR [***] .   
4818 See, paras. 7.301 - 7.304 and 7.733 - 7.735 above. 
4819 EC, FWS, para. 1257.  The BCI table presented following para. 1257 of the European 
Communities' first written submission identifies amounts of  funding under each of the three LuFo programmes, 
distinguishing between "project grants to Airbus Ge rmany" and "amount{s} received by Airbus Germany as of 
1 July 2005".  The table shows that the "project grants to Airbus" under LuFo I and LuFo II were paid out to 
Airbus in full; whereas under LuFo III, there was an approximately EUR [***]  difference between "project 
grants to Airbus Germany" (EUR [***] ) and "amount received by Airbus  Germany as of 1 July 2005" 
(EUR [***] ).  The funding "grants" under the LuFo III programme were intended to be made over a period 
ending 2007.  See, also , EC, SWS, para. 630. 
4820 I.e., all of the measures granted under the 2nd Framework Programme, 3rd Framework Programme, 
4th Framework Programme, 5th Framework Programme and 6th Framework Programme ( see, paras. 7.1427, 
7.1433, 7.1439, 7.1445 and 7.1451 above) as well as the German federal and sub-federal government grants, 
French government grants, Spanish government loans and UK government grants (see, paras. 7.1457, 7.1459, 
7.1461, 7.1465, 7.1467, 7.1474 and 7.1481 above). 
4821 US, FWS, para. 695; US, SWS, para. 514. WT/DS316/R 
Page 792  
BCI deleted, as indicated [***] 
 
  United States suggests that all of the PTA loans were [***].
4822  The European Communities has not 
contested this evidence.  In addition, we note that the loans granted under PTA I between 1993 and 
1998 carried a [***] repayment term, with the first repa yment expected only in the year 2000.4823  The 
PTA II loans granted between 1999 and 2003 carried a [***] repayment term, with the first repayment 
required in 2007.4824  The monies loaned under the two phases of the PTA amounted to approximately 
EUR [***].4825 
7.1499  We recall that it is well established that whet her a financial contribution confers a benefit 
upon its recipient is a question that must be reso lved by reference to the market.  Thus, in the 
particular context of a financial contribution in the form of a loan, a benefit will be conferred 
whenever it is granted to a recipient on terms more favourable than those available to the recipient in 
the market.4826  As already noted elsewhere in this Report , we believe that it would be extraordinary 
and highly unlikely for a market-based  lender acting pursuant to commerc ial considerations to provide 
financing at a [***] rate of return.4827  It would be even more exceptional to find a market lender 
agreeing to finance EUR [***] worth of R&TD activities in the LCA sector at a [***] rate of return 
with full repayment not expected before as much as 21 to 30 years.  In this light, we consider that it 
was not necessary for the United St ates to present evidence of the terms and conditions of specific 
market-based financing comparable to the loans at issue in order to establish, at least on a prima facie  
basis, that the PTA loans conferred a benefit upon Airbus. 
7.1500  Although the European Communities has questioned whether the United States has 
demonstrated that the PTA loans conferred a benef it, it has provided no evidence of its own to counter 
the United States' prima facie  case.  Thus, on the basis of the evidence and arguments before us, we 
are satisfied that Airbus obtained the PTA lo ans from the Spanish government on terms more 
favourable than would otherwise have been possibl e on the market.  We therefore find that the PTA 
loans at issue conferred a benefit upon Airbus, a nd consequently, amount to subsidies within the 
meaning of Article 1.1 of the SCM Agreement. 
7.1501  In respect of the remainder of the cha llenged R&TD measures, we agree with the 
United States that to the extent that Airbus receive d a funding grant in the form of an actual "direct 
transfer of funds" from the various entities involve d, it was automatically placed in a better position 
than it would otherwise have been in without the grant.4828  The European Communities has not 
contested this aspect of the United States' submissi on.  Consequently, we find that all of the R&TD 
funding grants obtained by Airbus that we have identified as the subject of the United States' 
complaint conferred a benefit upon Airbus, and ar e therefore subsidies within the meaning of 
Article 1.1 of the SCM Agreement. 
7.1502  However, we are not convinced that the Unite d States has established that the approximately 
EUR [***] "financial contribution" granted to Airbus under the LuFo III programme in the form of a 
"potential direct transfer of funds" conferred a be nefit.  As we have previously explained, a 
benefit may arise from a "potential direct transfer of funds" when the commitment or promise to 
provide funds in and of itself  places the recipient of that commitment or promise in a better position 
                                                      
4822 The information submitted by the United States in Exhibits US-344 (BCI) and US-345 (BCI) 
indicates that [***] . 
4823 Exhibit US-344 (BCI). 
4824 Exhibits US-344 (BCI) and US-345 (BCI). 
4825 Exhibits US-344 (BCI) and US-345 (BCI). 
4826 See, para. 7.401 above. 
4827 See,  footnote 2728 above. 
4828 US, FWS, paras. 627 (grants under the EC Framework Programmes); 681 (French government 
grants); 656 (German Federal government and Sub-Federal government grants); and 689 (UK government grants).  WT/DS316/R 
 Page 793 
 
BCI deleted, as indicated [***] 
 
  than it would otherwise have been in without that commitment or promise.4829  The United States has 
advanced no argument and submitted no evidence e xplaining why the LuFo III funding commitment 
at issue in and of itself  conferred a benefit that is separate a nd independent from the benefit that might 
be conferred by any future transfer of the promised funds.  On the contrary, the entire focus of the 
United States' arguments appears to have been the benefits associated with the amount of funds that 
were promised, as opposed to the promise itself.  T hus, we find that the United States has failed to 
establish that the EUR [***] funding commitment made by the Ge rman Federal government under the 
LuFo III programme conferred a benefit upon Airbus.  We therefore dismiss the United States' claims 
with respect to this particular measure. 
7.1503  Finally, we note that the European Comm unities has not challenged the United States' 
contention that the loans under the PROFIT confer a benefit because they were provided to Airbus at 
a [***] rate of interest, with deferred repayment schedules extending up to 15 years.  The publicly 
available information the United States has submitted to support its claims confirms that the PROFIT 
loans were provided to Airbus on [***] terms with a maximum repayment period of 15 years.4830  
Once again, we note that it would, in our view, be exceptional to find a market lender acting pursuant 
to commercial considerations willing to finance EUR [***] worth of R&TD activities in the LCA 
sector at a [***] rate of interest.  We therefore find that the evidence and arguments presented by the 
United States are sufficient to establish, at least on a prima facie  basis, that the PROFIT loans 
conferred a benefit upon Airbus.  The European Co mmunities has provided no evidence to counter the 
United States' contentions.  Thus, on the basis of the evidence and arguments before us, we are 
satisfied that Airbus obtained the PROFIT lo ans from the Spanish government on terms more 
favourable than would have been possible on the ma rketplace.  We therefore find that the PROFIT 
loans at issue conferred a benefit upon Airbus, a nd consequently, amount to subsidies within the 
meaning of Article 1.1 of the SCM Agreement. 
(e) Whether the R&TD subsidies are specific wi thin the meaning of Article 2 of the 
SCM Agreement 
(i) Introduction 
7.1504  The United States argues that all of the R&TD s ubsidies it challenges are specific to Airbus 
and/or the aeronautics industry, within the me aning of Article 2.1 of the SCM Agreement .4831  The 
European Communities disputes the United States' allegations only in respect of the subsidies granted 
under each of the EC Framework Programmes, the Spanish government PROFIT programme and the 
UK Technology Programme.4832  In the sections that follow, we st art our evaluation of the merits of 
the United States' claims by focusing on the a llegations of specificity contested by the EC. 
(ii) Grants under the EC Framework Programmes 
Arguments of the United States  
7.1505  The United States argues that the subsidi es granted to Airbus under the Framework 
Programmes are specific, "in law", within the mean ing of Article 2.1(a) of the SCM Agreement, 
because they were granted pursuant to "specific programmes" with their own implementation rules 
and separate budgets dedicated to aeronautics i ndustry research activities.  In particular, the 
                                                      
4829 See, paras. 7.301 - 7.304 and 7.733 - 7.735 above. 
4830 Exhibit US-349, Articolo 7.4(c), confirming that loans ("anticipos reembolsable") under the 
PROFIT I were provided with an "applied interest rate of zero per cent per year".  Exhibit US-350, Capitolo I, 
paragrafo noveno, regarding loans ("préstamos"), "applied interest rate of zero per cent per year". 
4831 US, FWS, paras. 651-653, 665-666, 670, 677, 685, 691, 696 and 703. 
4832 EC, FWS, paras. 1219, 1243-1252, 1294-1307 and 1319. WT/DS316/R 
Page 794  
BCI deleted, as indicated [***] 
 
  United States asserts that, under the Second Fr amework Programme, the European Communities 
established a programme called "Industrial manuf acturing technologies and advanced materials 
applications" ("BRITE/EURAM"), within which it a llocated a "ring-fenced" amount of funding to 
aeronautics research under the heading "Area 5 - Specific Activities Relating to Aeronautics".  
Similarly, the United States submits that the Eur opean Communities allocated "ring-fenced" funding 
amounts for aeronautics research within the scope of the "Area 3, Aeronautics" and "Area 3A, 
Aeronautics" headings of the BRITE/EURAM progr ammes, respectively estab lished under the Third 
and Fourth Framework Programmes.  Moreover,  the United States contends that a separate 
aeronautics-specific sub-budget was also created w ithin each of the Fifth and Sixth Framework 
Programmes.  In respect of the Fifth Framework Programme, the United States asserts that eight 
specific programmes were established, including one  known as "competitive and sustainable growth".  
The United States argues that this programme in cluded a dedicated sub-budget for research falling 
within the "New perspectives for aeronautics" headi ng.  Finally, the United States asserts that the 
European Communities designated aeronautics re search as a "priority" area under the Sixth 
Framework Programme, with its own separate and dedicated budget.
4833 
7.1506  The United States submits that for areas unde r each of the Framework Programmes where a 
dedicated sub-budget was made available, the Eu ropean Commission adopted a "work programme" 
setting out the technical content of the areas of civil aeronautics research to be funded.  According to 
the United States, the budgeted funds were accessed through calls for project proposals issued by the 
European Commission in accordan ce with the aeronautics work programme of each Framework 
Programme. These calls for projects established speci fic criteria for the proposals to be submitted, 
including the type of project, criteria for the evaluation of proposals, the number of project 
participants, and, most notably in the United Stat es' view, the area and specific topic of research as 
well as the budget for the call.  The United States argues that only project proposals satisfying the requirements of the respective call were elig ible for the relevant research grants.
4834 
7.1507  Finally, the United States also argues that th e subsidies that Airbus received under the EC 
Framework Programmes are specific ''in fact'', within the meaning of Article 2.1(c) of the SCM Agreement, because Airbus and other aeronauti cs companies were the predominant users of the 
grants.
4835  According to the United States, Airbus received EUR [***] under the Second Framework 
Programme, constituting [***] of the sub-budget reserved for aeronautics research; EUR [***] under 
the Third Framework Programme, which is [***] of the relevant aeronautics sub-budget; EUR [***] 
under the Fourth Framework Programme, accounting for approximately [***] of the relevant 
aeronautics sub-budget; EUR [***] under the Fifth Framework Programme , which is [***] of the sub-
budget reserved for aeronautics; and [***] of the aeronautics sub-budget of the Sixth Framework 
Programme.4836 
Arguments of the European Communities  
7.1508  The European Communities disputes the United St ates' contentions.  In its view, subsidies 
granted under the relevant Framework Programmes are not specific within the meaning of Article 2.1(a) of the SCM Agreement because they are not limited, "in law", to any particular enterprise, industry or group of enterprises or industries.
4837  The European Communities explains that 
the Framework Programmes at issue are funding inst ruments that provide grants for collaborative 
research activities falling within a broad array of thematic areas to which funds are specifically 
allocated.  The European Communities argues that the thematic areas established under each of the 
                                                      
4833 US, FWS, paras. 651-653; US, Answer to Panel Question 36; US, SWS, paras. 499-505. 
4834 US, Answer to Panel Question 36; US, SWS, para. 502. 
4835 US, FWS, para. 653. 
4836 US, Answer to Panel Question 35. 
4837 EC, FWS, para. 1244.    WT/DS316/R 
 Page 795 
 
BCI deleted, as indicated [***] 
 
  Framework Programmes do not coincide with any particular enterprise, industry or group of 
enterprises or industries.  Moreover, according to  the European Communities, the purpose of the 
allocation of funds to the thematic areas is not to favour any particular enterprise or industry or group 
of enterprises or industries, but rather to ensu re that funds under each of the Framework Programmes 
are spread across several important fields of research.4838 
7.1509  The European Communities asserts  that the Second to Fifth Framework Programmes did not 
establish sub-budgets specific to the aeronautics i ndustry.  However, the European Communities 
acknowledges that these programmes di d make an "indicative internal allocation of funds" at a "level" 
below the "sub-sub-budget" "level".  Thus, for in stance, the European Co mmunities asserts that the 
Fourth Framework Programme breaks down its overa ll budget into seven sub-budgets for research 
activities within the "information and communica tion technologies", "industrial technologies", 
"environment", "life sciences and technologies", "non- nuclear energy", "transport" and "targeted 
socio-economic research" headings.  According to the European Communities, none of these are 
specific to aeronautics.  The European Communiti es explains that the "industrial technologies" 
research area is broken down further establishing "s ub-sub"-budgets for research areas identified as 
"industrial and material technologies" and "measurements and testing".  It is only at the next level that 
an "aeronautics" research activity appears with  an "indicative internal allocation of funds".4839  
Similarly, the European Communities argues that the Sixth Framework Programme does not establish 
any dedicated subsidy programme for aeronautics.  Rather, the European Communities submits that 
the Sixth Framework Programme establishes "aer onautics and space" as one of seven "priority 
thematic areas" under the sub-programme "Focussi ng and Integrating Community Research" to which 
certain portions of the budget are allocated.4840 
7.1510  The European Communities argues that to th e extent that the Framework Programmes 
allocate, at some level well below the programme level, portions of their budget to "aeronautics and 
space" and "aeronautics", this does not render th e funding grants specific.  In the European 
Communities' view, such allocations simply serve the purpose of ensuring that a disproportionate 
amount of funds is not allocated to one sector (which could give rise to de facto  specificity).  Thus, 
according to the European Communities,  specificity "in law" within the meaning of Article 2.1(a) of 
the SCM Agreement must be determined at the pr ogramme level. If this were not the case, the 
European Communities contends that support pr ovided under broad research programmes, which 
necessarily allocate their budget to a variety of resear ch areas in order to spread funds to several 
important technological fields, woul d always constitute a specific subsid y pursuant to Article 2.1(a) of 
the SCM Agreement.4841 
7.1511  The European Communities also disputes the Un ited States' allegation that the subsidies 
granted to Airbus under the Framework Programmes are "in fact" specific, within the meaning of 
Article 2.1(c).  The European Communities submits th at specificity "in fact" must be determined by 
looking to the amount of funding made available at the overall programme level.  When assessed at 
this level, the European Communities argues that aeronautics companies cannot be found to be the 
predominant users of research funding afforded under the Framework Programmes.  Thus, according 
to the European Communities, of the total budget for the Third Framework Programme (EUR 5.7 billion), only EUR 130 million (2.3%) was spent on aeronautics.  For the Fourth Framework Programme, only EUR 400 million (3.3%) of th e total budget of EUR 12.3 billion went to 
aeronautics.  As regards Fifth and Sixth Fram ework Programmes, the aeronautics budget allegedly 
represented 5.1% and 6.6%, respectively, of the total budgets.  The European Communities submits 
that these amounts demonstrate that aeronautics expenditure under each of the Framework 
                                                     
 
4838 EC, FWS, paras. 1243-1251. 
4839 EC, Answer to Panel Question 106; EC, SWS, para. 625. 
4840 EC, SWS, para. 624 and footnote 647. 
4841 EC, Answer to Panel Question 106; EC, SWS, para. 626. WT/DS316/R 
Page 796  
BCI deleted, as indicated [***] 
 
  Programmes was not disproportionate and that therefore aeronautics companies were not the 
predominant users of the grants.  Finally, th e European Communities stresses that the above-
mentioned figures cover the total funding for aeronau tics-related research activities and, thus, include 
payments to research institutes and universities, so that the actual portion of funding that went to 
aeronautics companies is even lower.  With regard  to Airbus SAS, the European Communities argues 
that the absence of any in fact  specificity is even more evident.   In particular, the European 
Communities asserts that the relevant companies ( i.e., Airbus Germany, Airbus France, Airbus Spain 
and Airbus UK) received only [***] of the total budget of the Third Framework Programme and [***] 
of the grants provided to aerona utics-related R&TD.  Under the Fourth Framework Programme, the 
relevant companies received [***] of the total budget and [***] of the grants provided to aeronautics-
related R&TD.  For the Fifth Framework Programme, the figures were [***] and [***], and for the 
Sixth Framework Programme, [***] and [***] respectively.  The European Communities submits that 
it can hardly be argued that a pro-mille portion of a total budget or a portion of less than [***] in case 
of aeronautics-related R&TD rises to the level of "p redominant use" and, thus, "in fact" specificity.
4842 
Evaluation by the Panel  
7.1512  We begin our evaluation of the United States' cl aims by focusing on the question whether the 
challenged Framework Programmes are specific w ithin the meaning of Article 2.1(a) of the 
SCM Agreement. As previously noted in the context of our discussion of the EIB loans, a finding of specificity under Article 2.1(a) requires the establishment of the existence of a limitation that expressly and unambiguously restricts the availabilit y of a subsidy to "certain enterprises", and 
thereby does not make the subsidy "sufficiently broadly available throughout an economy".
4843 
7.1513  The subsidies provided to Airbus under the ch allenged Framework Programmes were granted 
by the European Commission pursuan t to a series of similar, but not identical, legal instruments. 
Before turning to assess the extent to which each of  these subsidies was speci fic within the meaning 
of Article 2.1(a), we first describe our understandi ng of how the grants at issue flowed from the 
operation of the legal instruments forming part of each of the relevant Framework Programmes. 
- Second Framework Programme 
7.1514  The Second Framework Programme was establis hed by Council Decision 87/516/Euratom, 
EEC of 28 September 1987,4844 giving effect to the strategic res earch and technological development 
mandate and objectives set out in Title VI of the Treaty establishing the European Economic Community.
4845 As reflected in the recitals of the De cision, the Programme's objectives included 
advancing EC R&TD activities in order to strengthen the scientific and technological basis of EC 
industry; encouraging undertakings of all sizes in  their R&TD efforts; and promoting the overall 
harmonious development of the European Commun ities with a view to strengthening its economic 
and social cohesion. To this end, the Decision was intended to establish:  
"a multiannual {1987 to 1991} framework pr ogramme laying down the scientific and 
technical objectives of its activities, defining their respective priorities, setting out the 
main lines of the activities envisaged, estimating the necessary amount and drawing 
                                                      
4842 EC, SWS, paras. 627-629. 
4843 See, para. 7.919 above. 
4844 Council Decision 87/516/Euratom, EEC of 28 September 1987 concerning the framework 
programme for Community activities in  the field of research and tech nological developmen t (1987 to 1991) , OJ 
L 302/1, 24.10.1987 (hereinafter "Council Decision 87/516"), Exhibit EC-200. 
4845 Treaty establishing the European  Economic Community, as amended by the Single European Act, 
1 July 1987.  WT/DS316/R 
 Page 797 
 
BCI deleted, as indicated [***] 
 
  up detailed rules for financial participation by the Community in the programme as a 
whole and the breakdown of this amount between the various activities envisaged"4846 
7.1515  Annex I of the Decision contains a breakdown of the activities targeted for funding, together 
with the amount of funds allocated to each.  In total, 22 activities are identified under eight headings: 
two activities under the "Exploitation of the sea bed and use of marine resources" heading; three 
activities under each of the "Quality of life", "Towards a large market and an information and communications society", "Exploitation and optimum use of biological resources" and "Energy" headings; and four activities under each of the "Modernization of industrial sectors" and "Improvement of European S/T cooperation" headings.
4847  Most of these activities appear to be of a 
general horizontal nature, potentially cutti ng across a variety of business segments.4848  Others seem to 
be more focussed, concentrati ng on particular economic sectors.4849  The funding levels "deemed 
necessary" for each of the 22 activities are also di sclosed, with the total amount for all activities 
combined amounting to ECU 5,396 million. 
7.1516  Annex II of the Decision sets out a more detailed description of each of eight research 
headings and 22 envisaged activities and their scien tific and technical objectives; while Annex III 
outlines the selection criteria that should generally be applied when selecting the R&TD initiatives to 
fund. The Decision does not, however, provide for th e disbursement of any funds to individual 
applicants. In this respect, Article 2.1 of the D ecision explains in clear terms that the Second 
Framework Programme was to be implemented th rough "specific programmes developed within each 
of" the eight prescribed research headings. According to Article 2.2, each "specific programme shall":  
"- define the detailed rules for implementi ng it, fix its duration and provide for the 
means deemed necessary, 
- state its precise objectives and provide for an evaluation of results achieved in 
relation to these objectives, 
- be evaluated in the light of all the selection criteria set out in Annex III, which 
include that of contributing to the strengthening of the economic and social cohesion 
of the Community,  
- define the rate or rates of the Community's financial participation" 
                                                      
4846 Council Decision 87/516, recital 7. 
4847 No activities are specifically identified under the "Science and technology for development" 
heading, to which ECU 80 million is allocated.   
4848 These activities are: (i) under the "Quality of life" heading – "Health" and "Environment"; (ii) 
"Towards a large market and an information and communication society" heading – "Information technologies" 
and "New services of common interest (including transport)"; ( iii) under the "Modernization of industrial 
sectors" heading – "Science and technology for manufacturing industry", "Science and technology of advanced materials", "Raw materials and recycling" and "Tec hnical standards, measurement methods and reference 
materials"; (iv) under the "Science and technology for development" heading"; and (v) under the "Improvement 
of European S/T cooperati on" heading – "Stimulation, enhancement and use of human resources", "Use of 
major installations", "Forecasting and assessment and other back-up measures (including statistics)" and 
"Dissemination and utilization of S/T research results". 
4849 These activities are: (i) under the "Quality of life"  heading – "Radiation protection"; (ii) under the 
"Towards a large market and an information and communication society" heading – "Telecommunications"; (iii) 
under the "Exploitation and optimum use of biological research" heading – "Biotechnology", "Agro-industrial technologies" and "Competitiv eness of agriculture and management of agricultural resources"; (iv) under the 
"Energy" heading – "Fission: nuclear safety", "Controlled thermonuclear fusion" and "Non-nuclear energies and 
rational use of energy"; and (v) under the "Exploitation of the sea bed and use of marine resources" heading – "Marine science and technology" and "Fisheries". WT/DS316/R 
Page 798  
BCI deleted, as indicated [***] 
 
  7.1517  Thus, the Decision setting up the Second Fram ework Programme established an EC-wide 
R&TD support initiative targeting a variety of eco nomic activities at both horizontal and sector-
specific levels. The Decision identified and allocated funds to 22 areas of research under eight headings and described, in broad terms, their scien tific and technical objectives. However, in laying 
down these overall guidelines, the Decision establis hing the Second Framework Programme did not 
actually indicate how these funds could be accessed by individual applicants. Neither did it prescribe 
any specific modalities for the distribution of funds.   The detailed rules and methodologies for the 
distribution of funds was left to the "specific progr ammes" that were to be adopted for the purpose of 
implementation. 
7.1518  As we understand it, the Decision establis hing the Second Framework Programme was 
implemented through numerous "specific programm es". For the purpose of the present dispute, the 
focus of our analysis is on what is referred to as the BRITE/EURAM programme.  
7.1519  The BRITE/EURAM programme was establishe d through Council Decision 89/237/EEC of 
14 March 1989 with the aim of contributing to the achievement of the objectives of the Second 
Framework Programme by implementing a specific R&TD  programme in two of the fields identified 
under that Programme, namely, the industrial manu facturing technologies and advanced materials 
applications activities.
4850 Annex IV of the Council Decision 89/237/EEC made an "indicative internal 
allocation" of a total of ECU 499.5 million across five "Areas" of research: "Advanced materials 
technologies" (28%); "Design methodologies and assurance for products and processes" (19%); 
"Application of manufacturing technologies" ( 19%); "Technologies for manufacturing processes" 
(20%); and "Specific activities relating to aeronautics" (7%).4851 A summary of the scope and 
objectives of each of the five research areas was pr ovided in Annex I. As regards the "Specific 
activities relating to aeronautics" area, Annex I stipul ated the type of research that would fall under 
this heading as "pre-competitive research in tec hnological areas which are of primary relevance to 
aeronautics (in particular aeroplanes and helicopters)  and are not yet covered in other programme 
areas". It also identified four fields of focus: "Aerodynamics"; "Acoustics"; "Airborne systems and 
equipment" and "Propulsion systems". 
7.1520  Rules for the implementation of the "specifi c programme" are set out in Annex II. These 
indicate that the funding initiatives would be princi pally executed by "means of shared-cost research 
contracts to be awarded following a selection pro cedure based on calls for proposals" published by the 
Commission in the Official Journal of the European  Communities. They also describe four types of 
research projects that would be funded ("Industr ial applied research", "Focused fundamental 
research", "Feasibility awards for SMEs" and "Coordinated activities"), spelling out inter alia, the 
level of support expected from par ticipants and the funding that would be committed by the European 
Communities for each type of project.  The rules for "Research relating to aeronautics" are set out 
separately in Annex II. Again, these require the Co mmission to initiate the process by publishing calls 
for proposals. However, unlike the other types of  research projects, the rules implementing the 
aeronautics research area activities spec ify that the Commission's calls fo r proposals must be based on 
a "work programme" "established to define precise  objectives and determine priority themes for 
research". Moreover, the rules relating to financ ing of "Industrial applied research" and "Focused 
fundamental research" projects apply equally to aer onautics research only when "appropriate".   
7.1521  Finally, we note that the BRITE/EURAM programme established two different decision-
making procedures and programme review guidelin es: one for projects funded under the aeronautics 
                                                      
4850 Council Decision 89/237/EEC of 14 March 1989 on a specific research and technological 
development programme in the field of industrial manufacturing technologies  and advanced materials 
applications (Brite/Euram) (1989 to 1992) , OJ L 98/18, 11.4.1989 (hereinafter "Council Decision 89/237"), 
recital 7 and Article 1, Exhibit EC-195. 
4851 The allocation makes 7% of the funds available to cover staff and administrative costs.  WT/DS316/R 
 Page 799 
 
BCI deleted, as indicated [***] 
 
  research area, and another for all other areas of research. In particular, Article 6.1 specifies that 
decisions relating to funding activities other than in  the aeronautics research area must be taken by the 
European Commission after consultation with a Committee composed of representatives of EC 
member States. On the other hand, Article 6.2 stipul ates that decisions in respect of measures to be 
undertaken in the aeronautics resear ch area were to be made on the b asis of a qualified majority vote 
of the EC member State representatives in th e Committee or the Council. Likewise, different 
approaches were envisaged for the programme revi ews mandated under Article 4. While a review of 
the BRITE/EURAM programme was required during the third year of implementation, a review in respect of research relating to aeronautics was called for during the second year. Moreover, Annex III 
described the programme objectives and criteria that  were required to be taken into account when 
undertaking such reviews, setting out additional obj ectives and criteria for aeronautics research area 
projects. 
7.1522  Thus, the BRITE/EURAM programme implemente d the objectives of the Second Framework 
Programme by further elaborating five areas of research that would be funded, providing for an 
indicative allocation of funds to these areas, establishing implementation rules and decision-making 
procedures, and a review process. However, it is apparent that the BRITE/EURAM programme treated the area of aeronautics research somewhat diff erently than the other research areas. First, we 
note that, unlike the other four research areas identified under BRITE/EURAM, the aeronautics research area specifically targets a particular sector of economic activity. The other four research areas are much more horizontal in nature.  Projects falling within their scope do not appear to be 
limited to any particular sector of the economy and, as envisaged in Annex I, might even include areas 
of research relating to aeronautics. Second, th e aeronautics research area is implemented through 
different rules and decision-making procedures, with  the latter involving a much stronger degree of 
control by the EC member States on, inter alia,  the research work programme and projects to be 
funded. Finally, the BRITE/EURAM programme manda tes a shorter time-frame for reviewing the 
results of the financing provided to projects in th e aeronautics research area, and requires that such 
reviews take into account objectives that do not ha ve to be considered when reviewing projects 
funded under the other four areas.  
- Third Framework Programme 
7.1523  The Third Framework Programme was establis hed by Council Decision 90/221/Euratom, 
EEC of 23 April 1990,
4852 giving effect to the strategic research and technological development 
mandate and objectives set out in Title VI of the Treaty establishing the European Economic 
Community.4853 As reflected in the recitals of the De cision, the Programme's objectives included 
advancing EC R&TD activities in order to strengthen the scientific and technological basis of EC industry; encouraging undertakings of all sizes in  their R&TD efforts; and promoting the overall 
harmonious development of the European Commun ities with a view to strengthening its economic 
and social cohesion. To this end, the Deci sion was intended to set up a multiannual framework 
programme covering the period 1990 to 1994 to conti nue and develop the rese arch and technological 
development activities identified and suppor ted under the Second Framework Programme. 
7.1524  Annex I of the Decision contains a breakdown of the activities targeted for funding, together 
with the amount of funds allocated to each. In total, 15 activities are identified under six headings: 
three activities under the "Information and communi cations technologies" heading; two activities 
under each of the "Industrial and material technologi es" and "Environment" headings; four activities 
                                                     
 
4852 Council Decision 90/221/Euratom, EEC of 23 April 1990 concerning the framework programme 
for Community activities in the field of research and technological development (1990 to 1994) , OJ L 117/28, 
8.05.1990 (hereinafter "Council Decision 90/221"), Exhibit EC-201. 
4853 Treaty establishing the European  Economic Community, as amended by the Single European Act, 
1 July 1987. WT/DS316/R 
Page 800  
BCI deleted, as indicated [***] 
 
  under the "Life sciences and technologies for deve loping countries" headings; three activities under 
the "Energy" heading; and one activity under the "Human capital and mobility" heading.  Most of 
these activities appear to be of a general horizontal  nature, potentially cutting across a variety of 
business segments.
4854 Others seem to be more focussed, concentrating on particular economic 
sectors.4855 The funding levels "deemed necessary" for each of the 15 activities are also disclosed, 
with the total amount for all activities combined amounting to ECU 5,700 million. 
7.1525  Annex II of the Decision sets out a more detailed description of each of the six research 
headings and 15 envisaged activities and their scien tific and technical objectives; while Annex III 
outlines the selection criteria that should generally be applied when selecting the R&TD initiatives to 
fund. The Decision does not, however, provide for th e disbursement of any funds to individual 
applicants. In this respect, Article 2.1 of the Deci sion explains that the Third Framework Programme 
was to be implemented through "specific programm es developed within each of" the six prescribed 
research headings. According to Article 2.4, each "s pecific programme shall: "determine its precise 
objectives and make provision for an evaluation of the results achieved as compared with those 
objectives and with the criteria in Annex III".  
7.1526  Thus, the Decision setting up the Third Fram ework Programme established an EC-wide 
R&TD support initiative targeting a variety of eco nomic activities at both horizontal and sector-
specific levels. The Decision identified and allocated  funds to 15 areas of research activity under six 
headings and described, in broad terms, their scien tific and technical objectives. However, in laying 
down these overall guidelines, the Decision establishing the Third Framework Programme did not 
actually indicate how these funds could be accessed by  individual applicants. The detailed rules and 
methodologies for the distribution of funds were left  to the "specific programmes" that were to be 
adopted for the purpose of implementation. 
7.1527  As we understand it, the Decision establis hing the Third Framework Programme was 
implemented through numerous "specific programm es". For the purpose of the present dispute, the 
focus of our analysis is on the "Specific Programme  for Research and Technological Development in 
the Field of Industrial and Materials T echnologies" (the "IMT 1991 programme").4856   
7.1528  The IMT 1991 programme was established through Council Decision 91/506/EEC of 
9 September 1991 with the aim of contributing to the achievement of the objectives of the Third 
Framework Programme by implementing a specific R& TD programme in the field of industrial and 
materials technologies.4857 Annex II of the Decision sets out an "indicative allocation" of a total of 
ECU 663,3 million across three "Areas" of research: "Materials - raw materials" (ECU 308.8 million); 
"Design and manufacture" (ECU 301.5 million); and "Aeronautics research" (ECU 53 million).4858  
                                                      
4854 These activities are: (i) under the "Information and communications technologies" heading –
"Information technologies", "Communication technologies" and "Development of telematics systems of general 
interest"; (ii) under the "Industrial and material techno logies" heading – "Industrial and material technologies" 
and "Measurement and testing"; (iii) under the "Envir onment" heading – "Environment"; and (iv) under the 
"Human capital and mobility" heading – "Human capital and mobility". 
4855 These activities are: (i) under the "Environment" heading - "Marine sciences and technologies"; (ii) 
under the "Life sciences and technologies for developing  countries" heading" – "Biotechnology", "Agricultural 
and agro-industrial research", "Biomedical and health  research", and "Life sciences and technologies for 
developing countries"; and (iii) under the "Energy" heading – "Non nuclear energies", "Nuclear fission safety" and "Controlled nuclear fusion". 
4856 Council Decision 91/506/EEC of 9 September 19 91 on a specific research and technological 
development programme in the fie ld of industrial and material s technologies (1990 to 1994) , OJ L 269/30, 
25.9.1991 (hereinafter "Council Decision 91/506"), Exhibit EC-196. 
4857 Council Decision 91/506, Article 1, Exhibit EC-196. 
4858 The amount intended for aeronautics research is provided for a period of three years. The allocation 
makes 8% of the funds available to cover staff and administrative costs.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  The Annex stipulates that the funding amount allocat ed to "Aeronautics resear ch" is provided for a 
period of three years.4859  
7.1529  A summary of the scope and objectives of each of the three research Areas is set out in 
Annex I of the Decision.  For the "Aeronautics r esearch" Area, six fields of focus are identified: 
"Environment related technologies"; "Technologi es of aircraft operation"; "Aerodynamics and 
aerothermodynamics"; "Aeronautical structures and manufacturing technologies"; "Avionic system 
technologies"; and "Mechanical, utility and actuation technologies".  Annex I of the Decision explains that "the aeronautical technologies research that  began with the BRITE/EURAM programme will be 
continued taking account of harm onization, standardization, safety and environmental aspects". 
Moreover, it provides that the "Aeronautics res earch" Area is intended to support only "specific 
aeronautical research and applications".  Generic aer onautics research is to be dealt with under the 
other two research Areas.
4860  
7.1530  Article 5 provides that a work programme would be prepared in accordance with the 
objectives identified in Annex I of the Decision, and that the Commission would draw up calls for 
proposals for projects on the basis of the work progr amme. Other implementation rules are set out in 
Annex III of the Decision, which inter alia, describes the four types of actions through which the 
European Communities intended to provide fund ing ("Research Projects", "Cooperative research 
projects", "Concerted actions" and "Accompanying measures, including feasibility premiums"). The 
rules set out in Annex III of the Decision also indi cate the level of support expected from participants 
and the proportion of funding that would be co mmitted by the European Communities for each type 
of action. 
7.1531  Finally, unlike the decision-making procedur e found in the Second Framework Programme, 
the IMT 1991 programme envisages one and the same decision-making process, irrespective of the Area of research.  In particular, decisions must be  taken by the Commission after consultation with a 
Committee composed of representatives of EC member  States, and on the basis of a qualified majority 
vote of the EC member State represen tatives in the Committee or the Council.
4861 
7.1532  Thus, the IMT 1991 programme implemente d the objectives of the Third Framework 
Programme by further elaborating three areas of r esearch that would be funded, providing for an 
indicative allocation of funds to these areas, estab lishing implementation rules and a decision-making 
procedure. Of the three research "Areas" the aerona utics research area is the only one that specifically 
targets a particular sector of economic activity.  The other two research areas cover projects that are 
more horizontal in nature. Moreover, as already noted , Annex I of the decision explicitly provides that 
only "specific aeronautical research" will be s upported under the "Aeronautics research" Area, with 
aeronautics research of a generic nature to be dealt with under the other two Areas. 
- Fourth Framework Programme 
7.1533  The Fourth Framework Programme wa s established by Decision 1110/94/EC European 
Parliament and of the Council of 26 April 19944862, giving effect to the strategic research and 
technological development mandate and objectives set out in Title VI of the Treaty establishing the 
                                                      
4859 Council Decision 91/506, Annex II, Footnote 1. 
4860 Council Decision 91/506, Annex I, Paragraph 6. 
4861 Council Decision 91/506, Article 6. 
4862 Decision 1110/94/EC  European Parliament and of the Council of 26 April 1994 concerning the  
framework programme for Community activities in the field of research and technological development and 
demonstration (1994 to 1998) , OJ I. 126/1, 18.05.1994 (hereinafter "Council Decision 1110/94/EC"), Exhibit 
EC-202. WT/DS316/R 
Page 802  
BCI deleted, as indicated [***] 
 
  European Economic Community.
4863 As reflected in the recitals of the Decision, the Programme's 
objectives included advancing EC R&TD activities in order to strengthen the scientific and 
technological basis of EC industry; encouraging undert akings of all sizes in their R&TD efforts; and 
promoting the overall harmonious development of  the European Communities with a view to 
strengthening its economic and social cohesion. To  this end, the Decision was intended to set up a 
multiannual framework programme covering the period 1994 to 1998 to cont inue and develop the 
research and technological development activ ities identified and supported under the Third 
Framework Programme.   
7.1534  Annex I of the Decision contains a breakdown of the activities targeted for funding, together 
with the amount of funds allocated to each. In to tal, four activities are identified: (i)"Research, 
technological development and dem onstration programmes"; (ii)"Coope ration with third countries and 
international organizations";  (iii)"Dissemination a nd optimization of results"; and (iv)"Stimulation of 
the training and mobility of researches". The funding  levels for each of the four activities are also 
disclosed, with the total amount coming to ECU 11,046 million. The Decision contains an indicative 
breakdown of the themes and subjects only of the first activity ("Research, technological development 
and demonstration programmes"). In total, 13 r esearch themes are identified under seven main 
headings: three research themes under the "Inf ormation and communication technologies" heading; 
two research themes under each of the "Industria l technologies" and "Environment" headings; and 
three research themes under th e "Life sciences and technologies" heading.  The following 
three headings do not specify any particular research themes: "Non-nuclear energy", "Transport" and 
"Targeted socio-economic research". The funding levels for each of the 13 research themes are also 
disclosed, with the total amount coming to ECU 9, 432 million. Most of these research themes appear 
to be of a general horizontal nature, potentia lly cutting across a variety of business segments.4864 
Others seem to be more focussed, con centrating on particular economic sectors.4865  
7.1535  Annex III of the Decision sets out a more detailed description of each of the four activities 
and their scientific and technical objectives; wh ile Annex II of the Decision outlines the selection 
criteria that should be generally applied when  selecting the R&TD initiatives to fund. As we 
understand it, the Decision does not provide for th e disbursement of any funds to individual 
applicants. In this respect, Article 2.1 of the Deci sion explains that the Fourth Framework Programme 
was to be implemented through "specific programm es developed within each" of the four prescribed 
activities. According to Article 2.1, each specific programme "shall specify its precise objectives on 
the lines of the scientific and technological objectives in Annex III". 
7.1536  Thus, the Decision setting up the Fourth Fr amework Programme established an EC-wide 
R&TD support initiative targeting a variety of eco nomic activities at both horizontal and sector-
specific levels. The Decision identified and allocated  funds to four activities and described, in broad 
terms, their scientific and technical objectives. However, in laying down these overall guidelines, the 
Decision establishing the Fourth Framework Progra mme did not actually indicate how these funds 
could be accessed by individual applicants. The detail ed rules and methodologies for the distribution 
                                                      
4863 Treaty establishing the European  Economic Community, as amended by the Single European Act, 
1 July 1987. 
4864 These activities are: (i) under the "Information and communications technologies" heading –
"Telematics", "Communication technologies" and "Information technologies"; (ii) under the "Industrial technologies" heading – "Industrial and material technolog ies" and "Measurement and testing";  (iii) under the 
"Environment" heading" – "Environment and climate";  (iv) the "Transport" heading and (v) the "Targeted 
socio-economic research" heading". 
4865 These activities are: (i) under the "Environment" heading "Marine sciences and technologies";  
(ii) under the "Life sciences and technologies" heading – "Biotechnology", "Biomedicine and health" and 
"Agriculture and fisheries (including agro-industries,  food technologies, forest ry, aquaculture and rural 
development)" and (iii) the "N on-nuclear energy" heading.  WT/DS316/R 
 Page 803 
 
BCI deleted, as indicated [***] 
 
  of funds were left to the "specific programmes"  that were to be adopted for the purpose of 
implementation. 
7.1537  As we understand it, the Decision establis hing the Fourth Framework Programme was 
implemented through numerous "specific programm es". For the purpose of the present dispute, the 
focus of our analysis is on the "Specific Progra mme for Research and Technological Development, 
including Demonstration, in the Field of Indus trial and Materials Technologies" (the "IMT 1994 
programme").  
7.1538  The IMT 1994 programme was established through Council Decision 94/571/EC of 
27 July 1994 with the intention of contributing to  the achievement of the objectives of the Fourth 
Framework Programme by implementing a specific R& TD programme in the field of the industrial 
and material technologies.4866 Annex II of the Decision sets out an "indicative breakdown" of a total 
of ECU 1,617 million across three "Areas" of research: "Production Technologies" 
(ECU 590 million); "Materials and technologies for product innovation" (ECU 566 million); and 
"Technologies for transport means" (ECU 461 million) . The Annex stipulates that 50% of the amount 
allocated to the "Technologies for transport means", ECU 230.5 million, is for the  aeronautics 
sector.4867  The aeronautics sector is the only sector to have been allocated a specific amount.  
7.1539  A summary of the objectives and content of each of the three research Areas is described in 
Annex I of the Decision. Annex I of the Decision i ndicates that in the development of the different 
technologies for transport means, due account shall be taken of the requirements of the various 
transport industries. The Annex explains that "where the aircraft industry is concerned, research will 
concern advanced technologies, in particular for environmental protection, to reduce both noise and 
polluting emissions, and as regards design, to reduce overall energy consumption". It also stipulates 
that the activities will aim to improve safety, incr ease the capacity and cost-effectiveness of the air 
transport system, and facilitate the production, op eration, reliability and maintenance of future 
generations of aircraft and equipment.4868   
7.1540  Article 5 provides that a work programme would be prepared in accordance with the 
objectives identified in Annex I of the decision, and that the Commission would draw up calls for 
proposals for projects on the basis of the work programme. Other implementation rules set out in Annex III of the decision indicate that the funding in itiatives would be executed by different means of 
shared-cost research actions, preparatory, accompa nying and support measures and concerted actions. 
The rules set out in Annex III also indicate the le vel of support expected from participants and the 
proportion of funding that would be committed by th e European Communities for each type of action.  
7.1541  Finally, unlike the decision-making procedur e in the Second Framework Programme, the IMT 
1994 programme envisages one and the same decisi on-making process, irrespective of Area of 
research.  In particular, decisions must be ta ken by the Commission after consultation with a 
Committee composed of representatives of EC member  States, and on the basis of a qualified majority 
vote of the EC member State represen tatives in the Committee or the Council.
4869 
7.1542  Thus, the IMT 1994 programme implemented th e objectives of the Fourth Framework 
Programme by further elaborating three areas of r esearch that would be funded, providing for an 
indicative allocation of funds to these areas, estab lishing implementation rules and a decision-making 
                                                      
4866 Decision 94/571/EC of 27 July 1994 on a spec ific research and technological development 
programme in the field of industrial and material technologies (1994 to 1998) , OJ L 222/19, 26.8.1994 
(hereinafter "Council Decision 94/571"), Article 1, Exhibit EC-197. 
4867 Council Decision 94/571,  Annex II, Footnote I.   
4868 Council Decision 94/571, Annex I, Area 3.6. 
4869 Council Decision 94/571, Article 6. WT/DS316/R 
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  procedure. The aeronautic sector is the only sector to have been allocated a specific amount, with 
ECU 230.5 million being exclusively directed for projects in the aeronautics sector.
4870  
- Fifth Framework Programme 
7.1543  The Fifth Framework Programme was estab lished by Council Decision 182/1999/EC of 
22 December 19984871, giving effect to the strategic resear ch and technological development mandate 
and objectives set out in Title VI of the Treaty establishing the European Economic Community.4872 
As reflected in the recitals of the Decision, th e Programme's objectives included advancing EC R&TD 
activities in order to strengthen the scientific and technological basis of EC industry; encouraging 
undertakings of all sizes in their R&TD efforts;  and promoting the overa ll harmonious development 
of the European Communities with a view to strengt hening its economic and social cohesion. To this 
end, the Decision was intended to set up a mu ltiannual framework programme covering the period 
1998 to 2002 to continue and deve lop the research and technological development activities identified 
and supported under the Fourth Framework Programme.  
7.1544  The Decision setting up the Fifth Framework Programme established an EC-wide R&TD 
support initiative targeting a variety of economic activities at both horizontal and sector-specific 
levels. Annex III of the Decision contains a breakdow n of the activities targeted for funding, together 
with the amount of funds allocated to each. In to tal, eight activities are identified under four headings: 
four activities under the "Implementation of research , technological development and demonstration 
programmes" heading; and one activ ity under each of the "Promotion of cooperation in the field of 
community research, technological developmen t and demonstration with third countries and 
international organizations", "Dissemination a nd optimization of the results of activities in 
Community research, technological development and demonstration" and "Stimulation of the training and mobility of researches in the Community" headi ngs. The eighth activity is identified as the Joint 
Research Centre. These eight activities appear to be  of a general horizontal nature, potentially cutting 
across a variety of business segments.
4873 The funding levels for each of the four headings are also 
disclosed, with the total amount for all activiti es combined coming to ECU 13,700 million. Annex III 
of the Decision contains a breakdown only of th e activities targeted for funding under the first 
heading, and indicates the amount of funds allocated to each of them. In total, ECU 10,843 million is allocated to the first heading.  
7.1545  Annex I of the Decision outlines the selection criteria for selecting the themes of the 
activities; while Annex II of the Decision sets out a more detailed description of each of the activities, 
their scientific and technical objectives and relate d priorities. This Decision does not, however, 
provide for the disbursement of any funds to indivi dual applicants. In this respect, Article 3.1 of the 
                                                     
 
4870 Council Decision 94/571,  Annex II, Footnote I.   
4871 Decision 182/1999/EC of 22 December 1998 concerning the framework programme for 
Community activities in the field of research, technological develop ment and demonstration (1998 to 2002) , 
OJ I 26/1, 1.2.1999 (hereinafter "Council Decision 182/1999"), Exhibit EC-203. 
4872 Treaty establishing the European  Economic Community, as amended by the Single European Act, 
1 July 1987. 
4873 These activities are: (i) under the "Implementation of research, technological development and 
demonstration programmes" heading – "Quality of life an d management of living re sources", "User-friendly 
information society", "Competitive and sustainable growth", and "Energy, environment and sustainable development"; (ii) under the "Promotion of cooperation in the field of community research, technological 
development and demonstration with third countries and international organizations" heading – "Confirming the 
international role of Community research"; (iii) unde r the "Dissemination and optimization of the results of 
activities in Community research, technological development and demonstration" heading -"Promotion of 
innovation and encouragement of participation of Small and Medium-size Enterprises (SMEs); and (iv) under 
the "Stimulation of the training and mobility of resear ches in the Community" heading – "Improving human 
research potential and the socioeconomic knowledge base."  WT/DS316/R 
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  Decision explains that the Fifth Framework Progr amme was to be implemented through "specific 
programmes" developed within each of the four  prescribed research headings.  According to 
Article 3.1, each "specific programme shall specify its  precise objectives, and define the detailed rules 
for implementing it, fix its duration and provide for the means deemed necessary." 
7.1546  Thus, the Decision setting up the Fifth Fr amework Programme established an EC-wide 
R&TD support initiative targeting a variety of eco nomic activities at both horizontal and sector-
specific levels. The Decision identified and allocated  funds to eight areas of research activity under 
four headings and described, in broad terms, their scientific and technical objectives. However, in 
laying down these overall guidelines, the Decision establishing the Fifth Framework Programme did 
not actually indicate how these monies coul d be accessed by individual applicants.  
7.1547  As we understand it, the Decision establis hing the Fifth Framework Programme was 
implemented through numerous "specific programm es". For the purpose of the present dispute, the 
focus of our analysis is on the "Specific Progr amme for Research, Technological Development and 
Demonstration on Competitive and Sustainable Growth" ("the CSG programme").  
7.1548  The CSG programme was established th rough Council Decision 1999/169/EC of 
25 January 1999 with the intention of contributing to the achievement of the objectives of the Fifth Framework Programme by implementing a specifi c programme in one field identified under that 
Programme, namely, the competitive and sustainable growth activity.
4874 Annex I of the Decision set 
out an "indicative internal allocation" of a to tal of ECU 2,705 million across three "Areas" of 
research: "Key Actions"; "Research and technological  development activities of  a generic nature" and 
"Support for research infrastructures". A summary of th e objectives and priorities of each of the three 
research areas is set out in Annex II of the Decision.  
7.1549  For the "Key actions" Area, four types of ac tivities and associated budgets are identified: 
"Innovative products, processes and organisation" (ECU 731 million); "Sustainable mobility and 
intermodality" (ECU 371 million); "Land transport a nd marine technologies" (ECU 320 million), and 
"New perspectives for aeronautics" (ECU 700 million).4875 For the "New perspectives for aeronautics" 
Area, three fields of focus are identified: "Acquisition of critical technologies"; "Technology 
integration for new-generation airc raft"; and "Operational efficiency and safety". Annex II of the 
Decision explains that the overall goal of the "New perspectives for aeronautics" is to facilitate the 
development of aircraft and their subsystems and components in order to foster the competitiveness of 
the European industry, including SMEs, while assuring the sustainable growth of air 
transportation.4876  
7.1550  Article 5 provides that a work programme w ould be prepared by the Commission specifying 
in greater detail the objectives and priorities identifie d in Annex II. Implementation rules are set out in 
Annex III of the decision, which indicate that th e programme will be impl emented through indirect 
R&TD actions provided for in the Fifth Framew ork Programme. These indirect R&TD actions 
comprise shared-cost research actions, training fello wships, support for netw orks, concerted actions 
and accompanying measures.4877 
7.1551  Finally, unlike the decision-making procedur e in the Second Framework Programme, the 
CSG programme foresees one and the same decision-making process, irrespective of Area of research.  
                                                      
4874 Decision 1999/169/EC of 25 January 1999 adopting a specific programme of  research,  
technological development and de monstration on competitive and sust ainable growth (1998 to 2002) , 
OJ L 64/40, 12.3.1999 (hereinafter "Council Decision 1999/169/EC"), Article 1,Exhibit EC-198. 
4875 Council Decision 1999/169/EC, Annex I. 
4876 Council Decision 1999/169/EC, Annex II. 
4877 Council Decision 1999/169/EC, Annex III and Council Decision 182/1999 Annex IV. WT/DS316/R 
Page 806  
BCI deleted, as indicated [***] 
 
  In particular, decisions must be taken by th e Commission after consultation with a Committee 
composed of representatives of EC member States, and on the basis of a qualified majority vote of the EC member State representatives in the Committee or the Council.
4878 
7.1552  Thus, the CSG programme implemented the obj ectives of the Fifth Framework Programme 
by further elaborating three areas of research th at would be funded, pr oviding for an indicative 
allocation of funds to these areas and establishi ng implementation rules and a decision-making 
procedure. Only the activities under the "Key acti ons" area were identified in the Decision, and the 
only one of these activities that appears to be sect or specific was "New perspectives for aeronautics", 
to which a budget of ECU 700 million was allocated. 
- Sixth Framework Programme 
7.1553  The Sixth Framework Programme was establis hed by Decision No. 1513/2002/EC of the 
European Parliament and the Council of 27 June 2002,4879 giving effect to the strategic R&TD 
mandate and objectives set out in Title XVIII of the Treaty establishing the European Community.4880  
As reflected in the recitals of the Decision, th e Programme's objectives included advancing EC R&TD 
activities in order to strengthen the scientific and te chnological basis of EC industry; contributing to 
the creation of a European Research Area a nd innovation; and promoting the development of 
scientific and technical excellence and the coordinati on of European research.  To this end, and in 
accordance with Article 166(1) of the EC Treaty, the Decision was adopted to:  
"establish the scientific and technical objectives {of the sixth multiannual (2002 to 
2006) framework programme} and fix the relevant priorities for the activities 
envisaged, the maximum overall amount, the detailed rules for Community financial 
participation in the ... programme, as well as the respective shares in each of the 
activities envisaged, and to indicate the broad lines of the activities in question"4881 
7.1554  Annex I of the Decision contains a breakdown of the activities targeted for funding, and 
provides a description of the related scientific and technological objectives and priorities. In total, 17 
activities are identified under three headings: 11 activities under the "Focussing and integrating 
Community research" heading; four activities under the "Structuring the European Research Area" 
heading; and two activities under the "Strengthening the foundation of the European Research Area" 
heading. Most of these activities appear to be of a general horizontal nature , potentially cutting across 
a variety of business segments.4882  O t h e r s  s e e m  t o  b e  m o r e  f o c u ssed, concentrating on particular 
                                                      
4878 Council Decision 1999/169/EC, Article 7. 
4879 Decision No 1513/2002/EC of the European Parliament and of the Council of 27 June 2002 
concerning the sixth framework programme of the European Community for research, technological development and demonstrati on activities, contributing to the creation of  the European Research Area and to 
innovation (2002 to 2006) , OJ L 232/1, 29.8.2002 (hereinafter "Decision 1513/2002/EC"), Exhibit EC-204. 
4880 Treaty establishing the European Community; Treaty of Rome 1957 amended through the Treaty of 
Amsterdam 1997. 
4881 Decision 1513/2002/EC, recital 10, read together w ith Article 1. 
4882 These activities are: (i) under the "focussing and integrating Community research" heading – the 
"nanotechnologies and nanosciences, knowledge-based multifunctional materials, and new production processes 
and devices", "sustainable development, global ch ange and ecosystems", "citi zens and governance in a 
knowledge-based society", "supporting policies and anticip ating scientific and techno logical needs", "horizontal 
research activities involving SMEs", "specific measur es in support of international cooperation", and 
"non-nuclear activities of the Joint Research Centre" activ ities; (ii) under the "structuring the European Research 
Area" heading – the "research and innovation", "human  resources" and "science and society" activities; and 
(iii) under the "strengthening the foundation of the European Research Area" heading – the "coordination 
activities ... in the whole field of science and technolo gy" and "support {for} the coherent development of 
research and innovation policies" activities.  WT/DS316/R 
 Page 807 
 
BCI deleted, as indicated [***] 
 
  economic sectors.4883  The "indicative" funding levels for each of the 17 activities are set out in 
Annex II, with the total amount of funding made available for all activities coming to 
EUR 16,270 million.  The funding made availabl e for the "aeronautics and space" activity was 
EUR 1,075 million. 
7.1555  Annex III of the Decision describes ten different types of "instruments" that it is envisaged 
will be used to execute the vari ous funded activities, outlining the expected level of the European 
Communities' financial participation in each one.  As  we read them, the "instruments" described in 
Annex III of the Decision represent different forms or types of research projects, including "networks 
of excellence", "integrated projects", "coordination action" and "integrated infrastructure activities".  
Some of these "instruments" are expressly limited to  particular research activities, while others are 
intended to be used more broadly in respect of multiple activities.   
7.1556  Like all of the prior Decisions establishi ng framework programmes, Decision 1513/2002/EC 
does not provide for the disbursement of any funds to individual applicants. In this respect, Article 5 explains that the Sixth Framework Programme was to be implemented through "specific programmes" 
which "shall establish precise objectives and the detailed rules for implementation". 
7.1557  Thus, the Decision setting up the Sixth Fram ework Programme established an EC-wide 
R&TD support initiative targeting a variety of eco nomic activities at both horizontal and sector-
specific levels. The Decision identified and allocated funds to 17 preferred areas of research activity 
and described the forms or types of research projec ts that would be supported. However, in laying 
down these overall guidelines, the Decision did not explain how any financial support could be 
practically accessed by individual applicants.  As with all other Framework Programmes, the detailed 
rules and methodologies for the distribution of funds were left to the "specific programmes" adopted 
for the purpose of implementation. 
7.1558  As we understand it, the Decision establis hing the Sixth Framework Programme was 
implemented through more than one "specific programme". For the purpose of the present dispute, the 
focus of our analysis is on the "Specific Progra mme for Integrating and Strengthening the European 
Research Area" (the "ISERA programme").  
7.1559  The ISERA programme was established through Council Decision 2002/834/EC of 
30 September 2002 for the purpose of implementing the research initiatives described in two of the 
three headings set out in Decision 1513/2002/EC, namely, the "Focussing and Integrating Community research" and "Strengthening the Foundation of the European Research Area" headings.
4884  Annex I 
of the Decision provides a detailed description of 12 of the 13 activities listed in Annex I of Decision 
1513/2002/EC under the same two headings.4885 This includes an explanation of four research 
priorities that may qualify for funding through th e "Aeronautics" element of the "Aeronautics and 
Space" activity. These priorities are described as : "Strengthening Competitiveness"; "Improving 
Environmental Impact with regard to Emissions";  "Improving Aircraft Safety"; and "Increasing 
Operational Capacity and Safety of the Air Transport System".  Similarly, Annex II of the ISERA 
programme contains the same "indicative breakdown"  of funding amounts per activity that were set 
                                                      
4883 These activities are all found under the "focussing and integrating Community research" heading – 
namely, the "life sciences, genomics and biotechnology for health", "information society technologies", "food 
quality and safety" and "aeronautics and space" activities. 
4884 Council Decision 2002/834/EC of 30 September 2002 adopting a specific programme for research, 
technological development a nd demonstration: "Integrating and streng thening the European Research Area" 
(2002-2006) , OJ L 294/1, 29.10.2002 (hereinafter "Decision 2002/834/EC"), recital 2 and Article 1, Exhibit EC-
199. 
4885 The one research activity falling within the "focussing and integrating Community research" 
heading that is not covered by the ISERA programme is the "non-nuclear activities of the Joint Research Centre" activity. WT/DS316/R 
Page 808  
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  out in Annex II of Decision 1513/2002/EC.  The sa me figure of EUR 1,075 million is disclosed as the 
indicative amount of funding for projects falling within the scope of the "Aeronautics and Space" activity.  
7.1560  A description of the "means" for implementing th e ISERA programme is set out in Annex III.  
These include seven of the ten "instruments" refe rred to Annex III of Decision 1513/2002/EC, which 
are further elaborated and explained. In addition,  Annex III of the programme stipulates that the 
programme will be implemented in accordance with "Regulation (EC) No ... /2002 on rules for the 
participation of undertakings, research centres a nd universities and for the dissemination of research 
results" (which neither of the parties to this di spute has submitted).  As with other Framework 
Programmes, the Commission is called upon to initiat e the process by establis hing work programmes 
associated with each thematic area of r esearch and publishing calls for proposals.
4886 Finally, two 
decision-making procedures are envisaged, one ap plying specifically for the purpose of adopting 
measures in respect of research involving or us ing human embryos and human embryonic stem cells, 
and another for measures adopted in respect of all other research activities falling within the scope of 
the ISERA programme.4887   
7.1561  Thus, the ISERA programme implemented the ob jectives of the Sixth Framework Programme 
by providing a more detailed exposition of 12 of the 13 research activities identified in Decision 1513/2002/EC, identifying the same indicative levels of funding that would be made available to support these activities, and explaining how funding d ecisions would be taken and implemented.  In 
respect of "Aeronautics and Space" activities, the ISERA programme confirmed that the 
EUR 1,075 million funding allocation would be u sed to finance research that advanced, inter alia,  the 
competitiveness of the aeronautics industry, one of th e objectives being to "enable the 3 sectors of the 
manufacturing industry: airframe, engines and equi pment, to increase their competitiveness, by 
reducing in the short and long term, respectively, aircraft development costs by 20% and 50%, and 
aircraft direct operating cost by 20% and 50%, and improving passenger comfort".
4888  
- Whether the Framework Programme grants are specific within the meaning 
of Article 2.1(a) of the SCM Agreement 
7.1562  A common feature of all of the Framework Programmes is that their establishment and 
implementation was provided for under separate legal in struments. Nevertheless, it is apparent that for 
each Framework Programme, these legal instruments constituted one single legal regime pursuant to 
which the European Commission granted the subsidies at  issue to Airbus. In our view, it follows that 
for the purpose of Article 2.1(a) of the SCM Agreemen t, it is appropriate to regard the legal regime 
established through the constituent instruments of  each Framework Programme as the "legislation 
pursuant to which the granting authority operates".  Thus, in order to determine whether the subsidies 
granted to Airbus are specific within the meaning of Article 2.1(a), the question we must answer is 
whether the "granting authority" or each of the rele vant legal regimes explic itly limited access to the 
subsidies at issue to "certain enterprises". 
7.1563  Although the overall aims of each of the Framew ork Programmes were expressed in terms of 
advancing EC R&TD activities in general, the legal regimes giving effect to these objectives did so, at 
least partly, by channelling dedicated amounts of funding to sector-specific research areas that were 
                                                      
4886 Decision 2002/834/EC, Article 5 and Annex I (work programmes) and Article 6.2(a) (calls for 
proposals). 
4887 Decision 2002/834/EC, Articles 6 and 7. 
4888 Decision 2002/834/EC, Annex III.  WT/DS316/R 
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  implemented in accordance with specific work programmes.4889 We note, in particular, that an amount 
of funding dedicated to "aeronautics" or "aerona utics and space" research was made available under 
each of the relevant Framework Programmes.4890  These funding amounts were disbursed in line with 
the objectives and priorities identified in the aeronautics research related work programmes.4891 The 
effect of creating such allocations is, in our view, equivalent to setting aside a portion of a budget that 
is ostensibly intended to fund research activities in all sectors of the economy for the sole purpose of 
the research efforts of enterprises or industries activ e in the aeronautics sector.  In doing so, the legal 
regimes under which the European Commission opera ted, explicitly limited access to a dedicated 
portion of the subsidy grants made available under the Framework Programmes to only those 
enterprises or industries undertaking research in the fi eld of aeronautics. To this extent, the research 
grants at issue could be viewed as emanating from a closed system of subsidization that focused on 
"aeronautics" or "aeronautics and space".  
7.1564  The European Communities argues that to th e extent that the Framework Programmes 
allocated portions of their budgets to research activ ities in the field of "aeronautics", this did not 
render the subsidies granted to Airbus specific within  the meaning of Article 2.1(a). According to the 
European Communities, specificity wi thin the meaning of Article 2.1(a) must be determined at the 
overarching Framework Programme le vel where budgets are allocated to a wide array of different 
thematic research areas. If this were not the case, the European Communities contends that support 
provided under broad research programmes, which n ecessarily allocate their budgets to a variety of 
research areas in order to spread funds to several  important fields of technology, would always 
constitute a specific subsidy pursuant to Article 2.1(a).4892 
7.1565  We are not persuaded by the European Communitie s' arguments. While it is true that each of 
the Framework Programmes was intended to provi de R&TD funding opportunities for projects across 
a wide array of economic sectors, such opportunities were circumscribed by the fact that the funding amounts were explicitly allocated to particular sectors of research, including "aeronautics" or 
"aeronautics and space".  Funds made available for aeronautics research were reserved for entities 
active in this research segment; and funding amount s so allocated could not be accessed by entities 
seeking support for other types of R&TD projects.  Moreover, the fact that entities not active in the 
field of aeronautics research were eligible to obt ain R&TD grants under other research headings does 
not mean that the subsidies received by Airbus unde r the aeronautics research headings were equally 
accessible to these other entities. It is clear to us that the legal regimes of each of the challenged 
Framework Programmes did not allow for this outcome, creating, what was in effect, a separate 
programme of subsidization for the benefit of "certain enterprises".  
                                                     
 
4889 See, para. 7.1518 above, Second Framework Programme; para. 7.1527 above, Third Framework 
Programme; para. 7.1537 above, Fourth Framework Programme; para. 7.1547 above, Fifth Framework 
Programme; and para. 7.1558 above, Sixth Framework Programme. 
4890 See, para. 7.1519 above, Second Framework Programme; para. 7.1528 above, Third Framework 
Programme; para. 7.1538 above, Fourth Framework Programme; para. 7.1548 above, Fifth Framework 
Programme; and para. 7.1559 above, Sixth Framework Programme. 
4891 For example, see for Fifth Framework Programme – New Perspectives in Aeronautics  in European 
Commission, Growth Work programme for RTD actions in support of "competitive and sustainable growth" 
1998-2002 , Exhibit US-488; and Sixth Framework Programme – Thematic Priority 1.4 Aeronautics and Space 
Work Programme 2002-2006 , Exhibit US-489.  Although the parties have not submitted a copy of similar work 
programmes established under the Second to Fourth Fr amework Programmes, we are satisfied that work 
programmes of the same kind associ ated with the respective "aeronautics" research areas were required under 
the legal regimes of each of these programmes.  For the Second Framework Progra mme, we note that the 
dedicated funding was also disbursed pursuant to a distinct "aeronautics" area decision-making procedure.  See, 
para. 7.1521 above. 
4892 EC, Answer to Panel Question 106; EC, SWS, para. 626. WT/DS316/R 
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  7.1566  This, however, does not mean that we believe any subsidy granted pursuant to an allocated 
sub-budget of a general subsidy programme will necessarily be specific within the meaning of 
Article 2.1(a) of the SCM Agreement. In our vi ew, the allocation of funds to certain exclusive 
research activities under an umbrella subsidy progra mme is not incompatible with Article 2.1(a), 
provided  that the availability of those funds is not explic itly limited to certain enterprises.  However, 
in the present case, the evidence before us indicates that amounts of subsidization were explicitly set 
aside under each of the relevant Framework Progr ammes for the research efforts of "certain 
enterprises".  Thus, we conclude that the R&TD  subsidies granted to Airbus under each of the 
Framework Programmes are specific within the meaning of Article 2.1(a) of the SCM Agreement.   
7.1567  In the light of the above finding, we believe it is unnecessary for the resolution of this dispute 
to also determine whether the subsidies at issu e were de facto specific within the meaning of 
Article 2.1(c) of the SCM Agreement. We therefor e exercise judicial economy and decline to rule on 
the United States' allegation that the challenge d subsidy measures were also specific under 
Article 2.1(c) of the SCM Agreement. 
(iii) Loans under the Spanish PROFIT programme 
Arguments of the United States
 
7.1568  The United States  argues that the loans received by Airbus under the Programa de Fomento 
de la Investigación Técnica ("PROFIT") are spec ific within the meaning of Article 2 of the 
SCM Agreement, because it considers they were  explicitly limited to aeronautics companies.4893  To 
support its position, the United States first notes that the two phases of PROFIT pursuant to which 
Airbus received the subsidies at issue establishe d sector-specific research programmes for aeronautics 
– the Programa Nacional de Aeronautica (PROFI T I, 2000-2003) and the Subprograma Nacional de 
Transporte Aero (PROFIT II, 2004-2007).4894  Second, the United States observes that the research 
objectives and priorities under each of these progra mmes singled out the aeronautics industry; with 
eligibility for the available support measures lim ited to aeronautics-related research proposals.4895  
7.1569  The United States also claims that the subsidi es at issue were de facto specific within the 
meaning of Article 2.1(c).  The United States main tains that the European Communities' failure to 
provide information on PROFIT loans during the A nnex V process has made it impossible for it to 
present a detailed analysis of de facto specific ity under the terms of Article 2.1(c) of the 
SCM Agreement. Therefore, in the light of the Eu ropean Communities' alleged lack of cooperation, 
the United States asks the Panel to draw the logi cal inference that, had the European Communities 
provided the information requested, it would have supported a finding of de facto  specificity.4896 
                                                      
4893 US, FWS, para. 703; US, SNCOS, paras. 74 and 77. 
4894 US, SWS, para. 519. 
4895 US, FWS, para 703; US, SWS, para. 519, citing for PROFIT 2000-2003, RESOLUCIÓN de 10 de 
mayo de 2001, de la Secretaría de Estado de Política Científica y Tecnológica, por la que se efectúa la 
convocatoria del año 2001 para la concesión de la s ayudas del Programa Nacional de Aeronáutica del 
Programa de Fomento de la Investigación Técnica (PROFIT), incluido en el Plan Nacional de Investigación 
Científica, Desarrollo e Innovación Tecnológica (2000-2003) , BOE núm. 128 (29 May 2001), Exhibit US-354; 
and for PROFIT 2004-2007, Orden ITC/1038/2005, de 14 de abril, por la que se efectúa la convocatoria del 
año 2005, para la concesión de las ayudas del Programa de Fomento de la Investigación Tecnológica dentro 
del Plan Nacional de Investigación Científica, Desarrollo e Innovación Tecnológica (2004-2007), en la parte dedicada al fomento de la investigación técnica , BOE núm. 95 (21 April 2005), p. 13756, at Sección 14. 
Programa Nacional de Medios de Transporte, Apartado cuarto – Subprograma Naciona l de Transporte Aéreo, 
Exhibit US-355. 
4896 US, FWS, paras. 699, 702; US, SWS, para 519, footnote 660.  WT/DS316/R 
 Page 811 
 
BCI deleted, as indicated [***] 
 
  Arguments of the European Communities  
7.1570  The European Communities rejects the United St ates' allegations that the research support 
provided under the PROFIT is specific within the meaning of Article 2 of the SCM Agreement. The 
European Communities explains that the PROFIT implements the Plan Nacional de Investigación 
Científica, Desarrollo e Innovación Tecnológica (the " PLAN"), the objective of which is to encourage 
companies and other organisations to carry out R&TD activities across a wide array of economic 
sectors in accordance with a defined set of objectiv es. According to the European Communities, the 
PROFIT concerns the part of the PLAN dedicated to  technological research, and neither explicitly nor 
implicitly restricts participation of any enterprise or  industry or group thereof wanting to participate. 
In the European Communities' view, the PROF IT is a framework programme providing R&TD 
support in the form of mainly loans and gran ts across a wide variety of research areas.4897 Thus, the 
European Communities contends that loans r eceived by Airbus under the PROFIT cannot be 
specific.4898 
Evaluation by the Panel  
- Specificity under Article 2.1(a)  
7.1571  We begin our analysis of the United States' claim by considering whether the subsidies at 
issue are specific within the me aning of Article 2.1(a) of the SCM Agreement.  We recall that 
Article 2.1(a) of the SCM Agreement stipulates that a subsidy is specific to an enterprise or industry 
or group of enterprises or industries within the juri sdiction of the granting authority, if the granting 
authority, or the legislation pursuant to which th e granting authority operates, explicitly limits access 
to a subsidy to certain enterprises.4899  Thus, in examining whether the subsidies at issue are specific 
within the meaning of this provision, the focus of  our analysis will be on understanding whether the 
Spanish "granting authority" or the "legislation pursuant to which the granting authority operates" explicitly limits access to the subsidies at  issue to "certain enterprises".   
7.1572  The subsidies challenged by the United States we re granted to Airbus under two phases of the 
PROFIT – PROFIT I (2000-2003) and PROFIT II (2004-2007).  Both phases of the PROFIT 
implemented the R&TD objectives identified by the Spanish government in the PLAN for the 
respective four year periods.  First established in 1986,
4900 the PLAN defines the general framework 
of the Spanish government multi-year scientific research, development and technological innovation 
support initiatives across a broad spectrum of economic sectors.4901  The two phases of the PROFIT 
that are the subject of the United States' complain t implemented the R&TD activities identified in the 
                                                      
4897 EC, FWS, para. 1319; EC, SWS, para 649; EC, Answer to Panel Question 109. 
4898 EC, FWS, para. 1319; EC, SWS, pa ra 649; EC, FNCOS, para. 119. 
4899 See, para. 7.919 above. 
4900 Law 13/1986 of Promotion and General Co-ordination of Scientific and Technical Research. 
4901 The sectors covered by the PLAN 2000-2003 were: Biomedicine; Biotechnology; Information and 
Communication Technologies; Materials; Chemical Proce sses and Products; Industrial Design and Production; 
Natural Resources; Agro-Food Resources and Technol ogies; Socio economy; Aeronautics; Food sector; 
Automotive; Civil construction and co nservation of cultural heritage; De fence; Energy; Space; Environment; 
Sociosanitary; Information Society; Transport and Land Planning, and Tourism, leisure and sports., Exhibit US-690-A, p. 13 -14.  The sectors covered by the PLAN 2004-2007 were: Biomedicine;  Technologies for the 
Health and the Well-being; Biotechnology; Basic Biology; Resources and Agro-Food Technologies; Sciences 
and Environmental Technologies; Earth sciences an d Biodiversity; Space; Astr onomy and Astrophysics; 
PArticle Physics; Math; Physics; Energy; Sciences  and Chemical Technologies ; Materials; Design and 
Industrial Production; Security; Defence; Electronic and Communications Technologies; Informatics 
Technologies; Information Society Technologies; Transport; Construction; Humanities, and Social, Economic and Legal Sciences, Exhibit US- 691-A, p. 16-22. WT/DS316/R 
Page 812  
BCI deleted, as indicated [***] 
 
  PLAN that were managed by the Ministry of Industry and Energy for the period 2000-2003 and the 
Ministries of Education and Science, and Industry, Trade and Tourism between 2004-2007.
4902  
7.1573  PROFIT I was enacted by Ministerial Order of 7 March 20004903 in order to give effect to the 
following research areas identified in the PLAN 2000-2003: the "National Biotechnology 
Programme"; the "National Industrial Design and Production Programme",  the "National Materials 
Programme"; the "National Progra mme of Chemical Pro cesses and Products"; the "National Natural 
Resources Programme"; the "National Programme  of Agro-Food Resources and Technologies"; the 
"National Programme of Information and Co mmunication Technologies"; the "National Socio-
Economic Research Programme", the "Na tional Biomedicine Programme"; the " National 
Aeronautics Programme" ; the "National Automotive Programme", the "National Energy 
Programme", the "National Space Programme"; the "National Environment Programme"; the 
"National Information Society Programme"; and  the "National Transport and Land Planning 
Programme".4904   
7.1574  Likewise, PROFIT II was established by Ministerial Order of 18 March 20054905 in order to 
give effect to the following research areas identified in the PLAN 2004-2007: the "National 
Programme of Biomedicine"; the "National Progra mme of Technologies for the Health and the Well-
being"; the "National Biotechnology Programme"; the "National Programme of Resources and Agro-
Food Technologies"; the "National Programme of Sciences and Environmental Technologies"; the 
"National Programme of Energy"; the "National Programme of Sciences and Chemical Technologies"; the "National Materials Programme "; the "National Programme of Design and 
Industrial Production"; the "National Programme of Electronic and Communications Technologies"; 
the "National Programme of Informatics Technol ogies"; the "National Programme of Information 
Society Technologies"; the "National Transport Programme", including the "Air Transport Sub-Programme";  the "National Construction Programme"; the "National Security Programme"; and the 
"National Programme of Social , Economic and Legal Sciences".
4906 
7.1575  The loans challenged by the United States we re provided to Airbus under the National 
Aeronautics Programme (PROFIT I) and the Air Transport Sub-Programme (PROFIT II).  In 
summary, the objectives of both of these Programm es were to advance the research activities and 
capacity of the Spanish aeronautics industry,  and thereby enhance its competitive position.4907 
Essentially the same objectives are described for each of the other research Programmes established under the PROFIT I and II. With regard to the beneficiaries, PROFIT I and II identify the same group 
of generic potential recipients of funding for all research areas, including the National Aeronautics 
Programme and the Air Transport Sub-programme, namely: enterprises; groups or associations of 
enterprises; public research institutes; private non- profit research and development centers; and for 
certain specified projects and actions, public statutory bodies.
4908  
7.1576  Although it is apparent that only businesses ac tive in the field of aeronautics research may 
qualify for loans under the National Aeronautics Pr ogramme and the Air Transport Sub-Programme, 
                                                      
4902 The Ministry of Industry and Energy managed PROFIT I. Exhibit US-349, p. 1, recital 5.  
PROFIT II was managed by the Ministry of Education and Science and the Ministry of Industry, Trade and 
Tourism.  As we understand it, the latter Ministries assumed competencies from th e Ministry of Industry and 
Energy which was re-organized after PROFIT I.  EC, FWS, para. 1317.   
4903 Exhibit US-349. 
4904 Exhibit US-349, Chapter I, Article 2. 
4905 Exhibit US-350. 
4906 Exhibit US-350, Chapter I, Article 2. 
4907 PROFIT I: Exhibit US-349, Chapter III, Article 38.1(b). PROFIT II: Exhibit US-355, Section 14, 
"Apartado tercero". 
4908 PROFIT I: Exhibit US-349, Chapter III, Article 39. PROFIT II: Exhibit US-350, Chapter I, 
Article Sexto.  WT/DS316/R 
 Page 813 
 
BCI deleted, as indicated [***] 
 
  it does not automatically follow that, for this r eason alone, the subsidies granted thereunder are 
specific within the meaning of Article 2.1(a) of the SCM Agreement.  In our view, when assessing 
whether an umbrella subsidy programme that cha nnels support through one or  more industry-focussed 
sub-programmes is specific under the terms of Article 2.1(a) of the SCM Agreement, all relevant facts 
and circumstances must be taken into account.  One of these may involve examining whether any 
dedicated sub-budgets exist for one or more  of the industry-focussed sub-programmes.4909  As in the 
case of the EC Framework Programmes, where a subsidy is granted pursuant to a sub-budget 
allocated for research activities fa lling within the scope of a par ticular industry-focussed sub-
programme, that subsidy will be explic itly limited to "certain enterprises".4910  However, where there 
is no such ring-fencing of funds for particular s ub-programmes, it follows that the entirety of the 
funding available under the umbrella programme will, in principle,4911 be accessible for eligible 
projects under any particular sub-programme.  In this  event, all projects eligible for support under any 
particular sub-programme will have access to the sa me pool of resources available to subsidize all 
research endeavours that are the focus of the umbrella programme.  
7.1577  We note that the United States does not argue, as it did with respect to the EC Framework 
Programmes, that a dedicated sub-budget was allo cated exclusively to research activities falling 
within the scope of the National Aeronautics Programme or the Air Transport Sub-Programme.4912  
Rather, the United States' claim of specificity within th e terms of Article 2.1(a) rests solely on the fact 
that the two aeronautics support programmes under PROFIT I and II were entirely focused on and open to research activities carried out for the purpose of aeronautics.  The United States has pointed to 
no other particular fact or circumstance in support of its claim.  However, as we have articulated 
above, we are not convinced that the aeronautics-fo cus of the two programmes is, in the light of the 
evidence and arguments, alone enough to demonstrate that the subsidies granted to Airbus under the 
PROFIT I and PROFIT II were explicitly limited to "certain enterprises".  We therefore dismiss the United States' claim of specificity under Ar ticle 2.1(a) of the SCM Agreement.  
                                                     
 
4909 Other factors that may also be relevant might include eligibility criteria and decision-making 
procedures. 
4910 See, paras. 7.1563-7.1566 above. 
4911 In our view, funds that are, in form available for all projects equally under an umbrella subsidy 
programme might in substance be ring-fenced for a particular purpose or industry sector if, for instance, 
different decision-making procedures or  eligibility criteria apply without justification to limit the availability of 
funds to "certain enterprises".   
4912 Our own review of the evidence ad vanced by the United States does not lead us to conclude that 
any funding amounts were in fact actually reserved for this purpose. The evidence indicates that funds were to 
be distributed after review of applications in Answer to Calls for Proposals and that projects and activities under 
the different programmes were to be financed in accordance with the budgetary lines determined in the 
corresponding Calls for Proposals in each of the years of the Programmes, Exhibit US- 349, Chapter I, Article 7, 
and Exhibit US-350, Chapter I, Article 11.  The one Call for Proposals under the National Aeronautics Programme submitted by the United States, Exhibit US-354,  Segundo,  reveals that eligible projects would be 
financed from a series of numbered  "aplicaciones presupuestarias" ("bu dgetary lines") - "20.08.542E.747", 
"20.08.542E.777","20.08.542E.787","20.08.542E.821" and "20.08.542E.831". However, there is no evidence 
(or argument) before us that explai ns exactly what these numbered "apli caciones presupuestarias" mean.  In 
respect of the Air Transport Sub-Programme the United States submitted a document pertaining to a Call for 
Proposal for the year 2005 for most of the programmes  established under the PROFIT II, including the Air 
Transport Sub-Programme, Exhibit US-355, Tercero . This Call for proposal also reveals that eligible projects 
would be financed from a series  of numbered "aplicaciones presu puestarias" ("budgetary lines") 
"20.16.467C.747","20.16.467C.757","20.16.467C.767","20.16.467C.777","20.16.467C.787","20.16.467C.821.1
0", and "20.16.467C.831.10". Although there is no evidence  (or argument) before us th at explains exactly what 
these numbered "aplicaciones presupuestarias" mean, it is cl ear to us that not only e ligible projects for the Air 
Transport Sub-Programme woul d be financed from these "aplicaciones presupuestarias", but that almost all 
eligible projects under all the Programmes that the Call for Proposal refers to, would be financed from these 
"aplicaciones presupuestarias".  In our view, this evid ence strongly suggests that there was no sub-budget 
allocated exclusively to research activities falling within the scope of the Air Transport Sub-Programme. WT/DS316/R 
Page 814  
BCI deleted, as indicated [***] 
 
  - Specificity under Article 2.1(c) 
7.1578  The United States asserts that during the Anne x V process the Facilitato r asked the European 
Communities a series of detailed questions on the amounts of funding received by Airbus and other 
participants for all projects carried out under the PROFIT programmes.
4913 The United States recalls 
that the European Communities provided no inform ation in response to the Facilitator's request.4914  In 
this light, the United States asked the Panel to request the European Communities to provide the 
information the Facilitator requested, or else find, in accordance with paragraph 7 of Annex V, that 
the loans received by Airbus under the PROFIT are specific within the meaning of Article 2.1(c) of 
the SCM Agreement.4915  The United States argues that had the European Communities provided the 
information requested, it would have supported a finding of de facto  specificity, within the meaning of 
this provision.4916   
7.1579  The European Communities has consistently argue d that the PROFIT loans challenged by the 
United States are outside the terms of reference of the present dispute.4917  Because of this, the 
European Communities initially refused to provide a ny information at all about the projects carried 
out under the PROFIT.4918  However, in response to Panel Question 109, the European Communities 
submitted certain information on loan payments made under the PROFIT II in the years 2004 and 
2005.4919  For reasons we have previously explained,  we believe the European Communities' response 
to Panel Question 109 to be less than satisfactory.4920  In our view, had the European Communities 
provided clear and accurate information on, at least, the loan payments made to Airbus under the two 
separate PROFIT programmes at issue, (as we had expected it would in response to Panel 
Question 109), the United States would have at least  had a credible starting point from which it could 
have assessed whether the subsidies at issue were spec ific within the meaning of Article 2.1(c), and if 
necessary construct its case.  Obviously, had the Eur opean Communities disclosed some or all of the 
information requested during the Annex V process, the United States would have had more data to 
inform its analysis.4921  However, in the light of the EC' r esponses to the Facilitator's information 
requests and Panel Question 109, the United States was left with publicly available data estimating the 
global loan amounts received by Airbus over an unknown period of time under both phases of the PROFIT.
4922  As is apparent from our previous discussi on of the factors that may be considered in 
order to establish specificity under Article 2.1(c) of the SCM Agreement,4923 the publicly available 
information before us is not enoug h to conduct a proper assessment of  whether the subsidies at issue 
were de facto specific.4924  
                                                      
4913 Questions 279(a)-(k) and 280(a)-(l) from th e Facilitator to the EC, Exhibit US-4 (BCI). 
4914 EC Reply to Questions 279 and 280 from the Facilitator, Exhibit US-5 (BCI). 
4915 US, FWS, paras. 699, 702; US, SWS, para 518, footnote 660. 
4916 US, FWS, paras. 699, 702; US, SWS, para 518, footnote 660. 
4917 EC, FWS, para. 1315; EC, Answer to Panel Question 109; EC, SWS, para. 647. 
4918 EC Reply to Questions 279 and 280 from the Facilitator, Exhibit US-5 (BCI). 
4919 Exhibit EC-624 (BCI). 
4920 See, paras. 7.1477-7.1478 above. 
4921 We note that the information requested during the Annex V process was much broader and more 
detailed than the "payment information" requested in Panel Question 109, and included information on the total 
budgets for PROFIT I and II as well as the Nati onal Aeronautics Programme and Air Transport Sub-
Programme, lists of all funded project s and recipients under the Programme and Sub-Programme, relevant legal 
instruments and legislation, projects evaluation reports, and the terms of the loans granted to Airbus.  See, 
Questions 279(a)-(k) and 280(a)-(l) from the Facilitator to the EC, Exhibit US-4 (BCI). 
4922 See, paras. 7.1476-7.1480 above. 
4923 See, paras. 7.959 and 7.976 above addressing the United States' claims against the challenged EIB 
loans. 
4924 We recall that the language of Article 2.1(c) suggests that it is intended to address the situation 
where a challenged subsidy does not appear to be specif ic within the meaning of the principles set out in 
Articles 2.1(a) and 2.1(b), but "there are reasons to believe  that the subsidy may in fact be specific".  When such  WT/DS316/R 
 Page 815 
 
BCI deleted, as indicated [***] 
 
  7.1580  We recall that paragraph 7 of Annex V provides that a panel "should draw adverse inferences 
from instances of non-cooperation by any party invo lved in the information-gathering process".  In 
the light of the foregoing, and consistent with our previous finding on the amount of the loan payments made to Airbus under the challenged PROFIT programmes,
4925 we conclude pursuant to 
paragraph 7 of Annex V, that th e challenged subsidies under the PROFIT I and II are specific within 
the meaning of Article 2.1(c) of the SCM Agreement.   
(iv) Grants under the UK Technology Programme 
Arguments of the United States  
7.1581  The United States argues that the grants pr ovided to Airbus under the UK Technology 
Programme ("TP") are specific within the meaning of Article 2 of the SCM Agreement because they 
were awarded through calls for proposals that are limited to aeronautics-related technologies, which 
have a scope determined by a narrow set of industry-specific criteria.4926  According to the United 
States, the European Communities has acknowledged th at the TP is divided into 43 "research themes" 
targeting a limited set of industries.  The United St ates asserts that each of these research themes has 
its own budget and tends to be highly industry-specific.  For example, the United States argues that 
the "Advanced Materials" research theme targets co mposite materials development in the aeronautics 
industry, with calls under this research theme si ngling out the aeronautics industry.  Finally, the 
United States also submits that the European Communities has admitte d that the TP is a continuation 
of the CARAD/ARP, a programme for which the Eu ropean Communities has not contested its claims 
of specificity.4927  Thus, for all of these reasons, the Unite d States argues that the R&TD funding 
provided to Airbus and the aeronautics industry u nder the TP is specific w ithin the meaning of 
Article 2.1 of the SCM Agreement.4928 
Arguments of the European Communities  
7.1582  The European Communities rejects the Unite d States' allegations.  The European 
Communities asserts that the TP is a broad resear ch programme open to a ll industrial and service 
sectors, including the aeronautics sector.4929  The European Communities explains that the TP is 
devoted largely to collaborative R&TD, with  a budget of GBP 370 million for the period 2005-
2008.4930  Funding grants are limited to 50% of elig ible costs and provided on a bi-annual basis in 
response to competitions calling for research falling within the scope of seven key technology areas:  
Advanced Materials; Bioscience and Healthcare Technologies; Design Engineering and Advanced 
Manufacturing; Electronics and Photonics; Emerging Energy Technologies; Information and 
Communication Technologies; and Sustainable Production and Consumption.4931  The European 
                                                                                                                                                                     
a situation arises, the first sentence of Article 2.1(c) s tipulates that "other factor s may be considered".  The 
second sentence of Article 2.1(c) elaborates four "{s}uch factors" – "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." 
4925 See, paras. 7.1476-7.1480 above. 
4926 US, FWS, para, 691, referring to DTI, Second Call of the Tech nology Program (April 2004), 
Advanced Composite Materials and Structures , at 2; and DTI, The Technology Program, November 2004 
Competition for Funding, Smart Materials and Related Structures,  at 2; and DTI, The Technology Programme: 
Spring 2006 Competition for Funding, Design Engineering & Advanced Manufacturing: Management of 
complex fluid flow conditions , at 2, Exhibits US-495a, US-495b and US-495c. 
4927 US, FWS, Para 691. 
4928 US, SWS, para 520.  Exhibit US-343. 
4929 EC, FWS, paras. 1286 and 1305; EC, SWS, para. 643. 
4930 EC, FWS, para. 1287.  Exhibit EC-229. 
4931 EC, FWS, paras. 1288, 1296-1304. Exhibit EC-230. WT/DS316/R 
Page 816  
BCI deleted, as indicated [***] 
 
  Communities denies that the calls for proposals are de termined by narrow industry-specific criteria, or 
that there has been any "earma rking" of a certain amount of support for the aerospace sector in 
general, for Airbus UK, or for any other aerospace-sector organisation.
4932  Thus, the European 
Communities argues that the R&TD grants available under the TP are not explicitly limited to "certain 
enterprises" and therefore not specific within the meaning of Article 2.1(a) of the SCM Agreement.4933 
7.1583  The European Communities critic izes the United States for relying upon information 
brochures relating to three of 43 technology priori ty areas so far identified in the competitions 
undertaken under the TP, namely, the "Advanced Co mposite Materials and Structures" (April 2004 
competition); "Smart Materials" (November 2004 competition) and "Design Engineering and 
Advanced Manufacturing" (Spri ng 2006 competition) brochures.  The European Communities argues 
that although the areas will be relevant to the aer onautics industry, none of them is "limited to 
aeronautics-related technologies" and each of the br ochures explicitly refers to other sectors to which 
the technology in question is relevant.4934 
Evaluation by the Panel  
7.1584  The United States argues that the grants provided to Airbus under the TP are specific within 
the meaning of Article 2 of the SCM Agreement.  In particular, we understand the United States to 
argue that the grants provided to Airbus under the TP  are specific within the meaning of Article 2.1(a) 
of the SCM Agreement.  We do not understand the Un ited States to argue that they are also specific 
within the meaning of Article 2.1(c) of the SCM Agreement.  
7.1585  As already noted elsewhere in this Report, Ar ticle 2.1(a) of the SCM Agreement stipulates 
that a subsidy is specific to an enterprise or indus try or group of enterprises or industries within the 
jurisdiction of the granting authority, if the granting authority, or the legislation pursuant to which the granting authority operates, e xplicitly limits access to a s ubsidy to certain enterprises. 
7.1586  The main argument advanced by the United States  to substantiate its claim that the grants 
provided to Airbus under the TP are specific w ithin the meaning of Article 2.1(a) of the 
SCM Agreement is based on the assertion that they  were awarded through competitions that were 
limited to R&TD activities in the field of aeronau tics-related technologies.  In this regard, the 
United States refers to information br ochures publicising three competitions held 
in April and November 2004 and Spring 2006, resp ectively involving R&TD in the fields of 
"Advanced Composite Materials and Structures", "S mart Materials" and "Design Engineering and 
Advanced Manufacturing".
4935 
7.1587  However, our review of the evidence before us  suggests that the subsidies provided under the 
TP are not limited, in the way the United States asser ts, to entities active in the field of aeronautics 
research.  We agree with the Eu ropean Communities that the TP is a research programme intended to 
fund R&TD activities across a broad array of economic sectors.  The TP operates on the basis of an overall budget for all supported activities set at GBP 370 million for the years 2005-2008.
4936  
Funding is provided for the purpose of "collabora tive research and development" and "knowledge 
transfer networks"4937 through competitions held twice per year.  The precise subject matter of the 
research themes addressed in each competition is sh aped by the input of the "Technology Strategy 
                                                      
4932 EC, FWS, para. 1305. 
4933 EC, FWS, para. 1306. 
4934 EC, SWS, para. 643. 
4935 Exhibits US-495a, US-495b and US-495c. 
4936 Exhibit EC-230. 
4937 Exhibit EC-229.  WT/DS316/R 
 Page 817 
 
BCI deleted, as indicated [***] 
 
  Board", an advisory board comprised "m ainly of experienced business leaders".4938  The Technology 
Strategy Board is tasked with ensuring "that the technology priorities within the Technology 
Programme are market-focussed, and" advising "on the broad allocation of resources to them."4939  
The research themes it identifies for open competitions  vary from year-to-year, but broadly fall within 
the seven key technology areas identified by th e European Communities, namely: Advanced 
Materials; Bioscience and Healthcare Tec hnologies; Design Engineering and Advanced 
Manufacturing; Electronics and Photonics; Emerging Energy Technologies; Information and Communication Technologies; and Sustainable Production and Consumption.
4940  In the vast majority 
of cases, the research themes do not appear to focus on particular economic sectors.4941   
7.1588  Turning to the three competitions that are the focus of the United States' complaint, we note 
that the competition relating to "Advanced Compos ite Materials and Structures" does not limit the 
availability of grants under the TP to the aeronautics -related research.  Under the "scope of the call" 
heading, there is no limitation at all with respect to  the types of industries which might be eligible for 
grants thereunder.  Indeed, the brochure explicitl y identifies the aerospace, automotive, construction, 
consumer product, engineering, marine, rail and space sectors as being potential beneficiaries of 
research falling within the scope of this call for proposals.4942  Similarly, multiple potential industry 
beneficiaries are identified in the competitions rela ting to "Smart Materials and Related Structures"4943 
and "Design Engineering and Advanced Manufacturing".4944  Far from singling out the aerospace 
sector as the beneficiary of the relevant R&TD gran ts, it is clear that the three competitions at the 
centre of the United States' complaint are open to all industry sectors interested in the particular 
technology at issue; and in fact, numerous indus tries are identified as potential beneficiaries. 
7.1589  As regards the United States' argument that each of the technology priority areas funded 
under the competitions had its own budget, we note that it is less then clear that this is in fact the case 
in respect of all 43 thematic areas addressed in the competitions.  Nevertheless, indicative funding 
amounts were set for the three competitions at issue: GBP 10 million for "Advanced Composite 
Materials and Structures"; GBP 7 million for "S mart Materials and Related Structures" and 
GBP 12 million for "Design Engineering and Advanced Manufacturing".4945  However, as we have 
already explained, the availability of the allocat ed funds was not explicitly limited to entities active 
only in the field of aeronautics research.  Unlike the situation in respect of EC Framework 
Programmes, the TP (and each of the three competiti ons at issue) did not set aside any portion of 
budgeted funding amounts for the sole purpose of the research efforts of en terprises or industries 
active in the aeronautics sector.  
7.1590  Finally, the United States considers that the European Communities has admitted that the TP 
is a continuation of the CARAD/ARP, and that this is further confirmation that TP is specific.4946  We 
do not understand the European Communities to have ma de any such admission.  In its first written 
                                                      
4938 Exhibit EC-229. 
4939 Exhibit US-342. 
4940 Exhibit EC-230. 
4941 The thematic research areas covered in the comp etitions held from 2004 to 2006 are identified in 
the European Communities' first written submission, at paras. 1298-1304.  They are also set out in the 
information referred to in Exhibit EC-230. 
4942 Exhibit US-495a. 
4943 Exhibit US-495b, stating in particular, "Smart Materials represent an enabling technology that has 
applications across a wide range of sectors including construction, transportation, agriculture, food and 
packaging, healthcare, sport and leisure, white g oods, energy and environmen t, space and defence." 
4944 Exhibit US-495c, stating in particular, "In additi on to applications within the Chemicals and Oil 
and Gas sectors, some illustrative ex amples include: Food and Drink, ... Built Environment, ... Automotive, ... 
Aerospace, ...".   
4945 Exhibits US-495a, US-495b and US-495c. 
4946 US, FWS, para. 691. WT/DS316/R 
Page 818  
BCI deleted, as indicated [***] 
 
  submission, the European Communities clearly states that the TP did not "replace" CARAD.  The 
European Communities explains that the TP brought  together all UK R&TD sectoral collaborative 
funding under one umbrella.
4947  In addition, in its answer to a question posed by the Facilitator during 
the Annex V procedure, the Europ ean Communities stated that the TP "replaced  all industrial 
collaborative programmes, including CARAD".4948  Thus, it is clear to us that the TP is a R&TD 
support programme that is of an entirely different  nature to the CARAD/ARP, which as we explain 
further below, the European Communities does not contest amounts to a specific programme for civil 
aircraft research.  In contrast, the TP may be characterized as a framework R&TD support programme 
that identifies and funds research into new a nd emerging technologies across a broad array of 
economic sectors that are considered to be critical to the growth of the UK economy. 
7.1591  Having found that the grants at issue were not provided pursuant to competitions explicitly 
limited to entities active in aeronau tics-related research; that the av ailability of the allocated funds 
under the relevant competitions was not explicitly lim ited to aeronautics-related research projects; and 
that the TP is not a continuation of CARAD/ARP, we  conclude that the subsidies provided to Airbus 
under the TP that are the subject of the United States ' complaint were not explicitly limited to "certain 
enterprises" and are therefore not specific with in the meaning of Article 2.1(a) of the 
SCM Agreement.  
(v) Other R&TD measures  
French government grants  
7.1592  The United States claims that the civil aeronau tics R&TD grants that the French Government 
provided to Airbus are specific within the meaning of Article 2 of the SCM Agreement because they 
were provided pursuant to a budget that is dedicat ed to "aeronautic constr uction" and limited to 
aeronautics manufacturing companies.4949  Although the United States has not identified a particular 
sub-paragraph of Article 2 as the basis of its claim,  we understand from the nature of the arguments it 
has advanced that its claim is grounded in Article  2.1(a) of the SCM Agreement.  The European 
Communities does not contest the Unites States' allegation. 
7.1593  Having carefully reviewed the evid ence submitted by the United States,4950 it is apparent that 
the funding amounts at issue pertain to monies distri buted to the French civil aeronautics sector as a 
whole, including but not limited to Airbus.4951  The evidence indicates that  the funding at issue was 
directed at research endeavours in the area of civil aeronautics construction, and granted pursuant to a 
dedicated budget.4952 The Reports submitted by the United States indicate that the funding was 
essentially provided to the following aeronautics companies: "Aérospatiale-Matra", "Dassault 
Aviation" and "L'Onera".4953 In addition, a note from the "Direction des programmes aéronautiques et 
                                                      
4947 EC, FWS, Para 1286. 
4948 See, EC Reply to Question 219 (b) from the Facilitator, Exhibit US-5 (BCI). 
4949 US, FWS, para 685. 
4950 See, at paras. 7.1467-7.1473 above. 
4951 For instance, see Budget 1997: Sénat, No. 89 (session ordinaire de 1999-2000), Rapport Général, 
Commission des Finances du Contrôle Budgétaire et des Comptes Economiques de la Nation sur le projet de loi 
de finances pour 2000, Tome III, Annexe No. 25, Equipment, Transport et Logement; III. – Transport; Transport Aérien et Météorolgie et Aviation Civile, p. 88, in Exhibit US-337. 
4952 Sénat, No. 73 (session ordinaire de 2003-2004), Rapport Général, Commission des Finances, du 
Contrôle Budgétaire et des Comptes Économiques de la Nation sur le projet de loi de finances pour 2004, Tome III, Annexe No. 18 Équipement, Transport et Logeme nt.  III. - Transports et Sécurité Routière: Aviation 
et Aéronautique Civiles, p. 37, Exhibit US-337F. See, also, Exhibit EC-208 (BCI). 
4953 Sénat, No. 73 (session ordinaire de 2003-2004), Rapport Général, Commission des Finances, du 
Contrôle Budgétaire et des Comptes Économiques de la Nation sur le projet de loi de finances pour 2004,  WT/DS316/R 
 Page 819 
 
BCI deleted, as indicated [***] 
 
  de la coopération" submitted by the European Co mmunities indicates that more than half of the 
support provided for research and studies for 100-se at-and-above range of ai rcraft between 1994 and 
2005 was provided to Airbus.4954  
7.1594  Given that the available funding was explicitly limited to the French civil aeronautics sector,  
we find the French government R&TD grants challenge d by the United States to be specific to Airbus 
and/or the aeronautics industry, within the meani ng of Article 2.1(a) of the SCM Agreement.   
German Federal government grants  
7.1595  The United States claims that German federa l government grants for LCA-related R&TD 
projects in which Airbus participated under th e LuFo I, LuFo II and LuFo III programmes are 
specific, within the meaning of Article 2 of the SCM Agreement, because disbursed from budgets that 
are dedicated to the civil aeronautics industry, w ith access explicitly limited to the civil aeronautics 
industry.4955  Although the United States has not identified a particular sub-paragraph of Article 2 as 
the basis of its claim, we understa nd from the nature of the arguments it has advanced that its claim is 
grounded in Article 2.1(a) of the SCM Agreement.   The European Communities does not contest the 
Unites States' allegation. 4956  
7.1596  Having carefully reviewed the evid ence submitted by the United States,4957 it is clear to us 
that the LuFo programmes are limited to the aeronau tics sector.  Indeed, in its responses to Questions 
from the Facilitator, the Europ ean Communities conced es that federal funding through the LuFo 
Programmes was exclusively provided to the aeronautics sector.4958  The budget plans submitted by 
the United States indicate, in addition, that th e objective of these programmes is to support the 
competitiveness of the aviation industry in Germany.  
7.1597  Thus, we have no doubt that the R&TD grants at  issue were explicitly limited to the German 
aeronautics sector.  We therefore agree with the United States that they are specific within the 
meaning of Article 2.1(a) of the SCM Agreement.   
German sub-Federal gove rnment R&TD grants  
7.1598  The United States claims that the R&TD gran ts received by Airbus from the German sub-
federal governments of Bavaria, Brem en and Hamburg, are specific with in the meaning of Article 2 of 
the SCM Agreement because they are explicitly limite d to Airbus and/or the aeronautics industry.4959 
Again, the United States has not identified a particul ar sub-paragraph of Article 2 as the basis of its 
claim.  However, we understand from the nature of the arguments it has advan ced, that its claim is 
grounded in Article 2.1(a) of the SCM Agreement.   The European Communities does not contest the 
Unites States' allegations. 4960  
                                                                                                                                                                     
Tome III, Annexe No. 18 Équipement, Transport et Logeme nt.  III. - Transports et Sécurité Routière: Aviation 
et Aéronautique Civiles, p. 37, Exhibit US-337F. See, also, Exhibit EC-208 (BCI). 
4954 Exhibit EC-209 (BCI). The Note, at page 2, indicates that the term "Airbus" includes Aérospatiale, 
Aérospatiale-Matra, EADS Ai rbus and Airbus France. 
4955 US, FWS, paras. 665-666. 
4956 EC, Answer to Panel Question 108. 
4957 See, paras. 7.1457-7.1458 and 7.1493-7.1495 above. 
4958 EC, Answer to Panel Question 173 from  the Facilitator, Exhibit US-5 (BCI). 
4959 US, FWS, paras. 670; 673; and 677. 
4960 EC, FWS, paras. 1259-1272; EC, Answer to Panel Question 108. WT/DS316/R 
Page 820  
BCI deleted, as indicated [***] 
 
  - Government of Bavaria R&TD grants 
7.1599  In support of its claim of specificity, the United States has submitte d various documents, 
including an extract from the website of the Germ an Aerospace Center ("DLR") and a document from 
the Bavarian Parliament.
4961  The extract from the DLR website describes the goals and content of the 
grants at issue and identifies the eligible candidates.   It indicates that the government of Bavaria made 
DM 15 million available at the end of 1999 for civil aviation research in Bavaria, in close 
coordination with the federal govern ment's aeronautical research programme.  The funding was made 
available for "companies from Bavaria's aviation industry", including Bavarian universities and non-
university-affiliated research establishments located in Bavaria.  Similarly, the document from the 
Bavarian Parliament indicates that the R&TD grants  were made for the purpose of the development of 
aeronautics and aerospace technologies.  In our view, it is clear from the evidence before us that the 
R&TD grants at issue were only provided in orde r to fund research activities undertaken in Bavaria 
for the purpose of the aeronautics sector.  We theref ore agree with the United States that the R&TD 
grants were explicitly limited to "certain enterprise s", and are therefore specific within the meaning of 
Article 2.1(a) of the SCM Agreement.   
- Government of Bremen R&TD grants 
7.1600  In support of its claim of specificity, the United States has submitte d various documents, 
including an extract from a Memorandum of the Br emen City Parliament and State Parliament;4962 an 
extract from the "Fraunhofer Institute for Manufact uring Technology and Applied Materials Research 
in Bremen" online site;4963 and a press release issued by a Se nator of Economics of the City of 
Bremen.4964  
7.1601  The extract of the Memorandum of the Bremen  City Parliament and State Parliament 
indicates that funds have been allo cated to the AMST site project to  pursue research and development 
with the aim of strengthening Bremen  as an aircraft construction site.4965  Another document 
submitted by the United States consists of an extract  from the website of the "Fraunhofer Institute for 
Manufacturing Technology and Applied Materials Resear ch in Bremen".  This extract indicates that 
within the framework of the reorganization of Eur opean aircraft builders, the purpose of the AMST 
was, in particular, to tap the scientific know-how of public institutions in matters of materials and 
processes available in Bremen for the Airbus plant a nd develop this further, in a targeted manner, for 
the needs of aircraft construction.4966  Finally, the press release issued by the Senator of Economics of 
the City of Bremen indicates that aircraft constr uction is traditionally one of the key industries in 
Bremen and that through provision of funds to im plement the AMST project, the Senate expected to 
contribute significantly to improve the performance and competitiveness of the Bremen Airbus Plant.  
In our view, it is apparent that the R&TD grants  at issue were aimed at supporting the aircraft 
construction sector in Bremen, referred to as "one of  the key industries in Bremen", and in particular 
to Bremen Airbus' plant. 4967  We therefore agree with the United States that the R&TD grants were 
explicitly limited to "certain enterprises", and are therefore sp ecific within the meaning of 
Article 2.1(a) of the SCM Agreement.  
                                                      
4961 Exhibits US-330 and US-331. 
4962 Exhibit US-334. 
4963 Exhibit US-336. 
4964 Exhibit US-335. 
4965 Exhibit US-334 indicates that a total of EUR 24.2 million in R&D funds 
4966 Exhibit, US-336. 
4967 Exhibit US-335.  WT/DS316/R 
 Page 821 
 
BCI deleted, as indicated [***] 
 
  - Government of Hamburg R&TD grants 
7.1602  In support of its claim, the United States h as submitted various documents, including an 
extract from the website of the German Aerospace Center ("DLR")4968 and a document that indicates 
the projects in which Airbus has participated, the dates in which those projects began and ended, and 
contains details on the payments to relevant Airbus entities.4969  The extract from the DLR website 
describes the goals and content of the grants at is sue and identifies the eligible candidates.  It 
explicitly states that the targeted funding project s are aimed at encouraging Hamburg's aerospace 
industry to increase its efforts in developing new technologies; i.e., to strengthen the technological 
productivity of Hamburg's aerospace and supply indus try.  Hamburg-based companies operating in 
the aerospace sector are one of the eligible ap plicants, together with universities and research 
institutes.  In our view, this evidence confirms that  the R&TD grants at issue are explicitly limited to 
Hamburg's aerospace sector.  We therefore agree with  the United States that the R&TD grants were 
explicitly limited to "certain enterprises", and are therefore sp ecific within the meaning of 
Article 2.1(a) of the SCM Agreement. 
Loans under the Spanish PTA programme  
7.1603  The United States claims that the loans recei ved by Airbus under the two phases of the PTA 
programme are specific to Airbus and/or the aeronau tics industry within the meaning of Article 2 of 
the SCM Agreement.  With respect to PTA I, the United States argues that the government explicitly 
limited access to funding to aerona utics companies involved in the manufacturing, design, supply and 
maintenance of aircraft and aircraft parts, and to engineering services companies and research 
institutions and universities developing sp ecific technologies with aeronautics use.4970  The United 
States argues that similar restrictions were applied with respect to PTA II.4971  Although the United 
States has not identified a particular sub-paragraph of Article 2 as the basis of its claim, we understand from the nature of the arguments it has advanced that its claim is grounded in 
Article 2.1(a) of the SCM Agreement.  
7.1604  In support of its claim and with respect to PTA I, the United States has submitted a one page 
document indicating that the enterprises that are e ligible to participate are those involved in the 
manufacturing, design, supply and maintenance of airc raft and aircraft parts, and engineering services 
companies and research institutions and universities developing specific technologies with aeronautics 
use.
4972  In addition, and with respect to PTA II,  the United States has submitted a letter from the 
European Commission to the Spanish Ministry of Ex ternal Relations indicating that the objective of 
this programme is essentially to  support the competitiveness of the aviation industry in Spain and 
pointing out that it had no objections to the proposed programme.4973  
7.1605  Having carefully reviewed the evidence submitted by the United States, it is clear to us that 
the PTA programme is limited to th e aeronautics sector.  Indeed, this is explicitly recognized by the 
European Communities in its first written submission.4974  We therefore agree with the United States 
that the R&TD loans at issue are specific within th e meaning of Article 2.1(a) of the SCM Agreement. 
                                                      
4968 Exhibits US-333. 
4969 Exhibit US-332 (BCI). 
4970 US, FWS, para 691 citing PTA I, Ministerio de Industria, Tu rismo y Comercio, Secretary of State 
for Industry, Plan I+D para el Sector Aeronáutico (undated), p. 13., Exhibit US-348. 
4971 U S ,  F W S ,  p a r a  6 9 1  citing  European Commission, State Aid N 135/1999, Plan Tecnológico 
Aeronáutico II, decision of 5 May 1999, SG(99) D/3208, pp. 2,3, Exhibit US-346. 
4972 Exhibit US-348. 
4973 Exhibit US-346. 
4974 EC, FWS, para. 1311. WT/DS316/R 
Page 822  
BCI deleted, as indicated [***] 
 
  UK Government grants under CARAD
 
7.1606  The United States claims that the civil aeronau tics R&TD grants that the UK Government 
provided to Airbus are specific within the meaning of Article 2 of the SCM Agreement because they 
were limited to entities carrying out research in aeronautics technologies.4975 Although the 
United States has not identified a particular sub-para graph of Article 2 as the basis of its claim, we 
understand from the nature of the arguments it has advanced that its claim is grounded in 
Article 2.1(a) of the SCM Agreement.  The Eur opean Communities does not contest the United States' 
allegation.4976 
7.1607  In support of its claim, the United States has submitted an extract of the "Innovation Budget 
Guidelines" to officials of the CARAD which set out the procedures to be followed on CARAD 
projects.  This extract indicates that [***].4977  We are satisfied that this  evidence confirms the United 
States' uncontested assertion that the R&TD grants  at issue were limited to entities carrying out 
research in aeronautics technologies.  We therefore agree with the United States that the R&TD grants 
were explicitly limited to "certain enterprises", and are therefore specific within the meaning of 
Article 2.1(a) of the SCM Agreement. 
(vi) Conclusion  
7.1608  On the basis of the foregoing, we find that the United States has established that the following 
R&TD measures constitute specifi c subsidies within the meaning of Articles 1 and 2 of the 
SCM Agreement: the grants to Airbus provided under  the Second, Third, Fourth, Fifth and Sixth EC 
Framework Programmes; the loans to Airbus pr ovided under the Spanish PROFIT programme; the 
grants to Airbus provided by the French governmen t; the grants to Airbus provided by the German 
Federal government; the grants to Airbus provided by certain German sub-Federal governments; the 
loans to Airbus provided under the Spanish PTA pr ogramme; and the grants to Airbus provided under 
the UK CARAD programme.  
7.1609  On the other hand, we conclude that the United States has failed to establish that the grants to 
Airbus provided under the UK Technology Progra mme constitute specific subsidies within the 
meaning of Articles 1 and 2 of the SCM Agreement, and we will not consider them further in this 
dispute. 
                                                      
4975 US, FWS, para 691; Exhibit US-341 (BCI). 
4976 EC, Answer to Panel Question 108. 
4977 Exhibit US-341 (BCI).  WT/DS316/R 
 Page 823 
 
BCI deleted, as indicated [***] 
 
  SECTION VII.E.10 ANNEXES 
 
ANNEX I.1 – 2nd Framework Programme 
 
 Project Acronym Project Title 
1 EASN Contribution to European  Aero Supercomputing Network 
2 CAPRI Civil Aircraft Protection Against Ice (CAPRI) 
3 SCIA Helicopter Rotor/Fuselag e Interactional Aerodynamics 
4 ODT Optical Data Transmission 
5 ELFIN Investigation of Laminar Flow Technology (ELFIN) 
6 EUROVAL Validation CFD Codes (EURAVAL) 
7 IMAGES Integrated Modular Avionics Software (IMAGES) 
8 EUROMESH Multi - Block Mesh Generation for CFD (EUROMESH) 
9 FANSTIC Future Technologies Impact on Cockpit (FANSTIC) 
10 DUPRIN Ducted Propfan Investigations (DUPRIN) 
11 All Electric Aircraft All Electric Aircraft Flight Control Actuation 
12 GEMINI Airframe / Propulsion Integration (GEMINI) 
13 ACOUFAT Acoustic Fatigue a nd Related Damage Tolerance 
14 ODA Optimum Design in Aerodynamics 
15 Supersonic Flow Investigation of Supersonic Flow Phenomena 
16 None Development of Improved Dama ge Tolerant Carbon Fibre-
Matrix Composites 
17 None Development of Advanced Non Contact methods for Non 
Destructive Detection of Defects and Damage in Aeronautical 
Structures 
18 none Low Cost MMC Made by Spray Deposition 
19 none Development of Techniques for Polymeric Diaphragm 
Forming of Continuous Fibre Reinforced Thermoplastics 
20 none New Plating Techniques for Aluminium Alloys 
21 none Damage Tolerance and Fatigue Design Methodology for 
Primary Composite Structures 
22 none Post-Buckling Behaviour of CFC Structures 
23 none Application of Feature Based Modelling for Complex Product 
Design and Manufacture 
24 ASANCA Advanced Study for Active Noise Control in Aircraft 
  WT/DS316/R 
Page 824  
BCI deleted, as indicated [***] 
 
  ANNEX I.2 – 3
rd Framework Programme 
 
 Project Acronym Project Title 
1 ELFIN II "Fibre-Reinforcement of Precision Cast Parts" 
("FIBRECAST") 
2 FEAST Investigation of the aerodynamics and cooling of advanced 
engine turbine components 
3 CRASHWORTHINESS "Efficient Turbulence Models for Aeronautics" ("ETMA") 
4 IMAGES 2000 "Development of a High Strength Aluminum-Lithium Alloy" 
5 BRE2-0153 "Basic Research in Aircraft Interior Noise" ("BRAIN") 
6 DUPRIN II "Aeroacoustics Methods for Fan Noise Prediction and 
Control" ("FANPAC") 
7 Composite Fuselage "Electrically Powered Integrated Control (SMART) 
Actuators" ("EPICA") 
8 BRE2-0565 Research on organic primer concepts for aluminium substrates 
9 LARA "New Techniques for Paint Removal" 
10 BRE2-0160 Advanced civil core compressor aerodynamics 
11 BRE2-0313 "Crashworthiness for Commercial Aircraft" 
("CRASHWORTHINESS") 
12 EPICA flight tests Future laser atmospheric measurement equipment 
13 EPICA "Generic Approach for ATM Systems" ("GAAS") 
14 LAGER I "Development of a New Aluminium Alloy for use at 150º C" 
15 BRE2-0227 "Simulation of Resin Transfer Moulding Process for Efficient 
Design and Manufacture of Composite Components 3 
16 BRE2-0151 "New Techniques for Paint Removal" 
17 PICANT "Process/Integrated Cost Analysis Tool" 
18 PROTAILTHERM Property tailoring and ne t shape processing of structures from 
textile preforms with thermoplastic matrices 
19 ECARP "European Computational Aerodynamics Research Project" 
("ECARP") 
20 FANSTIC II "Future ATM New Systems and Technologies Integration in 
Cockpits" ("FANSTIC II") 
21 MOSAIC Measurement of ozone on Airbus in-service aircraft 
22 NOSOST New optical sensors and optical signal transmissions 
23 GEMINI II "Basic Test Rig for a Generic Model for Wind Tunnel Test on 
Airframe Propulsion Integration with Emphasis on Advanced 
Propeller II" ("GEMINI II") 
24 ASANCA II Advanced study for active noise control in aircraft 
25 GAAS "Generic Approach for ATM Systems" ("GAAS") 
26 VERSATILE Vision enhancement for reliable and safe air transport in 
limiting environment 
27 SNAAP Study of Noise and Aerodynamics of Advanced Propellers 
28 NS Solvers  
29 FANPAC Aeroacoustics Methods for Fan Noise Prediction and Control 
30 AERONOX The Impact Of Nox Emissions from Aircraft Upon the 
Atmosphere at Flight Altitude 8 – 15 km  WT/DS316/R 
 Page 825 
 
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  ANNEX I.3 – 4th Framework Programme 
 
 Project Acronym Project Title 
1 ENHANCE Enhanced aeronautical concurrent engineering (ENHANCE) 
2 RAIN Reduction of airframe and installation noise (RAIN) 
3 HYLDA Hybrid Laminar Flow Demonstration on Aircraft (HYLDA) 
4 APRICOS Advanced Primary Composites Structures (APRICOS) 
5 SPIDERS Specification Procedures for Industrial Distributed European 
Realisation of Systems (SPIDERS) 
6 ENIFAIR Engine integration on Futu re Transport Aircraft (ENIFAIR) 
7 MDO Multi-Disciplinary Design, Analysis and Optimisation of 
Aerospace Vehicles (MDO) 
8 SMAAC Structural Maintenance of Ageing Aircraft (SMAAC) 
9 HYLTEC Hybrid Laminar Flow Technology (HYLTEC) 
10 MONITOR Monitoring On-line Integrated Technologies for Operational 
Reliability (MONITOR) 
11 CEDIX To Establish Concurrent Engineering Based "Design for 
Integrated X-methodologies" for the preliminary and detailed 
design of aircraft sections (CEDIX) 
12 BRPR-97-0551 Design of Human / Machine Interfaces and their Validation in 
Aeronautics 
13 FLEXSHOP Flexible Workshop for Airframe Assembly (FLEXSHOP) 
14 CRASURV Commercial Aircraft - Design for Crash Survivability 
(CRASURV) 
15 DOCT Development of Clean technologies for Aircraft Industry 
(DOCT) 
16 CANDIA Cost Reduction by Advanced non-Destructive Inspection of 
Aeronautical Structures (CANDIA) 
17 MASSPS Materials system for surfa ce protection and sealing (MaSSPS) 
18 3D-PTM Assessment of Economic and Technical Advantages of 3-D 
Preform Transfer Moulding (3D-PTM) 
19 AVTAC Advanced Viscous Flow Si mulation Tools for Complete Civil 
Transport Aircraft Design (AVTAC) 
20 INDUCE Advanced integrated NDT  concepts for unified life-cycle 
(INDUCE) 
21 EDAVCOS Efficient Design and Verification of Composite Structures 
(EDAVCOS) 
22 CATE Composites and Advanced Aircraft Technologies 
Electromagnetic Protection (CATE) 
23 ADPRIMAS Advanced Concepts for Pr imary Metallic Aircraft Structures 
(ADPRIMAS) 
24 ELGAR European Landing Gear Advanced Research (ELGAR) 
25 IAPPS Integrated Automated Process Planning System (IAPPS) 
26 EUROWAKE Wake Vortex Formation of Transport Aircraft (EUROWAKE) 
27 EUROSUP Reduction of Wave & Lift -Dependent Drag for Supersonic 
Transport Aircraft (EUROSUP) 
28 REAL Robust and Efficient Autopilot Control Laws Design (REAL) WT/DS316/R 
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   Project Acronym Project Title 
29 EuroShock II Drag Reduction by Shock and Boundary Layer Control 
(EuroShock II) 
30 EUROTRANS European Program for Transition Prediction (EUROTRANS) 
31 FASTFLO Fully Automatic System for Three-dimensional Flow 
Simulations (FASTFLO) 
32 3FMS Free Flight - Flight Management System (3FMS) 
33 ADSTREFF Targeted Research Action in Advanced Structural Efficiency 
34 APIAN Advanced Propulsion Integration Aerodynamics and Noise 
(APIAN) 
35 ASSET The Development of Advanced Surface Engineering Techniques 
for Future Aerospace Transmissions (ASSET) 
36 AWARD All Weather Arrival & Departure (AWARD) 
37 BRPR-95-0095 Control of Gas Phase and Condensed Matter Temperature in 
Industrial Processes 
38 BRPR-95-0105 Development of Elevated Temperature Aluminium Alloys 
39 BRPR-98-5050 Thematic Ne twork Wake Vortex 
40 CREEPAL Long term creep and thermal- mechanical cycling behaviour of 
aluminium alloys (CREEPAL) 
41 DMU-ES Digital Mock-up Ergonomic Simulation (DMU-ES) 
42 DMU-MM Digital Mock-up Modelling Methodologies and Tools for 
Product Conception and Downstream Processes (DMU-MM) 
43 DMU-VI Digital Mock-up Visualisation in Product Conception and 
Downstream Processes (DMU-VI) 
44 DRAGNET European drag reduction network (DRAGNET) 
45 DUCAT Basic research on duct acoustics and radiation (DUCAT) 
46 DYNASAFE Development of Composite Aircraft Passenger Seats with 
3-Point Shoulder Harnesses to Provide Enhanced Protection 
(DYNASAFE) 
47 ELISA Electrical innovative surface actuation (ELISA) 
48 ENSPED European Network of Surface and Prestress Engineering and 
Design (ENSPED) 
49 EUROPIV Cooperative Action to Appl y PArticle Image Velocimetry to 
Problems of Industrial Interest (EUROPIV) 
50 EXT-HAZ Improved methodological and technical approach to external 
hazards safety issues in the aerospace industry (EXT-HAZ) 
51 FLITE Forum for large improvement of air traffic in Europe (FLITE) 
52 ISAWARE Increasing Safety thro ugh collision Avoidance WARning 
intEgration (ISAWARE) 
53 LABWELD Laser beam welding in the transportation industries 
(LABWELD) 
54 NAWM Novel Aluminium Welding Methods (NAWM) 
55 NEVADA Open Integrated Avionics fo r European Air Transport Aircraft 
(NEVADA) 
56 PERFECT Process Efficient Regulation for Economical Composites 
Technologies (PERFECT)  WT/DS316/R 
 Page 827 
 
BCI deleted, as indicated [***] 
 
   Project Acronym Project Title 
57 PIVNET PivNet - A European collaboration on development and 
application of PArticle Image Velocimetry between industry, 
research organizations and universities 
58 PRECIMOULD High Precision Composites Moulding prediction of Distortion 
Using Analytical Methods (PRECIMOULD) 
59 PROFOCE Product Focused Concurrent Engineering 
60 RANNTAC Reduction of aircraft noi se by nacelle treatment and active 
control (RANNTAC) 
61 RESOUND Reduction of engine s ource noise through understanding and 
novel design (RESOUND) 
62 SAMBA Smart actuator and modular braking applications (SAMBA) 
63 TRA3 Targeted research action in aerospace aerodynamics (TRA3) 
64 UNSI Unsteady Viscous Flow in the Context of Fluid Structure 
Interaction (UNSI) 
65 X-NOISE Aircraft external noi se thematic network (X-NOISE) 
66 AIRDATA Aircraft Drag and Thrust Analysis  
67 AERONET The European Aeroemissions Network 
68 AEROJET II Prototyping a Non-Intrusive Exhaust Gas Measurement System 
for Gas Turbines 
69 AEROPROFILE Profiling spectrometry to simultaneously investigate the spatial 
distribution of temperature and chemical species in aircraft exhausts 
70 AFMS Advanced Flight Management System 
71 VINTHEC Visual Interactive and Human Effectiveness in the Cockpit 
72 none  Investigation of the Viability of MEMS Technology for 
Boundary Layer Control on Aircraft 
73 DAMASCOS Damage Assessment in Smart Composite Materials 
74 HICAS High velocity impact of composite aircraft structures 
75 WAVENC Wake vortex evolution in far-wake region & wake vortex 
encounter 
76 none  Non-Intrusive Measurements of Aircraft Engine Emissions 
 
 WT/DS316/R 
Page 828  
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  ANNEX I.4 – 5
th Framework Programme  
 
 Project Acronym Project Title 
1 AWIATOR Aircraft Wing Advanced Technology Operations 
2 TANGO Technology Application to the Near Term Business Goals and 
Objectives of the Aerospace Industry 
3 FACE Friendly Aircraft Cabin Environment 
4 C-WAKE Wake Vortex Characterization and Control 
5 IARCAS Improve And Assess Repair Capability Of Aircraft Structures 
6 HIRETT High Reynolds Number Tools And Techniques For Civil Transport 
Aircraft Design 
7 VELA Very Efficient Large Aircraft 
8 WAFS Welding Of Airframes By Friction Stir 
9 LiSA Light-Weight Low-Cost Surface Protection For Advanced Aircraft 
Structures 
10 NEFA New Empennage for Aircraft 
11 INCA Improved Nde Concepts For Innovative Aircraft Structures And 
Efficient Operational Maintenance 
12 EUROLIFT European High Lift Programme 
13 ALTTA Application Of Hybrid Lami nar Flow Technology On Transport 
Aircraft 
14 INDeT Integration of Non Destructive Testing 
15 ADFAST Automation for Drilling, Fastening, Assembly, Systems Integration, 
and Tooling 
16 ROSAS Research On Silent Aircraft Concepts 
17 M-DAW Modelling and Design of Advanced Wing tip devices 
18 EECS Efficient And Economic Cabling System 
19 TAURUS Technology Development For Aero elastic Simulations On Unstructured 
Grids 
20 FALCOM Failure, Performance And Processing Prediction For Enhanced Design 
With Non-Crimp Fabric Composites 
21 AEROSHAPE Multi Point Aerodynamic Shape Optimisation 
22 AGEFORM Ageformable panels for commercial aircraft 
23 HELIX Innovative Aerodynamic High Lift Concepts 
24 BOJCAS Bolted Joints in Composite Aircraft Structures 
25 3AS Active Aeroelastic Aircraft Structure 
26 ADAMS 2 Human Centred Operations In Aircraft Dispatch And Maintenance 
27 ADMIRE Advanced Design concepts and Maintenance by Integrated Risk 
Evaluation for aerostructures 
28 AERO2K Global aircraft emissions data project for climate impacts evaluation 
29 AEROMEMS II Advanced Aerodynamic Flow Control Using MEMS 
30 AERONET II Aircraft Emissions and Reduction Technologies  WT/DS316/R 
 Page 829 
 
BCI deleted, as indicated [***] 
 
   Project Acronym Project Title 
31 AFAS Aircraft In The Future Air Traffic Management System 
32 ASICA Air Management Simulation For Aircraft Cabins 
33 ASL Aircraft Service Logistics 
34 Cabinair Improving Air Quality In Aircra ft Cabins Using 'Measurements In The 
Sky' And Innovative Designs And Technologies 
35 COCOPAN Advanced Digital Networ k For New Cockpit Overhead Panel 
36 CRAHVI Crashworthiness Of Aircraft For High Velocity Impact 
37 CRYOPLANE Liquid Hydrogen Fuelled Aircraft - System Analysis 
38 EEFAE Efficient And Environmentally Friendly Aircraft Engine 
39 EM-HAZ Methods and Technologies fo r Aircraft Safety and Protection 
Electromagnetic Hazards 
40 EPISTLE European Project for Improvement of Supersonic Transport Low Speed 
Efficiency 
41 ESACS Enhanced Safety Assessment For Complex Systems 
42 EUROPIV 2 A Joint Program To Improve Piv Performance For Industry And 
Research 
43 FIREDETEX New Fire/Smoke Detecti on And Fire Extinguishing Systems For 
Aircraft Applications 
44 FLOMANIA Flow Physics Modelling-An Integrated Approach 
45 GIFT Gnss - Inertial Future Landing Techniques 
46 HORTIA Heat And Oxidization Resistant Titanium Alloys Applications 
47 IDA Investigation On Damage Tolera nce Behaviour Of Aluminium Alloys 
48 IMCAD Improving The Cockpit Application Development Process 
49 INTENT The Transition towards Global Air and Ground Collaboration in Traffic 
Separation Assurance 
50 ISAWARE II Increasing safety by enhancing crew situation AWAREness 
51 I-WAKE Instrumentation Systems For On-Board Wake-Vortex And Other 
Hazards Detection Warning And Avoidance 
52 LOADNET Low Cost Optical Avionics Data Networks 
53 NATACHA Network Architecture And Technologies For Airborne Communication 
Of Internet High Bandwidth Application 
54 NEPAIR Development Of The Technical Basis For A New Emissions Parameter 
Covering The Whole Aircraft Operation 
55 NEWSCREEN Three Large Displays Cockpit Approach-New Screen 
56 PAMELA Prospective Analysis For Modular Electronic Integration In Airborne 
Systems 
57 PIVNET2 A European Collaboration On Development, Quality Assessment, And 
Standardization Of Particle Im age Velocimetry For Industrial 
Applications 
58 POA Power Optimised Aircraft 
59 SAFE SOUND Safety Improvement By Means Of Sound WT/DS316/R 
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   Project Acronym Project Title 
60 SILENCE(R) Significantly Lower Community Exposure To Aircraft Noise 
61 SOBER Sonic Boom European Research Programme :  Numerical and 
Laboratory-Scale Experimental Simulation 
62 S-Wake Assessment Of Wake Vortex Safety 
63 VICTORIA Validation Platform For Inte gration Of Standardised Components, 
Technologies, And Tools In An Open, Modular And Improved Aircraft Electronic System 
64 KATnet Key Aerodynamic Technologies For Aircraft Performance 
Improvement 
65 SmartFuel Third Generation Dig ital Fluid Management System 
66 WakeNet2-Europe A European Thematic Network for Aircraft Wake Turbulence 
67 X2-NOISE AIRCRAFT EXTERNAL NOISE NETWORK, PHASE II 
68 AEROFIL New Concept of High-Pressure  Hydraulic Filter for Aeronautics 
Preserving Environment 
69 FUBACOMP Full-Barrel Composite Fuselage 
70 HEACE Health Effects in the Aircraft Cabin Environment 
71 HiAER High-Level Modelling of High-Lift Aerodynamics 
72 MA-AFAS More Autonomous Aircraft in the Future Air-Traffic Management 
System 
73 MOB A Computational Design Engine Incorporating Multi-Disciplinary 
Design and Optimisation for Ble nded Wing-Body Configuration 
74 VINTHEC II Visual Interaction and Huma n Effectiveness in the Cockpit, Part II 
 
  WT/DS316/R 
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  ANNEX I.5 – 6th Framework Programme 
 
 Project Acronym Project Title 
1 ALCAS Advanced Low Cost Aircraft Structures 
2 CELINA Fuel Cell Application in a New Configured Aircraft 
3 COMPACT A Concurrent Approach to Manufacturing Induced Part Distortion 
in Aerospace Components 
4 DIALFAST Development of Innovative a nd Advanced Laminates for Future 
Aircraft Structure 
5 DINAMIT Development and innovation for Advanced Manufacturing of 
Thermoplastics 
6 ECOSHAPE Economic Advanced Shaping Processes for Integral Structures 
7 EUROLIFT II European High Lift Programme II 
8 FLIRET Flight Reynolds Number Testing 
9 ISAAC Improvement of Safety Activities on Aeronautical Complex 
Systems 
10 MUSCA Non-linear static MUltiSCAle analysis of large aero-structures 
11 NACRE New Aircraft Concepts REsearch 
12 REMFI Rear Fuselage and Empennage Flow Investigation 
13 SMIST Structural Monitoring with Advanced Integrated Sensor 
Technologies 
14 TATEM Technologies and Techniques for New Maintenance Concepts 
15 VIVACE Value improvement through a Virtual Aeronautical Collaborative 
Enterprise 
16 WEL-AIR Development of Short Distance WELding Concepts for AIRframes 
17 TELFONA Testing for Laminar Flow on New Aircraft 
18 AEROMAG Aeronautical Application of Wrought Magnesium 
19 AERONET III Aircraft Emissions and Reduction Technologies 
20 ANASTASIA Airborne New and Advanced  Satellite techniques & Technologies 
in A System Integrated Approach 
21 FLYSAFE Airborne Integrated Systems for Safety improvement, Flight 
Hazard Protection and All Weather Operations 
22 MESSIAEN Methods for the Efficient Simulation of Aircraft Engine Noise 
23 OPTIMAL Optimized Procedures and Techniques for IMprovement of 
Approach and Landing 
24 PIBRAC PIezo BRake ACtuator  
25 SAFEE Security of Aircraft in the Future European Environment 
26 SIRENA External EMC simulation for radio electric systems, in the close 
environment of the aircraft 
27 SUPERTRAC SUPERsonic TRAnsition Control 
28 VITAL EnVIronmenTALly Friendly Aero Engine 
29 WALLTURB A European Synergy for the assessment of wall turbulence 
30 DATON Innovative Fatigue and Dama ge Tolerance Methods for the 
Application of New Structural Concepts 
31 FAR-Wake Fundamental Research  on Aircraft Wake Phenomena WT/DS316/R 
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   Project Acronym Project Title 
32 ICE Ideal Cabin Environment 
33 LIGHTNING Lightning protection for structures and systems on aircraft utilising 
lightweight composites 
34 TURNEX Turbomachinery Noise Radiation through the Engine Exhaust 
35 ADLAND Adaptive Landing Gears for Improved Impact Absorption 
36 ARTIMA Aircraft Reliability Throug h Intelligent Materials Application 
37 ATENAA Advanced Technologies for Ne tworking in Avionic Applications 
38 B-VHF Broadband VHF Aeronautical Communications System Based On 
MC-CDMA (B-VHF) 
39 DEEPWELD Detailed multi-physics mo delling of friction stir welding 
40 DESIDER Detached Eddy Simulation for Industrial Aerodynamics 
41 EMMA European airport Movement Management by A-smgcs 
42 HILAS Human integration into the life-cycle of aviation systems 
43 HISAC Environmentally friendly high speed aircraft 
44 IFATS Innovative Future Air Transport System 
45 IPAS Installed Performance of Antennas on AeroStructures 
46 iTOOL Integrated tool for simulation of textile composites 
47 MESEMA Magnetoelastic Energy Systems for Even More Electric Aircraft 
48 MOWGLY Mobile Wideband Global Link System 
49 RETINA Reliable, tuneable and inexpensive antennas by collective 
fabrication processes 
50 UFAST Unsteady effects in shock wave induced separation 
51 SEFA Sound Engineering For Aircraft 
52 WISE Integrated wireless sensing 
53 ASAS-TN2 ASAS Thematic Network 2 
54 C-ATM (PHASE 1) Co-operative air traffic Management - Phase 1 
 
  WT/DS316/R 
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F. ADVERSE EFFECTS  
1. General Overview of the Parties' Arguments 
7.1610  The United States claims that subsidies to Airbus  cause adverse effects to its interests within 
the meaning of Articles 5(a) and (c) of the SCM Ag reement.  Specifically, the United States asserts 
that through the use of these s ubsidies, the European Communities,  France, Germany, Spain and the 
United Kingdom cause or threaten to cause: (i) "inj ury" to the United States' industry producing LCA; 
and (ii) "serious prejudice" to United States' interest s in that the effect of the subsidies is (a) to 
displace or impede imports of United States' LCA into the EC market, (b) to displace or impede 
exports of United States' LCA from third country markets, and (c) significant price undercutting by 
EC LCA as compared with the price of United Stat es' LCA in the same market, and significant price 
suppression, price depression and lost sales in the sa me market, within the meaning of Articles 6.3(a), 
(b) and (c) of the SCM Agreement.  
7.1611  The United States argues that there is a single subsidized EC product and a single competing 
United States' like product, which it identifies as la rge civil aircraft manufactured by Airbus and 
Boeing respectively, and asserts that data for th e period 2001 to 2005 demonstrates that the adverse 
effects it alleges existed at the time of this Panel's establishment in 2005.  The United States 
acknowledges that the Panel may consider informati on for a period subsequent to its establishment in 
2005, but maintains that the determination of adve rse effects should be made as of the date of 
establishment.   
7.1612  The United States alleges that the subsidies to Airbus are large, although it maintains there is 
no obligation under the SCM Agreement to quantify th e magnitude of those subsidies in order to 
make out its case.  The United States contends that LA/MSF was of sufficient magnitude to distort the LCA market by allowing Airbus to launch aircraft at times and at a pace that would have been impossible in its absence, and provided financial flex ibility that Airbus could use to price aggressively 
to gain market share.  The United States asserts th at the other subsidies in dispute complement the 
effect of LA/MSF and have a cumulative effect with  it, and should therefore be considered together 
with LA/MSF in the Panel's assessment of adverse effects.   
7.1613  The United States contends that subsidies to Ai rbus resulted in Airbus being able to launch 
successive models of LCA, which it sold and conti nues to sell at prices that significantly depress and 
suppress the prices of competing Boeing aircraft.  The United States asserts that Airbus' worldwide 
market share increased from 2001 to 2005, overtaking that of Boeing.  The United States presents 
evidence concerning Boeing's sales and operating results, as well as the volumes and prices of 
subsidized LCA imports and US prices of Boeing LCA, which it contends de monstrates that imports 
of subsidized Airbus LCA into the US market cau se and threaten to cause material injury to the 
United States' industry producing LCA.  The Unit ed States also presents evidence and arguments 
concerning changes in the market share of Boeing a nd Airbus in the EC and third country markets, 
world price information for Boeing LCA, and informa tion concerning sales to particular customers, in 
support of its claims of serious prejudice. 
7.1614  The European Communities disputes each of the Un ited States' claims of adverse effects, and 
presents a series of arguments in support of its pos ition.  First, the European Communities contends 
that there are multiple families of allegedly subsid ized Airbus LCA, and argues that the Panel should 
reject the United States' view of a single subs idized product, and instead find four allegedly 
subsidized products, only three of which compete w ith three US-produced like products in distinct 
markets, defined by LCA seating capacity.  The Eu ropean Communities argues that one Airbus LCA, 
the A380, and one Boeing LCA, the 747, have no co mpetitive counterparts, and therefore that there WT/DS316/R 
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  can be no adverse effects caused by subsidies to th e A380, and no adverse effects to United States' 
interests with respect to the Boeing 747.   
7.1615  The European Communities argues that the a ppropriate period for assessing present adverse 
effects is 2004 to 2006, and that the Panel shoul d disregard data for the period 2001-2003, arguing 
that this information is too old to be relevant to a determination of present adverse effects.  Moreover, 
the European Communities submits that data for the period 2001 to 2003 is not representative of 
"normal competitive conditions", and reflects the ef fects of the events of 11 September 2001, which 
the European Communities alleges constitute force majeure  within the meaning of Article 6.7(c) of 
the SCM Agreement and thereby render the period 2001 to 2003 unreliable as a starting point for 
consideration of adverse effects.   
7.1616  The European Communities asserts that the magn itude of any subsides to any of the Airbus 
LCA "families" is negligible, a nd should be considered legally de minimis .  In support of its position, 
the European Communities presents a calculation of the ad valorem  amount of R&TD and LA/MSF 
subsidies allegedly provided with respect to certain Airbus LCA families.  The European 
Communities asserts that it bases this calculation on United States' regulations governing the 
methodology for calculating subsidy amounts in counterva iling duty investigations.  On this basis, the 
European Communities calculates the amount of a lleged R&TD and LA/MSF subsidies tied to the 
each of the Airbus LCA families, allocates these am ounts over time, and over orders of the respective 
Airbus LCA, and concludes that the total magnitude of these subsidies is small and in some instances 
de minimis .  According to the European Communities, it is  inconceivable that subsidies of such small 
magnitude could cause adverse effects.  The European Communities recognizes that precise 
quantification of subsidies is not strictly necessary in a dispute concerning adverse effects, but argues 
that its calculations demonstrate the de minimis  magnitude of R&TD and LA/MSF subsidies for the 
A320, A330, and A340 LCA families, and should th erefore be given significant weight, and lead the 
Panel to reject the United States' claims of adverse effects.   
7.1617  The European Communities also contends that th e nature of the subsidies in dispute does not 
support the United States' claims of adverse e ffects, again focussing on the R&TD funding and 
LA/MSF.  With respect to latter, the European Communities contends th at the beneficial effects were 
largely felt decades ago, and thus  are not likely to create present adverse effects.  The European 
Communities maintains that LA/MSF is product-speci fic project financing which does not finance 
production costs, but merely transfers a portion of th e risk associated with an aircraft development 
programme.  However, according to the European Comm unities, since Airbus bears most of that risk, 
such funding does not result in the launch of aircraft that are not otherwise commercially viable.  With 
respect to the former, the Europ ean Communities contends that th e United States fails to provide 
evidence or explanation of how the R&TD support me asures cause adverse effects, and thus fails to 
meet its burden of proof in this regard. 
7.1618  The European Communities presents evidence and arguments concer ning alleged adverse 
effects specific to each of the allegedly subsidized  families of Airbus LCA – the A380 family, the 
A320 family, the A330 family, and the A340 family , including respective derivative models.  With 
respect to the A380, the European Communities assert s that there is no competition between it and the 
Boeing 747, that the failure of Boeing to launch a competing aircraft for the over-500 seat market 
does not constitute present serious prejudice from lost sales, and that the A380 did not cause 
significant price suppression or depression of Boeing 747 prices.  With respect to each of the 
remaining Airbus LCA families, the European Comm unities argues that, in light of the conditions of 
competition in each of the respective markets, and given their nature, age and magnitude, the 
subsidies at issue do not cause any of the adverse ef fects alleged by the United States.  The European 
Communities argues that the financial condition and operating performance of Boeing in 2006, 
including the large backlog of orde rs for future delivery, demonstrate that there are no present adverse 
effects.  The European Communities also maintains that there is no injury, or threat of injury, to  WT/DS316/R 
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  Boeing, given its excellent performance in 2006, and that in any event, the United States has failed to 
demonstrate that the use of the subsidies in  dispute has caused an y injury to Boeing. 
2. Background 
7.1619  Before beginning our analysis of the parties' arguments, we consider it useful to briefly 
describe the development of Airbus, and the LCA industry.  We emphasize that this general 
background is not intended to subs titute in any respect for our more detailed consideration of the 
evidence and findings elsewhere in this Report.  It is  intended merely as an introduction for the reader.   
7.1620  In the mid 1960s, there were three manufacturer s of LCA in the United States:  Lockheed, 
McDonnell Douglas, and Boeing.  These three accounted for the vast majority of all LCA sold in the 
global market.4978  Lockheed exited the LCA industry in 1985, while McDonnell Douglas exited the 
LCA industry as an independent manufacturer by merg ing with Boeing in 1997.  In the meantime, as 
described below, Airbus entered the industry, with it s first aircraft delivered in 1974.  Thus, today, 
there are two participants in the LC A industry, Airbus and Boeing.   
7.1621  Airbus began as a consortium of separate companies in France, Germany and Spain, formally 
established in 1970 following earlier discussions be tween France, Germany and the United Kingdom.  
British Aerospace, a UK company, joined the consor tium in 1979.  In 2001, there was a fundamental 
change in Airbus' structure, with the formation of the European Aeronautic Defence and Space Company ("EADS") in 2000 through a merger of th e consortium companies in France, Germany and 
Spain.  Between 2001 and 2004, the LCA activities of th e four partners in the consortium were placed 
into subsidiaries under the control of a single, integrated company, Airbus SAS.
4979  
7.1622  Airbus launched its first LCA, the A300, and its modified version, the A310, in 1969 and 
1978, and the aircraft entered into service in 1974 and 1985, respectively. Airbus ceased production of 
these aircraft in July 2007.  Airbus' next LCA, the A320, was launched in 1984, and entered into 
service in 1988.  Three variants, the A321, A319, and A318 were subseque ntly launched in 1989, 
1993, and 1999, and entered into service in 1994, 19 96, and 2003, respectively.  Between the launches 
of the A320 and its first variant the A321, Air bus launched the A330 and A340, in 1987.  Both 
entered into service in 1993, the A340 first, followe d later in the year by the A330.  Derivatives of 
these models, the A330-200 and A340-500 & 600, were  launched in 1995 and 1 997, and entered into 
service in 1998 and 2002, respectively.  Airbus' next  launch was of the A380, in 2000, which entered 
into service in 2007.  Finally, in 2006, Airbus launched the A350XWB, which is expected to enter into service in mid-2013. 
7.1623  The LCA industry is characterized by, inter alia , significant start-up costs for the 
development of each new model of LCA, which ar e invested long before any revenue from the 
resulting product is generated.  Le arning effects, both with respect to  development, and in production, 
are significant.  The customers for LCA are principa lly airlines, either directly or through leasing 
companies, whose operations are sensitive to external  events, such that when there is a downturn in 
the airline industry, the LCA industry also suffers.  Long lead times for LCA production mean that the 
LCA industry cannot respond rapidly to changes in demand from airlines.  Thus, LCA manufacturers 
must engage in long-term planning to attempt to sat isfy a market in which changes are expected but 
unforeseeable.  The LCA industry, like the airline industry it serves, is global.  LCA are priced in US 
                                                     
 
4978 LCA production has continued in Russia but difficulties in obtaining funding for the development 
of LCA that can meet international airworthiness certification standards have prevented Russian LCA producers from seriously competing with Boeing and Airbus for LCA sales outside the former Soviet bloc. See, US 
International Trade Commission, The Changing Structure of the Global Large Civil Aircraft Industry and 
Market , Inv. No, 332-384 (November 1998) at Ch. 4, Exhibit US-374. 
4979 This background and development is described in more detail in Section VII.E.1 of this Report. WT/DS316/R 
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  dollars, and thus exchange rate movements may ha ve an important effect on both manufacturers and 
customers.   
3. Order of Analysis 
7.1624  In addressing the United States' claims of advers e effects, there are two fundamental threshold 
questions that we believe it would be useful to  settle before evaluating the substance of the 
United States' claims.  The first question relates to  the identification of the relevant "subsidized 
product" and the relevant "like product" in this di spute.  The second question concerns the appropriate 
time period over which to conduct our examination of  the alleged adverse effects, that is, the 
appropriate "reference period" for the assessment of the elements of injury and serious prejudice.  
After resolving these two threshold questions, we will turn to evaluate the merits of the United States' 
adverse effects claims, describing first, by way of  background, the general conditions of competition 
existing in the LCA industry, before examining the arguments and eviden ce submitted concerning the 
various forms of alleged a dverse effects and causation. 
4. Subsidized Product and "Like Product" 
(a) Arguments of the Parties 
(i) United States 
7.1625  The United States asserts that the relevant subsid ized product in this dispute is the family of 
Airbus large civil aircraft, and the corresponding "l ike product" is the family of Boeing large civil 
aircraft.   
7.1626  The United States argues that, from its incepti on, Airbus has followed a strategy of 
developing an LCA family to compete with  United States' LCA producers, and used, inter alia , the 
subsidies at issue in this dispute in furtherance of that strategy.
4980  The United States maintains that 
most customers require a range of aircraft that can  operate efficiently over a variety of routes, and 
most of them see efficiencies and other advantages in operating fleets that contain LCA from a single supplier.
4981  Thus, according to the United States, Airbus  has focused on developing an integrated 
family of aircraft with a high degree of commona lity in operational aspects such as flight and cabin 
crew training and maintenance and spare parts.4982  Producing a full LCA family also allows Airbus to 
achieve production efficiencies.  Increasing production of one aircraft type reduces the marginal cost 
of producing related aircraft typ es, and the development of new airc raft also supports the development 
of production facilities and technologies across its LCA family.4983  The United States also argues that 
Airbus manages its LCA production activities on a fa mily basis, so that the production and sales of 
one type of LCA supports the de velopment of another LCA type.4984 
7.1627  Thus, the United States argues, because subsidi es are provided to Airbus for the development 
of an LCA family, and because subsidies for the development of each major Airbus LCA model 
                                                      
4980 US, FWS, para. 718-19. 
4981 The United States notes that the European Communities pointed to the failure of McDonnell 
Douglas to continue offering a full family of aircraft as a key factor in its exit from the LCA market.  
Commission Decision 97/816/EC, O.J.  1997 L336 at 16, (hereafter, EC Merger Analysis ), para. 59, Exhibit US-
375; s ee also, Thomas L.  Boeder & Gary J.  Dorman, The Boeing/McDonnell D ouglas Merger:  The 
Economics, Antitrust Law, and Politics of the Aerospace Industry , Antitrust Bulletin (Spring 2000), at 119, 137-
38 (hereinafter "Boeder & Dorman"), Exhibit US-373 
4982 US, Answer to Panel Question 39, paras. 229-30, Exhibits US-448 & 499. 
4983 US, FWS, para. 722, US, Answer to Panel Question 39, para. 231, Exhibit US-379,  See, US, 
Answer to Panel Questions 40 & 41, paras. 241 & 243 respectively. 
4984 US, FWS, para. 723.  WT/DS316/R 
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  benefit the production and marketing of its full LCA family, the "subsidized product" is the Airbus 
LCA family as a whole.4985 
7.1628  The United States also contends that, even if it were useful or reasonable to divide the LCA 
market into a number of submarkets, as th e European Communities a lleges, the European 
Communities fails to show why the effects of the s ubsidies are limited to competition within each of 
the specific LCA markets identified by the EC.4986  The United States argues that there are no clear 
dividing lines between the categories proposed by the European Communities, and considers those 
categories to be arbitrarily based on a standa rd seating capacity and class configuration that 
may or may not reflect the way airlines actually configure their LCA cabins.  The United States also 
asserts that Airbus itself does not follow the market  segmentation pattern proposed by the European 
Communities in this dispute, and that in any event,  there are sales competitions between aircraft that 
are not in the same market segment.  Finally, the United States points out that differences in seating 
capacities and other characteristics among aircraft are routinely "monetized" in comparing the values 
of different LCA, and that purchasers will make  trade-offs between purchase price and seating 
capacity based on operating efficiencies and per-sea t costs of operation, an aspect of competition 
ignored by the European Communities' analysis.4987   
7.1629  The United States asserts that, having identified the subsidized product as the entire family of 
Airbus LCA, the corresponding "like produc t" is the entire family of Boeing LCA.4988  The United 
States notes that the SCM Agreement defines the term "like product" as: 
"a product which is identical, i.e., alike in all respects to the product under 
consideration, or in the absence of such a product, another product which, although 
not alike in all respects, has characteristics closely r esembling those of the product 
under consideration."4989 
The United States asserts that there is no product th at is identical to Airbus's LCA family "in all 
respects," but that the Boeing family of LCA has "characteristics closely resembling" those of the 
Airbus family.  The United States argues that this is  a consequence in part of the fact that Airbus 
developed its LCA family to compete directly with the Boeing LCA family.4990  The United States 
describes specific aspects of the physical characteristics, end uses, consumer perceptions, and tariff classification of Boeing and Airbus LCA which it asserts demonstrate this close resemblance.
4991  
Moreover, the United States argues that the Airbus  family competes with the Boeing family, as 
demonstrated by the existence of demand substitu tion among different Airbus and Boeing models for 
the same routes.4992 
 7.1630  The United States relies on the report of the Panel in US – Softwood Lumber V  interpreting 
the like product provision in Article 2.6 of the Anti-Dumping Agreement, which is identical to 
footnote 46 of the SCM Agreement, in support of its  view that the "like product" is defined with 
reference to the "product under consideration."
4993  The United States notes that the panel in that 
dispute rejected the argument that the definition of  the "like product" requires that each item in the 
                                                      
4985 US, FWS, para 724. 
4986 US, SWS, paras. 629-31. 
4987 US, FWS, para. 713. 
4988 US, FWS, para. 725. 
4989 SCM Agreement, footnote 46. 
4990 US, FWS, para. 727. 
4991 US, FWS, para. 727. 
4992 US, FWS, para. 728. 
4993 Panel Report, United States – Final Dumping Determination on Softwood Lumber from Canada 
("US – Softwood Lumber V "), WT/DS264/R, adopted 31 August 2004, as modified by Appellate Body Report, 
WT/DS264/AB/R, DSR 2004:V, 1937, para. 7.153. WT/DS316/R 
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  "product under consideration" must be  "like" every other item within it.
4994  Thus, the United States 
argues the "product under consideration" may in clude a range of specific goods, and the "like 
product" may also contain a range of specific goods, pr ovided that the "like product" is "identical to" 
or "closely resembles" the "product under considerat ion" or subsidized product within the meaning of 
footnote 46 of the SCM Agreement.4995   
(ii) European Communities 
7.1631  The European Communities disputes the United St ates position that there is a single "Airbus 
LCA Family" that constitutes the "subsidized product ," a single "like product," and a single "LCA 
product market."4996   The European Communities contends that the United States' position defies the 
reality of the markets for the LCA in question.4997  The European Communities asserts that there are, 
in fact, five distinctive product markets of Airbus and Boeing LCA, namely:  
"the single-aisle 100-200 seat market,  encompassing the Airbus A320 family and 
the competing Boeing 737NG family;  
the 200-300 seat market, encompassing the Airbus A330 family and the Airbus 
A350XWB-800, and the competing Boeing 767 and 787 families;   
the 300-400 seat market, encompassing the Airbus A340 family and the A350XWB-
900/1000, and the competing Boeing 777 family; 
the 400-500 seat market,  encompassing the Boeing 747 family as the only market 
participant; and  
the 500+ seat market,  with the Airbus A380 family as the only market 
participant."4998       
7.1632  The European Communities argues that once a co mplaining Member has asserted that certain 
subsidies benefit certain products, it is for the Pa nel to determine, based on an assessment of the 
evidence, under Article 11 of the DSU, whether the identified universe of allegedly subsidized 
products should be treated as a single subsidi zed product, or multiple subsidized products.4999  The 
European Communities asserts that a decision by th e Panel on the identification and composition of 
the subsidized products is a prerequisite for the Pa nel to then determine the appropriate like product or 
products that compete in the relevant product mark et or markets with the subsidized product or 
products.5000 
7.1633   In this case, the European Co mmunities notes that the United States claims that a number of 
different subsidies, including LA/MSF, benefited a single subsidized product, the Airbus "family" of 
LCA.  The European Communities maintains that th is combination of subsidized products does not 
reflect the reality of the LCA industry.5001  According to the European Communities, the Panel must 
                                                      
4994 US  Answer to Panel Question 129, paras. 413-414 (citing US – Softwood Lumber Dumping 
(Panel) , para. 7.157). 
4995 Panel Report, US – Softwood Lumber V , paras. 7.156-7.157; see also, Panel Report, Indonesia – 
Autos , para. 14.164 (definition of like product flows from allegation by the complaining parties that the 
subsidies in question were conferred only on one type of passenger automobile). 
4996 EC, FWS, para. 1507. 
4997 EC, FWS, para. 1508. 
4998 EC, FWS, para. 1509. 
4999 EC, FWS, para. 1512. 
5000 EC, FWS, para. 1513. 
5001 EC, FWS, para. 1517.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  consider different models of Airbus LCA, which it asserts benefit from different alleged subsidies, as 
separate and distinct "subsidized products".  The European Communities mainta ins that an important 
factor to consider in identifying the subsidized products is the nature a nd terms of the subsidy 
measures challenged by the complaining party.  In  the European Communities' view, where measures 
relate to the development and production of a par ticular LCA or family of LCA, this would support 
the existence of a separate subsidized product.5002 
7.1634  The European Communities argues that whether it is appropriate to combine multiple 
subsidized products into a single subsidized pr oduct for purposes of Articles 5 and 6 of the 
SCM Agreement  is a question of fact, and that a key factor for the Panel to consider in deciding this 
question is whether each of the various allegedly su bsidized products is properly found to compete in 
the same product "market." 5003  The European Communities argues that the nature and extent of 
actual or potential competition between different m odels of Airbus aircraft is the fundamental 
prerequisite for determining whether they are in th e same market and thus can be considered a single 
product.5004  This is, in the European Communities' view, largely a function of their physical and 
performance characteristics and econom ic substitutability.  For the European Communities, if Airbus 
aircraft are so dissimilar that they do not compete for the same sales or orders, they cannot properly be 
found to belong in the same market, and cannot be gr ouped together as a single subsidized product.  
The European Communities as serts that there is no basis for products which compete in distinct 
markets to be grouped together as a single subsidized product.5005   The European Communities 
proposes a number of factors for the Panel to cons ider in determining which Airbus LCA properly 
constitute a subsidized product: ph ysical and performance characteri stics (from the perspective of 
market participants); actual or potential compe tition in the same market; purchaser perceptions; 
competition between Airbus and Boeing; whether the challenged subsidy measur es provide benefits to 
specific Airbus aircraft; and whether the proposed "like" product includes Boeing aircraft that do not 
have characteristics that closely resemble each  other, based on the perspective of market 
participants.5006  The European Communities then argues that the evidence it cites regarding these 
factors demonstrates that the Panel should find that there are four families of Airbus aircraft, each 
constituting a separate allegedly subsidized product.5007   
7.1635  The European Communities argues that the United States' "choice" of a single subsidized 
product is not driven by the "identical" or "clo sely resembling" physical characteristics of the 
allegedly subsidized Airbus and corresponding like Boeing LCA products, and that Articles 5 and 6 of 
the SCM Agreement, read together with Article 11 of the DSU, require the Panel to conduct an 
objective assessment of the facts and matter before it, and not to merely rubber-stamp one Member's 
arguments.5008  The European Communities maintains that  it would be "incoherent" to assess adverse 
effects by collapsing all LCA into a single subsidized and like product.5009 
7.1636  With respect to like product, the European Communities argues that different families of 
Boeing LCA compete in different product markets with Airbus LCA.5010  The European Communities 
argues that physical characteristics are key in linking  like product to subsidized product, and that the 
United States has improperly combined Boeing aircraft  with enormous physical  differences in arguing 
                                                      
5002 EC, FWS, para. 1551. 
5003 EC, FWS, para. 1518. 
5004 EC, FWS, para. 1519. 
5005 The European Communities also argues that the definition of "like" product as a product identical 
to or having characteristics closely resembling a subsidized product is context for interpreting the identity and 
composition of a subsidized product.  EC, FWS, para. 1520. 
5006 EC, FWS, para. 1521. 
5007 EC, FWS, para. 1522 - 1530.. 
5008 EC, FWS, para. 1511-1512, 1514. 
5009 EC, SWS, paras. 738, 740-41. 
5010 EC, FWS, para. 1533. WT/DS316/R 
Page 840  
BCI deleted, as indicated [***] 
 
  that there is one like product.
5011  The European Communities concl udes, after presenting evidence on 
the physical (and other) characteristics of Boeing ai rcraft, that there are three Boeing "like products" 
corresponding to three of the Airbus "subsidized" products.5012   
7.1637  The European Communities mainta ins that each of the Airbus LCA in these three families has 
physical characteristics that closely resemble the othe r Airbus LCA in that particular family, and the 
Boeing LCA in the assertedly corresponding Boeing family.5013  The European Communities also 
argues that these groupings are perceived by Boeing, Airbus, and other market participants as being 
properly part of separate markets, supported by the existence of physical, price, and perception differences between Boeing/Airbus LCA in these three categories.
5014     
7.1638  Thus, the European Communities requests that the Panel find that the following distinct 
families of Airbus LCA are separate allegedly "subsid ized products":  (i) the A320 family; (ii) the 
A330 family; (iii) the A340 family, and (iv) the A380 family.5015  The European Communities further 
asks the Panel to find that the a ppropriate "like" products for the first three Airbus families are, 
respectively, (i) the 737NG family, (ii) the 767 and the 787 families, and (iii) the 777 family.5016  The 
European Communities also requests the Panel to find that Boeing's 747 family is not a like product 
to, or a part of the "same {product} market" as, any of the Airbus LCA.5017  The European 
Communities further requests the Panel to find that these subsidized and like products compete in the 
following markets:  (i) the Boeing 737NG and Ai rbus A320 families compete in the 100-200 seat 
LCA market; (ii) the Boeing 767 and 787 families, Airbus A330 family, and the A350-800 compete in 
the 200-300 seat LCA market; and (iii) the Boei ng 777 family, Airbus A340 family, and the A350-
900/1000 compete in the 300-400 seat LCA market.5018  Finally, the European Communities requests 
that the Panel find that there is no competiti on between the Boeing 747 family, which allegedly 
competes in the 400-500 seat market, and the Airb us A380 family, which allegedly competes in the 
500+ seat market.5019  The competing "subsidized product" and "like product" groups, as well as the 
markets, identified by the European Co mmunities are set out graphically below: 
 
Allegedly Subsidized 
Product Like Product / Market of Competition 
A320 family Boeing 737NG family, competing in the 100-200 seat LCA market 
A330 family Boeing 767 & 787 families, competing in the 200-300 seat LCA 
market 
A340 family Boeing 777 family, competing in the 300-400 seat LCA market 
A380 family Alone in the 500+ seat LCA market 
No Airbus LCA Boeing 747 family, alone in the 400-500 seat LCA market 
 
                                                      
5011 EC, FWS, para. 1538. 
5012 EC, FWS, para. 1543. 
5013 EC, FWS, para. 1544. 
5014 EC, FWS, para. 1548-49. 
5015 EC, FWS, para. 1556.  The European Communities notes that it does not consider a challenge to 
alleged subsidies benefitting the A350 as within the scope of this dispute and, does not list the A350 here.  EC, 
FWS, footnote 1409.  We recall that we dismissed the United States' complaint against the alleged LA/MSF 
measure for the A350.  See, para. 7.314 above. 
5016 EC, FWS, para. 1556. 
5017 EC, FWS, para. 1556. 
5018 EC, FWS, para. 1567. 
5019 EC, FWS, para. 1567.  WT/DS316/R 
 Page 841 
 
BCI deleted, as indicated [***] 
 
  (b) Arguments of Third Parties 
(i) Australia 
7.1639  Australia notes that in order to demonstrate its claim of adverse effects the United States 
asserts that the "subsidized product" for the purposes of this dispute is the Airbus LCA family, and 
that the "like product" for the purposes of this dis pute is the Boeing LCA family.  Australia observes 
that the European Communities acknowledges the exis tence of some sort of "family concept" in 
relation to LCA.5020  Australia observes that there is little  guidance in the SCM Agreement or WTO 
cases regarding the complaining WTO Member's dete rmination of the "subsidized product".  Based 
on its review of WTO cases addressing the question of like product, Australia posits a series of 
questions for the Panel's consideration in addressi ng the issues of "subsidized product" and "like 
product".5021 
7.1640  In response to questions from the Panel, Australia  stated its view that the SCM Agreement did 
not require the Panel to make an independent dete rmination regarding the "subsidized product" and 
therefore there is little guidance concerning the substa ntive elements of such a determination.  In 
Australia's view, while panels are required by Artic le 11 of the DSU to make an "objective assessment 
of the matter" before them, taking into account the views of the respondent, it is for the complainant 
to determine the basis and nature of its own complaint including the scope of the "subsidized 
product".5022  Citing the decisions of panels in Korea – Commercial Vessels  and US – Softwood 
Lumber V , Australia argues that it is then up to the co mplainant to demonstrate causation in relation to 
this "subsidized product".5023 Australia observes that the Panel's report in US–Softwood Lumber V  
shows the linkage between the "like product" and "product under consideration", and was a case in 
which the "product under consideration" and the "like product" included a range of specific goods.  
Australia notes in this regard that the panel's decision also draws th e linkage in dealing with injury 
analysis.5024  Australia considers that "like product" cases under the Anti-Dumping Agreement are 
relevant to the SCM Agreement, as long as the diffe rent contexts are taken into account, noting that 
footnote 46 in the SCM Agreement is identical to  Article 2.6 of the Anti-Dumping Agreement in 
defining like product, and that the Panel in Indonesia – Autos  stated that "useful guidance can 
nevertheless be derived from prior analysis of "like product" issues under other provisions of the 
WTO Agreement."5025   
(ii) Brazil 
7.1641  Brazil considers that the Panel should afford the United States substantial discretion as the 
complaining party to define the subsidized pr oduct or products to which its claims apply.5026  Brazil 
also agrees with the criteria proposed  by the United States for determining the "like product" in this 
dispute, although Brazil did not ta ke a position regarding whether the entire Boeing family of LCA is 
the appropriate like product or products.5027 
7.1642  Brazil notes that the SCM Agreement provides no textual support for the proposition that the 
"subsidized product" has to conform to a pa rticular configuration, narrow or wide.5028  In response to 
                                                      
5020 Australia, Third Party Submission, para. 41. 
5021 Australia, Third Party Submission, paras. 46-51. 
5022 Australia, Answer to Panel Question 10. 
5023 Australia, Answer to Panel Question 10. 
5024 Australia, Answer to Panel Qu estion 10, citing Panel Report, US – Softwood Lumber V , paras. 
7.152-153 and 7.157. 
5025 Australia, Answer to Panel Question 10, citing Panel Report, Indonesia – Autos , para. 14.174. 
5026 Brazil, Third Party Submission, para. 52. 
5027 Brazil, Third Party Submission, para. 53. 
5028 Brazil, Third Party Oral Statement, para. 20. WT/DS316/R 
Page 842  
BCI deleted, as indicated [***] 
 
  questions from the Panel, Brazil asserted that compla inant should be allowed di scretion to define the 
"subsidized product" in order to ensure that a panel complies with its terms of reference.
5029  Brazil 
notes that a panel's terms of reference are set out in  the request for establishment, which identifies the 
"matter" subject to dispute, including the specif ic measures at issue and the applicable claims.5030  In 
the present dispute, Brazil considers that, as a c onsequence of identifying the specific measures at 
issue ( i.e., the subsidies) in its request for establishmen t, the United States necessarily identified the 
products to which those measures apply ( i.e., the "subsidized product").5031  In Brazil's view, in 
analyzing the complainant's claims under Articles 5( a) or 5(c) of the SCM Agreement, a panel may 
act inconsistently with its terms of reference if it makes an independent determ ination that expands or 
narrows the scope of the "subsidized product" to which the subsidies apply.5032  Moreover, Brazil 
asserts that there is no provision in the SCM Ag reement that authorizes or requires a panel to 
reformulate a complainant's claims based on multip le rather than a single "subsidized product."5033 
7.1643  Brazil asserts that, under Article 11 of the DSU, a panel must "make an objective assessment 
of the matter before it."  In doing so, a panel is limit ed to the "matter" within its terms of reference, 
which is based on the complainant's request for establishment and includes the measures ( i.e., the 
subsidies) and the products to which the measures apply ( i.e., the "subsidized products").5034  
Accordingly, the DSU and the SCM Agreement do not require, nor, arguably, do they permit, the 
Panel to make an "independent determination" of the "subsidized product" when addressing claims of 
injury under Article 5(a) of the SCM Agreement and claims of serious prejudice under Article 5(c) of 
the SCM Agreement.5035  Brazil considers that the panel's findings in US - Softwood Lumber V   and 
Korea – Certain Paper  support the absence of any requirement for the Panel to find multiple 
categories of "subsidized product" and multiple cate gories of "like product" in this dispute.   
7.1644  Brazil notes that the Panel may consider it necessary to rely on comparisons of particular 
"categories" of LCA within the "subsidized product" and the "like product" in order to examine, for 
example, price undercutting or lost sales, but considers that the Panel should not limit its analysis to 
categories that are too narrowly defined and should not rely exclusively on a segmented analysis to 
reach its conclusions, because LA/MSF subsidies to one aircraft model may have "spill-over" effects 
to a producer's entire family of aircraft and because competing product categories may change from 
sale to sale based on the particular circumstances involved.5036  In other words, the Panel may 
facilitate its analysis by examining certain categor ies of the "subsidized product," but it should make 
its conclusions regarding injury and serious prej udice based on the aggregate "subsidized product" as 
defined by the complainant.  Brazil asserts that its vi ews in this regard are consistent with the findings 
of the panel in Korea - Commercial Vessels .5037    
                                                      
5029 Brazil, Answer to Panel Question 10, para. 16. 
5030 Brazil, Answer to Panel Question 10, para. 16, citing Appellate Body Report, Brazil-Desiccated 
Coconut , para. 22; Appellate Body Report, EC-Export Subsidies on Sugar , paras. 140-144. 
5031 Brazil, Answer to Panel Question 10, para. 17., citing  Appellate Body Report, EC- Chicken Cuts , 
para. 165 ("Article 6.2 contemplates that the identificatio n of the products at issue must flow from the specific 
measures identified in the panel request.  Therefore,  the identification of the product at issue … is a 
consequence of the scope of application of the specifi c measures at issue.  In other words, it is the measure  at 
issue that generally will define the  product  at issue."). 
5032 Brazil, Answer to Panel Question 10, para. 17 
5033 Brazil, Answer to Panel Question 10, para. 17 
5034 Brazil, Answer to Panel Question 10, para. 20 
5035 Brazil, Answer to Panel Question 10, para. 21 
5036 Brazil, Third Party Oral Statement, paras. 21-22. 
5037 Brazil, Answer to Panel Question 10, para. 19, citing Korea - Commercial Vessels , para. 7.559.  WT/DS316/R 
 Page 843 
 
BCI deleted, as indicated [***] 
 
  (iii) Canada 
7.1645  Canada considers it inaccurate to claim, as th e United States does, that "because subsidies are 
provided to Airbus for the development of an LCA fa mily….  the "subsidized product" is the Airbus 
LCA family as a whole."5038  In Canada's view, the identifi cation of a "like product" and its 
corresponding subsidized product in the serious prejudi ce analysis, is, by virtue of the definition in 
footnote 46, focused on the characteristics of the pr oducts at issue, not the characteristics of the 
subsidy.5039   
7.1646  Canada considers that the United States errs in supporting its "like product" claim by arguing 
that royalty-based financing for individual Airbus  models actually benefits the entire Airbus LCA 
production, because what is relevant is the charact eristics of the products being compared, while 
company-wide benefits of a subsidy have nothing to  do with the actual characteristics of the products 
produced by that company.5040  Canada states that in light of th e differences between the Airbus 380 
and the Boeing 737, that A380 could not displace or impede or price undercut a 737, as they are 
simply not considered by the market to be in co mpetition, and are not "like".  Canada notes in this 
regard that the 737 is a narrow body aircraft with  a seating capacity of approximately 120 to 200 seats 
and a range of approximately 3,000 to 6,000 km, wh ile the A380 is a wide body aircraft of over 500 
seats and a range of 15,000 km.5041  Canada relies on the Panel Report in  Indonesia – Autos, arguing 
that the panel in that case dismissed an argument simi lar to the one made by the United States here on 
the grounds of the lack of substitutability between  the Timor, a small budget car, and passenger cars at 
the high end of the market, for example a Rolls-Royce.5042  Recalling that the panel i n Indonesia – 
Autos  found that "one reasonable way" to approach the like product issue is to look at the manner in 
which the industry at issue has anal yzed market segmentation, Canada invites the panel in this dispute 
to follow that approach. 
7.1647  In response to questions from the Panel, Cana da asserts that there is no basis in the 
SCM Agreement for deference to either of the di sputing parties' views on subsidized product and 
corresponding like product.5043  Instead, Canada considers that Article 11 of the DSU requires the 
Panel, as trier of fact and interpreter of WTO ob ligations, to make "an objective assessment of the 
facts of the case and the applicability of and conform ity with the relevant c overed agreements", which 
requires the Panel to make an independent determ ination given the measures in the light of the 
relevant provisions of the SCM Agre ement at issue in this dispute.5044  Canada considers the definition 
of like product in footnote 46 of the SCM Agreemen t to be highly relevant context for determining 
whether there are one or more subsidized products at  issue.  In particular, Canada considers that the 
requirement in footnote 46 that the subsidized product and like product be identical or closely 
resemble each other, based on their characteristics, would be rendered meaningless if the complainant could simply assert that a number of discrete products with very different characteristics constituted a single subsidized product.
5045   
7.1648  Canada argues that the panel's report in US – Softwood Lumber V is not particularly helpful 
with respect to a "like product" analysis in the context of Articles 5(a) and 5(c).5046  Canada states that 
that case involved a panel review of a domestic agency determination under the AD Agreement, in 
which a panel is obliged to exercise a degree of defe rence to agency determinations so that it is not 
                                                      
5038 Canada, Third Party Submission, para. 50. 
5039 Canada, Third Party Submission, para. 50. 
5040 Canada, Third Party Submission, para. 52. 
5041 Canada, Third Party Submission, para. 53. 
5042 Canada, Third Party Submission, para. 54. 
5043 Canada, Answer to Panel Question 10, para. 10. 
5044 Canada, Answer to Panel Question 10, para. 10. 
5045 Canada, Answer to Panel Question 10, para. 11. 
5046 Canada, Answer to Panel Question 11, para. 12. WT/DS316/R 
Page 844  
BCI deleted, as indicated [***] 
 
  engaging in de novo  review, but only ensuring that the dete rmination is reasone d and adequate.  
Canada considers this approach inappropriate fo r a panel assessing "likeness" under Articles 5(a) and 
5(c), under which a panel is assessing an allegation of subsidy de novo .  Canada recalls that 
footnote 46 of the SCM Agreement defines "like product" for purposes of the Agreement.  For 
Canada, the footnote makes it clear that the scope of what is a "like product" is rather narrow, since 
the like product must be identical to the subsidized product, and only when there is the absence of an 
identical product will a product that has characteristics closely resembling the subsidized product 
suffice.  Canada also referred to the panel report in Indonesia – Autos, which it asserts found that the 
scope of "likeness" to be quite narrow under the SCM Agreement.
5047  
7.1649  Canada considers that the object and purpose of the likeness analysis under Part III of the 
SCM Agreement is similar to that under GATT Article III(4), namely preserving the equality of 
competitive opportunities.5048  As a result, Canada observes th at GATT Article III is likely to be 
relevant to informing the scope of "likeness" under Artic les 5(a) and (c).  In this regard, Canada notes 
that in Japan – Alcoholic Beverages II , the Appellate Body found "liken ess" to be analogous to an 
accordion, in that what is considered to be " like" may be narrower or broader depending on the 
particular provision at issue and on the context and the circumstances that prevail in any given case to 
which that provision may apply.5049  It then went on to find that the scope of "likeness" in 
Article III:2, first sentence was particularly narrow gi ven the content of that provision when compared 
with Article III:2, second sentence, which incor porates the concept of "d irectly competitive or 
substitutable" into a determination of likeness.5050  Canada asserts that, similarly to Article III, under 
Article 5 of the SCM Agreement, the United States is  required to establish that the products are "like" 
by reference to, inter alia , the physical characteristics, end-uses and tariff classifications of the 
products.5051 
(c) Evaluation by the Panel  
7.1650  There are two aspects of what may be termed the "product" issue raised in this dispute – the 
question of identifying the "subsidized product" and the question of identifying the appropriate United 
States' "like product" for purposes of certain aspects of the adverse effects analysis.  The European 
Communities argues that we must reject the United St ates' definition of the subsidized product, and 
focus our adverse effects analysis on separate a llegedly subsidized "families" of Airbus LCA, and 
competition between those allegedly subsidized fam ilies and "like" Boeing families in specific market 
segments.  However, in our view, the European Co mmunities' arguments import elements of  analysis 
relevant to the determination of the "like product" into its identification of the "subsidized product".  
As discussed below, we consider that there is no legal requirement in the SCM Agreement for a panel 
to make a determination regarding the "subsidized product" inde pendent of the complaining Member's 
allegations.  Moreover, after carefully reviewing the United States' identification of the relevant 
subsidized product, we find that it is not precl uded by the SCM Agreement.  In these circumstances, 
we conclude that we may examine the question of  adverse effects on the basis of the subsidized 
product put forward by the United States – i.e., a single subsidized product, encompassing the entire 
range of Airbus large civil aircraft.  We also concl ude  that it is appropriate to find that there is a 
                                                      
5047 Canada, Answer to Panel Question 11, para. 13, citing Panel Report, Indonesia – Autos , para. 
14.172. 
5048 Canada, Answer to Panel Question 12, para. 14. 
5049 Canada, Answer to Panel Question 12, para. 14, citing Japan – Alcoholic Beverages II , para. 114, 
footnote  58. 
5050 Canada, Answer to Panel Question 12, para. 14, citing Japan – Alcoholic Beverages II , para. 114, 
footnote  58 and Appellate Body Report, European Communities – Measures Affecting Asbestos and Asbestos-
Containing Products (EC – Asbestos) , WT/DS135/AB/R, adopted 5 April 2001, DSR 2001;VII, 3243, paras. 94 
and 95. 
5051 Canada Answers to Panel Question 12, para. 15, citing Appellate Body Report, Japan – Alcoholic 
Beverages II , p.  21.  WT/DS316/R 
 Page 845 
 
BCI deleted, as indicated [***] 
 
  single "like product", comprising all Boeing LCA, co rresponding to the subsidized product, all Airbus 
LCA. 
(i) Subsidized product 
7.1651  The United States asserts that the "subsidized prod uct" at issue is the entire family of Airbus 
LCA.  That is, the United States has identified th e entire family of Airbus LCA as the product which 
benefits from the alleged subsidies at issue in th is dispute.  The European Communities, however, 
maintains that the United States' assertion is in error, and that we must make an independent 
assessment of the matter, pursuant to Article 11 of  the DSU, and determine that there are multiple 
subsidized products, corresponding to the model fa milies of Airbus LCA the European Communities 
identifies.  Thus, the question we  must resolve is whether we should examine the United States' 
adverse effects claims on the basis of the subs idized product proposed by the United States, i.e., all 
Airbus LCA, or whether, as the European Comm unities asserts, we are required to make an 
independent assessment as to the appropriate subsidized product, and conclude that, as a matter of 
fact, there are multiple subsidized products at issu e, corresponding to the different model families of 
Airbus LCA. 
7.1652  At the outset, we note that there is no specific guidance in Articles 5 or 6 of the 
SCM Agreement, or in any other provision of the SCM Agreement, regarding the identification of a 
"subsidized product" or a panel's role in that process.  Indeed, the European Communities has not 
argued otherwise.  Instead, the European Communities relies upon the obligation on the Panel to conduct an objective examination of the evidence u nder Article 11 of the DSU, and the assertion that 
the focus of Articles 5 and 6 of the SCM Agreemen t is on the effects of subsidies on competition 
between a subsidized product and a like product in  the relevant geographic/product markets, to 
contend that the Panel must undertake its ow n determination of the subsidized product.
5052   We see 
nothing in these provisions that requires us to undertake such an analysis.   
7.1653  While it is self-evident to us, a nd the parties do not disagree, that it is necessary to identify the 
"subsidized product" that is of interest to th e complaining Member (and the corresponding "like 
product"), in order to assess the existence of material   injury under Article 5(a), and some of the forms 
of serious prejudice under Articles 6.3(a), 6.3(b) and 6.3(c)5053, we are not persuaded that the 
SCM Agreement requires us to make an independent  determination of the "subsidized product", as 
opposed to relying on the complaining Member's id entification of that product.  The European 
Communities focuses on the markets in which differen t models of aircraft allegedly compete, and 
differences in their physical characteristics, referring, inter alia , to Article 6.3, 6.4 and 6.5 of the 
SCM Agreement, to argue that a subsidized product must be one that competes in a single market.  
However, in our view, the fact that displacement or  impedance under Articles 6.3(a) and (b), and price 
effects under Article 6.3(c), must be assessed with respect to particular markets, says nothing about how to identify the scope of the subsidized product.  That the effects of a subsidy must be evaluated 
with respect to market share and prices in particular markets does not entail that a panel must make an 
independent assessment of the subsidized product that is at issue.  Moreover, while Articles 6.3(a) and 
(b) refer to displacement or impedance of imports or exports of a "like product" from certain markets, 
and Article 6.3(c) refers to price undercutting by "the  subsidized product" in the same market, there is 
no linkage in the text of these provisions between the terms like product and subsidized product, nor 
between those terms and "market" in any way that  would suggest the definitional import posited by 
the European Communities.   
                                                     
 
5052 EC, FWS, para. 1518. 
5053 It is not clear that a considerati on of like product is necessary for co nsideration of price effects, that 
is, price undercutting, price suppression, price depression, and of lost sales, although the complaining Member 
would, logically, have to identify a product or products  with respect to which those effects were allegedly 
manifested.  See, Panel Report, Korea – Commercial Vessels , para. 7.559. WT/DS316/R 
Page 846  
BCI deleted, as indicated [***] 
 
  7.1654  The European Communities is correct in asserting that we must make an objective 
examination of the matter before us  in determining whether the use of the subsidies in dispute is 
causing adverse effects to the interests of the United States.  But we see nothing that would preclude us from making such an objective assessment on th e basis of the case, including the subsidized 
product allegations, put forward by the United States.  It may be that the case is more complicated 
than it would be if a different subsidized product were  at issue.  But it is not our role to direct a 
Member with respect to how it presents its complaint.   In this regard, we note the views of the panel 
in Korea – Commercial Vessels , which stated: 
"in any WTO dispute it is always for the co mplaining party to determine the basis and 
nature of its own complaint.  Thus, a complaining party is free to claim  that a given 
subsidy of another Member has cause d price suppression or depression to the 
detriment of the complainant's interests.  ... 
In this regard, we would observe that th e nature of the demonstration that the 
complainant will need to make to estab lish causation in any given case, and the 
difficulty of doing so, will depend on a num ber of factors and factual circumstances, 
including but not limited to the breadth of the description of the product on which the complainant brings its case.  ...  Whatever the factual situation in a given case, the burden will be on the complainant to furnis h specific factual evidence affirmatively 
demonstrating the causal link alleged, and the difficulty and ways of meeting this 
burden may be very different from one case to another.
296  In all cases, if the 
complainant fails to meet this evidentiary bur den, its serious prejudice claim will fail.   
__________________ 
296 For example, in a case involving alleged significant suppression or depression of 
the price for a given kind of narrowly- defined product due to product-specific 
subsidization of a physically identical pr oduct produced by another Member, product 
definition issues presumably would figure little if at all in respect of the evidence 
necessary to demonstrate causation.  Th e situation presumably would be quite 
different where the alleged subsidy was in respect of an input product, while significant price suppression or depression was alleged in respect of a downstream product of the complainant, or where a subsidy in respect of one product was alleged to cause significant price suppression or depression in respect of a completely 
unrelated product.  Clearly in the latter two cases, product definition issues would 
create a significant, if not insurmountab le, evidentiary hurdle in respect of 
causation."
5054 
We agree with the view that it is for the complain ing Member to structure its own case, which it must 
then prove with sufficient evid ence.  Were we to accept the European Communities' argument, 
conclude that there are multiple subsidized products at issue in this case, and proceed to evaluate the 
United States' claims on this basis, we would, in e ffect, be reformulating the United States' complaint.  
We can find no basis in the text of the SCM Agreem ent that would allow us, much less require us, to 
reformulate the United States' claims based on what might be our own view of what should constitute 
the "subsidized product" as opposed to that of the complaining Member, the United States.5055  
 
                                                      
5054 Panel Report, Korea – Commercial Vessels , paras. 7.559-560. 
5055 We note that in US – Upland Cotton , the panel accepted "upland cotton lint" as the relevant 
"subsidized product," even as it acknowledged that some of the relevant payments were made to persons who 
did not produce upland cotton and that part of the subsidy benefit was captured by persons other than producers of upland cotton.  Panel Report, US – Upland Cotton , para. 7.1226.  WT/DS316/R 
 Page 847 
 
BCI deleted, as indicated [***] 
 
  7.1655  Certainly, if a complaining Member were to put forward a proposed "subsidized product" that 
does not benefit from the alleged subsidies in disp ute, a panel would have to address whether that 
product is, in fact, a relevant subsidized product.  However, this is not such a case, as the European 
Communities' arguments in this context are not based upon the contention th at Airbus LCA are not 
subsidized.  Moreover, the United States has pr esented evidence concerning linkages and spillover 
effects of the subsidies in question which it argu es support the conclusion that subsidies primarily 
benefiting any one particular Airbus model also be nefit other subsequent a nd previous models, and 
thus may have adverse effects beyond the mode l families posited by the European Communities as the 
appropriate subsidized products.  In  this regard, the United States argues that the subsidies in dispute 
are not limited to one model of Airbus LCA, but rather benefit the entire family of Airbus LCA.5056  In 
support of its view, the United States asserts, inter alia , that: 
• subsidies that facilitate the development of one Airbus LCA model improve the marketability 
of all Airbus LCA models;5057 
 
• "spill-over" benefits with regard to t echnologies or production facilities from one model 
benefit both subsequently de veloped and existing models;5058  
 
• common elements in design and operation are a central feature in selling the entire Airbus 
LCA fleet to customers, indicating a significant degree of commonality;5059 
 
• aircraft are sold in "package" deals, eith er simultaneous or consecutive, of different 
models;5060   
 
• LA/MSF in particular reduces the debt burden on Airbus of building each individual LCA 
model, which in turn allows Airbus to move  on to launch the next model much more easily 
and quickly than would otherwise have been possible;5061  and 
 
• additional cash flow allows Airbus to reduce prices of any LCA model.5062   
 Were we to accept the European Communities' view s concerning the subsidized product, we would be 
precluding even the possibility of examining whethe r these linkages and spillover effects exist, and 
therefore whether the subsidies challenged by th e United States are causing the adverse effects 
alleged.
5063 
 7.1656  The European Communities argues that panels in adverse effects disputes must make an 
independent assessment of whether the subsidized product has been appropriately identified by the 
complaining Member.  While the European Co mmunities has proposed a methodology for making 
this assessment, there is no basis in the text  of the SCM Agreement for that analysis.
5064  Indeed, as 
                                                      
5056 US, SWS, para. 640. 
5057 US, SWS, para. 633. 
5058 US, SWS, para. 634. 
5059 US, SWS, para. 635. 
5060 US, SWS, para. 636-637. 
5061 US, SWS, para. 638. 
5062 US, SWS, para. 639. 
5063 We note that the European Communities has challenged many of these aspects of the United States' 
arguments as a substantive matter.  In  referring to them here we do no t mean to suggest that we accept the 
United States' arguments, merely that we consider it appr opriate to consider them on the basis of the evidence, 
rather than preclude consideration of them on the basis of a finding regarding subsidized product.   
5064 We do not consider, in the abstr act, that the European Communities' proposed method of analysis is 
unreasonable.  Simply, we are not persuaded that it is required by the SCM Agreement. WT/DS316/R 
Page 848  
BCI deleted, as indicated [***] 
 
  we have already observed, there is a complete  absence of any guidance in the text of the 
SCM Agreement as to the bases on which a decision as to  the appropriate subsidized product might be 
made.  In our view, it is unlikely that the drafte rs of the SCM Agreement intended panels to make 
independent, fact-based determinations of the appropriate subsidized product in disputes under 
Articles 5 and 6, but chose to provide no guidance a nd establish no criteria for such a determination.  
In the absence of any guidance in the text of th e SCM Agreement, we are reluctant to undertake the 
task of developing relevant criteria and applying th em to the facts of this case.  Consequently, we 
agree with the view that a complaining Member may fra me its case as it chooses.  It is, of course, then 
for us to determine whether that case has been  demonstrated, on the basis of the evidence and 
arguments put before us by the parties. 
7.1657  The questions surrounding the identification of the appropriate "subsidized product" in this 
dispute may be analogized to the questions concer ning the "product under consideration" in trade 
remedy cases.  Both the SCM and AD Agreements re quire investigating authorities in countervailing 
duty and anti-dumping duty investigations to make a determination regarding material injury to the 
domestic industry, which is defi ned in terms of domestic producers of a "like product".  Both 
Agreements require a dete rmination of the appropriate "like pr oduct", and both define the term "like 
product" as a product which is "identical, i.e., alike in all respect to the product under consideration, 
or in the absence of such a product, another prod uct which, although not alike in all respects, has 
characteristics closely resembling those of the product under consideration."
5065   Thus, the starting 
point for defining the "like product" in trade remedy  investigations is the scope of the "product under 
consideration".  However, the "produc t under consideration" is  not defined in either agreement, just as 
the term "subsidized product" is not defined in the SCM Agreement.   
7.1658  In EC – Salmon (Norway) , the panel specifically addressed the question whether the 
AD Agreement required an investigating authority to make a determinati on regarding the product 
under consideration.  That panel re cognized that, as a practical matter, investigating authorities would 
have to establish the scope of the allegedly dumped product subject to their investigation in order to 
carry out the investigation.  However, the panel rejected Norway's claim that Article 2.6 of the 
AD Agreement, defining like produc t, taken together with the obligation to determine a dumping 
margin for a "product", established an obligation on investigating authorities to undertake a particular 
analysis to make and justify a determination rega rding the product under consideration.  The panel in 
that dispute concluded that there is no requireme nt in the AD Agreement that an investigating 
authority address the question of the scope of th e product under considera tion at all, and that 
therefore, there could be no violation of the AD Agreement with respect to the product under 
consideration identified by the i nvestigating authority in that case.5066 
7.1659  The panel in EC – Salmon (Norway) specifically rejected the argument that considerations of 
"likeness" in characteristics and uses, required in the context of defining the like product, had any 
relevance to the issue of product under consideration.   In part, this was based on the fact that a 
determination of the scope of the allegedly dump ed product under consideration must precede the 
determination of like product, as the question of "ide ntical" or "similar in characteristics and uses" for 
determining like product must be assessed by refe rence to the product under consideration, which 
logically must already be defined.  Ot herwise, the analysis becomes circular.5067  In the absence of any 
guidance in the AD and SCM Agreements on identifi cation of a "product under consideration" as the 
necessary prerequisite to determination of a "lik e product", the panel concluded that investigating 
                                                      
5065 AD Agreement Article 2.6, SCM Agreement footnote 46.  The question of "like product" also 
arises in adverse effects cases, and is discussed further below. 
5066 Panel Report, European Communities – Anti-Dumping Measure on Farmed Salmon from Norway 
("EC – Salmon (Norway) "), WT/DS337/R, adopted 15 January 2008, and Corr.1, para. 7.76.   
5067 Panel Report, EC – Salmon (Norway) , para. 7.64.  WT/DS316/R 
 Page 849 
 
BCI deleted, as indicated [***] 
 
  authorities are not precluded from identifying a ra nge of goods as the product under consideration.5068  
In that case, the EC investigating authority had identified the "product under consideration" as 
"farmed (other than wild) salmon, whether or not filleted, fresh, chilled or frozen.  ...  exclud{ing} 
other similar farmed fish products such as large (s almon) trout, biomass (live salmon) as well as wild 
salmon and further processed types such as smoked salmon".5069  The panel concluded that 
Articles 2.1 and 2.6 of the AD Agreement do not estab lish an obligation on investigating authorities to 
ensure that, where the product under consideration is made up of categories of products, all such 
categories of products must individually be "like" each other, thereby constituting a single 
homogenous "product under cons ideration".  The panel stated furthe r that "whether the range of goods 
comprising the product 'farmed salmon' that was investig ated by the EC are or are not all 'like' each 
other within the meaning of Article  2.6 is not a relevant question."5070  
7.1660  Similarly, in the context of adverse effects cl aims, the scope of the subsidized product must 
already be known in order to assess the question of "identical" or "similar in characteristics and uses" 
in defining the relevant "like product".  To argue , as the European Communities does here, that there 
must be "likeness" within the subsidized product w ould introduce into adver se effects cases the same 
untenable circularity identified by the panel in EC – Salmon (Norway) .  The panel in that dispute 
observed that, essentially, Norway's arguments raised an issue of policy, suggesting that the absence 
of limits on the scope of the product under c onsideration might result in erroneous dumping 
determinations by investigating authorities.  Th e panel rejected that argument, noting that: 
"Any grouping of products into a single product under consideration will have 
repercussions throughout the investigation,  and the broader such a grouping is, the 
more serious those repercussions might be, complicating the investigating authority's task of collecting and evaluating relevant  information and making determinations 
consistent with the AD Agreement.  Thus, it seems to us that the possibility of an 
erroneous determination of dumping b ased on an overly broad product under 
consideration is remote.  That possibility is certainly not enough to persuade us to 
read obligations into the AD Agreement for which we can find no basis in the text of 
the Agreement."
5071    
In the present case, proceeding on the basis of a single subsidized product does not raise similar 
concerns regarding an erroneous determination of whether a subsidy exists.  Clearly, however, the 
United States' position regarding s ubsidized product has repercussions for the entire case in terms of 
whether the full range of Airbus LCA have been subsidized, and the evidence and arguments with 
respect to whether the subsidies in  dispute cause the adverse effects alleged.  This consequence does 
not, however, persuade us that, in the absence of  any direction to do so, or any guidelines for 
determination, in the text of the SCM Agreement,  we should undertake an independent assessment of 
the subsidized product.   
 
7.1661  Moreover, we note that differences between the trade remedy context and a dispute 
concerning adverse effects suggest to us that even if  it were appropriate to consider the scope of the 
"product under consideration" in reviewing a trade remedy determination, it would still be 
                                                      
5068 Panel Report, EC – Salmon (Norway) , para. 7.68. 
5069 Commission Regulation (EC) No.  628/2005 of 22 April 2005 imposing a provisional anti-dumping 
duty on imports of farmed salmon originating in Norway  (Official Journal, L104/5, published 23 April 2005), 
para. 10. 
5070 Panel Report, EC – Salmon (Norway) , para. 7.68.  In addition to EC – Salmon (Norway) , other 
panels have reached the same conclusion in addre ssing the question of like pr oduct and product under 
consideration in anti-dumping investigations in United States – Softwood Lumber V , and Korea – Certain Paper, 
Panel Report, Korea – Anti-Dumping Duties on Imports of Certain Paper from Indonesia ("Korea – Certain 
Paper "), WT/DS312/R, adopted 28 November 2005, DSR 2005:XXII, 10637. 
5071 Panel Report , EC – Salmon (Norway) , para. 7.58. WT/DS316/R 
Page 850  
BCI deleted, as indicated [***] 
 
  unnecessary and inappropriate for us to address, much  less to revise, the scope of the subsidized 
product identified by a complainant in an adverse effects dispute.  First, in the context of anti-
dumping and countervailing measures, ensuring th at the dumped or subsidized product is 
appropriately identified is relevant to ensuring th at the scope of the remedy is appropriate, as the 
measure will be imposed in respect of all futu re imports of the product found to be dumped or 
subsidized.  In addition, the level of the measure is limited to the amount of  dumping or subsidization 
found in respect of the dumped or subsidized pr oduct, so an excessively broad product scope could 
sweep in highly dissimilar goods and subject them all to the same level of duty.  However, in the 
context of adverse effects disputes, neither of these considerations is relevant.  The remedy in an 
adverse effects dispute is either withdrawal of th e subsidy, or elimination of the adverse effects 
caused by the use of that subsidy, not a duty limite d by the amount of the subsidy.  The ability to 
implement either of the remedies for findings of  adverse effects does not depend on circumscribing 
the scope of the subsidized product.  Thus, even assuming there were a logical reason to review the 
scope of the dumped or subsidized product in qu estion in a countervailing duty or anti-dumping case, 
in order to ensure that the scope of applicati on and level of any anti-dumping or countervailing duty 
imposed is properly determined, that  consideration does not arise in the context of an adverse effects 
dispute. 
7.1662  In our view, the United States is entitled to frame its case as it chooses, and so long as the 
subsidized product it has identified, Airbus large civ il aircraft, does in fact benefit from the subsidies 
in dispute, we will not intervene to alter its identif ication of the subsidized product.  Moreover, there 
is no basis in the text of the SCM Agreement for the conclusion that it is necessary to group 
subsidized products according to either correspondi ng physical characteristics, or competition in 
particular markets.   
7.1663  Even if it were appropriate or necessary for pa nels in disputes involving claims of adverse 
effects to consider the question of the subsidized prod uct, it is not clear to us that a panel's role would 
be to identify the appropriate subs idized product on its own accord based on a review of the facts put 
in evidence by the parties.  While we recognize th at, pursuant to Article 11 of the DSU, a panel is 
required to make an objective assessment of the matte r before it, including an objective assessment of 
the facts, we do not consider that this would require  a panel to make a determination of the subsidized 
product ab initio .  Rather, in our view, it would at most be  appropriate for a panel to start with the 
complaining Member's allegations, a nd consider whether, having regard to the totality of the facts, the 
complaining Member has made a reasonable allegati on regarding the product that benefits from the 
alleged subsidies in dispute.  From this persp ective, there are strong arguments in support of the 
United States' view that all Airbus LCA may be prope rly treated as the relevant subsidized product in 
the present dispute.   
7.1664  All Airbus LCA share particular characteristics, and certainly the same general uses.
5072  In 
our view, while there are a variety of paramete rs along which LCA can be categorized, including 
number of aisles, number of seats, number of engine s, range of operations, etc, there are no obvious 
reasons for choosing one among these as the single divi ding line that must be respected, as suggested 
by the European Communities' argument.  The choice of  a particular model of aircraft by a customer 
is not driven purely by the number of seats, but depe nds on a number of factors related to the airline, 
the routes, the economics of operation, the existi ng fleet, as well as other characteristics of the 
available aircraft, such as range and operating costs.5073  Moreover, while seating capacity may be a 
relevant factor if one were trying to group aircraft  into categories, we see nothing that suffices to 
                                                      
5072 In this respect, we note that Airbus has, throughout its history, focused attention on the 
commonalities of its LCA in terms of technology, design, and operation, as a significant selling point.  See, e.g., 
Exhibit US-658.  This lends further support to our conclusion that there is no reason to disturb the scope of the 
subsidized product identified by the United States.   
5073 Statement of Rod P. Muddle, Exhibit EC-19, paras. 46-51.  WT/DS316/R 
 Page 851 
 
BCI deleted, as indicated [***] 
 
  establish this as the single determinative factor.  I ndeed, it is not clear to us that seating capacity per 
se is an appropriate or necessary basis for drawing distinctions among aircraft in terms of market 
competition.5074  For instance, the European Commission,  in examining the proposed merger of 
Boeing and McDonnell Douglas in 1997 under EC co mpetition law, examined the questions of 
dominant position and market impact on the basis of a distinction between narrow body and wide 
body aircraft, corresponding to 10 0-200 seating capacity and 200-400+ seating capacity market 
segments.5075  In addition, Neven & Seabright in their analysis of the LCA market consider four 
different market segments:  short-range/n arrow body; medium-range/medium body; long-
range/medium body; and long-range/wide-body.5076  Thus, based on the available evidence, in our 
view there are multiple ways in which the market for large civil aircraft could be divided into 
segments, and there is no obvious or necessary basis for choosing one such way, number of seats, much less a legal requirement that individual Airbus  model families be considered separate subsidized 
products based on the number of seats in each model family.   
7.1665  Since its inception, Airbus has recognized the importance to its continued success in the LCA 
market of developing a full line – a family - of different LCA models:   
"Since Airbus was established for the precise purpose of becoming a viable, 
profitable, long term enterprise, it was necessary to plan for a family of aircraft.  As early as 1973, Airbus Industrie proposed the development over time of five related 
aircraft types.  With the recent launch of  the A330 and A340 programs, these five 
types are now in place."
5077 
 
More recently, a report to shareholders by the EADS Board of Directors states, with reference to the 
"long-term strategic goal" of striving for a  "leading position in commercial aircraft:  A complete 
product portfolio is seen as necessary to serve the customer base and to maintain overall 
competitiveness ."5078   Airbus's business strategy focuses on an integrated family of LCA: 
 
"To achieve its market success, Airbus has pursued a consistent product strategy to 
offer competitive airliners acr oss the market.  The family of aircraft concept has 
enabled a high degree of commonality to be offered in all aspects of the aircraft 
operation from flight and cabin crew training to maintenance and spares."5079 
 
                                                      
5074 In this respect, we note that the European Co mmunities refers to "three overlapping competitive 
markets (100-200 seat, 200-300 seat, 300-400 seat) and the two markets (400-500 seat and 500+ seat) in which 
Airbus and Boeing do not compete" in discussing th e competitive conditions in wh ich the aircraft industry 
operates.  EC, FWS, para. 1403.   
5075 EC Merger Analysis , Exhibit US-375, para. 16.   
5076 Damien Neven & Paul Seabright, European Industrial Policy: The Airbus Case  (1995) (hereinafter 
"Neven & Seabright"), available at  http://www.hec.unil.ch/deep/textes/9509.pdf, Exhibit US-382, pp. 24-25. 
5077 Testimony of Alan Boyd, Chairman of Airbus Industrie of North America, Inc., to US  House of 
Representatives Subcommittee on Commerce, Cons umer Protection, and Competitiveness, at 34 
(June 23, 1987), Exhibit US-386; see also, EC, FWS, para. 1133 (explaining that Airbus needed government 
equity infusions to enable new LCA model development because it could not have succeeded by producing only 
the A300 and A310). 
5078 EADS, Report of the Board of Directors, in Documentation for the Annual General Meeting on 
Friday, 4 May 2007, at 30, available at  
http://www.eads.com/xml/content/OF00000000400004/1/50/41582501.pdf , Exhibit US-503. 
5079 BAE Systems Annual Report 1999 at 15, Exhibit US-388. WT/DS316/R 
Page 852  
BCI deleted, as indicated [***] 
 
  "{E}very Airbus aircraft belongs to a single family , sharing the same cockpit, 
flight deck and spare parts, thus saving time  and money for operators in terms of pilot 
training and maintenance as well as in other areas."
5080 
 
The European Communities itself acknowledged the importance of offering a full range of LCA: 
 
"the need to offer separate products whose commonality keep operating costs down 
for customer airlines across the fleet but which can perform the various missions 
dictated by an airline's route structure has historically meant that no manufacturer of a 
single product or family of products, no matter how compelling, has survived in the 
LCA industry."5081 
7.1666  Commonality is important not only from the pers pective of the purchasers of LCA, but also 
for the manufacturers.  Producing a full family of different models of ai rcraft allows an LCA 
manufacturer to achieve production efficiencies.  In creasing production of one aircraft type reduces 
the marginal cost of producing related aircraft ty pes "due to the transferability of some production 
methods between different mode ls in a manufacturer's range".5082  Airbus recognizes that the 
development of new aircraft also supports the de velopment of production facilities and technologies 
across its LCA family: 
"In the 1980s, we were able to widen our family by launching the A310 that 
incorporated many systems and power plant improvements that had occurred in the 
years since the A300 was designed," an Ai rbus executive said.  "Then we turned 
around and put many of the A310 improvements back into the A300 and came up with an updated aircraft that we designa ted the A300-600.  The same philosophy will 
be followed with our new aircraft.  Additionally, there is a strong possibility that the A320/A330/A340 technology can be used as we ll to create an advanced A300 and/or 
A310 in the 1990s."
5083 
"But the A350 is going to be the sistership of the A380 so it's technology you can 
already touch and see.  It's tangible because the A380 is flying."5084 
Airbus also manages its LCA production activities on a family basis.  For example, recently, in 
response to an analyst's question as to whether incr eased production of other models could "offset the 
pain on the A380 delays," EADS CEO Thomas Ende rs commented that sustained higher production 
rates for the A320 would provide "upside" to offset the costs of the A380 delays.5085  Thus, the 
production and sales of one model of LCA support the development, production and sales of other 
                                                      
5080 EADS Annual Report 2000 at 22, Exhibit US-389 (emphasis added); see also, Airbus, Excellence 
Runs in the Family , available at 
http://events.airbus.com/img/media/multimedia/advertis ing/press/excellence.pdf (visited Sept.  20, 2006), 
Exhibit US-390, ("Rarely does having a family save you money; the Airbus Family does."); Airbus, Key 
Determinants , at 21-25, Exhibit US-379 (BCI). 
5081 EC, FWS, para. 30. 
5082 Neven & Seabright, Exhibit US-382, 23 n. 11. 
5083 Jeffrey Lenorovitz, Airbus Industrie Launching Production for New A330/A340 Simultaneously , 
Aviation Week & Space Technology (24 February  1986), Exhibit US-391 (emphasis added). 
5084 Jason Neely, Airbus Top Challenge Is Keeping up with Demand , Reuters (22 November 2005) 
(quoting Airbus CEO Gustav Humbert), Exhibit US-392. 
5085 EADS Investor Conference Call, at 1:27:40 (3 October 2006), available on EADS web site, 
relevant portion transcribed in Exhibit US-393.  WT/DS316/R 
 Page 853 
 
BCI deleted, as indicated [***] 
 
  LCA models.5086  As a consequence, it seems clear to us that subsidies benefiting one particular model 
of Airbus LCA can have spillover effects for other Airbus models. 
 7.1667  Thus, while it may be appropriate to consider  individual models in some aspects of the 
adverse effects analysis, for instance when consideri ng price effects, in our view, the identification of 
the "subsidized product" cannot ignore that Airbus  has developed an entire range of LCA family 
comprising various models, that is marketed to cust omers as an integrated whole, and that the entire 
range of models has, at least potentially, been supported by the subsidies in dispute.
5087  To divide the 
subsidized product along the lines proposed by the European Communities would preclude the panel 
from taking this into account.   
7.1668  We cannot accept the proposition that there is no competition between LCA in the different 
model groups proposed by the European Communities.  That is, while it may well be true that direct 
head-to-head competition between aircraft models at the ends of the range of models offered by each 
manufacturer may be limited or non-existent, it seems cl ear to us that there is at least some degree of 
competition between adjacent product groups identified  by the European Comm unities, for instance, 
between a Boeing 747 and an Airbus A380.5088  Indeed, the European Communities itself states that 
"{c}ompetition exists almost  exclusively between the Airbus a nd Boeing LCA families identified by 
the European Communities as compe ting in separate product markets."5089  M o r e o v e r ,  e v e n  b y  t h e  
European Communities' own standard s, two different families of Airbus LCA compete in the same 
alleged product markets, with at least one of th ese (the A350 family) straddling two of the alleged 
product markets.  In particular, according to the Eu ropean Communities, the Airbus A330 family of 
LCA and one of the versions of the A350 family (the Airbus A350XWB-800) compete with the 
Boeing 767 and 787 families in the 200-300 seat market.  Similarly, another version of the A350XWB 
family, the A350XWB-900/1000, and the A340 family of LCA allegedly compete with the Boeing 
777 family in the 300-400 seat market.5090  These facts demonstrate that the dividing lines drawn by 
the European Communities are not suff iciently clear to allow us to conclude, were we required to 
consider the matter, that separate products must be defined on the basis of those lines.5091 
                                                      
5086 Information in the A380 business case supports this conclusion.  Exhibit EC-362 (HSBI), pp. 5, 6, 
8, 24, 36. 
5087 Indeed, as the European Communities itself has noted, no manufacturer of LCA has been able to 
survive without a full range of models to offer.  EC, FWS, para. 30.  From its early days, Airbus contemplated a full range of related LCA models.  “Competitiveness of U. S. Commercial Aircraft Industry," Hearing before the 
Subcommittee on Commerce, Consumer Protection, and Competitiveness of the Committee on Energy and 
Commerce, House of Representatives, 100th Congress, June 23, 1987, Serial No. 100-59, at 34 (statement of Mr. Boyd, Chairman, Airbus Industrie North America) Exhi bit US-386.  Airbus has, in fact, introduced such a 
full range to the market since 1970, in competition with the full range of Boeing models. 
5088 Indeed, the busine ss case for the A380 [***] .  Exhibit EC-362 (HSBI), p. 13.  Other HSBI evidence 
also supports the conclusion that there is some degree  of competition among aircraft across the model families 
identified by the EC.  Exhibit EC-98 (HSBI), EC-375 (HSBI) and EC-398 (HSBI). 
5089 EC, Answer to Panel Question 130 (emphasis added).  See, also , EC, Answer to Panel Question 
114, in which the European Communities addresses th e "unusual circumstances" of a "cross-market sales 
campaign" between the A330-200 and th e Boeing 777-200.  The existence of such campaigns, even if unusual, 
precludes the conclusion that there is no competition across the model families identified by the EC. 
5090 EC, FWS, para. 1509.  The European Communities notes "Each Airbus LCA has distinctive 
physical and performance characteristics, and these aircraft can be categorized  into four distinct markets based 
on these characteristics.  With the exception of the A350 family LCA, which includes LCA intended to compete 
with two separate Boeing families ( i.e., the 777 and 787 families), these product groupings fall along Airbus' 
own "family" lines."  EC, FWS, para. 1523.  This sugg ests that even the European Communities recognizes a 
degree of ambiguity in the definition of the alleged Airbus families. 
5091 We note that the European Communities' expert, Mr . Scherer, stated that "Aircraft market segments 
typically are distinct from each other in about 15-20% seat increment."  EC , SNCOS, para. 333.  We understand 
from this that to the extent two LCA have seating capacity within 15-20 percent of each other, they compete WT/DS316/R 
Page 854  
BCI deleted, as indicated [***] 
 
  7.1669  Moreover, the European Communities' approach  to identifying the relevant subsidized 
product is premised on the view that the subsidies in dispute, in particular those granted in connection 
with the launch or development of a particular  model of Airbus LCA, benefit only that model.
5092   
However, the United States argues that subsidies to one model of Airbus LCA have effects on the 
development and production of ot her models, through learning effects and commonalities.  Were we 
to define the subsidized product as suggested by  the European Communities, we would preclude 
consideration of this argument.  
7.1670  Thus, overall, the evidence and arguments before us suggest that the single product definition 
advanced by the United States is not inappropriate.  While there may be a variety of parameters along 
which LCA can be categorized, there are no obvious reasons for choosing one among these as the 
single dividing line that must be respected, instead of treating LCA as a single subsidized product.  
Airbus itself recognizes the importance of develo ping one single "family" of LCA made up of 
different models of aircraft for its business; a fact or that carries equal weight in the minds of LCA 
customers.  Moreover, it is evident that different degrees of competition exist between at least the 
adjacent markets the European Co mmunities alleges should be used to define the "subsidized 
product".  In this light, we do not believe it would be  appropriate to reject the United States' proposed 
subsidized product, and we will proceed  with our analysis on that basis.5093   
(ii) Like product 
7.1671  The parties in this dispute take the position th at a determination regarding like product is 
necessary in order to address the Un ited States' claims of injury under Article 5(a), displacement and 
impedance under Articles 6.3(a) and (b), and price undercutting under Article 6.3(c).5094   W e  n o t e  
that the Appellate Body in US – Upland Cotton  raised but did not decide whether, in the case of a 
claim of significant price suppression under Article 6.3(c), the product identified by the complainant must be "like" the relevant subsidized product, and went on to note, but not address, the question 
whether, in a case involving alleged price suppression, price depression and lost sales, there is a 
requirement that the subsidized product and the relevant product of the complainant be "like".
5095  The  
United States suggests that, even t hough the identification of a "like product" is not strictly required 
for claims under Article 6.3(c), the logical structure of Article 6.3(c) similarly requires the identification of a product of the complaining Me mber, the prices of which have been adversely 
affected by the subsidies.
5096  In our view, it is not, strictly speaking, necessary to identify a "like 
product" within the meaning of footnote 46 of  the SCM Agreement for purposes of assessing price 
suppression, price depression, or lost sales under Article 6.3(c).5097   
                                                                                                                                                                     
with each other.  In this regard, we note that there ar e overlapping seating capacities within that range between 
the A330 and A340 families posited by the European Co mmunities, and seating capacities that are beyond that 
range in the A320 model family.  EC, FWS, para. 1524 (tables).   
5092 The European Communities asserts that "many alleged subsidies" relate to specific families of 
Airbus LCA, but does not present evidence to substantia te its view, except with respect to LA/MSF, which is 
granted in connection with the launch of specific Airbus LCA models.  EC, FWS, paras. 1551-1553 & 1637. 
5093 HSBI evidence also supports the conclusion that there is some degree of competition among 
aircraft across the model families identified by the EC.  Exhibits EC-98 (HSBI), EC-362 (HSBI), EC-375 
(HSBI) and EC-398 (HSBI).   
5094 US, FWS, para. 717; EC, FWS, para. 1515. 
5095 Appellate Body Report, US – Upland Cotton , footnote 453.   
5096 US, FWS, para. 717. 
5097 See, Panel Report, Korea – Commercial Vessels , paras. 7.556-557, where the panel came to the 
same conclusion.  However, as that Panel noted, it would seem logical that a complaining Member must identify 
the product(s) whose prices are allegedly undercut, suppre ssed, or depressed, or sales of which are allegedly 
lost.  There is no dispute that the United States has done  so in this case, and the European Communities makes 
no arguments in this respect.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  7.1672  The European Communiti es asserts that there are three Boeing "like products" corresponding 
to three of the Airbus "subsidized" products it ha s identified, and that there is no Boeing "like 
product" corresponding to the A380 "subsidized" product, and no Airbus "subsidized product" 
corresponding to the Boeing 747.  However, in li ght of our conclusion regarding the subsidized 
product, we see no legal basis for the European Communities' position.   
7.1673  As noted above, footnote 46 of the SCM Agreement defines like product as: 
"a product which is identical, i.e., alike in all respects to the product under 
consideration, or in the absence of such a product, another product which, although 
not alike in all respects, has characteristics closely r esembling those of the product 
under consideration."5098 
The definition of like product in footnote 46 speci fically applies to th e entire SCM Agreement.5099  In 
the context of an adverse effects dispute, the "pr oduct under consideration" referred to in footnote 46 
must, we believe, be understood to be the subsidi zed product, which as we determined above, is in 
this case, all Airbus LCA.5100  Thus, the like product for purposes of this dispute is a product that is 
"identical, i.e., alike in all respects to the {subsidized pr oduct}, or in the absence of such a product, 
another product which, although not alike in all r espects, has charact eristics closely resembling those 
of the {subsidized product}.  7.1674  It seems clear to us that there is no United States' product which is identical  to the subsidized 
product identified by the United States, all Airbus LC A.  All the aircraft produced by both Airbus and 
Boeing have differences which preclude a finding of id entity.  On the other hand, it also seems clear 
to us that Boeing large civil aircraft, as a whol e, is a product which has characteristics closely 
resembling those of Airbus large civil aircraft, as a whole.  Thus, we consider that the relevant like product in this dispute is all Boeing LCA. 
7.1675  The European Communities argu es that because different Boeing LCA models compete in 
separate product markets with corresponding Airbus LCA models, and because physical 
characteristics are key to determining like product, the United States has improperly combined Boeing 
aircraft with enormous physical differences in arguing that there is one like product.  This argument is 
essentially  the same as that made by Canada in US – Softwood Lumber V  and rejected by the panel in 
that dispute.  As the definition of like product is  the same for purposes of this case as for purposes of 
the AD Agreement, we consider decisions con cerning like product under the AD Agreement to be 
relevant to our analysis in this case.
5101  The report of the Panel in US – Softwood Lumber V , goes 
directly to the questions raised by the European  Communities' argument.  In that case, the United 
States had conducted countervailing and anti-dumping du ty investigations of softwood lumber from 
Canada.  Softwood lumber, the dumped product unde r consideration, included a broad range of 
articles.  The United States' investigating authorit y found one like product, co-extensive with the 
                                                      
5098 SCM Agreement, footnote 46. 
5099 "Throughout this Agreement the term "like product " (produit similaire) shall be interpreted..."  
SCM Agreement, footnote 46. 
5100 While the European Communities disputes the propriety of the subsidized product identified, it 
does not argue that the "product under consideration" in the context of this dispute is anything other than the 
subsidized product at issue. 
5101 There is also a Ministerial Declaration on Dispute Settlement Pursuant to the AD and 
SCM Agreements, in which Ministers recognized the need for "consistent resolution of disputes arising from 
anti-dumping and countervailing duty measures."  Given th e focus of the Declaration on trade remedy disputes, 
it is not directly applicable in the context of an adverse effects dispute.  However, si nce the term like product is 
defined for purposes of the entire SCM Agreement, we consider it appropriate to ensure that we apply a 
definition in this case which is consistent with that in applied by panels in the anti-dumping context, to avoid possible conflicts between the SCM an d AD Agreements in this respect. WT/DS316/R 
Page 856  
BCI deleted, as indicated [***] 
 
  dumped product under consideration.  Before the Pane l, Canada argued that "the individual products, 
constituting collectively the "like product", were  not alike to each and every of the products 
collectively forming the product under consideration as they did not have characteristics closely 
resembling those of each and every of the indivi dual products constituting collectively the product 
under consideration."
5102  The Panel found no violation of Ar ticle 2.6 of the AD Agreement in the 
United States' investigating authority's definition of  a single like product, coextensive with the product 
under consideration, rejecting Cana da's argument that "{t}he terms 'p roduct under consideration' and 
'like product' must be limited to a single group of products sharing characteristics".5103   
7.1676  Following this same line of reasoning, we conc lude that the United States' product that is 
"like" Airbus LCA is Boeing LCA.  We reach this conclusion despite the fact that there are clearly 
differences between individual Airbus models an d even the most closely corresponding Boeing 
models, and the European Communities' arguments that the Airbus A380 do es not compete with any 
Boeing aircraft, and that the Boeing 747 does not comp ete with any Airbus aircraft.  As noted above, 
the A380 business case [***] this view.5104  In addition, the United Stat es has presented evidence that 
indicates that there is competiti on, specifically between the A380 and the Boeing 747, and that the 
A340 also competes with the 747 to a significant degree.5105  That competition is based on similar 
characteristics of the aircraft which make it suitable for the same use, both generally, and specifically as large seating capacity aircraft.  There is nothing in the definition of like prod uct which, on its face, 
would require analysis of groups of articles with in the subsidized product under consideration to 
determine a "most closely resembling" like prod uct for each group, and we do not consider it 
appropriate or necessary to undertake such an an alysis.  Moreover, the definition of like product 
specifies that, in the absence of a product that is "identical, i.e., alike in all respects to the product 
under consideration", the like product is defined as "another product which, al though not alike in all 
respects, has characteristics closely resembling tho se of the product under consideration."  Thus, even 
assuming we were to accept the European Communities' position that there are multiple subsidized 
products, and that there is no US-produced product which competes head-to-head with the A380, we 
would still have to find a United States' "like pr oduct" corresponding to a putative A380 subsidized 
product.  In the absence of an identical produc t, another product with characteristics "closely 
resembling" those of the A380, which in this case would be the Boeing 747,  would seem appropriate. 
7.1677  The European Communities also argues, based on the report of the panel in Indonesia – 
Autos , that the determination of like product must be narrowly focused on the question of physical 
characteristics.  However, the question the panel faced in that case was to determine which, of 
different models of automobiles produced by the co mplaining Members, could be considered the "like 
product" to the specific subsidized product, whic h was the single model, the Timor automobile, 
manufactured in Indonesia.  The analogous circumst ance, in the case of LCA, would be if the United 
States were complaining about subsidies to a single model of allegedly subsidized Airbus LCA, and 
the panel were seeking to decide which Boeing airc raft could be properly found to be "like" that 
single allegedly subsidized LCA model.  Where,  however, as here, the subsidized product under 
consideration includes the entire range of LCA mo dels produced by Airbus, we see no bar to the 
conclusion that the corresponding range of aircraft  produced in the complaining Member constitutes 
                                                     
 
5102 Panel Report, US  – Softwood Lumber V , para. 7.155. 
5103 Panel Report, US  – Softwood Lumber V , para. 7.157.  In its report in EC - Salmon (Norway) , the 
Panel similarly rejected an argument th at the product under investigation must  comprise only goods that are all 
"like" one another, that is, be internally homogeneous. 
5104 Exhibit EC-362 (HSBI), p. 13. 
5105 US, Answer to Panel question 40, paras. 235-242 and references cited therein; US, FCOS, para. 63, 
US, SWS, paras. 654-56.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  an appropriate "like product" – that is, the "pr oduct which, although not alike in all respects, has 
characteristics closely resembling those of the product under consideration".5106 
7.1678  In Indonesia – Autos , the panel did state that "the analysis as to which cars have 
"characteristics closely resembling" those of the Ti mor logically must include as an important element 
the physical characteristics of the cars in question."5107  However, an analysis of which goods 
produced in the United States are "like" the subsid ized product can certainly consider the physical 
characteristics of the family of Airbus aircraft as a whole, similar to the analysis in US  – Softwood 
Lumber V , and assess the correspondence between the range of aircraft on either side of the equation.  
Moreover, the Panel in Indonesia – Autos went on to observe: 
"we do not see that the SCM Agreement precludes us from looking at criteria other 
than physical characteristics,  where relevant to the like product analysis.  The term 
"characteristics closely resembling" in its ordinary meaning includes but is not limited to physical characteristics, and we see nothing in the context or object and purpose of the SCM Agreement that would dictate a different conclusion."
5108 
Thus, other criteria, including such matters as suitab ility for use, brand loyalty, customer perceptions, 
to the extent not dictated by physical char acteristics, can also be taken into account.   
 7.1679  Finally, we note that, having concluded that that there is a single subsidized product and a 
single corresponding like product, does not mean th at we must conduct an undifferentiated or 
monolithic analysis of either injury under Article 5(a), or serious prejudice under Articles 6.3(a), (b), 
and (c).  In the context of injury, which is define d for purposes of Article 5 as being used in the same 
sense as in countervailing duty cases,
5109 we note that the Appellate Body  has stated that investigating 
authorities may examine injury in th e trade remedy context by considering the effects of imports in 
market segments, so long as they do not ignore any market segments in such analysis, and the overall 
conclusions address the question of injury to the industry as a whole.5110  Similarly, we consider that, 
to the extent relevant, in our analysis of both in jury and serious prejudice, we may examine alleged 
effects in particular market segments, for inst ance in individual sales campaigns, in which the 
subsidized and like products compete, or with respec t to prices for specific models of LCA.  Such a 
differentiated analysis will likely be relevant in our analysis of significant price undercutting, price 
suppression, price depression, and lost sales "in the same market".   
7.1680  In summary, we conclude that it reasonable and a ppropriate to conduct the analysis of adverse 
effects on the basis of one subsidized product, all Airbus LCA, as proposed by the United States, and 
that there is a single United States' product that is  "like" the subsidized product, namely all Boeing 
LCA. 
                                                      
5106 We note that the range of aircraft on both sides of the question, subsidized product and like 
product, covers the full spectrum of existing large civil ai rcraft.  No party has sugges ted that smaller aircraft 
should be considered a like product in this di spute, and we do not address that question. 
5107 Panel Report, Indonesia – Autos , para. 14.173. 
5108 Id. 
5109 Footnote 11, appended to Article 5(a) of the SC M Agreement, specifies: "The term "injury to the 
domestic industry" is used here in the same sense as it is used in part V {countervailing measures}." 
5110 This view is based on the views of the Appellate Body to this effect in an anti-dumping dispute, 
Appellate Body Report, US – Hot-Rolled Steel , para. 204 ("it may be highly pertinent for investigating 
authorities to examine a domestic indust ry by part, sector or segment.  ...  where investigating authorities 
undertake an examination of one part of a domestic industry, they should, in principle, examine, in like manner, 
all of the other parts that make up the industry, as well as examine the industry as a whole.  Or, in the 
alternative, the investigating authorities should provide a sa tisfactory explanation as to why it is not necessary to 
examine directly or specifically the other parts of the domestic industry.").   WT/DS316/R 
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  5. Reference Period 
(a) Arguments of the Parties 
(i) United States 
7.1681  The United States originally presented data a nd arguments covering th e period 2001 through 
2005 to support its claims of adverse effects.  Subsequently, in it second written submission and oral 
statement and in response to questions from the Pane l, the United States presented additional data for 
calendar year 2006.
5111  However, the United States argues that the Panel should not select a particular 
"reference period" for its examination of adverse effects.5112  Rather, the United States argues that it is 
for the complaining Member, i.e., the United States, to define the a ppropriate period, and then for the 
Panel to determine whether the complaining Member has set forth a prima facie  case.  In doing so, the 
United States argues that the Panel will be ca lled upon to examine the evidence and arguments, 
including considering whether the time periods relie d upon by the parties are adequate to meet their 
respective burdens of proof.5113   
7.1682  With respect to its argument suggesting an end date for the consideration of adverse effects, 
i.e., 2005, the United States argues that the "matter" th e Panel is to examine is defined in the request 
for establishment, both in terms of substa nce, and in terms of temporal scope.5114  Thus, the 
United States contends that it is appropriate to co nsider data for the year in which the Panel was 
established, but not subsequent years, in decidi ng whether the subsidies in dispute cause adverse 
effects.  The United States does, however, maintain  that the adverse effects it has posited continued 
after establishment of the Panel, and continue to the present.  The United States recognizes that 
evidence pertaining to any time period that is re levant to the matter before the Panel may be 
considered, but asserts that the contention that a dverse effects ceased sometime after the Panel's 
establishment is not a defence to the United States' claim.5115  The United States argues that, as a 
matter of fact, any improvements in Boeing's situ ation in 2006 and subseque ntly do not demonstrate 
that adverse effects no longer exist.5116   
7.1683  The United States recognizes the finding of the Panel in United States – Upland Cotton  that 
serious prejudice should be found to exist " up to, and including a recent point in time".5117   However, 
the United States considers that "up to, and incl uding a recent point in time" is appropriately 
understood as a period of several years up to a nd including the year in which the Panel was 
established, but does not include the period after that year.5118  The United States argues that a panel's 
terms of reference are fixed as of the date of its establishment, citing in this respect cases in which 
measures which expired or were terminated afte r establishment were nonetheless examined by Panels, 
and in particular the report in EC – Biotech .5119   
7.1684  The United States submits that Article 6.7(c) , relied on by the European Communities to 
argue that the Panel should exclude information from the period 2001-2003 from its analysis on the 
basis of force majeure , identifies a series of events that limit the ability of the complaining Member to 
export its product for reasons having nothing to do with subsidies.  According to the United States, 
when such events can be estab lished the causal link between subs idization and the loss of export 
                                                      
5111 US, SWS, paras. 698, 701, 703, 731, 734, Exhibit US-616, US, Answer to Panel question 238. 
5112 US, Answer to Panel Question 133, para. 440. 
5113 US, Answer to Panel Question 133, paras. 438-39. 
5114 US, SWS, para. 674. 
5115 US, SWS, para. 684. 
5116 US, SWS, para. 672. 
5117 Panel Report, US –Upland Cotton , para. 7.1198. 
5118 US, Answer to Panel question 134, para. 451. 
5119 US, SWS, para. 673.  WT/DS316/R 
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  market share will be broken.  However, the United States argues that the downturn in the LCA market 
between 2001 and 2003 did not result from any inabilit y of the United States' industry to produce or 
export LCA.  The United States asserts that cust omers simply chose in increasing proportion to 
purchase LCA from Airbus rather than Boeing; a c hoice which meant that the burden of the market 
downfall fell disproportionately on Boeing.5120     
7.1685  The United States does acknowledge that data  from any period, including the most 
recent, may be considered by the panel in conducting  a long-term analysis of the effects of subsidies 
on the relevant market, but argues that neith er the panel nor the Appellate Body in US – Upland 
Cotton (Article 21.5 – Brazil)  endorsed the European Communities' view that only the most recent 
market trends were relevant.  In particular, the United States disputes the view that adverse effects 
must be shown to exist during the most recent period in order for a panel to find present adverse 
effects.5121 
(ii) European Communities 
7.1686  The European Communities presents a series of ar guments in support of its position that the 
appropriate reference period for the Panel's cons ideration should include data from the period 2004-
2006, and where available and reliable, 2007, in de termining whether subsidies cause adverse effects 
in 2006 (and 2007).  First, the European Comm unities argues that use of data from the 2001-2003 
period would be inconsistent with Article 6.7(c) of the SCM Agreemen t and with the requirement that 
the Panel undertake an objective assessment, on the basis that data from that period is distorted 
because of the effects of 11 September 2001 ("9/11").5122  The European Communities asserts that the 
LCA market, particularly in the United States, essen tially crashed as result of the collapse in demand 
for air travel following the events of 9/11.  This r esulted in air carrier bankruptcies, cancelled orders, 
delayed orders, and efforts by customers to re-negot iate prices, leaving both Airbus and Boeing with 
aircraft in production which would not be taken by the original customer.  The European Communities considers the events of 9/11 to constitute force majeure within the meaning of 
Article 6.7(c), and thus asserts that the period 2001-2003 must be considered unreliable as a starting 
point for assessing adverse effects.
5123 
7.1687  Second, the European Communiti es asserts that the period used to assess trends relating to 
present material injury and serious prejudice must in clude a period of time that reflects, as closely as 
possible, the conditions of competition that exist today.  The European Communities argues that the 
period 2004-2006 more closely reflects normal compe tition in the LCA markets, and should therefore 
be the relevant period.  The European Communiti es considers that the data for 2001-2003 do not 
reflect normal conditions of competition, and therefor e asserts that reliance on it is inappropriate, in 
addition to being inconsistent with Article 6.7(c) of the SCM Agreement.5124 
7.1688  Third, the European Communities notes that Artic le 6.4 of the SCM Agreement stipulates that 
the assessment of displacement or impedance be based on "an appropriately representative period … 
which, in normal circumstances, shall be at least one year."  The European Communities asserts that 
this is in line with what it describes as an "expr essed preference" by the Appellate Body and panels 
                                                      
5120 US, SWS, paras. 658-659; US, Answer to Panel Question 49(c). 
5121 US, Comments on  Panel and Appellate Body Reports in US - Upland Cotton  (Article 21.5 – 
Brazil),  para. 7, referring to, Panel Report, United States – Subsidies on Upland Cotton – Recourse to 
Article 21.5 of the DSU by Brazil (US – Upland Cotton (Article 21.5 – Brazil)) , WT/DS267/RW and Corr.1, 
adopted 20 June 2008, as modified by Appellate Body Report WT/DS267/AB/RW and Appellate Body Report, 
United States – Subsidies on Upland Cotton – Recourse to Article 21.5 of the DSU by Brazil (US – Upland Cotton (Article 21.5 – Brazil)) , WT/DS267/AB/RW, adopted 20 June 2008. 
5122 EC, FWS, para. 1494, 
5123 EC, FWS, para. 1495. 
5124 EC, FWS, para. 1497. WT/DS316/R 
Page 860  
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  for a shorter period of time in the context of do mestic trade remedy investigations, where the 
Appellate Body and panels emphasize th at data and trends relating to the most recent past  are the 
most relevant.
5125  In this respect, the European Commun ities relies on the decisions in disputes 
involving safeguard measures, Argentina – Footwear (EC)5126 and US – Lamb5127, as well as an anti-
dumping dispute, Mexico – Anti-Dumping Measures on Rice .5128  The European Communities argues 
that the guiding principle for injury investigations by investiga ting authorities is that the more recent 
the examined data, the more accurate the analys is of current injury will be.  The European 
Communities notes that Footnote 11 to Article 5 of the SCM Agreement states that the term "injury to the domestic industry" is used in the same sense as in  Part V, and argues that this preference should 
also apply in adverse effects cases.   
7.1689  Finally, the European Communities argues that the time period 2004-2006 is consistent with 
the Panel and Appellate Body decisions in US – Upland Cotton and US – Upland Cotton (Article 21.5 
– Brazil) .  The European Communities asserts that the re ference periods considered by the original 
panel and Appellate Body reports in that dispute covered years of high United States' upland cotton 
production and higher levels of Unite d States' subsidies than previously, but based on arguments of 
the United States, it did not  include marketing year 1998, which the United States asserted was a year 
of unusually high abandonment of United States' upl and cotton acreage due to drought and, therefore, 
unusually low United States' upland cotton production.
5129   The European Communities argues that 
the principle to be derived from this report is that  data in years with unusua l conditions of competition 
should not  be used for assessing trends offering guidance for present  adverse effects under present 
normal conditions of competition.  The European  Communities asserts that this principle was 
supported by the United States in the implementation dispute  in US – Upland Cotton , and was upheld 
by the panel and Appellate Body.5130  The European Communities points  out that in both the original 
and implementation disputes, information from afte r the date of panel establishment was presented 
and considered in order to assess whet her "present" adverse effects existed.5131   
7.1690  The European Communities submits that the events of 9/11 qualify as force majeure  within 
the meaning of Article 6.7(c) of the SCM Agreem ent, and that as a consequence, data from 2001 to 
2003 cannot be used to as a starting point for assessing adverse effects.5132  T h e  E u r o p e a n  
Communities recognizes that Article 6.7(c) of the SCM Agreement only refers to claims of 
displacement or impedance resulting in serious prejudice for the purpose of Article 6.3, but argues that it provides "important context" for determ ining the relevant time period for assessing other 
adverse effects claims.
5133  The European Communities argues that  as a consequence, the three-year 
period from 2001 to 2003 must be excluded from the appropriate reference period for our evaluation 
of the United States' claims under Articles 6.3(a) and 6.3(b).5134  In addition, the European 
Communities contends that conditions of competiti on between 2001 to 2003 do not reflect the present 
conditions of competition in the LCA industry.  Thus, more generally, the European Communities 
questions the relevance of such "historical" data to a determination of whether or not there are present  
                                                      
5125 EC, FWS, para. 1498. 
5126 Appellate Body Report, Argentina – Safeguard Measures on Imports of Footwear ("Argentina – 
Footwear (EC)") , WT/DS121/AB/R, adopted 12 January 2000, DSR 2000:I, 515, footnote 130. 
5127 Appellate Body Report, US – Lamb , para. 137. 
5128 Appellate Body Report, Mexico – Anti-Dumping Measures on Rice , para. 165. 
5129 EC, FWS, paras. 1503-04. 
5130 EC, Comments on US-Upland Cotton  (Article 21.5  – Brazil ) paras. 10-11. 
5131 EC, Comments on US-Upland Cotton  (Article 21.5  – Brazil ) paras. 12-15. 
5132 EC, FWS, para. 1495. 
5133 EC, FWS, para. 1495, footnote  1328. 
5134 EC Answers to Panel Questions 204 and 207.  WT/DS316/R 
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  adverse effects in the form of both injury and ser ious prejudice within the meaning of Articles 5(a) 
and (c), and Article 6.3(c), as well as Articles 6(a) and (b).5135 
(b) Arguments of Third Parties 
(i) Brazil 
7.1691  Brazil submits that the selection of an appropriate reference period is not a specific 
requirement of the SCM Agreement but rather is an analytical tool that should help a panel in the 
assessment of claims of adverse affects.5136  It refers to the findings of the panel in US – Upland 
Cotton  that an evaluation of an effects-based phenom enon cannot be "conducted in the abstract.  
Rather, discerning adverse effects of subsidies seems to us to require reference to a recent historical 
period."5137  Thus, Brazil contends that the selection of  the reference period should also take into 
account the specific nature and circumstances of the market in which the adverse effects are claimed 
to exist.  This, according to Brazil, is consistent  with the requirement that panels must conduct an 
objective assessment of the matter referred to them. 5138  
(ii) Canada 
7.1692  Canada submits that the SCM Agreement does not specify a particular reference period that 
must be used. Whatever period is chosen, it mu st be representative and allow for a thorough 
consideration of the issues.5139 
(c) Evaluation by Panel 
7.1693  Articles 5(a) and (c) and 6.3(a), (b) and (c) do not specify any particular time period for a 
panel to consider in evaluating whether the subs idies in dispute cause adverse effects to the 
complaining Member's interests, either in the form of injury to the domestic industry of the 
complaining Member, or in the form of serious prejudice.  Article 6.4 does indicate that, for purposes of analysis of impedance or displacement of exports under Article 6.3(b), a panel should examine 
changes in relative market shares "over an appropriately representative period sufficient to 
demonstrate clear trends in the development of the market for the product concerned, which, in 
normal circumstances, shall be at least one year."   However, while this establishes a minimum period 
of data to be considered in normal circumstances,  it does not provide any guidance regarding either a 
starting date, or an end date, of a relevant pe riod.  Nor does it provide any guidance as to the 
appropriate length of a relevant period, so long as a minimum of one year is generally respected in the 
context of an analysis under Article 6.4.   
7.1694  It is clear that the finding we are required to make is whether there are "present" adverse 
effects caused by the subsidies in dispute, and the parties do not argue otherwise.
5140  Of course, it is 
impossible to assess the "present" situ ation, as immediate data is not available, and thus a review of 
the past is necessary to draw conclusions about pres ent adverse effects.  The issue we must consider 
here is what evidence we should take into account , what historical period we should refer to, in 
drawing such conclusions.  In our view, in the absence of any specific guidance on this issue, we 
                                                      
5135 EC, Answer to Panel Question 204, paras.279-280. 
5136 Brazil, Answer to Panel question 16, para.36.   
5137 Brazil, Answer to Panel question 16, para.36, citing Panel Report, US – Upland Cotton , para. 
7.1198. 
5138 Brazil, Answer to Panel question 16, para.36. 
5139 Canada, Answer to Third Party Panel Questions, para. 17. 
5140 In this regard, we note that the text of Article 5 indicates a focus on the present, providing "{n}o 
member should cause  … adverse effects".  The text of Articles 6.3 (a), (b) and (c) are even more plainly drafted 
with reference to the present, as each  begins "the effect of the subsidy is …". (emphasis added). WT/DS316/R 
Page 862  
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  should avoid making an a priori  choice of reference period.  The legal arguments of the parties do not 
establish that a panel is either precluded from, or required to, focus on either of the periods proposed 
by them, in the sense of a limitation on the panel' s consideration of information in the abstract.  
Rather, we consider that it is our responsibility,  in making a determinati on consistent with our 
obligations under Article 11 of the DSU, to examin e the evidence put forward by the United States, 
and the rebuttal evidence put forward by the Eu ropean Communities, incl uding recent information 
where relevant and reliable, in de termining whether the United States has demonstrated that subsidies 
cause present adverse effects within the meaning of  Article 5 of the SCM Agreement.  While this 
makes our task of assessment of the evidence more complicated, it serves to ensure that we carry out 
an objective examination, as required by Article 11 of the DSU, of all the evidence in reaching our 
conclusions. 
7.1695  The European Communities argues that the refere nce period for our evaluation of the United 
States' claims under Articles 6.3(a) and 6.3(b) must exclude data from 2001 to 2003 because the 
events of 9/11 allegedly constitute force majeure  within the meaning of Article 6.7(c).  In our view, 
the European Communities' reliance on this provisi on for the purpose of identifying an appropriate 
reference period is misplaced.  Article 6.7(c) provides:  
"6.7 Displacement or impediment resulting in serious prejudice shall not arise 
under paragraph 3 where any of th e following circumstances exist
18 during the 
relevant period: 
... 
(c) natural disasters, strikes, transport disruptions or other force majeure  
substantially affecting production, qua lities, quantities or prices of the product 
available for export from th e complaining Member; ... 
_______________  
18 The fact that certain circumstances are re ferred to in this paragraph does not, in 
itself, confer upon them any legal status  in terms of either GATT 1994 or this 
Agreement.  These circumstances must not  be isolated, sporadic or otherwise 
insignificant."  
7.1696  Article 6.7(c) describes one particular circumstance, force majeure , which, if it exists "during 
the relevant period", precludes a finding of displacement or impediment resulting in serious prejudice 
under Article 6.3.  Thus, Article 6.7(c) does not, by  its own terms, concern the identification of the 
relevant period to be considered in a serious prejud ice analysis.  Indeed, its application is explicitly 
limited to the situation where the particular circ umstance described occurs during the period relevant 
for a serious prejudice analysis.  This implies that  the relevant reference period must be established 
before consideration can be given to  the applicability of Article 6.7(c).  There is therefore no basis in 
Article 6.7(c) to support the European Communities'  contention that the relevant reference period 
must be shortened by the three-year period during which the European Communities asserts that the effects of the alleged force majeure  event ( i.e., 9/11) were felt. 
7.1697  Moreover, we are not convinced by the Europ ean Communities' argument that the events of 
9/11 constitute force majeure  within the meaning of Article 6.7(c).  Article 6.7(c) is one of six sub-
paragraphs of Article 6.7 that describe circumstance s which, if they exist during the relevant period, 
have the consequence that displacement or impe dance resulting in serious prejudice under Article 6.3 
"shall not arise".  Thus, as we read it, Article 6.7 identifies six particular circumstances which affect  WT/DS316/R 
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  the complaining Member in such a way as to make it unacceptable to attribute any market 
displacement or market impedance taking place during the relevant period to the use of subsidies by the defending Member.  That is, the negotiators  of the SCM Agreement agreed that, in the 
circumstances identified in Article 6.7(a)-(f), a fi nding of serious prejudice based on displacement or 
impedance should be legally precluded, without cons ideration of whether any such displacement or 
impedance is the effect of the subsidies in dispute.   
7.1698  What amounts to force majeure  is not defined in Article 6.7(c).  However, "natural disasters, 
strikes {and} transport disruptions ... substantially  affecting production, qualities, quantities or prices 
of the product available for export from the comp laining Member" are iden tified as specific events 
that constitute force majeure .  Moreover, it is clear that "other force majeure " events may fall within 
the scope of Article 6.7(c), provided they are also "substantially aff ecting production, qualities, 
quantities or prices of the product available for export from the complaining Member".  Footnote 18 also provides that any force majeure  event must not be "isolated, sporadic or otherwise insignificant".  
Thus, not all instances of what might, in a more general sense, be considered force majeure , will 
result in Article 6.7(c) being applicable.   
7.1699  In our view, the plain meaning of the text of Article 6.7(c) indicates that a finding of 
displacement or impediment under Article 6.3 cannot be made where the market share effects alleged 
to constitute such displacement or impe dance are the result of extraordinary (" force majeure ") events 
which affect the supplies of the product ava ilable for export from the complaining Member,  in this 
case the United States.  In other words, as we read it, Article 6.7(c) contemplates force majeure  events 
that have a substantial effect on supply, thereby limiting the ability of the complaining Member to 
export its product for reasons having nothi ng to do with subsidies.  Thus, when a force majeure  event, 
unrelated to subsidization, substantially affect s production, qualities, quantities or prices of the 
product available for export from the complaining Memb er, a decrease in that Member's market share 
in an export market shall not constitute serious pr ejudice.  The European Communities argues that the 
events of 9/11 and the resulting downturn in dema nd for LCA products in the market had a greater 
impact on Boeing's sales and prices, compared with Airbus.  Even assuming this to be true, however, 
this does not demonstrate that the events of 9/11  substantially affected the availability of United 
States' LCA for export.  According to the United States, Boeing's ability to produce, sell or export 
LCA in the period following 9/11 was unaffected.
5141  Indeed, the European Communities does not 
present any evidence or argument suggesting that the events of 9/11 affected Boeing's ability to make 
LCA available for export.  Thus, in our view, th e downturn in the LCA market that followed the 
events of 9/11 did not substantially affect the supply of United States' LCA products, but rather 
affected demand for LCA.  Thus, we do not c onsider that the events of 9/11 qualify as force majeure  
within the meaning of Article 6.7(c). 
7.1700  However, even assuming that the types of force majeure  contemplated under Article 6.7(c) 
include shocks affecting demand for particular pr oducts, we would nevertheless conclude that the 
events of 9/11 do not constitute force majeure  within the meaning of that provision.  In this regard, we 
note that each of sub-paragraphs of Article 6.7 descr ibes a particular circumstance that in one way or 
another limits the volume of exports or imports of the relevant product from the complaining 
Member.  It is significant, in our view, that each sub-paragraph identifies a circumstance that does not 
also affect sales of the product of the defending Member in the same or similar way .  Article 6.7(a) 
refers to a "prohibition or restriction on exports of the like product from the complaining Member or 
on imports from the complaining Member into the th ird country market"; Article 6.7(b) describes a 
decision by an importing government monopoly or state trading entity, for non-commercial reasons, "to shift ...  imports from the complaining Member to another country or countries"; Article 6.7(d) 
singles out the "existence of arrangements limiting exports from the complaining Member"; 
Article 6.7(e) focuses on a "voluntary decrease in the availability for export of the product concerned 
                                                     
 
5141 See, US, SWS, para. 660. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  from the complaining Member"; and Article 6.7(f) id entifies a "failure to conform to standards and 
other regulatory requirements in the importing co untry".  Thus, even assuming that demand-side 
shocks could fall within the scope of Article 6.7(c), in order to qualify as force majeure , such events 
would, like the other sub-paragraphs in Article 6. 7, have to concern limit ations on exports from the 
complaining Member that do not also affect the product of the defending Member in the same or 
similar way.   
7.1701  In our view, to understand force majeure  to include demand-side shocks that affect both the 
complaining and the defending Member's products in  the same or similar way would undermine the 
purpose of Article 6.7, which as we have indicated above, is to identify a series of circumstances in 
which Members have agreed that the use of subsid ies by a defending Member cannot be legally found 
to be the cause of serious prejudice in the form of  market displacement or market impedance that 
may occur during the relevant reference period. 
7.1702  Although the European Communities has s ubmitted evidence showing that Boeing was 
affected more than Airbus by the events of 9/11,
5142 it has not argued that Airbus' LCA business was 
not also negatively affected by the downturn fo llowing those events.  Indeed, the European 
Communities has explained that: 
"Data from 2001-2003 is heavily distorted because of the effect of the events of 9/11.  
LCA orders, deliveries, revenue, prices, a nd demand fell considerably as a result of 
the short-term collapse of demand for air trav el, particularly into, within and from the 
United States.  A number of US carriers and European airlines went bankrupt and 
cancelled LCA orders.  Many other customers sought to delay the delivery of orders.  
These developments left both Airbus and Bo eing with stocks of distressed aircraft, 
i.e., aircraft under production, but for which the original customer would no longer 
take delivery."5143  
Furthermore, the European Communities has explicitl y recognized that "as demand for LCA is driven 
by the demand from the airline industry, both Airbus  and Boeing were directly affected by the severe 
impact" of 9/11.5144  
 7.1703  Thus, the European Communities' own submissi ons do not pretend that Boeing was the only 
company affected by 9/11 or that Airbus was not also  affected by those events in much the same way, 
albeit allegedly to a different degree.  On the basis of the evidence before us, there is no doubt that the 
events of 9/11 were a major shock to the LCA market in general, and that demand for LCA from 
airlines in the United States was particularly hard hit.   However, the effects of 9/11 were felt not only 
by Boeing but, as the European Communities has itsel f explained, they were also felt by Airbus, 
although allegedly to a lesser degree.  Therefore, even assuming that the types of force majeure  
contemplated under Article 6.7(c) include events af fecting market demand for particular products, the 
events of 9/11 were not of a kind that did not also a ffect Airbus in the same or similar way as Boeing.  
Consequently, even under this alternative view of the meaning of Article 6.7(c), we do not consider 
that they constituted force majeure  within the meaning of Article 6.7(c) of the SCM Agreement. 
7.1704  The second, and more general, argument made  by the European Communities in reliance on 
the events of 9/11 concerns the relevance of data  from 2001 to 2003 to a determination of whether or 
not there are present  adverse effects in the form of both injury and serious prejudice within the 
meaning of Articles 5(a) and (c) and Article 6(c), as well as Articles 6(a) and (b).  As we understand 
its argument, the European Communities is of the vi ew that the Panel should either reject data from 
                                                     
 
5142 See,  e.g., EC, FWS, paras. 1440-1467; EC, Answer to Panel Question 116. 
5143 EC, FWS, para. 1495 (footnotes omitted). 
5144 EC, Answer to Panel Question 204.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  this period as irrelevant to its analysis,5145 or give that data very little probative value for the purpose 
of demonstrating present  adverse effects.  However, there are a number of factors specific to the LCA 
industry that lead us to consider that it is reasonable a nd appropriate, in an objective assessment of the 
United States' adverse effects claims, to review da ta over a relatively longer period of time.  In 
particular, we note that there are long lead times for development of new LCA, and each model of 
LCA has a relatively long life once put into service.5146  Moreover, orders for LCA are placed for 
future deliveries, sometimes over a period of many years, and sometimes starting well after the date of the order.  Taken together with the long periods  during which the subsidies have allegedly been 
supporting Airbus' development an d production of LCA, these factors suggest to us that the 
consideration of data over a relatively longer histori cal period will better info rm our understanding of 
the industry and market, and assist us in evaluating not  only the allegations of ad verse effects, but also 
the question of causation, than would be the case if we were to exclude information from a relatively 
recent, in the context of this industry, past.   
7.1705  The European Communities insists that that we must assess whether subsidies "presently 
cause adverse effects, taking into account current factual conditions".
5147  We do not disagree.  
However, we see no contradiction between this propo sition and a consideration of information over a 
longer historical reference period, particularly in this industry.5148  Thus, we see no reason to exclude 
data from the years 2001 to 2003 a priori  from our consideration.5149  Of course, we will evaluate 
information concerning the more distant past carefully in assessing the relationship between the 
effects of subsidies as reflected in older data and the findings of present adverse effects the United 
States asks us to make in this dispute. 
7.1706  The European Communities argues that shorter time periods are to be preferred in assessing 
the impact of subsidies, relying in part on statemen ts by panels and the Appella te Body to that effect 
in disputes involving trade remedies (safeguards and anti-dumping measures).5150  We consider that 
the European Communities has exaggerated the import of  those reports for our analysis in this case.  
In particular, we consider that the differences between trade remedy disputes, and this dispute 
involving adverse effects of subsidies, supports the conclusion that there is, as a legal matter, no 
preference for a shorter period of time for examini ng adverse effects, whatever the case may be in 
trade remedy disputes.   
                                                      
5145 The European Communities does not argue, in this context, that the Panel is precluded, as a matter 
of law, from considering information from 2001-2003, or any other period.  EC, Answer to Panel question 204, 
para. 280. 
5146 Production of Airbus' first LCA model, the A300, launched in 1969 and first delivered to a 
customer in 1974 continued until March 2007.  Production of the A310, launched in 1978 and first delivered to a 
customer in 1985, also continued until March 2007.  A ll other LCA models Airbus has brought to market are 
currently in production, and Airbus LCA of all models remain in service world-wide.   
5147 EC, Comments on US – Upland Cotton (Article 21.5 – Brazil) , para. 24. 
5148 In this regard, we note the fundamental differe nce between the nature of the subsidies and the 
product in this dispute, and those in  US – Upland Cotton .  Allegations concerning the effects of largely one-off 
subsidies allegedly enabling the development of LCA, a product with a long life-span, as well as other subsidies 
benefitting the development and production of LCA ov er many years and allegations concerning annual 
production and income support subsidies to cotton farmers producing an annual crop, thus reflecting a more 
limited time frame, may well result in different time peri ods being relevant to the assessment of adverse effects 
under the SCM Agreement.  We see nothing in the findings of the panels and Appellate Body in  US – Upland 
Cotton  which would limit our ability to consider information that is relevant to this dispute, simply because 
information from a corresponding time period might not have been relevant in that dispute.   
5149 We note that we have before us information and arguments relating to the period prior to 2001 as 
well, both with respect to the subsidies in dispute, and w ith respect to their effects.  Our conclusions concerning 
the relevant reference period relate equally to such info rmation, which we have taken into consideration in our 
analysis as relevant. 
5150 EC, FWS, paras. 1499-1501. WT/DS316/R 
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  7.1707  In trade remedy disputes, a panel is reviewing the decision of a national authority imposing, 
on a unilateral basis, a limitation on imports or an increase in tariff rates contingent upon a finding 
that a particular situation exists.  In the case of safeguards, the necessary underlying determination is 
whether a "product is being imported ...  in such increased quantities ...  as to cause or threaten to 
cause serious injury to the domestic industry."
5151  The focus of the Appellate Body on the importance 
of the recent past is related to the timing of the increase in imports, which it has found must be recent, 
in order to sustain imposition of the safeguard measure.5152  It is clear that if the triggering event is a 
recent increase in imports, then the injury must also be recent, and th erefore, the analysis has focused 
on the recent past.  However, this does not imply a necessary limitation on the time period for which 
information is gathered or analyzed by th e investigating authority, which is undefined.5153   
7.1708  In anti-dumping cases, the necessary underlying determinations are that imports are dumped, 
and that "dumped imports are ...  causing material injury" to the domestic industry.5154  Similarly, in 
countervailing duty cases, the necessary underlying dete rminations are that imports are subsidized, 
and that "subsidized imports ... causing mate rial injury" to the domestic industry.5155  The Appellate 
Body pointed out in Mexico – Anti-Dumping Measures on Rice , that "because the conditions to 
impose an anti-dumping duty are to be assessed with r espect to the current situation, the determination 
of whether injury exists should be based on data th at provide indications of the situation prevailing 
when the investigation takes place."5156  However, the Appellate Body went on to note that this did 
not mean that a past period was not to be examined.5157  There is nothing in the Appellate Body's 
views, that imposes any limit on the length of the relevant period.  Moreover, the Appellate Body 
made it clear that relying on evidence from  a "remote investigation period" was not per se  a violation 
of Article 3.1 of the AD Agreement.   
7.1709  In trade remedy cases, investigating authoriti es routinely analyze information for a pre-
determined period of investigation, and may not consider, or even accept information for any time 
after the end of that period.  Indeed, for many inv estigating authorities, the period of investigation is 
defined in governing statute or regulation, whic h may prohibit the consideration of information 
outside that period.5158  Thus, the determination ultimately made at the end of the investigation may be 
based on data that is quite old.  In the disputes relied upon by the European Communities to argue that 
we must focus on the most recent data, complainants  argued to the panels and the Appellate Body that 
the information on which the determin ations were based was stale, a nd therefore could not be relied 
                                                      
5151 Agreement on Safeguards,  Article 2.1 (emphasis added). 
5152 See, Appellate Body Report, Argentina – Footwear (EC) , paras. 130-131.  See,  also , Panel Report, 
US – Lamb , paras. 7.129 and 7.132, and Appellate Body Report, US – Lamb , paras. 137 – 138, (importance of 
recent data in context of analysis of threat)..   
5153 In US – Lamb , the Appellate Body noted that, in analysing threat, "although data from the most 
recent past has special importance, co mpetent authorities should not consider such data in isolation from the 
data pertaining to the entire period of investigation. ...  If the most recent data is evaluated in isolation, the resulting picture of the domestic industry may be quite misleading."  Appellate Body Report, US – Lamb , 
para. 138.  The Appellate Body did not suggest any limitation on the relevant period of investigation. 
5154 AD Agreement, Article 3.5. 
5155 SCM Agreement, Article 15.5. 
5156 Appellate Body Report, Mexico – Anti-Dumping Measures on Rice , para. 165. 
5157 Appellate Body Report, Mexico – Anti-Dumping Measures on Rice , para. 166. 
5158 The Committee on Anti-Dumping Practices has adopted a recommendation on periods of data 
collection, which while not binding on Members, indicat es agreement about practices  in the conduct of anti-
dumping investigations that Members believe are cons istent with the requirements of the Anti-Dumping 
Agreement.  Document G/ADP/6, 16 May 2000.  That recommendation provides that the "period of data 
collection for injury investigations normally should be at  least three years", but recognizes that "such guidelines 
do not preclude investigating author ities from taking account of the par ticular circumstances of a given 
investigation in setting the periods of data collection for both dumping and injury, to ensure that they are 
appropriate in each case."  Similarly, we consider that the particular circ umstances of this dispute should be 
taken into account in order to ensure that data for an appropriate period is examined in our analysis.  WT/DS316/R 
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  upon to support the findings made, and panels and th e Appellate Body have agreed.  Indeed, both the 
panel and Appellate Body in Mexico – Anti-Dumping Measures on Rice questioned the relevance and 
pertinence of evidence from a period ending fifteen m onths before the initiation of the investigation 
and almost three years before the imposition of an ti-dumping duties to the finding of material injury, 
and indicated that more recent data is likel y to provide better indications about injury.5159  Thus, this 
case stands for the proposition that when a determinati on is made with reference to information for a 
particular period of investigation, if the end of th at period is too remote in time, the information may 
be insufficient to establish, as a matter of fact, the conditions necessary for imposition of the remedy 
at the time of the decision.5160  The cases do not, however, esta blish any principles regarding the 
appropriate length of the period, or how far back its starting point may be.   
7.1710  Moreover, unlike the cases relied upon by the Eur opean Communities, in this dispute, the 
information before us is not "stale".  In this re gard, we note that although this Panel was established 
in July 2005, we agreed, at the parties' request, to set aside our timetable until September 2006, with 
the result that the United States' first submission was not filed until November 2006, and our meetings 
with parties and third parties were held in March and July 2007.  We  continued to receive answers to 
questions, including further information we requested  from the parties in January 2008, and further 
comments as late as July 2008.5161  Thus, we have before us information as recent as could feasibly be 
considered, consistent with consid erations of due process.  Particularly in a dispute involving an 
industry with long development and production time-frames such as the LCA industry, we see no 
reason to limit the length of time over which we will consider information to only the most recent 
period.   
                                                      
5159 Panel Report, Mexico – Definitive Anti-Dumping Measures  on Beef and Rice, Complaint with 
Respect to Rice ("Mexico – An ti-Dumping Measures on Rice") , WT/DS295/R, adopted 20 December 2005, as 
modified by Appellate Body Report WT/DS295/AB/R, DSR 2005:XXIII, 11007, para. 7.58; Appellate Body 
Report, para. 166. 
5160 How far in the past is too remote in time is a qu estion to be assessed in each case on the particular 
facts.  In Mexico – Steel Pipes and Tubes , a determination based on data from an investigation period that 
terminated about eight months prior to the initiation and about two years prior to the imposition of the definitive measures was found not inconsistent with the AD Agreement .  Panel Report, Mexico – Anti-Dumping Duties on 
Steel Pipes and Tubes from Guatemala ("Mexico – Steel Pipes and Tubes"), WT/DS331/R, adopted 24 July 2007 , 
para. 7.240.  The Panel in the latter case distinguished its decision from the decision in Mexico – Anti-Dumping 
Measures on Rice .  The Appellate Body stressed that the conclusion of the Panel in Mexico – Anti-Dumping 
Measures on Rice  related to the specific circumst ances of the case, such that a prima facie  case was established 
that the information did not, in fact, provide reliable indications of current injury.  Appellate Body Report, Mexico – Anti-Dumping Measures on Rice , para. 167.  Among those circum stances were the fact that the 
investigation period had been proposed by the petitioner seeking the imposition of anti-dumping duties, there 
were no practical problems necessitating that period be considered, no attempt was made to update the information during the course of the investigation, it was not established that updating the information was not 
possible, and there were no reasons, other than general practice of the investigative authority, why more recent 
information was not sought.  Appellate Body Report, Mexico – Anti-Dumping Measures on Rice , para. 167.  
Thus, the Appellate Body concluded, "it is not only the remoteness of the period of investigation, but also these 
other circumstances" that were the basis for the Panel's conclusion that Mexico's selection of the period of 
investigation was in violation of its obligations under the AD Agreement .  Appellate Body Report, Mexico – 
Anti-Dumping Measures on Rice , para. 167. 
5161 Following the issuance of the Appellate Body report in US – Upland Cotton (Article 21.5 – Brazil) , 
the Panel afforded both parties an opportunity to submit "comments, if any, on the Appellate Body Report in US 
- Upland Cotton (Article 21.5 – Brazil)  circulated to the WTO Members on 2 June 2008, and the Panel Report 
as modified by the Appellate Body Report" noting that it was "interested in the comments of the parties to the extent that the parties deem the Appellate Body Report and the Panel Report as modified by the Appellate Body 
Report to be pertinent to the present dispute"  The Panel further afforded both parties an opportunity to submit 
comments on each other's comments.  In these later submissions, the European Communities continued to 
submit information relating to even later periods than that which we had requested. WT/DS316/R 
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  7.1711  In a dispute alleging adverse effects, a panel is called upon to decide, for itself, whether a 
Member is causing, through the use of subsidies, ad verse effects to the interests of another Member.  
As the Appellate Body recognized in US  – Upland Cotton , there may well be a time lag between the 
payment of a subsidy and the consequential adverse effects.
5162  Particularly where, as here, the 
subsidies in dispute have been granted over a long  period of time, and the i ndustry and market operate 
on long time-frames, there seems to us no reason to c onclude that considerati on of evidence covering 
a shorter time period would be preferable to c onsideration of evidence covering a longer period.  
Indeed, we note that in both US  – Upland Cotton  and Korea – Commercial Vessels ,5163 parties 
submitted, and the panels considered , data covering longer periods of time, from six to ten years, in 
their analysis, without expressing a particular justification. 
7.1712  We find rather curious the notion that we s hould exclude certain information submitted by a 
party from our consideration, because it relates to a period more remote in time than other information 
that has also been submitted.  In our view, we mi ght well be viewed as failing  to fulfil our obligation 
to undertake an objective examination of the eviden ce, were we to decline to consider information 
which is, on its face, relevant to  the issues that are before us.5164  Thus, we believe that it is more 
appropriate to consider all the information that h as been put before us, and assess it in light of the 
arguments of the parties, than to make a priori  judgments as to a defined and limited reference period, 
beyond which we will not look.   
7.1713  This is not to suggest that we would make a finding that adverse effects manifested at some 
time in the past are sufficient to support a finding of violation of Article 5.5165  In our view, it is  
appropriate to take into account the most recent av ailable, relevant and reliable data that we could 
evaluate in a manner consistent with the require ments of due process, and in light of practical 
limitations, including in this case data from 2006.5166  However, we agree with the United States that 
the question before us is not whether serious prejudi ce in terms of displacement, impedance, or price 
effects, or injury to Boeing, h as lessened since 2005, but whether, whatever changes there may have 
been in the most recent period, th e subsidies in dispute cause present a dverse effects.  In this regard, 
we note that an improvement in the situation in the most recent period does not preclude a finding of 
present adverse effects.  To the contrary, should we conclude that the present situation is worse than it 
would have been in the absence of the subsidies,  and by a sufficient degree, we may find present 
adverse effects despite improvements in the most recent period.   
7.1714  Finally, as implied by the discussion above, we reject the United States' view that we are 
required to make our determinati on concerning adverse effects "as of" the date of establishment of 
this panel in July 2005.  While the exigencies of collecting, submitting, and analysing relevant 
information necessarily means that any decision will be based on a past period, we are nonetheless charged with making a determination of present  adverse effects, and therefore consider that it 
behoves us to take into account the most recent in formation available to us, consistent with due 
process, that is relevant and reliable.  Moreover, in both the original and implementation disputes in 
US-Upland Cotton , the panel took into account information from a period beyond the date of its 
                                                     
 
5162 Appellate Body Report, US  – Upland Cotton , para. 273. 
5163 Panel Report, Korea – Commercial Vessels . 
5164 The probative value and weight to be accorded such evidence is, of cour se, to be considered 
through the course of our analysis.   
5165 We recall that the Panel in US – Upland Cotton  observed that "{s}ubsidies granted under expired 
measures may have had adverse effects at the time they  were in effect, and may still have lasting adverse 
effects."  Panel Report , US – Upland Cotton  para 7.1201, citing, Panel Report, Indonesia – Autos , para. 14.206.  
Certainly, in our view, subsidies granted with respect to products still being manufactured and sold may be found to still be having adverse effects, despite the fact that the subsidies causing these effects were granted at 
some time in the past. 
5166 While we have not excluded information relating to periods subsequent to 2006, we will not rely on 
it specifically in making our findings of f act in the context of adverse effects.  WT/DS316/R 
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  establishment, at least in part based on arguments  made by the United States.  The United States 
argues that the "ordinary rules of WTO dispute settle ment" indicate that a panel's terms of reference 
are fixed as of the time of panel establishment, and thus that we should make our ruling as of that 
date.5167  The United States suggests that the willingness of  the panel to take into account information 
from a period beyond the date of its establishment in US – Upland Cotton (Article 21.5 – Brazil)  does 
not suggest any different understanding of its terms of reference, and that there is a difference 
between whether evidence is relevant and may be ta ken into account and whether a panel is to make 
findings with respect to events th at happened after its establishment.5168   
7.1715  We consider the distinction the United States dr aws in this regard to be inaccurate.  The 
United States acknowledges that market data regardi ng a period after establishment may be taken into 
account in making our determination.5169  In our view, if evidence about a period after the 
establishment of the Panel is relevant and may be ta ken into account in our analysis, then our findings 
based on that analysis cannot logically be understood as being made "as of" the date of establishment.    
6. Conditions of Competition 
7.1716  Before proceeding to consider the parties' argu ments concerning adverse effects, we consider 
it important to set out our understanding of the basi c structure of the LCA industry overall, and the 
conditions and nature of competition in the market for LCA, in order to establish the background and 
context for our analysis of whether the subsidies we  have found to exist cause, or threaten to cause, 
adverse effects within the meaning of Articles 5(a) and (c) of the SCM Agreement.   
7.1717  The design, testing, certification, production, marketing and after-delivery support of LCA is 
an enormously complex and expensive undertaking,  which requires huge up-front investments over a 
period of three to five years before any revenues are obtained from customers.5170  A rough rule of 
thumb is that at least 600 airplanes of a new model must be sold before the revenues for a programme 
exceed the costs.  Economies of scale arising from the huge sunk development cost give incumbent 
firms a considerable competitive advantage.  Learning effects induce dynamic economies of scale 
which reinforce incumbents' advantage.  Economies of scope make it difficult to enter one market 
segment only.  Switching costs make it more difficult for new producers to enter, and most airlines prefer fleet commonality.  Incumbent firms have a strong incentive to adopt entry deterring price 
strategies.  Historically, according to one commentat or, few airplane programmes have been financial 
successes.
5171  Uncertainty is considerable, making it ve ry difficult to finance the huge development 
cost on capital markets.  Finally, the fact that airc raft are typically sold in USD exposes non-American 
manufacturers to exchange rate fluctuations wh ich increase uncertainty and are costly to cover 
against.5172 
7.1718  Boeing and Airbus are at present the world's only LCA producers.  Two other US  producers, 
Lockheed and McDonnell Douglas, exited the LCA market in 1981 and 1997, respectively.5173  
                                                      
5167 US, Comments on EC, Comments on  Appellate Body and Panel Reports in US – Upland Cotton  
(Article 21.5 – Brazil) , paras. 3-9. 
5168 US, Comments on EC, Comments on Appellate Body and Panel Reports in – Upland Cotton  
(Article 21.5 – Brazil ), para. 9. 
5169 US, Comments on EC, Comments on  Appellate Body and Panel Reports in – Upland Cotton  
(Article 21.5 – Brazil ), para. 6. 
5170 Boeder & Dorman, Exhibit US-373, at 132-33. 
5171 Gernot Klepper, Entry Into the Market fo r Large Transport Aircraft , 34 European Economic 
Review 775 (1990) (hereinafter "Klepper"), Exhibit US-377; Boeder & Dorman, Exhibit US-373.   
5172 Klepper, Exhibit US-377. 
5173 Boeder & Dorman, 132-33, Exhibit US-373.  Ve ry limited LCA production exists in Russia.  
According to the United States, difficu lties in obtaining the neces sary funding for the de velopment of LCA that 
can meet international airworthiness certification standards have prevented Russian LCA producers from WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  Boeing is a long-established manufacturer of LCA, wh ile Airbus launched its first model, the A300, 
in 1969, and first entered it into service in 1974.
5174  Both Airbus and Boeing now produce a full range 
of different models of LCA and sell to the full ra nge of customers, primarily airlines and aircraft 
leasing companies.5175  In this competitive duopoly, the United States argues that the two producers 
compete head-to-head for virtually all LCA sales, in a largely "zero sum" competition – a "win" for 
one producer, in terms of sales, is almost always a loss for the other.5176  The European Communities 
agrees that the competitive duopoly between Airbus  and Boeing has resulted in vigorous competition 
between the two companies, but asserts that this competition is welcomed by both companies, as well 
as by purchasers of aircraft,5177 and has generated numerous new and innovative LCA products.5178  
The European Communities argues that the compe tition between the two companies fosters lower 
prices for LCA purchasers and increased demand for ai r travel by the flying public which is the 
ultimate driver of the financial health of both Boeing and Airbus.5179  According to the United States, 
however, lower prices for LCA do not significantly increase demand,5180 because demand for LCA is 
generally derived from demand for air travel services, a nd the cost of the aircraft itself is only a small 
portion of total airline operating costs.5181 
                                                                                                                                                                     
seriously competing with Boeing and Airbus for LCA sales outside the former Soviet bloc.  See,  US  
International Trade Commission, The Changing Structure of the Global Large Civil Aircraft Industry and 
Market , Inv.  No, 332-384 (November 1998) at Ch.  4, Exhibit US-374; EC Merger Analysis , Exhibit US-375.  
The European Communities does not consider the evolution of the current competitive situation relevant, but 
asserts that the United States has made false statements of fact regarding the market exits of McDonnell Douglas 
and Lockheed.  According to the European Communities, Lockheed left the LCA business because of a combination of misjudgements in aircraft design and cost overruns in its military aircraft development 
operations, while McDonnell Douglas ceas ed operating because of an unwillingn ess to invest in the future, an 
over-reliance on derivative rather than new models of LCA, and a series of crashes.  McDonnell Douglas' LCA 
operations merged with Boeing in 1997.  EC, FWS, paras. 1386-88. 
5174 EADS offering memorandum (2000), Exhibit EC-24, pp. 68-70; EADS offering memorandum 
(2001) Exhibit EC-25, pp. 41-42. 
5175 Aircraft leasing companies essentially are an in termediary between LCA manufacturers and airlines 
– they purchase LCA, but do not operate them, leasing them to airlines, which thus do not have to themselves finance the purchase of the LCA.  See, Statement of Christian Scherer, Exhibit EC-14 (BCI) at 30-36. 
5176 US, FWS, para. 711. 
5177 EC, FWS, paras. 1376, 1378, 2272.   
5178 Indeed, the European Communities contends that Boeing acknowledges that it needs  a strong 
Airbus competitor, citing remarks by Randy Baseler, Bo eing's marketing chief.  EC, FWS, para. 1380, citing 
Boeing, " Randy's Journal: Staying focused ," 6 October 2006, 
http://www.boeing.com/randy/archives/2006/10/staying_focu sed.html  (visited 30 January 2007), Exhibit EC-
277. 
5179 Paul Wachtel, " Critique of 'The Effect of Launch Aid on The Economics of Commercial Airplane 
Programs' by Dr. Gary J. Dorman ," 31 January 2007 (hereinafter "Wachtel Report"), Exhibit EC-12, para. 9.  
Dr. Wachtel is a professor of economic s at New York University's Stern Sc hool of Business.  His educational 
credentials include a BA, cum laude, Queens College, CUNY, and an MA and PhD in Economics from the University of Rochester. 
5180 According to the US, "{i}ndustry analysts recogn ize that lower prices for LCA do not significantly 
increase LCA demand – or, in economic terms, "the price elasticity of demand for aircraft in general will most 
likely be rather small.", citing  Klepper, Exhibit US-377; see also, Dorman Report, Exhibit US-70 (BCI), p. 8.  
This is because demand for LCA is generally derived from demand for air travel services, and the cost of the aircraft itself is only a small portion of total airline operating costs.  E.g., Klepper, Exhibit US-377, at 785-86.  
The European Communities disputes the US view that "l ower prices for LCA do not significantly increase LCA 
demand," asserting that the evidence regarding individual sales campaigns demonstrate otherwise.  Thus, the European Communities asserts that not every order received by one company harms the other, but a lack of 
balance in market share creates an unhealthy competitive environment.  EC, FWS, para. 1400. 
5181 Gernot Klepper, Entry into the Market for Large Transport Aircraft , 34 European Econ.  Rev., 775, 
786 (1990), Exhibit US-377; see also, Dorman Report at 8, Exhibit US-70.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  7.1719  As noted, customers for LCA are primarily airlines and aircraft leasing companies.  Sales of 
LCA tend to be very large, in terms of  numbers of aircraft and dollar amounts,5182 but relatively 
infrequent.  While orders tend to be  very large and sporadic, deliveri es of ordered LCA tend to be of 
individual aircraft, spaced over a period of several years subsequent to the order date, depending on 
the purchaser's anticipated needs and financing.5183  In general, the terms a nd conditions of an aircraft 
purchase are set at the time of order, including airc raft specifications, net price, discounts, non-price 
concessions and financing arrangements.  While the bulk of the purchase price is generally paid upon 
delivery, deposits are generally required at the time the order is placed, and pre-delivery 
payments may begin as early as the conclusion of the sales contract.5184  However, most sales 
contracts include provisions for price escalation in lin e with inflation, and in addition, orders may be 
cancelled, deliveries pushed out over longer pe riods of time, and sales terms renegotiated.5185   
7.1720  Customers choose among the various LCA models available those they deem most  suitable 
for their needs at the time of ordering.  In ma king their purchase decisions, customers will consider 
such matters as the route structure to be served by the aircraft, the structure of the existing fleet, and 
operating costs, with a view to minimizing costs and maximizing revenues.  Some airlines purchase a 
mix of LCA models to serve a variety of needs, while others may limit themselves to one LCA model 
because of the efficiencies generated by the operation of a single aircra ft type.  Once an airline orders 
any particular LCA model from a given manufacturer , efficiencies in operating a fleet of similar 
aircraft (including those related to spare parts, ma intenance and training) favour follow-on orders of 
the same models, as well as orders  of other aircraft models from the same manufacturer, in order to 
take advantage of commonalities across an LCA fleet.5186  Leasing companies both purchase new 
LCA on a speculative basis for subsequent lease to airline customers, and act as intermediaries 
between airlines and manufacturers offering LCA financing or operating leases.5187  Leasing 
companies account for a significant percentage of all orders for LCA, approximately 17 percent 
between 2000 and 2006, and accounted  for approximately 25 percent of deliveries in that period.5188 
7.1721  Contrary to the United States' view that Airbus  and Boeing compete head-to-head for virtually 
every LCA sale, the European Communities asserts th at a significant number of orders secured by 
Airbus and Boeing do not involve competition between the two manufacturers.  Rather, the European 
Communities asserts, customers often decide to order a certain aircraft model without considering the 
competitor's equivalent product, because they pref er, for one reason or another, one manufacturer's 
aircraft.  In addition, the European Communities not es that an LCA manufacturer may decide that it 
does not want to be involved in a certain sales campaign, or cannot compete for lack of having a 
product that can fulfil the customer's requirements,  citing as an example a customer needing a 555-
seat aircraft, which need is only met by the Airbus  A380.  The European Communities also contends 
that LCA are sometimes ordered as a result of geopo litical considerations, especially when an airline 
is state-owned.  An airline may also choose to exercise options or purchase rights without initiating a 
                                                      
5182 As noted above, LCA are priced and sold in US dollars.   
5183 EC Merger Analysis , Exhibit US-375, para. 25. 
5184 Statement of Rod P. Muddle, Exhibit EC-19, paras. 58-60. 
5185 US, Answer to Panel Question 132, para. 430. 
5186 US, FWS, para. 712.  For exam ple, the United States notes that  AirAsia purchased 40 Airbus 
A320s and took options on 40 mo re in December 2004 after a vigorou s competition between Boeing and 
Airbus.  Air Asia's subsequent orders – an additional 20 A320s in 2005, followed by a firm order for 40 more A320s in July 2006 (plus 30 additional options) – allegedly flowed directly from the choice the airline made in 
the 2004 campaign, rather than from a new compe tition between the producers.  AirAsia Press Release: AirAsia 
Firms Up Option for 40 More Airbus A320s and Signs Another 30 Options  (July 20, 2006), Exhibit US-378.  
The European Communities also recognizes this tendency to follow a purchase from one manufacturer with 
further purchases of that manufacturer's LCA.  EC, FWS, para. 1421. 
5187 Statement of Rod P. Muddle, Exhibit EC-19, paras. 18-26. 
5188 Statement of Rod P. Muddle, Exhibit EC-19, para. 20. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  bidding process.
5189  On the other hand, customers may decide  to diversify, and follow-on orders can 
also be the subject of fierce competition.5190  Moreover, life-time engine maintenance contracts have 
enabled airlines to operate more diversified fleets.5191 
7.1722  In asserting that a significant number of orders do not involve competition between Boeing 
and Airbus, the European Communities relies on the statement of Mr. Christian Scherer, Head of 
Future Programmes for Airbus.  Mr. Scherer states that in Airbus' view, an order results from a 
"competitive" sales campaign if Airbus has made a "formal binding offer to sell LCA under particular 
terms and conditions."5192 Mr. Scherer defines a "competitive {sales} campaign" as one in which 
Airbus provided the airline with such a formal binding proposal.  Thus, in the absence of such a 
proposal, he considers that the campaign was non- competitive.  He also concludes, based on 
documents and the collective memory of Airbus pe rsonnel, that where Boeing was not "involved, in 
one way or another", an order for Airbus LCA was the result of a non-competitive campaign, and that 
all orders [***].5193  We consider this definition to be t oo narrow, in the circumstances of this 
industry, to reliably define whether or not ther e was competition between Boeing and Airbus with 
respect to any given sale.  With only two pr oducers in a highly competitive industry, and 
knowledgeable customers in both airlines and leasing companies, we consider  that sales campaigns 
involve competition even in the absence of a "formal,  binding proposal" by eith er manufacturer, albeit 
perhaps not to the same degree as when such a pr oposal is made.  Given the importance of LCA costs 
to the customers' successful operations, we cannot accept the implication that customers 
knowledgeable about the market would not consider  the competitive products available from the two 
producers in most cases, even if formal offers are neithe r requested nor made in a particular instance.     
7.1723  The European Communities maintain s that the best measure by which to assess the current 
competitive relationship between Airbus and Boeing is order data; while the United States takes the 
view that actual deliveries are the best measure of ma rket share.  There is generally about three years 
between order and delivery of airc raft, and the European Communities asserts that order data thus 
provide the best measure of the current competitive relationship, as well as the future health of both 
Airbus and Boeing.  For the European Communities,  delivery and order backlog data indicate what 
was sold in the past and what is and will be manu factured in the future, but they provide limited 
insight into the present competitive relationship between Airbus and Boeing.5194  The European 
Communities rejects the view that an order won by one producer represents an order lost by the other.  
In this respect, the European Co mmunities notes that customers can either order new LCA from either 
producer, purchase used LCA, or lease LCA.  The European Communities argues that in a significant 
number of sales campaigns, competition is with a po tential purchase of used LCA or a lease, rather 
than with the other manufacturer.  For the European  Communities, to the extent that Boeing is not 
involved in these sales, an Airbus "win" cannot be considered a "loss" to Boeing.5195   
                                                      
5189 See,  Statement of Christian Scherer,  Exhibit EC-14, (BCI).    
5190 EC, FWS, para. 1421. 
5191 See, Statement of Rod P. Muddle, para. 33, Exhibit EC-19. 
5192 Statement of Christian Scherer, Exhibit EC-14 (BCI), para. 45.   
5193 Id. at Annex I, paras. 54-56. 
5194 The European Communities cites statements by Airbus and Boeing officials, as well as financial 
and aerospace analysts to support th e view that order market share is the more appropriate benchmark for 
evaluating the present.  Statement of Christian Scherer, paras. 24, 26, Exhibit EC-14, (BCI), Randy's Journal: 
Looking ahead , 23 January 2007, Exhibit EC-286) (Non-BCI), Boeing Management and Aftermarket Suppliers 
are Topics in Wall Street Trans cript Aerospace/Defence Report , Yahoo finance, 6 April 2005, Exhibit EC-287, 
"Boeing Shares Could Reach $140 By 2009 " Forbes.com, 12 April 2006 
http://www.forbes.com/markets/2006/04/12/boeing-0412market s11.html  (visited 4 January 2007), Exhibit EC-
247 
5195 The European Communities asserts that approximately [***]  of the A320 family orders, [***]  of 
A330 family orders and [***]  of A340 family orders resulted from competitive campaigns, while approximately  WT/DS316/R 
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  7.1724  While it may well be that there is not clear head-to-head competition for each and every sale 
of LCA, it is apparent to us that, with only two manufacturers in the market, there is overall 
competition between Boeing and Airbus for all sales of  LCA.  It is also clear that competition for 
sales is, in effect, competition for orders, as LCA are generally ordered for future delivery.5196  Thus, 
data concerning orders is informative as to the competition for sales between Airbus and Boeing.  
However, data for deliveries is also important, as there are many factors that can intervene between 
order and actual delivery.  Changes in the terms and conditions of sales be tween order and delivery 
will affect the manufacturer involved and the situati on in the market in ways which may be important 
to consideration of the question of adverse effects.5197  Moreover, deliveries provide a picture of the 
number of LCA actually entering a given geographical  market at a given time.  Thus, an exclusive 
focus on either deliveries or orders would not a llow for a complete understanding of the market and 
changes relevant to our analysis in this dispute. 
7.1725  When choosing aircraft, airlines evaluate the economics of the competing aircraft from both 
Airbus and Boeing, and the impact those factors w ill have on the revenues that the aircraft can be 
expected to generate over its econo mic life of approximately 30 years.5198  In doing so, customers 
quantify and weigh numerous factors, including price, net of concessions such as cash discounts, 
scheduled pre-delivery payments, provisions for price escalation,5199 and guarantees related to 
performance, maintenance, or residual value;5200 financing, including consideration of elements such 
as direct financing support by the manufacturer; da te of delivery; engine manufacturers; the make-up 
of existing LCA in the purchaser's fleet and cost of change and cost of diversifying,5201 and direct 
operating costs, such as fuel efficiency.5202  Each customer has different cost-related concerns, and so 
different aspects may be valued differently by different customers or at different times.5203   Each of 
                                                                                                                                                                     
[***]  of 737NG orders, [***]  of 767 orders, [***]  of 777 orders, [***]  of 787 orders and [***]  of 747 orders 
resulted from competitive campaigns.  Statement of Chris tian Scherer, Exhibit EC-14 (BCI), paras. 54-56 and 
Annexes I and II.  We do not agree with this categorization of "competitive" vs. "non-competitive" campaigns.  
See, para. 7.1722 above. 
5196 The parties agree that LCA manufacturers rarely have inventories of LCA.  US, FWS, para. 746, 
footnote 934;  EC, FWS, para. 2245.  See, also , EC, FWS, footnote 2216.   
5197 As discussed further below, we have considered information concerning both deliveries and orders, 
albeit the two categories of inform ation are not equally relevant to all aspects of our analysis.  See, paras. 7.1745 
- 7.1750. 
5198 Airbus North America Holdings Inc., Key Determinants of Competitiveness in the Global Large 
Civil Aircraft Market: An Airbus Assessment (Mar ch 2005) at 17-18 ("Airbus, Key Determinants"), 
Exhibit US-379 (BCI). 
5199 Because LCA are often delivered years after the or iginal order, both Airbus and Boeing generally 
apply a standard "price escala tion" formula that adjusts the order price (in order year dollars) for inflation in 
aircraft manufacturing costs to determine the price payable for the aircraft on delivery (in delivery year dollars).   
5200 Residual value refers to the value of the aircraft upon resale by the original customer.  For example 
as part of its sale of 120 aircraft to easyJet in 2002, Airbus guaranteed the residual value of Boeing aircraft 
owned by easyJet by offering to purchase the Boeing aircraft itself, if necessary, at a predetermined minimum 
price.  Airbus also guaranteed that the cost of mainte nance would not exceed easyJet's cost of maintaining its 
existing Boeing aircraft.  EasyJet, Proposed Purchase of Airbus Aircraft and Notice of Extraordinary General 
Meeting at 8-9 (25 February 2003), Exhibit US-380.   
5201 Statement of Rod P. Muddle, Exhibit EC-19. 
5202 Operating costs can be impacted by price concessions.  For example, according to the 
United States, when Airbus determined that its four-e ngine A340 was losing sales to Boeing's more fuel-
efficient two-engine 777 during recent periods of high jet fuel prices, Airbus announced that the additional fuel 
burn penalty could be "traded off" by financial compensation to A340 operators.  Andrea Crisp, Squaring Up , 
Airline Business (1 April 2006), Exhibit US-381. 
5203 The European Communities asserts that subjective factors can also be important in an airline's 
evaluation and final purchase decision, including the value of product features such as cabin width and 
aesthetics; the long-term viability of a supplier and product; long-term risks of new technology and materials; risks associated with a single engine choice; and operational risks of two-engined versus four-engined aircraft.  WT/DS316/R 
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  the technical, physical and economic characteristics of aircraft under consideration is translated by 
customers into a revenue or cost element that is included in their assessment of an offer and its net 
present value.  Despite the complexity of the fact ors involved in a sales campaign, LCA customers, as 
well as LCA manufacturers, are generally able to account for these factors in assessing the economic 
value of a sales proposal.
5204  Thus, competition between Boeing and Airbus is driven by the 
performance characteristics of the aircraft that th e two manufacturers have developed and the price 
(net of all concessions) and sales terms at which th ey offer their respective LCA.  Since both Airbus 
and Boeing offer a range of competing LCA models suited for various customer needs, price is a 
significant factor in a customer's purchase dete rmination, but not necessarily determinative.5205  That 
this competition may not be manifest in offers from each producer for each potential order does not, 
in our view, detract from the basic fact of intense competition between Airbus and Boeing for sales of LCA world-wide.
5206 
7.1726  The long-term viability of an LCA producer de pends on continued inno vation and periodic 
launches of new aircraft as technological  advances and market conditions allow.5207  Thus, there is a 
need for both Boeing and Airbus to secure a continuous  stream of orders and deliveries to be able to 
generate the necessary economies of scale and learni ng curve cost reductions to remain competitive in 
the long term.  In additio n, orders are crucial for a newly laun ched LCA model to be successful, due 
to the substantial economies of scale in production as well as the steep learning curve cost reductions 
generated thereby.5208  The European Communities asserts that both Airbus and Boeing have an 
incentive to secure high-volume orders, which it contends means that both will offer lower prices to 
generate new sales and orders, as well as volume discounts in strategic campaigns to capture volume 
sales that enable the manufacturer to recover s unk development costs.  The launch of a new model 
with improved performance characteristics can give  an LCA manufacturer a competitive advantage, 
but requires enormous up-front designing, engineering,  and testing costs over a period of years before 
a single aircraft can be delivered to a customer.5209  As noted, common estimates are that many 
hundreds of aircraft must be sold in order for the manufacturer to recoup these costs. 
7.1727  Thus, decisions with respect to product launc hes drive subsequent pricing and production 
decisions, and LCA manufacturers try to produce and sell aircraft in sufficient volume, and at a sufficient pace and price, to recover their deve lopment costs as quickly as possible.  Economies of 
                                                                                                                                                                    
 
See, Statement of Rod P. Muddle, Exhibit EC-19, para. 99.  In our view, these subjective elements are 
encompassed by the general co nsideration of the characteristics of the various aircraft models for sale, and are 
not distinct elements. 
5204 See, Statement of Rod P. Muddle, Exhibit EC-19, paras. 48-50.  See, also, Statement of Christian 
Scherer, Exhibit EC-14 (BCI), paras. 69-77. 
5205 Statement of Christian Scherer, Exhibit EC-14 (BCI), para. 60 
5206 See, para. 7.1722 above. 
5207 In some cases, the United States points out, LCA producers can reduce costs (and thus risks) to a 
certain extent by developing "derivative" aircraft that  incorporate new technology or meet specific customer 
needs by adapting existing designs rather than creating an all-new model.  For ex ample, as the European 
Communities has observed, a significant reason for the u ltimate demise of McDonnell Douglas was its limited 
product line, all "derivatives of earlier Douglas models, rather than entirely new designs" (in contrast to the 
"broader and more modern families of aircraft offered by Boeing and Airbus"), and "the perception of airlines 
that {McDonnell Douglas} is no longer committed to the commercial aircraft business and may leave the market 
over time."  EC Merger Analysis , Exhibit US-375, para. 59; see also, Boeder & Dorman, at 137-38, Exhibit US-
373. 
5208 The learning curve effect is described in Neven & Seabright, Exhibit US-382, p. 15, (explaining 
that LCA production "involves the coordination of thousands of tasks{,} and this process can be improved as 
experience accumulates")  Neven & Seabright report that the "basic rule of thumb used in the industry is that production costs decrease by 20% when output doubles".  Exhibit US-382, p. 15. 
5209 The United States asserts these costs can appro ach the entire market capitalization of the LCA 
producer itself.  The United States noted that, in 2006, EADS had a market value of 16.6 billion Euro, not much greater than the anticipated projected development cost for either the A380 or the A350.  US, FWS, para. 314.  WT/DS316/R 
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  scale are an important part of the economics of LC A production; additional sales of a given aircraft 
model not only give the LCA producer additional units over which to recover its fixed costs, but also 
advance the producer further down the learning cu rve, reducing its marginal costs on future 
production.  Lost sales represent not only lost reve nues and profits, but also lost scale and learning 
efficiencies and, therefore, increased production costs.   
7.1728  Finally, as we have already noted, the Europ ean Communities maintains that the events of 
9/11 had a profound effect on the LCA industry, wh ich must be taken into account as a relevant 
condition of competition.  The European Commun ities notes that in the context of the global 
economic recession, demand for new LCA dropped  during the entire 200 1 to 2003 period.5210  
Airlines cut capacity in response to declining air passenger traffic, which in turn severely hit LCA 
manufacturers.  According to the European Comm unities, the events of 9/11 had a particularly 
devastating effect on Boeing.5211  The United States notes, however, that the downturn in the LCA 
market in 2001 to 2003 did not result from any in ability of the United States' industry to produce or 
export LCA, but simply from the purchase decisions and choices of customers.  Moreover, the United 
States argues, the downturn in demand reflects conditions in the passenger airline industry, not the 
LCA industry.5212  While clearly there was a significant declin e in the market for LCA  after 9/11, in 
our view, this did not result from any changes in  the fundamental nature of competition between 
Airbus and Boeing, but rather was driven by the general global economic downt urn and decline in air 
travel, resulting in a decline in demand for new LCA.  And while this decline in demand did not affect 
both producers to the same degree, the basic consider ations described above continue to define the 
conditions of competition between Airbus and Boeing.   The events of 9/11 certainly had a profound 
impact on the airline industry, and therefore on the LCA industry.  As the European Communities 
states, "the LCA industry has an exaggerated business cycle which is particular ly sensitive to external 
events."5213  Thus, both negative events, such as the collapse of demand following 9/11, and positive 
events, will have a substantial impact on LCA sales and the operations of the producers.  While we 
must take such impacts into account in our anal ysis of the evidence concerning adverse effects 
allegedly caused by subsidies, the fundamental determinants of competition in the LCA industry 
outlined above are the critical context fo r our assessment of adverse effects.   
7. Whether the Subsidies Have Caused Serious Prejudice to the Interests of the United 
States 
(a) Introduction 
7.1729  The United States claims that subsidies to Ai rbus cause serious prejudice to its interests 
within the meaning of Articles 5(c) and 6.3(a), (b) and (c) of the SCM Agreement.  In particular, the 
United States alleges that the European Commun ities, France, Germany, Spain and the United 
Kingdom have, through the use of the challenged s ubsidies, caused: (a) imports of United States' 
(Boeing) LCA into the European Communities market to be displaced or impeded by sales of Airbus 
LCA; (b) exports of United States' (Boeing) LCA to various third country markets to be displaced or 
impeded by sales of Airbus LCA; (c) significant pr ice undercutting by Airbus LCA compared with the 
                                                      
5210 Boeing Commercial Airplanes, "Boeing Current Market Outlook," June 2003, p.  6, Exhibit EC-
295.  Throttle-Up – Interview with Boeing CEO Scott Carson, Exhibit EC-280.   
5211 The European Communities contends that Boeing's order book was dominated by US airlines, who 
were hit hardest by the events of 9/11; Boeing's role in financing LCA by setting up an in-house "leasing company" proved very harmful to Bo eing as it added risk to Boeing's LCA business and resulted in an order 
book generally dominated by airlines that were more  prone to cancelling and deferring orders than leasing 
companies; and the events of 9/11 caused Boeing to lo se customer focus and ignore customer relations.  The 
European Communities contends that that leasing companies are generally not affected by the cyclical nature of 
the LCA market.  See, EC, FWS, para. 1369; EC, Answer Panel Question 116, paras. 356-367. 
5212 US, Answer to Panel Question 49(c). 
5213 EC, FWS, para. 29. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  price of United States' (Boeing) LCA in the same  market; and (d) significant price suppression, price 
depression and lost sales in the same market.  Th e European Communities contests the United States' 
allegations, arguing that no such serious prejudice is  caused by the use of an y subsidies provided to 
Airbus.  In essence, the European Communities subm its that when the United States' claims are 
properly assessed on the basis of LCA families competing in the same market, it is impossible to find 
that the subsidies cause serious prejud ice in respect of at least one of the alleged families of LCA, the 
A380 family.  This is because, in the European Communities' view, Boeing LCA do not compete with 
this aircraft.  Moreover, in the markets in wh ich Airbus and Boeing do se ll competing families of 
LCA, the European Communities asserts  that the subsidies at issue are too old and in any case not of a 
magnitude that could cause serious prejudice to th e United States' interests in the appropriate 
reference period, which according to the Eu ropean Communities, is 2004 to 2006.   
7.1730  The United States advances its serious prejudice claims by first focusing on showing that the 
phenomena described in Articles 6.3(a), (b) and (c ) of the SCM Agreement are present over the time 
period it proposed as the relevant reference period.  The United States then explains how the subsidies 
provided to Airbus have, in its view, caused th e phenomena it argues can be observed over that 
period.  The European Communities responds to the United States' claims adopting essentially the 
same methodology, albeit through the submission  of data and arguments relating to different 
subsidized products and LCA market segmen ts over different periods of time.   
7.1731  Article 6.3 of the SCM Agreement is silent as to  the sequence of steps to be followed for the 
purpose of assessing claims of serious prejudice.  Th us, we see nothing in the language of Article 6.3 
to preclude the path followed by the parties in the present case.  In our view, the two-step approach 
followed by the parties is perfectly valid for the pur pose of evaluating the claims that are before us, 
and we will therefore apply the same methodology in  our own assessment of the United States' claims.  
We recall that in US – Upland Cotton , the Appellate Body appeared to entertain the possibility of 
applying a two-step approach when evaluating clai ms under Articles 6.3(a), (b) and (c), although it 
cautioned that it might be difficult to observe the re levant phenomena without also taking into account 
the effect of the challenged subsidies.
5214  As will be explained in the sections that follow, the 
arguments and evidence advanced by the United St ates (including in respect of price suppression) 
renders a two-step approach entirely appropriate to  assessing its claims under Articles 6.3(a), (b) and 
(c) in the present controversy.  Thus, in evaluati ng the United States' claims, we will first consider 
whether the particular phenomena identified in Artic le 6.3(a), (b) and (c) of the SCM Agreement can 
be observed as a matter of fact.  In other words, we will begin our analysis of the merits of the 
United States' allegations by first examining the pa rties' arguments and the evidence submitted with a 
view to determining whether, over the period for which we have information, it can be established, as 
a matter of fact, that: 
(i) imports of Boeing LCA into the European Communities market were 
displaced or impeded by sales of Airbus LCA;  
(ii) exports of Boeing LCA to various third country markets identified by the 
United States were displaced or impeded by sales of Airbus LCA;  
(iii) there was significant price undercutting by Airbus LCA compared with the 
price of Boeing LCA, or lost sales, in the same market; and 
(iv) there was significant price suppression or price depression.   
7.1732  We emphasize that in undertaking this first step  of the analysis, we will not be addressing the 
question whether any particular phenomenon that can be observed is actually caused by the subsidies 
                                                      
5214 Appellate Body Report, US – Upland Cotton , paras. 432-433 and footnote 521.  WT/DS316/R 
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  we have found were provided to Ai rbus.  This question of causation will be examined in the final 
section of our serious prejudice findings, where we will review the parties' theories of causation and 
related arguments and evidence.   
7.1733  Before embarking upon the first part of our asse ssment of the United States' claims, we wish 
to address one argument raised by European Commun ities that we believe has horizontal implications 
for the entirety of the United States' serious prejudice claims.  This argument concerns what can be understood as amounting to "serious prejudice" under the terms of the SCM Agreement.   
7.1734  In arguing that the United States is not sufferi ng serious prejudice caused by the subsidies to 
Airbus LCA in this dispute, the European Communiti es repeatedly refers to the alleged improvements 
in and excellent condition of Boeing over the period 2006 to 2007.  Thus, for instance, the European 
Communities states that "today, Boeing stands as the dominant player in the competitive Boeing-
Airbus duopoly".
5215  The European Communities contends that "{h}aving asserted adverse effect 
claims, the United States must prove that the United States – and its participant in the LCA markets:  Boeing – suffers present serious prejudice and adverse effects by reason of the effects of the alleged 
subsidies."
5216  The United States argues that the SCM Agreement does not require any inquiry into 
the specific impact of the subsidies on the various economic indices of the "state of the industry" of 
the complaining Member in the context of a serious prejudice analysis.5217  Thus, in the United States' 
view, the European Communities' argument that th e financial condition of Boeing's LCA division in 
2006 precludes a finding of serious prejudice is misplaced, as is its assertion that that there is no serious prejudice because Boeing is currently not "in trouble".
5218  In our view, the European 
Communities' argument that the financial conditio n of Boeing's LCA division in 2006 and 2007 
precludes a finding of serious prejudice5219 is inapposite, and based on a flawed understanding of the 
concept of serious prejudice to the interests of the complaining Member.   
7.1735  We recall that the United States alleges that subsidized imports of Airbus LCA cause and 
threaten to cause material injury to the United St ates' domestic industry, that is, Boeing, thereby 
causing adverse effects under Article 5(a).  In that  context, consideration of Boeing's condition over 
the relevant reference period is, of  course, relevant.  Specifically, Ar ticle 15.4 of the SCM Agreement, 
which sets forth guidance on the determination of inju ry, requires an inquiry into "the impact of the 
subsidized imports on the domestic industry", includi ng all economic factors relating to the "state of 
the industry".5220  However, there is no counterpart to Article 15.4 with respect to claims of serious 
                                                      
5215 EC, FWS, para. 1325.  See, EC, SWS, para. 651: "While the Unite d States claims to suffer greatly 
from decades-old alleged subsidies be nefiting Airbus, the past three years have seen a record-setting commercial 
for Boeing, the United States participant in the LCA mark ets...This ...demonstrates that Boeing is not presently 
commercially prejudiced and the United States is not sufferi ng adverse effects to its interests from alleged, often 
decades-old, subsidies to Airbus"; EC, FWS, para. 1671: to demonstrate seri ous prejudice from lost sales of 747 
LCA, "the United States must demonstrate that, but for the effects of the alleged EC subsidies benefiting the A380, Boeing (a) would have launched the 747X; and (b) the United States and Boeing would have been in a 
better financial state compared to the state Boeing  was in after the launch of the 747-8 in 2005." 
5216 EC, FWS, para. 1329. 
5217 US, SWS, para. 695. 
5218 US, SWS, para. 696.  Brazil also disagrees w ith the European Communities' position that Boeing's 
healthy financial and market position at the peak of the business cycle precludes the possibility that the United 
States is suffering serious prejudice caused by the subsidy.   The relevant issue, according to Brazil, is whether 
Boeing's market share would be greater  absent the subsidized Airbus product.  Brazil, Third Party Submission, 
para. 58. 
5219 EC, FWS, para. 1360:  "If the Panel concludes that Boeing's LCA Division is not presently 
showing concrete signs of being commercially "injur ed" or not suffering significant competitive prejudice vis-à-
vis Airbus, then there is no basis for the United States to prevail on its adverse effects claims under Articles 5 
and 6 of the SCM Agreement."  We recall that Article 6 of the SCM Agreement relates exclusively to claims of 
serious prejudice.  See, also ,  EC, SNCOS, paras. 424-31. 
5220 We consider the United States' claims of material injury in section VII.F.8(b)(ii) of this Report. WT/DS316/R 
Page 878  
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  prejudice under Articles 5(c) and 6.  There is nothing in  the text of Article 6, or any other provision of 
the SCM Agreement, that would even suggest, much less require, considerati on of the "state of the 
industry" of the complaining Member in the context of a serious prejudice analysis.  Moreover, no WTO panel considering a case involving allegations of  serious prejudice has in the past taken the state 
of the domestic industry in the complaining Memb er into account in its determination of whether 
serious prejudice has been demonstrated to exist.  Nor, to our knowledge, has any party argued in any 
of those cases that the condition of the domestic industry in the complaining Member precludes a 
finding of serious prejudice to the complaining Member 's interests.  Rather, those panels examined, as 
required under Article 6.3, whether the effect of  the subsidies in question was significant price 
suppression or displacement or impedance of imports or exports.   
7.1736  Indeed, we see nothing in the text of Article 6 that would preclude the possibility that serious 
prejudice could be found in a case in which the i ndustry in the complaining Member is in good 
condition.  We note, in this regard, that serious  prejudice under Article 6.3(d) may arise where "the 
effect of the subsidy is an increase in the worl d market share of the subsidizing Member in a 
particular subsidized primary product or commodity."  This provision does not suggest that a 
consideration of the condition of the industry in th e complaining Member is relevant to the question 
whether there is serious prejudice to that Member's interests.  The term "serious prejudice" certainly implies some notion of "harm", but Article 5(c) ma kes it clear that the "serious prejudice" to be 
considered is to the interests of the complaining Member, and thus th e relevant "harm" is defined by 
the provisions of Article 6.3 – that is, the interest s of the Member in trade in a given product through 
access to markets in volumes and at prices that are unaffected by another Member's use of 
subsidies,
5221 and not with reference to the interests of an industry in the complaining Member.  We 
note, in this context, the finding of the panel in US – Upland Cotton , with which we agree: 
"We therefore do not believe that, once we have concluded that the conditions in 
Article 6.3(c) are fulfilled, and thus that serious prejudice "in the sense of 
paragraph (c) of Article 5""may" arise, a separate examination of the existence of 
"serious prejudice" under the chapeau of Article 6.3 or Article 5(c) is necessary.  Our examination of the text, in its context, indicates to us that the Article 6.3(c) examination is determinative also fo r a finding of serious prejudice under 
Article 5(c).  That is, an affirmative conc lusion that the effects-based situation in 
Article 6.3(c) exists is a sufficient basis for an affirmative conclusion that "serious 
prejudice" exists for the purposes of Article 5(c) of the SCM Agreement."
5222   
7.1737  While it seems to us self-evident that the trade effects set forth in Article 6.3 as demonstrating 
serious prejudice are likely to have an effect on th e industry in the complaining Member, this is not 
the focus of our inquiry under Article 6 of the SCM Agreement.   Thus, we see no basis on which 
improvements in the condition of Bo eing, or consideration of whethe r it is more or less profitable, 
should be taken into account in our analysis of ser ious prejudice under Article  6.3.  And, while a 
complaining Member's balance of trade, balance of payments or overall financial situation might seem 
more directly relevant to that Member's interests,  we consider these to be immaterial, for purposes of 
a finding of serious prejudice, in the same way as wh ether the industry in the complaining Member is 
in bad condition has no relevance to a panel's cons ideration of whether there is serious prejudice to 
that Member's interests.  In su mmary, we consider that it will be sufficient for the United States to 
                                                      
5221 As noted by the panel in US – Upland Cotton , this view is consistent with the approach of three 
earlier GATT dispute settlement reports, which "indicate th at serious prejudice involved the effects of subsidies 
on a Member's trade in a given product as such, i.e., the volumes and prices and flows of such trade, rather any 
further effects on a Member's domestic industry, or othe r issues such as the significance of the particular 
industry producing the product in question to the overall "interests" of the complaining Member."  Panel Report, 
US –Upland Cotton , footnote 1492. 
5222 Panel Report, US – Upland Cotton , para. 7.1390.    WT/DS316/R 
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  prevail on its claims of serious prejudice in this case if it demonstrates that the use of the specific 
subsidies we have found to have been granted to  Airbus caused the market effects described in 
Article 6.3(a)-(c), without any further examination.5223  Therefore, in our evaluation of serious 
prejudice under Article 6.3 of the SCM Agreement,  we will not, as the European Communities does, 
take into account improvements in the condition of Boeing. 
(b) Alleged displacement or impedance of imports into the EC market 
7.1738  Article 6.3(a) of the SCM Agreement provides: 
"Serious prejudice in the sense of paragraph (c) of the Article 5 may arise in any case 
where one or several of the following apply: 
 (a) the effect of the subsidy is to displace or impede the imports of a like 
product of another Member into the market of the subsidizing Member;" 
The meaning of "displace" and "impede" was considered by the panel in Indonesia – Autos , which 
stated that "displacement relates to a situati on where sales volume has declined, while impedance 
relates to a situation where sales which ot herwise would have o ccurred were impeded".5224  W e  
generally agree that this distinction between displa cement and impedance is inherent in the ordinary 
meaning of the terms.    7.1739  In Indonesia - Autos , the panel evaluated the European Communities' claims of displacement 
and impedance by reviewing sales and market share data, finding that "market share data may be highly relevant evidence for the analysis  of {a claim under Article 6.3(a)}".
5225  The parties in the 
present controversy have equally focussed their subm issions on market share information.  We intend 
to proceed along the same lines.  However, in doing so , we note that while data showing that Boeing's 
market share in the EC market decreased over the relevant reference period would, in our view, be 
sufficient to evidence a "displacement" phenomenon,5226 the same data could not also, on its own, 
demonstrate "impedance".  As noted by the panel in Indonesia – Autos , the notion of "impedance" 
involves understanding whether sales which would ot herwise have taken place were impeded – in 
other words, whether sales that would have otherw ise actually occurred were obstructed or hindered.  
Thus, in order to conclude that imports of the United States' LCA were impeded over the relevant 
reference period, we would, inter alia, have to be satisfied that those sales would have actually taken 
place.   
7.1740  The United States presents market share info rmation comparing the relative positions of 
Airbus and Boeing in the EC LCA market for the period 2001 to 2006, in terms of annual deliveries 
of LCA as well as LCA value measured by list prices.  Consistent with its po sition that there is one 
single subsidized product, Airbus LCA, and one  single corresponding United States' like product, 
Boeing LCA, the information submitted by the Un ited States discloses the alleged market shares on 
                                                      
5223 See, also , Panel Report, Indonesia – Autos , where the panel did not conduct any additional 
examination. 
5224 Panel Report, Indonesia – Autos,  para. 14.218. 
5225 Panel Report, Indonesia – Autos , para. 14.211.  Similarly, in examining the significance of the 
absence of any reference to the "like product" in the specific context of pr ice suppression and price depression 
claims under Article 6.3(c) of the SCM Agreement, the panel in Korea – Commercial Vessels  observed that 
"{d}etermining displacement or impedance {under Articles 6. 3(a) and 6.3(b)} in turn involves an analysis and 
comparison of relative levels and trends in volume and market share of the s ubsidized product and the 
complaining Member's like product".  Panel Report, Korea – Commercial Vessels , para. 7.555. 
5226 Of course, it would have to be demonstrated that the phenomenon was the effect of the subsidies in 
dispute in order for the United States claim of serious prejudice to succeed. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  an aggregate basis.  The United States does not break out the data on the basis of aircraft models or 
any other parameter.
5227   
7.1741  The European Communities does not dispute the accuracy of the data presented by the United 
States.  However, it argues that the United States ' claims are "improperly organized" for essentially 
three reasons.5228  First, the European Communities conte nds that the United States has failed to 
identify the proper subsidized products and co rresponding like products and product markets.  
Consistent with its own view that there is not a single Airbus LCA product but rather multiple LCA 
products and thus multiple Boeing like products and markets, the Eu ropean Communities submits that 
the market share analysis necess ary for the purpose of evaluati ng the United States' claims of 
displacement and impedance must be undertaken  in each separate product market in which the 
separate families of Boeing and Airbus LCA allege dly compete.  Reflecting this position, the 
European Communities presents an alternative set of  market share data measured in terms of both 
orders and deliveries. 
7.1742  We have already rejected the fundamental premises underlying the European Communities' 
arguments, having concluded that it is appropriate to analyze adverse effects on the basis that all 
Airbus LCA constitute the subsidized product at is sue in this dispute and all Boeing LCA are the 
relevant like product.5229  The clear dividing lines the Europ ean Communities argues exist between 
models and families of Boeing and Airbus LCA are not supported by the facts that are before us.  This 
is not a case where the complainant's definition of the subsidized product and like product, and the 
data submitted corresponding to that definition, risks distorting the market displacement and 
impedance analysis that must be performed under Artic le 6.3(a).  Thus, in the light of our findings on 
the subsidized product and like product, we will conduc t our evaluation of whether the United States 
has demonstrated displacement or impedance of impo rts of United States' LCA into the EC market by 
looking at market share data for the subsidized product and like product defined by the United States, 
that is, Airbus LCA and Boeing LCA.   
7.1743  The second EC objection to the United States' "o rganization" of its claims concerns the 
relevant reference period.  As we have previ ously discussed, the European  Communities argues that 
information from the period between 2001 and 2003 must  be disregarded, as it alleges that disruptions 
to the LCA markets following the events of 9/11 constitute force majeure  within the meaning of 
Article 6.7(c) of the SCM Agreement, and therefor e displacement or impedance within the terms of 
Article 6.3(a) cannot arise over this period.  Although the European Communities presents and 
examines data for the period 2001 to 2006,5230 it argues that the focus of the Panel's attention should 
be on the 2004 to 2006 period.5231   
7.1744  We recall that we have previously dismis sed the European Communities' reliance on 
Article 6.7(c) of the SCM Agreement, and conclude d that in assessing whether the subsidies to Airbus 
cause present  serious prejudice, we will consider all in formation put before us, without making any a 
priori  conclusions as to which time interval must be used.5232  This does not mean that we consider the 
events of 9/11 to have had no impact on the LCA industry.  In our view, it is clear that 9/11 did result in a severe collapse in demand for LCA, with a dverse consequences for the LCA businesses of both 
                                                     
 
5227 US, FWS, paras. 766-770, US, SWS, para. 698, Table 1. 
5228 See, e.g., EC, FWS, paras. 1933-1937. 
5229 See, para. 7.1680 above. 
5230 And in some cases, later, for instance, with reference to order data for the Airbus A340 and Boeing 
777, "expected deliveries in the EC market" from 2007 to 2010.  EC, FWS, para. 2132. 
5231 The European Communities further asserts that even later information, concerning 2007 and 2008, 
must be taken into account where available.   
5232 See, paras. 7.1694 and 7.1712 above.  WT/DS316/R 
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  Boeing and Airbus.  However, as we have explained elsewhere, in our view the events of 9/11 do not 
constitute force majeure  within the meaning of Article 6.7(c). 5233   
7.1745  The third reason for the European Communitie s' opposition to how the United States has 
framed its claims centers on the United States' re liance on delivery data, as opposed to information 
about orders, in support of its claims of displacement or impedance. 5234 According to the European 
Communities, the proper focus of an evaluation of market displacement or impedance must be order data.  The European Communities argues that a focus on deliveries does not allow for a full 
assessment of present serious prejudice caused by s ubsidies but, at best, highlights the historical 
impact of subsidies.  According to the European  Communities, order data provides the most up-to-
date picture of competition in the LCA market, and so  must be considered in  any objective assessment 
of the facts.  Moreover, in the particular circ umstances of "large capital goods such as LCA, with 
deliveries that take place years after orders are placed", the European Co mmunities argues that the 
terms "import" and "export" found in Article 6.3(a)  and (b) should be construed to include future 
imports and exports.
5235 
7.1746  The United States argues that claims of displ acement or impedance under Articles 6.3(a) and 
(b) of the SCM Agreement involve the displacement  or impedance of "imports" or "exports", terms 
which, according to the United States, re fer to deliveries rather than orders.5236   In addition, the 
United States raises factual concerns with respect to the use of market share data based on orders 
which, it asserts, makes order info rmation inappropriate as a basis for consideration of displacement 
or impedance.  These include the fact that while the date of delivery is easy to determine, there is a 
certain flexibility concerning the date on which an order is reported.  In addition, the Airclaims 
Database (on which both parties rely for informa tion concerning sales of LCA) records orders made 
by leasing companies, which account for a not-insigni ficant percentage of LCA sales, on the basis of 
the location of the leasing company, while deliveri es are recorded on the basis of the location of the 
operator to which the aircraft is leased and actually delivered.5237  Thus, an order by a leasing 
company in the United States for delivery to an air line in, for example, the United Kingdom, will be 
reported as a United States' order, and a UK delivery.   Finally, the United States contends that an 
exclusive focus on order data distorts the reality of  the market, as an increase in  market share based on 
orders does not reflect current and future loss of  market share caused by past orders for which 
deliveries are being made or which are yet to be made.5238   
7.1747  Article 6.3 uses the terms "imports" and "exports" in  the context of claims of displacement or 
impedance.  Thus, Article 6.3(a) refers  to displacement or impedance of the imports  of a like product 
into the territory of the subsidizing Member, and Article 6.3(b) refers to the displacement or 
impedance of the exports  of a like product from a third country market.  "Import" is defined as 
"something imported or brought in, the amount or valu e of what is imported; an imported article or 
commodity" while "export" is defined as "an articl e that is exported...(the amount or value of) 
exported goods." 5239  The European Communities argues that  the terms "could be interpreted to 
include orders that will result in  future imports and exports – i.e.,  future deliveries based on present 
orders."5240  We do not agree that the ordinary meaning of these terms can be understood in this way.  
The European Communities b ases its argument in this regard on the particular product at issue in this 
                                                      
5233 See, paras. 7.1695 -7.1703 above.   
5234 EC, FWS, para. 1403. 
5235 EC, Answer to Panel Question 132; EC, SWS, para. 1140. 
5236 US, Answer to Panel Question 132, para, 432; US, SWS, paras. 687-693. 
5237 See, Exhibit EC-21. 
5238 US, Answer to Panel Question 132, para. 430.  Au stralia considers that the Panel should consider 
both orders and deliveries, as both may indicate the effect of the subsidies on the industry and the market 
through future projected sales and market share.  Australia, Answer to Panel Question 17. 
5239 New Shorter Oxford English Dictionary . 
5240 EC, Answer to Panel Question 132, para. 464.   WT/DS316/R 
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  case, suggesting that the terms "import" and "export" can include orders that will result in future 
deliveries in the case of large capital goods with deliveries years after orders are placed.   
7.1748  We are not persuaded by the European Commun ities' argument on this point.  In our view, 
there is nothing in the text of the relevant provisi ons to indicate that the terms "import" and "export" 
should be understood differently in the context of diff erent types of products.  Thus, we agree with the 
United States that the ordinary meaning of the terms "imports" and "exports" suggests a focus on 
deliveries rather than orders.  The European Co mmunities argues that our duty under Article 11 of the 
DSU to conduct an objective assessment of the matter means that we must also consider order data 
when evaluating the United States' claims under Articles 6.3(a) and 6.3(b), effectively treating order 
data as information pertaining to  future "imports" and "exports".
5241  However, our duty to conduct an 
objective assessment of the matter includes interpre tation of the relevant provisions of the WTO 
covered agreements, in this case, Articles 6.3(a) and 6.3(b).  The European Communities has pointed 
to nothing in the text of these provisions, their contex t or object and purpose, to convince us that they 
should be interpreted in accordance with its conten tion.  Thus, for the purpose of considering a claim 
of displacement or impedance under Article 6.3 of the SCM Agreement, we consider that it follows 
from the ordinary meaning of the words "impor ts" and "exports" that a focus on deliveries is 
appropriate. 
7.1749  Having said that, we recognize that order data reflect competition between Airbus and Boeing 
for LCA sales, that is, orders for future deliveries.   Moreover, both orders and deliveries are important 
to the condition and continuing operations of aircra ft manufacturers.  But while Boeing and Airbus 
undoubtedly make future plans taking into account their current order book, and while market actors 
will take the future flows from those orders into account in evaluating each company, we do not agree 
with the European Communities' view that deliveries are a matter of historical interest only.  It is at 
the time of delivery that a manufacturer receives  the majority of proceeds from the sale of an 
aircraft.5242  Thus, we do not accept the EC' assessment of deliveries as representing only the historical 
impact of subsidies.  If Boeing does not receive an order (or receives an order at a lower price) as a 
result of the effect of subsidies, it will lose market share and revenue at the time of delivery.  Thus, 
although the effect of subsidies may be manifested at the time an order is not obtained, it may also be 
manifested when deliveries are not made, or fewer deliveries are made, or deliveries are made at lower prices, in the form of lost market share and price effects.  Accordingly, while we agree that 
present serious prejudice must be found for the United States to substantiate its claims, we do not 
consider that this requires a focus on order da ta in assessing impedance or displacement under 
Articles 6.3(a) and 6.3(b). 
7.1750  Nonetheless, we do not mean to suggest that data  concerning orders for LCA is irrelevant to 
our analysis in this dispute.  It is apparent from th e information before us that, from the perspective of 
production and financial performance , both orders and deliveries are important to an aircraft 
manufacturer.  Boeing and Airbus primarily compete w ith each other to secure orders for new aircraft, 
to be delivered at some time in the future.  At the moment an order is placed, the terms and conditions 
of the delivery of aircraft pursuant to that order will  in large part be set.  Aircraft specification, net 
price, discounts, non-price concessions and financing arrangements will be determined at the time of 
order.
5243  Both Boeing and Airbus require a deposit at  the time an order is placed, and further pre-
delivery payments in accordance with a prepayment schedule prior to delivery.  The total amount of 
payments prior to delivery is subj ect to negotiation with the purchaser.  However, payments made at 
the time of order are generally nominal as a percentage  of the total price of the aircraft involved, and 
                                                      
5241 EC, Answer to Panel Question 132. 
5242 Statement of Christian Scherer, Exhibit EC-14 (BCI), para. 28. 
5243 Statement of Christian Scherer, Exhibit EC-14 (BCI), para. 27.    WT/DS316/R 
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  payments prior to delivery would not be expected  to exceed 30 to 35 percent of the total price.5244 In 
general, LCA are not purchased one at a time for imme diate delivery, but rather tend to be ordered in 
large numbers with deliveries spread over a subseque nt period of sometimes several years.  Thus, 
orders are to some extent a proxy for future  deliveries.  Moreover, the competition between 
manufacturers for a sale to a particular customer is  a competition for the order, and the delivery dates 
are negotiated as part of that competition.  Thus, information concerning orde rs will be relevant to 
considering the question of lost sales, as well as as sessing the United States' claims of price effects, 
given that the pricing of LCA is largely, albeit not  entirely, determined at the time of ordering.  
Therefore, we will consider order information in cer tain aspects of our analysis of the United States 
claims under Article 6.3(c).   
7.1751  Finally, the European Communities' arguments suggest that in order to make out its case 
under Article 6.3(a) and (b) of the SCM Agreement,  the United States must demonstrate displacement 
or impedance on a sale by sale basis.5245  We disagree.  While such an approach might be one way to 
present evidence of displacement or impedance, we  see nothing in the language of Article 6.3(a) or 
(b) requiring such an approach.  A complaining Member must demonstrate that the effect of the 
subsidies is to displace or impede imports or expor ts.  However, nothing in the text of these provisions 
dictates the form of evidence which is to be used to demonstrate such an effect.  A market share 
approach is consistent with pr evious dispute settlement reports.5246 
7.1752  The data on LCA deliveries to the EC market s ubmitted by the United States is reproduced in 
the following tables: 
Table 18 – Market Share (Quantity of LCA delivered in the European Communities)5247 
 
  2001 2002 2003 2004 2005 2006 
Airbus 58% 62% 59% 59% 67% 67% 
Boeing  42% 38% 41% 41% 33% 33% 
 
Chart 1 Market Share (Quantity of LCA delivered in the European Communities) 
 
 
                                                      
5244 Statement of Rod P. Muddle, Exhibit EC-19.  Mr. Muddle provides information indicating that the 
standard payment at order for Airbus is 5% of the list price and 1% of list price for Boeing.  Total payments prior to delivery are 30% of list price of Airbus and 30-35% of list price for Boeing depending upon the aircraft 
order.  As Mr. Muddles notes in his statement, these payments are the subject of negotiations between the carrier 
and the manufacturer. 
5245 EC, FWS, paras. 1984 and footnote 1994, paras. 1990-1994, 2045. 
5246 See, Panel Report, Indonesia – Autos , para. 14.211, Panel Report, Korea – Vessels , para. 7.555.   
5247 US, FWS, para. 767.   
0% 20% 40% 60% 80% 
2001 2002 2003 2004 2005 2006Airbus  
Boeing  WT/DS316/R 
Page 884  
BCI deleted, as indicated [***] 
 
  Table 19 – Quantity of LCA delivered in the EC
5248 
 
  2001 2002 2003 2004 2005 2006 
Airbus 114 114 98 109 103 116 
Boeing 81 69 67 77 50 56 
Total 195 183 165 186 153 172 
 
Chart 2 Quantity of LCA delivered in the EC 
 
 
 
7.1753  It is clear from Table 18 that Airbus' share of the EC market increased by 9 percentage points 
over the period 2001 to 2006.  In 2001, Boeing's sh are of the EC LCA market, measured by quantity 
of LCA delivered, was 42%; it dropped to 38% in 2002, increased in to 41% in 2003 and 2004, and 
dropped to 33% in 2005 and 2006.  Airbus' share of the EC market for LCA was 58% in 2001, increased to 62% in 2002 before declining to 59% in 2003 and 2004, then increasing again in 2005 
and 2006, to 67%.   
7.1754  The market share figures reflect the numbers of  LCA delivered shown in Table 19.  This 
information shows that Boeing delivered 81 LCA to  the EC market in 2001.  Its deliveries then 
declined to 69 LCA in 2002, and again to 67 in 2003, before increasing in 2004 to 77 LCA, and then 
dropping sharply to 50 in 2005, and increasing to 56 in 2006.  Airbus, on th e other hand, delivered 
114 LCA to the EC market in 2001 and 2002, a nd although its deliveries declined 2003, 2004, and 
2005, they were in each year higher than Boei ng's deliveries, and increased to 116 LCA in 2006.  
Thus, in terms of the quantity of LCA delivered  to the EC market, Boeing's sales volume in the 
European Communities has declined.  Table 19 also s hows that there was a overall decline in the total 
number of LCA deliveries to the European Comm unities from 2001 to 2003, and increase in 2004, 
and a further decline in 2005.  Although deliveries increased again in 2006, they were 12 percent 
fewer than in 2001.  Boeing LCA deliveries over th is period declined more than did Airbus LCA 
deliveries, and the decline in Boeing deliveries is di sproportionate to the decline in overall deliveries. 
7.1755  The European Communities does not dispute the data presented by the United States.  Rather, 
and reflecting its view that there are multiple Ai rbus subsidized products  and Boeing like products, 
the European Communities presented  different data on LCA deliveries (and orders) to the EC market 
for three alleged product markets – the single-ai sle LCA market (comprising the Boeing 737NG and 
Airbus A320 families);
5249 the 200-300 seat LCA market (compris ing the Boeing 767, 787 and Airbus 
A330 families);5250 and the 300-400 seat LCA market (comprising the Boeing 777 and Airbus A340 
families).5251  Having rejected the premise underlying th e European Communities' submission of data 
                                                      
5248 US, FWS, para. 767. 
5249 EC, FWS, paras. 1985-1989. 
5250 EC, FWS, paras. 2043-2046. 
5251 EC, FWS, paras. 2128-2134.   
0 50 100 150 
2001 2002 2003 2004 2005 2006Airbus  
Boeing     WT/DS316/R 
 Page 885 
 
BCI deleted, as indicated [***] 
 
  in this form, and proceeding on basis that the United States is entitled to make out its case with 
respect to Airbus LCA as a single subsidized product, the delivery information provided by the 
European Communities has little if any probative valu e for the purpose of answering the question of 
displacement that is before us.   
7.1756  Moreover, having reviewed the European Communi ties' data, we believe that it provides an 
inaccurate and incomplete picture of LCA deliveries to the EC market between 2001 and 2006.  There 
are several reasons for this.  First, the Eur opean Communities does not count deliveries of the 
Boeing 747, which we have concluded is within the product like the subsidized Airbus LCA.  The 
Airclaims database information relied on by the Eu ropean Communities shows that there were 23 
Boeing 747s owned by and delivered to EC airlines over the relevant period.5252  Second, the 
European Communities has not included deliveries of  the Boeing 757 model into the EC market, even 
though it apparently does include these LCA in pres enting information on deliveries in the "single-
aisle" market in third countries.5253  The European Communities has not explained why it chose to 
include Boeing sales of these aircraft in the data pr esented in respect of third country deliveries but 
not in respect of deliveries to the EC market.  Again, the Airclaims information relied on by the 
European Communities indicates that six Boeing 757s were owned by and delivered to EC airlines 
between 2001 and 2006.5254  Third, in presenting the delivery information, the European Communities 
treats instances where a leasing company outside of  the European Communities owns an LCA that 
was delivered to an airline operating in the Europ ean Communities as a delivery to the country of the 
leasing company and not a delivery to the country of the operating airline, i.e., such deliveries were 
not counted as deliveries to the EC market.5255  We do not accept this as an  appropriate approach to 
the counting of LCA deliveries to specific national markets.  New LCA owned by a leasing company are, we understand, delivered directly to the ope rating airline which leases that LCA, not to the 
leasing company itself, and thus are, in our view, pr operly considered as a delivery to the country in 
which that airline operates.
5256  According to the Airclaims datab ase information, which identifies the 
"operator country" with respect to deliveries of  LCA purchased by leasing companies, six Boeing 747 
and four Boeing 757 were owned by leasing compan ies and delivered to airlines operating in the 
European Communities between 2001 and 2006.5257  A spot-check of the information in 
Exhibit EC-21 indicates that there were similarly deliveries of Boeing 737NG, 767, and 777 aircraft owned by leasing companies and delivered to air lines operating in the European Communities during 
this period.  For all of these reasons, we do not consider the data presented by the European 
Communities on LCA deliveries to the EC market to be accurate or reliable for the purpose of 
evaluating the United States' claims of displace ment and impedance under Article 6.3(a) of the 
SCM Agreement.   
                                                     
 
5252 Exhibit EC-21, pp. 304-307. 
5253 See, EC, FWS, footnote 1962, where, with respect to third country markets, the European 
Communities states: "For purposes of computing market share, the single-aisle market includes the Boeing 737 
Classic, 737NG, 717, MD-90, 757 and Airbus A320 families".  The data submitted by the European Communities in respect of third country markets is discus sed in the following sub-section of this Report.  It 
appears that there were no deliveries of 717 and MD-90 LCA to the EC market during this period, although this 
is based on our review of Exhibit EC-21, and is not explained by the European Communities itself. 
5254 Exhibit EC-21, pp. 321-323. 
5255 EC, FWS, footnotes 2056 (200-300 seat market) and 2168 (300-400 seat market).  The European 
Communities does not explain its treatment of lease company deliveries in the 100-200 seat market. 
5256 See, para. 7.1747 above.  We note that the European Communities asserts, in another context, that 
Airbus does not know where an LCA purchased by a l easing company on a speculative basis will be delivered.  
EC, SCOS, para 165.  However, as intent is not an el ement to be considered in assessing displacement or 
impedance, we do not see how whether or not Airbus knows at the time of ordering where the LCA it sells will 
be delivered affects our analysis. 
5257 Exhibit EC-21, pp. 304-307 and 321-323. WT/DS316/R 
Page 886  
BCI deleted, as indicated [***] 
 
  7.1757  Nevertheless, and notwith standing the deficiencies we have identified, we note that, when 
aggregated, the information on LCA deliveries provi ded by the European Communities tells a story 
similar to that shown in the data submitted by the United States.  We have aggregated the EC data in 
the following tables and charts. 
Table 20 – Market Share (Quantity of LCA deliv ered in the European Communities) (EC data)
5258 
 
  2001 2002 2003 2004 2005 2006 
Airbus 64% 63% 63% 62% 69% 66% 
Boeing  36% 37% 37% 38% 31% 34% 
 
Chart 3 Market Share (Quantity of LCA delivered in the European Communities)  
(EC data ) 
 
0%10%20%30%40%50%60%70%80%
2001 2002 2003 2004 2005 2006Airbus
Boein g
 
 
Table 21 – Quantity of LCA delivered in the EC (EC data )5259 
 
  2001 2002 2003 2004 2005 2006 
Airbus 108 100 95 105 98 108 
Boeing 60 58 56 64 45 55 
Total 168 158 151 169 143 163 
 
                                                      
5258 EC, FWS, paras. 1985-1989, 2043-2046 and 2128-2134. 
5259 EC, FWS, paras. 1985-1989, 2043-2046 and 2128-2134.  WT/DS316/R 
 Page 887 
 
BCI deleted, as indicated [***] 
 
  Chart 4 Market Share (Quantity of LCA delivered in the European Communities) 
(EC data ) 
 
020406080100120
2001 2002 2003 2004 2005 2006Airbus
Boein g
 
 
7.1758  Thus, on the basis of the data presented by the United States, it is clear that Boeing's share of 
LCA deliveries to the EC market declined over th e period, while Airbus' share of that market 
increased.  Despite the different values reflected, the data presented by the European Communities, 
when aggregated, supports the same conclusion, alth ough, as we have explained,  the EC data is not a 
reliable basis for our evaluation.  As the only othe r competitor in the market was Airbus, it follows 
that the evidence we have reviewed demonstrates that imports of United States' LCA into the EC 
market were displaced by Airbus LCA over the relevant period.  We address whether the 
displacement we have observed is an effect of th e specific subsidies we have found were granted to 
Airbus with respect to LCA in Section  (e) below. 
(c) Alleged displacement or impedance of exports from a third country market 
7.1759  Article 6.3(b) of the SCM Agreement provides: 
"Serious prejudice in the sense of paragraph (c) of the 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;" 
7.1760  While Article 6.3(a) of the SCM Agreement c oncerns displacement or impedance of the 
complaining Member's imports into the market of the subsidizing Member, Ar ticle 6.3(b) concerns 
displacement or impedance of the complaining Me mber's exports from a third country market or 
markets.  The phrasing of the two provisions, requir ing consideration of an effect on imports in 
Article 6.3(a), and on exports in Article 6.3(b), is  in our view of no consequence – imports of a like 
product of another Member are, by definition also exports of a like product of  another Member.  Thus, 
we consider that the two provisions address th e same phenomenon, only in different markets.  
Therefore, the conclusions we have set out a bove concerning the meaning of displacement and 
impedance, and the analysis thereof on the basis of ma rket share in terms of deliveries of LCA, in the 
context of a claim under Article 6.3(a), apply equall y to our consideration of the United States' claim 
under Article 6.3(b).   WT/DS316/R 
Page 888  
BCI deleted, as indicated [***] 
 
  7.1761  There is, however, an additional element to be  considered in the context of a claim under 
Article 6.3(b).  Article 6.4 of the SCM Agreement provides: 
"For the purpose of paragraph 3(b), the displacement or impeding of exports shall 
include any case in which, subject to the provisions of paragraph 7, it has been 
demonstrated that there has been a change in relative shares of the market to the 
disadvantage of the non-subsidized like pr oduct (over an appropriately representative 
period sufficient to demonstrate clear trends in the development of the market for the product concerned, which, in normal circumstances, shall be at least one year).  "Change in relative shares of the market " shall include any of the following 
situations:  (a) there is an increase in the market share of the subsidized product;  
(b) the market share of the subsidized produc t remains constant in circumstances in 
which, in the absence of the subsidy, it would have declined;  (c) the  market share of 
the subsidized product declines, but at a slow er rate than would have been the case in 
the absence of the subsidy." 
7.1762  The European Communities argues that the term "non-subsidized like product" as used in 
Article 6.4 should be understood as "a like produc t of the complaining Member asserting a serious 
prejudice claim under Articles 5 and 6.3 of the SCM Agreement  that is not subsidized".
5260  T h e  
European Communities maintains, accordingly, that  displacement or impedance of exports from a 
third country market for purposes of Ar ticle 6.3(b) can be demonstrated only if the complaining 
Member does not provide a subsidy within the meani ng of Article 1 of the SCM Agreement in respect 
of the like product exported.  The European Communities argues that the burden is on the 
complaining Member to demonstrate that its like pro duct(s) do(es) not benefit from subsidies, and that 
the United States has not done so in this case.5261  Indeed, the European Communities alleges that 
LCA manufactured by Boeing do, in fact, benefit from subsidies, and submits information which it 
asserts demonstrates that fact.5262   
                                                      
5260 EC, SWS, para. 1104.  The European Communities makes the same argument with respect to 
Article 6.5, which is discussed further at paras. 7.1798 - 7.1800 below. 
5261 In answer to a question from the Panel, the European Communities responded:  
"the European Communities considers that the competing like product of the complaining Member can 
be considered "non-subsidized" if the complaining Member demonstrated that the like product does not benefit firm specific subsidies.  Conversely, if the like product benefits from spec ific subsidies, a complaining Member 
can not meet its burden of es tablishing that its like product is "non-subsidized"."   
EC, Answer to Panel Question 202, para. 262. 
5262 EC, SWS, paras. 1110-1136.  The European Co mmunities notes that the alleged subsidization of 
Boeing LCA is the subject of a separate dispute brought by the European Communities, United States – 
Measures Affecting Trade in Large Civil Aircraft , DS353.  In addition to subsidies challenged for the first time 
in that dispute, the European Communities asserts that prior to the end of 2006, Boeing had received tens 
of millions of dollars through the application to LCA of the US foreign sales corporation ("FSC") and 
extraterritorial income ("ETI ") tax exemptions and exclusions.  Both of these programmes have been found to 
be prohibited export subsidies in WTO dispute settlement.  Panel Report, United States – FSC , para. 8.1(a); 
Appellate Body Report, United States – FSC , at paras. 177(a), 178; Panel Report, United States – Tax Treatment 
for "Foreign Sales Corporations" – Recourse to Article 21.5 of the DSU by the European Communities ("US – 
FSC (Article 21.5 – EC)") , WT/DS108/RW, adopted 29 January 2002, as modified by Appellate Body Report 
WT/DS108/AB/RW, DSR 2002:I, 119, at paras. 9.1(a), 9.1(b), 9.1(e); Appellate Body Report, US – FSC 
(Article 21.5 – EC) , at paras. 256(a), 256(b), 256(f), 257; Panel Report, United States – Tax Treatment for 
"Foreign Sales Corporations" – Second Recourse to Articl e 21.5 of the DSU by the European Communities ("US – 
FSC (Article 21.5 – EC II)") , WT/DS108/RW2, adopted 14 March 2006, as upheld by Appellate Body Report 
WT/DS108/AB/RW2, DSR 2006:XI, 4761, para. 8.1; Appellate Body Report, United States – Tax Treatment for 
"Foreign Sales Corporations" – Second Recourse to Articl e 21.5 of the DSU by the European Communities ("US –  
FSC(Article 21.5 – EC II)") , WT/DS108/AB/RW2, adopted 14 March 2006, DSR 2006:XI, 4721, para. 100(b).  
The United States has since repealed both measures.  EC, SWS, para. 1116.  WT/DS316/R 
 Page 889 
 
BCI deleted, as indicated [***] 
 
  7.1763  The United States maintains that the term "non-subs idized like product" is to be understood as 
calling for the comparison of the market share of the product which benefits from the subsidies in question (that is, the product of the subsidizing Me mber) with the market share of the like product 
which does not benefit from that/those  subsidy(ies).
 5263  The United States argu es that such a reading 
is consistent with the text of Ar ticle 6.3, which does not suggest any concern with subsidies other than 
those which are being challenged, and which refers  to like product without any qualification as to 
whether or not the like product is subsidized or not .  Moreover, the United States asserts that as the 
European Communities appears to r ead the term "non-subsidized," if the product of the complaining 
Member benefited from "indirect, non-specific, de mi nimis subsidies, such as public education or 
public health measures," such a Member w ould be precluded from asserting a claim under 
Article 6.3(b) or Article 6.3(c), "no matter how  direct, targeted, and massive a subsidy causing 
adverse effects might be" because it does not have a non-subsidized like product.5264  According to the 
United States, this would eviscerate the entirety of Part III of the SCM Agreement, and cannot be the 
correct interpretation of the text.5265 
7.1764  The European Communities contends that the Un ited States' reading of Article 6.4 conflates 
the terms "non-subsidized like product" and "like pro duct of the complaining Member", and thus fails 
to give meaning to the term "non-subsidized".5266  Moreover, the European Communities argues that 
its interpretation requires only that the complaini ng Member demonstrate that its competing like 
product does not benefit from specific subsidies.5267  However, the European Communities does agree 
that its view would preclude a finding of price undercutting and impedance and displacement in third 
country markets if the like product benefits from "any specific subsidy, however small."5268  In the 
European Communities' view, the object and purpose of Article 6.4 can only be achieved through an 
"untainted" assessment, and not through a comp arison involving a subsidized product and a 
subsidized like product.5269  
7.1765  We are not entirely persuaded by the United St ates' arguments concerning the meaning of the 
term "non-subsidized" as used in Article 6.4.  While it is true that the term "like product" is used in 
Article 6.3, including Article 6.(3)(b), without the qu alifier "non-subsidized," this does not suggest to 
us that the use of the term "non-subsidized" in Ar ticle 6.4 refers simply to a like product which does 
not benefit from the subsidy which is the subject of the dispute.  In fact the use of different terms 
suggests to us that the term "non-subsidized lik e product" may well have a specific meaning in 
Article 6.4.  If the intention of Article 6.4 were  only to differentiate the like product from the product 
which benefits from the challenged subsidy we see no reason to have included the term "non-
subsidized" in Article 6.4 – it seems self-evident that the like product of the complaining Member 
would not benefit from the challenged subsidy.  Thus , we consider that Article 6.4 may well require 
that a complaining Member demonstrate, in the circ umstances of that provision, that its like product, 
exports of which are allegedly displaced or impede d from third country markets, is not subsidized. 
7.1766  However, an additional question thus arises:  wh ether Article 6.4 is the necessary or exclusive 
mechanism for demonstrating displacement or impeda nce of exports to a third country market under 
Article 6.3(b), or whether, to the contrary, disp lacement and impedance under Article 6.3(b) can be 
demonstrated without reference to Article 6.4.  The United States argues that while Article 6.4 
provides that displacement or impedance "shall in clude" market conditions discussed therein, thus 
providing "further guidance" for the application of  Article 6.3(b), it does not set out the exclusive 
                                                      
5263 US, SNCOS, para. 191; US, Comments on EC Answer to Panel Question 202. 
5264 US, SNCOS, para. 192. 
5265 US, SNCOS, para. 192 
5266 EC, Answer to Panel Question 202, para. 257. 
5267 EC, Answer to Panel Question 202, paras. 259-65. 
5268 EC, Answer to Panel Question 202, para. 263. 
5269 EC, Answer to Panel Question 202, paras. 267-268. WT/DS316/R 
Page 890  
BCI deleted, as indicated [***] 
 
  ways in which serious prejudice in the form of displacements or impedance from a third country 
market may be demonstrated.
5270  According to the European Co mmunities, however, Article 6.4 
describes the exclusive basis on which a claim of th ird-country market displacement or impedance 
under Article 6.3(b) may be demonstrated.5271  For the European Communities, the meaning of like 
product in Article 6.3(b), as well as in Article 6. 3(c), cannot be understood without reference to 
Articles 6.4 and 6.5, which in the European Commun ities' view make it clear that the "like product" 
must not benefit from any specific subsidies. 
7.1767  The meaning of Article 6.4 was considered by the panel in Indonesia – Autos.  That panel 
dealt with claims under Article 6.3(a) and considered whether the analysis contemplated by 
Article 6.4 applied to a claim under Article 6.3(a).  The panel found that the Article 6.4 analysis did 
not apply to such a claim, concluding: 
"We agree with Indonesia that Article 6.4 is not relevant in this case.  The drafting of 
the provision is unambiguous, and the specific reference to Article 6.3(b) creates a strong inference that an Article 6.4 type of analysis is not
 appropriate in the case of 
Article 6.3(a) claims.  The complainants ha ve identified nothing in the context of the 
provision or the object and purpose of the SCM Agreement that would suggest a different conclusion."
5272     
The panel also noted that the issue was significant fo r the parties and the disposition of the claims in 
that case, because Article 6.4 provided, in certain circumstances, a lower threshold for demonstrating 
displacement and impedance than estab lished in Article 6.3(a), stating: 
 
"If the type of analysis set forth in Article  6.4 is appropriate in this case, then the 
complainants arguably could make a prima facie case of displacement and impedance 
by demonstrating that the market share of  a subsidized product has increased over an 
appropriately representative period.  If, on th e other hand, the type of analysis set 
forth in Article 6.4 is not appropriate in  this case, then the complainants must 
demonstrate that "the effect of the subsidy"  is to displace or impede imports into 
Indonesia, that is, that they have lost export sales to Indonesia that they would have otherwise have made and that those export sales were lost as a result of the subsidies provided pursuant to the National Car programme."
5273   
The panel in Indonesia – Autos  thus concluded that, while not rele vant to a claim under Article 6.3(a), 
Article 6.4 established that, in certain circumstanc es, a consideration of comparative market share 
alone will suffice to demonstrate that " the effect of the subsidy " is to displace or impede exports.  We 
agree with this reading of Article 6.4.  In our vi ew, Article 6.4 describes a particular situation, where 
the like product of the complaining Member is not s ubsidized, in which situation a demonstration that 
market share of the subsidized product complained of increased suffices to make  a prima facie case of 
displacement or impedance under Article 6.3(b). 
 7.1768  In this case, unlike Indonesia – Autos , there is no question that Article 6.4 is relevant.  
However, while the United States has made a claim u nder Article 6.3(b), to wh ich Article 6.4 refers, it 
                                                     
 
5270 US, Comments on EC Answer to Panel Question 202, para. 224. 
5271 EC, SWS, paras. 1102: "Article 6.4 then qualifies Article 6.3(b) by setting out the manner and 
means by which claims of displacement or impedance in third country market s can be asserted."  As discussed 
further below, the European Communities takes a similar position with respect to claims of price undercutting 
under Article 6.3(c) and the pr ovisions of Article 6.5.  Id., para. 1107:  "As with Article 6.4 and third-country 
market displacement or impedance claims, Article 6.5 describes the complete universe in which a price 
undercutting analysis must be demonstrated." 
5272 Panel Report, Indonesia – Autos , para. 14.210. 
5273 Panel Report, Indonesia –  Autos , para. 14.209.  WT/DS316/R 
 Page 891 
 
BCI deleted, as indicated [***] 
 
  does not purport to rely on the special rule set out in Article 6.4, but rather, asserts that it has 
demonstrated that displacement or impedance of its exports from third country markets is the effect of 
the subsidies in dispute.   
7.1769  Our reading of Article 6.4 leads us to the c onclusion that if the circumstances set out in 
Article 6.4 are satisfied, a further assessment of whethe r the changes in market share are "the effect of 
the subsidy" is not necessary.  Those circumstance s include that the exports allegedly displaced or 
impeded are not themselves subsidized.  We see nothing in  the text of Article 6.4, or in its context or 
object and purpose, however, which would suggest that  the analysis set out therein is the exclusive 
means of demonstrating displacement or impedance of exports for purposes of Article 6.3(b).  As the 
United States observes, Article 6.4 provides that, fo r the purpose of Article 6(3)(b), displacement or 
impedance "shall include" the specific circumstances set out therein.5274  The use of the phrase "shall 
include" in our view indicates that there may be ot her circumstances, not set out in Article 6.4, in 
which a Member could demonstrate displacement or impedance for purposes of Article 6.3(b).  Rather 
than limiting the circumstances in which Article 6.3(b)  may be satisfied, we read Article 6.4 as simply 
setting out additional guidance for the application of Ar ticle 6.3(b) in certain particular circumstances.  
Thus, in our view, Article 6.4 establishes a particular  set of circumstances in which displacement or 
impedance of exports shall be found – where the product of the complaining Member is not 
subsidized, and there has been a ch ange in relative market shares to the disadvantage of that product – 
without additional consideration of whether that  change is the effect of the subsidies. 
7.1770  We consider that the contrary interpretation suggested by the EC – that Article 6.4 is the 
exclusive basis for a finding of displacement or im pedance for purposes of Article 6.3(b) – would lead 
to the absurd result that the SC M Agreement establishes a remedy for displacement or impedance of 
exports in third country markets only in situations where the co mplaining Member's product is 
demonstrated to be unsubsidized – effectively, a sort of "clean hands" requirement for complaining 
Members as a prerequisite to a claim under Article 6.3(b).  Not only is there no basis in the text for 
such a requirement, but, as a practical matter, su ch a requirement would enormously complicate the 
task of panels considering claims under Article 6.3( b).  Not only would they have to consider whether 
the challenged measures at issue in the dispute const itute subsidies, but they would have to consider 
whether the Member challenging those measures itself provides any subsidy with respect to the exported like product.  Moreover, while the Europ ean Communities states that it asserts only that the 
complaining Member's like product must not benefit from specific  subsidies,
5275 there is nothing in the 
term "non-subsidized like product" which suggests su ch a limitation.  Thus, to accept the European 
Communities' interpretation would leave open the po ssibility that a complaining Member would be 
precluded from pursuing a claim under Article 6.3(b) (and 6.3(c)), because its like product benefits 
from subsidies that do not fall within the definition of Article 1 of the SCM Agreement.  We cannot 
imagine on what basis a panel might undertake to examine this question.  We simply cannot accept 
that so much can be derived from the mere us e of the term "non-subsidized like product" in 
Article 6.4.  We therefore reject the European Co mmunities' view that Article 6.4 is the exclusive 
basis for a finding of displacement or impedance under Article 6.3(b) of the SCM Agreement.   
7.1771  We note that, while our interpretation of the text of Articles 6.3(b) and 6.4 does not result in 
any ambiguity, and thus does not require resort to s upplementary means of interpretation, our view is 
supported by consideration of the drafting histor y of the provisions.  Article 6.3(b) of the 
SCM Agreement is derived from Article 6.2 of th e Cartland Draft of 18 May 1990 (Cartland I).  
Article 6.2 of Cartland I set out four situations in  which serious prejudice "may arise" in subsections 
(a) through (d), which correspond to subsections (a) through (d) of Article 6.3 of the SCM Agreement: 
                                                     
 
5274 US Comment on EC, Answer to Panel Question 202. 
5275 EC, Answer to Panel Question 202, para. 262, WT/DS316/R 
Page 892  
BCI deleted, as indicated [***] 
 
  "Serious prejudice may arise in any case where one or several of the following apply: 
 (a) the effect of the subsidy is to displace or impede the imports of like 
product into the market of the subsidizing country; 
 (b) the effect of the subsidy is to displace the exports like product of another 
signatory from  a third country market; 
 (c) there is a significant price undercutting by the subsidized products as 
compared  with the price of a like product of another signatory in the same market 
resulting in price suppression, price depression or lost sales; 
 (d) the world market share of the s ubsidizing country in a specific product 
has increase compared to the share it had duri ng the previous period of {X years} and 
this increase results from a consistent tre nd over a period when subsidies have been 
granted." 
Cartland I then went on to set out three Articles gi ving additional guidance with respect to subsections 
(a) through (c).  Article 6. 4 of Cartland I provided:   
 
"For the purposes of paragraph 2(a), displacing or impeding imports shall include any case in which a subsidy has been grante d or significantly increased on a product 
which directly competes with the product on which a GATT concession or another GATT benefit has been granted." 
Article 6.5 of Cartland I provided: 
 
"For the purpose of paragraph 2(b), displacing exports shall include any case in which, in the absence of circumstances enum erated in paragraph 8 below, there has 
been a change in relative shares of th e market to the disadvantage of the non-
subsidized product (over a period of one year or more)."
5276 
Finally, Article 6.6 of Cartland I provided: 
 
"For the purpose of paragraph 2(c), price undercutting or price suppression should be 
demonstrated through comparing prices of the subsidized product with prices of like non-subsidized products supplied to the sa me market.  However,  if such direct 
comparison is not possible, the existence of price undercutting or price 
suppression may be demonstrated on the basis of export unit values."   
These provisions remained in subsequent drafts of the SCM Agreement, with the exception of 
Article 6.4 of Cartland I.  Articles 6.5 and 6.6 of Cartland I are substantially the same as Articles 6.4 
and 6.5 of the SCM Agreement; Article 6.4 of Car tland I has no corollary in the SCM Agreement as 
adopted.  In our view, both Articles 6.4 and 6.5 of Ca rtland I delineated particular factual situations in 
which serious prejudice would be found to exist without requiring the establishment of a causal link 
between the observed phenomena and the subsidies.   Thus, where the product of the complaining 
Member is not subsidized, Article 6.4 of th e SCM Agreement provides for a lesser burden to 
demonstrate serious prejudice.  We consider that this  interpretation fits with the overall architecture of 
Article 6 as originally negotiated and adopted, with different burdens for establishing serious 
prejudice, ranging from "deemed" serious prejudice in the case of certain subsidies under Article 6.1, 
                                                     
 
5276 Paragraph 8 of Article 6 of Cartland I set out "circumstances necessary to rebut the existence of 
displacement in the sense of" Article 6.5, which are largely reflected in Article 6.7 of the SCM Agreement.  WT/DS316/R 
 Page 893 
 
BCI deleted, as indicated [***] 
 
  to a lesser burden for complaining Members with "clean hands", i.e., an unsubsidized competing 
product, to the requirement to prove that the mark et effects of displacement or impedance are the 
effect of the subsidies.    
7.1772  We now turn to consider the data and argum ents the parties have submitted on the question 
whether United States' exports have been displ aced or impeded from third country markets.   
(i) Market Share Information in Individual Third Country Markets 
7.1773  In support of its claim that Airbus LCA di splaced or impeded exports of Boeing LCA from 
third country markets, the United States has submitte d evidence similar to that submitted in support of 
its claim of displacement or impedance in the EC market under Article 6.3(a).  The United States thus 
presents information concerning the number of LCA deliveries  to customers in Australia from 2001 to 
2005,
5277 in China from 2001 to 2006,5278 as well as aggregate information on the number of deliveries 
to all customers outside the United States and the European Communities from 2001 to 2006.5279  The 
United States also provides information on allegedl y increased Airbus market share between 2001 and 
2005 in Singapore, Korea, Brazil, the Separate Customs Territory of Taiwan, Penghu, Kinmen and 
Matsu ("Chinese Taipei"), Mexico and India,  without providing specific quantity data.5280  The United 
States also asserts that information for 2006 show s that Boeing had increased market share in that 
year in some of these countries, and decreased market share in others; the Unite d States asserts that in 
no case did Boeing's market share return to 2001 levels.5281  The United States argues that Airbus 
made very large gains in third country market sh are in 2003 and 2004 and has maintained most of its 
gains in those growing markets.5282  The United States also presen ts information on the number of 
orders for LCA by Indian customers during 2001-2005.5283    
7.1774  The European Communities does not contest the ac curacy of the information presented by the 
United States.  Rather, it defends against the United States' claim under Article 6.3(b) by relying on 
the same arguments concerning the subsidized and li ke product, the appropriate  reference period, and 
the use of order data rather than deliveries, as  it did with respect to the United States claim under 
Article 6.3(a).  Again, the European Communiti es presents its own data showing deliveries (and 
orders) for separate categories of LCA in individu al third country markets.  Thus, the European 
Communities submits data with respect to the "si ngle aisle" LCA deliveries (comprising the A320 
family and Boeing 737 Classic and NG and Boei ng 717 and 757 families, and the MD-90) to 
customers in Australia, Brazil, China, Chinese Taipei, India, Korea, Mexico and Singapore;5284 
deliveries of 200-300 seat LCA (comprising the Ai rbus A300, A310, A330, and A350 families, and 
the Boeing 767 and 787 LCA families) to customer s in Australia, Brazil, China, Chinese Taipei, 
India, Korea and Mexico,5285 and deliveries of 300-400 seat LCA (comprising the Airbus A340 and 
                                                      
5277 US, FWS, para. 773, table 12. 
5278 US, SWS, para. 703, table 3. 
5279 US, FWS, para. 772, tables 9 & 10, US, SWS, para. 701, table 2. 
5280 US, FWS, para. 773. 
5281 US, SWS, para. 703.  The United States provided no details concerning quantities involved, or 
which countries showed increase s and which showed decreases. 
5282 US, SWS, para. 705. 
5283 US, FWS, para. 774, table 13. 
5284 EC, FWS, paras. 1951-52, 1954-55, 1957-58, 1961-62, 1963,1965-66, 1968-69, 1971-72.  See, 
footnote 1962 for the list of the models the European Communities has included in the "single-aisle" market in 
the context of third country markets, which differs from the list it included in the "single-aisle" market in the 
context of the EC market.  See, paragraph 7.1756 above. 
5285 EC, FWS, para. 2028. WT/DS316/R 
Page 894  
BCI deleted, as indicated [***] 
 
  Boeing 777 and MD-11 LCA families) to customers in China, Chinese Taipei, India, Korea, and 
Singapore.
5286    
7.1775  Having presented data by aircraft type and individual country, the European Communities 
argues that, even where Airbus' market share of or ders or deliveries increased during the period 2001 
to 2006, for example with respect to the A320 in some  third country markets, there is no basis to make 
a finding of impedance or displacement because th e very limited number of or ders and deliveries or 
the very sporadic nature of such orders or deliv eries make it very difficult to draw any conclusions 
regarding trends in market share.5287   The European Communities suggests that the Panel cannot draw 
conclusions about trends in market share,  and therefore it should make no findings under 
Article 6.3(b).5288  Moreover, the European Communities ass erts, in some of these third country 
markets, Boeing's share of deliveri es of single-aisle LCA has increased.5289  Based on the data it 
presents, the European Communities ar gues that a clear change in market share in Airbus' favour in 
individual third country markets cannot be  discerned in the period 2001 to 2006.5290     
7.1776  The United States argues that, if the Panel were to agree with the European Communities that 
there is insufficient data to examine any of th e individual third country markets identified by the 
United States, the solution is not, as the European Communities suggests, to make no finding.  Rather, 
the United States notes that both parties recognize that the LCA market is a world market, and 
therefore suggests that the Panel examine whether the effect of the subsidy is to displace or impede 
the exports of Boeing LCA to the world market or  to the markets of all third countries taken as a 
whole.5291  In support of this position, the United States  points to the chapeau of Article 6.3, which 
provides that serious prejudice "may arise in any cas e where" one or more of the specific enumerated 
market effects applies, but it does not prevent a fi nding of serious prejudice in other situations as 
well.5292  The European Communities argues that even if the Panel were to consider delivery data for 
all third country markets aggregated on the basis of aircraft type, it would be unable to ascertain any 
clear trends for the 2004 to 2007 period as many of these markets have only a few customers and 
demand is idiosyncratic.5293 
7.1777  We recall that we have previously examin ed and rejected the European Communities' 
arguments  in respect of the appropriate subsidized  and like product, the reference period, and the use 
of order data rather than deliveries in eval uating claims of displacement or impedance.5294  We 
therefore begin our evaluation of the United States' claim under Article 6.3(c) by focussing on the information the United States has presented in resp ect of individual third country markets.   
7.1778  The United States initially presented annual data  for Airbus and Boeing LCA deliveries to 
Australia and China for the period 2001 to 2005, and updated the information for China to include 
data for 2006.  In addition, the United States submitted information show ing increases in Airbus' 
market share from 2001 to 2005 in Singapore, Korea, Brazil, Chinese Taipei, Mexico and India, without specifying the quantities involved.
5295  Reflecting, as we understand it, its claim of threat of 
                                                      
5286 EC, FWS, paras. 2118-2119. 
5287 EC, FWS, para. 1975. 
5288 EC, FWS, para. 1975, 2029, 2033. 
5289 EC, FWS, paras. 1974 - 1975. 
5290 EC, FWS, paras. 1933-1998, 2024-2053, 2113-2135. 
5291 US, FNCOS, paras. 174-75, US, SWS, para. 704. 
5292 US, FNCOS, para. 175.  The United States emphasizes that it makes argument only in the 
alternative, if the Panel accepts the European Communities' position. 
5293 EC, SWS, para. 1146. 
5294 See, paras. 7.1680 and 7.1748 above. 
5295 US, FWS, para. 773.  WT/DS316/R 
 Page 895 
 
BCI deleted, as indicated [***] 
 
  serious prejudice in the form of likely future displ acement in the Indian market, the United States also 
submitted order  data for the Indian market for the period 2001 to 2005.5296   
7.1779  The European Communities submitted information on deliveries of LCA to the same markets 
over the period 2001 to 2006, but in disaggregated form, reflecting its view that there are multiple 
Airbus subsidized products and Boeing like produ cts.  The data presented by the European 
Communities in respect of deliveries to third co untry markets presents the same concerns as the 
information it presented on deliveries to the EC ma rket, with respect to the failure to include 
deliveries of the Boeing 747 and the treatment of aircraft owned by leasing companies and delivered to operating airlines in individual third country ma rkets, an approach we have rejected above.
5297   
Thus, for the reasons previously expressed we do no t consider the data presented by the European 
Communities on LCA deliveries to third country market s to be accurate or reliable for the purpose of 
evaluating the United States' claims of displace ment and impedance under Article 6.3(b) of the 
SCM Agreement.  Nonetheless, in the analysis that  follows, we consider the data submitted by the 
European Communities for the third country mark ets for which the United States provided quantity 
data.   
Australia  
7.1780  A review of the data presented by the United States for the period 2001 to 2005 shows that 
Boeing's share of the Australian LCA market decr eased during that period, while Airbus nearly 
doubled its share.  In 2001, Boeing's share of Aust ralia's market by volume was 78%; it increased to 
88% in 2002, then dropped to 63%  in 2003, and to 50% in 2004 be fore increasing to 60% in 2005.  
Airbus' share of the Australian market for LCA, on the other hand, was 22% in 2001, dropped to 12% 
in 2002, increased to 37% in 2003 an d 50% in 2004 before dropping to 40% in 2005.  Overall, Airbus' 
share of Australia's market for LCA increased 18 percentage points from 2001 to 2005, while 
Boeing's market share declined by the same amount.   
Table 22 – Australia – Number of LCA delivered5298 
  
  
2001  
2002  
2003  
2004  
2005 
 Airbus  
2  
4  
11  
12  
6 
 Boeing  
7  
30  
19  
12  
9 
 Total  
9  
34  
30  
24  
15 
 
                                                      
5296 US, FWS, paras. 773-774, US, SWS, para. 704.   
5297 See, para. 7.1756 above.  See, EC, FWS, footnotes 1962 (the European Communities counted 
Boeing 757 and MD-90 in computing market share in th e single aisle market for third countries); 1964, 1974, 
1980, 2048, and 2155, (explaining EC treatment of deliveries of LCA owned by leasing companies) . 
5298 US, FWS, Table 12, para. 773. WT/DS316/R 
Page 896  
BCI deleted, as indicated [***] 
 
  Chart 5 Australia - Market Share (Quantity of LCA delivered)
5299 
 
 
0%20%40%60%80%100%
2001 2002 2003 2004 2005Airbus
Boeing
 
 
A similar pattern appears when we aggregate a nd examine the data presented by the European 
Communities, which, we recall, we do not consider to be accurate or reliable. 
 
Table 23 – Australia – Number of LCA delivered (EC data)5300 
  
  
2001  
2002  
2003  
2004  
2005  
2006 
 Airbus  
0  
2  
4  
8  
12  
7 
 
Boeing  
1  
16  
14  
10  
10  
11 
 
Total  
1  
18  
18  
18  
22  
18 
 
                                                      
5299 US, FWS, Table 12, para. 773. 
5300 EC, FWS, paras. 1952, 2032 and 2119-2120.  US Airbus Boeing 
2001 22% 78%
2002 12% 88%
2003 37% 63%
2004 50% 50%
2005 40% 60% WT/DS316/R 
 Page 897 
 
BCI deleted, as indicated [***] 
 
  Chart 6 Australia - Market Share (Quantity of LCA delivered) (EC data) 
  
  
2001  
2002  
2003  
2004  
2005  
2006 
 Airbus  
0%  
11%  
22%  
44%  
55%  
39% 
 
Boeing  
100%  
89%  
78%  
56%  
45%  
61% 
 
0%20%40%60%80%100%120%
2001 2002 2003 2004 2005 2006Airbus
Boein g
 
 
China  
7.1781  A review of the data presented by the United States for the period 2001 to 2006 shows that 
Airbus gained a substantial share of the Chinese market  during that period.  In 2001, Boeing's share of 
the Chinese market by volume was 71%; it increase d to 81% in 2002, dropped to 56% in 2003, and 
again to 36% in 2004, before increasing to 47% in  2005, and then dropping to 46% in 2006.  Airbus' 
share of the Chinese market for LCA was 29% in 2001,  dropped to 19% in 2002, increased to 44% in 
2003 and 64% in 2004, dropped to 53% in 2005 and incr eased to 54% in 2006.  Thus, Airbus' share of 
the Chinese market for LCA incr eased 25 percentage points from 2001 to 2006, while Boeing's 
market share declined by the same amount.   WT/DS316/R 
Page 898  
BCI deleted, as indicated [***] 
 
  Table 24 – China – Quantity of LCA delivered
5301 
  
  
2001  
2002  
2003  
2004  
2005  
2006 
 
Airbus  
9  
7  
22  
35  
56  
76 
 Boeing  
22  
31  
28  
20  
50  
66 
 
Total  
31  
38  
50  
55  
106  
142 
 
 
Chart 7 China – Market share (quantity of LCA delivered) 5302 
 
0%20%40%60%80%100%
2001 2002 2003 2004 2005 2006Airbus
Boeing
 
 
Again, essentially the same trends are visible when we  examine, in aggregate, the data submitted by 
the European Communities in aggregated form, which, we recall, we do not consider to be accurate or 
reliable.   
 Table 25 – China – Quantity of LCA delivered (EC data)
5303 
  
  
2001  
2002  
2003  
2004  
2005  
2006 
 
Airbus 5 2 18 21 45 43 
 
Boeing 10 18 13 11 28 24 
 Total 15 20 31 33 73 64 
 
                                                      
5301 US, SWS, Table 3, para. 703. 
5302 US, SWS, Table 3, para. 703. 
5303 EC, FWS, paras. 1958, 2032 and 2119-2120.  US Airbus Boeing 
2001 29% 71%
2002 19% 81%
2003 44% 56%
2004 64% 36%
2005 53% 47%
2006 54% 46% WT/DS316/R 
 Page 899 
 
BCI deleted, as indicated [***] 
 
  Chart 8  China -  Market share (quantity of LCA delivered) (EC data) 
  
  
2001  
2002  
2003  
2004  
2005  
2006 
 
Airbus 33% 10% 58% 66% 62% 64% 
 
Boeing 67% 90% 42% 34% 38% 36% 
 
 
0%20%40%60%80%100%
2001 2002 2003 2004 2005 2006Airbus
Boein g
 
 
India  
7.1782  The United States does not present data on the numbe r of LCA delivered to the Indian market, 
but does assert that Airbus' share of the Indian mark et, in terms of deliveries, increased from 0 in 2001 
to 76 percent in 2005.  The European Communities di d present data on deliveries to the Indian market 
which similarly shows an increase in Airbus' market  share, which we set out below, although, we 
recall that we do not consider this da ta to be accurate or reliable.   
Table 26 –  India – Quantity of LCA delivered (EC data)5304 
  
  
2001  
2002  
2003  
2004  
2005  
2006 
 
Airbus 0 0 0 0 4 17 
 
Boeing 4 4 2 0 0 12 
 
Total 4 4 2 0 4 29 
 
                                                      
5304 EC, FWS, para. 1962.   WT/DS316/R 
Page 900  
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  Table 27 – India – Market share (qua ntity of LCA delivered)(EC data)
 
  
  
2001  
2002  
2003  
2004  
2005  
2006 
 
Airbus 0% 0% 0% no 
deliveries 100% 59% 
 
Boeing 100% 100% 100% no 
deliveries 0% 41% 
 
7.1783  The United States also presented information concerning orders by Indian customers, arguing 
that large new orders threaten additional disp lacement of Boeing exports for years to come.5305  As 
discussed above, we do not consider data on orders to be persuasive evidence of current displacement 
or impedance, which in our view more appropria tely involves a consideration of actual deliveries 
reflecting actual imports and exports.  Nonetheless, orde rs are an indicator of likely future deliveries, 
albeit imperfect,5306 and thus we review the information presented as an indicator of threat of future 
displacement or impedance of exports from the Indian market.  In this regard, although the 
United States did not extensively argue the issue, we recall that it did present a claim of threat of serious prejudice under Article 6.3(b) of the SC M Agreement, and requested findings in that 
regard.
5307   
7.1784  The data on orders for the period 2001 to 20 05 presented by the United States demonstrates 
that Airbus gained most of the orders for LCA in  the Indian market during that period.  In 2000 and 
2001 there were no orders for LCA by Indian cu stomers.  While Boeing obtained 100 per cent of 
orders in the Indian market in 2003, Airbus obtai ned 100 per cent in 2004.  In 2005, Airbus' share of 
orders in the Indian market dropped to 70 per cen t while Boeing's share increased to 30 per cent.  
However, the actual number of LCA represented by th ese orders paints a very different picture than 
the percentages.  Boeing's 100 percent of orde rs in 2003 represents one LCA, while Airbus' 
100 percent in 2004 represents two LCA.  However, in 2005, there were 225 orders for Airbus LCA, 
compared with 98 orders for Boeing LCA, representi ng a massive increase in the Indian market.  This 
indicates that, as these LCA are delivered over the ensu ing years, it is likely that Airbus will have a 
significantly greater share of the Indian market than Boeing.  While Boeing may obtain additional 
orders, and may even obtain orders for more LCA th an Airbus, in the future, those LCA would likely 
be delivered at an even later date  than the already-ordered LCA, and thus the more immediate future 
is likely to be an Indian market with more deliveries of Airbus LCA than of Boeing LCA. 
Table 28 – India – Quantity of LCA ordered5308 
 
 2001 2002 2003 2004 2005 
Airbus 0 0 0 2 225 
Boeing 0 0 1 0 98 
Total 0 0 1 2 323 
 
                                                      
5305 US, FWS, para. 774. 
5306 See, para. 7.1724 above . 
5307 WT/DS316/2, p. 4 (request for establishment), US, FWS, para. 842(2) (request for findings). 
5308 US, FWS, Table 13, para. 774.  WT/DS316/R 
 Page 901 
 
BCI deleted, as indicated [***] 
 
  Chart 9 India - Market Share Information on the basis of orders5309 
 
0%20%40%60%80%100%120%
2001 2002 2003 2004 2005Airbus
Boeing
 
 
A similar pattern is apparent when we examine the data on orders submitted by the European 
Communities in aggregated form, which, we recall, we do not consider to be accurate or reliable. 
 
Table 29 – India – Quantity of LCA ordered (EC data)5310 
  
  
2001  
2002  
2003  
2004  
2005  
2006 
 
Airbus 0 0 0 2 216 52 
 
Boeing 0 0 1 0 66 30 
 
Total 0 0 1 2 282 82 
 
Table 30 – India – Market share (quantity of LCA ordered) (EC data)  
  
  
2001  
2002  
2003  
2004  
2005  
2006 
 
Airbus No orders No orders 0% 100% 77% 63% 
 
Boeing No orders No orders 100% 0% 23% 37% 
 
                                                      
5309 US, FWS, Table 13, para. 774. 
5310 EC, FWS, paras. 1962, 2028 and 2118.  US Airbus Boeing 
2001 0% 0% 
2002 0% 0% 
2003 0% 100% 
2004 100% 0% 
2005 70% 30% WT/DS316/R 
Page 902  
BCI deleted, as indicated [***] 
 
  Chart 10 India - Market Share Information on the basis of orders (EC data) 
 
0%20%40%60%80%100%120%
2001 2002 2003 2004 2005 2006Airbus
Boein g
 
 
Other Individual Third Country Markets  
7.1785  The United States also asserted that Airbus' market share of delivered LCA increased from 
2001 to 2005 from 11% to 73% in Singapore, from 17% to 44% in Korea, from 50% to 86% in Brazil, from 38% to 56% in Chinese Taipei, and from 29% to 50% in Mexico.
5311  In its second written 
submission, the United States noted, without providing further specifics, that "while Boeing's market 
share increased from 2005-2006 in some of {the countr ies listed} and decreased in others, in no case 
did Boeing's market share recover to 2001 levels".5312   
7.1786  The European Communities did submit data on the number of LCA delivered to these other 
third country markets.  We recall that we have c oncluded that the EC data on deliveries to Australia, 
China and India is neither accurate nor reliable.5313  Particularly in the case of these other third 
country markets, in view of the small number of deliveries involved, the effects of the European 
Communities' counting methodology may well be significant.  As a result, the European 
Communities' information on deliveries to these markets is, in our view, even less accurate or reliable 
than the information presented by  the European Communities on deliv eries to Australia, China, and 
India.  As a consequence, we are hesitant to even review the information, and we consider it 
impossible to draw any conclusions concerning trends in deliveries.  Nonetheless, we have aggregated 
the information presented by the European Comm unities, with the results shown below.   
                                                      
5311 US, FWS, para. 773, following Table 12(B). 
5312 US, SWS, para. 703. 
5313 See, paragraph 7.1756 above.  The European Communities applied the same counting principles 
that led to our conclusion when counting deliveries to other third country markets.  We recall that the European 
Communities does not count deliveries of the Boeing 74 7, but it has included deliveries of the Boeing 757 
model into the "single-aisle" market in third countries.  EC, FWS, footnote 1962, ("For purposes of computing 
market share, the single-aisle market  includes the Boeing 737 Classic, 737NG, 717, MD-90, 757 and Airbus 
A320 families").  We also recall that  we rejected the European Communitie s' approach treating deliveries of 
LCA owned by leasing companies as deliveries to the count ry of the leasing company,  and not the country of 
the airline operating that LCA, see, para. 7.1756 above,  which the European Communities applied in counting 
deliveries to third country markets.  EC, FWS, fns. 2047 and 2155.  In this particular instance, we have not 
undertaken to exhaustively review the data to determine the extent to which the European Communities' 
counting principles affect the data it has submitted, considering it apparent that the European Communities' 
methodology skews the number of deliveries to support ou r view that the information is neither accurate nor 
reliable.    WT/DS316/R 
 Page 903 
 
BCI deleted, as indicated [***] 
 
  Table 31 – Brazil – Quantity of LCA delivered (EC data)5314 
  
  
2001  
2002  
2003  
2004  
2005  
2006 
 
Airbus 9 14 0 0 2 5 
 
Boeing 0 0 0 0 1 11 
 
Total 9 14 0 0 3 16 
 
 Table 32 – Brazil – Market share (quantity of LCA delivered) (EC data)
 
  
  
2001  
2002  
2003  
2004  
2005  
2006 
 
Airbus 100% 100% no 
deliveries no 
deliveries 67% 31% 
 
Boeing 0 0 no 
deliveries no 
deliveries 33% 69% 
 
 
Table 33 – Chinese Taipei – Quantit y of LCA delivered (EC data)5315 
  
  
2001  
2002  
2003  
2004  
2005  
2006 
 
Airbus 5 0 1 3 7 4 
 
Boeing 0 0 0 0 2 2 
 
Total 5 0 1 3 9 6 
 
                                                      
5314 EC, FWS, paras. 1954, 2028.  The European Communities reported no deliveries in the 300-400 
seat market. 
5315 EC, FWS, paras. 1961, 2028, 2119. WT/DS316/R 
Page 904  
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  Table 34 – Chinese Taipei – Market share (quantity of LCA delivered) (EC data)
 
  
  
2001  
2002  
2003  
2004  
2005  
2006 
 
Airbus 100% no 
deliveries 100% 100% 78% 67% 
 
Boeing 0 no 
deliveries 0 0 22% 33% 
 
 Table 35 – Korea – Quantity of LCA delivered (EC data
)5316 
  
  
2001  
2002  
2003  
2004  
2005  
2006 
 
Airbus 3 3 3 3 4 4 
 
Boeing 6 9 5 5 4 3 
 
Total 9 12 8 8 8 7 
 
 Table 36 – Korea – Market share (quantity of LCA delivered) (EC data)
 
  
  
2001  
2002  
2003  
2004  
2005  
2006 
 
Airbus 33% 25% 38% 38% 50% 57% 
 
Boeing 67% 75% 62% 62% 50% 43% 
 
 
Table 37 –  Mexico –  Quantity of LCA delivered (EC data)5317 
  
  
2001  
2002  
2003  
2004  
2005  
2006 
 
Airbus 0 0 0 0 0 2 
 
Boeing 3 0 5 6 6 9 
 
Total 3 0 5 6 6 11 
 
                                                      
5316 EC, FWS, paras. 1965, 2028.  The European Communities reported no deliveries in the 300-400 
seat market. 
5317 EC, FWS, paras. 1968, 2028.  The European Communities reported no deliveries in the 300-400 
seat market.  WT/DS316/R 
 Page 905 
 
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  Table 38 – Mexico – Market share (quantity of LCA delivered) (EC data)  
  
  
2001  
2002  
2003  
2004  
2005  
2006 
 
Airbus 0 No 
deliveries 0 0 0 18% 
 
Boeing 100% No 
deliveries 100% 100% 100% 82% 
 
 
Table 39 –  Singapore – Quantity of LCA delivered (EC data )5318 
  
  
2001  
2002  
2003  
2004  
2005  
2006 
 
Airbus 2 1 5 4 2 6 
 
Boeing 12 12 9 4 3 6 
 
Total 14 13 14 8 5 12 
 
 Table 40 – Singapore – Market share (quantity of LCA delivered) (EC data)
 
  
  
2001  
2002  
2003  
2004  
2005  
2006 
 
Airbus 14% 8% 36% 50% 40% 50% 
 
Boeing 86% 92% 64% 50% 60% 50% 
 
7.1787  We note that the European Communities argues that the United States' allegation of 
displacement or impedance of exports from th e 300-400 seat LCA market in China, Chinese Taipei, 
Korea, and Singapore "borders on the surreal", asser ting that the deliveries of such LCA to those 
markets are based on orders for which Airbus did not compete, or orders by leasing companies which subsequently decided to lease the aircraft to air lines operating in these markets.  According to the 
European Communities, "Airbus therefore cannot be accused of displacing or impeding Boeing from these third country markets."
5319  It is not clear to what extent, if any, the European Communities 
considers this argument applies with respect to  other categories of LCA or other third country 
markets.  We note, however, that we have elsewh ere rejected the European  Communities' view of 
whether a manufacturer "competes" for a given sale.5320  In addition, we do not agree that Airbus 
aircraft leased to an airline operating in a gi ven market cannot be considered as displacing or 
impeding Boeing exports to that market simply because the lease post-dates the leasing company's 
order to Airbus.  Whether Airbus knew or intended that  a particular aircraft sold to a leasing company 
would be leased to a particular company operating in a particular country is simply irrelevant – the 
question, for purposes of assessing displacement or im pedance, in our view, is the country to which 
Airbus actually delivered the aircraft, which is  the country of the operating airline.   
                                                      
5318 EC, FWS, paras. 1971, 2119.  The European Communities reported no deliveries in the 200-300 
seat market. 
5319 EC, FWS, para. 2120 and footnote  2157. 
5320 See, para. 7.1722 above. WT/DS316/R 
Page 906  
BCI deleted, as indicated [***] 
 
  (ii) Market Share information in Third Coun try Markets Considered as a Whole 
7.1788  While the United States argued that the Panel could, and if necessary should, consider 
information on all third country markets, that is, assess displacement of United States' exports from all 
markets other than the United States and EC,
5321 we do not consider it necessary in this case to do so, 
as we consider that the information before us  is sufficient to draw conclusions concerning 
displacement or impedance from a third country ma rket with respect to certain individual third 
country markets.   
7.1789  In any event, we have serious doubts whether an  analysis of all third country markets as a 
whole would be permissible under Article 6.3(b) in any case.  Article 6.3(b) refers to whether the 
effect of the subsidy is to displace or impede e xports from "a third country market", not "all third 
country markets" or "the global market outside the complaining and subsidizing Members".  However, in this case, we are not required to resolve that question, and we do not address the United States' contentions and evidence con cerning third country markets as a whole. 
(iii) Conclusion  
7.1790  On the basis of the information presented by the United States, the accuracy of which the 
European Communities does not dispute, it is clear th at in certain individual third country markets, 
Airbus' market share increased significantly over th e period 2001 to 2005, a nd even in 2006 remained 
higher than Boeing's market share, and that Airbus obtained a significantly larger number of orders in 
the Indian market than did Boeing.  As the only other competitor in the relevant markets over the 
period we are considering was Airbus, it follows th at the evidence demonstrates that Boeing's exports 
of LCA were displaced from the markets of Australia and China by sales of Airbus LCA over the 
period we examined, and that there is a likelihood of future displacement of Boeing LCA from the 
Indian market.   
7.1791  The situation is less compelling with respect to  the markets of Brazil, Chinese Taipei, Korea, 
Mexico and Singapore, where sales were sporad ic and volumes were re latively small, making 
identification of any trends more difficult.
5322  Nonetheless, as Airbus was the only other competitor in 
these markets over the period we are considering, it fo llows that any market share achieved by Airbus 
was at the expense of Boeing.  Thus, we consider  that the evidence demonstrates that United States' 
exports of LCA were displaced from these markets by sales of Airbus LCA over the period we examined as well.   
7.1792  We address whether the displacement we have observed in the third country markets at issue 
is an effect of the specific subs idies we have found were granted to  Airbus with respect to LCA in 
Section (e) below.   
(d) Alleged price effects 
7.1793  Article 6.3(c) provides that  
"Serious prejudice in the sense of paragraph (c) of Article 5 may arise in any case 
where one or several of the following apply: 
                                                     
 
5321 US, FWS, para. 772, US, SWS, para. 705.  Brazil agrees with the United States that if data on 
exports to certain third country markets is insufficient, the Panel may conduct an analysis of displacement or 
impedance under Article 6.3(b) of the SCM Agreement based on the aggr egate of all third country markets.  
Brazil, Third Party Submission, para. 60 referring to Appellate Body Report, US – Upland Cotton , para. 427. 
5322 We note in this regard that Article 6.3(b) does not contain any requirement that the displacement or 
impedance of exports from a third country market rise to any particular level or degree.    WT/DS316/R 
 Page 907 
 
BCI deleted, as indicated [***] 
 
   
**** 
 
(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;" 
The United States argues that each of these phenomena, namely, price undercutting, price 
suppression, price depression and lost sales, can be de monstrated as separate and individual claims on 
the basis of the facts that are before the Panel.   
 7.1794  Before addressing the parties' arguments and evidence on these allegations individually 
below, we note that in US – Upland Cotton  the Appellate Body concluded, based on a plain reading of 
Article 6.3(c) and the phrase "in the same market" "that this phrase applies to all four situations 
covered in that provision, namely, "significant price undercutting", "significant price suppression, 
price depression {and} lost sales"."    We agree.   
7.1795  In US-Upland Cotton, the panel considered the meani ng of the term "significant" in the 
context of price suppression and depression, observi ng that "{t}he ordinary meaning of the term 
"significant" is "important; notable ... conseque ntial".  The term "significant" therefore connotes 
something that can be characterized as important, notable or consequential.
5323  The panel went on to 
observe that  
"Such significance may be manifest in a number of ways.  The "significance" of any 
degree of price suppression may vary from case to case, depending upon the factual circumstances, and may not solely de pend upon a given level of numeric 
significance.
1441  Other considerations, including th e nature of the "same market" and 
the product under consideration may also enter into such an assessment, as 
appropriate in a given case.  …   We cannot believe that what may be significant in a 
market for upland cotton would necessarily also be applicable or relevant to a market 
for a very different product.   
___________________ 
1441In any event, we note that no such numeri c standard is provided in Part III of the 
Agreement.  This contrasts, to a certain extent, with the provisions of Part V of the 
agreement, which contain, for example, indi cations of  "amount" of the subsidy which 
are de minimis  (less than 1 per cent ad valorem ) and volumes of the "subsidized 
product" which are negligible.  See e.g., Article 11.9 of the SCM Agreement."5324 
The Appellate Body agreed with the Panel's understa nding of the term "significant" in the context of 
"significant price suppression" in Article 6.3(c), and noted in addition that:  
 
"Article 6.3(c) does not set forth any specific methodology for determining whether the effect of a subsidy is significant price suppression.  There may well be different ways to make this determination."
5325 
                                                      
5323 Panel Report, US – Upland Cotton , para. 7.1325, quoting New Shorter Oxford English Dictionary , 
(1993). 
5324 Panel Report, US – Upland Cotton , para. 7.1329. 
5325 Appellate Body Report,  US – Upland Cotton ,  paras. 426-427. WT/DS316/R 
Page 908  
BCI deleted, as indicated [***] 
 
  7.1796  We agree with this understanding of  the term "significant" as used in Article 6.3, and consider 
that, as with the term "in the same market", based on a plain reading of the text of Article 6.3(c), the 
term "significant" applies to each of the situa tions addressed in the provision, that is "price 
undercutting", "price suppression", "price depression " and "lost sales".  With these fundamental 
principles in mind, we turn to consideration of the evidence and arguments with respect to price 
effects. 
(i) Significant Price Undercutting and Lost Sales 
7.1797  In support of its allegations of significant pr ice undercutting and lost sales, the United States 
relies principally on evidence concerning a series of sales campaigns in which the customers 
ultimately ordered Airbus LCA.  The United States asserts that in general, a ""lost" sale is any sale 
that is captured by the subsidized product in stead of the product of the complaining Member."
5326   
7.1798  In examining the United States' allegations of significant price undercutting, we must also 
consider Article 6.5 of the SCM Agreement, which provides: 
"For the purpose of paragraph 3(c), price undercutting shall include any case in which 
such price undercutting has been demonstr ated through a comparison of prices of the 
subsidized product with prices of a non-subs idized like product supplied to the same 
market.  The comparison shall be made at the same level of trade and at comparable times, due account being taken of any other factor affecting price comparability.  However, if such a direct comparison is  not possible, the existence of price 
undercutting may be demonstrated on the basis of export unit values." 
Mirroring its argument in respect of the relationshi p between Articles 6.3(b) and Article 6.4 of the 
SCM Agreement, the European Co mmunities asserts that the use of the term "non-subsidized like 
product" in Article 6.5 means that a claim of price undercutting may only be made out if the 
complaining Member can demonstrate that its lik e products do not benefit from any subsidy.  The 
European Communities argues that Boeing benefits from subsidies provided to the United States LCA 
industry and, consequently, that the United States cannot demonstrate price undercutting as a matter 
of law.  The United States raises the same objections  to the European Communities' view as it did in 
connection with the interpretation of Article 6.4.
5327   
 7.1799  The argument advanced by the European Comm unities raises essentially the same question 
we addressed above with respect to the relationship between Articles 6.3(b) and 6.4, and in our view, 
the same result should be reached.
5328  Thus, and for the same reasons as discussed above, we do not 
consider that Article 6.5 sets forth the exclusiv e means by which serious prejudice in the form of 
significant price undercutting can be demonstrated.  Rather, in our view, Article 6.5 sets out a particular set of circumstances in which price unde rcutting can be found without  further consideration 
of whether the price difference is the effect of th e subsidy.  That case is the one in which the like 
product of the complaining Member is not subsidi zed, and a comparison of prices (at the same level 
and at comparable times, taking due account of any other factor affecting price comparability) shows 
the subsidized product price to be lower than the price of the non-subsidized like product.   
7.1800  In this dispute, the United States' claim of significant price undercutting is based on anecdotal 
evidence concerning particular sales campaigns, which it asserts demonstrates that the prices of Airbus LCA sold in those campaigns were below th e prices offered by Boeing.  However, the United 
States does not stop there, but goes on to assert that th e lower prices offered by Airbus are an effect of 
                                                     
 
5326 US, FWS, para. 776. 
5327 See, discussion of the parties' arguments in this regard at paragraphs 7.1762 through 7.1764 above. 
5328 See, paragraphs 7.1765 through 7.1771 above.  WT/DS316/R 
 Page 909 
 
BCI deleted, as indicated [***] 
 
  the subsidies.  Thus, in our view, the United States has not sought to rely on the special circumstances 
set out in Article 6.5.  Therefore, if the evidence demonstrates that the price of Airbus LCA was lower 
than the price of Boeing LCA, we will go on to cons ider whether this demonstrates significant price 
undercutting, and if so, whether such price undercutti ng is the effect of the subsidies in dispute. 
7.1801  The United States supports its claims of si gnificant price undercutting and lost sales 
principally by reference to various sales campaigns.  In particular, the United States asserts that in 
sales campaigns involving purchases of LCA by easyJet, Air Berlin, Air Asia, Iberia, Czech Airlines, 
South Africa Airways, Thai Airways, Singapore, Emirates and Qantas, customers evaluated competing bids from Airbus and Boeing, and chose the Airbus LCA offered over the equally qualified 
LCA offered by Boeing.  According to the United  States, these sales were captured by Airbus 
"primarily by significantly undercu tting the price offered by Boeing."
5329  However, the United States 
also argues that Airbus won the sales because it was ab le to present a particular model of Airbus LCA 
with particular features at the time of the sales campaign.5330  The United States argues that any non-
price factors which may have been relevant to t hose sales were monetized by both the manufacturers 
and the customers, such that when the customer made  its decision, all such factors were incorporated 
into the price offered by the manufacturer for the pa rticular model in question.  In other words, the 
United States considers that a customer's monetizati on of non-price factors means the customer is able 
to determine which LCA model offers the lowest pr ice, taking into due account all relevant factors 
affecting comparability.  To this extent, the Unite d States argues that non-price factors do not break 
the causal link between prices and lost sales. 
7.1802  The European Communities does not dispute that  in the sales campaigns identified by the 
United States, Boeing "lost" the sales in question, in the sense that it did not succeed in selling its 
LCA to the customer in question.  However, it consid ers that the sales were lost for reasons other than 
price.  In the European Communities' view, Boeing's failure to make certain sales was not the result of 
significant price undercutting on the part of Air bus but, rather, was due to Boeing's customer 
mismanagement and the perceived benefits of the par ticular Airbus product offered.  According to the 
European Communities, Airbus sales campaigns  were successful because Airbus LCA offered 
operating advantages to the carriers at issue a nd, especially during the period 2001-2004, because 
Boeing allegedly failed to focus on customer relations.5331  In respect of campaigns where there is 
evidence of aggressive price competition, the Europ ean Communities argues that this is the result of 
competition which was often aggressive for strategi c or economic reasons (especially following the 
collapse of aircraft demand during the 2001 to 2003 period).  According to the European 
Communities, these factors not only demonstrate that there was no price undercutting, but further, that the lost sales cannot be considered to  be an effect of the subsidies. 
The Sales Campaigns
 
easyJet 
7.1803   The United States asserts this was the largest  single lost sale for Boeing during the period 
2001 to 2005.  According to the United States, ea syJet was an exclusivel y Boeing customer until it 
                                                      
5329 US, FWS, para. 776.   
5330 US, SWS, paras. 708-09, US, Answer to Panel Question 54, paras. 307-09. 
5331 The European Communities relies, inter alia , on the following statement in support of this 
argument, EC, FWS, para. 1465: 
"As I mentioned, last year there were two large orders that Airbus may have won on pricing 
alone.  In both instances Boeing was the incu mbent and lost out to Airbus.  I'm not sure 
pricing was the whole issue."  
The European Communities attributes this statemen t to Henry Stonecipher, former CEO of Boeing.  
However, the source of the statement, Exhibit EC-287, clear ly attributes it to a J.B. Groh, a market analyst with 
D.A. Davison & Co.   WT/DS316/R 
Page 910  
BCI deleted, as indicated [***] 
 
  announced, on 14 October 2002, an order for 120 Airbus A319s with options for 120 more.
5332  
Following the announcement, a number of reports in the media, quoting senior officials, suggested that the company's decision was attr ibutable to the lower price offered by Airbus.  A report in the 
Financial Times stated that Stelios Haji-Ioannou, the founder of easyJet:  
"said the price difference between the bids  left the company with no choice: "The 
difference was so substantial we would have been in breach of our fiduciary duty; it 
would have been an offence to buy Boeing.""
 5333 
The same article quoted easyJet CEO Ray Webster as sayi ng that "it surprised all of us to see just how 
aggressive Airbus was in the final round of sealed bids".5334  Similarly, another article reported that 
easyJet CEO Ray Webster stated that speculation th at Airbus won the sale by offering a 60 percent 
discount off list prices "is 'a bit ambitious, but not far off.  .  .  .  I've been buying aircraft for 20 years and I've never seen anything like it.'"
5335 
 7.1804  The United States also refers to public di sclosures by the company which, it asserts, 
demonstrate a substantial discount off the list price for the A319 of 56 percent as of January 2001.  
For instance, easyJet's 2005 annual report states that the only aircraft delivered to it in 2005 were 12 A319s, for which it paid GBP 167.7 million, a per-aircraft price of GBP 13.98 million.  The United States asserts that, according to easyJet, this  is the actual price, net of concessions, paid to 
Airbus in 2005, based on an order placed in 2001 US dollars.  The delivery price of 
GBP 13.98 million in 2005 British pounds sterling thus  corresponds to an estimated order price of 
$19.36 million in 2001 US dollars – a discount of 56 percent off the $44 million list price for the 
A319 as of January 2001.
5336  In addition, the United States asserts that not only did Airbus discount 
the price of each aircraft sold to easyJet by more than 50 percent, it also granted additional 
concessions to offset the cost to easyJet of switchi ng its fleet from Boeing to Airbus.  The letter from 
easyJet to its shareholders seeking approval of th e transaction spells out some of these concessions.5337   
Finally, the United States asserts that easyJet estimated  that the per-seat cost of the Airbus A319 to be 
about one-third lower than the per-seat cost of th e Boeing 737 it had purchased just two years earlier, 
a price that easyJet calculated meant that the deal would reduce its overall operating costs by 
10 percent.5338  The United States asserts that this eviden ce demonstrates that Airbus won the easyJet 
sale by undercutting the price offered by Boeing.5339   
7.1805  The European Communities does not deny that Bo eing lost this sale to Airbus, but argues, 
based on HSBI, that the reason was not the price of the Airbus LCA involved.  The European 
Communities asserts that the easyJet sale was profitable to Airbus, and "cash positive".5340  T h e  
European Communities asserts that  there is no evidence to suppor t the United States' contention 
                                                      
5332 US, FWS, para. 779.  EasyJet exercised 20 options in 2005, 91 of the LCA ordered had been 
delivered by 31 December 2006, and delivery of  the remaining LCA had been scheduled.   
5333 Colin Baker, Easy Does It , Airline Business (1 December 2002), Exhibit US-408.   
5334 Kevin Done, Airbus Beats Boeing in Warover Big Order , Financial Times (15 October 2002) 
Exhibit US-407. 
5335 Colin Baker, Easy Does It , Airline Business (1 December 2002), Exhibit US-408.   
5336 US, FWS, paras. 780-781, citing easyJet plc, Annual Report and Accounts 2005, Exhibit US-409 at 
19 and 67, and easyJet, Proposed Purchase of Airbus Aircraft and Notice of Extraordinary General Meeting  
(25 February 2003) at 7, http://www.easyjet.com/EN/News/20030225_01.html , Exhibits US-380 and US-402. 
5337 US, FWS, para. 782, citing easyJet, Proposed Purchase of Airbus Aircraft and Notice of 
Extraordinary General Meeting  (25 February 2003), Exhibit US-380 at 4.   
5338 US, FWS, para. 783, citing easyJet, Proposed Purchase of Airbus Aircraft and Notice of 
Extraordinary General Meeting  (25 February 2003), Exhibit US-380, at 2, 4 and 8. 
5339 See, US, Answer to Panel Question 236, para. 66 and evidence cited therein. 
5340 EC, FWS, para. 1877.  Merely that a sale was prof itable does not demonstrate that there was not, in 
our view, demonstrate that there was no price undercutting.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  except the reported statement of Ray Webster refe rring to a 60 percent discount and other concessions 
to offset the cost of switching from Boeing to Airbus.  The European Co mmunities argues that the 
reported 60 percent discount is false, and contends  that the Airbus price was competitive, but not 
discounted to that level.5341  Moreover, the European Communiti es asserts that Airbus was unwilling 
to offer final concessions sought by easyJet that w ould have "deteriorate{d} the deal to unacceptable 
level",5342 despite its importance to Airbus.  Accordi ng to the European Communities, "even if low 
prices caused Boeing to lose {the} sale, this was not caused by subsidies, given their asserted low 
magnitude".5343  Moreover, the European Communities notes th at this sale took place at a time when 
demand for LCA had collapsed, and asserts that bot h Airbus and Boeing offered "more competitive 
pricing" at this time in an attempt to stimulate demand.5344  The European Communities also argues 
that the earlier Boeing sale to Ryan air, which Boeing secured some 10 months earlier, allegedly by 
making an "exceptionally competitive offer",5345 must be taken into account as well.  The European 
Communities asserts that Airbus competed strongly for that sale, and believed it had won it, but the 
sale actually went to Boeing.5346  In this circumstance, the easyJet sale became even more important 
for Airbus to establish its presence with the expandi ng low-cost carriers.  The European Communities 
argues that the Ryanair price infl uenced Airbus' offer to easyJet.5347 
7.1806  Having reviewed the information regarding this sales campaign, much of which is HSBI and 
thus cannot be disclosed in this report, we conclude  that it is broadly consistent with the published 
statement of easyJet's founder concerning the sale.5348  The European Communities refers to other, 
"non-price" factors which allegedly supported Airbus' offer.5349  It is clear that Airbus sought to 
compete on the grounds that its product offering was superior,5350 but Airbus itself recognized the 
importance of price to its offer.5351  While the HSBI suggests that levels of discounting did not 
approach the 60 percent discount referred to, it is apparent that price discounts were provided.5352  
Evidence before us, including HSBI, indicates that th e Airbus' price advantage was, ultimately, the 
determining factor in its securing this sale.5353  However, that price advantage does include a number 
of elements, such as maintenance cost guarantees, technical dispatch reliability and residual value 
guarantees, and training support, which may be what the European Communities refers to as "non-price" factors.
5354 
Air Berlin 
7.1807  On 4 November 2004 Air Berlin announced an order for 60 A320s.  The United States alleges 
that, after the easyJet sale, Airbus again undercut Bo eing's price in the campaign at Air Berlin and its 
Austrian affiliate, NIKI, which led Boeing to lose that sale for 70 firm orders.  The United States 
                                                      
5341 EC, FWS, para. 1875, citing Exhibit EC-431 (HSBI). 
5342 EC, FWS, para. 1877, citing Exhibit EC-432 (HSBI). 
5343 EC, FWS, para. 1878. 
5344 EC, FWS, para. 1880. 
5345 EC, FWS, para. 1881. 
5346 EC, FWS, para. 1882. 
5347 EC, FWS, para. 1883-1884. 
5348 The European Communities also disputes the implication that the loss of the 2002 easyJet sale 
precluded Boeing from obtaining later sales, including one in which Airbus sold 52 A319s to the company in 
2006.  EC, FWS, para. 1899.  As the United States has not specifically argued this latter as a lost sale, we do not 
consider it further. 
5349 EC, FWS, paras. 1890-91, Exhibits EC-438, EC-436 (HSBI). 
5350 Exhibit EC-436 (HSBI). 
5351 Exhibit EC-436 (HSBI). 
5352 Exhibit EC-431 (HSBI). 
5353 US, FWS, paras. 780-783, citing Exhibits US-408, US-409, US-380, US-410, and US, SWS, Final 
Redacted Version Appendix, paras. 14 and 16;  Exhibit US-619 (HSBI);  Exhibit US-620 (HSBI). 
5354 US, FWS, para. 782. WT/DS316/R 
Page 912  
BCI deleted, as indicated [***] 
 
  notes that during the sales campaign, Air Berlin executives were quoted as saying that "the total 
package offered by Boeing and Airbus, including the price of the planes and how to finance them, would determine who won the competition".
5355  In addition, Air Berlin managing director Joachin 
Hunold stated that "{p}rice is always an issue, but we also looked at the delivery schedule that was 
possible and at financing."5356  Air Berlin, like easyJet, had operated only Boeing LCA until this 
campaign, and the United States alleges that, as in the case of easyJet: "{a}ccording to people familiar 
with the deals, Airbus trumped Boeing by offering  steep discounts and other financial guarantees that 
{Boeing} was unwilling to match." 5357   
7.1808  The European Communities argues that Boeing, rather than Airbus, pushed down prices in 
this campaign and that Boeing did not lose this cu stomer because Airbus lowered prices but because 
Boeing mismanaged customer relations, and imp lies that Airbus merely made a good offer.5358  The 
European Communities argues that Ai rbus securing the Air Berlin order was a surprise, in view of the 
fact that it had been a Boeing launch customer in  1994 for the 737-800.  However, according to the 
European Communities, Air Berlin officials were  unhappy with Boeing's insistence on maintaining 
price levels for the final aircraft delivered from the 1994 order, and had complained about production 
delays and errors, damaged airc raft, and eroding customer support.5359  Relying on HSBI evidence, the 
European Communities argues that the United States' argument that Boeing was "unwilling to match" 
Airbus' final offer is untrue.5360  Rather, the European Communities argues, it was Boeing that pushed 
prices down, a view that is contradicted by th e United States, also relying on HSBI evidence 
submitted by the EC.5361 
7.1809  While the European Communiti es asserts that Air Berlin were unhappy with Boeing's 
business and production practices,5362 the evidence before us, incl uding HSBI evidence, clearly 
indicates that pricing was a crucial element in this  sales campaign, with Airbus seeking to sell to a 
customer that seemed unhappy with Boeing, and ma king a very competitive offer in order to do so.5363  
The evidence indicates that there were a numb er of proposals from both Airbus and Boeing5364 
including a [***] from Boeing,5365 but the sale was ultimately won by Airbus. 
Czech Airlines 
7.1810  On 6 April 2005 Czech Airlines signed a purchase agreement with Airbus for the delivery of 
six A319 and six A320 aircraft.  In support of its  proposition that Airbus won this sale due to 
significant price undercutting, the United States cites the following: 
"CSA strategic director Jan Vana explained:   "Both offers met all of our technical 
specifications without exception.  But Airbus offered the better price"".5366 
The United States also points to a public statement in which the president of CSA, Jaroslav Tvrdik, 
gave more details about CSA's decision, stating th at Boeing's offer was "truly super and lucrative 
                                                      
5355 James Wallace, Boeing Loses Huge Air Be rlin Jet Order to Airbus , Seattle Post-Intelligencer 
(5 November 2004), Exhibit US-411. 
5356 Id. 
5357 US, FWS, para. 785, citing Exhibit US-412. 
5358 EC, FWS, para. 1910. 
5359 EC, FWS, para. 1903. 
5360 EC, FWS, para. 1908, Exhibit EC-449 (HSBI). 
5361 US Full Version Appendix, paras. 21-22, citing Exhibit EC-447 (HSBI). 
5362 EC, FWS, para, 1903. 
5363 Exhibit EC-443 (HSBI). 
5364 Exhibit EC-447 HSB1. 
5365 Exhibit EC-253 (HSBI), EC-449 (HSBI). 
5366 Dow Jones Newswire (15 October 2004), Exhibit US-424.    WT/DS316/R 
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  {and} hard to refuse," but explaining that the Air bus bid, evaluated for the net present value of the 
various cash flows involved, was more than 100 million Czech crowns ($4 million) less than Boeing's offer.
5367  According to the United States, that "better" Airbus price included a number of additional 
bonuses by which, Mr. Tvrdik explained, "Airbus is going to cover our transition costs."  These 
included a free training simulator worth 250-300 milli on Czech crowns ($10-12 million) to be used to 
train CSA pilots and pilots of other airlines on Ai rbus equipment, extensive customer service, spare 
parts at favourable prices and additional services,  such as air crew training.5368 
 7.1811  The European Communities argues that this sale was won by Airbus largely based on political 
considerations, referring to a dispute between th e Czech government and Boeing with respect to a 
state-owned company, Aero Vodochody.  In 1997, Boeing had acquired 35 percent of Aero 
Vodochody, with effective management control.  The expectation was that Boeing would help the 
company improve technology and make sales abroad.  According to the European Communities, the 
company struggled, and in January 2004, the Czech Republic had "threatened to renew the fleet at 
state-held carrier CSA with rival Airbus".
5369  It appears, on the basis of HSBI, that CSA was willing 
to make a decision regarding its fleet on the basi s of considerations other than fleet structure.5370   The 
European Communities contends that the situation was exacerbated after Czech entry into the EU, 
when it was suggested it would be more advantag eous to cooperate with European aerospace 
manufacturers than with Boeing.5371  The European Communities argues that Airbus benefited from 
these political obstacles to Boeing's e fforts to secure this sale, and th at price was not the basis for 
Airbus' success in securing the sale.5372  The European Communities also points to considerations with 
respect to the engines for the aircraft as a relevant factor in Airbus' securing this sale.5373 
7.1812  The United States notes that, despite the Europ ean Communities' focus on political and other 
considerations, it does not dispute the veracity of th e statement that Airbus offered a better price, and 
asserts that the European Communities' arguments on price are of little import.5374   
7.1813  It appears, on the basis of th e evidence before us, including HSBI evidence, that CSA was 
willing to make a purchase decision on the basis of el ements other than the existing fleet structure, 
which might have argued for the purchase of Boeing LCA.5375  While there is evidence which 
suggests that CSA was not well inclined towards Boeing, and HSBI evidence regarding other factors 
relevant to this sale5376, we note that there is evidence that Airbus did offer the better price.5377   
Air Asia 
7.1814  On 25 March 2005 Air Asia announced that it had signed a purchase agreement for 60 A320 
aircraft, and taken options  for an additional 40 LCA.5378  In support of its price undercutting claim, the 
                                                      
5367 US, FWS, para. 795, citing Jan Cizner, Tvrdik: Airbus Gave Us a More Attractive Offer , Mlada 
Fronta Dnes (21 October 2004) (translated), Exhibit US-425. 
5368 US, FWS, para. 795, citing Jan Cizner, Tvrdik: Airbus Gave Us a More Attractive Offer , Mlada 
Fronta Dnes (21 October, 2004) (translated), Exhibit US-425. 
5369 EC, FWS, para. 1915, citing "Czech CSA Warn s may Drop Boeing Over  Aero Unit Woes," 
Reuters, 19 January 2004, Exhibit EC-456. 
5370 Exhibit EC-458 ( (HSBI)) 
5371 EC, FWS, para. 1916. 
5372 EC, FWS, para. 1918, citing Exhibit EC-425 (HSBI). 
5373 EC, FWS, para. 1919. 
5374 US Full Version Appendix to SWS, para. 27. 
5375 Exhibit EC-458 (HSBI). 
5376 EC, SWS, para, 1919 (HSBI). 
5377 Exhibit US-424. 
5378 EC, FWS, para. 1901. WT/DS316/R 
Page 914  
BCI deleted, as indicated [***] 
 
  United States quotes a media report indicating that Boeing was not prepared to match the price 
offered by Airbus:  
"People familiar with the Air Asia nego tiations said Boeing hadn't stopped trying to 
sway the airline but one person said 'Boeing isn't willing to do a deal at any price' 
indicating Airbus is charging far less than Boeing is willing to accept ."
5379 
7.1815  The European Communities argues, in the first instance, that Boeing's failure to win this sale 
was due to its allegedly "arrogant" and "inflexible" negotiating positions,5380 which it says was 
acknowledged by Lewis Platt, former Bo eing co-chairman in an interview: 
"We got into a mode where words like arroga nt were used, or inflexible.  I went 
around and visited a lot of customers and I had two or three of them – and one 
especially larger order (AirAsia) that went to Airbus.  And I sat down with the CEO 
and he described the process and I always figured that we lost it on price.  He said you guys just did not pay attention to us.  He said they wanted to get a couple of airplanes quickly and (Boeing) said it would not happen."
5381 
The European Communities also argues that while it was losing the campaign because of its attitude 
to customers, Boeing was also offering aggressive pricing, and that Boeing, not Airbus, was the 
driving force in terms of pricing.  Moreover,  the European Communities alleges that Boeing 
repeatedly undercut Airbus' price, and disputes th e United States' argument regarding price escalation 
caps offered by Boeing.5382  The European Communities acknowledges [***].5383  The European 
Communities refers to the statement of Christian Scherer that [***], apparently considering that an 
offer that [***] somehow cannot be found to undercut a competito r's price.  Of course, this is not the 
case, and there is no basis in either la w or fact for such an implication. 
 7.1816  The United States disputes the European Comm unities' contentions regarding the alleged 
concern cause by Boeing's attitude
5384 and presents evidence indicating that price was a critical 
consideration for AirAsia.5385 
7.1817  We have reviewed the HSBI evidence, which suggests that at various times in the sales 
campaign, both Boeing and Airbus were perceived as making the most aggressive offer.  The evidence also indicates, however, that price was a criti cal consideration and that at the end of the day, 
AirAsia chose Airbus because its offer w as perceived to be better than Boeing's.
5386 
Iberia 
7.1818  On 31 January 2003, Iberia announced the purchase of five Airbus A340-600s over 
competing Boeing 777-300ERs.5387  The United States supports its claim of price undercutting in this 
sale with reference to an Iberia  press release, announcing that the company was "taking advantage of 
exceptional terms" offered by Airbus."5388  The United States alleg es that these "extraordinary 
                                                      
5379 Airbus to Beat Boeing Again , Wall St. Journal (8 November 2004), Exhibit US-412. 
5380 EC, FWS, para. 1925. 
5381 Boeing Will Do What It Takes , Seattle Post Intelligencer, (15 June 2005), Exhibit EC-464. 
5382 EC, FWS, para. 1926, citing Exhibits EC-468 and 469 (HSBI). 
5383 EC, FWS, para. 1929. 
5384 US Full Version Appendix to SWS, pa ra. 24, citing Exhibit US-623 (HSBI). 
5385 US Full Version Appendix to SWS, pa ra. 23, citing Exhibit US-622 (HSBI). 
5386 Exhibit US-622 (HSBI). 
5387 EC, FWS, para. 2094. 
5388 Iberia Press Release, Iberia opta por Airbus para. la renovación de su flota B-747  
(30 January 2003), Exhibit US-415, ("aprovechar unas condiciones excepcionales").  In addition to the Press  WT/DS316/R 
 Page 915 
 
BCI deleted, as indicated [***] 
 
  conditions" were the decisive factor in the sale.5389  The United States also asserts that Airbus used 
residual value guarantees to undercut Boeing's price offer.5390 
7.1819  The European Communities disputes the United Stat es' contentions, and in particular asserts 
that the B777 and A340 aircraft in contention for this order were not equa lly qualified for Iberia's 
needs.  According to the European Communities,  the A340 had a significant performance advantage 
in this campaign with respect to operations at  hot, high altitude airports served by Iberia.5391  T h e  
European Communities also cites fleet  commonality as an important factor.5392  In addition, the 
European Communities indicates that Iberia sought  price discounts to purchase the "white tail" 
aircraft being offered by Airbus, which were LCA originally ordered by Swissair and left without a 
purchaser when the latter went bankrupt and on which [***].5393 Iberia ultimately agreed to take 
delivery of three such aircraft, which ha d been built to Swissair's specifications. 
7.1820  The United States disputes the European Comm unities' argument concerning the alleged 
performance advantage of the A340 in this campaign, relying on HSBI.5394  In addition, the United 
States maintains that price did play an  important role in the Iberia sale.5395 
7.1821  The information before us does suggest that Iberia  considered that Airbus aircraft were better 
suited to operations at the hot, high altitude airports  which were prime Iberia markets, and that this 
meant that the company favoured those aircraft.5396  However, the relevance and extent of any A340 
overall stand-alone operational advantage is  brought into question by other HSBI.5397  While it 
appears that Iberia did consider that there were  advantages to purchasing Airbus LCA, stemming from 
commonality with its existing Airbus fleet,5398 HSBI evidence also indi cates that price was an 
important element in this sale.5399 It also seems clear that having the white-tail aircraft which had been 
ordered by the bankrupt Swissair ( [***])  available to offer to Iberia was important to Airbus' price 
offer.5400 
South African Airways 
7.1822  On 19 June 2002 South African Airways ("SAA") announced the purchase of 12 A340, 
11 A319 and 15 A320 aircraft.5401  The United States notes that, despite having recently ordered 
                                                                                                                                                                     
Release the United States points to a Wall Street Journal Ar ticle which also suggests that Airbus won the sale, at 
least in part due to pricing: 
"Airbus nosed ahead thanks to its planes' lower pr ices and common design with the rest of Iberia's 
fleet.  By offering guarantees on the planes' future value and maintenance costs, plus attractive financing terms, 
Airbus edged out Boeing's aggressive package.  The deal's final financial terms remain secret. 
At Airbus, Mr. Leahy {head of sales} was relieved, but he faced one last slap.  Iberia's news release 
crowed about Airbus's {residual} price guarantees on the planes – a detail that Mr. Leahy considered 
confidential.  Iberia's Mr. Dupuy said he wasn't rubbing it in.  But he had, he boasted, won "extraordinary conditions." 
Wall St Journal (10 March 2003), Exhibit US-416. 
5389 US, FWS, para. 788. 
5390 US, FWS, para. 789. 
5391 EC, FWS, para. 2095. 
5392 EC, FWS, para. 2096. 
5393 EC, FWS, para. 2097-98, statement of Christian Scherer, Exhibit EC-14 (BCI) at para. 28 
5394 US Full Version Appendix to SWS, paras.  31-33, citing Exhibits US-628-629 (HSBI). 
5395 US Full Version Appendix to SWS, pa ra. 30, citing Exhibit US-626 (HSBI). 
5396 Aircraft Economics, March 2001 (Exhibit EC-493). 
5397 Exhibit EC-494 (HSBI); Exhibit US-628 (HSBI). 
5398 Exhibit EC-494 (HSBI). 
5399 Exhibit US-626 (HSBI). 
5400 EC, FWS, para. 2098.   
5401 EC, FWS, para. 2100. WT/DS316/R 
Page 916  
BCI deleted, as indicated [***] 
 
  21 Boeing 737s in order to operate an all-Boeing fleet,
5402 SAA decided to switch to Airbus with this 
order.5403   The United States contends that Airbus was eager to offer a "heavy discount" on its 
A340s.5404  The United States also cites a SAA repor t in which the company described the LCA it 
bought from Airbus as "aggressively priced."5405  As in the Iberia sale, certain of the planes purchased 
by SAA were white-tail aircraft originally destined for Swissair.5406 
7.1823  The European Communities asserts that, as in th e sale to Iberia, a key reason Airbus won the 
SAA order was the superior operating performance of  the A340 in hot, high altitudes, and that the 
failure of the Boeing 777 in performance tests in 2002 damaged its credibility.  HSBI suggests that the 
A340 did present certain performance advantages, but also indicates the need for aggressive 
pricing.5407  The European Communities also argues that Boeing had lost SAA's trust by its 
mishandling of an earlier sale of 737NG aircraft, wh ich led the company to decide to replace its 737 
aircraft with A320s.5408  The European Communities alleges that  the "heavy discounts" referred to are 
attributable to the fact that some of the LCA were white-tail aircraft, [***].5409   
7.1824  The United States asserts that the price differen tial was clearly an important aspect of this 
sale5410 and relies on general information about airc raft performance to rebut the European 
Communities' arguments concerning performance advantages of the A340.5411  W h i l e  w e  d o  n o t  
discount the importance of performance advantages,  which the United States does not specifically 
rebut in this instance, unlike in the case of the Iber ia sale, HSBI also indicates the significant role of 
pricing, including [***], in the sale.5412  
Thai Airways International 
7.1825  In 2003 Thai Airways ordered three A340-500s and five A340-600s.5413  In support of its 
significant price undercutting claim the United Stat es cites media reports noting "special price 
concessions" of USD 7 million each, "extra credits" of USD 9.75 million for each A340-500 and USD 10.25 million for each A340-600 as well as an existing aircraft subsidy phase out.
5414  
7.1826  The European Communities argues that Airbus' pr icing was not a competitive factor in this 
campaign, and asserts that the sales campaign evid ence demonstrates that Airbus was not competing 
against Boeing in this sales campaign.5415  In addition, the European  Communities argues that Thai 
                                                      
5402 South African Airways, Group Audited Results, Year Ending 31 March 2002, available at 
http://ww4.flysaa.com/results/march2001/ results_02.html (describing SAA's fl eet as consisting of 62 in-service 
Boeing LCA, with five on order, afte r the airline "completed the disposal of  its Airbus fleet as a result of the 
upgrade to new Boeing 737-800's.") Exhibit US-417 at 2. 
5403 US, FWS, para. 791. 
5404 Boeing, Airbus Projections for 2003 May Be Too Rosy , Airline Financial News (Sept.  9, 2002), 
Exhibit US-418. 
5405 South African Airways, Group Audited Results, Year Ending 31 March, 2002, at 2, Exhibit US-417 
at 2.   
5406 See, EC, FWS, para. 2106, (HSBI). 
5407 EC, FWS, paras. 2101-02, citing Exhibits EC-498, 499, 501 (HSBI). 
5408 EC, FWS, paras. 2104-05. 
5409 EC, FWS, para. 2106 
5410 Exhibit US-627 (HSBI). 
5411 US Full Version Appendix to SWS, para. 33. 
5412 Exhibit US-627 (HSBI). 
5413 EC, FWS, para. 2108. 
5414 US, FWS, para, 792. 
5415 EC, FWS, para. 2109, citing, Statement of Christian Scherer, Annex I, Exhibit EC-14, (BCI).  We 
have rejected the definition of "competitive" sales campaign on which this assertion relies, see para. 7.1722 
above, and thus, we do not accept th e view that Airbus did not compet e for this sale on the basis of 
Mr. Scherer's statement.    WT/DS316/R 
 Page 917 
 
BCI deleted, as indicated [***] 
 
  Airways was looking for LCA to operate on ultra-long -range flights to the United States, and that the 
A340-500/600 was the only ultra-long-range aircraft  in production at the time  of the Thai Airways 
sales campaign, and thus could be delivered before  the newly launched Boeing 777-200LR.  This is 
not contested by the United States, which respond s by arguing that the availability of the A340-
500/600 prior to the Boeing aircraft is, itself, an effect of the subsidy.5416   
7.1827  While we do not agree that there was no comp etition between Boeing and Airbus for this 
sale5417, it does appear, given the timing of this campaign, that the only LCA that met Thai Airways' 
operational needs in production at the time the sal e was concluded was the A340-500/600.  Thai 
Airways would have had to wait some period of tim e for the Boeing LCA, the 777-200LR, that would 
meet those needs, to become available. 
Singapore Airlines, Emirates Airlines, Qantas 
7.1828  Each of these airlines placed orders for th e new Airbus A380 in 2000 and 2001 as initial 
launch customers.  The United States alleges that the orders were made despite Boeing's offer of the 747-X, a proposed redesign of the 747.  The United States alleges that the 747-X was not launched 
because it could not find sufficient initial customers in competition with the A380.
5418  The United 
States argues that the prices offered on these A380 orde rs were so low that the impact of subsequent 
delays in delivering the A380 turned them into loss-making contracts.5419  Indeed, according to the 
United States, Airbus offered the A380 at low pric es compared to those being offered by Boeing on 
the original versions of the 747.5420  Thus, the United States argues that the competition from low-
priced A380 LCA was the reason the 747-X was not launched.   
7.1829  According to the European Communities, Singa pore Airlines, Emirates Airlines and Qantas 
each ordered the A380 not because of its price, but because it offered unique advantages in seating 
capacity, range, and operating economics not availa ble from any competing LCA Boeing could then 
offer.5421  The European Communities argues that the terms of sale were consistent with the [***] and 
normal practice for orders by initial launch customers.5422  The European Communities dismisses the 
United States' allegations regarding the offer by Boeing of a competing redesign of the 747, the 747-
X, that would have offered similar capabilities.  The European Communitie s asserts that the 747-X 
was not a serious competitive effort, alleging that Boei ng's proposal of several different variants of the 
747 over the period 1996 to 2006 da maged its credibility in claiming that it intended to launch an 
LCA directly competitive with the A380.5423  According to the European Communities, Boeing never 
seriously considered launching such an aircraft,5424 but rather proposed it only to dissuade Airbus 
from proceeding with the A380 project.5425   
7.1830  Turning to the specific orders, the European  Communities contends that Emirates never 
considered the Boeing re-design of the 747 in competition with the A380,5426 asserting that Emirates 
sought information on the 747X only after  it made its commitment to Airbus regarding the A380.5427  
                                                      
5416 US, SWS, HSBI Appendix, para. 29 
5417 See, footnote 5415 above. 
5418 US, FWS, para. 793. 
5419 US, FWS, para. 794. 
5420 US, SWS, para. 718. 
5421 EC, FWS, para. 1701. 
5422 EC, FWS, para. 1703, citing Exhibit EC-362 (HSBI). 
5423 EC, FWS, para. 1680. 
5424 EC, FWS, para. 1678. 
5425 EC, FWS, 1681-82.   
5426 EC, FWS, para. 1707-09, Exhibits EC-363-64. 
5427 EC, FWS, para. 1708, citing " Boeing and Emirates Correspond About 747X, 400X ," Reuters, 
2 July 2000, Exhibit EC-368. WT/DS316/R 
Page 918  
BCI deleted, as indicated [***] 
 
  Thus, according to the European Communities, produc t characteristics explain this order, and price 
was not a deciding factor.
5428  With respect to Singapore Airlin es, the European Communities argues, 
based on HSBI, that the proposed 747-X was not a serious competitive offer by Boeing, and was 
never considered as such by the airline.5429  Regarding Qantas, the European Communities alleges that 
it ordered the A380 because it offered the airline uniqu e growth capabilities that could not be matched 
by the 747-X.5430  The European Communities cites factor s other than price as key, relying on 
HSBI.5431 
7.1831  In response, the United States asserts that th e contention that Boeing could not offer an 
aircraft that could compete with the A380 has al ready been disproven by events, referring to the 
delays in A380 deliveries as demonstrating that Bo eing would have sold more LCA if the European 
Communities and the Airbus governments had not pr ovided subsidies to bring the A380 to market.5432  
In this regard, the United States cites a recent st atement by the CEO of Singapore Airlines, stating 
"Boeing 777-300ERs, in our experience, would be a u seful alternative to A380s.  ...  We could upsize 
the order if there are furt her delays with the A380."5433  The same article noted that other carriers, 
including Emirates and FedEx, have also turned to the 777 to replace the delayed A380.  The United 
States points out that the European Communities ac knowledges that factors such as seating capacity 
are routinely "monetized" in sales campaigns and, to  the extent practicable, can be offset by price 
concessions, with the result that even if the A380 may be better suited to a par ticular airline's business 
plan than a smaller plane like the 777, the tw o aircraft can – and do – fly the same routes.5434  Thus, 
the United States maintains, it is simply not th e case that airlines like Emirates Airlines, Singapore 
Airlines, or Qantas were indifferent to the price of the A380 compared to the price of other aircraft 
that could fly the same routes, and reiterates that  Airbus was offering the A380 at very low prices 
compared with the 747.5435  
7.1832  While it is clear that the A380 offered unique characteristics to these airlines, we do not agree 
that it did not compete with the 747.  Informati on in the A380 business case contradicts the European 
Communities' position in this regard.5436  That evidence also supports the United States' view with 
respect to the competitive pricing of the A380: [***].5437 Thus, while we do not discount the 
importance of the specific characteristics of the A380 , the evidence also indicates the significant role 
of pricing in these sales. 
Overall Assessment of the sales campaigns evidence  
Significant Price Undercutting 
7.1833  A principal difficulty in assessing the United States' claim of significant price undercutting in 
this dispute is that it is not at all clear to us th at the anecdotal evidence discussed above constitutes an 
appropriate or reliable evidentiary basis for draw ing conclusions about price comparison, which are 
the basis for a finding of significant price undercutti ng under article 6.3(c) of the SCM Agreement.  
For the most part, the transaction prices of LCA sold in these campaigns are not available for 
                                                      
5428 EC, FWS, para. 1717. 
5429 EC, FWS, paras. 1710-19, citing Exhibits EC-370, 373 - 376 (HSBI), 
5430 EC, FWS, para. 1720. 
5431 EC, FWS, para. 1721, citing Exhibit EC-379 (HSBI).   
5432 US, SWS, para. 717. 
5433 Singapore Airlines may buy more Boeing 777s , Int'l Herald Tribune (10 December 2006), 
Exhibit US-611. 
5434 US, SWS, para. 719, referring to Statement of Christian Scherer, para. 69, Exhibit EC-14. 
5435 Referring to US, FWS, paras. 793-794 (citing and quoting sources), US, FCOS, para. 63 (citing 
Exhibit EC-362 at 18 (HSBI)). 
5436 Exhibit EC-362 (HSBI), pp. 5, 6, 13, 17, 19. 
5437 Exhibit EC-362 (HSBI) p. 19.  See, Id.  at pp. 5 & 17 ( [***] ).  WT/DS316/R 
 Page 919 
 
BCI deleted, as indicated [***] 
 
  comparison, and the sporadic evidence of actual LCA prices available to us is insufficient for 
purposes of assessing price undercutting.  The parties are in agreement that list prices are not a relevant basis for comparison.
5438   
7.1834  In the usual case, we would expect evidence of pr ice undercutting to be of the type that would 
allow a "comparison of prices" of the two products in question, as suggested by Article 6.5, made "at 
the same level of trade and at comparable times, due  account being taken of any other factor affecting 
price comparability."  Article 6.5 goes on to provid e "However, if such a direct comparison is not 
possible, the existence of price undercutting may be demonstrated on the basis of export unit values."  
We recall that we have concluded that Article 6.5 does not establish the exclusive means by which 
serious prejudice in the form of significant pric e undercutting can be demonstrated, and that the 
United States' claim in this case is not premised  on the special circumstances for a complaining 
Member with a non-subsidized like product provided for in Article 6.5.  Howeve r, we do consider that 
Article 6.5 provides useful guidance for the nature of  the analysis of price undercutting in general, 
when it describes the type of price comparison that s hould be undertaken.  In this case, we do not have 
evidence that would allow us to undertake a direct comparison of the price of the subsidized and like 
products, adjusted to ensure the comparison is at the same level of trade and for other factors affecting 
price comparability.  Indeed, neither party appear s to consider that the Panel could or should 
undertake an effort to calculate "comparable" prices for LCA for purposes of a price undercutting 
analysis.  The United States notes that "it would be impracticable, if not virtually impossible, for the 
Panel to try to undertake the vast number of adju stments that would be necessary to perform an 
accurate, apples-to-apples price comparison between Airbus and Boeing LCA prices in a given 
market".5439  While the European Communities asserts that  the Panel must compare the prices of the 
Airbus and Boeing offers, taking account of factor s affecting price compar ability, it does not suggest 
how the Panel might undertake such a comparis on.  The European Commu nities asserts that the 
United States has not provided evidence demonstra ting that the Airbus price in any campaign was 
lower than the Boeing price, but it has not itself relied on or submitted evidence that would allow a 
comparison of prices by the Panel.5440  Instead, both parties have relied upon anecdotal and other 
evidence concerning the sales campaigns in the context of price undercutting.    
7.1835  The United States considers that it has provided evidence concerning the "actual prices" in a 
number of transactions in the information concerni ng the several sales campaigns on which it relies.  
In the United States' view, the customer in a given sal e of LCA is the only "party that has access to all 
of the data necessary to compare the prices offe red by Boeing and Airbus" and will "perform the 
analysis required by Article 6.5 – a comparison of the subsidized product and the like product, in the 
same market, at the same level of trade, at comp arable times, taking "due account" of all relevant 
factors affecting comparability."5441  The United States asserts that nothing in Article 6.5 prescribes 
how these factors are to be taken into account, and given the impracticability if not impossibility of 
either Boeing, Airbus or the Panel, undertaking such an analysis, the Panel should rely on the 
statements of customers indicating that Airbus LCA were purchased in a given transaction on the basis of price as probative on the question of price undercutting.
5442    
7.1836  The European Communities agrees with the Un ited States that the customer generally 
monetizes the differences between competing aircraft  offered by Boeing and Airbus in a particular 
                                                      
5438 US, Answer to Panel Question 281, para. 124:  " list prices alone are not generally meaningful for 
conducting an analysis of LCA pricing under Article 6.3(c)"; EC, Answer to Panel Question 281, para. 190:  "list prices are largely irrelevant to the Panel's assessmen t of injury under Article 5(a) or serious prejudice under 
Articles 5(c) and 6.3(c)". 
5439 US, Answer to Panel Question 235, para. 61. 
5440 EC, Comments on US Answer to Panel Question 235, paras. 110-119. 
5441 US, Answer to Panel Question 235, para. 62. 
5442 US, Answer to panel Question 235, para. 64, US, Answer to Panel question 281, paras. 122, 
127-28. WT/DS316/R 
Page 920  
BCI deleted, as indicated [***] 
 
  sales campaign,
5443 but it considers that the end result of this process is not a comparison by the 
customer of the prices of the competing aircraft, but  of the net present value (NPV) of the competing 
offers.  In the European Communities' view, the United States "conflates the concepts of price and 
NPV {implying} that price undercutting is demons trated simply by evid ence that the customer 
decided to order from Airbus due to the better value of the Airbus offer."5444  The European 
Communities considers that the NPV will be determined  not only on the basis of price, but also based 
on consideration of non-price factors, and in such cases, a sale by Airbus does not necessarily indicate 
that Airbus' price was lower, but rather than the NPV of the Airbus offer was higher, which may be 
attributable to any of the non-price factors taken into account by the customer.5445  For the European 
Communities, it is important that the Panel consider  actual prices, and not NPV, in its analysis of 
price undercutting,5446 although it does not provide any suggestions as to how such an actual price 
comparison could or should be undertaken.  Howe ver, according to the European Communities, in 
order for the United States to establish significant price undercutting, it must prove, on a sale-by-sale 
basis, that Airbus offered a significantly lower price than Boeing, taking due account of factors 
affecting price comparability, and that such signi ficantly lower price was caused by the alleged 
subsidies.5447  The European Communities asserts that the United States has failed to demonstrate this 
in respect of any of the sales ca mpaigns it has relied upon to establish significant price undercutting. 
7.1837  We do not agree that the evidence before us re flects the actual prices of LCA in the sales 
campaigns.  Rather, in our view, that evidence re lates to the value of the offers of competing 
manufacturers for a particular customer's order.  It is clear to us this evidence demonstrates that the 
customer's evaluation of the competing offers for sale of LCA involves consideration of a range of 
elements, from the price of the airframe itself,  to various discounts, guarantees, concessions, 
financing, support, engine choice, and other aspects.5448  It may well be true that the evaluation by a 
customer of competing offers or proposals invo lves a comparison similar to that described in 
Article 6.5.  However, the NPV calcula tion as described by both the parties5449 involves a number of 
subjective and customer specific elements which, because we have no basis on which to evaluate 
them or consider their importance, makes it impossibl e for us to conclude that  the customer's ultimate 
decision reflects a choice based on lower price.  Mo reover, the customer is not the Panel in this 
dispute, and we do not consider that we can abdicate our responsibility by simply accepting that the customer's ultimate choice of Airbus' offer to sell LCA on certain specific terms demonstrates that the price of the subsidized product involved in that sal e was lower than the price of the competing United 
States' like product.   
7.1838  Although we have concluded that the like product in  this dispute is all Boeing LCA, it is clear 
that the LCA models offered by Boeing and Airbus each have their own particular features, and that 
                                                     
 
5443 EC, FWS, para. 1832 ("customers conduct a complex technical and economic of each LCA 
manufacturer's fleet proposal, transla ting each technical, physical and ec onomical characteristic of each LCA 
into a "value" element...This process is highly subjective ...  The signifi cance of each factor will depend on 
where that airline's particular priorities lie.  Seemi ngly small differences in the physical or economics {sic} 
characteristics of Boeing and Airbus competing LCA can thus be decisive in the purchasing decision of an airline.")  (footnotes omitted). 
5444 EC, Comments on US Answer to Panel Question 235, paras. 114-15. 
5445 EC, Comments on US Answer to Panel Question 235, para. 115. 
5446 And also in its analysis of price suppression, pr ice depression, and lost sales.  EC, Comments on 
US Answer to Panel Question 235, para. 119. 
5447 EC, Comments on US Answer to Panel Question 236, para. 120. 
5448 See, Statement of Rod P. Muddle, Exhibit EC-19, at paras. 52-93 describing various elements 
that may be taken into consideration in assessing an offe r of LCA.  The United States appears to accept that the 
elements identified by Mr. Muddle form part of the "price"  of any LCA transaction, or otherwise affect the value 
of an LCA offer.  US, Answer to Panel question 281, paras. 125-26. 
5449 US, FWS, paras. 799-800, US, Answer to Panel question 235, para. 62, EC, FWS, 1429-1439, EC, 
Answer to Panel Questions 281 and 282.  WT/DS316/R 
 Page 921 
 
BCI deleted, as indicated [***] 
 
  each model group, and each specific model within a gr oup, is differentiated in order to offer specific 
characteristics to individual customers to meet th eir particular needs.  HSBI concerning the sales 
campaigns indicates that the specific characteristics of the LCA in question are in all cases important elements of a customer's choice of LCA, but that  these are not considered in a vacuum but in a 
complex negotiating process with the manufacturers.  Airline customers consider the characteristics of 
individual LCA in relation to their existing fleets, their route structure and forecasts for changes in 
routes and traffic patterns, operating costs, maintena nce costs, training costs, etc.  The number and 
variety of factors considered is in all cases large,  and varies for each individual customer.  In each 
campaign, one or another of the LCA being considered  will be the best fit for the particular needs of 
the customer at that time.  Moreover, personal and po litical factors appear to have played a role in at 
least some of these sales.  In addition, it is cl ear that competition between Boeing and Airbus for 
customers is fierce, and that both companies are willing to negotiate on price to secure an important sale.   
7.1839  Even where there are other factors such as pe rformance, fleet considerations, or personal 
factors relevant to a sale, price, in the sense of th e overall value of the offer to the customer's business, 
remains one of the, if not the only, determinative fa ctors in the customer's decision.  It seems clear 
that an LCA manufacturer obtains a particular sale because its offer of a particular LCA (or group of 
LCA models) has a higher value, from the customer's  perspective, than the competing offer of LCA 
from the other manufacturer.  However, we cannot c onclude that public statements reflecting this 
consideration of the value of competing offers cons titute sufficient evidence for us to conclude that 
there was "price undercutting" in a given sale.  Give n that this calculus tak es place in the purchaser's 
consideration of the offers, and is not apparent in the actual price of the aircraft, it seems difficult if 
not impossible for us to make conclusions about  price undercutting, let alone significant price 
undercutting, within the meaning of Article 6.3(c) of the SCM Agreement, on the basis of customers' 
public statements which reflect calculation of the re lative value of competing offers to sell LCA, but 
give us no basis on which to establish an actual comp arison of prices.  Such an approach in this case 
would seem to us to be far from what is contemplated by Article 6.5 when it describes how price comparisons might be undertaken.
5450  While a statement such as that of CSA strategic director Jan 
Vana indicating that "{b}oth offers met all of our  technical specifications without exception.  But 
Airbus offered the better price",5451 suggests some degree of price unde rcutting, even in this instance, 
we cannot conclude that such undercutting was signif icant, or that price was the deciding factor in 
which manufacturer won the order, given the othe r factors at play, such as political and fleet 
considerations.5452  
7.1840  Thus, overall, while we accept that price was an  important factor in each of these sales, and 
may in some instances have been d ecisive, in the sense that the overa ll value of Airbus' offer to the 
customer was higher than the value of Boeing's offe r, we cannot, on the basi s of the evidence before 
us, make any conclusions regarding significant pri ce undercutting within the meaning of Article 6.3(c) 
of the SCM Agreement.   
Significant Lost Sales 
7.1841  The European Communities' arguments with resp ect to lost sales are premised on the notion 
that unless price was the determining factor in a part icular sale, that sale cannot be considered a lost 
                                                      
5450 We do not preclude the possibility that, in a different case, a conclusion concerning price 
undercutting might be established based on evidence that does not suffice to establish a direct comparison of 
prices within the sense of Article 6.5.  However, in th is case, the anecdotal eviden ce, in the context of this 
product and this industry, and the way in which sales decisions are made, is simply insufficient to persuade us 
with respect to the allegations of significant price undercutting. 
5451 Dow Jones Newswire (15 October 2004), Exhibit US-424. 
5452 See, EC, Comments on US Answer to Panel Question 236, para. 158. WT/DS316/R 
Page 922  
BCI deleted, as indicated [***] 
 
  sale.
5453  However, the United States made clear that it is  not relying exclusively on price in support of 
its claims of lost sales.  Rather, the United States  makes separate claims with respect to significant 
price undercutting, and significant lost sales, as separat e and distinct effects of the subsidies within the 
meaning of Article 6.3(c) of the SCM Agreement.   The United States acknowledges that some of the 
evidence it presents is relevant to both claims, but maintains that the claims are legally and factually 
distinct.5454  Specifically with respect to lost sales, the United States argues that a sale may be "lost" 
either because Airbus offered a particular LCA at a lower price, or because it was able to offer a 
specific model of LCA that it would not have had available but for the subsidies.5455      
7.1842  The text of Article 6.3 gives no guidance to  panels as to the methodology for evaluating 
allegations of lost sales, other than to specify that su ch lost sales must be "in the same market".  Nor is 
there any further guidance in any other provision of the SCM Agreement.  As this is the first dispute 
in which allegations of lost sales have been made  in order to demonstrate serious prejudice under 
Article 6.3, there is no dispute settlement guidance on this point.5456  
7.1843  Looking at the text of Article 6.3(c), it seems clear  to us that it describes four different effects 
which, if found to apply, can support a finding of serious prejudice:  significant price undercutting, 
significant price suppression, price depression or lost sales in the same market.  There is nothing in 
the text of the provision that establishes or requi res any connections or linkages between these four 
types of effect as a legal matter.  We can certainly  envisage that, as a matter of fact in a particular 
case, there may be linkages between, for instance, price undercutting and lost sales, or price undercutting and price depression or price suppression.  However, we see nothing in the text that 
would require that a sale must be lost by reason of price in order for it to be considered a lost sale for 
purposes of Article 6.3(c).   
7.1844  While the European Communities maintain s that the United States relies on price 
undercutting to establish the existence of lost sales,  considering the United States' arguments as a 
whole, this is clearly not the case.  The European  Communities asserts that "only if Airbus' winning 
lower price is significantly lower and that significantly lower price is caused by subsidies" can the 
United States prevail on its claim of significant lost sales.
5457  In our view, there is no legal basis in the 
text of the SCM Agreement for the view that lost sales must be demonstrated on the basis of price 
undercutting, and the European Communities has not demonstrated otherwise.   
7.1845  The European Communities does not dispute that Bo eing lost sales to Airbus, in the sense that 
the customer purchased Airbus rather than Boeing LCA.  While we have concluded that significant 
price undercutting cannot be found on the basis of the evidence before us, th is does not mean that 
there were not significant lost sales.  In our view, it is clear that Boeing lost sales to Airbus involving 
purchases by easyJet, Air Berlin, Czech Airlines, Air Asia, Iberia, South African Airways, Thai Airways International, Singapore Airlines, Emirates Airlines, and Qantas.
5458   Moreover, it is 
                                                      
5453 EC, FWS, para. 1821. 
5454 US, Answer to Panel Question 54, para. 307. 
5455 US, Answer to Panel Question 54, paras. 309-310.  Brazil considers that price need not be the only 
reason for lost sales, provided it is one of the materi al factors causing the lost sales.  Brazil, Third Party 
Submission, para. 55. 
5456 Although allegations of lost sales are not uncommon in the context of allegations of material injury 
in countervailing duty and anti-dumping investigations, neither Article 15 of the SCM Agreement nor Article 3 
of the AD Agreement refer to lost sales, and we are not aware of any dispute in which consideration of lost sales 
allegations have been addressed in the trade remedy context.   
5457 EC, FWS, para. 1821. 
5458 We note that the European Communities argues extensively concerning other sales to different 
airlines, contending that these were not sales lost by Boeing for reasons of price.  However, the United States 
did not rely on those sales in support of its claim of serious prejudice in the form of lost sales, and thus we do not consider them in this context.  WT/DS316/R 
 Page 923 
 
BCI deleted, as indicated [***] 
 
  apparent to us that if winning a pa rticular sale is of "strategic importance" to Airbus, as the European 
Communities asserts with respect to the easyJet campaign discussed above,5459 the loss of that sale to 
Boeing is similarly important, and can justifiably be considered a significant lost sale.  In addition, 
lost sales are important to the extent that they  delay a manufacturer's ability to benefit from the 
important learning effects and economies of scale in  this industry, and thus have a significance 
beyond their direct revenue effects.5460  Moreover, both parties recognize the advantages to being the 
incumbent supplier with a given customer with resp ect to subsequent purchases, which also adds to 
the significance of lost sales.  While it is true that  a manufacturer may be able to recoup some of these 
disadvantages by finding another customer to take a dvantage of delivery slots, this does not, in our 
view, detract from the significance of a lost sale.5461  Given the number of aircraft and the dollar 
amounts involved in those sales, as well as the consid erations just described, we conclude that these 
lost sales are significant.  We address whether these significant lost sales are an  effect of the specific 
subsidies we have found were granted to Airbus  with respect to LCA in Section (e) below. 
(ii) Significant price suppression and price depression  
7.1846  In US –  Upland Cotton , the panel considered the meaning of the terms price suppression and 
price depression and concluded: 
"Thus, 'price 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 situ ation where 'prices' are pressed down, or 
reduced."
5462 
This definition of price suppression was approved by the Appellate Body in its review of the panel 
report.5463  In US – Upland Cotton  (Article 21.5) , the Appellate Body further elaborated on the notions 
of price suppression and price depression:  
"At a conceptual level, we see some differences between the concepts of 'price 
depression' and 'price suppression' as defined in the original proceedings.  While price 
depression is a directly observable phenome non, price suppression is not.  Falling 
prices can be observed; by contrast, price suppression concerns whether prices are less than they would otherwise have been in  consequence of various factors, in this 
case, the subsidies.  The identification of price suppression, therefore, presupposes a 
comparison of an observable factual situati on (prices) with a counterfactual situation 
(what prices would have been) where one has to determine whether, in the absence of 
the subsidies (or some other controlling  phenomenon), prices would have increased 
or would have increased more than they actually did".
5464   
                                                      
5459 EC, FWS, paras. 1881-1883, 
5460 See, paras. 7.1717 and 7.1726 - 7.1727 above, concerning learning effects and economies of scale. 
5461 The European Communities states that "even assuming, arguendo , that the effect of any alleged 
subsidies to Airbus caused Boeing to lose certain sa les between 1999-2005, those "lost sales" are not today 
significant  given the huge order backlog and the fact that Boeing sold all the early "lost" order slots to other 
customers at what were "likely higher prices."  EC, SCCS, para. 21.  As discussed further below, we do not consider that improvements in Boeing's condition, as evidenced by its order backlog, or any efforts by it to 
mitigate the adverse effects it has suffered, are relevant to  our consideration of serious prejudice.  We certainly 
do not consider that whether lost sales are "significant" must be assessed with respect to a period several years 
after the fact.  Lost sales that are significant at the tim e may well support a finding of present serious prejudice. 
5462 Panel Report, US – Upland Cotton , para. 7.1277. 
5463 Appellate Body Report, US – Upland Cotton , para. 424. 
5464 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 351. WT/DS316/R 
Page 924  
BCI deleted, as indicated [***] 
 
  7.1847  In the present case, the United States alleges that both significant price depression and 
significant price suppression can be observed over th e period 2001 through 2006 in the world market 
prices for four models of Boeing LCA: the Boeing 737NG, Boeing 767, Boeing 747, and Boeing 777.
5465  The United States contends, and the European  Communities does not disagree, that the world 
market is the appropriate market for measuri ng the price effects of subsidies to Airbus.5466  For each 
of the four models of Boeing LCA, the United States presents a line chart mapping the movements of annual indexed Boeing LCA order prices and the Unite d States Aircraft Manufacturers Producer Price 
Index ("PPI").  The United States argues that the ch arts it has presented show that indexed prices on 
the world market for each of the four models of Boeing LCA have declined over this period, 
demonstrating price depression.
5467  Moreover, the United States contends that the fact that prices 
have not followed the PPI demonstrates price s uppression.  The United States describes the PPI as the 
producer price index for aerospace manufacturing in the United States – a measure of general industry 
costs, which the United States submits represents a "reasonable proxy for the amount by which LCA 
prices could be expected to rise in the ab sence of suppression by some external factor".5468  Thus, the 
United States alleges that in fact, the PPI is an objective benchmark for what changes in prices would 
have been expected over the period, and the fact  that prices did not increase as would have been 
expected shows price suppression that can be direc tly observed in this case.  According to the 
United States, the fact that the indexed prices of Boeing's LCA over the 2001 to 2006 period have not followed the PPI demonstrates significant price suppression.
5469  Finally, the United States asserts that 
the observed price depression and price suppression is significant.  The four charts presented by the 
United States are reproduced below.  We examine each  in turn before setting out our views in respect 
of the parties' arguments.   
Chart 11:  Boeing 737NG, Average Indexed Order Prices compared with PPI (2001-2006) 
 
[***] 
 
7.1848  The United States asserts that the indexed annual prices for the Boeing 737NG in the world 
market [***] between 2001 and 2005,5470 before [***].5471 The United States notes that [***].5472  
                                                      
5465 US, FWS, para. 804.  The United States originally presented data for the period 2001 through 2005, 
and submitted updated tables containing data for 2006 wi th its second written submission.  US, SWS, para. 726, 
Exhibit US-612 (BCI).  Although we are proceeding on the basis of consideration of all Boeing LCA as the 
product "like" all Airbus LCA, the subsidized product, we nonetheless consider it appropriate to examine the 
price trends for the individual models , as being the most accurate basis fo r our assessment.  Neither party has 
suggested that an alternative, for instance some form of aggregation or averaging, would be possible or 
appropriate.  However, while examination of the trends for individual models is appropriate, our conclusion as to whether the United States has demonstrated significant price depression or suppression must be made with 
respect to the like product, LCA.  See, Appellate Body Report, US – Hot-Rolled Steel , paras. 195, 204  
(Appellate Body concluded that, in assessing injury to a domestic industry "as a whole", an investigating 
authority could properly undertake an evaluation of particular parts, sectors or segments within that domestic 
industry, so long as the examination was done in an objective manner, either by examining all other parts as 
well, or explaining why it is not necessary to do so). 
5466 US, FWS, para. 803, where, citing the geograp hic market definition used by the European 
Commission in its 1997 clearance Decision regarding the merger between McDonald Douglas and Boeing, i.e., 
the world market, Exhibit US-375, para. 20, the United Stat es asserts that "{i}n the context of this case, the 
world market is the appropri ate market for measuring the price effect s of the Airbus subsidies";  EC, FWS, 
paras. 1726-1758, 1798-1819, 1999-2023 and 2077-2086 
5467 US, FWS, paras. 804-809. 
5468 US Comment on EC, Answer to Panel Question 213. 
5469 US Comment on EC, Answer to Panel Question 213; US, Answer to Panel Question 237; US, 
Comments on Appellate Body Report in US – Upland Cotton (Article 21.5 – Brazil) , paras. 14-16. 
5470 US, FWS, para. 805, Exhibit US-612 (BCI) (Figure 4, reproduced above). 
5471 US, FWS, para. 805; US, SWS, para. 726, Exhibit US-612 (BCI) (Figure 4). 
5472 US, FWS, para. 805.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  According to the United States, these adjustments to order prices demonstrate the price depressing 
effects of Airbus pricing practices, showing signifi cant decreases over three y ears.  The United States 
explains that the PPI increased by 21.19% from 2001 to 2006, reflecting, in its view, a [***]% price 
decline for the 737NG and therefore both significant price suppression and price depression.5473    
Chart 12:  Boeing 767, Average Indexed Order Prices compared with PPI (2001-2006) 
 
[***] 
 
7.1849  With respect to Boeing 767 prices, the United St ates alleges a similar trend, with order prices 
[***] by 2002.  However, prices [***]. Again, the United States asserts that the increase in the PPI 
shows an inflation-adjusted decline of [***]% over the period 2001-2006, demonstrating the 
significant price suppression and price depression e xperienced by Boeing over the relevant period.5474 
Chart 13:  Boeing 747, Average Indexed Order Prices compared with PPI (2001-2006) 
 
[***] 
 
7.1850  The United States submits that the above char t shows that the price for the Boeing 747 
declined over the relevant period, [***].5475  Again, the United States notes that these prices did not 
keep up with inflation as represented by the PPI, declining by more than [***]% by the end of the 
period, thereby demonstrating both significant price suppression and price depression.5476 
Chart 14:  Boeing 777, Average Indexed Order Prices compared with PPI (2001-2006) 
 
[***] 
 
7.1851  Finally, with respect to the 777, the United Stat es argues that a different pattern emerges, with 
[***].5477  The United States attributes the increase in prices for the 777 in 2005 and 2006 to the effect 
of rising fuel prices on the competitiveness of the Airbus A340, which has four engines compared 
with twin-engine 777.5478  
7.1852  The United States contends that, overall, the da ta concerning world market prices shows that 
Boeing LCA prices have declined, or at best ha ve failed to keep pace with increased costs as 
represented by increases in the PPI.  In the United Stat es' view, this is evidence of significant price 
depression and price suppression within the meaning of Article 6.3(c) of the SCM Agreement. 
7.1853  The European Communities does not dispute the pricing information presented by the United 
States.  Instead, the European Communities argues, inter alia , on the basis of its calculation of per-
aircraft subsidy amounts for each family of Airbus LC A, that the subsidies were too old, too small, 
and not of a nature which would make it possibl e for them to have caused the price effects 
                                                      
5473 US, SWS, para. 726; US, Answer to Panel Questions 55 and 237; US Comment on EC, Answer to 
Panel Question 213. 
5474 US, FWS, para. 807; US, SWS, para. 726, Exhibit US-612(BCI) (Figure 5, reproduced above); US, 
Answer to Panel Questions 55 and 237; US Comment on EC, Answer to Panel Question 213. 
5475 US, FWS, para. 807, US, SWS, para. 726, Exhibit US-612 (BCI) (Figure 6, reproduced above); US, 
Answer to Panel Questions 55 and 237; US Comment on EC, Answer to Panel Question 213. 
5476 US, SWS, para. 726, (Figure 6); US, Answer to Panel Questions 55 and 237; US Comment on EC, 
Answer to Panel Question 213. 
5477 US, FWS, para. 808, US, SWS, para. 727, Exhibit US-612(BCI) (figure 7, reproduced above). 
5478 US, SWS, paras. 727-729. WT/DS316/R 
Page 926  
BCI deleted, as indicated [***] 
 
  observed.
5479  We will address the European Communities' arguments with respect to causation later 
in this Report. 
7.1854  Turning first to the question whether the United States has established that there was 
significant price depression over the relevant period , we recall that price depression is the situation 
where prices are observed to fall.  As the Appellate Body noted in US – Upland Cotton (Article 21.5) , 
price depression is a phenomenon that may be directly  observed.  Moreover, we recall that significant 
price depression must be price depression that  is "important, notable ...  consequential".5480  On the 
basis of the data contained in the above charts, we  consider that the United States has demonstrated 
the existence of significant price depression in the world price of three of the four Boeing LCA 
models over the period 2001 to 2006.  However,  we are not convinced that significant price 
depression is demonstrated in the case of world pri ces for the Boeing 777 over the same period.  In 
only one of five years did prices for this model of LCA decline.  In all other years, prices increased roughly in line with the changes in the PPI, w ith the exception of 2006 when prices rose by 
significantly more, leaving them at approximately the same level as the PPI.   
7.1855  We note that sales of the Boeing 777 represente d only a small proportion of Boeing's overall 
LCA sales over the reference period.
5481  Thus, the data in the pricing charts demonstrate that Boeing 
experienced significant price depression with respect to the vast majority of its sales of LCA.  We 
therefore conclude that, overall, the United States has demonstrated significant price depression in the 
world price of Boeing LCA over the years 2001 to 2006.   
7.1856  As regards significant price suppression, the Eu ropean Communities asser ts that the United 
States' Aircraft Manufacturers' PPI is not a reliable measure of the cost increases faced by Boeing, and 
that the failure of prices of certain aircraft to increase commensurate with that index is completely 
irrelevant to the question whether there was si gnificant price suppression in the relevant period.5482  
According to the European Commun ities, the PPI is a theoretical construct that takes only United 
States' labour and materials costs into account, a nd thus provides little information about Boeing's 
actual manufacturing costs.5483  Moreover, the European Comm unities alleges that Boeing has 
introduced a number of cost-cutting and restruct uring measures over the past decade, including 
increased reliance on suppliers to assume a greater role in LCA production and outsourcing, resulting 
in reduced costs of manufacturing.  The European  Communities also contends that Boeing has been 
able to take advantage of learning curve effect s that have likewise reduced Boeing's manufacturing 
costs.5484  
7.1857  The European Communities suggests that the a ppropriate measure for assessing inflation in 
Boeing's costs is Boeing's operating margin, which is  a function of actual costs and revenue, such that 
an increased operating margin means costs are decr easing, or revenues are increasing (reflecting price 
increases) or both.5485  The European Communities points to evidence it argues shows that Boeing's 
operating margins increased in 2006 and were exp ected to increase in 2007 and 2008, including a 
statement made by Boeing's Chief Financial Offi cer in April 2007, noting that Boeing's operating 
margins resulted from "a combination of both bette r pricing as it stabilizes today and … also our 
                                                      
5479 EC, FWS, paras. 1726-1758, 1798-1819, 1999-2023 and 2077-2086; EC, SWS, paras. 1148-1161, 
1166-1174. 
5480 See, discussion of the term "significant" at paragraphs 7.1795 and 7.1796 above. 
5481 On the basis of the data presented in Exhibit EC-21, orders of the Boeing 777 accounted for less 
than 15% of Boeing's total LCA orders between 2001 and 2006.  We understand that the 777 prices are higher 
than 737 prices, but there is no information before us th at would suggest that this difference is of a magnitude 
that would undermine our overall conclusion. 
5482 EC, Answer to Panel Question 213. 
5483 EC, Answer to Panel Question 213. 
5484 EC, Answer to Panel Question 213. 
5485 EC, Answer to Panel Question 213.  WT/DS316/R 
 Page 927 
 
BCI deleted, as indicated [***] 
 
  productivity efforts".5486  Thus, the European Communities does not consider that, as a matter of fact, 
prices for Boeing's LCA have not increased in line with  inflation, stating that "not only are Boeing's 
prices increasing, but its costs are also decreasing".5487   
7.1858  The United States argues that the ratio of operati ng profits to costs can be expected to vary 
with the volume of units sold, entirely apart from any underlying changes to price levels.  Thus, 
according to the United States, trends in actual ope rating margins, considered without reference to 
changes in the volume of deliveries over the relevant period, say nothing about price levels that might 
be expected in the absence of ex ternal price-suppressing factors.5488  Moreover, referring to various 
passages of a June 2005 press report submitted by th e European Communities as Exhibit EC-926, the 
United States explains that "price escalation" clauses – by which order prices in LCA sales contracts 
are indexed to inflation to derive the actual price to be paid for LCA at delivery – are driven by the same factors that constitute the PPI, namely, cha nges in United States' aerospace industry labour and 
materials costs.  Indeed, the United States notes th at the same press report indicates that the typical 
price escalation clause applied by Airbus in its contra cts is based on "U.S. labor costs in the aerospace 
industry, energy costs and costs of materials".
5489  Similarly, the United States points to the following 
passage in a statement by Mr. Rod P. Muddle, an "e xpert in the acquisition of large civil aircraft", 
which the European Communities introduced as Exhibit EC-19: 
"LCA prices are often negotiated several years prior to delivery.  Manufacturers make 
allowance for this with a price adjustment acco rding to date of delivery.  The price to 
be paid at delivery depends on annual increas es, or 'escalation', of the list price of the 
LCA, to which all additions and subtractions  are applied.  Airbus and Boeing have 
different escalation formulae.  The formul a are derived from changes in aerospace 
industry costs of material and labor".5490 
Finally, the United States argues that the press report submitted by the European Communities in 
Exhibit EC-926 provides further support for the si gnificant price suppression and price depression it 
alleges can be observed during the relevant peri od because it explains how customers ordering LCA 
between 1995 and 2000 were, as a result of escalati on clauses, paying more for their LCA delivered 
subsequently than were customers who placed orders af ter this period, due to the fact that order prices 
had not risen or even decreased in the year s covered by the relevant reference period.5491 
 7.1859  We agree with the United States that, as a gene ral matter, one would expect that in any 
manufacturing industry, all else being equal, pr ices would tend to increase when production costs 
increase.  The evidence before us suggests that this is also exp ected in the LCA industry.  In 
particular, both Boeing and Airbus typically try to ensu re that the final price paid by a customer for an 
LCA delivered some years after the date it was orde red keeps pace with any increases in the costs of 
manufacturing over the intervening period by includi ng a "price escalation" clause in their sales 
contracts.  However, rather than tracking their own actual  costs of manufacturing as the basis for 
calculating final delivery prices, the price escalation fo rmulae used by the two companies appear to be 
derived from data that approximates those costs on a more general basis.  This is evident from the 
press report the European Communities has subm itted as well as the description of how LCA are 
priced provided by the European Communities' expe rt, Mr. Rod P. Muddle.  Indeed, both sources 
indicate that the price escalation formulae of Boeing  and Airbus are closely related to changes in 
                                                     
 
5486 EC, Answer to Panel Question 213, citing Exhibit EC-793. 
5487 EC, Answer to Panel Question 213. 
5488 US Comment on EC, Answer to Panel Question 213. 
5489 US Comment on EC, Answer to Panel Question 213, referring to information contained in 
Exhibit EC-926. 
5490 Exhibit EC-19, para. 55, quoted in US, Answer to Panel Question 237. 
5491 US, Answer to Panel Question 237 , referring to Exhibit EC-926. WT/DS316/R 
Page 928  
BCI deleted, as indicated [***] 
 
  United States' "aerospace industry costs of material an d labor".  In other words, the evidence before us 
shows that the "price escalation" clauses used by both Boeing and Airbus typi cally index LCA prices 
to a proxy for cost inflation that is based, in majo r part, on the same factors that go into calculating the 
PPI.
5492  Thus, we are satisfied that the PPI represents  a reasonable proxy for cost inflation that both 
Boeing and Airbus would normally try to take  into account in the pricing of their LCA.5493  It follows 
that the PPI may be used as a reasonable benchmark for the price trends and levels that would have 
been expected over the reference period.  Theref ore, the existence of price suppression in world 
market prices for Boeing LCA may be directly ob served on the basis of a comparison of trends in 
actual indexed prices with the PPI.  
7.1860  Comparing the PPI in each chart with the prices of Boeing LCA, there was clearly a degree of 
price suppression in respect of world market pri ces for each of the four Boeing LCA models.  
However, we consider the evidence to show significant  price suppression in respect of prices for only 
the 737, 767 and 747.  With respect to 777, the price suppression seen reflects a price decline that occurred in only one year (2004).  In three of the four other years (2002, 2003 and 2006), the increase 
in indexed price levels experienced by the Boeing 777 was greater, in proportionate terms, than the 
PPI increases.  Prices of the Boeing 777 also increased in 2005 at almost the same rate as the PPI.  
Thus, we do not consider the United States to ha ve demonstrated significant price suppression over 
the relevant period for this model of Boeing LCA.   
7.1861  Again, we recall that sales of the Boeing 777 represented only a small proportion of Boeing's 
overall LCA sales over the reference period.
5494  Thus, we conclude that the evidence before us 
demonstrates that Boeing experienced significant pri ce suppression with respect to the vast majority 
of its sales of LCA.  We therefore conclude that, overall, the United States has demonstrated 
significant suppression in the world price for  Boeing LCA over the years 2001 to 2006.   
7.1862  Having concluded that the United States has de monstrated that, overall, Boeing experienced 
significant price depression and price suppression over th e relevant period, we note that in respect of 
both phenomena, a large proportion of the absolute  and relative price declines took place in 2002, 
coinciding with the deep industry downturn that followe d the events of 9/11.  We see this as an issue 
relevant to the question of causation, that is, whether the significant price depression and suppression 
we have observed was caused by the subsidies.  It is  to the question of causation, that is, whether the 
market effects alleged to demonstrate serious prejudi ce that have been demonstrated to have occurred 
during the period we examined are the effect of the specific subsidies to Airbus that we have found, 
that we now turn our attention. 
                                                      
5492 US, FWS, para. 742, US comment on EC, Answer to Panel question 213, para. 303. 
5493 One of the reasons why the European Communities considers the PPI to be irrelevant to the 
question of price suppression is the fact that Boeing allegedly outsources much of its LCA production to suppliers outside of the United States.  EC, Answer to Panel question 213.  However, we note that in making 
this point, the Europ ean Communities refers only to the manufact ure of components for the Boeing 787, which 
was not yet in commercial production during the relevant period.  Id.  Moreover, even granting that a significant 
portion of current 787 co mponent manufacture takes place outside of  the United States, in our view, the 
European Communities' argument does not undermine the relevance of the PPI to the question of cost inflation 
in the LCA industry overall during the period we are considering. 
5494 See, footnote 5481 above.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  (e) Whether Subsidies Are the Cause of  the Observed Market Effects  
(i) Arguments of the United States 
7.1863  The United States argues that LA/MSF distorts co mpetition in the market for LCA in at least 
two ways.5495  First, the United States argues that LA/MSF shifts some of the commercial risk of LCA 
launch decisions from Airbus to the Airbus gove rnments, France, Germany, Spain and the United 
Kingdom, allowing Airbus to launch aircraft models  that, in the absence of LA/MSF, it would not 
have launched.  Second, the United States assert s that LA/MSF provides Airbus with significant 
additional cash flow and other financial resources on non-market terms which allows Airbus to price 
its aircraft more aggressively than it would otherwi se be able to without LA/MSF.  According to the 
United States, the other subsidies it has challenged in this dispute have essentially the same effects, 
because like LA/MSF, they also shift costs of LCA development from Airbus to the Airbus 
governments.5496  Thus, the United States argues that the eff ect of the subsidies granted to Airbus has 
been to enable Airbus to launch new LCA, and ther eby to increase its market share, especially during 
the period 2001 to 2006, to the detriment of the United States LCA industry, causing serious prejudice 
to the United States' interests within the m eaning of Articles 6.3(a), (b) and (c).   
7.1864  The United States submits that in the absence of  LA/MSF, and all of the other subsidies at 
issue in this dispute, Airbus would have, at best, fewer and different LCA models available to sell in 
the global LCA market.  The United States argues that even if it is assumed that Airbus would exist in 
the absence of LA/MSF, its entry into the various segments of the LCA market would have occurred 
at a later date, and with different aircraft.  In this respect the United States asserts: 
"even if Airbus would have entered a particular LCA market segment at some other 
time with a different aircraft (in terms of technical capabilities, specifications, and 
other characteristics), the effect on the U.S. LCA industry would have been different.  
That Airbus enters a market segment at a time and in a way that it can only do because of subsidies cannot but have a distorting impact on the market."
5497   
7.1865  In support of its claim that subsidies have  "facilitated and accelerated the introduction of 
every major Airbus model"5498 the United States relies principally on  two types of evidence.  The first 
is public statements made by both Airbus and Air bus government officials.  The United States asserts 
that these statements demonstrate not only that Airb us has depended on subsidies in order to be able 
to bring its aircraft to market, but also that tho se subsidies were designed  to target United States' 
products and producers and thereby gain market share for Airbus.5499  The second is a report prepared 
by Dr. Gary J. Dorman of NERA Economic Consulting.5500  The Dorman Report presents a simulation 
of a business case for a "typical" wide body aircraft , and purports to demonstrate, on the basis of the 
simulation, the impact of LA/MSF type measure s on the economics of an LCA launch decision.  
According to the United States, the Dorman Repor t demonstrates how LA/MSF shifts risk to the 
Airbus governments, thereby making the "very fact of launch more likely".5501  
                                                      
5495 The United States suggests that there may be other forms of market distortion.  However, as the 
United States did not provide any evidence or arguments with respect to such "other" forms of alleged market 
distortion, our analysis is limited to the two aspects of market distortion that are th e subject of the evidence and 
arguments presented by the United States. 
5496 US, FWS, para. 819. 
5497 US, SWS, para. 572. 
5498 US, FWS, para. 830. 
5499 US, FWS, paras. 829-838. 
5500 Dorman Report, Exhibit US-70 (BCI).     
5501 US, FCOS, para. 141. WT/DS316/R 
Page 930  
BCI deleted, as indicated [***] 
 
  7.1866  The United States also asserts that LA/MSF, togeth er with the other subsidies at issue in this 
dispute, have directly and indirectly lowered Airbus' marginal cost of capital, which allows Airbus to 
meet profitability targets while reducing prices.  The United States argues that LA/MSF, by reducing 
the cost of capital in the initial years of an aircraft project, allows Airbus to be more flexible in the 
pricing of all of its LCA during that period while, at the same time, maintaining a rapid pace of 
development.
5502  In support of its arguments concerning the pricing effect of LA/MSF, the United 
States relies upon, inter alia , statements in the 2005 Airbus A nnual Review, which it alleges indicate 
that market share was more important to Airbus than profitability.5503  It also refers to certain 
documents produced by Moody's credit rating agen cy, which allegedly demonstrate that LA/MSF 
results in Airbus' parent company EADS having a more favourable credit rating than would otherwise 
be the case, as well as a 2007 Deutsche Bank re port, which indicates that LA/MSF accounted for 
nearly half of EADS' net "free cash flow".5504  The United States also relies upon the explanation of 
the [***]  mechanism provided by the Executive Vice President of Airbus, Christian Scherer, in a 
statement prepared for the purposes of  this dispute settlement proceeding.5505  
7.1867  While the United States maintains that there is no obligation on it to quantify the benefit of 
the subsidies at issue, it presents as evidence of th e magnitude of the subsidies a report prepared by 
NERA Economic Consulting, which calculates the tota l benefit of LA/MSF in terms of its impact on 
the present financial condition of Airbus as of year  end 2006  at between USD 92.5 billion and USD 
178.2 billion.5506  It also argues that irrespective of the methodology used to calculate benefit, the 
costs associated with equivalent financing on co mmercial terms would have been impossible for 
Airbus to meet.5507 
7.1868  Thus, in essence, the United States argues that in the absence of the challenged subsidies, 
Airbus would have fewer and different LCA mo dels and could not price the ones it has so 
aggressively.  According to the United States, this is the market distorting impact of the subsidies that are at issue in this dispute.  Drawing on this vi ew, the United States posits a counterfactual in which 
the "U.S. LCA Industry would produce and sell more aircraft at higher prices than it does in the face 
of subsidized competition".
5508  While the United States provides evidence and arguments in respect 
of each of the forms of serious prejudice set out in  Article 6.3(a)-(c), these alleged market distortions 
and their alleged impact on LCA development and pr ices are at the heart of the United States' serious 
prejudice claims.  As such, the United States argues that each form of serious prejudice alleged flows directly from the market distorting impact of the subsidies.
5509  
(ii) Arguments of the European Communities 
7.1869  The European Communities submits that the United States cannot demonstrate that the 
various Airbus LCA programmes would not have been  launched without LA/MSF.  In respect of the 
A380, A340-500/600 and the A330-200 the European  Communities has provided internal documents, 
the Airbus business cases , as evidence in support of its position.   The European Communities asserts 
that the Airbus business cases demonstrate that a ll post-1992 launches of Airbus LCA would have 
occurred without LA/MSF.5510  The European Communities also no tes that neither the German nor 
UK governments provided any LA/MSF to Dasa or Br itish Aerospace in respect of the A340-500/600, 
                                                      
5502 US, SWS, para. 595. 
5503 Airbus Annual Review 2005, Exhibit US-441 
5504 Deutsche Bank, EADS: Risks Mispriced – Downgrade to Sell.  Jan 9, 2007, at 7, Exhibit US-459. 
5505 Statement of Christian Scherer, Exhibit EC-14, paras. 105-106. 
5506 NERA Economic Consulting, Quantification of Benefit of Launch Aid (24 May 2007), Exhibit US-
606. 
5507 US, SWS, para. 612. 
5508 US, FCOS, para.131. 
5509 US, FCOS, para. 170. 
5510 EC, SWS, paras. 763-795.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
  yet both of these entities participated in the project .  According to the European Communities, in the 
absence of LA/MSF in the case of each of these aircraft  launches, Airbus would have availed itself of 
higher levels of supplier risk financing.   
7.1870  Concerning LA/MSF and the launch of the A300,  A310, A320, A330 and A340 aircraft, the 
European Communities stresses that  these measures were provided between 20 and 37 years ago, and 
argues that it is "wholly speculative" to assume "wha t Boeing's present prices, sales and market share 
would be, but for MSF loans tied to these products."5511    
7.1871  The European Communities submitted a critique of  the Dorman Report prepared by Professor 
Paul Wachtel of New York University's Stern School of Business.5512  Relying on that report, as well 
as on an internal Airbus analysis of the Dorman simulation,5513 the European Communities argues that 
the Dorman simulation uses unrealistic parameters in order to manufacture the conclusion that no Airbus LCA would have been la unched without LA/MSF.  The European Communities also asserts 
that the Dorman Report is b ased on an incorrect premise, i.e., that the LCA market is a natural 
monopoly, such that if Airbus did not exist Boeing would face no competition from any other LCA 
manufacturer.  The European Communities argues that  absent Airbus there would be "very active" 
competition in higher volume LCA markets, i.e., single-aisle, 200-300 seat, and 300-400 seat.
5514   
7.1872  The European Communities further argues that , even assuming that the alleged subsidies 
provided a competitive advantage to Airbus at  the time of the launch of th e A300, A310, A320, A330 
and A340, that competitive advantage was short-liv ed and intervening even ts have "attenuated the 
causal link between the subsidies themselves and th e adverse effects that the United States alleges 
resulted from the competitive harm."5515  According to the European Communities, a key causation 
question in assessing the existence of present adver se effects is how long the competitive advantage 
flowing from subsidies lasts.5516  The European Communities asserts that  any generalized competitive 
and subsidized advantage  secured by the launch of any Airbus LCA was relatively short-lived.  Thus, 
the European Communities argues th at even if the United States could prove that LA/MSF enabled 
Airbus to achieve a technological advantage with any given models of LC A, any such advantage 
would be fleeting.  The European Communities argu es that a rival manufacturer is normally capable 
of launching a competing aircraft with comparab le or improved technology and bring it to market 
within approximately five years, thus eliminati ng any advantage enabled by the subsidy, or even 
turning it into a disadvantage.5517  Further, the European Communiti es contends that if subsidies are 
used to create a product that creates its own demand and does not compete with any other product, 
then the effect of such subsidies may neve r become strong enough to cause adverse effects.5518  
Finally, according to the European Communities,  since the subsidy element of LA/MSF does not 
                                                      
5511 EC, SWS, para. 762. 
5512 Wachtel Report, Exhibit EC-12.  A supplemental report prepared by Professor Wachtel was also 
submitted by the European Communities, Clarification of Critique of "The Effect of Launch Aid on the 
Economics of Commercial Airline Programs" by Gary J. Dorman , 20 May 2007 ("Wachtel Report 
(Clarification)"), Exhibit EC-659.   
5513 Declaration by Francisco-Javier Riaza Carballo, Vice President A380 Business, Attachment 1, 
Exhibit EC-665 (HSBI)(hereinaft er "Carballo Declaration"). 
5514 EC, SWS, para. 867.  The European Communities' arguments in this regard are premised on its 
view that there are multiple subsidized products at issue in  this dispute, which compete in separate markets with 
United States' like products.  We recall that we have rejected the European Communities' position in this regard, and are considering adverse effects on the basis of a single subsidized product, all Airbus LCA, and a single 
corresponding like produ ct, Boeing LCA.  See, para. 7.1680 above. 
5515 EC, SWS, para. 879. 
5516 EC, FWS, para. 2291. 
5517 EC, FWS, para. 1652, referring to Declaration of Andrew Gordon, 31 January 2001, para. 19, 
Exhibit EC-16 (BCI), para. 2272, EC, SWS, para. 873. 
5518 EC, FWS, para. 2291. WT/DS316/R 
Page 932  
BCI deleted, as indicated [***] 
 
  reduce recurring costs, any competitive advantage in  the marketplace, and hence any potential adverse 
effects, are extinguished.  In addition, the Europ ean Communities argues that other factors – such as 
rising fuel prices – may further reduce th e effect of a subsidy over time.   
7.1873  In keeping with its assertion of separate a nd distinct subsidized and like products, the 
European Communities argues that any serious pr ejudice caused by subsidies to the A320 family 
LCA has been diminished by (a) the intervening launches of the Boeing 737NG family LCA and (b) 
Boeing's abandonment of LCA offered at the time of the A320 series launches, as well as present 
unmet demand for Boeing 737NG LCA.
5519  With respect to alleged serious prejudice caused by 
subsidies to the A300/A310, the A330-300, a nd the A330-200 LCA, the European Communities 
asserts that the causal link between the launch of  those Airbus LCA and the alleged competitive 
harms is eliminated by (a) the subsequent launches of 767 and especi ally 787 family LCA, (b) Airbus' 
abandonment of the A300 and A310 families, and (c) the competitive effect of the 787 on the older 
767.5520  With respect to the A340-200/300 and A340- 500/600, the European Communities argues that 
the causal link between the launch of those Airbus  LCA and the alleged competitive harms to the 
Boeing 777 is attenuated or broken by (a) the late r launches of highly successful variants of the 
Boeing 777, (b) the displacement of the A340 "basi c" models which could no longer compete with the 
technologically superior 777, (c) [***], and (d) the enormous unmet demand and delivery backlog for 
the 777 series.5521  Finally, the European Communities argues that the 1997 merger between Boeing 
and McDonnell Douglas increased Boeing's resources and market power, diminishing any competitive 
advantage enjoyed by Airbus due to pre-1997 LCA launches.5522 
7.1874  The European Communities asserts that a consider ation of the magnitude of the benefit of the 
alleged subsidies is necessary in or der to consider the United States' claims of adverse effects, and 
argues that in order to assess th e United States' serious prejudice claims the present per-aircraft 
amount of the alleged subsid ies must be determined.5523  The European Communities, relying in 
principal part on its understanding of United States ' law and regulations governing the calculation and 
allocation of subsidy amounts in countervailing dut y investigations, calcula tes a per-aircraft amount 
of subsidization with respect to LA/MSF and R&TD support for fulfilled orders of different models of 
Airbus LCA in any given year.5524  According to the European Comm unities, the results show that the 
magnitude of the subsidy is very small on a per-aircr aft basis, and simply too small to have caused the 
adverse effects alleged by the United States.   
7.1875  The European Communities also argues that th e benefit of LA/MSF is limited to the amount 
of the difference between the LA/MSF interest ra tes and the respective market interest rate 
benchmarks.  Accordingly, the European Comm unities argues that any enhanced credit rating 
resulting from LA/MSF is captured by this differen ce as "the market benchmark rates derived from 
the Airbus risk-sharing suppliers presumptively captu re all benefits following from this financing, 
including the reduction in project risk that enhances the credit rating".5525  Regarding the alleged "free 
cash flow" effect of LA/MSF the European Comm unities argues that in the period between 1996 and 
2006 LA/MSF had a slight negative effect on Airbus cash  flows, and that even if cash flow were an 
appropriate measure or determining factor in c onsidering aircraft pricing, which the European 
                                                      
5519 EC, SWS, para. 881.   
5520 EC, SWS, para. 888. 
5521 EC, SWS, para. 895. 
5522 EC, SWS, paras. 908-911. 
5523 EC, FWS, paras. 1569-71. 
5524 EC, FWS, paras. 1586-1634, ITR Report, Exhibit EC-13 (BCI/HSBI).  The United States did not 
endorse the benefit calculation and allocation metho dologies relied on by the European Communities, 
considering them to contain errors at  direct variance with the CVD methodol ogies used by the United States and 
the European Communities itself.  US, Answer to Panel Question 42, para. 250, footnote 313. 
5525 EC, SWS, para. 1039.    WT/DS316/R 
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  Communities claims it is not, the cash flow be nefits associated with the LA/MSF would be de 
minimis .5526 
(iii) Evaluation by the Panel 
7.1876  We recall that in the previous section of this Re port, we concluded that the evidence before us 
demonstrates that, during the period 2001 to 2006, Un ited States' LCA were displaced by Airbus LCA 
from the EC LCA market and from certain third country LCA markets.5527  In addition, we found that 
the United States had shown that Boei ng lost a number of LCA sales to Airbus, and that, overall, there 
was significant depression and suppression in LC A world market prices between 2001 and 2006.5528  
Consistent with the two-step a pproach we have decided to adopt  for the purpose of evaluating the 
United States' claims of serious prejudice,5529 we next turn to examine whether the United States has 
demonstrated that the particular market phe nomena observed over the period 2001 to 2006 were 
caused by the specific subsidies we have found were provided to Airbus.   
7.1877  The United States has advanced two lines of argu ment in respect of causation focussed on the 
alleged impact of LA/MSF and the other subsidies on: (i) Airbus' ability to launch and bring to the 
market models of LCA that the United States subm its would not otherwise have been possible at the 
time and in the way that it did without the support of  those subsidies; and (ii) the level of Airbus' 
cash-flow and other financial resources during the pe riod between launch invest ment and the recovery 
of that investment, which the United States submits  enabled Airbus to price aggressively and build 
long-term market share.5530  For convenience, we refer to the United States' respective arguments as 
the "product" and "pricing" theories of causation.5531  Below we examine the merits of each of the two 
theories in turn, starting with the United States' "product" theory.  
7.1878  Before doing so, however, we recall and describe briefly the five types of measures we have 
found constitute specific subsidies to Airbus with respect to LCA in this dispute: 
(a) LA/MSF:  LA/MSF consists of loans provi ded on non-commercial terms to Airbus 
from 1969 to 2000 by the governments of France, Germany, Spain and the United 
Kingdom for the purpose of financing differi ng proportions of the development costs 
of Airbus' family of large civil aircraft; 
(b) Infrastructure measures:  the governments of France, Germany and Spain funded 
some or all of the costs of development,  expansion, and upgrading of infrastructure 
and Airbus facilities in connection with LCA production, including the development 
and provision of the Mühlenberger Lo ch site by German authorities on non-
commercial terms, the extension and use on non-commercial terms of the runway at 
Bremen Airport by German authorities, the development and provision by French 
authorities of the ZAC Aéroconstellation site and associated EIG facilities on non-
commercial terms, and regional grants by German authorities in Nordenham, and by 
Spanish authorities in Sevilla, La Rincona da, Toledo, Puerto de Santa Maria and 
Puerto Real, for Airbus LCA facilities; 
                                                      
5526 EC, SWS, 1058-1063; International Trade Resources LLC, "Cash Flow Effect of member State 
Financing" , 20 May 2007, Exhibit EC-661, (BCI/HSBI), Tables 1-2. 
5527 See, paras. 7.1758 and 7.1790 - 7.1791 above. 
5528 See, paras. 7.1855 and 7.1861 above. 
5529 See, para. 7.1731 above. 
5530 US, SWS, paras. 556, 560. 
5531 We emphasize, however, that these are our short- hand references, and we note that there is not 
always a clear distinction between the two types of argument. WT/DS316/R 
Page 934  
BCI deleted, as indicated [***] 
 
  (c) German government share transfers:  the German government, through KfW, 
provided capital on non-commercial terms to De utsche Airbus by acquiring, in 1989, 
a 20 percent equity interest in Deutsche Ai rbus, and subsequently transferring that 
interest to MBB in 1992; 
(d) French government equity infusions:  the French government provided equity 
infusions in 1987, 1988, 1992 and 1994, and in 1998, transferred a share of its capital 
investment in Dassault Aviation to Aéro spatiale on non-comme rcial terms; and 
(e) R&TD funding:  the European Communities,  the governments of France, Germany, 
Spain, the United Kingdom, and certain s ub-federal German government authorities 
provided grants, and some loans on non-commerc ial terms, to Airbus to fund research 
and technological development efforts in c onnection with the development of Airbus 
LCA. 
The United States' "Product" Theory of Causation
 
LA/MSF 
7.1879  The United States argues that LA/MSF "shifts mu ch of the commercial risk of LCA launch 
decisions from Airbus to the Airbus governments, thereby causing Airbus to launch aircraft models 
that in the absence of the subsidy would not have been launched".5532  The United States argues that 
LA/MSF has been fundamental to the development of  Airbus as a producer of aircraft, as it was a 
necessary component of the launch of every Airbus model since the initial launch, in 1969, of the 
A300.  The United States does not consider that its arguments depend on finding that, in the absence 
of LA/MSF, Airbus would not exist.  Rather, the United States argues that in the absence of LA/MSF 
Airbus would not have been in a position to devel op the aircraft it did when it did.  For the United 
States, market distortion and adverse effects flow directly from Airbus' entry at a particular time with a particular aircraft, which in the United States ' view would not have been possible but for the 
subsidies.
5533   
7.1880  The United States relies upon essentially two types of  evidence to demonstrate that the impact 
of the LA/MSF provided to Airbus since 1969 was to en able Airbus to launch and develop the aircraft 
it did when it did and thereby cause present serious prejudice to the United States' interests.  In 
particular, the United States relies upon: (i) a series of public statements and one State Aid Decision 
of the European Commission revealing the views held by various officials from Airbus and other relevant public bodies on the impact of LA/MSF on the ability of Airbus to launch LCA; and (ii) the 
Dorman Report, which purports to demonstrate the impact of LA/MSF-type measures on the decision 
to launch an LCA.  In the following sections, we  describe and examine each of the two types of 
evidence the United States relies upon, in light of the parties' arguments, making certain initial 
conclusions on the extent to which they support th e United States' position.  However, before doing 
so, we believe it is useful to briefly recall th e salient features of LA/MSF and how it operates. 
7.1881  We recall that the type of financing we have denominated LA/MSF in this dispute, and found 
constitutes specific subsidies to Airbus, consists of loans on non-commercial terms provided to Airbus 
from 1969 to 2000 by the governments of France, Germany, Spain and the United Kingdom.  Each LA/MSF loan we have found to constitute a specific subsidy takes the form of a long-term, unsecured 
loan at a below-market rate of interest with success-dependent and genera lly graduated repayment 
terms.  The success-dependent nature of the loans means that Airbus' repayment obligations arise only 
                                                     
 
5532 US, SWS, para. 560. 
5533 The United States makes this central argument in a variety of ways throughout its submissions.  
E.g., US, FWS, paras. 78, 810, US, FNCOS, para. 131 and US, SWS, para. 571.  WT/DS316/R 
 Page 935 
 
BCI deleted, as indicated [***] 
 
  after it has successfully developed and begins selling the financed aircraft.  Once repayment begins, it 
occurs through a levy on each delivery of financed aircraft and is generally  graduated on an ascending 
scale, meaning that repayments on the first aircra ft deliveries are lower than repayments on later 
deliveries.  Should Airbus fail to sell enough of the financed aircraft to repay the entire loan, the 
government lenders have no contractual right to the outstanding balances.  The nature of this 
financing shifts a portion of the commercial and fina ncial risks of developing new models of LCA to 
the governments providing the LA/MSF.  The extent of this risk-shifting varies with the proportion of the development costs being financed, which has decreased from 100 percent for the first Airbus 
LCA, the A300, in 1969, to 33 percent for the most  recently financed aircraft, the A380, in 2000.  
Other features of LA/MSF that affect the degree of risk-shifting include the degree to which 
repayment is back-loaded and/or  graduated and the assumptions concerning sales forecasts used as a 
basis for the repayment schedule.  The questions addressed in the Dorman Report, and the parties' 
arguments, focus on the mechanics of the risk-shi fting element of LA/MSF-type financing, and 
whether and the extent to which the provision of LA /MSF affects the behaviour of the recipient with 
respect to the decision whether to launch a particular LCA programme.  
The Dorman Report 
7.1882  The Dorman Report simulates the impact of LA /MSF-type financing measures on a decision 
to launch an LCA – that is, the decision to unde rtake the development of a particular model of 
aircraft.  The Dorman Report simulates cash-flow s generated by a hypothetical wide-body airplane 
programme under a variety of LA/MSF contribution, price, production and cost scenarios.  Cash flows 
are forecast over a 20 year period and discounted in  order to derive an overall programme net present 
value ("NPV").  The Dorman simulation is based on certain key assumptions, principally: 
(a) 850 deliveries of LCA over a 20 year period, with the first delivery taking place at the 
end of year five (the e nd of the development phase); 
(b) an annual discount rate of 10%; and 
(c) development costs of $10 billion and for ecast recurring costs that decline over 
time.
5534 
Six different LA/MSF programme examples are c onsidered, patterned after: (i) the UK A320 
LA/MSF "package"; (ii) the Spanish A380 LA/MSF "p ackage"; (iii) an interest-free version of the 
Spanish A380 LA/MSF "package"; (iv) the Fren ch A380 LA/MSF "package"; (v) the French A340-
500/600 LA/MSF "package"; and (vi) and the French A330-200 LA/MSF "package".5535  Each of 
                                                      
5534 Exhibit US-70 (BCI), pp. 3 and 4. 
5535 The Dorman Report explains the six packages in  the following terms: th e UK A320 "package" and 
the Spanish A380 "package", "are patterned after actual development funding by the British government for the 
A320 ... and by the Spanish government for the A380.  In both cases, the model's disbursement pattern and the 
imputed interest rate mirror actual expe rience." "In the model, the share of total launch aid received in each year 
mirrors the actual disbursement streams in the real-world examples".  The "interest-free version of the Spanish 
A380 package was included as a third alternative" in orde r to "examine the financial effects of an interest-free 
loan package".  The "three launch ai d packages provided by the French  government were" "derived from 
documents examined as BCI".  The Dorman Report notes that "{a}ll examples were selected primarily on the 
basis of availability of information.  In general, the details of actual launch aid packages are difficult to obtain, 
despite the fact that these are pub licly funded programs.  These programs were modelled as accurately as 
possible given the available data, but small discrepancies may result from their lack of transparency." Dorman Report, Exhibit US-70 (BCI) pp. 4-5, footnotes 11-13. WT/DS316/R 
Page 936  
BCI deleted, as indicated [***] 
 
  these programmes is examined under th ree alternative repayment schedules.
5536  A total of 54 different 
scenarios are modelled, with each grant of LA/MSF c onsidered to provide funding of either 33.33%, 
66.66% or 100% of development costs, which ar e to be repaid as aircraft are delivered. 
 
7.1883  In order to demonstrate the alleged impact of LA/MSF, the net present value ("NPV") of a 
base case scenario is calculated ( i.e., the NPV of the modelled programme without LA/MSF).  The 
Dorman  simulation generates positive returns in the base case ( i.e., a NPV of USD 1.35 billion).  The 
base case assumes that production, cost and pricing levels will be as forecast.  However, relatively 
small variations to the forecasts give rise to un economic results.  Thus, the Dorman Report predicts 
that if actual production in the base case is only 90% of forecast production,  there will be negative 
returns (negative USD 3 million) in  the absence of LA/MSF.  Similarl y, a decrease in forecast prices 
of 5% also results in negative returns (negativ e USD 191 million).  Combining a 5 percent decrease in 
forecast prices with a 5% increase in recurring costs,  the model predicts that negative returns will be 
even larger (negative USD 1.342 billion).   
7.1884  The predicted impact of LA/MSF varies dependi ng upon the particular repayment schedule 
applied, and the percentage of development cost  funded by the particular LA/MSF programme.  The 
NPV effect of LA/MSF is, not surprisingly, highe r where such funding accounts for 100 percent of 
development costs than when such funding accounts fo r 33 percent of development costs.  However, 
as shown in the Table reproduced below, the resu lts of the Dorman simulation predict that the 
provision of LA/MSF will have a significant impact  on the NPV of the modelled programme in each 
and every case.  Thus, where base case forecasts for prices and costs are met, NPV increases if 
LA/MSF is provided.  Similarly, where production levels and prices are lower than the base case, 
either a positive NPV is generated with LA/MSF as compared to the result without LA/MSF, or, where a negative NPV results with or without LA/MSF, the resulting losses are lower with LA/MSF 
than without LA/MSF.  These resu lts are set forth in Table 3 of the Dorman Report, which we 
reproduce below as Table 41.
5537 
 
 
                                                      
5536 The three scenarios are: level repayment (equal pe r-aircraft payments set on the basis of forecast 
deliveries); graduated repayment (increasing per-aircraf t payments); and delayed level repayment (equal per-
aircraft payments starting with the 60th airplane delivery).  Dorman Report, Exhibit US-70 (BCI), p. 5. 
5537 Dorman Report, Exhibit US-70 (BCI).  
   WT/DS316
 Page 937
BCI deleted, as indicated [***] 
 TABLE 41 
 
Launch Aid Impact on Programme Risk 
Example of Launch Aid's Increased Increm ental Value at Lower Production Levels 
  
  No Launch Aid With Launch Aid* Incremental Value of Launch 
Aid 
 Recurring cost levels: Expected 5% 
higher 10% 
higher Expected 5% 
higher 10% 
higher Expected 5% 
higher 10% 
higher 
     ($ millions)    
        { ( d ) - ( a ) } {(e)-(b)} {(f)-(c)} 
  (a) (b) (c) (d) (e) (f) (g) (h) (i) 
 Actual production levels:          
(1) @100 % of expected production levels $1,350 $199 ($952) 2,386 1,235 84 $1,036 $1,036 $1,036 
(2) @ 95% of expected production levels 616 (490) (1,596) 1,782 676 (429) 1,166 1,166 1,167 
(3) @ 90% of expected production levels (3) (1,068) (2,134) 1,273 208 (858) 1,276 1,276 1,276 
(4) @ 85% of expected production levels (744) (1,761) (2,778) 662 (355) (1,372) 1,406 1,406 1,406 
(5) @ 80% of expected production levels (1,438) (2,408) (3,378) 53 (917) (1,887) 1,491 1,491 1,491 
 
 
5% Price Decrease  
 
  No Launch Aid With Launch Aid* Incremental Value of Launch 
Aid 
 Recurring cost levels: Expected 5% 
higher 10% 
higher Expected 5% 
higher 10% 
higher Expected 5% 
higher 10% 
higher 
     ($ millions)    
        {(d)-(a) } {(e)-(b)} {(f)-(c)} 
  (a) (b) (c) (d) (e) (f) (g) (h) (i) 
 Actual production levels:          
(6) @100 % of expected production levels ($191)  ($1,342)  ($2,493) $845 ($306)  ($1,457)  $1,036 $1,036 $1,036 
(7) @ 95% of expected production levels (846)  (1,951)  (3,057)  321 (785)  (1,891)  1,167 1,166 1,166 
(8) @ 90% of expected production levels (1,396)  (2,461)  (3,527)  (120) (1,185)  (2,251)  1,276 1,276 1,276 
(9) @ 85% of expected production levels (2,054)  (3,071)  (4,088)  (649) (1,666)  (2,683)  1,405 1,405 1,405 
(10) @ 80% of expected production levels (2,669)  (3,639)  (4,609)  (1,178) (2,148)  (3,119)  1,491 1,491 1,490 
 
 
* Launch aid based on the 33 1/3 percent Spanish A380 launch aid structure with gr aduated pro-rata repaymen t {see text of report}. 
 WT/DS316/R 
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BCI deleted, as indicated [***] 
 
 7.1885  Referring to these results, the Dorman Report c oncludes that LA/MSF distorts competition by 
subsidizing non-recurring costs and by transferri ng risk from the manufacturer to the government 
provider of the funding.  In particular, the Dorman Report concludes that LA/MSF:  
"allows the recipient to undertake airpla ne development projects at a pace and scale 
that would be more difficult – perhaps impossible – for a competitor that does not 
have access to launch aid.  It can even allow airplanes that are not commercially 
viable to be built anyway."5538  
7.1886  To the extent that LA/MSF accelerates the introduction of new aircraft, or causes the 
introduction of new aircraft, the Dorman Report conc ludes that this will have  negative consequences 
for other competing producers: 
"An airplane program that is enabled by la unch aid is likely to cause prices to decline 
in the market segment that it targets.  Co mpeting airplanes will need to lower their 
prices and will likely sell fewer units, since some customers will purchase the new airplane and most customers will leverage one seller against another to obtain larger 
discounts.  If launch aid accelerates the pace of airplane development or if the 
program would only be undertaken with government-provided launch aid, normal 
competitive decisions become distorted due to resulting subsidy and transfer of risk.  This distortion of the competitive process subjects the competing manufacturer to reduced prices, volumes and profitability for its airplane programs."
5539  
The Dorman Report acknowledges that reduced prof itability for a competing producer following the 
introduction of a new competitive plane may be "the natural outcome of the competitive process in the 
commercial airplane business, but only when a new airplane is  launched on commercially viable 
terms . "5540  
 7.1887  We note that the Dorman Report does not explicitl y conclude that each Airbus LCA model, or 
indeed any particular Airbus LCA model, would not  have been launched in the absence of LA/MSF.  
Nevertheless, we consider this to be a clear imp lication of the conclusions it advances on the basis of 
the results it predicts.  As the Dorman Report not es, commercial airplane programmes are expensive 
and contain a large inherent amount of risk.  Given the long-term nature of an aircraft programme, it 
is difficult to predict costs, revenues and demand fo r any particular aircraft and, consequently, a 
prudent planner might well expect that all cost and revenue variables will not come to pass as 
forecast.  The Dorman simulation generat es a positive NPV in the base case scenario ( i.e., without 
LA/MSF and with costs, revenue and production leve ls as forecast).  However, relatively small 
changes in forecast cost, revenue and production le vels result in significantly poorer results, 
generating either lower or negative NPV in all cases.  The Dorman Report implies, and we agree, that 
such variations in the forecast parameters constitu te realistic scenarios which would need to be 
considered by a manufacturer when making a launch d ecision.  Given that a realistic scenario includes 
a negative NPV in the absence of LA/MSF, it follows that an affirmative decision to launch is less 
likely upon consideration of the possible outcomes without LA/MSF.  Accordingly, it is clear to us that the Dorman Report, and the simulation reported therein, supports the United States' position that 
Airbus product launches would not have occurred in the absence of LA/MSF.  
                                                     
 
5538 Dorman Report, p. 8, Exhibit US-70 (BCI). 
5539 Ibid, p. 9. 
5540 Ibid, p. 8.  (emphasis in original) .  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
 7.1888  The European Communities has submitted a criti que of the Dorman Report in the Wachtel 
Report.5541  The Wachtel Report makes three fundamental  criticisms of the Dorman Report: (i) that it 
is based on an underlying premise that the LCA mark et is a natural monopoly, and hence it incorrectly 
assumes that if Airbus did not exist, there would be no other competitor; (ii) that it derives its 
conclusions about the effects of LA/MSF from sens itivity tests performed on a simulation that is 
constructed with unrealistic parame ter values and assumptions of cost s and demand, and (iii) that it 
fails to take into account the full economic implic ations of the structure of LA/MSF repayments.5542   
7.1889  As we understand it, the principal focus of the first point made in the Wachtel Report is the 
conclusion reached in the Dorman Report that  LA/MSF may cause an otherwise unprofitable LCA 
programme to be undertaken, allegedly implying that in the absence of LA/MSF granted to Airbus, 
Boeing would enjoy a monopoly position in the market for LCA, including monopoly profits.5543  
According to Wachtel, most LCA markets (defined by the number of passenger seats) 5544 are natural 
duopolies, i.e., markets in which "the threshold of en try for a second firm is below the market 
size".5545  As such, Wachtel submits that it is incorr ect to suggest that in the absence of a LA/MSF-
supported entrant, an incumbent LCA manufact urer would enjoy a monopoly position.   
7.1890  Drawing from publicly available sources, which suggest that the break-even point for the 
Airbus A380 and Boeing 747 is less than 500 units, the Wachtel Report posits a break-even or entry 
threshold of 500 production units for each alleged LCA market.  The Wachtel Report notes that data 
from other publicly available sources suggests that  LCA markets almost always exceed 1,000 units.  
Given that this demand is more than twice the br eak-even or entry threshold, the Wachtel Report 
asserts, on the basis of an approach adopted in an economic study conducted by Breshnahan and 
Reiss,5546 that there is room for two competitors in eac h of the identified markets, and by extension 
therefore that "if Airbus had not entered the mark et, it is more than likely that Boeing would have 
faced another competitor".5547 
7.1891  It is true that among the effects the Dorman Report identifies as flowing from the entry into 
the LCA industry of a new competitor funded th rough LA/MSF is a reduction in the incumbent 
competitor's profits.5548  This implies that, according to the Do rman Report, profits of the incumbent 
competitor in the LCA industry would be greater in the absence of competition from an entrant 
provided with LA/MSF subsidies compared to the situa tion with that subsidized entrant.  However, in 
our view, it does not automatically follow that the "s ituation" the Dorman Report envisaged in a world 
without a subsidized entrant is a Boeing monopoly.   Indeed, the Dorman Report makes no explicit 
claim that if LA/MSF measures were not provided, Boeing would be a monopoly provider of LCA.   
7.1892  The United States criticizes the Wachtel response to the Dorman Report, submitting that 
Dr. Wachtel has advanced no support for the proposition that "if Airbus had not entered the market, it 
is more than likely that Boeing would have faced another competitor".  The United States asserts that 
Dr. Wachtel "does not, and cannot, say when that 'oth er competitor' would have entered the market, or 
                                                      
5541 Wachtel Report, Exhibit EC-12.   
5542 Wachtel Report, Exhibit EC-12; and Wachtel Report (Clarification), Exhibit EC-659. 
5543 Wachtel Report, para. 3, Exhibit EC-12. 
5544 We note, in this respect, that Professor Wachte l's critique reflects the European Communities' view 
that there are multiple subsidized and li ke products, which we have rejected.  See, para. 7.1668 above. 
5545 Wachtel Report, para. 3, Exhibit EC-12; Wachtel Report (Clarification), para. 2, Exhibit EC-659. 
5546 Breshnahan, T, and Reiss, P., "Entry and Competition in Concentrated Markets", (1991) Journal of 
Political Economy , Vol. 95 (5), pp. 977-1009; referred to in Wachtel Report, footnote 2, Exhibit EC-12. 
5547 Wachtel Report, paras. 7-8, Exhibit EC-12.  Professor Wachtel provided a more specific, but 
similar, assessment of the entry threshold in respect of "middle-market aircraft" in the Wachtel Report (Clarification), para. 6, Exhibit EC-659. 
5548 Dorman Report, pp. 8 and 9, Exhibit US-70 (BCI). WT/DS316/R 
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BCI deleted, as indicated [***] 
 
 what the technical capabilities and prices of the LC A produced by that 'other competitor' would 
be".5549  Moreover, the United States notes that to the extent that the Wachtel Report criticism may be 
correct, various facts suggest that the "other  competitor" would have most likely been 
McDonnell Douglas, another United States company.  Thus, the United States accepts that in the 
world without the provision of LA/MSF to Air bus "surely there would nonetheless have been 
competition".  However, it considers that such co mpetition would have been different from the actual 
competition from a subsidized Airbus.5550   
7.1893  Reading the United States' response to the Wach tel Report together with the Dorman Report, 
we do not consider it accurate to characterise the Dorman Report as being premised on the view that 
Boeing would hold a monopoly position in the absence of a competitor subsidized through LA/MSF.  
Apart from the fact that the Dorman Report never actually claims that Boeing would hold a monopoly in the absence of a LA/MSF-supported competitor, it is clear that the Dorman Report does not 
conclude that it would be impossible for a co mpany to enter the LCA business without access to 
LA/MSF.  Thus, the Dorman Report concludes th at LA/MSF "allows the recipient to undertake 
airplane development projects at a pace and scal e that would be much more difficult – perhaps 
impossible – for a competitor that does not have access to launch  aid".
5551  While a Boeing 
monopoly may be one way of understanding what the Dorm an Report states about the implications of 
LA/MSF on the operations of the incumbent LCA manuf acturer, it is also possible to understand those 
implications in the context of a world where the incumbent manufacturer would face competition 
from another player; a weaker entrant that entered without the assistance of LA/MSF.  Finally, as we 
will explain further below, the real significance fo r us of the simulation presented in the Dorman 
Report is not so much what it says about the imp act of LA/MSF on the operations of the incumbent 
manufacturer, but rather what it tells us about whether a potential new entrant, or an existing 
manufacturer, will decide to launch a new model of LCA. 
7.1894  The conclusion in the Wachtel Report that i ndividual LCA markets are a "natural duopoly" 
also informs Dr. Wachtel's criticism of the parameters  used in the Dorman simulation.  We understand 
Dr. Wachtel to be of the view that, assuming LCA markets are duopoly markets, a model which suggests that entry would not occur absent LA/M SF is suspect.  The Wachtel Report therefore 
questions the reliability of the Dorman simulation, in which small changes to forecasts turn a positive 
NPV into a negative NPV which, in turn, suggests th at a decision to launch would not be made.  In 
this respect the Wachtel Report argues that the Dorm an simulation implies that not only would Airbus 
not introduce a new aircraft because of the associated  risks, but also that Boeing, itself, would not 
introduce a new aircraft.  The Wachtel Report remarks: 
"The base case makes aircraft production very unattractive.  Since the model would 
apply to all producers, one wonders why Boei ng launched all of the aircraft that it 
did? Clearly, the model and the assumed numer ical values are chosen in a way that 
exaggerates the impact of launch aid."
5552 
We note, however, that Dr. Wachtel subsequent ly acknowledged that he assessed Dorman "on its 
face...{and} did not attempt to assess whether the specific parameter values and assumptions defined 
by Dorman were realistic."5553    
 
                                                      
5549 US, FNCOS, para. 146. 
5550 US, FNCOS, para. 151; US, SWS, para. 571. 
5551 Dorman Report, p. 8, Exhibit US-70 (BCI). 
5552 Wachtel Report, para. 10, Exhibit EC-12.   
5553 Wachtel Report (Clarification), Exhibit EC-659, para. 8.  WT/DS316/R 
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 7.1895  The parameters relied upon in the Dorman simulati on are also questioned in the declaration of 
Francisco-Javier Riaza Carballo, former Vice Presi dent A380 Business ("Carballo Declaration")  
submitted by the EC.5554  The Carballo Declaration asserts that the Dorman Report incorrectly 
assumes that non-recurring costs ("NRCs") will be e xpended within five year s of launch and, more 
importantly, underestimates the number of deliveri es over the life of a programme.  According to 
Mr. Carballo, an estimated delivery stream of 850 units may have been reasonable in planning a 
launch twenty years ago but under current mark et conditions, Airbus or Boeing could expect 
1,400 deliveries within a 15 year period.5555   
7.1896  In support of the view that the Dorman simu lation underestimates the number of expected 
deliveries, the Carballo Declaration cites public information in respect of Boeing's production plans 
for the 787, which estimate delivery of 1735 aircraft over 15 years.  The Carballo Declaration also 
notes Airline Monitor's January 2005 estimate of 1375 aircraft deliveries in the first 15 years of commercial service.
5556  Airbus reverse-engineered a simulation of the base case in the Dorman 
simulation, using the lower estimate of 1375 Boeing 787 aircraft, and the Carballo Declaration reports 
the result.  Whereas the Dorman simulation repor ted a NPV of USD 1.35 billion in the absence of 
LA/MSF, the Carballo Declaration reports a NPV of  between USD 6 and 7 billion, and an internal 
rate of return ("IRR") of between 17% and 18%5557, assuming the delivery of 1375 aircraft.5558  The 
European Communities claims that th ese figures are significant as they are [***].5559 
7.1897  The United States finds the European Commun ities' assertion that the Dorman simulation 
underestimates the number of deliveries that coul d be achieved for a wide-body LCA programme to 
be surprising.  Drawing from information availabl e on Airbus' website on the number of deliveries for 
its wide-body LCA models, the United States assert s that "Airbus has never had a widebody program 
that has produced more than 600 aircraft in its history".5560  Indeed, according to the United States, no 
LCA manufacturer, including Boeing, has ever achiev ed 850 deliveries in the first 15 years of a wide-
body programme.  Moreover, drawing on an economic  study undertaken by Neven and Seabright,5561 
the United States notes that Dr. Wachtel's appro ach ignores that LCA manufacturers will generally 
seek economies of scope across different LCA segment s because of the importance of having a full 
LCA family to the development of each individual  model.  By ignoring such considerations, the 
United States submits that Dr. Wachtel's analysis implies that there should be 12 LCA manufacturers 
in the 100-200 seat LCA market segment ( i.e., the single-aisle, narrow-body segment), because the 
number of sales in this segment between 1991 and 2005 is 12 times a break-even point of 500 
units.5562  In any case, the United States argues that ev en if the European Communities' critique were 
valid, this would take nothing away from the c onclusion established in the Dorman Report that 
LA/MSF significantly affects the probability that a launch will be profitable and therefore that 
                                                      
5554 Exhibit EC-665 (HSBI). 
5555 We note that the Carballo Declaration considers the Dorman simulation assumptions about 
recurring costs and income to be reasonable and makes the same conclusion in respect of the $10 billion NRC 
estimate if the business case assumes at least two variants  of the base model.  Exhibit EC-665 (HSBI), para. 9. 
5556 Exhibit EC-665 (HSBI), para. 18, citing "The  Airline Monitor" January/February 2005, ESG 
Aviation Services , Edmund S. Greenslet, Editor and Publisher. 
5557 The Dorman Report does not set out  an internal rate of return.  The Carballo Declaration calculates 
an IRR of 11.92% for the Dorman simulation base case, as reverse engineered by Airbus.  EC, SWS, para. 816. 
5558 EC, SWS, para. 816;  Exhibit EC-665 (HSBI), para. 20. 
5559 EC, SWS, at 816 
5560 US, SNCOS, para. 171; Exhibits US-645 and US-647. 
5561 Neven & Seabright, Exhibit US-382. 
5562 US, SWS, paras. 567-568. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
 LA/MSF significantly influences the recipient's d ecision on whether to launch a new LCA model at 
all.5563  
7.1898  We agree with the United States.  In our vi ew, the Dorman simulation demonstrates that 
LA/MSF will have a significant impact on the NPV of any given aircraft project, irrespective of the 
specific parameters used to model costs and income  streams.  In all cases, the Dorman simulation 
shows that LA/MSF will increase potential profits and limit potential losses.  By limiting potential losses, LA/MSF transfers risk from Airbus to the governments supplying LA/MSF, thereby rendering it more likely, in any given case, that  an LCA programme will be undertaken.
5564  The conclusions of 
the Dorman simulation are, in this respect, consis tent with other evidence before us, including the 
[***] discussed further below.5565   
7.1899  The third criticism of the Dorman Report raised in  the Wachtel Report is that it fails to take 
into account the economic impact of the structur e of LA/MSF repayments.  This criticism has two 
elements.  First, the Wachtel Report argues that the Dorman Report fails to note that any subsidy 
associated with LA/MSF "is limited to the interest  rate reduction in the loan, not the size of the 
principal".5566  According to Dr. Watchel, this allege d deficiency means that the Dorman Report 
"overstates the impact of launch aid".5567  Second, the Wachtel Report argues that repayments of 
LA/MSF, which occur on delivery of the aircraft involved, could lead to higher prices.5568  I n  h i s  
Clarification, Dr. Wachtel expands on this point stating:  
"The launch aid repayments are generally made with the deliv ery of aircraft, thus they 
are variable costs and as such tend to in crease the price at which Airbus sells the 
aircraft.  Were the repayments on the loan s independent of the sales of the aircraft, 
they would be fixed costs with a much l ess direct and much less upward effect on 
aircraft prices."5569  
7.1900  The United States considers that the Dorman Re port takes repayments of LA/MSF fully into 
account in modelling the impact of LA/MSF.  Accordi ng to the United States, this is confirmed by the 
fact that the Dorman simulation shows that the im pact of LA/MSF increases as fewer LCA are sold 
and fewer repayments made.5570 
7.1901  Turning first to the proposition in the Wachte l Report that LA/MSF repayments will tend to 
increase the price at which Airbus sells its LCA b ecause they are tied to LCA deliveries, we do not 
understand Dr. Wachtel to consider this alleged price effect to be  an impact of LA/MSF that is certain  
to result from LA/MSF's sales-dependent repayment terms.  Rather, it is clear from Dr. Wachtel's 
choice of words that the fact that LA/MSF is  repaid with revenu es generated from LCA 
deliveries may have an upward effect on the prices of those LCA.5571  The fact that Dr. Wachtel does 
                                                      
5563 US, SNCOS, para. 172. 
5564 The United States refers to the views of British economist Kim Kaivanto in this regard:  "Launch 
Aid commits European governments to ab sorbing much of any possible losses, so  even if Airbus is risk averse, 
it has little incentive not to adopt a risky, aggressive strategy."  US, SWS, para. 563, citing Premise and 
Practice of UK Launch Aid , 40 Journal of World Trade  495, 498 (2006), Exhibit US-2. 
5565 See, paras. 7.1922 - 7.1927. 
5566 Wachtel Report, para, 13, Exhib it EC-12; Wachtel Report (Clarification), para. 9, Exhibit EC-659. 
5567 Wachtel Report, para, 17, Exhibit EC-12. 
5568 Wachtel Report, para, 14, Exhibit EC-12. 
5569 Wachtel Report (Clarification), para. 10, Exhibit EC-659. 
5570 US, SWS, para. 572. 
5571 Initially, Professor Wachtel explained that LA/MSF repayments " could  actually lead to higher 
prices". Wachtel Report, para. 14 (emphasis added), Exhibit EC-12.  As noted above, Professor Wachtel  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
 not conclusively state that LA/MSF repayments will, as a matter of fact, result in higher prices reflects 
our own understanding of how prices are set for LCA products.  There are a variety of often very different and sometimes transaction-specific factors that can affect the final price of an LCA.
5572  In 
our view, this suggests that the relationship betw een LA/MSF repayments that are tied to aircraft 
deliveries and the price at which those aircraft are ultimately sold is more complicated than what is 
implied by Dr. Wachtel's proposition.  Thus, wh ile we recognize that a repayment obligation 
explicitly tied to delivery of LCA is an expense accr uing at the same time as that delivery, it does not 
necessarily follow that prices for that LCA will be grea ter than they otherwise would have been in the 
absence of that LA/MSF repayment.  We examine th e impact of LA/MSF (and the other subsidies) on 
LCA prices in the next section of this Report where we address the United States "price" theory of 
causation.  For present purposes, however, we simp ly note that we are not persuaded that the 
proposition advanced by Dr. Wachtel discredits the c onclusions reached in the Dorman Report.  In 
any case, we recall that for the purpose of the presen t analysis, the importance for us of the Dorman 
Report is not what it says about prices after the launc h of an LCA programme, but rather what it tells 
us about whether or not that particular LCA pr ogramme would have been undertaken in the first 
place.  
7.1902  As to the allegation that the Dorman simulati on does not take into account the amount of the 
subsidy associated with LA/MSF, as opposed to the principal amount actually loaned, we are equally 
not persuaded by Dr. Wachtel's submissions.  We recall that the simulation in the Dorman Report 
involved the calculation of the NPV for partic ular LCA programmes funded with LA/MSF on the 
basis of projected cash-flows and a discount rate of 10%.5573  The projected cash-flows (inflows when 
LA/MSF disbursements, and outflows when LA/MSF repayments) are in two examples (the UK A320 
"package" and the Spanish A380 "package") based on "the disbursement pattern and the imputed 
interest rate" from "actual experience".  For the other examples, cash-flows were derived from information designated BCI.
5574  The European Communities has not specifically contested the 
disbursement patterns or imputed interest rates used  in the Dorman simulation.  Indeed, comparing the 
imputed interest rates used in th e Dorman simulation with our own findings in respect of the relevant 
LA/MSF contract interest rates5575 the only notable difference is in respect of the French A330-200 
"package", where the imputed interest rate used in  the Dorman simulation is  approximately half of 
what we found it to be.5576  However, we do not consider these differences to detract from the 
credibility of the Dorman simulation's general results.   
7.1903  The European Communities presented its own calculation of the amount of subsidization 
associated with each of the challenged LA/MSF cont racts, apart from the A300 and A310, in three 
reports prepared by International Trade Resources LLC.5577  The first of these reports, the ITR Report, 
defines the amount of the subsidization conferred by  each LA/MSF contract in the following terms:  
                                                                                                                                                                     
subsequently suggested that LA/MSF repayments would " tend to increase price".  Wachtel Report 
(Clarification), para. 10, (emphasis added), Exhibit EC-659. 
5572 See, discussion at paragraphs 7.1837 - 7.1839 above. 
5573 We understand Dr. Dorman to have used a 10% discount rate throughout the simulation.  See, 
paragraph 7.1882 above; US, Comments on EC, SNCOS, para.31. 
5574 Dorman Report, p. 5 and footnote 13, Exhibit US-70 (BCI). 
5575 See, Table 7 at para. 7.488 above. 
5576 In particular, the imputed interest rate used for the Spanish A380 "package" is the same as our 
findings; the imputed interest rate used for the UK A320 "package" and the French A340-500/600 "package" are, respectively, [***]  and [***] basis points above our findings; and the imputed interest rate used for the 
French A380 "package" is [***]  basis points below our findings.  Dorman Report, Table 2, 
Exhibit US-70 (BCI). 
5577 ITR Report, Exhibit EC-13 (BCI/HSBI), ITR Report (Answer) Exhibit EC-660 (BCI/HSBI) and 
ITR Report (Update) Exhibit EC-839 (BCI). WT/DS316/R 
Page 944 
 
BCI deleted, as indicated [***] 
 
 "The amount of subsidy conferred by each MSF loan is the difference, in the year of 
launch, between the present value of tax ad justed loan receipts and anticipated loan 
repayments discounted at the applicab le project-specific benchmark rate".5578   
The ITR Report (Answer) described the methodology a pplied to calculate the amount of subsidization 
associated with LA/MSF in the following terms: 
 
"We calculate the difference between the retu rn that the government anticipated when 
the MSF loan was agreed with the return  that the US Ellis MSF benchmark rates 
would have required.  Because the repayment schedules of the MSF loans are not 
standard annual repayments and instead are linked to delivery of aircraft, we 
calculated the present value ("PV") as of th e date of the launch of the difference 
between the return that was anticipated by  the MSF agreement and the return that 
would have been required by a commercial entity".5579 
7.1904  Thus, as we understand it, the methodology applie d in the ITR Report to identify the subsidy 
amount is not unlike that applied in the Dorman simulation to arrive at the NPV of the various 
LA/MSF "packages", with one major difference – inst ead of using a 10% discount rate used in the 
Dorman simulation, the ITR Report used the inter est rate benchmark identified in the Ellis Report 
(which the European Communities did not accept) in its  calculations.  It follows that, by the European 
Communities' own proposed approach for calculatin g the amount of subsidization associated with 
LA/MSF, it cannot be concluded that the Dorman  simulation is focussed on only the amounts of 
principal disbursed under the LA/MSF contracts and not the levels of subsidization.  As we 
understand it, the Dorman simulation does, in effect, take into account the amount of subsidization, as 
defined by the European Communities.  However,  because Dorman uses a 10% discount rate, this 
amount is different from that determined by the European Communities, which uses the Ellis Report 
interest rate benchmarks.  
7.1905  Compared with our findings on the appropriate market interest rate benchmarks for the 
LA/MSF "packages" modelled in the Do rman simulation, the 10% discount rate that is used is below 
the range of market interest rate benchmarks that  we have determined for the LA/MSF contracts in 
respect of the UK A320 "package".  To this extent, by the European Communities' own standards, the 
amount of the subsidy taken into account in th e Dorman simulation simulations involving this 
LA/MSF "package" will typically underestimate its NPV.5580  It would therefore not be incorrect to 
describe the Dorman simulation results for this par ticular "package" to be overall conservative.  For 
the other "packages", the 10% discount rate used in  the Dorman simulation lies within the range of 
market interest rates we have concluded would be appropriate benchmar ks for those relevant 
contracts.  Thus, we are not convinced by Dr Wach tel's contention that the Dorman Report fails to 
note that any subsidy associated with LA/MSF "is limited  to the interest rate reduction in the loan, not 
the size of the principal".5581 
7.1906  All else being equal, we consider that the pr ovision of LA/MSF, which makes a project more 
profitable if successful and limits downside risk if unsuccessful, makes it more likely that any given 
aircraft will be launched.  This does not, however , conclusively establish that, but for the grant of 
LA/MSF, any particular Airbus model would not ha ve been launched when it actually was.  The 
launch of a new model of LCA is an expensive proposition involving significant expenditures.  In 
                                                      
5578 ITR Report, para. 19, Exhibit EC-13 (BCI).   
5579 ITR Report (Answer), para. 6, Exhibit EC-660 (BCI). 
5580 We note that for financing involving a pattern of profits (cash in-flows) early and costs (cash out-
flows) later (such as LA/MSF), a lower discount rate makes the NPV smaller. 
5581 Wachtel Report, para. 13, Exhib it EC-12; Wachtel Report (Clarification), para. 9, Exhibit EC-659.  WT/DS316/R 
 Page 945 
 
BCI deleted, as indicated [***] 
 
 considering a launch decision, not only will short- to-medium term development costs need to be 
estimated, but other recurring costs and revenue st reams over the entire 15-20 year production cycle 
of an aircraft must also be estimated.  An element of uncertainty is inherent in such estimates.  Given 
such uncertainties, a prudent manufacturer will likel y require there to be some scope for costs and 
revenues to deviate from forecast estimates without th e project as a result becoming unprofitable.  The 
sensitivity testing in the A380 business case (discussed below) in which the [***].   
7.1907  The results of the Dorman simulation suggest  that, in the absence of LA/MSF, relatively 
small changes in cost and revenue estimates would make the launch of any particular aircraft model 
unprofitable.  We agree with the suggestion in the W achtel Report that, in this situation, it seems that 
it would be unlikely that a hypothetical aircraft manufacturer, considering the results of the Dorman 
simulation alone, would decide to launch the aircra ft programme contemplated.  As noted above, the 
Wachtel Report seeks to counter this implication of the Dorman simulation by arguing that the LCA market is a natural duopoly.   
7.1908  The United States criticizes this aspect of the Wachtel Report by arguing that the approach 
adopted in the Breshnahan and Reiss study, which W achtel cites in support of his conclusion, is not 
applicable to the LCA market and that the Wachtel Report has failed to consider the implications of 
the economies of scope and scale in the LCA market.
5582  Ultimately, however, we consider the 
United States' arguments concerning this aspect of the Wachtel Report to be inapposite, as the United 
States is not arguing that Boeing, or indeed the United States, is entitled to a monopoly of the global LCA industry.
5583  Indeed, as we have already explained,  the United States goes further, indicating 
that not only does it not consider that Boeing is entitled to a monopoly but that, in fact, it considers 
that Boeing would face competition from at l east some entity in the absence of LA/MSF.5584    
7.1909  The implications of this apparent acceptance that Boeing would face competition in a world 
without LA/MSF (and the other subsidies at issue in this dispute) (the "counterfactual" world) are 
discussed below.  At this stage, however, we note the United States' basic contention that, even if 
Airbus had entered the market in the absence of LA /MSF, it would have done so at different times and 
with different planes.5585  In this respect we understand the United States to be arguing that whether 
the United States faced competition in the counterf actual world from an Airbus that launched LCA 
without LA/MSF, or from some other entity, that co mpetition would be different , and that one way in 
which that difference would be manifest would be that the product line of the competitor would not be 
the equivalent of the actual Airbus product line.   
7.1910  If the United States concedes that Boeing woul d, in the absence of LA/MSF, face some 
competition it must, presumably, concede that at least some competing planes would have been 
launched (by Airbus or some othe r entity) over the period since Airbus launched its first LCA.  The 
Dorman simulation does not provide a basis fo r assessing the circumstances of any competitive 
launches in the absence of LA/MSF.  Insofar as its results suggest that  there would be no entry, and 
insofar as it does not distinguish between the type of  entry which is modelled and other forms of entry 
which might otherwise occur, we consider that it is not possible to conclude on the basis of the 
Dorman Report alone that, but for LA/MSF, any partic ular Airbus aircraft model would not have been 
launched.   
                                                      
5582 US, SWS, paras. 564-570. 
5583 US, SWS, para. 572. 
5584 US, FNCOS, para. 151. 
5585 In this respect the United States asserts "even if Airbus would have entered a particular LCA 
market segment at some other time with a different airc raft (in terms of technical capabilities, specifications, and 
other characteristics), the effect on the US LCA industry would have been different." US, SWS, para. 572. WT/DS316/R 
Page 946 
 
BCI deleted, as indicated [***] 
 
 7.1911  This does not mean, however, that we do not c onsider that the Dorman Report supports the 
United States' argument regarding the impact of LA/MSF on Airbus launch decisions.  As we have 
already observed, the Dorman Report does  in our view demonstrate that LA/MSF will have a 
significant impact on the NPV of any particular project, and that irrespective of the specific 
parameters used to model costs and income str eams, LA/MSF will increase potential profits and act to 
limit potential downside losses.  It also demonstrates that in some circumstan ces, the availability of 
LA/MSF makes the difference between a positive or ne gative NPV, or alters the risk profile of a 
project sufficiently to make an affirmative decision to launch a particular aircraft more likely.   
7.1912  In addition to relying on Airbus business ca ses, which we discuss below, to counter these 
conclusions, the European Communities also relies on a putative "Boeing 787 business case" it 
constructed based on public information and [***].5586 The cash flow analysis prepared for the 
European Communities for this exercise shows a NPV and IRR higher that those the European 
Communities asserts were generated by the Dorman simulation.5587  We do not consider that the 
results of an ex post facto business case for a Boeing LCA constructed on the basis of public 
information for purposes of this dispute has any rele vance to our assessment of the effect of LA/MSF 
subsidies on Airbus.  Even assuming the correctness of the exercise, which is unclear, we do not see how the conclusion that the NPV and IRR of this Boeing 787 business case are higher than those of 
the Dorman simulation informs our assessment of the effect of LA/MSF on Airbus.  Thus, we 
conclude that the Dorman Report demonstrates that  the provision of LA/MSF is likely to change the 
behaviour of the recipient with respect to a decision to launch a LCA by increasing the likelihood of 
an affirmative decision to go forward with the launch. 
Public Statements and the EC State Aid Decision 
7.1913  The second category of evidence presented by the Un ited States consists of a series of public 
statements, and a decision by the European Commi ssion concerning state aid to Aérospatiale, which 
the United States argues demonstrate that the subsid ies in this dispute "facilitated and accelerated the 
introduction of every major Airbus model, precisely as the European Communities and the Airbus 
governments designed them to do."5588  The European Communities argues that such statements are 
hearsay and should not be given weight, and at best reflect the intent of Airbus to secure a viable 
market share, and do not constitute evidence of present adverse effects.5589  We consider this evidence 
below.  
A300  
7.1914  The first Airbus LCA model, the A300, w as launched in 1969 and first delivered to a 
customer in 1974.  In 1991 Jean Pierson, then Ai rbus Managing Director, spoke generally about the 
role of government support during the early 1970's during a speech at Cranfield University in the UK.  He is quoted in a 1998 book: 
"Let us go back to 1970 for one minute.  Imagine if I had gone then to a bank and 
said, 'I have just started a management team from various European countries.  I 
intend to make a large aircraft to compete with Boeing.  Will you lend me $1 billion?  
                                                     
 
5586 EC, SWS, paras. 804-808. 
5587 International Trade Resources,  787 Business Case, Exhibit EC-662  (HSBI).  We note that the 
Dorman Report does not, in fact calcu late an IRR for its hypothetical launch programme; the estimate of 11.92 
per cent referred to by the European Communities as ge nerated by the Dorman simulation was actually inferred 
by Mr. Carballo, as described in the Carballo Report, Exhibit EC-665 (HSBI).   
5588 US, FWS, para. 829. 
5589 EC, FWS, paras. 2318-20, 2322.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
 You may lose all of it.  Or you may start to make some money twenty years from 
now!  I leave it to your imagination the we lcome I would have had.  No financial 
institution would have taken such a risk, or if  it had the interest rates would have been 
simply prohibitive.  It was therefore up to the governments of each of the countries 
participating in Airbus Industrie to subs titute themselves for the bankers and assume 
such risks".5590 
A320  
7.1915  In March 1984 Bernard Lathiere, then President  and CEO of Airbus, announcing the launch 
of the A320, referred to the commitments of the governments of France, Germany, Spain and the 
United Kingdom to take measures enabling investment s for this programme as fulfilling "the third and 
final prerequisite, the financial one".5591  Earlier, in May 1983, the Chairman of British Aerospace, Sir 
Austin Pearce, commenting on the developmen t of the A320 and the involvement of British 
Aerospace in that project, noted that income from the A300 and A310 was just beginning to be 
received and that, in such circumstances, the propo sed A320 was "likely to be pushed further into the 
future".5592  The article indicates that the British gove rnment had told British Aerospace that it 
expected it to finance its A320 development costs on  the commercial market.  The Article also states 
that British Aerospace had said in 1981 that, in the absence of LA/MSF, it would not be in a position to participate significantly in the A320 programme until 1987 or 1988.
5593  The British Government 
agreed to provide British Aerospace with financing in March 1985.   
A330/A340 and A340-500/600  
7.1916  The United States has provided similar evidence with respect to the launch of the A330/A340 
and the A340-500/600.  Sir Austin Pearce is quoted in March 1987 as saying, with reference to the 
A330/A340, that "{f}inancing the project through co mmercial banks is not feasible ...  because of the 
risks associated with the program".5594  Moreover, the United States notes that the French government 
notified the LA/MSF it intended to provide to Aéro spatiale for the A340-500/600 to the European 
Commission, in accordance with Article 93(c) of the EC Treaty.  In its Decision letter dated 
26 July 1999, the European Commi ssion determined that the French  LA/MSF was not an "aid" within 
the meaning of the EC Treaty and did not require notification.  In its Decision, the Commission made the following findings concerning the role of the proposed LA/MSF: 
"Aérospatiale could not finance the costs connected with the development of the 
Airbus A340-500/600 by itself or with the help  of bank loans.  Accordingly, if it were 
to finance the development costs of the A3400500/600 solely from its own capital (or 
through bank loans), it would seriously weaken the financial structure of the 
company.  The fact that aeronautical projects extend over very long periods of time and that any investment made in the A340-500/600 could be paid back, should the program be successful, only in the very lo ng term, make the risk that much more 
unacceptable. 
..... 
                                                     
 
5590 Quoted in Matthew Lynn, Birds of Prey  (1998), Exhibit US-42, p. 150. 
5591 Airbus-Industrie: A320 Is a Reality , Business Wire (March 2 1984), Exhibit US-15. 
5592 Costs Push British Towards Joint Efforts , Aviation Week & Space Technology (30 May 1983), 
Exhibit US-439. 
5593 Costs Push British Towards Joint Efforts , Aviation Week & Space Technology (30 May 1983), 
Exhibit US-439. 
5594 British Aerospace rejects A330/A340 aid proposal , Aviation Week & Space Technology, 
30 March 1987, Exhibit US-24. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
 Through Aérospatiale, the entire A340-500/600 program has been made possible 
thanks to the measures reported by the Fren ch authorities.  Indeed, in view of the 
industrial structure of Airbus Industrie and the configuration of the European 
aeronautics sector, this program cannot be c ontemplated without the participation of 
Aérospatiale.  Consequently, the reimbursable  advance from the French Authorities is 
helping to promote the A340-500/600 pr ogram, which could not be implemented 
without this government support".5595   
While we have not been provided with a copy of the submissions of the French government to the 
European Commission, we consider, based on the decision letter itself, that these findings were 
consistent with those submissions. 
 
A380  
7.1917  Similar evidence is presented by the United Stat es with respect to the A380.  Responding to a 
question in the UK House of Commons  on 3 March 2005, Patricia Hewitt,  then Secretary of State for 
Trade and Industry, is quoted as saying "{w}e have recently seen, of course, the launch of the A380, 
which would not have been possible if it had not been for the commitment of the British Government to launch an extremely successful programme ...".
5596  The provision of LA/MSF in circumstances 
where it was necessary to the launch of an LCA prog ramme appears to have been the operating policy 
of the UK Department of Trade and Industry ("DTI" ).  The DTI described its rationale for providing 
LA/MSF on its website in October 2006 in the following terms: 
"The fundamental rationale of launch aid is to address the apparent unwillingness of 
capital markets to fund projects with such high product development costs, high technological and market risks and such long pay back periods. ... An applicant must demonstrate: that the project is technically and commercially viable; that Government investment is essential for the project to proceed on the scale and in the time-scale 
specified in the application, and that th e government will recoup the investment at a 
real rate of return".
5597   
7.1918  Similarly, a French Senate Report considering public support of the civil aircraft sector 
concluded that Aérospatiale would not be able to obtain outside fina ncing to meet its requirements in 
respect of the A380, and even if such financing were available, "such ex ternal financing would 
apparently add excessively to the financial expe nses incurred by the firms and would throw their 
balance sheets out of equilibrium because of  the low level of their equity capital".5598   
7.1919  In considering the above evidence, we recogni ze that the public statements of Airbus or 
participant company executives and public officials as to the need for LA/MSF in order to launch a 
given aircraft may involve a degree of self-interest.  For example, comments attributed to Sir Austin Pearce appear to have been made in the midst of efforts by British Aerospace to lobby the government 
of the United Kingdom for additional support.
5599  In these circumstances, it may well have been in 
the interest of the company to suggest that its pa rticipation in the A320 project would come to a halt 
without further commitment from the UK government .  Having committed public monies, it is also 
                                                      
5595 Letter from Karel Van Miert to Hubert Vedrine, Reimbursable Advance to Aérospatiale for the 
Airbus A340-500/600 Program , Exhibit US-3. 
5596 House of Commons Hansard Debates for 3 March 2005, col. 1088, Exhibit US-436. 
5597 DTI web-site, "Aerospace and Defence Indus tries Launch Investment" , Exhibit US-106. 
5598 Mission de contrôle effectuée sur le soutien public a la construction aéronautique civile, Sénat 
Report 1997, 72, Exhibit US-18. 
5599 Exhibit US-24.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
 possible that public officials would be inclined to describe government participation in Airbus 
projects as essential.  However, we note that the Decision letter of the European Commission seems to 
us to be in the nature of a quasi-judicial evaluati on and finding, rather than mere statements by public 
officials, and therefore the same concerns do not ari se in evaluating that decision.  In any event, we 
consider it appropriate to take this evidence into account, making our own judgements as to its weight 
and probative value, together with other eviden ce in our evaluation of the United States claims.5600    
7.1920  The European Communities has not disputed the truth of the public statements or of the facts 
stated, nor does it respond directly to the United St ates' allegations based on these statements, which 
the United States considers demonstrate that LA/MSF was necessary to the launch of the Airbus LCA 
models in question.5601  In these circumstances, we conclude  that the above evidence supports the 
United States' position.  Although we do not draw sp ecific conclusions as to the intent of the entities 
on behalf of which the statements were made, a nd while we recognize that there may have been a 
variety of motivations at play, taken together, we consider these statements and the European Commission's State Aid decision generally support the inference that, but for the provision of 
LA/MSF, Airbus would not have been able to launch  any of its existing range of LCA, that is, the 
A300, A320, A330/A340, A340-500/600 and A380, as and when it did.   
The business cases 
7.1921  The European Communities argues, on the basis of the Airbus business cases for the A380, 
A340-500/600 and A330-200, that LA/MSF has not, at least since 1992, had any impact on the 
decision to launch any particular aircraft.
5602  In particular, the Eur opean Communities argues that 
these business cases demonstrate th at the programmes provided robust returns in the absence of 
LA/MSF, such that Airbus could have launche d each of these aircraft without LA/MSF.  The 
European Communities also asserts that the business cases demonstrate that the Dorman simulation is 
                                                      
5600 In Australia – Automotive Leather II, the panel reached a similar conclusion in respect of public 
statements of Australian government officials reported in the press, noting:  
"A commentator on the International Court of Justice's consideration of evidence and proof of facts has stated: 
"It appears to be the case that press re ports, when significant but not denied 
by the responsible state, or when reporting other events such as official 
statements by responsible officials and agencies of that state, are accepted; 
{footnote omitted} but when they are uncorroborated or do not otherwise 
contain material with an independent title of credibility and persuasiveness, 
the tendency of the Court is to discount them almost entirely". 
Highet, Evidence and Proof of Facts, in Damrosch, The In ternational Court of Justi ce at a Crossroads, 1987.  
Similarly, we take into account the circumstances in which the reported remarks were made, the source, and 
whether the information is corroborated elsewhere or contrary evidence is offered, in assessing the value of these Exhibits as evidence." 
Panel Report, Australia – Automotive Leather II, footnote 210. 
5601 The European Communities does argue that other st atements by EC officials and Airbus officers  
regarding the use of subsidies to "attack," "destroy" and "kill" Boeing aircraft and cited by the United States as 
demonstrating that LA/MSF has been granted to enable Airbus to develop LCA models designed specifically to 
capture market share from th e US industry are neither credible nor rele vant.  EC, FWS, para. 2317, referring to 
US, FWS, paras. 836-838.  The European Communities considers that such statements, even if correct, simply 
show the intent of company officials to secure a viable market shar e to compete against Boeing, and say nothing 
about present adverse effect s.  EC, FWS, para. 2319. 
5602 In addition the European Communities provided us with the business case for the A320, 
Exhibit EC-82 (HSBI) and the business case for the A330/A340, Exhibit EC-775.  It does not however argue 
that these documents evidence that th ese aircraft would have been launch ed in the absence of LA/MSF.  The 
European Communities submitted no such evidence in connection with the A300 or A310, and makes no 
argument that these LCA models would have been launched in the absence of LA/MSF. WT/DS316/R 
Page 950 
 
BCI deleted, as indicated [***] 
 
 based on a fundamentally flawed set of assumptions and parameters.5603  We examine the European 
Communities' contentions in resp ect of these business cases below. 
The A380 business case  
7.1922  The A380 business case is dated December 2000.5604  It includes a NPV analysis of a 
contemplated A380 family of aircraft, which includes a core aircraft and a freighter version, as well as 
extended range and stretch versions of the co re aircraft.  An NPV is calculated assuming [***].  Like 
the Dorman Report, the A380 business case makes certain assumptions in respect of non-recurring 
costs, recurring costs, number of deliveries and pr icing.  The NPV for two baseline scenarios is 
calculated.  One assumes that no LA/MSF is available and the other assumes the provision of 
LA/MSF amounting to 33 percent of development costs.  In the no-LA/MSF scenario the A380 
business case anticipates a positive NPV using [***].  However, the NPV using the [***] in the no-
LA/MSF scenario is less than one-third of the NPV calculated using the [***], suggesting that the 
choice of [***] will make a significant difference to the NPV of the project.5605  Like the Dorman 
simulation, the A380 business case indicates that th e NPV of the project will increase with LA/MSF, 
compared to the situation without LA/MSF.  Depending upon which of the [***] is used, the 
difference in NPV is approximately [***] and [***].5606 
7.1923  The A380 business case also contains five diffe rent sensitivity assessments in respect of the 
results obtained in the baseline case, one of which is  the "Realistic Worst Case" scenario.  Under this 
scenario, the NPV of the project is determined [***].5607  The results show that [***].  When the [***] 
is applied, the NPV falls by approximately [***]; when the [***] is used, the NPV drops by 
approximately [***].  Both results are deemed in the document to be [***].5608  The sensitivity testing 
in the A380 business case assumes that Airbus rece ives LA/MSF.  Thus, the Realistic Worst Case 
scenario is not tested against a base case in which Airbus does not receive LA/MSF.  In our view, the 
inference that can be drawn from th is is that Airbus did not contemplate or provide for the possibility 
of launching the A380 in the absence of LA/MSF.   
7.1924  The European Communities submitted an ex-post facto  sensitivity analysis which, using the 
information in the A380 business case, applies th e Realistic Worst Case scenario assuming that 
LA/MSF is not provided.  The results of this analysis, provided in the Carballo Declaration,5609 
indicate that, although NPV [***], there would be [***] in the NPV of the project in the absence of 
LA/MSF in the Realistic Worst Case scenario.  Ho wever, while the A380 business case calculated the 
baseline NPV at [***] the Carballo Declaration only considers the impact of the absence of LA/MSF 
in the Realistic Worst Case scenario using the [***].   
7.1925  The fact that the Carballo Declaration did not undertake the same sensitivity analysis with the 
[***] used in the original A380 business case m eans that we do not know whether the use of [***] 
would have resulted in a negative NPV in the Realis tic Worse Case scenario.  In general, for projects 
involving a pattern of costs (cash out-flows) early a nd profits (cash in-flows) later (such as the A380 
project), [***] makes the NPV smaller.  In this regard, we  recall that the NPV calculated for the A380 
project in the Airbus baseline business case using the [***] and assuming no LA/MSF scenario was 
[***] of the NPV calculated using the [***].  In other words, in a scenario without LA/MSF in the 
                                                      
5603 EC, SWS, paras. 799-809. 
5604 Exhibit EC-362 (HSBI). 
5605 We note that both of the [***]  than the 10% discount rate used in the Dorman Report. 
5606 A380 Business Case, p. 29, Exhibit EC-362 (HSBI) . 
5607 A380 Business Case, p. 36, Exhibit EC-362 (HSBI). 
5608 A380 Business Case, p. 36, Exhibit EC-362 (HSBI). 
5609 Carballo Declaration, Exhibit EC-665 (HSBI).  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
 baseline business case, a [***] had a significant impact on the project's NPV.  We have no reason to 
believe that this would not also be the case for the NPV that would result from sensitivity testing the 
Realistic Worst Case scenario without LA/MSF using [***].   
7.1926  Finally, as we mention in another context elsewhere in this Report, an important factor to 
consider is the credibility of the business case itself.5610  While the business case may serve as the 
basis for Airbus' decision whether the launch of a ne w LCA programme is a worthwhile investment, it 
also serves as at least one of the bases for the government lenders  to decide whether to support a 
programme and how that support will be structur ed.  Because of the graduated levy-based and 
success-dependent nature of LA/MSF repayments, Ai rbus has an economic incentive to be optimistic 
in its forecasts of, inter alia , the number of aircraft likely to be sold and the pace of those sales, when 
preparing a business case in support of a programme for which LA/MSF is sought.5611  The greater the 
number of sales over which principal repayments and royalties must be paid, the less likely it is that 
Airbus will have to make those payments if the business plan estimates prove to be optimistic.  The 
European Communities argues that the Airbus busin ess case is the product of "an exhaustive internal 
analysis of the programme's technical and commercia l prospects" and "relies on a host of conservative 
assumptions and methodologies".5612  Moreover, the European Communities submits that Airbus' 
business case delivery forecasts have been, by definition, "realistic and sober".5613  It does not, 
however, suggest that those business case delivery forecasts are infallible.  Indeed, the European 
Communities recognizes that forecasts are, by their very nature, "informed judgements about how events that have not yet occurred will unfold in th e future", and therefore are not always reliable.
5614  
While the European Communities contends that th e business case delivery forecasts have been "often 
met, and indeed exceeded,"5615 experience to date suggests that this may not be the case in respect of 
the A380.5616   
7.1927  A critical element of the credibility of the bus iness case is the reasonableness of the demand 
predictions on which the sales and delivery pr ojections are based.  The A380 programme was 
launched in the face of basic disagreement between Airbus and Boeing about the size of the potential 
market for the aircraft.5617  As the United States observes, "the main risk of non-repayment of 
{LA/MSF} is not a risk associated with development or manufacturing; it is a risk associated with sales".
5618  While we are in no position to judge at th is time whether the sales estimates in the A380 
business case were, in fact, reasonable, we note that  the A380 business case reflects consideration of a 
rather limited range of possibilities in terms of failure to achieve sales targets, particularly in view of 
                                                      
5610 See, paragraphs 7.412 - 7.414. 
5611 We recognize that LA/MSF for the A380 accounted for only 33% of the development costs of the 
project, and that the A380 business case (i n part or in full) may also have been used by Airbus to attract other 
investors.  However, given the project's scope, the development costs covered by LA/MSF, approaching [***] , 
was significant.  Moreover, it seems clear to us that securing LA/MSF from the four governments had a positive 
impact on Airbus' ability to finance the remainder of the large amount of investme nt needed for the A380 
programme. 
5612 EC, FWS, para. 466. 
5613 EC, FWS, paras. 465 and 467. 
5614 EC, FWS, para. 467. 
5615 EC, FWS, para. 467.  The European Communities notes, in this regard, that as of 
31 December 2006 Airbus had sold approximately 3000 A320 aircraft, well above the original business case 
projections, which are not in the evidence before us.  EC, FWS, para. 331.  It makes no similar statement with 
respect to any of the other LCA programmes.   
5616 The difficulties Airbus experienced with the A380, resulting in substantial delays in production and 
customer concerns, are generally well known, and have had had a significant effect on its parent company, 
EADS.  EADS, EADS 2006 Results Dominated by Airbus Loss , 9 March 2007, Exhibit US-463, 
5617 US, FWS, 262, 263 
5618 US, SNCOS, para 57. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
 the uncertainty of demand forecasts for the aircraft.5619  Moreover, it appears that the Realistic Worst 
Case Scenario is not the worst with  respect to all parameters cons idered in the sensitivity testing.5620  
The A380 may yet succeed in reaching the sales levels  predicted in the business case.  However, the 
actual delays in ramping up production, and relativ ely limited sales and deliveries to date, make it 
clear that such success will, if it occurs, likely take a good deal longer than originally projected, thus 
delaying achievement of the break-even point of the programme.5621  The financial consequences of 
the A380 production problems and resulting programme  delays have been significant, with EADS 
reporting a consequent reduction in Ai rbus' earnings before interest and taxes of EUR 2.5 billion as of 
2006.5622  Thus, it is by no means apparent that the Realistic Worst Case Scenario actually captured 
what could reasonably have been envisioned to be the worst case scenario at the time the business 
case was developed.  These concerns inform our  consideration of the European Communities' 
contention that the A380 business case demonstrates that Airbus would have gone forward with the 
launch even in the absence of LA/MSF. 
The A340-500/600 business case  
7.1928  The A340-500/600 business case is dated October 1997.5623  It compares the effect of the 
launch of the A340-500/600 (a derivativ e aircraft) on the economics of the [***].  The results predict 
that the IRR and the NPV of the overall A330/A340 programme will [***] if a decision to launch 
were made.  The business case includes a [***] analysis in respect of both the overall programme and 
the incremental effect of the A340-500/600 launch assuming [***]. The modelled results predict a 
[***] contribution to the overall programme and a [***] incremental NPV in circumstances where the 
[***].5624 
7.1929  It is unclear, on its face, whether the A340-500/ 600 business case takes into consideration the 
grant of LA/MSF.  The European Communities as serts that it does not, but provides no supporting 
evidence.5625  It also asserts that, assuming arguendo,  that the business case did take into account the 
effect of LA/MSF, the [***] IRR, relative to the discount rate, indicates that the project would be 
commercially viable in the absence of LA/MSF.  Its arguments in this respect are based on a 
comparison of the IRR in the A380 business case, [***].5626  
                                                      
5619 Exhibit EC-362 (HSBI), pp. 33, 36.  The demand forecasts reflected in the A380 business case 
include demand for LCA with over 400 seats, a category that includes not only the A380, but also the A340-600 and the Boeing 747 and 777-300.  Thus, it is not at all clear that the A380 business case is based on a "realistic 
and sober" forecast for deliveries of the A380 per se , which is an aircraft with more than 500 seats. 
5620 Exhibit EC-362 (HSBI); compare information at pp. 34 and 36.   
5621 Exhibit EC-362 (HSBI), pp. 6. 
5622 EADS, EADS 2006 Results Dominated by Airbus Loss , 9 March 2007, Exhibit US-463, at 8. 
5623 Exhibit EC-958 (HSBI) 
5624 But see US, Comments on EC Answer to Panel Question 262 (HSBI Appendix), paras. 10-12. 
5625 EC, SWS, para. 785. 
5626 EC, SWS, para. 816.  In the A380 business case the IRR [***]  in the absence of LA/MSF, but 
remained [***]  the discount rate.  The European Communities argues that if the IRR in the A340-500/600 
business case is reduced by the same amount it will result  in a hypothetical IRR fo r the A340-500/600 which is 
commercially viable; that is, an I RR which exceeds the discount rate.  The European Communities argues that 
applying a similar reduction to the IRR in respect of th e A340-500/600 would, in fact, exaggerate the impact of 
LA/MSF, as while the [***]  only France and Spain provided LA/MSF in respect of the A340-500/600.  EC. 
SWS, para. 787.  On the same basis the European Co mmunities also argues that if the sensitivity testing 
undertaken in the Carballo Declarati on were implemented in respect of the A340-500/600 "it is reasonable to 
assume that similar results would be obtained".  EC, SWS, para. 788.  WT/DS316/R 
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 The A330-200 business case  
7.1930  The A330-200 business case5627 considers the introduction of two aircraft derived from the 
A340-300B, referred to in the document as the [***].  As with the A340-500/600 business case, the 
document considers the [***] are added to the Airbus range.  The results predict that the IRR and the 
NPV of the overall A330/A340 programme would [***] if a launch decision were made.  Sensitivity 
testing predicts that the NPV of the overall programme will [***] and be an improvement over the 
[***].5628  The European Commun ities asserts that the [***] implied incremental IRR for the A330-
200 project [***] the expected IRR of the A380 and A340-50 0/600 programmes.  On the basis of the 
same logic used in respect of the A340-500/600,  the European Communities concludes that the [***] 
IRR demonstrates that LA/MSF had no role in  respect of the launch of the A330-200.   
7.1931  According to the European Communities, the la ck of impact of the grant of LA/MSF on the 
launch of the A330-200 is further demonstrated by the fact that only Aérospatiale received LA/MSF 
amounting to only EUR 49.9 million.  The European Communities asserts that this amount could have 
been financed in other ways, including through risk-sharing suppliers.5629   
Conclusions Regarding the impact of LA/MSF on the Launch of Airbus 
LCA  
7.1932  The European Communities argues that th e A380, A340-500/600 and A330-200 business 
cases conclusively demonstrate that LA/MSF was inconsequential to the launch of these aircraft models, and that, as a consequence, the United States  causation theory in respect of these three models 
"fails as a matter of fact".
5630  The European Communities presents no equivalent evidence or 
arguments in respect of the earlier models of Airbus LCA ( i.e., the A300, A310, A320 and 
A330/A340 model families).  The European Commun ities has submitted no internal documents or 
other evidence suggesting that Airbus would have  proceeded with pre-1992 projects in the absence of 
government LA/MSF support.  It has simply suggested that the United States has not done enough to demonstrate the link between LA/MSF a nd the launch of Airbus aircraft.
5631  However, in our view, 
the United States has met its eviden tiary burden in this respect.   
7.1933  The A300 was the first Airbus model of LCA, launched in 1969 with close to 100 percent of 
its development costs financed through LA/MSF at zero interest.5632  We recall that the 1969 inter-
governmental agreement set out the intention of th e governments of France and Germany to cooperate 
in the field of aeronautics, and in particular to support the development by national manufacturers of a 
single LCA, and specifically envisaged that t hose governments would provide funding for the 
development of that LCA, the A300.5633  Prior to the 1969 Agreemen t, the companies that would 
eventually form part of Airbus Industrie GIE, which we recall was constituted in 1971, had not yet 
worked together on any endeavour of similar scope or ambition.  Both parties have recognized the 
complexities and the risks involved in launching such a project.  Indeed, as we have previously noted, the parties have described the development of LC A as an endeavour that requires "huge up-front 
investments"
5634 and a commitment of "tremendous resources"5635 in the face of a business 
                                                      
5627 Exhibit EC-956 (HSBI). 
5628 But see US, Comments on EC Answer to Panel Question 262 (HSBI Appendix), paras. 7-9. 
5629 EC, SWS, para. 793. 
5630 EC, SWS, para. 795. 
5631 EC, SWS, paras. 758, 837-839, 854-857. 
5632 See, footnote 2431 above. 
5633 See, para. 7.534 above.  The 1969 Agreement was extended to the governments of the Netherlands 
and Spain in 1970 and 1971, respectively.  See, para. 7.537 above.  See, Exhibits US-16, EC-992 (BCI).   
5634 US, FWS, para. 112. 
5635 EC, FWS, para. 31. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
 environment that is shaped by factors "whose very foreseeability is impossible by definition".5636  In 
our view, the degree of risk associated with Ai rbus' first venture into LCA manufacturing was 
probably the greatest among all of its LCA projects.  This level of uncertainty appears to be clearly 
reflected in the statement attributed to Airbus' Managing Director Jean Pierson: 
"Let us go back to 1970 for one minute.  Imagine if I had gone then to a bank and 
said, 'I have just started a management team from various European countries.  I 
intend to make a large aircraft to compete with Boeing.  Will you lend me $1 billion?  You may lose all of it.  Or you may start to make some money twenty years from now!  I leave it to your imagination the we lcome I would have had.  No financial 
institution would have taken such a risk, or if  it had the interest rates would have been 
simply prohibitive.  It was therefore up to the governments of each of the countries participating in Airbus Industrie to subs titute themselves for the bankers and assume 
such risks".
5637  
7.1934  In our view, the United States has demonstrated that LA/MSF functions as a risk transferring 
device which significantly alters the economics of a decision to launch any given LCA programme.  
This we believe is adequately de monstrated by the Dorman Report which, in this respect, is supported 
by the sensitivity testing included in the A380 busin ess case.  According to both pieces of evidence, 
the provision of LA/MSF improves the predicted r esults of the aircraft programme in question, 
indicating that an affirmative launch decision is more likely than it would be in the absence of such financing.  As noted above, we do not consider that the Dorman Report proves that any particular 
Airbus model would not have had a positive NPV in the absence of LA/MSF.  It does, however, 
demonstrate how LA/MSF, by transferring risk to the government lenders, reduces the manufacturer's 
risk, and improves the potential profitability of any particular aircraft programme, making a decision 
to go ahead with LCA programme launch more likely.  This dual impact of risk reduction and profit 
enhancement would have been pa rticularly pronounced for the A300, given that LA/MSF covered 
close to 100 percent of its development costs at zero interest, when the interest rate that would have 
been offered by a market lender for a comparable lo an would have, at a minimum, fallen within the 
range of 15.18 percent and 16.60 percent.
5638  In our view, having to borrow the necessary funds for 
the A300 launch at those interest rates would have been a significant disincenti ve to a decision to go 
ahead with the programme.  Irrespective of its limi tations in demonstrating whether any particular 
aircraft would have been launched without LA/MSF,  the Dorman Report persuasively illustrates how 
LA/MSF transfers risk and improves the NPV of any pa rticular aircraft project.  Together with the 
above-quoted statements and our own understanding of the history and risks associated with 
development of LCA in general, and of the A300 in particular, we consider that the United States has 
demonstrated that LA/MSF was necessary for Air bus to have launched the A300 as originally 
designed and at the time that it did.  We come to the same conclusion with respect of the remaining 
models of Airbus LCA, as we explain below.   
7.1935  LA/MSF was used to finance between 90 percent and 100 percent of the development costs of 
the A310, which was launched in 1978.5639  The United States has not a dduced any evidence of direct 
statements of any Airbus or government offi cials suggesting that LA/MSF for the A310 was 
necessary for its development.  However, it has argued that the development of one Airbus LCA 
model supports the development of production facilities and technologies that are used across all other 
                                                      
5636 EC, FWS, para. 30. 
5637 Quoted in Matthew Lynn, Birds of Prey 150 (1998), Exhibit US-42. 
5638 See, para. 7.488 above. 
5639 See, footnote 2431 above.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
 LCA models.5640  According to the United States, such a relationship between Airbus LCA models 
was recognized by Airbus: 
"'In the 1980s, we were able to widen our family by launching the A310 that 
incorporated many systems and power plant improvements that had occurred in the 
years since the A300 was designed', an Ai rbus executive said. 'Then we turned 
around and put many of the A310 improvements back into the A300 and came up with an updated aircraft that we designa ted the A300-600.  The same philosophy will 
be followed with our new aircraft.  Additiona lly, there is a strong possibility that the 
A320/A330/A340 technology can be used as well to create an advanced A300 and/or 
A310 in the 1990s'."
5641 
"'But the A350 is going to be the sistership of the A380 so it's technology you can 
already touch and see. It's tangible because the A380 is flying'."5642 
7.1936  That static and dynamic ("learning curve") economies of scope and scale achieved in the 
context of one model of LCA are an important part  of the development and production of other LCA 
models has also been recognized by economists.5643  It is undisputed that LCA projects involve 
complex development and production technology.  Therefore, knowledge and experience gained in 
the development and production of one model of aircraft will tend to lower the costs of development 
and production of subsequent aircra ft.  We are satisfied from the evidence before us that the A310 
benefited from Airbus' earlier successful development of the A300.  To this extent, had Airbus not 
obtained LA/MSF for the A300, and therefore not launc hed, developed, and starting in 1974, sold the 
A300 as designed, we have little doubt that it wo uld not have been able to launch the A310 as 
originally designed in 1978.  Even if Airbus  had successfully launched the same A300 in 1969 
without LA/MSF, relying upon market-based financing to  do so, we consider that the costs of that 
financing would have made it extremely difficult, if  not impossible for Airbus to have subsequently 
launched the A310 in 1978, without LA/MSF.5644  We recall that LA/MSF was provided for close to 
100 percent of the development costs of the A300 at  zero interest, whereas we have found that the 
interest rate that would have been offered by a ma rket lender for a comparable loan would have, at a 
minimum, fallen within the range of 15.18 percent and 16.60 percent.5645  Similarly, LA/MSF for the 
A310 covered between 90 percent and 100 percent of its development costs, and it too was provided 
at zero interest, compared with what we found wo uld have been a minimum of between 13.99 percent 
and 18.88 percent demanded by a mark et lender for comparable financing.5646  The Dorman 
simulation demonstrates that LA/MSF will make it more  likely that an LCA project will be launched.  
In the particular context of the launch of the A310, the Dorman simula tion provides persuasive 
support for our conclusion that had Airbus not obtained LA/MSF for the A310, it would not have 
been able to launch it as originally desi gned and at the time that it did.   
                                                      
5640 US, FWS, para. 722. 
5641 Jeffrey Lenorovitz, Airbus Industrie Launching Production for New A330/A340 Simultaneously , 
Aviation Week & Space Technology, 24 February 1986, Exhibit US-391. 
5642 Jason Neely, Airbus Top Challenge Is Keeping up with Demand , Reuters, 22 November 2005, 
(quoting Airbus CEO Gustav Humbert), Exhibit US-392. 
5643 Neven & Seabright, Exhibit US-382.  See, also , A-380 business case, Exhibit EC-362 (HSBI) 
p. 36. 
5644 We note, in this regard, that while the A300 was launched in 1969, it was first delivered to a 
customer in 1974.  Thus, revenues were only just beginning to flow from deliveries to customers at the time the 
decision to launch the A310 was being contemplated, and repayments of LA/MSF were limited at most.   
5645 See, para. 7.488 above. 
5646 See, para. 7.488 above. WT/DS316/R 
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 7.1937  The A320 was the next model of LCA launched by Airbus, in 1984.  It too was financed with 
LA/MSF, covering up to 90 percent of its development costs.5647  The United States has submitted two 
reported statements made by officials of Air bus and British Aerospace which support the conclusion 
that LA/MSF was in fact necessary for the launch of  the A320.  While the statement made by Sir 
Austin Pearce may have been directed towards th e role of LA/MSF in allowing British Aerospace to 
participate in the project, we do not consider this to  be a deficiency in the United States' arguments.  
There is no suggestion in the evidence before us, and the European Communities does not argue, that 
if British Aerospace (or any other Airbus company)  could not participate in the project unless 
LA/MSF were provided, the project would noneth eless have continued without its participation.5648  
Given the nature of the Airbus enterprise from th e first inter-governmental agreements onward, it 
seems clear to us that the participation of all f our national enterprises was and remained an important 
element of every launch of Airbus LCA.5649 
7.1938  There is also little doubt in our minds that th e launch of the A320 in 1984, as originally 
designed, was to a very large degree made possibl e by Airbus' successful launches of the A300 and 
A310 over the previous decade with the assistance of LA/MSF.  Therefore, it is clear that the 
LA/MSF for these earlier models of LCA also benef ited the launch of the A320.  Moreover, as we 
have already noted, the cost of obtaining market  financing for the A300 and A310, compared with 
LA/MSF, was significant.  However, even assumi ng Airbus had been able to launch both LCA 
models as originally designed in 1969 and 1978, re lying only on market-based financing (something 
we consider would have been highly unlikely), it  would have been extremely difficult, if not 
impossible, to launch the A320 in 1984 as originally designed, without access to LA/MSF.5650  In this 
regard, we recall that the interest rate benefit associated with LA/MSF provided for the A320 ranged, 
at a minimum, between [***] and [***].5651  Taking the above evidence and considerations together 
                                                      
5647 The 1990 German Federal Budget introduced a standard development aid ceiling for Airbus of 90 
percent.  See, Budget Plan 09 (Ministry of Economics), Part 02, Chapter 09, comments to line item 892 91-634, 
Exhibit US-17X.  For France (75%): Collin (Yvon), Rappor t d'Information No 367 (96/97), Mission de contrôle 
effectuée sur le soutien public à la construction aéronautique (hereinafter "1997 Senate Report"), at 63, 67, 
Exhibit US-18.  For Spain (70%):  Boletín Oficial de la s Cortes Generales, Congreso de los Diputados, Cuenta 
General del Estado de 1992, Serie A, Núm. 34, at 122 (13 January 1997), Exhibit US-19 
5648 Indeed, there is evidence to the contrary.  "Thr ough Aérospatiale, the entire A340-500/600 program 
has been made possible thanks to the measures reported by the French authorities.  Indeed, in view of the 
industrial structure of Airbus Industrie and the configuration of the Europ ean aeronautics sector, this program 
cannot be contemplated without the participation of  Aérospatiale."  Letter from Karel Van Miert to 
Hubert Vedrine, Reimbursable Advance to Aérospatiale for the Airbus A340-500/600 Program, Exhibit US-3. 
5649 The development and production of Airbus LCA was divided among the national companies 
participating in the in the Airbus consortium.  Thus , as of 1999, the French company, Aérospatiale, was 
responsible for flight control systems,  cockpits, power plant integration, ground and flight testing, complex 
structural sections, equipped subassemblies and tec hnical publications.  The German company, DASA, 
produced the major fuselage sections containing hydraulic equipment, secondary flight control systems, wing 
assemblies and commercial furnishing, as well as equipping the wings furnished by BAE Systems.  DASA also 
carried out final assembly of A321 and A319 aircraft, as well as some cabin outfitting and customization of the 
cabins of the A300/A310 and the A320 family.  The British and Spanish companies, BAE Systems and CASA, 
were in charge of other distinct areas.  See, Aérospatiale-Matra Offering Memorandum, 25 May 1999, pp. 90-
91, Exhibit EC-053.  It is clear from the evidence before us that this division of labour continued with 
subsequent models of Airbus LCA. 
5650 We note, in this regard, that while the A310 was launched in 1978, it was first put in service and 
delivered to a customer in 1985.  Thus, the LA/MSF fo r the A310 project was still outstanding, and significant 
revenues were not yet being generated by that LCA at the time the decision to launch the A320 was being made 
and implemented.  The A300 had only been in service since 1974, and we understand most of the LA/MSF for this project was also still outstanding at the time the decision to launch the A320 was made in 1984. 
5651 See, para. 7.488 above.  WT/DS316/R 
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 with the results of the Dorman simulation,5652 we conclude that the United States has demonstrated 
that LA/MSF for the A320 was necessary for Airbus to  have launched the A320 at the time it did and 
as originally designed.   
7.1939  Likewise, on the basis of a similar set of considerations, we find that the United States has 
also established that LA/MSF was necessary for Ai rbus to have launched the A330/A340 in 1987, 
with LA/MSF covering between 60 and 90 percent of its development costs.5653  First, we note the 
statement made by a British Aerospace official indicating that commercial financing for the 
A330/A340 project was not a feasible option at the time.  As we have already observed, the participation of all four national Airbus compani es was and remains an important element of every 
launch of Airbus LCA.  Thus, without the par ticipation of British Aerospace in the A330/A340 
project, it seems highly unlikely that Airbus would ha ve gone ahead with that launch in 1987.  Again, 
we consider that LA/MSF provided for the previ ous LCA models, the A300, A310 and A320, played 
a significant role in placing Airbus in a position to be able to launch the A330/A340 project in 
1987.
5654  However, even assuming Airbus had been  able to launch these earlier models without 
access to LA/MSF, (which we consider would have b een even less likely than the launch of the A320, 
but for the earlier provision of LA/MSF for that model, as well as for the A300 and A310), it would have been extremely difficult, if not impossible, to launch the A330/A340 project in 1987 as originally designed, without access to LA/MSF.  In this regard, we recall that the interest rate benefit 
associated with LA/MSF provided for the A 330/A340 ranged, at a minimum, between [***] and 
[***].
5655   When considered together with the results of the Dorman simulation,5656 we conclude the 
United States has demonstrated that LA/MSF for the A330/A340 was necessary for Airbus to have 
launched this project at the time when it did and as originally designed.   
7.1940  We now consider the impact of LA/MSF on the launch of the A330-200 and the A340-
500/600.  The business case for the A330-200 indicates that the expected deve lopment costs for this 
model were comparatively small.  The expected NR C constitute a small fraction of the "typical" wide-
body NRC used in the Dorman simulation.  Furt hermore, as the European Communities notes, only 
Aérospatiale was provided with LA/MSF, amounti ng to EUR 49.9 million.  Given this relatively 
small amount, it seems less unlikely that Aérospatiale  would not have been able to finance this 
amount for this LCA in some other manner.  Further, given that the aircraft at issue was a derivative of an existing aircraft, its potential success or fa ilure involved a smaller risk for Airbus' overall 
operations.  In this light, it seems more likely that  the A330-200 could have b een launched even in the 
absence of the specific LA/MSF granted in respect of that programme than the other programmes we 
have examined.  However, as previously discussed, LCA have a complex production technology which results in strong learning effects.  Knowle dge and experience gained in the development and 
production of one model of aircraft will lower the costs of development and production of subsequent 
aircraft launches.  This is particularly true fo r derivative aircraft, where the subsequently launched 
model is a variant of an existing model, as is the case with these LCA models.
5657  Consequently we 
                                                      
5652 See also, US, Comments on EC Answer to Panel Question 262 (HSBI Appendix), para. 3. 
5653 BT-Drs. 12/1080, at 46, Exhibit US-26; 1997 Senate Report, at 63, 68, Exhibit US-18; Boletin 
Oficial de las Cortes Generales, Congreso de los Diputados, Contestaciones del Gobierno, Serie D, Núm. 547, 
(June 5, 2003), at 153, Exhibit US-27.   
5654 Again, we note that while the A320 was launched in 1984, it was first delivered to a customer in 
1988, after the launch of the A330/A340 in 1987.  Thus, revenues were not yet being generated by this model 
LCA at the time the decision to launch the A330/A340  in 1987 was made, and repayment of LA/MSF received 
for the A320 had not yet begun.   
5655 See, para. 7.488 above. 
5656 See also, US, Comments on EC Answer to Panel Question 262 (HSBI Appendix), paras. 4-6. 
5657 "{S}ome production stages are not specific to a partic ular type of aircraft, such that learning effects 
which are realized in the production of a generic aircraft can influence marginal cost of producing another 
generic aircraft."  Klepper, Exhibit US-377.  The fact that such cross effects are strong for updated versions of WT/DS316/R 
Page 958 
 
BCI deleted, as indicated [***] 
 
 consider that the economic viability and, indeed the very existence of the A330-200, is dependent on 
the aircraft which preceded it, including in partic ular the original A330 aircraft from which it is 
derived.  The relatively small development costs of  the A330-200 in our view are a function of the 
fact that it is a derivative of the A330/A340, the launch of which, as we concluded above, would not 
have occurred as and when it did but for the LA/MSF granted in respect of that aircraft.5658  Thus, 
while the particular grant of LA/MSF specific to the A330-200 may not have been necessary to its 
launch, on the whole, we conclude that LA/MSF was necessary to the launch of the A330-200, as 
without the grant of LA/MSF for the development of the original model (and all models preceding 
that model), the A330-200 could not have been launched when it was without significantly higher 
costs. 
7.1941  Like the A330-200, the A340-500 and 600 are de rivative aircraft whose development was 
dependent upon the prior developm ent and production of the original A340 model from which they 
are derived.  For the reasons discussed above, in considering the impact of LA/MSF on the launch of such a derivative aircraft, we consider it appropria te not only to consider the LA/MSF directly linked 
to the particular aircraft model but also to consider  the role that LA/MSF played in the launch of the 
aircraft on which it is based, as well as all other Airbus LCA launched before it.  The A340-500/600 
was derived from the A340, whose launch, as we have found above, depended upon the provision of 
LA/MSF.  In these circumstances, we consider that  LA/MSF was also essential to the development of 
the A340-500/600.   
7.1942  Even considered on a stand-alone basis, the evidence suggests that the A340-500 and 600 
were dependent upon the provision of LA/MSF.  As  noted above, the European Commission found, in 
response to the French government State Aid notif ication in respect of the A340-500/600 measures: 
"Aérospatiale could not finance the costs connect ed with the development of the Airbus A340-
500/600 by itself or with the help of bank loans."
5659  This statement suggests that, even assuming a 
business case which predicts [***], Aérospatiale, at the very least, could not have participated in the 
programme in the absence of LA/MSF.  As we noted above, there is no indication that any of the 
aircraft launches would have proceeded without the participation of all the Airbus companies, and 
thus, the participation of Aérospatiale wa s required if the project was to proceed.5660   In this respect 
we do not consider the fact that the UK government  did not provide LA/MSF to British Aerospace, or 
that British Aerospace was able to secure outside fund ing to develop this model of LCA, is sufficient 
to substantiate the European Communities' pos ition that the A340-500 and 600 would have been 
launched even in the absence of LA/MSF.  While Br itish Aerospace's ability to secure outside funding 
suggests a confidence in the project on the part of those entities supplying the financing, that decision 
presumably rests on those entities' overall assessment  of British Aerospace's financial position, and 
also the terms of the financing agreement.  We  doubt that the same would have been true for 
Aérospatiale.  The European Communities itself stat es that the launch of the A320, A330, and A340, 
even with LA/MSF, had left Aérospatiale in a positio n in which "{i}nternally generated cash flow was 
not sufficient" to fund its investments, given that "a prudent debt/equity ratio placed limits on the amount of new debt that could be borne."
5661  [***].5662  Funding even just a portion of its LCA 
launches without subsidies had left Aérospatiale  in a position that was "repellent" to private 
                                                                                                                                                                     
an aircraft, the so-called derivatives, is illustrated for the Airbus A300 and its derivative the A310 in Klepper,  
Exhibit US-377, p. 778.   
5658 See, para. 7.1939 above. 
5659 Letter from Karel Van Miert to Hubert Vedrine, Reimbursable Advance to Aérospatiale for the 
Airbus A340-500/600 Program , Exhibit US-3 
5660 See, para. 7.1939 above. 
5661 EC, FWS, para. 1135. 
5662 Aérospatiale report to Credit Lyonnais (1994), DS316-EC-BCI-0000756, at 1 ( [***] ), Exhibit US-
296, (BCI).  WT/DS316/R 
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 investors.5663  There is no basis to conclude that Aérosp atiale could have obtai ned outside financing 
simply because British Aerospace did, as the st ate aid finding of the European Commission 
demonstrates.   
7.1943  Turning to the A380, the evidence before us i ndicates that, as compared with both the A330-
200 and the A340-500/600, the A380 was a massive pr oject with respect to both the technical aspects 
of development of the aircraft, and its associated costs.  Thus, in our view, the A380 programme has 
more in common with the project contemplated by the Dorman simulation than either of the 
immediately preceding derivative programmes.  Th e A380 business case clearly demonstrates that 
LA/MSF has a significant impact on the economics of the programme.  That said, the A380 business 
case predicts a positive NPV for the programme even assuming no LA/MSF is provided, as well as a 
positive NPV in circumstances where a Realistic Worst Case scenario is contemplated in situations 
where the project is supported by LA/MSF.  Likewise the Carballo Declaration indicates that in a no-
LA/MSF Realistic Worst Case scenario a smaller but  still positive NPV woul d be predicted on the 
basis of the [***] used in the Airbus busin ess case.  Assuming that the business case, or rather the 
numbers underlying the business case as applied in th e Carballo Declaration, demonstrate a positive 
NPV in a no-LA/MSF and a Realistic Worst Case scenario,5664 the relevant question for us is whether 
the United States has demonstrated that the A380 would not have been launched in the absence of 
LA/MSF.  The United States makes two prin cipal arguments in this respect.   
7.1944  First, the United States suggests that given the high risk involved in a programme such as the 
A380, LA/MSF increases confidence in the business m odel, including confidence that the Realistic 
Worst Case scenario is, in fact, th e realistic worse case.  If market conditions are more adverse to 
Airbus than those considered in the realistic worse case scenario, LA/MSF ensures that the project 
may nevertheless result in a positive NPV, or at a minimum, as the Dorman simulation predicts, will 
limit losses.  In this way the launch decision remains dependent upon the provision of LA/MSF.  The United States also argues that the sensitivity anal ysis provided by Airbus overstates likely sales 
volumes and understates the risk of a shortfall.
5665  For similar reasons, we have concerns about the 
A380 business case, as discussed above,5666 and we are thus not persuaded that the A380 business 
case alone demonstrates that Airbus would have launch ed the A380 even in th e absence of LA/MSF.   
7.1945  Second, the United States argues that even if Airbus were confident that the A380 project 
would be viable without LA/MSF, it does not follow that Airbus would have been able to fund the 
project from its own resources and outside financing.  In this respect the United States points to the 
comments of the French Senate Report consideri ng the provision of LA/MSF to Aérospatiale, which 
suggests that even if Aérospatiale could find out side funding in respect of the A380 programme 
(which it considered it could not) the impact of su ch funding on the balance sheet of Aérospatiale 
would be such that it would have difficulties follo wing this strategy.  As noted above, the Report 
concluded that "such external fi nancing would apparently add excessi vely to the financial expenses 
incurred by the firms and would throw their balance sheets out of equilibrium because of the low level 
                                                      
5663 EC to Review France's Aérospatiale Capital Injection , Aerospace Daily  (9 February 1994), 
Exhibit US-275. 
5664 We recall that because the Carballo Declaration did not undertake the sensitivity analysis with the 
[***]  would have resulted in a negative NPV in the Realistic Worst Case scenario without LA/MSF.  Given 
what we know about the effects of the [***]  rate on the NPV of the project without LA/MSF in the baseline 
business case, we suspect that a [***]  would have also had a significant impact on the project's NPV in the 
Realistic Worst Case scenario without LA/MSF.  See, para. 7.1925 above. 
5665 In this respect the United States notes that the impact of unanticipated delivery delays and higher 
than expected development costs actua lly experienced in connection with th e A380 were reported by EADS in 
2006 to be EUR 2.5 billion.  US, SWS,  para. 582, citing EADS press release, EADS 2006 results dominated by 
Airbus loss , 9 March 2007, Exhibit US-463.   
5666 See, para. 7.1927 above. WT/DS316/R 
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 of their equity capital".5667  Moreover, the United States has submitted a record of a statement made 
by the then UK Secretary of State for Trade and Indu stry, who in response to a question in Parliament 
answered: "We have recently seen, of course, the launch of the A380, whic h would not have been 
possible if it had not been for the commitment of the British government to launch an extremely 
successful programme ... ".5668 
7.1946  The European Communities contests the United Stat es' reliance on the French Senate Report, 
noting that this report addresses the role of Aérosp atiale only and that it w as prepared in 1996-1997, 
prior to the creation of EADS in 2000 which, according to the European Communities, increased 
Airbus' financial flexibility.  In addition, it asserts that the Senate Report onl y considers "on balance 
sheet debt financing" and does not consider "off balance sheet financing" such as risk-sharing 
arrangements with suppliers.  Noting that the A 380 business plan already included off-balance sheet 
financing through suppliers, that Boeing has reporte dly financed 60 percent of the non-recurring costs 
of the 787 through such methods and the supply by Alen ia of such financing to the German Airbus 
partner Dasa when the German government did not provide LA/MSF in respect of the A340-500/600, 
the European Communities argues th at absent LA/MSF, Airbus could have increased its use of risk-
sharing suppliers to secure the necessary financing.5669  
7.1947  While the financial situation of Airbus France in 2000 would have clearly been different from 
the position of Aérospatiale in 1997 (when the Fren ch Senate Report was released) the European 
Communities has submitted no persu asive evidence to suggest that  Airbus France was in a better 
position than Aérospatiale to fund its part of the A380 project without LA/MSF.  Although it is 
evident from the EADS offering memorandum that th e corporate restructuring of Airbus Industrie 
GIE, Aérospatiale, CASA and Deutsche Airbus was intended to improve the co mpanies' operations by 
rationalizing resources, eliminating duplication a nd consolidating overall management under a more 
integrated corporate structure, it is not so clear prec isely how, or indeed if or to what degree, this 
move affected the ability of Airbus France (or Airb us SAS) to raise the very large amounts of capital 
needed for the A380 project.  Likewise, the Eu ropean Communities has submitted no evidence to 
support the contention that merely because, reporte dly, Boeing was able to finance a significant 
portion of the non-recurring costs of developm ent of the 787 through risk-sharing supplier 
arrangements, Airbus would necessarily have been ab le to do the same with respect to the A380.  
Airbus does use risk-sharing supplier arrangements,  but there is no indication that it could have 
increased its use of such arrangeme nts so as to replace the entire amount of financing provided by 
LA/MSF, which, we recall, was up to 33 percent of  the development costs of the A380.  We do not 
consider the availability of risk-sharing supplier arrangements in respect of the A340-500/600 to be 
persuasive in this regard.  Those were derivativ e aircraft which entailed much smaller development 
costs and a much lower level of risk to Airbus ' overall operations.  The willingness of suppliers to 
take on some of the risk of that much smaller programme does not demonstrate that any supplier or 
suppliers would be prepared to do so in respect of  up to 33 percent of the much greater costs of the 
A380.  Moreover, as we have previously noted , information in the Airbus A380 business case 
suggests that the risk-sharing participants' involve ment in the A380 project may not have been on 
strictly market terms for all participants.5670  
7.1948  Finally, but for LA/MSF provided with respect to  Airbus' launches of ear lier models of LCA, 
we do not consider that it would have been possibl e for Airbus to be in a position to launch the A380 
in 2000.  We have found that the cost for Airbus of obtaining market financing for the A300, A310, 
                                                      
5667 Mission de contrôle effectuée sur le soutien public a la construction aéronautique civile , Sénat 
Report 1997, 72, Exhibit US-18.   
5668 Exhibit US-436. 
5669 EC, Answer to Panel Question 265. 
5670 Exhibit EC-362 (HSBI), p. 29.  WT/DS316/R 
 Page 961 
 
BCI deleted, as indicated [***] 
 
 A320 and A330/A340 would have been many percen tage points greater than what it actually was 
because of LA/MSF in each instance.  Given the amount of funding transfe rred to Airbus under the 
individual LA/MSF contracts, and in the light of  the formidable risks associated with the LCA 
business and the learning curve effects that are necessar y to successfully participate in this sector, we 
have found that it would not have been possible for Airbus to have launched all of these models, as 
originally designed and at the times it did, with out LA/MSF.  Even assuming this were a possibility, 
and that Airbus had actually been able to launch these aircraft relying on only market financing, the 
increase in the level of debt Airbus would ha ve accumulated over the years would have been 
massive.5671  Thus, while the A380 business case suggests,  but by no means demonstrates, that as a 
stand-alone proposition the project might have been  economically viable even without LA/MSF, in 
our view, that conclusion rests in part on the assumption  that at the time of the launch, Airbus would have been in a position to not only design and manufacture the A380, i.e., had the necessary 
development and production technologies available to it,  but also would have been able to obtain all 
the necessary financing on market terms.  However,  Airbus' technical capabilities derived in part from 
its experience in the development of its earlier model LCA funded in significant part by LA/MSF.  
Moreover, because of the significant amount of debt that developing its previous models of LCA 
would have generated, we consid er Airbus would not have been in a position to obtain market 
financing for the A380, had it not financed the development of its earlier model LCA in significant part through LA/MSF.  It follows that the view that Airbus could have launched the A380 as a stand-
alone proposition is dependent upon Airbus having received LA/MSF to develop all of its previous 
models of LCA.  Thus, either directly or indi rectly, LA/MSF was a necessary precondition for Airbus' 
launch in 2000 of the A380. 
7.1949  In summary, we conclude that the United St ates has demonstrated that LA/MSF shifts a 
significant portion of the risk of launching an aircraft from the manufacturer to the governments supplying the funding, which we r ecall is on non-commercial terms.  Based on our review of the 
development of successive models of Airbus LCA,  we conclude that Airbus' ability to launch, 
develop, and introduce to the market, each of its LC A models was dependent on subsidized LA/MSF.   
The alleged "product" effect of the other subsidies in dispute 
7.1950  The United States argues that while LA/MSF is th e primary subsidy benefiting Airbus LCA, 
the other challenged subsidies have similar effects.
5672  Thus, the United States contends that the other 
subsidies also shift costs of LCA development fro m Airbus to the governments, giving Airbus an 
edge, and allowing it to enter the LCA market with  new LCA models at a pace that would otherwise 
not have been possible.   
7.1951  The United States asserts that infrastructure s ubsidies relieve Airbus of the need to fund 
infrastructure necessary for the development and pr oduction of LCA, shifting the costs of aircraft 
development from Airbus to the Airbus governments.5673  The United States argues that infrastructure 
grants for the A380 assembly sites at Hamburg and T oulouse relieved Airbus of development costs, in 
                                                      
5671 The United States asserts that if Airbus had funded all of its LCA launches by obtaining LA/MSF 
at market rates rather than the subsidized rates provided by the Airbus governments, the resulting impact on its 
balance sheet would have been an additional US$ 178.2 billion in debt, far greater than anything Airbus could have sustained.  US, SWS, para. 612-613,  US, Answer to Panel Question 228, para. 14, citing NERA Economic 
Consulting, Quantification of Benefit of Launch Aid  (24 May 2007), Exhibit US-606; US, SWS, paras. 610-612.  
While we do not necessarily accep t the United States' calculation, it is clear to us that the additional debt burden 
for Airbus of commercial financing of all its LCA launches would have been massive, and potentially 
prohibitive.  Indeed, the European Communities itself states that this cumulative impact is several times greater 
than the entire market capitalization of EADS. EC, SWS, para. 960.   
5672 US, FWS, para. 819. 
5673 US, FWS, para. 821. WT/DS316/R 
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 this case for the A380, and when provided together with LA/MSF, shifted commercial risk away from 
Airbus and to the governments involved, limiting th e risk of A380 failure to Airbus and making it 
more likely that Airbus would launch the A380 in the first place.5674 
7.1952  Similarly, the United States contends that R&TD funding for partic ular LCA models or 
aspects thereof also relieves Airbus of costs it woul d have otherwise had to incur itself in launching 
those LCA models.5675  In addition the United States asserts that HSBI evidence demonstrates that 
Airbus needed R&TD subsidies in order to launch particular models.5676  The United States asserts 
that at least some of the R&TD subsidies provided to Airbus are clearly related to LCA development, 
citing as an example EUR 3,000,000 for a study of  the A380 wake vortex, which it asserts was an 
important issue related to the development of th e A380 and its placement into commercial service.5677  
The United States maintains that where research su bsidies are provided to fund projects that would 
clearly otherwise be part of the launch of a given LCA model, the effects of such subsidies are also properly considered together with LA/MSF.
5678 
7.1953  The United States argues that debt forgiveness5679 and equity infusions increased the capital 
available to Airbus, enabling Airbus to maintain a level and pace of product development that could 
not have been sustained without subsidies, thus  complementing the effect of LA/MSF by offsetting 
the build-up of debt on Airbus' balance sheet associ ated with the pace of its product development.5680  
The United States maintains that de bt forgiveness and equity infusions  have played a significant role 
in improving Airbus's balance sheet and enabling it to attract additional private investment and 
maintain its product developm ent and pricing strategies.5681   
7.1954  The United States maintains that each of the above-mentioned types of subsidies, together 
with LA/MSF, support Airbus' long-term plan to develop and maintain a competitive LCA family, 
and each of them has economic effects similar to that of LA/MSF, i.e., reducing the costs and shifting 
the risk of LCA development (thus making launch more likely) and alle viating the financial strain of 
product launches (thus affording pricing flexibility with respect to all models).5682  The United States 
therefore considers that the measures should be considered together with LA/MSF.5683   
7.1955  The European Communities argues that the nature of the challenged measures, in terms of 
their structure, operation and design, precl udes considering them in the aggregate.5684  The European 
                                                      
5674 US, SWS, para. 625. 
5675 US, FWS, para. 822. 
5676 HSBI Redacted version appendix to US, FWS, paras. 60-61, citing, French A340-500/600 project 
appraisal, DS316-EC-(HSBI)-0001143, at 17. 
5677 See, Competitive and Sustainable Growth Programme, 1998-2002 Project Synopsis: New 
Perspectives in Aeronautics, 2003, at 261, Exhibit US-322. 
5678 US, SWS, para. 626. 
5679 We recall that we have not found the debt forgiveness by the German government to constitute a 
specific subsidy, but did conclude that the capital transfer through KfW to Deutsche Airbus is a specific subsidy.   
5680 US, FWS, para. 824-825, citing Aérospatiale report to Credit Lyonnais (1994), DS316-EC-BCI-
0000756, at 1   
5681 US, SWS, para. 628. 
5682 US, FWS, para. 826.  We address the United States' contentions regarding pricing further below. 
5683 Brazil agrees that the challenged subsidies shou ld be cumulated in examining whether they are 
causing adverse effects to US interest s if such subsidies "manifest themselves collectively," but does not take a 
position regarding whether that standard is satisfied in this case.  Brazil, Third Party Submission, para. 56 
5684 Canada considers that the United States errs by aggregating the subsidies without consideration of 
their nature and effect, citing US – Upland Cotton  for the proposition that aggregation should be undertaken 
with caution, as otherwise parties may be left with inad equate guidance as to what actions are required by a 
subsidizing Member to comply with a recommendation fro m the DSB to withdraw the adverse effects caused by 
subsidies in the aggregate.  Canada, Third Party Submission, paras. 61-63.  According to Canada, the  WT/DS316/R 
 Page 963 
 
BCI deleted, as indicated [***] 
 
 Communities argues that, unlike the subsidies in US – Upland Cotton , which were found to be 
appropriately aggregated, not all of the subsidies in this case have a nexus to a particular subsidized 
product, they are not contem poraneous, and some are recurring while others are not.5685  The 
European Communities argues that  the United States causation th eory focuses on the impact of 
subsidies on launch decisions, and c ontends that aggregation is in consistent with this argument.5686  
With respect to the different typ es of measures, the European Comm unities contends that each grant 
of LA/MSF is tied to a specific LCA, and thus to  a specific subsidized product, and each was granted 
at a different time.  The European Communities asse rts that some of the infrastructure measures are 
tied to a specific LCA model, and notes that they we re provided at different times, and that some are 
recurring while others are not.  In addition, the European Communities contends that none of the 
equity infusions is tied to a particular LCA model, and that these non-recurring measures were 
granted at different times.  Finally, with resp ect to the non-recurring R&TD grants, the European 
Communities points out that they were granted at different times.5687  In its first written submission, 
the European Communities asserted that the United States faile d to explain how R&TD subsidies 
caused adverse effects, arguing that the United St ates failed to provide evidence showing how the 
nature of these grants caused specific lost sales, pric e depression, or other material injury or serious 
prejudice.5688  The European Communities also argues specifically that infrastructure measures 
provided by Hamburg are not of a nature that causes adverse effects to United States' interests.5689  
The European Communities asserts that the structur e and operation of the measures at Mühlenberger 
Loch are such that they are incap able of causing adverse effects.  Indeed, according to the European 
Communities, these measures led to an [***].5690 The European Communities maintains that [***] 
and the availability of the reclaimed land in Ham burg led Airbus to split the A380 Final Assembly 
Line ("FAL") between Toulouse and Hamburg, as oppo sed to creating a single site FAL in Toulouse, 
as initially contemplated, which decisi on, the European Communities asserts, [***] cost of locating 
and operating the A380 FAL, resulting in a [***] in the [***].5691  
7.1956  We do not agree with the European Communities'  view that differences in the structure, 
operation, and design of the different subsidies at is sue in this dispute preclude their being considered 
in the aggregate in examining whether their effect  is serious prejudice.  We have concluded that 
LA/MSF was necessary to the launch of each successive model of Airbus LCA, and that the individual and cumulative effect of those measures  was fundamental to Airbus' ability to launch the 
particular LCA models it launched at the time that it did.  That is, but for LA/MSF, Airbus would not 
have been able to accomplish these  successive launches.
5692  This "product" effect of LA/MSF is, we 
                                                                                                                                                                     
United States fails to establish a nexus between allege d subsidies and the adverse effects claimed.  Canada, 
Third Party Submission, paras. 64-71. 
5685 EC, Comments on US Answer to Panel Question 162, para 247.   
5686 EC, Comments on US Answer to Panel Question 162, para 248. 
5687 EC, Comments on US Answer to Panel Question 162, para 249. 
5688 EC, FWS, paras. 1658-1659. 
5689 EC, SWS, para. 1077. 
5690 See, Airbus Industrie Supervisory Board Meeting Re: A3XX Programme Status (following Pre-
ATO Campaigns), 8 June 2000, Exhibit EC-794, (HSBI). 
5691 EC, SWS, para. 1079.  See, Airbus Industrie Supervisory Board Meeting Re: A3XX Programme 
Status (following Pre-ATO Campaigns), 8 June 2000, Exhibit EC-794, (HSBI).  The European Communities  
notes that the assessment of the [***]  assumed that all deliveries would take place from Toulouse.  Ultimately, 
deliveries were split between Toulouse and Hamburg.  If  anything, two delivery centers marginally increased 
costs [***] .   
5692 See, footnote 5671 and associated text above.  Having rejected the European Communities' view 
that different models of Airbus LCA are distinct subsidized  products, we do not consider  the fact that the grants 
of LA/MSF were provided with respect to the development of specific models of LCA to undermine the conclusion that each of these measures benefited the subs idized product, Airbus LCA.   Moreover, we note that, 
with the exception of the A300 an d A310, with respect to which the United States alleged only LA/MSF WT/DS316/R 
Page 964 
 
BCI deleted, as indicated [***] 
 
 consider, complemented and supplemented by the ot her specific subsidies we have found to exist in 
this dispute.5693  The fact that the LA/MSF subsidies were granted over a long period of time, and the 
first and last grants were decades apart does not, in our view, demonstrate that it is not appropriate to 
consider them all together, as we have concluded that they were a ll provided in connection with the 
subsidized product, Airbus LCA, and they all ha d the same effect on Airbus' ability to launch the 
LCA it launched at the time that it did.5694   
7.1957  The equity investments and share transfer me asures of the French and German governments 
ensured the continued existence and financial stab ility of the respective national entities engaged in 
the Airbus enterprise.  Those entities were a neces sary element of the overall Airbus effort, as it is 
clear to us that without their participation in the overall effort, Airbus would not have been able to 
continue to develop, launch and produce LCA in fulf ilment of the goal of developing a full range of 
LCA for the market.5695  Moreover, as noted above, Aérospatiale  required the additional equity to 
fund investments in fixed assets and inventory, a nd advances to suppliers, in connection with the 
development of new aircraft.  As the European Communities acknowledges that Aérospatiale could 
not have undertaken these investments without  the government's assistance through equity 
infusions,5696 it seems clear to us that these equity invest ments directly supported the development of 
LCA in a manner that was as direct as LA/MSF.   
7.1958  The infrastructure subsidies similarly provi ded essential support to the development and 
production of Airbus LCA, relieving Airbus of  significant expenses in connection with the 
development of facilities for the production of, most  particularly, the A380, and thus enabling it to 
continue with the launch of successive models  of LCA.  Even assuming, as the European 
Communities contends, that the establishment of an A380 final assembly line in Hamburg [***], the 
establishment of that line was necessary in order to ensure [***],5697 which we consider to have been 
necessary to the ability of Air bus to launch the A380.   
7.1959  Finally, the R&TD subsidies enabled Airbus to develop features and aspects of its LCA on a 
schedule that it would otherwise have been unable to accomplish.  Even in the case of those R&TD 
subsidies directed to pre-competitive research, the ability to fund such  efforts at a time when it would 
likely have been unable to do so in light of ot her demands on its resources was, in our view, 
significant in ensuring the launch of successive models  of Airbus LCA.  While we recognize that the 
                                                                                                                                                                     
subsidies, we have found subsidies to Airbus that we re granted during the period each succeeding model of 
Airbus LCA was being developed and brought to market.  For instance, since 2000, when LA/MSF was first 
provided in respect of the A380, Air bus has received infrastructure and R&TD  subsidies.  During the period the 
A340 was being developed with financing provided by LA /MSF, Airbus was also benefiting from infrastructure, 
RT&D and equity infusion subsidies.  Similarly, when the A320 was being developed with LA/MSF financing, 
Airbus also received infras tructure, RT&D and equity infusion subsidies.  More over, Airbus was receiving 
LA/MSF with respect to more than one model of LCA at a time during much of the period from 1978 on.  Thus, 
with the exception of the A300 and A310, Airbus has rece ived a range of subsidies with respect to each model 
of LCA it has developed, and subsidies have overlapped with one another.   
5693 We recall that we have concluded that while the EIB loans in dispute are subsidies, they are not 
specific.  See, Section VII.E.5(c) above. 
5694 Moreover, we recall that the Appellate Body ha s recognized that "there could be a time-lag 
between the payment of a subsidy and any consequential adverse effects."  Appellate Body Report, US – Upland 
Cotton , para. 273.  In our view, that subsidies were granted at different times does not determine when their 
effects were manifested and felt, and thus does not dete rmine whether it is appropriat e for a panel to consider 
them together. 
5695 See, footnote 5649 above. 
5696 EC, FWS, para. 1135. 
5697 EC, Answer to Panel Question 219, para. 546; US, Comments on EC Answer to Panel Question 
219, para. 22; EC, Comments on US Answer to Panel Question 219, para. 381;  US, SCOS, paras. 51-53.  WT/DS316/R 
 Page 965 
 
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 impact of pre-competitive R&TD subsidies on Airbus ' market presence was perhaps more attenuated, 
compared with the other subsidies at issue, or  with R&TD subsidies th at funded research and 
technology actually used on LCA that were launched, we believe that combined with the others, the 
RT&D subsidies complemented and supplemented the impact of LA/MSF. 
7.1960  In US – Upland Cotton , the panel concluded that the referenc e to the effect of the "subsidy" in 
the singular in Article 6.3(c), did not mean that a serious prejudice analysis of price suppression must clinically isolate each individual subsidy and its effects.
5698  Thus, in that panel's view, "textual 
references to "any subsidy", "the subsidy" and th e "subsidized product" in Articles 5(c) and 6.3(c) 
suggest that while due attention must be paid to each subsidy at issue as it relates to the subsidized 
product, a serious prejudice analysis may be integrated  to the extent appropriate in light of the facts 
and circumstances of a given case."5699  The panel concluded that:  
"textual references to "any subsidy" and "t he effect of the subsidy" permit an 
integrated examination of effects of any subsidies with a sufficient nexus with the 
subsidized product and the particular eff ects-related variable under examination.  
Thus, in our price suppression analysis under Article 6.3(c), we examine one effects-
related variable – prices – and one subsidi zed product – upland cotton.  To 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."5700   
We agree with the panel's views in this regard, and consider that the ability to consider the effects of 
subsidies together extends to all aspects of a claim of adverse effects under Articles 5(a) and (b), and 
Articles a6a.3(a), (b), and (c).    7.1961  In our view, based on the facts and circumstances outlined above, the subsid ies at issue in this 
dispute all have a "sufficient nexus with the su bsidized product".  Moreover, inasmuch as those 
subsidies enabled Airbus to launch successive models of LCA when it did, they also have a sufficient 
nexus with "the particular eff ects-related variable{s} under examination", since the United States 
claims of serious prejudice that we are examining ar e based, at least in part, on the presence of a given 
Airbus LCA available on the market at a particular tim e.  Therefore, we conclude that it is appropriate 
to undertake our analysis of the effects of the subs idies on an aggregated basis in this dispute.   
Additional considerations with respect to the "product" theory of causation 
7.1962  In addition to arguing that LA/MSF and the other subsidies in dispute do not have the effect 
of increasing the likelihood that any given LCA progr amme will be launched, and thus resulting in the 
presence of each succeeding model of Airbus LC A on the market, the European Communities makes 
several overarching arguments seeking to demonstrat e that the market effects we have observed are 
not an effect of the subsidies.  We address these arguments below.  
                                                     
 
5698 Panel Report, US – Upland Cotton , para. 7.1192. The panel noted in this regard that: 
"Taken to an extreme, this coul d mean that separate dispute settlement proceedings, or at least 
separate claims, would need to be brought with respect to the serious prejudice caused by each 
and every individual subsidy, even where th ese subsidies exist contemporaneously and 
interact in concert in respect of a single subsidized product to produce a single result in the 
form of a price phenomenon."  
Panel Report,  US – Upland Cotton , para. 7.1192, footnote 1307. 
5699 Panel Report, US – Upland Cotton , para. 7.1192 
5700 Panel Report, US – Upland Cotton , para. 7.1192 WT/DS316/R 
Page 966 
 
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 Magnitude of the Subsidies 
7.1963  The European Communities argues th at the amount of the subsidies in this dispute is simply 
too small to have the effects asserted by the Un ited States.  Relying in principal part on its 
understanding of United States' law and regulatio ns governing the calculation and allocation of 
subsidy amounts in countervailing duty investigations5701, the European Communities calculated what 
it alleges is the per-aircraft magnitude of th e LA/MSF and R&TD subsidy amounts that can be 
allocated to fulfilled orders of different models of Airbus LCA in any given year.5702  The European 
Communities first determined what it defines to  be the amount of subs idy provided under each 
LA/MSF contract (for all but the A300 and A310 LA/MSF contracts), by identifying the difference 
between the "present value of tax ad justed loan receipts and anticipated  loan repayments discounted at 
the applicable project-specific benchmark rate".5703  The European Commun ities then allocated these 
amounts over orders for the LCA for which the LA/MSF was provided, from the year of launch and extending over its anticipated marketing life.
5704  The European Communities applied a similar 
methodology to allocate the R&TD subsidies.  Firs t, the European Communities identified the amount 
of the subsidies (the entire amount of each grant) , and then it allocated these amounts over all Airbus 
LCA orders during an 18 year period, beginning w ith the date of receipt of the R&TD subsidy.5705   
According to the European Communities, the results of its calculations show that, on a per-aircraft 
basis, the magnitude of the subsidies allocated  to each relevant model of Airbus LCA is " de minimis " 
and simply too small to have caused any of th e adverse effects alleged by the United States.5706  In 
response to the United States' assertio n that the "cash flow effect" of the alleged subsidies currently 
exceeds $100 billion, the European Communities, on  the basis of an alternative cash flow 
methodology, asserted that the present per-aircraft cash flow effects are de minimis .5707 
7.1964  The United States did not originally present any calculation with respect to the magnitude of 
the subsidy, which it characterized as "massive".5708  In response to the European Communities' 
arguments and calculation of the alleged per aircra ft subsidy amount, the United States argued that it 
was not obliged to provide a detailed quantification and allocation of the subsidy benefit.  The United 
States also disputed the European Communities ca lculation of the per-aircraft magnitude of the 
subsidy, considering it "riddled with significant errors".5709  In this regard, the United States asserts 
that the European Communities erroneously: (1) calcu lates the LA/MSF subsidies as grants based on 
the projected impact on net present value at the ti me the LA/MSF was committed, rather than as a 
                                                      
5701 The details of the methodology, and its applicatio n in this case, are set out in the ITR Report, 
Exhibit EC-13.  The European Communities describes the methodology as entailing the following steps:  
calculation of the amount of subsidy conferred;:   
tying the amount of subsidy to the aircraft programme; allocation of the subsidy over the aircraft's anticipated marketing life;  
allocation of the assigned subsidy over orders fulfilled for that programme; and 
reducing the subsidy magnitude to account for alleged subsidies that were extinguished or extracted. EC, FWS, para. 1589.  The European Communities notes that it does not agree with or adopt this 
methodology for its own.  EC, FWS, para. 1574.  However, the European Communities, while reserving the 
right to do so, does not present any alternative methodology.  The United States did not endorse the benefit calculation and allocation methodologies relied on by th e European Communities, considering them to contain 
errors at direct variance with the CVD methodologies used by the United States and the European Communities 
itself.  US, Answer to Panel Question 42, para. 250, footnote 313. 
5702 EC, FWS, para. 1573; ITR Report, Exhibit EC-13 (BCI), EC-13 (HSBI). 
5703 ITR Report, para. 19, Exhibit EC-13 (BCI). 
5704 ITR Report, para. 22, Exhibit EC-13 (BCI). 
5705 ITR Report, para. 23, Exhibit EC-13 (BCI). 
5706 EC, FWS, paras. 1569-70. 
5707 EC, SWS, paras. 1010-1024. 
5708 US, FWS, paras. 3, 80, 85, 421. 
5709 US, SWS, para. 599.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
 loan at below-market interest ra tes providing current benefits from interest savings; (2) calculates the 
subsidy based on the projected schedule of LCA de liveries and repayments rather than on actual 
repayments made, while using actual rather than projected disbursements; and (3) calculates the 
subsidy net of the (theoretical) impact of taxation,  and fails to implement its own stated methodology 
correctly by [***].5710 
7.1965  Nonetheless, the United States asserted that an y reasonable calculation of the magnitude of 
the subsidy in this dispute demonstrates that it was very large.  In this respect, the United States 
presented its own calculation of the magnitude of th e LA/MSF subsidy, based on an entirely different 
methodology from that used by the European Communities, which indicates that the total benefit to 
Airbus from LA/MSF is between USD 92.5 and USD 178.2 billion.5711  The United States' calculation 
assumed a 17-year loan period for each set of LA/MSF disbursements and, using the commercial benchmarks it had previously deve loped (which ITR also used in its calculation for the European 
Communities), considered how much of the actual or projected loan disbursements plus accumulated interest at the benchmark commercial rate still rema ined or would remain unpaid at the end of the 17 
year loan period.  Any repayments made after the 17-year loan period were used to reduce the 
outstanding balance.  When calculated in this way, the total outstanding balance of all of the particular 
provisions of LA/MSF as of December 2006, based  on the "stated rate" – that is, projected 
disbursements and repayments –  was $92.5 billio n.  The United States also undertook the calculation 
on the "realized rate" – that is, actual disbursem ents and repayments, yielding a total of $129.9 
billion.
5712  These figures include loan balances assumed to have been left unpaid in the past.  To 
ensure an apples-to-apples comparison, the United States brought forward such balances using the 
government risk-free borrowing rate so as to express the total uniformly in 2006 dollars, resulting in a 
total of $122.1 billion using projected disbursement s and repayments, and $178 .2 billion using actual 
disbursements and repayments.  The United States sugg ests that Airbus's general, non-project-specific 
corporate borrowing rates would be a more accurate way to measure the impact of LA/MSF on the 
present financial condition of Airbus, which woul d yield an even larger accumulated benefit.5713  It 
also argues that irrespective of the methodology used  to calculate benefit, the costs associated with 
equivalent financing on commercial terms would have been impossible for Airbus to support while at 
the same time developing and launching all the aircraft it did.5714 
7.1966  We agree with the United States that there is no obligation in a dispute under Part III of the 
SCM Agreement for the complaining party to preci sely calculate or allocate the benefit of the 
subsidies in dispute.  Looking at the text of Article 6.3(c), the Appellate Body in US – Upland Cotton  
observed that the provision does not state explicitly that a panel needs to quantify the amount of the 
challenged subsidy.5715  The Appellate Body concluded that while a panel must determine that the 
challenged payments constitute a specific subsidy in order to "find that a subsidy has the effect of 
significant price suppression, or some other effect me ntioned in Article 6.3(c) ... the definitions of a 
specific subsidy in Articles 1 and 2 do not expressly require the quantification of the "benefit" 
                                                      
5710 US, SWS, para. 605, referring to US, Answer to Panel Question 42, para. 252. 
5711 US, SWS, para. 610-612; NERA Economic Consulting, Quantification of Benefit of Launch Aid 
(24 May 2007), Exhibit US-606. 
5712 NERA Quantification Report at 4, Exhibit US-606. 
5713 NERA Quantification Report at 4, Exhibit US-606. 
5714 US, SWS, para. 612.  In this regard, we note that the United States calculated the amount by which 
it considered per-aircraft repayments for subsidized Airbus LCA would have been greater in order to repay LA/MSF at the commercial rates determined in the Ellis  Report, concluding that Airbus would have been 
required to repay an additional [***]  to France, Germany, and Spain, plus an additional [***]  to the United 
Kingdom.  US, Comments on EC Answer to Panel Question 289, paras. 221-225.  See also, US, SNCOS, paras. 184-186. 
5715 Appellate Body Report, US – Upland Cotton , para. 461. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
 conferred by the subsidy on any particular product."5716  Turning to the context of Article 6.3(c), the 
Appellate Body noted that the only provision c oncerning quantification was in the now expired 
Article 6.1(a), and concluded that the lack of provi sions concerning quantification in Article 6.3(c) 
suggested that no precise quantificatio n is envisaged in that provision.5717  The Appellate Body also 
rejected consideration of the methodologies set out in Part V of the SCM Agreement as providing 
relevant context for the interpretation of Articles 5( c) and 6.3(c) of the SCM Agreement, noting that 
the apparent rationale for Part III differs from that for Part V of the SCM Agreement.5718  T h e  
Appellate Body also noted the absence of any indication in Article 6.3(c) as to what method of quantification might be appropriate as indicating that precise quantification was not necessary for a 
panel's analysis under Article 6.3(c), and that An nex V did not mandate precise quantification of 
subsidies in order to determine their effect under Article 6.3(c).
5719  Thus, the Appellate Body 
concluded that while in many cases it  may be difficult to decide whether the effect of a subsidy is 
significant price suppression in the absence of some assessment of the magnitude of the challenged 
subsidy, "this does not mean that Article 6.3(c) imposes an obligation on panels to quantify precisely 
the amount of a subsidy benefiting the product at issue in every case.  A precise, definitive 
quantification of the subsidy is not required."5720   
7.1967  While the Appellate Body in US – Upland Cotton  was considering a claim of price 
suppression under Article 6.3(c), we see no reason wh y the same conclusion should not apply equally 
to other claims of serious prejudice under the remainder of Article 6, and indeed, to the entire universe of claims of adverse effects.  This does not mean th at the magnitude of the subsidy is irrelevant to the 
consideration of adverse effects.  It is clear that  the subsidy or subsidies in dispute must cause the 
adverse effect(s) alleged.  However, whether a par ticular subsidy or subsidies cause particular alleged 
adverse effects is clearly not a function simply of  their magnitude, however measured, but must also 
take into account the nature and effects of the partic ular subsidies in question,  and the nature of the 
subsidized product and market, in order to assess wh ether the necessary causal link exists.  Thus, there 
is no necessary correlation between the magnitude of  a subsidy and the determination whether it 
causes certain alleged adverse effects.  While logic ma y indicate that a larger subsidy is likely to have 
more significant effects, in some circumstances, even a relatively small subsidy may have significant effects, for instance, where it enables market particip ation that would otherwise not occur.  Certainly a 
case such as this one, where the subsidies have, as we  concluded, enabled Airbus to launch LCA that 
it otherwise would not have been unable to launch wh en it did, and where the subsidies are, by any 
realistic measure, extremely large, a causal link can be found between the use of the subsidies and the 
effects.  
7.1968  In addition, we are not persuaded by the Europ ean Communities' premise that an allocation of 
the benefit of the subsidies on a per-aircraft basis is  required in order for the United States to sustain 
its claims of serious prejudice in this dispute.  The European Communities'  submission assumes that a 
per-aircraft allocation of the subsidy benefit over ti me in order to determine a "current" per-plane 
subsidy amount is necessary, but the European Comm unities nowhere explains why such a calculation 
is necessarily the way to determine the magnitude of the subsidy.
5721  The notion of allocation of 
benefit applied by the European Communities in its calculation is derived from the practice of 
investigating authorities in the context of counter vailing duty investigations.  In the countervailing 
duty context, the remedy for any violation of the SCM Agreement is the imposition of a 
countervailing duty on future imports  of the exported product benef iting from the subsidies found to 
                                                      
5716 Appellate Body Report, US – Upland Cotton , para. 462. 
5717 Appellate Body Report, US – Upland Cotton , para. 463. 
5718 Appellate Body Report, US – Upland Cotton , para. 464. 
5719 Appellate Body Report, US – Upland Cotton , para. 465-466. 
5720 Appellate Body Report, US – Upland Cotton , para. 467. 
5721 EC, FWS, para. 1569.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
 exist.  The SCM Agreement specifically limits th e amount of any countervailing duty applied to any 
imports to the amount of subsidy per unit of product.5722  Thus, in the countervailing duty context, it is 
critical, in order to act consistently with the SC M Agreement, for the investigating authority to 
determine the amount of benefit from the subsidy pe r unit of product, in order to ensure that the 
remedy, countervailing duties on imports, is collected in the correct amounts.  There is no 
corresponding reason to undertake a similar calculation in the context of a dispute under Part III of the 
SCM Agreement.5723  In this context, the relevant ques tion is not the precise amount of subsidy 
attached to each unit of the subsidized product, but  rather whether the subsidies in question are of 
sufficient magnitude, in light of their nature and e ffect, to have caused the serious prejudice alleged.  
We therefore conclude that allocati on of the benefit of the specific subsidies we have found, on a per 
Airbus LCA basis, is not necessary in this dispute. 
7.1969  In any case, we believe there are a number of deficiencies with the European Communities' 
calculation, which renders it unreliable for the purpose of identifying the magnitude of the subsidies at 
issue, even without allocation on a per-plane basis.  First, we note that in identifying the magnitude of 
the LA/MSF subsidies, the European Communities has focussed its analysis on the amount of the 
subsidy benefit ( i.e., the interest rate differentials), without also taking into account the nature of the 
financial contributions at issue.  In our view, in or der to properly consider the magnitude of a subsidy 
provided under a loan for the purpose of informin g a panel's consideration of a serious prejudice 
claim, it is important to examine the interest rate  differential in the context of the amount of funding 
borrowed under the loan.  Such an approach is not only consistent with Article 1 of the 
SCM Agreement, which we recall defines a subsidy as a financial contribution that confers a benefit 
upon a recipient,5724 but it also makes sense in the particular context of a serious prejudice analysis, 
where it is important to focus on the effects of the challenged subsidies.  In this respect, we note that, 
all things being equal, the effects of a loan involv ing a financial contribution covering 1 percent of the 
costs of a particular project at an interest rate that is 100 basis points below the market rate for a 
comparable loan, are likely to be less pronounced than  a loan providing the same  interest rate benefit 
but covering 100 percent of the costs of a project.   
7.1970  A second flaw we believe is manifest in the Eu ropean Communities' calculation of the alleged 
subsidy benefits associated with LA/MSF lies in its discounting of taxes allegedly paid on the 
principal loaned under the LA/MSF contracts.  Else where in this Report, we have concluded that 
consideration of such a tax effect in the c ontext of the present dispute is inappropriate.5725  Moreover, 
the European Communities relies upon repaymen t amounts for the purpose of its present value 
calculations concerning the Spanish A340-500/600 cont ract and the French A330/A340 contract that 
we have found to be erroneous  or non-verifiable on the basis of the evidence before us.5726  Thus, even 
following its own methodology for identifying the am ount of the subsidy benefit provided under each 
LA/MSF contract, the European Communities' calc ulations underestimate the total benefit we 
consider could be reasonably associ ated with the provision of LA/MSF.  Finally, we note that, the 
European Communities has included in its calcul ations the alleged am ount of LA/MSF subsidy 
associated with only five of the seven Airbus LCA programmes and only some  of the R&TD subsidies 
we have determined to exist.   
                                                      
5722 Article 19.4 of the SCM Agreement provides that "no countervailing duty shall be levied on an 
imported product in excess of the amount of the subsidy found to exist, calculated in terms of subsidization per 
unit of the subsidized and exported product."  (footnote omitted). 
5723 See, Appellate Body Report, US – Upland Cotton , para. 464. 
5724 We note that, in the context of a grant, the magnitude of the subsidy is properly determined on the 
basis of the amount of funding actually transferred by means of the grant.  In other words, where a subsidy takes 
the form of a grant, the amount of the financial contribution and the amount of the benefit are the same. 
5725 See, para. 7.430 above.   
5726 See, para 7.415 above. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
 7.1971  Following the European Communities' methodology  corrected for the technical errors noted 
above, we sought to arrive at our own estimates of  the amounts of subsidy benefit associated with the 
LA/MSF contracts counted by the European Comm unities.  These estimates indicate that the 
European Communities' totals of LA/MSF benefit of EUR [***] and [***] understate the actual 
amount of LA/MSF subsidy benefit on the A320, A330/340, A330-200, A34-500/6000, and A380, by 
approximately [***] with respect to the Euro amount, and approximately [***] with respect to the 
pound amount.  Our estimate of the amounts of R& TD subsidies are approximately twice the amount, 
EUR 381 million, calculated by the European Comm unities for subsidies conferred by the European 
Communities, France, and Germany, not even coun ting the Spanish loans we determined constitute 
specific subsidies.  In addition, the European Communities did not include LA/MSF for the A300 and 
A310 in its calculations.  We reca ll our findings that LA/MSF was provided at a zero rate of interest 
for the A300 and A310, while the market benchmarks  we determined were at least 16.52 percent for 
the A300 contract and at least 18.88 percent for the A310, on 100 percent of the development costs of 
those planes, indicating a significant additional amount of subsidy.  Thus, with respect to even the 
limited portion of the specific subsidies we have fo und to exist in this dispute that it counted, the 
European Communities' calculations vas tly underestimate their magnitude.   
7.1972  In addition, and significantly, the European Communities' calculations fail entirely to take 
into account the other specific subsidies we have found to exist, namely, the subsidies with respect to 
the infrastructure grants, equity in fusions and share transfers.  While we have not precisely calculated 
the amounts of the subsidies conferred, we note th at with respect to the Mühlengberger Loch and 
ZAC Aéroconstellation infrastructure subsidies, th e hundreds of millions of Euro expended by 
government authorities in developing the sites are not  included in the basis on which the rent or the 
purchase prices paid by Airbus were calculated, maki ng the amount of the difference akin to grants to 
Airbus.  The [***] for the Bremen airport runway extens ion and noise reduction measures, and the 
more than EUR 200 million in regional grants for Airbus production facilities by German and Spanish 
authorities between 2001 and 2004, are not included in the European Communities calculations.  Nor 
does the European Communities count the value of the transfer of KfW's 20 percent equity interest in 
Deutsche Airbus to MBB in 1992 on non-market terms, or the FF 3.54 billion in equity investments in 
Aérospatiale by the French government and Créd it Lyonnais in 1987, 1988, 1992, and 1994, or the 
transfer by the French government of its interest in Dassault Aviation to Aérospatiale in 1998.  Thus, 
taking into account all of the specific subsidies we ha ve found to have been provided to Airbus, it is 
apparent that the European Communities' calculatio n greatly understates the amount of the benefit 
associated with the specific subsidies we have found  were provided in respect of Airbus LCA, which 
in our estimation is substantial and significant.   Moreover, considering that the proportion of 
development costs covered by LA/MSF for the early models of Airbus LCA was close to 100 percent 
and that even 33 percent of development costs of  the post 1992 models is a significant amount of 
subsidized funding, we conclude that the magnitude of  the specific subsidies is certainly sufficient to 
have had the effect of enabling Airbus to launc h successive models of LCA at a pace it could not 
otherwise have achieved.   
The Age of the LA/MSF Subsidies 
7.1973  The European Communities submits that several of the LA/MSF subsidies in this dispute are 
"decades old" and cannot, for that reason, be causi ng present serious prejudice to the United States' 
interests.5727  It is true that the first grant of LA/MSF, for the A300, was agreed by the governments of 
Germany and France in 1969 and by Spain in 1970.  However, this was but the first of a series of grants of LA/MSF provided in resp ect of each subsequent model of  Airbus LCA.  Thus, LA/MSF was 
                                                     
 
5727 "The notion that subsidies conferred decades ago could significantly a ffect current pricing 
decisions or otherwise cause serious prejudice is fanciful, at best."  EC, FWS, para. 1656.  See, also , EC, FWS, 
paras. 7, 1323, 1335, 1606, 1643, 1645, 1656, 1794, 2261, 2270, 2272.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
 provided by those same governments with respect to the A310 in 1978.  The governments of France, 
Germany, Spain and the United Kingdom provide d LA/MSF with respect to the A320 in 1984,5728 and 
with respect to the A330/A340 in 1987.  LA/MSF was again provided by the government of France 
for the A330-200 in 1995, and by the governments of France and Spain for the A340-500/600 in 
1997.  The most recent grant of LA/MSF was in 2000 , by the governments of France, Germany, Spain 
and the United Kingdom, with respect to the A380.   
7.1974  The LCA supported by those grants of LA/MSF entered into service in each case several 
years after the grant of LA/MSF, and with the exception of the A300 and A310, production of which ceased in July 2007 (after the period we examined in  this dispute), each of these aircraft is still in 
production and being sold by Airbus.  A lthough the European Communities notes that [***],
5729 this 
does not detract from the fact that LA/MSF enabled Air bus to launch that model at the time it did, and 
thus ensure its presence on the market and consequent effects.  Moreover, LA/MSF is not the only specific subsidy we have found to benefit Airbus LC A in this dispute, and each of these other specific 
subsidies has also been repeatedly granted over a number of years with resp ect to the same product, 
Airbus LCA.  Thus, we have found specific subsid ies in the form of R&TD funding, granted from 
1986 onward, with the most recent grants in 2003, as well as in the form of infrastructure grants, 
involving the Bremen runway extension in 1989- 90, the Aéroconstellation site in 1999, the 
Mühlenberger Loch site in 2000, and various Sp anish and German sites from 2001 to 2004.  These 
subsidies, together with LA/MSF, as well as the shar e transfers and equity infusions we have found 
constituted specific subsidies to Air bus between 1988 and 1998, have c onferred benefits on Airbus at 
intervals over its entire existence, supporting its ab ility to launch successive models of LCA, and thus 
its participation in the LCA market. 
7.1975  Thus, we are not concerned here with a one-off grant of a single subsidy, or even a number of 
subsidies, "decades" ago, but with repeated gr ants of subsidies benefiting the same product
5730 over a 
period of decades, which product has been produced a nd sold throughout that period and continues to 
be produced and sold now and into the future.  We have concluded th at LA/MSF and the other 
subsidies played a vital role in permitting Airbus  to not only launch and develop the model of LCA 
actually funded by each grant of LA/MSF, but also each of the subsequent models.5731  Moreover, 
advantages in technology and pro duction flowed from the development of each succeeding model of 
LCA supported by LA/MSF and other subsidies to production of earlier models , and the development 
of derivative and improved vers ions of earlier models.   
7.1976  While the effect of a single subsidy may well dissi pate over time, in our view, the fact that the 
subsidies at issue in this dispute were repeated ly granted over the entire history of Airbus' LCA 
development with respect to that same product has had rather the opposite effect, through the learning 
and spillover effects, and production synergies that ar e inherent in this industry, which spread the 
effect of LA/MSF for the development of one mode l of LCA, and of other subsidies, to both 
                                                      
5728 Airbus began the A320 Development programme in 1980, which ultimately resulted in the launch 
of four models in the A320 group, the A320 basic, A321, A319, and A318.   
5729 EC, FWS, para. 1655, referring to  Comparison of Actual Deliveries [***], Exhibit EC-327 (HSBI).  
We understand that with the exception of loans provided in respect of the A300 and A320, substantial amounts of LA/MSF loans remain outstanding, including the entirety of the amount loaned with respect to the A380.  
The European Communities does not make specific allegations with respect to [***] , but even if this were the 
case, it would not affect our conclusions. 
5730 We recall our conclusion that there is a single subsidized product at issue, Airbus LCA. 
5731 While we have found that the United States has not demonstrated the existence of a "LA/MSF 
programme" per se , based on the evidence before us, we consid er that the governments of France, Germany, 
Spain, and the United Kingdom, and the European Communities, have pursued a policy of providing support for 
LCA development and production since 1969.   WT/DS316/R 
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BCI deleted, as indicated [***] 
 
 subsequent and earlier models.5732  We recall the observation of the panel in US – Upland Cotton that 
"{s}ubsidies granted under expired measures may have had adverse effects at the time they were in 
effect, and may still have lasting adverse effects."5733  Indeed, the nature of th e product at issue in this 
case, LCA, with its long lead times for development and long-term presence in the market, suggests 
that the subsidies granted at different periods in  the life of the product may well continue to have 
effects long after the original grant.  This is particularly so, in our view, in light of the fact that the product, LCA, benefiting from those subsidies conti nues to be manufactured and sold.  We therefore 
do not consider that that age of the LA/MSF subs idies (or any of the other subsidies at issue) 
undermines our conclusion that, but for those subsid ies, Airbus would not have been able to launch 
and develop each model of LCA as originally  designed and at the time that it did.  
Competition in the Absence of the Subsidies  
7.1977  As noted above, a key critique of the Dorman  Report advanced by the European Communities 
in the Wachtel Report is that it is allegedly pr emised on the assumption that Boeing would face no 
competition in the absence of an Airbus which r eceived LA/MSF.  The Wachtel Report asserts that 
LCA "markets" are natural duopolies and, accordingly, if Airbus did not exist, some competitor other 
than Boeing would have arisen to ta ke its place in those markets.  Thus, in the counterfactual in which 
Airbus did not exist or did not launch the aircraft it did when it did, some other competitor would 
have launched aircraft to compete with Boeing.
5734  In circumstances where Boeing would face 
competition in the counterfactual there is not, acco rding to the European Communities, sufficient 
evidence to conclude that in th e absence of LA/MSF, the United States' LCA industry would enjoy a 
higher market share and/or receive higher prices for its products.5735 
7.1978  The European Communities asserts that the United States itself admits that Boeing would face 
active competition in the absence of LA/MSF and that  their proposed counterfactual is inherently 
speculative.  The European Communities notes, inter alia , the following statement: 
"To be clear, the United States does not contend that the LCA industry should be a 
Boeing or even a U.S. monopoly.  No one can say with certainty how the LCA 
industry would have developed over the l ast 40 years without the EC and Airbus 
government subsidies designed to ensure that Europe would be the home of one producer in a competitive duopoly.  But for the EC provision of Launch Aid, surely 
there would nonetheless have been competition.   But the nature and type of that 
competition would surely have been differ ent.  The United States seeks only what the 
SCM Agreement seeks  – that the compe tition not be subsidized competition."
5736 
Insofar as "there would nonetheless have been  competition" in the absence of LA/MSF the 
United States cannot, according to the logic of the European Communities, demonstrate how LCA 
competition has been affected by LA/MSF and that  those competitive effects have caused serious 
prejudice to the United States.5737 
 
                                                      
5732 See, US, FCOS, paras. 62-67, citing Exhibits EC-98 (HSBI), EC-362 (HSBI), EC375 (HSBI), and 
EC-498 (HSBI), US, SNCOS, paras. 151-154, citing inter alia , Exhibits US-182 (efficiency of combining 
production facilities for A380 with existing facilities fo r A319/A321 facilities at Mühlenberger Loch), EC-776 
(HSBI)(commonality as part of rationale for launching new derivative models). 
5733 Panel Report, US – Upland Cotton , para. 7.1201. 
5734 EC, FWS, para. 2279, citing Wachtel report, Exhibit EC-12, paras. 7-8. 
5735 EC, SWS, para. 847. 
5736 US, FCOS, para, 151.   
5737 EC, SWS, paras. 846-848.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
 7.1979  We note, as a factual matter, that the LCA mark et has been a duopoly market since the merger 
of McDonnell Douglas with Boeing in 1997.  The fact  that competition in the market is currently 
limited to Boeing and Airbus is, not surprisingl y, reflected in the evidence presented by the 
United States in support of its serious prejudice claims.  For example, the United States uses the 
phrase ""zero sum" competition" in the sense that "a win for one producer is almost always a loss for 
the other" to describe the competition between the two producers.5738  This 'zero sum' assumption 
does, at times, colour the United States descripti on of the causal link between the subsidies and the 
effect on the United States interests.  Thus, for in stance, after reiterating its position that absent the 
subsidies Airbus would have fewe r and different LCA products, the United States asserts that "{i}n 
this duopoly market, that means that the U.S. LC A Industry would produce and sell more aircraft at 
higher prices than it does in the face of subsidized competition".5739  We do consider that in certain 
instances the United States may proceed too hastily from a conclusion that certain Airbus products 
would not exist but for the subsidies to the conclusi on that Boeing would sell more aircraft and prices 
would be higher.  If there were competition from some other producer, that competitor might have 
been in a position to introduce competitive aircraft  to the market that Airbus could not have 
introduced but for LA/MSF, with a similar effect on Boeing sales and prices.  Nonetheless, we do not agree with the premise of the European Communitie s' argument, that the possibility, or even the 
likelihood, of competition in the absence of subsidi es to Airbus, requires us to conclude that the 
United States has failed to demonstrate a causal li nk between the Article 6.3 phenomena and the use 
of subsidies by the European Communities and certain of its member States.   
7.1980  As both parties acknowledge, any consideration of  a counterfactual in the context of this 
particular dispute is inherently speculative.  Ho wever, to differing degrees both the United States and 
the European Communities appear to  accept that had Airbus not entered the LCA market when it did, 
there would have been some other market part icipant than Boeing, albeit perhaps not a new 
entrant.
5740  The United States also posits a situation where Airbus would have entered at a much later 
stage with a different quality LCA offering.5741  A review of the economic literature, much of which 
has been introduced as evid ence in this dispute, can help narro w down the range of possibilities.   
7.1981  To begin with, certain fundamental characteris tics of the LCA market are well described in 
the literature,5742 and are not disputed by the parties.  Fi rst, entry barriers into the LCA market are 
formidable.  The design, testing certification, pr oduction, marketing and after-delivery support of 
LCA is an enormously complex a nd expensive undertaking, which re quires huge up-front investments 
over a period of three to five years before any revenues are obtained from customers.5743  A rough rule 
of thumb is that at least 600 airplanes of a new model must be sold before the revenues for a programme exceed the costs.  Economies of scale arising from the huge sunk development cost give 
incumbent firms a considerable competitive advant age.  Learning effects induce dynamic economies 
of scale which reinforce incumbents ' advantage.  Economies of scope make it difficult to enter one 
market segment only.  Thus, producers of a full rang e of LCA are at an advantage.  Switching costs, 
i.e., the costs of customers moving from one aircraft manufacturer's LCA to another's, make it more 
difficult for new producers to enter.  Most airlines prefer fleet commonality.  Incumbent firms have a 
strong incentive to adopt entry deterring price strate gies.  Uncertainty is considerable.  This makes it 
                                                     
 
5738 US, FWS, para, 198. 
5739 US, FCOS, para. 131. 
5740 EC, FWS, para. 2287, EC, SWS, paras. 859-861.  US, FNCOS, paras. 147-148, 151; US, SWS, 
paras. 587-89. 
5741 US, SWS, para. 590. 
5742 See, also , Section VII.F.6 of this Report, where we set forth our understanding of the relevant 
conditions of competition in this industry, which are consistent with the views of economists described here. 
5743 Boeder & Dorman, Exhibit US-373. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
 very difficult to finance the huge development costs on capital markets.5744  Finally, the fact that 
aircraft are typically sold in US dollars e xposes non-American manufacturers with a production base 
outside of the United States to exchange rate fluctu ations which increase uncertainty and are costly to 
cover against.5745 
7.1982  Economists generally consider that with such high entry barriers, entry into the manufacture 
of LCA without government support is difficult if not impossible.  Consideration of alternative 
scenarios that have been analyzed in the literature provides a sense for what economists consider to be 
the most likely counterfactuals.  For instance, Kl epper posits two scenarios that could have become 
reality since 1970, had Airbus not entered the market.5746  The first is a Boeing monopoly, and the 
second is a duopoly with two established producer s, Boeing, and either McDonnell Douglas or 
Lockheed.5747  The difference between this and the actual situation is that there would be two 
established US producers, rather than one incumben t US producer and a new non-US entrant.  Neven 
and Seabright consider three alternative scenarios to  their base case, which attempts to reproduce the 
actual development of the aircraft market from the early 1960s.5748  The first is a Boeing-McDonnell 
Douglas duopoly, the second is an Airbus, Boeing duopoly (without McDonnell Douglas), while in 
the third, Boeing remains a monopoly throughout the period.  Baldwin and Krugman, which is quoted 
in the Dorman Report, notes that "{i}n the world market there are only three significant manufacturers 
of airframes for jets that seat more than one hundred passengers.  It is arguable that in the absence of 
government support there would be only one."5749 
7.1983  We are not convinced by the view expressed in the Wachtel Report that, because of the 
alleged size of the segments in the LCA market , the LCA industry is a "natural duopoly". The 
fundamental reasoning behind the Wachtel Report in  this regard is clear.  Relying upon the 
methodology applied in a study undertaken by Br esnahan and Reiss, W achtel segments the LCA 
market and compares an estimate of the average break-even point for sales of any given model of 
LCA with the size of individual market segments.  Wh ere the segment market size is larger than twice 
the break-even point, he concludes that there is room for two producers and thus the segment is a 
natural duopoly.  A major weakness of this reas oning is that it ignores the linkages between market 
segments.  Because of scope economies and switching costs, entry into one of the segments alone is almost impossible.  This problem is acknowledge d by Bresnahan and Reiss, who note in their 
conclusion that "{w}hen markets overlap, it becomes less clear how one should compute entry thresholds".
5750  There are further reasons to question th e applicability of the Bresnahan and Reiss 
approach to the LCA market.  Bresnahan and Rei ss assume that firms have U-shaped average total 
costs, while learning effects in the LCA industry tend to reduce marginal costs, at least up to a certain, 
rather significant, production level.  The theoretical  industrial organization literature suggests that 
learning curves can provide strong strategic incentives to firms.5751  For instance, Cabral and Riordan 
                                                      
5744 Klepper, Exhibit US-377; Boeder & Dorman, Exhibit US-373. 
5745 Klepper, Exhibit US-377. 
5746 Klepper, Exhibit US-377. 
5747 The second scenario assumes the market is larg e enough for two or more  producers, and that 
Lockheed and McDonnell Douglas were efficient producers.  Klepper, Exhibit US-377, p. 789.  The author 
notes that in reality, a complete monopoly might not ma terialize, and another American producer might not be 
an equal competitor to Boeing. 
5748 Neven & Seabright, Exhibit US-382. 
5749 R. Baldwin & P. Krugman, Industrial Policy and Internationa l Competition in Wide-Bodied Jet 
Aircraft , in Trade Policy Issues and Empirical Analysis , R. Baldwin, ed., National Bureau of Economic 
Research, 1988, p. 45. 
5750 T.F. Bresnahan & P.C. Reiss, Entry and competition in concentrated markets. 99(5) Journal of 
Political Economy, 977 (1991) 
5751 See, overview in C. Lanier Benkard, A Dynamic Analysis of the Market for Wide-Bodied 
Commercial Aircraft ,  71 Review of Economic Studies 581 (2004).  WT/DS316/R 
 Page 975 
 
BCI deleted, as indicated [***] 
 
 show that in a duopoly with strong learning curve efficiencies there is a tendency for the firm with 
lower costs to increase its lead;5752 while Dasgupta and Stiglitz show that when learning is strong, an 
oligopoly may tend toward monopoly.5753 
7.1984  Thus, our evaluation of the arguments and evid ence the parties have submitted leads us to 
conclude that there are multiple possibilities for th e LCA industry in the counterfactual world that 
would exist in the absence of subsidies to Airbus.  In one scenario, Airbus would not have entered the 
LCA market at all and Boeing would be in a monopol y position, holding 100 percent of the market.  
In this scenario, the link between the subsidies th at enabled Airbus to enter the LCA market and 
Boeing's loss of market share and sales is self-evi dent.  Any market displacement and lost sales 
actually suffered by Boeing would be directly attri butable to the subsidies granted to Airbus, which 
enabled it to launch and develop its own family of LCA.  In a second plausible scenario, Airbus 
would not have entered the market, but there would nevertheless have been two players, which on the 
basis of the evidence before us, would most lik ely have been Boeing and McDonnell Douglas, the 
latter having merged with Boeing in 1997.5754  As both Boeing and McDonnell Douglas are (or were) 
US LCA manufacturers, there would once again be no question about the nexus between the subsidies 
which enabled the non-US company, Airbus to enter the LCA market and serious prejudice to the United States' interests (displacement of Boeing and/or McDonnell Douglas LCA from the LCA markets and lost sales).  Finally, in a third and a fourth scenario, Airbus might have entered the LCA 
market without subsidies, either in competition with Boeing alone, or in competition with a United 
States' industry comprising Boeing and another US producer.  In either case, Airbus could not 
conceivably have been present in the LCA market w ith the same aircraft and at the same times as it 
actually was, given our conclusions concerning the cumulative effect of LA/MSF and the other 
subsidies in dispute on Airbus' ability to launch successi ve models of LCA as and when it did.  In our 
view, it is simply not feasible that, without LA/M SF and the other subsidies, relying entirely on non-
subsidized financing, Airbus coul d have undertaken the pace of aircraft development that would have 
enabled it to launch the range of LCA that it has su ccessfully launched to date, which has resulted in 
its present position in the market for LCA.  It foll ows that even in the unlikely event that Airbus 
would have been able to enter the LCA market as a non-subsidized competitor, we are confident that 
it would not have achieved the market presence it di d over the period 2001 to 2006 and that we have 
described in the previous sections of this Report.
5755 
Factors other than competition with subsidized Airbus LCA 
7.1985  The European Communities asserts that the United States' claim that subsidies to Airbus LCA 
cause present adverse effects cannot be sustained becau se the United States fails to take account of 
various "non-attribution" factors, which the Europ ean Communities contends are responsible, distinct 
from competition with Airbus LCA, for a "signifi cant portion of any present lower Boeing prices, 
sales, deliveries, and market share."5756  In this context, the European Communities raises alleged 
mismanagement of customer relations, geopolitical  considerations, and the role of engine 
manufacturers in sales campaigns as contributing to lost  sales, rather than Airbus pricing.  We have 
                                                      
5752 L. Cabral & M.H. Riordan, The learning curve, market dominance, and predatory pricing , 62(5) 
Econometrica 1115, (1994). 
5753 P. Dasgupta & J. Stiglitz, Learning-by-doing, market structure and industrial and trade policies. 40 
Oxford Economic Papers 246, (1988). 
5754 We note in this regard the United States' assertion that competition from Airbus was a factor in 
McDonnell Douglas' exit from the LCA industry.  US, FCOS, para. 68.  In addition, we note that Lockheed, the other competitor in the market at an earlier date, had already exited the market in 1981, and neither party has 
suggested that any other pre-existing entity was or would have been in a position to enter the LCA industry, or 
that any entity other than Boeing sought to purchase McDonnell Douglas. 
5755 See, paras. 7.1752, 7.1757, 7.1780, 7.1781, 7.1782, 7.1784 and 7.1786 above. 
5756 EC, SWS, para 1090. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
 rejected above the view that lost sales must be by  reason of lower price in order to constitute adverse 
effects.5757  As discussed above, there is no dispute that  Airbus succeeded in the sales campaigns we 
have considered, and we have th erefore concluded that the United States has demonstrated that 
Boeing suffered substantial lost sales during the peri od 2001-2006.  We noted that there are numerous 
factors involved in a customer's decision as to whic h LCA to purchase.  However, one factor which is 
essential is the availability of a particular model or models of LCA suitable for a particular customer's 
needs at the time of the sale.  We have concl uded that, but for LA/MSF and the other subsidies in 
dispute, Airbus would not have been able to launch the particular LCA it did at the time it did.  Thus, 
the presence of these subsidized LCA in the market is  a fundamental cause of the lost sales observed.  
But for the subsidies, Airbus would not have been  competing for these sales with the LCA it actually 
sold.5758  Similarly, Airbus' market share is directly a ttributable to its ability to sell and deliver to the 
European Communities and relevant third country  markets, LCA which it would not have had 
available but for the subsidies which supported th e launch of every model of Airbus LCA.   
7.1986  We note the European Communities' general view  that subsidies in a previous period cannot 
be the cause of changes in market share during the period we are considering.  We do not agree with 
this view, given that, as we have discussed, in the LCA industry, the effect of subsidies which support 
the development of new models of LCA is felt long after the subsidies have been granted, in the years 
in which LCA supported by those subsidies are so ld and delivered to customers which otherwise 
would not have had the option of purchasing such LCA.5759  In any event, however, we do not 
consider that it is necessary in the circumstances of this dispute to link the particular changes in 
market share we have observed to the timing of the gr ant of the subsidies in order to make a finding of 
displacement in either the EC or third country mark ets.  We have found that the effect of LA/MSF, 
complemented by the other subsidies in dispute, is  to enable Airbus to launch and bring to market 
LCA that it otherwise would have been unable to – that is, the subsidies support the presence of Airbus in each segment of the LCA market with e ach of its LCA models.  Since we have concluded 
that, but for the subsidies, Airbus would not ha ve had the market presence it did have during the 
period we examined, it is clear that those LCA ha ve displaced Boeing LCA from the relevant markets 
and caused lost sales in the same market.   
7.1987  The European Communities also points to the severe downturn in the market in 2001-2003 
following the events of 9/11 (exacer bated by the start of the war in Iraq and the outbreak of SARS in 
Asia).  The European Communities ar gues that the severity of this downturn, and its allegedly greater 
impact on Boeing than on Airbus, compel the conclusion that it was responsible, at least in part, for 
declining demand and declining prices of Boeing LCA.
5760  We certainly recognize that there was a 
severe downturn in the market for LCA following th e events of 9/11.  However, as we have 
previously discussed, this downturn affected bot h Boeing and Airbus.  Even if we accept the 
European Communities' view that the downturn had a greater impact on Boeing's sales than it did on 
Airbus, this does not, in our view, detract from our conclusions concerning the effect of the subsidies 
in this dispute, which enabled Airbus to have ava ilable the particular models of LCA that it sold and 
delivered in the distressed market.   
7.1988  The European Communities contends that, even if  the effect of the subsidies is to allow 
Airbus to launch an LCA model it would not otherwise have launched, any adverse effects caused by 
such subsidies are eliminated when Boeing launches an aircraft that competes with the subsidized 
                                                      
5757 See, paras. 7.1841 - 7.1845 above. 
5758 Whether it might have been competing at all for those sales, for instance with a different LCA 
developed without subsidies, is questionable, as the lost  sales all involved aircraft we have concluded would not 
have been developed by Airbus at the relevant times had earlier models not benefited from subsidies.   
5759 See, discussion at para. 7.1976 above. 
5760 EC, SWS, para. 1093-94.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
 Airbus model.5761  The United States argues that this is both logically and factually incorrect.5762  We 
agree.   
7.1989  As the United States points out, if Airbus launc hed a subsidized LCA, either Boeing would 
have launched its own subsequent, competing aircraft even if Air bus had not launched, based on 
Boeing's own evaluation of the demands of customer s and the market and its capabilities, or Boeing 
would not have done so.  If Boeing would have launched the aircraft anyway, then it would not have 
had to compete with the subsidized Airbus model, but for the subsidies, as without the subsidies, the 
Airbus model would not have been launched at that time and with those characteristics.  On the other 
hand, if Boeing only launched the competing aircraft to respond to the subsidized Airbus model, then 
Boeing had to expend capital and resources to do so, which it might otherwise not have done.  Thus, 
but for the subsidies, Boeing might have used those resources in some other fashion.  In either case, 
displacement of imports from the EC market, disp lacement of exports from certain third country 
markets, and lost sales that resulted from the comp etition with the subsidized Airbus LCA would all 
be effects of the subsidies, without which the Airbus  LCA would not exist at th at time.  Thus, whether 
Boeing launched an LCA in response to Airbus  or not, adverse effects would ensue.   
7.1990  The European Communities' argument in this respect seems to suggest that the subsidies 
granted to Airbus are somehow beneficial in that they enable Airbus to compete with Boeing, which 
competition is good for the consumers of LCA, airl ines and leasing companies, and the travelling 
public, and that this militates against a finding that  those subsidies cause adverse effects to the United 
States' interests.  Indeed, th e European Communities asserts th at Boeing welcomes the competition 
with Airbus, which it asserts has "generated num erous new and innovative LCA products" and fosters 
lower prices for LCA purchasers and increased demand, which ultimately is the basis of the financial 
health of both Boeing and Airbus.  The European  Communities maintains that airlines and other 
purchasers of new LCA insist that such competition is vital for their economic success and for their 
financial health and survival.5763  It may well be true that Boeing welcomes competition, and that 
competition between Boeing and Airbus benefits purch asers of LCA.  But that does not mean that the 
United States is not entitled to relief under the SC M Agreement if that competition is fuelled by 
subsidies used by another Member that cause adve rse effects to the United States' interests.   
7.1991  Moreover, we see no basis in the SCM Agre ement for the notion that an increase in 
"consumer welfare" constitutes a defence to a claim of adverse effects caused by subsidies.  Nothing 
in the text of the Agreement, or in its object and purpose, supports the proposition that the panel can 
or should take into account possible "positive" effects on competition of subsidies in evaluating 
claims of serious prejudice.  It may often be th e case that subsidies in fact contribute positively to 
consumer welfare – for instance, in US – Upland Cotton , the panel found price suppression caused by 
subsidies, and concluded that the United States' use of subsidies caused adverse effects to Brazil's 
interests.  However, that price suppression presuma bly also resulted in prices for textiles and clothing 
that were lower than they otherwise would have been, which is a "positive", while it also reduced 
revenues to cotton farmers, which is a negative.  There is no mention of this in either the panel's or the 
Appellate Body's decision, and absolutely no basis to think that panels should somehow engage in a 
consideration that might "balance" these competing effects. 
                                                      
5761 EC, FWS, paras. 2288-2304. 
5762 US, SWS, para. 585.  Brazil disagrees with the European Communities' assertion that adverse 
effects are extinguished  by the launch within two or  three years of a technolog ically equal or superior 
competing aircraft by Boeing.  Accordin g to it, the continuing distortive effect of subsidies in the market does 
not disappear with the launch of a competing aircraft.  Brazil, Third Party Submission, para. 57. 
5763 EC, FWS, paras. 1378-1381.   WT/DS316/R 
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 7.1992  In our view, that Boeing chooses to meet subsidi zed competition from Airbus to the best of its 
ability cannot be considered to eliminate the adverse effects caused by the subs idies in dispute.  To 
conclude otherwise would in our view eviscerate the SCM Agreement's remedies for subsidies that 
cause adverse effects, as it would imply that a Member must not seek to respond to or mitigate 
adverse effects caused by subsidies for fear of being unable to demonstrate their existence in a 
dispute.  We cannot believe that such an outcome is warranted. 
7.1993  It is in our view clear that Airbus would have been unable to bring to the market the LCA that 
it launched but for the specific subsidies it re ceived from the European Communities and the 
governments of France, Germany, Spain and the United Kingdom.  We reiterate that we do not 
conclude that Airbus necessarily would not exist at a ll but for the subsidies, but merely that it would, 
at a minimum, not have been able to launch and develop the LCA models it has actually succeeded in 
bringing to the market.  Had Airbus successfully entered the LCA industry without subsidies, it would 
be a much different, and we believe, a much weaker LCA manufacturer during the period we 
examined, with at best a more limited offering of LCA models.  Thus, under either scenario, Airbus 
would not have had the market presence and ability to win orders for LCA that it did have during the 
period 2001-2006, and the United States' LCA industry, at a minimum, would not have lost sales to 
Airbus and would have had a larger market share in  the EC and certain third country markets than it 
actually did over that period.  We consider that Airbus' market presence during the period 2001-2006, 
as reflected in its share of the EC and certain third country markets and the sales it won at Boeing's expense, is clearly an effect of the subsidies in  this dispute.  We therefore conclude that the 
displacement of United States' LC A from the EC and certain third country markets and lost sales we 
have found during the period 2001-2006 are an effect of  the specific subsidies to Airbus that we have 
found.   
The alleged "product" effect of the subsidies on prices  
7.1994  Finally, the United States also asserts that b ecause the subsidies at issue have been necessary  
to Airbus' ability to develop and su ccessfully bring to market its full range of LCA models, they have 
also created supply side pressure which must pe rforce have had an impact on prices in the LCA 
market.
5764  This supply-side pricing argument  is advanced in the Dorman Report5765 and in the 
statement of Professors Joseph Stiglitz and Bru ce Greenwald, submitted by the United States in 
response to a question from the Panel ("Stiglitz/Greenwald statement").5766  The Stiglitz/Greenwald 
statement, in particular, argues that a pricing impact  is a direct and inevitable result of the introduction 
of a new model aircraft, observing: 
"The new model introduction inevitably represen ts an increase in supply which just as 
inevitably has a negative impact on prices.  The most extreme example of such an 
impact is that in which, but for the s ubsidy, the new model could not have been 
                                                      
5764 US, SWS, para. 594. 
5765 In this respect the Dorman Report states: 
"An airplane program that is enabled by launch aid is likely to cause prices to decline in the 
market segment that it targets.  Competing airplanes will need to lower their prices and will 
likely sell fewer units, since some customers will purchase the new airplane and most customers will leverage one seller against an other to obtain larger discounts."   
Dorman Report, Exhibit US-70 (BCI), p. 9. 
5766 Statement of Professors Joseph E.  Stiglitz and Bruce C. Greenwald, On the Question of the Impact 
of Subsidies on Supply and Prices in the LCA Market  (Jan 21, 2008), Exhibit US-676 (hereinafter 
"Stiglitz/Greenwald statement").  WT/DS316/R 
 Page 979 
 
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 economically introduced, since the potential returns would not have justified the 
unsubsidized investment involved."5767 
The European Communities argues that both the arguments of the United States and the 
Stiglitz/Greenwald statement are premised on the as sumption that, in the absence of Airbus, Boeing 
would face no competition, whereas the United States  has acknowledged that in the absence of Airbus 
or LA/MSF, Boeing would face competition.5768  We understand the thrust of the European 
Communities' argument to be that, because there would be active competition among two or more LCA manufacturers even in the absence of Airbus, any price effects resulting from increases in supply 
in the LCA market cannot be attributed to subsidies to Airbus.   
 
7.1995  As we understand it, the argument that Stiglitz  and Greenwald make is that in a duopoly 
situation, like the one characterizing the LCA indus try at present, a subsidy that makes possible the 
launch of a new model aircraft is likely to increas e supply and thereby to reduce the price of LCA on 
the market.  The Stiglitz/Greenwald statement seems to  raise two possible scenarios.  In the first, one 
of the duopolists is already producing a specific aircra ft and the subsidy allows the other duopolist to 
launch a directly competing plane.  In this case, the subsidy increases supply and lowers the price in 
this specific segment of the market.  In the second,  the subsidy allows one of the duopolists to launch 
an aircraft in a segment of the market that is not yet occupied.  In this case, the subsidy will push 
down the price of aircraft in adjacent segments of  the market.  Overall, the Stiglitz/Greenwald 
statement supports the view that prices in the airc raft market are lower than they would be in the 
Boeing monopoly counterfactual.  The subsidized en try of Airbus and the subsequent launches of 
Airbus aircraft clearly increased the supply of airc raft and reduced the prices of Boeing aircraft.
5769  
However, in our view, the Stiglitz/Greenwald stat ement does not help us assess whether the prices 
that prevailed in 2001 to 2006 were higher or lowe r than those that would have resulted in the second 
and the fourth of the counterfactual scenar ios we posited in pa ragraph 7.1984 above, i.e., if the market 
had evolved towards either (i) a duopoly with tw o relatively equal unsubsidized United States 
producers of LCA, or (ii)  a situation with two relatively equal unsubsidized United States producers 
in competition with each other and with a third uns ubsidized, but relatively weaker, producer, Airbus.  
Competition between the producers in either of thes e circumstances could very well have been even 
more fierce than competition between a subsid ized new entrant, with presumably a corresponding 
initial cost disadvantage, and an incumbent producer .  The resulting price levels in the two former 
scenarios could then have been lower than the one in  the latter, which corresponds more closely to the 
actual Boeing-Airbus duopoly. 
7.1996  Based on the foregoing, we are of the view that  we cannot draw any fi rm conclusions on the 
price effect of the presence of subsidized Airbus LC A in the market, and thus cannot conclude that the 
United States has demonstrated, in this context, that  the effect of the subsidies is the significant price 
suppression and price depression we ob served over the period 2001-2006. 
The United States' "Price"  Theory of Causation   
7.1997  The principal focus of the United States "price"  causation theory is the argument that the 
challenged subsidies, and in particular LA/MSF, provided Airbus with the financial means to be 
flexible with its pricing of LCA in competitions against Boeing, thereby enabling it to win sales, 
capture market share and significantly depress and suppress the prices of LCA between the years 2001 
                                                      
5767 Stiglitz/Greenwald statement, p. 2. 
5768 US, FCOS, para, 151; US, SWS,  571 
5769 We note in this regard the conclusion of Baldwin & Krugman, quoted in Neven & Seabright, 
Exhibit US-382 p. 22, that, with re spect to the market segment encompa ssing the A300 and Boeing 767, "the 
entry of Airbus resulted in  ... large losses of profits to Boeing ... .  {t}he United States suffered as a whole...". WT/DS316/R 
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 and 2006.  The United States explains that there ar e essentially two reasons for this alleged price 
effect of LA/MSF.  First, the United States submits that the nature and magnitude of the cumulative provision of LA/MSF to Airbus had a direct and significant impact on EADS' free cash flow, allowing Airbus to be more aggressive in its approach to  investments, including price concessions aimed at 
building market share over the long-run.  Second,  the United States asserts that LA/MSF decreased 
Airbus' marginal production cost by indirectly loweri ng its marginal cost of capital, which in turn, the 
United Sates argues, could be expected  to lower the price of Airbus LCA.
5770   
7.1998  The European Communities disputes the United States' assertions, arguing that the United 
States fails to calculate the alleged cash flow e ffect, which the European Communities contends is 
zero or de minimis .5771  In any event, the European Communitie s contends that the United States failed 
to demonstrate that Airbus has actually used an y additional cash flow to reduce its prices.  The 
European Communities argues that Airbus lacks the incentive and commercial opportunity to use the 
benefit of subsidies to price down its LCA.5772  The European Communities also argues that any 
impact of LA/MSF on EADS' credit rating or a lower cost of production is not a "benefit" within the 
meaning of Article 1.1(b) of the SCM Agreem ent, because the same benefit would accrue from 
alternative market financing.  Thus, for the Eu ropean Communities, the difference between LA/MSF 
interest rates and market benchmarks fully captures this effect.5773 
 Alleged Effect on EADS' Free Cash Flow 
 7.1999  The United States argues that in the absence of LA/MSF, the financial condition of Airbus 
would have been significantly worse than it has actually been.  Assuming, arguendo , that Airbus had 
launched each of its LCA programme s without subsidies by obtaining funds from market lenders, the 
United States argues that "{a}t some point, the cumulative risk of the pr ojects and the cumulative 
exposure of Airbus to high levels of debt at full market rates would have made it impossible to obtain 
additional investment funds".
5774  Indeed, the United States consider s that even with LA/MSF, Airbus 
faced significant difficulties in funding its LCA project s.  For instance, the United States refers to 
evidence which it submits reveals that [***].5775 The United States contends that the European 
Communities has recognized this fact by stating in  its first written submission that "{i}t is not 
surprising that Aérospatiale required additional equity  capital to fund the new investments.  Internally 
generated cash flow was not sufficient, and a prude nt debt-to-equity ratio placed limits on the amount 
of new debt that could be borne".5776  Furthermore, to substantiate the same point, the United States 
recalls the comment made in the 1997 French Sena te Report concerning the provision of LA/MSF for 
the A380, expressing the view that market financing for the project "would apparently add excessively to the financial expenses incurred by th e firms, and would throw their balance sheets out 
of equilibrium because of the low level of their equity capital".
5777 Thus, the United States argues that 
in addition to evidence of the direct impact of  LA/MSF on individual Airbus launch decisions, the 
cumulative impact of LA/MSF on the overall financia l condition of Airbus must also be considered. 
                                                      
5770 US, FWS, para. 819; US, FNCOS, paras. 154-160; US, FCOS, paras. 58-60; US, SWS, paras. 595-
598; US, SNCOS, paras. 173-176; US, Answer to Panel Questions 228, 229 and 230. 
5771 EC, Comments on US Answer to Panel Question 230, paras. 59-60. 
5772 EC, SWS, para. 671. 
5773 EC, SWS, para. 1037, EC, Answer to Panel Question 230, para. 55.. 
5774 US, Answer to Panel Question 229. 
5775 US, Answer to Panel Question 228, referring to Aérospatiale Report to Credit Lyonnais  (1994), 
Exhibit US-296 (BCI). 
5776 US, Answer to Panel Question 228, referring to EC, FWS, para. 1135. 
5777 1997 French Senate Report, at 72, Exhibit US-18, referred to by the United States in its Answer to 
Panel Question 229.  WT/DS316/R 
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 7.2000  According to the United States a relevant measure of the impact of LA/MSF on the overall 
financial condition of Airbus is  its impact on EADS' net free cash flow.  Citing a January 2007 
Deutsche Bank Company Research Report,5778 the United States notes that over the period 2001 to 
2005, nearly half of the net free cash flow of E ADS was accounted for by changes in net LA/MSF.  
The United States asserts that the Deutsche Bank Re port demonstrates that EADS' net free cash flow 
in 2001 and 2002 would have been ne gative without the provision of LA/MSF.  Yet, according to the 
United States:  
"... it was precisely in this period, when th e market was at its low, that Airbus 
intensified its effort to win sales and gain  market share by aggressively underpricing 
Boeing and winning several major long-term sa les.  If during this period Airbus had 
been relying on its own resources to f und the ongoing development of the A340-
500/600 and the A380 and preparing to fund the A350 – if it in fact could have done those things without government subsidi es – its financial flexibility to pursue its 
pricing strategy would have been quite different."
5779 
7.2001  The United States also notes that the Deutsche Bank Report concludes that without the cash 
inflows obtained from net LA/MSF disbursements and customer advances received from LCA orders, "EADS must materially improve its underlying free cash generative performance in the future", or 
else it will probably be unable to "avoid future refina ncing of the group through either additional debt, 
equity or hybrid bond issues".
5780  Thus, the United States argues that the Deutsche Bank analysis of 
EADS' free net cash flow confirms that LA/MSF had a material impact on the financial constraints 
facing Airbus, showing that LA/MSF was decisive  in giving Airbus positive free cash flow, and 
therefore also the "ability to make the very pricing decisions at the heart of the serious prejudice about which the United States complains".
5781   
7.2002  The European Communities argues that nothing in the Deutsche Bank Report suggests that 
LA/MSF provided Airbus with pricing flexibility.  It  asserts that the United States, in relying on the 
Deutsche Bank Report, exhibits a conceptual flaw in  that, instead of considering the benefit of the 
subsidy, its arguments rely on the total amount of  the financial contribution provided by LA/MSF.5782  
Moreover, the European Communities submits that  during the 2001 and 2002 period, LA/MSF did not 
represent a source of cash that would permit Airbus to price down LCA.  According to the European 
Communities, the loan principal from the A380 LA /MSF contracts was used for the purpose for 
which it was borrowed – that is, the development of the A380.5783  In any case, the European 
Communities submits that because, in its view, Airbus could have replaced the LA/MSF loans 
received for LCA launched after 1992 with risk-sha ring supplier financing, the same amount of 
financial contribution, and thus the same level of cash flow, would have accrued to EADS even in the 
absence of LA/MSF.  Consequently, the European Communities argues that any "material impact on 
the financial structure of EADS" resulting from the se inflows would have occurred with or without 
LA/MSF loans.  In this light, the European Commun ities submits that the principal disbursed through 
LA/MSF cannot, in and of itself, confer an advantage on Airbus relative to the market.5784  Finally, the 
European Communities argues that when the period 1999 to 2007 is considered, Airbus repaid the 
                                                      
5778 Deutsche Bank, EADS: Risks Mispriced – Downgrade to Sell , 9 January 2007, p. 7, (hereinafter 
"Deutsche Bank Report"), Exhibit US-459. 
5779 US, FNCOS, para. 160. 
5780 US, Answer to Panel Question 229, quoting from Deutsche Bank Report, p. 7, Exhibit US-459. 
5781 US, Answer to Panel Question 229. 
5782 EC, Comments on US Answer to Panel Question 229. 
5783 EC, Comments on US Answer to Panel Question 229, footnote 29. 
5784 EC, Comments on US Answer to Panel Question 229. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
 relevant member States more cash than it received in LA/MSF financing, such that over this longer 
period of time LA/MSF did not add to its free cash flow, but actually consumed it.5785   
7.2003  The Deutsche Bank Report is an eighteen page document which analyses a number of "key 
issues" affecting EADS' business activities for the purpose of arriving at a recommendation on how to 
trade shares in EADS.  Among these are the financial a nd technical risks associated with the aircraft 
development projects underway or in the pipeline as of January 2007, namely, the A380, A350XWB 
and the A400M.  In this context, the Deutsche Bank Report identifies what is "arguably the key issue 
for EADS", as the maintenance of a level of free cash flow sufficient to cover the demands of its 
business activities.5786  This amount is assumed to be EUR 1 billion per year until 2013.  The Report 
observes that this level of free cash flow "may no t see{m} demanding at first", going on to note that a 
large part of EADS free cash flow between the years 2001 to 2005 has come from LA/MSF and "strong inflows" of advance order payments.   
7.2004  When the data on EADS' free cash flow that is presented in the Deutsche Bank Report is 
reviewed, it is evident that in the absence of th e inflows from net LA/MSF di sbursements, EADS' free 
cash flow would have been negative in 2001 and 2002.  However, it is also apparent that net inflows 
from LA/MSF represented a much smaller proportion of total overall free cash flow in subsequent 
years, declining steadily to 2005.   Moreover, in 2001, 2004 and 20 05, the cash inflows generated from 
advance order payments were significantly gr eater than those from net LA/MSF inflows.
5787  Thus, 
while it is true that net LA/MSF inflows amounted to approximately half of the free cash flow that accrued to EADS between 2001 and 2005, inflows fro m advance order payments were more than 
double LA/MSF inflows over the same period.  The Deutsche Bank Report goes on to reason that 
LA/MSF will no longer be available for future proj ects and that inflows from advance order payments 
are likely to "reverse".  In this light, it concludes that in the absence of LA/MSF disbursements and 
the expected decline in advance order payments, it would be difficult for EADS to "avoid refinancing 
of the group through either additional debt, equity or hybrid bond issues".
5788 
7.2005  In our view, the Deutsche Bank Report dem onstrates that net LA/MSF inflows were an 
important component of EADS' free cash flow over th e years 2001 to 2005, but less so than advance 
order payments.  Moreover, apart from 2001 and 2002 , we do not consider the impact of net LA/MSF 
inflows to be as significant to Airbus' free cash flow as the United States' argument intimates.  
Nevertheless, it is clear that without the net LA /MSF inflows reported in the Deutsche Bank analysis, 
EADS would have been in a worse position in terms of free cash-flow, and particularly so in 2002, 
when advance order payments were negative. 
7.2006  The European Communities argues that the Deutsche Bank Report is focussed on the effect of 
LA/MSF principal on EADS' free cash flow position, and not on the effect of any LA/MSF subsidies .  
According to the European Commun ities, this means that the Report cannot be used to substantiate 
the United States' claim of serious prejudice.  We  agree with the European Communities that for the 
purpose of determining whether the United States has established that LA/MSF has caused serious 
prejudice to its interests, it not sufficient to focus on the effects of only the principal amounts disbursed under the LA/MSF contracts.  As the European Communities points out, had Airbus obtained comparable loans from the market place, its cash inflows fro m those loans would have been 
                                                     
 
5785 EC, Comments on US Answer to Panel Question 229; EC,  SWS, para, 1057. 
5786 Deutsche Bank Report, p. 6, Exhibit US-459. 
5787 Cash inflows from advance order payments were more than double inflows from LA/MSF in 2001, 
more than six times greater than inflows from LA/MSF in 2004, and almost 24 times greater in 2005.  Deutsche 
Bank Report, figure 6, p. 7, Exhibit US-459. 
5788 Deutsche Bank Report, p. 7, Exhibit US-459.  WT/DS316/R 
 Page 983 
 
BCI deleted, as indicated [***] 
 
 the same as those obtained via LA/MSF.5789  Therefore, a focus on how LA/MSF principal effects 
EADS' free cash flow would not be relevant to the qu estion that concerns us here – whether the effect 
of the LA/MSF (and other) subsidies was the serious prejudice alleged by the United States.  
7.2007  However, in our view, it is not accurate to say  that the Deutsche Bank Report's analysis is 
concerned with only LA/MSF principal.  As we understand it, the cash flow analysis examines net 
LA/MSF inflows, taking into account both LA/MSF receipts ( i.e., loaned principal) and 
repayments.5790  Thus, while the Deutsche Bank Report does not directly analyze the effect of the 
amount of the subsidy associated with LA/MSF, the fact that it takes into account both LA/MSF 
receipts and repayments means that it is possible to  indirectly draw some general conclusions about 
how the amount of LA/MSF subsidies affected EADS' cash flow. 
7.2008  We recall that had Airbus funded its LCA development programmes with loans from the 
market, its repayments would have been greater  than those actually re quired under the LA/MSF 
contracts.  It follows that without LA/MSF, the c ontribution of net inflows from market-based loans to 
EADS' overall free cash flow position would have been smaller.  Thus, it is possible to conclude from 
the Deutsche Bank Report, when considered in the light of our findings on the appropriate market 
interest rate benchmarks for LA/MSF, that the LA/MSF subsidies had a positive impact on EADS' 
free cash flow.  However, the precise magnitude of this impact cannot be determined from the Deutsche Bank analysis.  Therefore, we do not know whether the effect of the LA/MSF subsidies on EADS' free cash flow was, as the United States argues,  to significantly alleviate financial constraints 
on Airbus ability to price its LCA.
5791     
7.2009  In any case, even assuming arguendo  that it could be understood from the Deutsche Bank 
Report that the LA/MSF subsidies did have a signifi cant impact on EADS' free cash flow in the years 
between 2001 and 2005, the United States would still have  to show that it actually had the effect of 
lowering the price of Airbus LCA in order to make out its case of serious prejudice.  While we accept 
that a greater free cash flow could translate into more pricing flexibility, this does not demonstrate 
that Airbus actually used that pricing flexibility in respect of the alleged lost sales and with the effect 
of depressing and suppressing prices in the LCA mark et.  Given what we know about how prices are 
set in the LCA industry,5792 it is, in our view, too simplistic to conclude that merely because LA/MSF 
improved Airbus' financial condition (perhaps even significantly so in  2001 and 2002), it also led to 
Airbus winning the sales we have found Boeing lost, by enabling Airbus to offer a lower price than it 
otherwise would have in the particular sales camp aigns relied on by the United States.  Indeed, we 
recall that on the basis of the evidence before us, we determined that the United States has failed to 
demonstrate that Airbus actually undercut the pri ce offered by Boeing in the competitions the United 
States relied upon to demonstrate price undercutting as serious prejudice to its interests.5793  
Moreover, on the basis of the same considerations , we conclude that the United States has not shown 
that the effect of the subsidies on Airbus' cash flow caused the price depression and suppression we 
observed over the relevant period. 
7.2010  Based on the foregoing, we consider that the United States has failed to demonstrate the effect 
of LA/MSF on EADS free cash flow caused Airbus to lower prices on LCA during the period 2001-
                                                      
5789 EC, Comments on US Answer to Panel Question 229. 
5790 Deutsche Bank Report, p. 7, Exhibit US-459. 
5791 US, SNCOS, para. 173. 
5792 See, discussion at paragraphs 7.1837 - 7.1839 above. 
5793 Of course, this does not affect our conclusion that those same sales were lost to Boeing due to the 
ability of Airbus to offer the particular LCA at issue at that time as a result of the subsidies in dispute. WT/DS316/R 
Page 984 
 
BCI deleted, as indicated [***] 
 
 2006 with the effect of causing significant price suppression, price depression or lost sales5794 in the 
LCA market.   
 Alleged Effect on Airbus Cost of Capital  
 
7.2011  In addition to the alleged direct financial be nefits flowing from the provision of LA/MSF, the 
United States argues that LA/MSF, by transferring mu ch of the commercial risk of LCA development 
away from Airbus to the Airbus governments, also i ndirectly benefits Airbus by improving its credit 
rating and thereby reducing its marginal cost of capital in respect of t hose portions of its LCA 
development projects and other activities that are not funded with LA/MSF.5795  The United States 
submits that a lower marginal cost of capital will reduce Airbus' marginal cost of production, which in 
turn could be expected to lower Airbus' pricing.5796  
7.2012  Relying on parts of the evidence submitted a nd arguments made in support of its free cash 
flow theory,5797 the United States asserts that had Airbus funded all of its LCA projects by obtaining 
financing at market rates rather than at the subsid ized rates provided by the Airbus governments, the 
resulting impact on its balance sheet would have been far greater than anything that Airbus could have 
sustained.  The United States submits that this evidence alone is sufficient to demonstrate that 
LA/MSF has a significant impact on the creditworthin ess of Airbus, and thereby, also its marginal 
cost of capital.5798  However, the United States also submitted other evidence it considers substantiates 
its position.   
7.2013  First, the United States points to an assessm ent made in the Deutsche Bank Report of the 
financial risks associated with the development of  the A350XWB in the light of Airbus' perceived 
"inability to use government launch finance" for this project.5799  According to the United States, the 
Deutsche Bank analysis expresses the view that in  the absence of LA/MSF for the A350XWB, "'far 
more' of the exposure of EADS 'equity and debt holder s' will be 'risk' rather than 'risk free', than has 
been the case with prior Airbus LCA launches".5800  Thus, the United States submits that the Deutsche 
Bank Report shows that the impact of LA/MSF on EADS' private investors is significant. 
7.2014  Second, the United States relies upon a series of statements made by Moody's Rating Agency 
and Credit Suisse.5801  In particular, the United States refers to a press release issued by Moody's in 
2003, where, it argues, Moody's stated publicly that its debt rating for EADS "considers the expectation for continuing government support, which is primarily in the form of refundable advances 
                                                     
 
5794 We note that our rejection of the United States' position that the effect of subsidies to Airbus was 
lost sales by reason of price  does not affect our determination that the United States has demonstrated that 
those same lost sales were an effect of the subsidies th rough their effect on Airbus' ability to launch LCA as and 
when it did, thereby making available LCA for those sales that it otherwise would not have had. 
5795 US, SWS, para. 580; US, Answer to Panel Question 228. 
5796 US, FNCOS, para. 58; US, Answer to Panel Question 228. 
5797 See, para. 7.1999 above. 
5798 US, Answer to Panel Question 229. 
5799 Deutsche Bank Report, pp. 2-3, Exhibit US-459. 
5800 US, Answer to Panel Question 229. 
5801 US, SWS, para. 580, referring to Moody's Investor Service, Moody's confirmation of EADS 
highlights government's role as odd rescuers , 12 March  2007, Exhibit US-450; Moody's Investor Service, 
Moody's Assigns A3 Rating to New Euro Mtn Program of European Aeronautic Defence and Space Company 
EADS N.V. , 6 February 2003, Exhibit US-56; Moody's Global Credit Research,  Moody's confirms EADS A1 
rating , 9 March 2007, Exhibit US-464; CreditSuisse, Value versus Risk , EADS upgrade rating, at 14, 
15 June  2006, Exhibit US-465.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
 for up to 1/3 of the development cost of each new aircraft programme on the Airbus level."5802  
Moreover, the United States asserts that Moody's stated in the same communication that it was 
"comforted" notwithstanding the large $12 billi on investment in the A380 programme, by, inter alia , 
"continuing government support in the form of re fundable advances of up to 1/3 of the required 
development expenses for Airbus' commercial aircraft ".  The United States has also pointed to an 
announcement by Moody's in March 2007 that it w ould maintain its high credit rating of EADS, 
notwithstanding losses related to the delay in A380 deliveries and other pressures.  According to the 
United States, the announcement noted that government  support to Airbus provides a "helping hand in 
times of financial difficulties" and "reflects an entr enched inclination for state protection and a low 
appetite for exposing private bond holders to losses".5803   
7.2015  The United States submits that this evidence confirms that EADS' credit rating would be 
lower – and its cost of capital higher – in the ab sence of LA/MSF.  Consequently, the United States 
concludes that by reducing the cost of capital, LA/MSF also reduces the price that Airbus can accept 
while sustaining its profitability targets.  
7.2016  In responding to the United States' arguments,  the European Commun ities rejects the notion 
that an improved baseline credit rating could be vi ewed as an "additional benefit" of LA/MSF, and it 
contests the United States' reliance on the announc ements concerning EADS' credit ratings.   
7.2017  The European Communities recalls that in orde r to identify a benefit flowing from LA/MSF, a 
comparison must be made between the terms pr ovided under the government financing instrument 
and those available on the market.  The European  Communities asserts that LA/MSF impacts EADS' 
credit rating to the extent that it transfers project  risk for Airbus LCA programmes to governments.  
According to the European Communities, precisely  the same benefits would flow directly from 
market financing alternatives such as risk-sharing arrangements and delivery-based financing through 
private banks.  Thus, the European Communities submits that any impact of LA/MSF on EADS' 
credit rating due to a reduction of risk is equivalent to what the company would enjoy if it employed 
risk-sharing supplier financing, instead of LA/MSF.5804  In other words, the European Communities 
argues that the United States cannot establish that but for the provision of LA/MSF, Airbus would not have obtained a similarly enhanced baseline credit rating through market-based risk-sharing 
financing.
5805  Therefore, in the European Communities'  view, the amount of any and all benefits 
associated with LA/MSF are captured by the differe nce between interest paid on LA/MSF and the 
benchmark, not any impact on the recipient's credit rating.5806  
7.2018  The European Communities rejects the cont ention that the 2003 Moody's credit rating 
statements support the United States position.  Th e European Communities argues that Moody's did 
not raise EADS' credit rating because of the "indirect effect" of the interest subsidy associated with 
these loans.  According to the European Communities, Moody's had no way of knowing the terms of 
the LA/MSF loans, which remain confidential.  Thus, the European Communities asserts that the 2003 
                                                      
5802 US, Answer to Panel Question 229, referring to Moody's Investor Service Press Release, 
6 February 2003, Exhibit US-56. 
5803 US, Answer to Panel Question 229, referring to Moody's Investor Service Press Release, 
12 March 2007, Exhibit US-450. 
5804 EC, SWS, para. 1037. 
5805 The European Communities assert s that because both Airbus an d Boeing have re lied upon risk-
sharing supplier funding for the A380 and the 787, "even in the total absence of MSF loans for the A350XWB, it is reasonable to assume that Airbus SAS will transfer all or most of the risk formally transferred to the 
member States for, e.g., the A380, to risk-sharing suppl iers, with no additional programme risk to the equity 
holders".  EC, Comments on US Answer to Panel Question 228. 
5806 EC, SWS, paras. 1036-1039; SNCOS, paras. 479-485; EC, Comments on US Answer to Panel 
Question 228. WT/DS316/R 
Page 986 
 
BCI deleted, as indicated [***] 
 
 Moody's report confirms only that EADS' improved baseline credit rating flows from the risk-sharing 
aspect of LA/MSF, which the European Communities emphasizes, is equally present under market alternatives such as risk-sharing supplier financing.
5807  Similarly, the European Communities argues 
that the United States' reliance on the Moody's pr ess release from March 2007 is misplaced because, 
in its view, the change in Moody's credit rating of EADS announced in this communication was 
linked to Moody's conferral of "Government Re lated Issuer" status on EADS, not LA/MSF.  
Moreover, according to the European Communities, M oody's decision to confer GRI status also itself 
had nothing to do with LA/MSF, but rather with the fact that governments are shareholders in 
EADS.5808  In any event, the European Communities consid ers that the effect of EADS' "classification 
as a GRI" on its cost of capital is negligible, refe rring to two reports prepared by two banks that 
examined its impact on EADS' bond yi elds, in support of its position.5809 
7.2019  The United States asserts that according to its stated methodology, the aspect of Moody's GRI 
analysis that relates to "government support" tak es into account only extraordinary subsidies in the 
event of catastrophic failure of the business.  According to the United States, Moody's explains that all 
other "aspects of the entity's existing (or anticip ated) business model, including benefits (such as 
regular subsidies or credit extension)" are incl uded within the "baseline risk assessment" as they 
would be for any company.5810  Thus, the United States contends that the ongoing impact of LA/MSF 
is included in the baseline assessment of EADS , not the GRI-specific support factor on which the 
European Communities focuses its ar gument.  The United States recalls that Moody's 2003 statement 
clearly shows that its baseline credit assessment of EADS is affected by LA/MSF.5811 
7.2020  In our view, there is some logic to the Europ ean Communities' argument that the credit-rating 
implications of the transfer of risk associated  with LA/MSF could well be mirrored by those that 
would flow from comparable market financing.   As the European Communities notes, LA/MSF 
involves the same transfer of risk from Airbus  to the member State governments that would be 
transferred through a comparable loan from a market based lender.  However, we can see at least two 
reasons why the European Communities' line of argume nt cannot apply to the circumstances before us 
in this case.  First, we have found that the inter est rates associated with market financing that is 
comparable to LA/MSF would require Airbus to increase its loan repayments in respect of all developed models of LCA, in some cases by significant margins.
5812   As we have noted above, 
increased loan repayments would reduce Airbus' free cash flow, increase its debt, and therefore, naturally, also adversely affect its credit rating.  Second, the strength of the European Communities' 
argument depends upon accepting that in the absence of  LA/MSF, Airbus would have been able to 
call upon risk-sharing suppliers to fund that portion of development costs of its LCA projects.  
However, we have seen little eviden ce to suggest that this could have  been a possibility, even for the 
one-third of A380 development costs funded by LA/M SF, let alone for the earlier models of Airbus 
LCA for which LA/MSF funded  an even larger porti on of the development costs.  Moreover, as we 
have previously noted, information in the Air bus A380 business case undermines the contention that 
the risk-sharing supplier contracts are an appr opriate benchmark for market-based financing.
5813 
                                                      
5807 EC, Comments on US Answer to Panel Question 228. 
5808 EC, SWS, paras. 1040-1042, citing Moody's Investor Service, EADS , 12 March  2007, Exhibit EC-
835. 
5809 EC, SWS, para. 1043, referring to Exhibit EC-657 (BCI). 
5810 US, Answer to Panel Question 228, referring to Moody's Investor Service, The Application of Joint 
Default Analysis to Government Related Issuers , at 2, April 2005, Exhibit EC-836. 
5811 US, Answer to Panel Question 228. 
5812 See, para. 7.488 above. 
5813 See, para. 7.480 and footnote 2713 above.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
 7.2021  Turning to the parties' arguments on the probativ e value of the various credit rating statements 
relied upon by the United States, we agree with the European Communities that in the absence of any 
evidence of the rating agencies' aw areness that LA/MSF is not granted on market terms, it is difficult 
to conclude that they demonstrate that LA/MSF has in fact had any impact on EADS' credit rating that 
could not also have been achieved from market fi nancing.  The United States has not even asserted 
that Moody's or Credit Suisse were aware of LA /MSF's non-commercial terms and conditions.  Thus, 
we are not convinced that the statements con cerning EADS' credit rating support the case the United 
States is seeking to make. 
7.2022  Nevertheless, as we have indicat ed above, on the basis of the other evidence and argument the 
United States has advanced, it is clear to us that LA/MSF subsidies do have a positive impact on 
Airbus' creditworthiness.  In our view, this is most apparent from the evidence the United States has 
submitted (and our own findings) on the effect that market-based financing for all of Airbus LCA 
projects would have had on its level of cash flow a nd debt compared with its situation having received 
LA/MSF.5814 
7.2023  To the extent that LA/MSF improves EADS' cred itworthiness, the United States argues that it 
also reduces its cost of capital and marginal cost of production, thereby enabling Airbus to be more 
flexible on price.  We do not understand there to be any dispute about whether better creditworthiness 
results in a lower cost of capital.  However, we are not convinced that th is will necessarily translate 
into a reduction in the marginal cost of production.  The United States has provided very little, if any, 
explanation for why it considers this relationshi p would hold.  In any case, even assuming the 
United States were correct, we note that it has itself argued that Airbus [***].5815  In this respect, the 
United States considers that the A380  business case demonstrates that Airbus' [***]. However, 
nothing in the A380 business case [***].5816  Thus, even assuming that LA/MSF improves EADS' 
creditworthiness, and thereby reduced its cost of cap ital and marginal cost of production, the United 
States has failed to demonstrate that it necessarily al so led to Airbus winning  the sales we have found 
Boeing lost by enabling Airbus to offer a lower pri ce than it otherwise would have in those particular 
sales campaigns.  In this regard, we recall again th at the United States has failed to demonstrate that 
Airbus actually undercut the price offered by Boei ng in the competitions the United States relied upon 
to demonstrate significant price undercutting as serious prejudice to its interests.5817   
7.2024  Based on the foregoing, we consider that the United States has failed to demonstrate the effect 
of LA/MSF on cost of capital was such that it le d Airbus to lower prices on LCA during the period 
2001-2006.  Therefore, we conclude that the United St ates has failed to demonstrate that an effect of 
the subsidies is the significant price depression, price suppression and lost sales5818 observed during 
that period.  
                                                      
5814 See, paras. 7.2012 and 7.2020 above. 
5815 US, FCOS, para. 59. 
5816 A380 Business Case, pp. 21-27, Exhibit EC-362 (HSBI). 
5817 Of course, this does not affect our conclusion that those same sales were lost to Boeing due to the 
ability of Airbus to offer the particular LCA at issue at that time as a result of the subsidies in dispute. 
5818 As above, see footnote 5794, our rejection of the United States' position that the effect of subsidies 
to Airbus was lost sales by reason of price  does not affect our determination that the United States has 
demonstrated that those same lost sales were an effect of the subsidies through their effect on Airbus' ability to 
launch LCA as and when it did, thereby making available LCA for those sales that it otherwise would not have 
had. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
 (iv) Conclusion 
7.2025  For all of the foregoing reasons, and recalling our findings in respect of the Article 6.3 
phenomena observed during the 2001 to 2006 period,5819 we are satisfied that the specific subsidies 
the United States has shown to exis t enabled Airbus to bring to the market LCA that it would not 
otherwise have been able to develop and launch as and when it did, and thus caused displacement of 
United States' imports of LCA from the EC market and of United States' exports from the markets of 
certain third countries, as demonstrated in the data concerning market share before us.  Furthermore, 
we conclude that those subsidies caused lost sales of United States' LCA because, but for the 
subsidies, Airbus would not have had available the LCA that it was able to sell to the customers at 
issue in the sales we have found were lost by Boeing between the years 2001 and 2006.  Thus, we 
conclude that the United States has established th at the European Communities and the governments 
of France, Germany, Spain, and the United Kingdo m have, through the use of specific subsidies, 
caused serious prejudice to the United States' interest s over the period 2001 to 2006 in the form of: 
(i) displacement of United States' imports of  LCA into the EC market, within the 
meaning of Article 6.3(a) of the SCM Agreement;  
(ii) displacement of United States' exports of LCA from the markets in Australia, 
China, Brazil, Chinese Taipei, Korea,  Mexico, and Singapore, within the 
meaning of Article 6.3(b) of the SCM Agreement, and threat of displacement of United States' exports of LCA from the market in India; and  
(iii) lost sales of United States' LCA in th e same market, within the meaning of 
Article 6.3(c) of the SCM Agreement. 
7.2026  However, we find that the United States has not demonstrated that the specific subsidies at 
issue, by allowing Airbus to launch and develop its family of LCA and thereby achieve a notable 
presence in the LCA market, were also the cau se of the significant price depression and price 
suppression we have observed in th e period 2001 to 2006.  In a ddition, we conclude that the 
United States has failed to demonstrate that the financ ial effect of the subsidies in dispute on Airbus 
has enabled it to lower its prices so as to cause the significant price depression, price suppression and 
lost sales we have observed in the period 2001 to 2006. 
7.2027  We recall that, in addition to its claims of disp lacement of United States' imports into the EC 
market, and of United States' exports from the ma rkets of certain third countries, on which our 
conclusions are set out above, the United States asserted claims of impedance of United States' 
imports into the EC market, and of United States' exports from the markets of certain third countries.  
However, the United States did not assert specific ev idence or make specific arguments in support of 
these claims in addition to its arguments concerni ng displacement.  In the absence of a sufficiently 
elaborated presentation of its claims in this respect, we find that United States has failed to demonstrate that the effect of the subsidies in di spute was to impede United States' imports into the 
EC market, and United States' exports from the mark ets of certain third countries, during the period 
2001-2006. 
7.2028  Finally, we recall that the United States asserted  a claim of threat of serious prejudice with 
respect to all the forms of serious prejudice it alleged in this dispute.  However, with the exception of 
evidence concerning threatened displacement of Un ited States' exports from the Indian market, the 
United States did not assert specific evidence or make specific arguments in support of such a claim in 
addition to its arguments concerning present serious prejudice.  In the absence of a sufficiently 
                                                     
 
5819 See, paras. 7.1758, 7.1791, 7.1840, 7.1845 and 7.1861.  WT/DS316/R 
 Page 989 
 
BCI deleted, as indicated [***] 
 
 elaborated presentation of its claim in this respect, we find that United States has failed to demonstrate 
that the effect of the subsidies in dispute was a threat of serious prejudice, except as set forth above 
concerning threatened displacement of Unite d States' exports from the Indian market. 
8. Alleged injury to the United States' industry producing LCA 
(a) Overview of Parties' Arguments 
(i) United States 
7.2029  The United States argues that the provision of the challenged subsidies to Airbus by the 
European Communities and the Airbus governments is inconsistent with Article 5 of the SCM 
Agreement because the European Communities has, through the use of those subsidies, caused 
adverse effects to the United States ' interests within the meaning of Article 5(a), that is, injury to the 
United States' domestic industry.5820  The United States further conte nds that the demonstrated intent 
of the European Communities and the Airbus governments is to continue to provide subsidies to Airbus that will perpetuate the adverse eff ects to the interests of the United States.
5821   
7.2030  The United States notes that the SCM Agreement clarifies that the "term 'injury to the 
domestic industry' is used in Article 5(a) in the same sense as it is used in Part V of the 
Agreement."5822  The United States also notes that Articl e 16.1 of the SCM Agreement, which is in 
Part V, defines the "domestic industry" as "the domestic producers as a whole of the like products" to 
the imported subsidized product.  The United States asser ts that the subsidized product in this dispute 
is all Airbus LCA,5823 that the like product is all Boeing LCA,5824 and that the only LCA producer in 
the United States at the present time is Boeing, wh ich therefore constitutes the United States' domestic 
industry.5825  Therefore, the United States considers that  the question for the Panel under Article 5(a) 
is whether subsidized imports of Airbus LCA into  the United States have caused injury to Boeing's 
LCA production in the United States, as defined in Article 15 of the SCM Agreement, including both 
material injury to a domestic industry and thr eat of material injury to a domestic industry.5826 
7.2031  The United States contends that the Panel must examine the factors set out in Article 15.1 of 
the SCM Agreement, and determine whether subsidized  imports of Airbus LCA into the United States 
have caused injury to the United States' LCA industry.   In this regard, the United States refers to the 
Thailand – H-Beams case, where the Appellate Body explained that Article 3.1 of the Anti-Dumping 
Agreement – which parallels Article 15.1 of the SCM Agreement – "is an overarching provision that 
sets forth" the fundamental aspects of an injury analysis and "informs the more detailed obligations in succeeding paragraphs."
5827  In particular, Article 15.1 provid es that a determination of injury: 
"shall be based on positive evidence and invol ve an objective examination of both ( a) 
the volume of the subsidized imports and the effect of the subsidized imports on 
                                                      
5820 US, FWS, para 707. 
5821 US, FWS, para 708. 
5822 US, FWS, para. 730. 
5823 US, FWS, paras. 718-724. 
5824 US, FWS, paras. 725-729. 
5825 US, FWS, para. 731. 
5826 US, FWS, para. 731. 
5827 US, FWS, para. 732, citing, Appellate Body Report, Thailand – Anti-Dumping Duties on Angles, 
Shapes and Sections of Iron or Non-Alloy Steel and H-Beams from Poland ("Thailand – H-Beams") , 
WT/DS122/AB/R, adopted 5 April 2001, DSR 2001:VII, 2701, para. 106. WT/DS316/R 
Page 990 
 
BCI deleted, as indicated [***] 
 
 prices in the domestic market for like products and ( b) the consequent impact of these 
imports on the domestic producers of such products."5828 
The United States further contends that the Panel should examine the additional factors set forth in 
Article 15.7, which the United States submits demonstr ate that subsidized imports threaten additional 
injury to the domestic industry.5829   
 7.2032  The United States originally presented data and arguments concerning the factors set out in 
Articles 15.1 and 15.7 of the SCM Agreement for the period 2001 – 2005.  Subsequently, in its second written submission and in response to questions from the Panel, the United States presented 
additional information for 2006, while maintaini ng its view that the Panel should make its 
determination of injury as of the time es tablishment of this Panel was requested, i.e., June 2005.
5830  
The United States argued that improvement in Boeing's financial condition in 2006 did not 
demonstrate a lack of current inju ry to the United States' LCA industry, but rather, demonstrated how 
"relief from subsidized competition improves the fortunes" of that industry.5831 
7.2033  The United States contends that the European Co mmunities is legally incorrect in arguing that 
the "effect of the subsidy" standard under Article 6. 3 also applies in the context of a material injury 
inquiry under Article 5(a).5832  In any event, however, the United St ates asserts that the effect of the 
subsidies, as measured by changes in market sh are, lost sales, price undercutting, and price 
suppression or depression in other markets or the world market is not dissimilar to the effect of the subsidy as measured by changes in market share, lost sales, price undercutting, and price suppression 
or depression in the US market.  Thus, even if it were necessary to show, in a claim under 
Article 5(a), that the material injury is not only, as required by Article 15.5, the effect of the subsidized imports, but also the effect of the subsid ies, the United States considers that, on the facts of 
this case, the showing that the serious prejudice it ha s suffered is the effect of the subsidies applies, 
mutatis mutandis , to the effects of the subsidies in the US market.
5833  
(ii) European Communities 
7.2034  The European Communities disputes the United Stat es' claim of injury to its domestic LCA 
industry.  The European Communities recalls its vi ew that there are multiple allegedly subsidized 
products and corresponding like products for three of  those allegedly subsidized products, and argues 
that an injury claim must be made out with r espect to individual domestic industries producing each 
like product.5834  The European Communities contends th at the United States' failure to do so 
constitutes a fatal flaw in its claim of material injury under Article 5(a) of the SCM Agreement.5835  
Assuming arguendo  that an assessment of the United States ' claim of material injury could be 
properly based on data pertaining to a single domes tic industry, comprising all of Boeing's LCA 
business, the European Communities maintains that Boeing is not pr esently suffering any injury, let 
alone "material" injury.5836   Nor is there any evid ence that the effects of any subsidies to Airbus are 
                                                      
5828 SCM Agreement, Art. 15.1 (footnote omitted). 
5829 US, FWS, para. 732. 
5830 US, SWS, para. 736. 
5831 US, SWS, para. 738. 
5832 US, SWS, para. 741. 
5833 US, SWS, paras. 739-41. 
5834 EC, FWS, para 2159, footnote 2180. 
5835 EC, FWS, para. 2137. 
5836 EC, FWS, para. 2138. The European Communities also asserts, however, that "Boeing is 
performing so well in all four of the LCA markets where Bo eing LCA products are marketed, that it is irrelevant 
whether the Panel examines a single or four different US domestic industries."  Id., footnote 2180.  WT/DS316/R 
 Page 991 
 
BCI deleted, as indicated [***] 
 
 causing Boeing material injury.  Thus, the Europ ean Communities argues, there is no basis for the 
United States' claims under Article 5(a) of the SCM Agreement.  
7.2035  The European Communities disagrees  with the United States' description of the legal standard 
for establishing a material injury claim under Article 5(a) of the SCM Agreement.  The European 
Communities recognizes that Article 15 of the SCM Agreement defines the term "injury" to mean, 
inter alia , "material injury to a domestic industry" or "threat of material injury to the domestic 
industry,"  and that pursuant to footnote 11, the term "i njury" in Article 5(a) is used in the same sense 
as in Part V, where the definition of injury is located in footnote 45.5837  For the European 
Communities, this confirms that the degree and nature of the "injury" covered by an Article 5(a) claim 
must be "material."5838  The European Communities asserts th at a claim under Article 5(a) involves 
two cumulative steps:  First, an assessment of wh ether the domestic industry of another Member is 
suffering from "material injury;" and, second, an assess ment of whether any material injury is caused 
by reason of the "use of any subsidy."5839  The European Communities asserts that Article 15.4 of the 
SCM Agreement provides contextual guidance for assessing whether there is  "material injury" to the 
domestic industry, by requiring an "evaluation of  all relevant economic f actors and indices having a 
bearing on the state of the industry," and setting out a non-exhaustive series of factors to be in 
determining the state of the domestic industry.5840   
7.2036  The European Communities submits that Article 5(a) of the SCM Agreement requires a 
determination whether adverse effects in the form of material injury are caused by reason of the use of 
any subsidy.5841  The European Communities bases this positi on on the view that the causal link in an 
adverse effects case under Part III of the SCM Agre ement must be between the "effects", in this 
context, alleged material injury, and the "use of any subsidy".  The Europ ean Communities argues this 
is necessary in order to give meaning to the text of  Article 5(a), including the terms "cause," "use of 
any subsidy" and "adverse effects", in the contex t of a material injury claim under Article 5(a).5842  
Thus, the European Communities disag rees with the United States' view  that the question before the 
Panel is whether the subsidized imports of Airbus  LCA into the United States have caused injury to 
Boeing's LCA production in the United States, arguing th at it must be the "use" of any subsidies that 
"causes" the "effects." 
7.2037  The European Communities asserts that, as it must in considering serious prejudice claims 
under Article 5(c), in making an objective assessment of an injury claim under Article 5(a) a Panel 
must consider the magnitude and nature of the ch allenged subsidies and how their use causes effects, 
in this context material injury, in light of the c onditions of competition in the market or markets at 
issue.5843  The European Communities contends th at the United States does not examine the 
magnitude, age or nature of the subsidies in its Arti cle 5(a) claims, but rather labels as subsidized all 
Airbus LCA imported into the United States, and then examines the effects of those imports in asserting causation.   
7.2038  The European Communities argues that contex tual guidance for interpreting the terms 
"effects," "caused" by the "use" of subsidies in a cl aim of "material injury to a domestic industry of 
another Member" is found in Article 15.5 of the SCM Agreement, which provides that "{i}t must be 
demonstrated that the subsidized imports are, through the effects of subsidies, causing injury within 
                                                     
 
5837 EC, FWS, para. 2144. 
5838 EC, FWS, para. 2145. 
5839 EC, FWS, para. 2146. 
5840 EC, FWS, para. 2147. 
5841 EC, FWS, para. 2148. 
5842 EC, FWS, para. 2148. 
5843 EC, FWS, para. 2149. WT/DS316/R 
Page 992 
 
BCI deleted, as indicated [***] 
 
 the meaning of this Agreement."5844  The European Communities notes that footnote 47, appended to 
the word "effects" in Article 15.5 in the SCM Agreem ent, states "{a}s set forth in paragraphs 2 and 
4," and that Articles 15.2 and 15.4 refer to a variety of  different forms of "effec ts" that are related to 
"subsidized imports."  Article 15.2 concludes by cau tioning that "{n}o one or several of these factors 
can necessarily give decisive guidance."  Further,  Article 15.4 concludes with the statement that 
"{t}his list is not exhaustive, nor can one or sev eral of these factors necessarily give decisive 
guidance."  Article 15.5 states that "{t}he dem onstration of a causal re lationship between the 
subsidized imports and the injury to the domestic industry shall be based on an examination of all 
relevant evidence before the aut horities."  The European Communities then asserts that "all relevant 
evidence" that must be considered in a dispute in volving Article 5(a) includes the magnitude, nature 
and age of the alleged subsidies.5845  The European Communities ar gues that the United States' 
approach is flawed because it assumes that the eff ects of all the disputed subsidies are the same, 
regardless of their magnitude, age or nature, as  long as they subsidize the imports analyzed.  
However, for the European Comm unities the causation question in a claim under Article 15(a) is not 
solely whether subsidized imports  cause material injury, but rather whether the effects of subsidies 
(which may be manifest in  subsidized imports) cause material injury.5846     
7.2039  The European Communities also considers th at the provisions of Article 11.9 of the 
SCM Agreement, which it asserts requires immedi ate termination in countervailing duty cases "where 
the amount of a subsidy is de minimis  …"  and Article 15.3 of the SCM Agreement, which requires 
that subsidized imports be excluded from an asse ssment of the effects on the domestic industry in a 
countervailing duty case if the level of subsidization is de minimis , are important context for a Panel 
in considering a claim under Article 5(a) of the SCM Agreement.5847  The European Communities 
considers that the United States' arguments on injury  and causation under Article  5(a) fail to address 
the "use" of any subsidies allegedly causing the effect  of material injury.  According to the European 
Communities, Airbus imports, which at most be nefit from subsidies of less than 1 percent ad valorem , 
which are in the European Communities' view legally de minimis , cannot be presumed to cause lost 
sales, price suppression or depression or displace ma rket share simply because they are minimally 
subsidized.5848 
7.2040  The European Communities considers that this  interpretation of the causation requirement 
under Article 5(a) is consistent with the causation re quirement for other type of adverse effects claims 
under Articles 5(c) and 6.3 of the SCM Agreement.5849  Thus, the European Communities argues, 
while Articles 6.3(c), 6.3(d), 6.4 and 6.5 refer to  a "subsidized product," demonstration of serious 
prejudice requires proof that the "effect of the subs idy" is the cause of the various forms of serious 
prejudice.  The European Communities asserts that  it would be anomalous for there to be two 
completely different causation standards for a findi ng of adverse effects by the use of subsidies under 
Article 5 of the SCM Agreement .  The European Communities cons iders that in assessing the 
question of causation under Article 5(a), the Pane l must distinguish the effects of the challenged 
subsidies from the effects of imports that are subs idized to any degree.  The European Communities 
points to evidence it maintains demonstrates that, even assuming, arguendo , that Boeing is materially 
injured, such injury is not cau sed by the effects of subsidies  – i.e. , their magnitude, nature and age in 
the context of the competitive cond itions in the various LCA markets.5850   
                                                      
5844 EC, FWS, para. 2151 (emphasis added by European Communities). 
5845 EC, FWS, para. 2151. 
5846 EC, FWS, para. 2153. 
5847 EC, FWS, para. 2154. 
5848 EC, FWS, para. 2156. 
5849 EC, FWS, para. 2157. 
5850 EC, FWS, para. 2157-58.  WT/DS316/R 
 Page 993 
 
BCI deleted, as indicated [***] 
 
 7.2041  The European Communities argues, based on ev idence relating to financial and market 
indicators, that Boeing's LCA division was performing remarkably well as of 2006, relying principally on data for the period 2004 to 2006, but also referring to the period 2001 to 2006.  In its 
second written submission and in its answer to a Pa nel question, the European Communities provided 
further information for 2007.
5851  The European Communities asserts that not only was Boeing in 
excellent financial condition as of 2006 and in to 2007, but that it had achieved a dominant 
competitive position vis-à-vis Airbus.  On the basis of this evidence, the European Communities 
asserts that the Panel should dismiss the United States' claims by finding that Boeing is not  
"materially injured" and that there is no threat of material injury.5852  The European Communities 
concludes that, even assuming, arguendo , that Boeing is experiencing material injury, such material 
injury or threat of material injury is not caused by the effects of any subsidies to the various Airbus 
LCA families.5853   
(b) Evaluation by the Panel 
7.2042  In addressing the United States' claims of injury and threat of injury to the United States' LCA 
industry, we will first address seve ral overarching issues, the resolution of which affects the entirety 
of our analysis.  We will then consider the ev idence and arguments presented by the parties on the 
questions of material injury, threat of material injury, and causation. 
(i) Preliminary issues 
Domestic industry  
7.2043  The parties' arguments raise several prelimin ary questions that must be considered and 
addressed before we can consider their evidence a nd arguments on the question of injury, including 
threat thereof.  The first point of disagreement be tween the parties concerns the subsidized and like 
products relevant to the Panel's analysis.  As previously discussed,5854 we have rejected the European 
Communities' position that there are multiple alle gedly subsidized Air bus products and three 
corresponding Boeing like products, and are consideri ng adverse effects, including the question of 
injury to the United States' domestic LCA industr y, on the basis of the allegations of the United 
States, i.e., that there is one subsidized product, all Ai rbus LCA, and one corresponding like product, 
all Boeing LCA.  We turn next to the iden tification of the relevant domestic industry. 
7.2044  Article 16.1 of the SCM Agreement defines the domestic industry.  It provides  
                                                      
5851 EC, SWS, paras. 1177- 1182; EC, Answer to Panel Question 261.  We note that our question did 
not, in fact, request additional or updated information from the European Communities in this regard.  The United States noted, in its comment on the EC Answer, that this information was "not responsive to the Panel's 
question, which was limited to a clarification of the data  through 2006 previously provided by the EC."  US, 
Comments on EC Answer to Panel Question 261, para. 86.  We agree.  While we could, in accordance with paragraph 15 of our Working Procedures, exclude that information from the record of this dispute, as it was in 
our view not "necessary for purposes of rebuttals or answers to questions" we have chosen not to do so, as we 
had not yet expressed a view as to the relevant reference period and data to be considered when the European Communities submitted the information.  However, in light of our views set out in this report concerning the 
appropriate reference period and data, we have not relied on data for 2007 in reaching our conclusions on the 
United States' claim of injury.  We take the same view with respect to data for 2007 (and 2008) submitted and discussed by the European Communities in its Comments on the Panel and Appellate Body Reports in US – 
Upland Cotton (Article 21.5 – Brazil ) and its Comments on the US Comments on those Reports. 
5852 EC, FWS, para. 2230, 2246; EC, SWS, para. 1182, 1193. 
5853 EC, FWS, para. 2259 
5854 See, paras. 7.1651 - 7.1668 and paras. 7.1671 - 7.1680 above. WT/DS316/R 
Page 994 
 
BCI deleted, as indicated [***] 
 
  "For the purposes of this Agreement, the term "domestic industry" shall, 
except as provided in paragraph 2, be interpreted as referring to the domestic 
producers as a whole of the like products or to  those of them whose collective output 
of the products constitutes a major proportio n of the total  domestic production of 
those products, except that when producers are related48 to the exporters or importers 
or are themselves importers of the allegedly subsidized product or a like product from 
other countries, the term "domestic industr y" may be interpreted as referring to the 
rest of the producers." 
______________________ 
48 text of original footnote omitted."5855 
The text of Article 16.1 is explicit:  the defin ition of domestic industry it sets forth applies "for 
purposes of" the SCM Agreement.  Thus, it is clear to  us, from the plain meaning of the text, that the 
definition of "domestic industry" should be the same in the context of assessing "injury to the 
domestic industry" of a Member in an adverse effect s analysis under Article 5(a) as it would be in a 
case under Part V of the SCM Agreement to determine material injury to a domestic industry in a 
countervailing duty investigation.  As the only producer in the United States of the like product LCA 
during the relevant period, Boeing constitutes the w hole of the domestic industry in this dispute.  
Thus, in this dispute, we shall be examini ng the question of material injury to Boeing.5856 
 
Reference period  
7.2045  Another point of disagreement between the par ties concerns the appropriate period to be 
considered by the Panel in making its de termination.  As previously discussed,5857 it is clear that the 
finding we are required to make is whether there are "present" adverse effects - in this context, present 
material injury or present threat of material inju ry to the United States' LCA industry.  It is, as a 
practical matter, of course impossible to assess the "p resent" situation, as immediately current data is 
not, and can never be, available as of the date of a pa nel's decision, and thus a review of the past is 
necessary to draw conclusions concerning the present.  Indeed, this is how investigating authorities in 
the context of countervailing duty investigati ons under Part V of the SCM Agreement typically 
proceed, and that practice has been approved in dispute settlement.5858  However, there is no specific 
guidance in the SCM Agreement concerning the pe riod for which data should be collected and 
examined, either in the context of countervailing duty investigations, or specifically in the context of 
Article 5(a).  As previously discussed,5859 we have determined not to make an a priori  choice of 
reference period in the context of our assessment of serious prejudice, but rather to examine the evidence and arguments put forward by the United States, and the rebuttal evidence and arguments 
presented by the European Communities, including recen t information where relevant and reliable, in 
determining whether adverse effects have been demonstrated by the Un ited States.  We consider that 
the same approach is appropriate in the contex t of our assessment of the question of injury. 
                                                     
 
5855 Paragraph 2 of Article 16, which provides for the ex amination of regional industries is not relevant 
here, and there are no allegations concerning related producers.   
5856 In this respect, both parties agree that the domestic industry refers to the LCA Division of Boeing 
Commercial Aircraft, which comprises the LCA opera tions of Boeing Corporation, and it is evidence 
concerning that industry we will consider.  See, US, Answer to Panel Question 239; EC, FWS, footnote 2173. 
5857 See, paras. 7.1693 - 7.1694 above. 
5858 Appellate Body Report, Mexico – Anti-Dumping Measures on Rice , para 166:  "In order to 
determine whether injury caused by dumping exists when the investigation takes place, "historical data" may be 
used." 
5859 See, paras. 7.1694 above.  WT/DS316/R 
 Page 995 
 
BCI deleted, as indicated [***] 
 
 7.2046  In the context of its injury arguments, th e United States originally provided evidence 
concerning the volume and market share of imports of  Airbus LCA into the United States, pricing in 
the United States' market for three models of  Boeing LCA, the 737NG, 747, and 777, and the 
condition of the United States' industr y, for the period 2001 through 2005, 5860 arguing that the Panel 
should make its determination of injury as of the date of the Panel's estab lishment.  The European 
Communities provided information on various indicat ors of Boeing's performance for the period for 
the period 2001 through 2006,5861 which the United States did not specifically accept, but the accuracy 
of which it largely did not dispute, and upon which it did comment, and information relating to Airbus 
orders and market share in the United States for that same period.5862  The United States subsequently 
provided updated information concerning imports an d market share for 2006, and pricing information 
for the Boeing 737 in the United States' market update d to include data for 2006 in its second written 
submission.5863   
7.2047  In order to enable the Panel to make its deci sion on the basis of more recent data concerning 
the United States' LCA industry, on 12 December 2 007, we requested the United States to update the 
information it had provided concerning Boeing opera tions to include information for calendar year 
2006, which the United States submitted on 22 January 2008.5864  Thus, we continued to collect 
relevant updated information even after the meetings  with the parties, and provided the parties an 
opportunity to comment on such information.5865   
7.2048  We did not request any more recent informa tion beyond calendar year 2006, and have not 
considered any such evidence su bmitted as relevant to our deci sion concerning material injury, 
however, as we consider that it would be inappropri ate, and impractical, to continue gathering and 
considering information concerning the operations  of the United States' domestic industry, and 
concerning the volume and market share of impor ts into the United States and prices in the 
United States' market, without an opportunity for comment and arguments concerning such 
information by the parties.  The process of gath ering information and comment and argument by the 
parties cannot continue indefinitely, even if that means that by the time our decision is issued, the 
information on which we base our conclusions is not completely current.  This is, however, a result of 
the size and complexity of the case before us, and therefore in our view, does not undermine our conclusions as to present adverse effects.  We note that the first submission in this dispute was filed in November 2006, and second submis sions were filed in May 2007,  and the second meeting of the 
Panel with the parties was held in July 2007.  Thus , both parties had an opportunity to gather, present, 
and comment on, information concerning calendar y ear 2006, including in their answers to questions 
and comments thereon in January and February 2008.  Our Working Procedures only allowed for the submission of factual information after the first wr itten submissions "except with respect to evidence 
necessary for purposes of rebuttals or answers to  questions ... upon a showing of good cause." We do 
not consider this to constitute a license to the par ties to continue to present new factual information 
well after the second meeting of the panel with th e parties.  Nor do we consider it imposes any 
obligation on us to consider such information where it is not necessary to respond to our questions.  In 
our view, the end of 2006 is a reasonable cut-o ff date for information concerning the question of 
injury to the domestic industry.   
                                                     
 
5860 US, FWS, paras. 733-734, Tables 2 and 3; pa ras. 741-744, Figures 1-3; para. 746, Table 4. 
5861 EC, FWS, paras. 2162-2229 and tables therein. 
5862 EC, FWS, paras. 2252-2255 and tables therein. 
5863 US, SWS, para. 731, Table 3; para. 734 and exhibit US-616 (BCI). 
5864 US, Answer to Panel question 238. 
5865 Answers to the Panel's third set of questions were submitted on 22 January 2008, and comments on 
those answers were submitted on 8 February 2008, by both parties, and included additional evidence as 
necessary to respond to those questions. WT/DS316/R 
Page 996 
 
BCI deleted, as indicated [***] 
 
 7.2049  The European Communities, however, consider s that the United States must demonstrate 
present material injury "in 2008, on the basis of  the most recent complete and reliable data."5866  The 
European Communities asserts that, while in a coun tervailing duty case, it is justified to make a 
determination on the basis of a fixed period of inves tigation ending just prior to the initiation of the 
investigation, the situation is different in a dis pute under Part III of the SCM Agreement, implying 
that we must consider data more recent than th at concerning 2006.  We do not agree.  While we 
recognize that the passage of time while  this complex dispute has been sub judice  means that there is 
a degree of historicity to a decision based on data no more recent than 2006, we consider that the 
interests of due process, in allowing the parties an opportunity to comment on the information on 
which we base our decision, justifies putting a period to the data we will consider as of the end of 
2006.   
7.2050  Moreover, unlike the situations in Mexico – Rice , a dispute concerning an anti-dumping 
investigation relied on by the European Communiti es in this regard, the information we have 
concluded it is appropriate to cons ider in this dispute is not from a period "remote" from the time of 
our analysis and determination.  In Mexico – Rice, the Panel and Appellate Body questioned the 
relevance and pertinence of evidence from a period e nding fifteen months before the initiation of an 
investigation and almost three years before the imposition of anti-dumping duties based on the finding of material injury.
5867  The Appellate Body str essed that in that case, a prima facie  case was 
established that the information did not, in fact , provide reliable indications of current injury.5868  
Among the reasons for this conclusion were that th e investigation period had been proposed by the 
petitioner seeking the imposition of anti-dumping duties, there were no practical problems 
necessitating that period be considered, no attempt was made to update the information during the 
course of the investigation, it was not established that updating the information was not possible, and 
there were no reasons, other than general practic e of the investigative authority, why more recent 
information was not sought.5869  Thus, the Appellate Body conclude d, "it is not only the remoteness of 
the period of investigation, but also these other ci rcumstances" that were the basis for the Panel's 
conclusion that Mexico's selection of the period of investigation was in violation of its obligations 
under the AD Agreement.5870   
7.2051  The situation is very different here.  As i ndicated above, we did seek, and the parties did 
provide, updated information during the period th e dispute was pending.  Indeed, we did not, ab initio , 
establish a particular time period for information to be  considered in our determination.  Although the 
European Communities submitted information relating to even later periods than that which we 
sought, we have concluded that it is not appropri ate to consider such information which is not 
complete, and which was not subject to the op portunity for comment and argument in written 
submissions and oral proceedings by both parties, except to the extent we re quested such information 
ourselves.   
7.2052  In addition, we note that in a countervailing (o r anti-dumping) case at the national level, the 
remedy is the imposition of additional duties on all fu ture imports of the product in question after the 
final determination.5871  Thus, the immediate and continuing eff ect of the remedy on imports of the 
                                                      
5866 EC, Comments on US Answer to Panel Question 240. 
5867 Panel Report, Mexico – Anti-Dumping Measures on Rice , para. 7.58; Appellate Body Report, 
para. 166. 
5868 Appellate Body Report, Mexico – Anti-Dumping Measures on Rice , para. 167. However, the 
Appellate Body made it clear that relying on evidence from a "remote investigation period" was not per se  a 
violation of Article 3.1 of the AD Agreement .  Id. 
5869 Appellate Body Report, Mexico – Anti-Dumping Measures on Rice , para. 167. 
5870 Appellate Body Report, Mexico – Anti-Dumping Measures on Rice , para. 167. 
5871 Collection of such duties continues until such time as the duty is removed as a result of changed 
circumstances, or is not continued following a sunset review and consequently expires.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
 product into the affected Member supports a conc ern that the remedy be necessary in light of the 
current situation.  By contrast, in an adverse e ffects dispute, the remedy under Article 7.8 of the 
SCM Agreement is either the withdrawal of the subsid y, or the removal of the adverse effects.  With 
either of these remedies, there is no necessar y or immediate effect on imports of the product 
concerned, and thus, in our view, less concern fo r a close conjunction between the data on which a 
finding of injury is based and the date of imposition of the remedy.   
7.2053  The United States argues that we are to make our determination concerning adverse effects 
"as of" the date of establishment of this Panel, in September 2005, as in the United States' view, that is 
the matter that is within our terms of reference.   Thus, the United States argues that the question 
before us is not whether the condition of Boeing, in  terms of the factors to be considered in assessing 
injury, has worsened sinc e 2005, but whether the information befo re us demonstrates material injury 
to the United States' domestic industry.  We agr ee that whether the condition of Boeing worsened 
after 2005 is not determinative on the issue of  material injury.  Nonetheless, as previously 
discussed,5872 we do not agree with the United States' view  that we must make our determination of 
injury as of the date of establishment of the Panel.   We will therefore take into account information 
for the period after the date of establishment, in  order to make a determination of present adverse 
effects in the form of injury that reflects (but  is not necessarily determined by) the available 
information through 2006.   
Method of analysis  
7.2054  Turning to the method of analysis the Panel should apply in assessing the question of injury, 
the European Communities has posited that we must  undertake a two-step inquiry, pursuant to which 
we should examine the question of "material injury" first, and only if we find such injury, should we 
go on to assess the question of causation of such inju ry.  The United States has not directly addressed 
the European Communities' arguments about the appr opriateness of a two-step analysis of material 
injury and causation, but it has presented its claim by asserting that Boeing is materially injured, and 
that subsidized imports are causing that material in jury, indicating that the United States accepts that a 
two-step analysis is appropriate.  In order to  address the European Communities' argument concerning 
the nature of the analysis to be undertaken in considering the United States' claims of injury and threat 
of injury, we will first review the relevant provision s of the SCM Agreement, to determine if that, or 
indeed, any particular analytical approach, is required.  
7.2055  This case is the first in which a Panel has b een asked to consider adverse effects under 
Article 5(a) of the SCM Agreement, which provides:  
"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.:  
(a) injury to the domestic industry of another Member11;  
____________________ 
11 The term "injury to the domestic industry" is used here in the same sense as it is 
used in Part V." 
We recall that Part V relates to the imposition of countervailing duties, which is only permitted if, 
inter alia , the investigating authorities determine that subsidized imports are causing injury to the 
domestic industry in the importing country producing the like product.  Thus, in evaluating the United 
                                                      
5872 See, paras. 7.1714 - 7.1715 above. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
 States' claim of injury to the dom estic industry in the sense of Artic le 5 of the SCM Agreement, we 
are directed to Part V of that Agreement for guidance.  7.2056  Article 15 of the SCM Agreement, which is in  Part V of the SCM Agreement, is entitled 
"Determination of Injury", and includes a definition of the term "injury" in footnote 45, which states: 
"Under this Agreement the term 'injury' sha ll, unless otherwise specified, be taken to 
mean material injury to a domestic industry,  threat of material injury to a domestic 
industry, or material retardation of the establishment of such an industry and shall be interpreted in accordance with th e provision of this Article." 
Article 15.1 is a general provision, which provides that a determinati on of injury shall be based on 
"positive evidence" and involve an "objective examina tion" of the volume of subsidized imports, their 
effect on prices in the domestic product for like products
5873 and the consequent impact of these 
imports on the domestic producers of such products.  Article 15.2 gives further guidance with regard 
to the volume of subsidized imports, specifying that  that the investigating authorities "shall consider" 
whether there has been a significant increase in subs idized imports, either absolutely, or relative to 
domestic production or consumption.  With regard to price effects, Article 15.2 specifies that the 
authorities shall consider whether there has been significant price undercutting, a significant degree of 
price depression, or significant price suppression.  With regard to the consequent impact of subsidized 
imports, Article 15.4 sets out a series of factors regard ing the "state of the industry", which shall be 
evaluated by the investigating authorities.  The lis t is not exhaustive, and the provision makes clear 
that no one or several of the factors listed can give  decisive guidance.  Article 15.7 sets forth several 
additional factors which should be considered in maki ng a determination of threat of material injury, 
which determination shall be based on facts, and not  allegation, conjecture, or remote possibility.  
Finally, Article 15.5 provides:   
"It must be demonstrated that the subsidized imports are, through the effects
47 of 
subsidies, causing injury within the meaning of this Agreement.   
________________ 
47 As set forth in paragraphs 2 and 4 {Articles 15.2 and 15.4}." 
7.2057  These provisions of the SCM Agreement have been considered by several panels in the 
context of disputes concerning the decisions of dom estic investigating authorities in countervailing 
duty investigations.5874  In addition, the parallel, and largely identical, provisions in the 
AD Agreement, Articles 3.1, 3.2, 3.4, 3.5, and 3.7,  have been the subject of a number of disputes 
concerning the decisions of domestic investiga ting authorities in anti-dumping investigations.5875  
                                                      
5873 As previously discussed, the term "like product" is defined in footnote 46, which definition applies 
throughout the SCM Agreement. 
5874 Panel and Appellate Body Reports, United States – Countervailing Duty Investigation on DRAMS ; 
Panel Report, Mexico –Olive Oil ; Panel Report, EC – Countervailing Measures on DRAM Chips  . 
5875 Panel and Appellate Body Reports, Mexico - Anti-Dumping Measures on Rice  ; Panel and 
Appellate Body Reports, United States – Final Dumping Determination on Softwood Lumber from Canada – 
Recourse to Article 21.5 of the DSU by Canada ("US – Softwood Lumber V (Article 21.5 – Canada)") , 
WT/DS264/AB/RW, adopted 1 September 2006,  DSR 2006:XII, 5087, WT/DS264/RW, adopted 
1 September 2006, reversed by Appellate Body Re port WT/DS264/AB/RW, DSR 2006:XII, 5147; Panel and 
Appellate Body Reports, European Communities – Anti-Dumping Duties on Malleable Cast Iron Tube or Pipe 
Fittings from Brazil ("EC – Tube or Pipe Fittings") , WT/DS219/AB/R, adopted 18 August 2003, DSR 2003:VI, 
2613, WT/DS219/R, adopted 18 August 2003, as modified by Appellate Body Report WT/DS219/AB/R, 
DSR 2003:VII, 2701; Panel and  Appellate Body Reports, European Communities – Anti-Dumping Duties on  WT/DS316/R 
 Page 999 
 
BCI deleted, as indicated [***] 
 
 Given that the text of the relevant provisi ons of the SCM and AD Agreements regarding 
determination of injury is almost identical, we c onsider WTO dispute settlement reports  concerning 
the corresponding provisions of the AD Agreement to be  equally relevant to our consideration of the 
issues before us as reports concerning the SCM Agreem ent.  Of course, the decisions of investigating 
authorities in trade remedy cases are highly specific and dependent on the facts of the particular 
investigation.  Thus, the outcomes of disputes regardi ng those decisions with respect to issues of fact 
provide little guidance to us in our review of the ev idence presented in this case.  However, dispute 
settlement reports with respect to interpretation of the SCM and AD Agreements, and concerning the 
methods of analysis of injury and causation, are re levant and we will look to them for guidance in 
considering the parties' arguments and our own analysis in this case.5876    
7.2058  Not all the questions raised by the parties' arguments in this case have been addressed in 
dispute settlement in trade remedy cases.  For inst ance, no panel has directly addressed the question 
whether a two-step analysis, as suggested by th e European Communities a nd used by the United 
States in presenting its case, is appropriate (o r required) in a countervailing or anti-dumping duty 
investigation.5877  Therefore, we do not consider it clearly established that a Panel considering injury 
under Article 5(a), fulfilling essentially the same role in  that context as an investigating authority in a 
                                                                                                                                                                     
Imports of Cotton-Type Bed Linen from Indi a – Recourse to Article 21.5 of the DSU  by India ("EC – Bed Linen 
(Article 21.5 – India) "), WT/DS141/AB/RW, adopted 24 April 2003, DSR 2003:III, 965, WT/DS141/RW, 
adopted 24 April 2003, as modified by Appellate Body Report WT/DS141/AB/RW, DSR 2003:IV, 1269; Panel and Appellate Body Reports, United States – Anti-Dumping Measures on Certain Hot-Rolled Steel Products from 
Japan ("US – Hot-Rolled Steel") , WT/DS184/AB/R, adopted 23 August 2001, DSR 2001:X, 4697, WT/DS184/R, 
adopted 23 August 2001 as modified by Appellate Body Report WT/DS184/AB/R, DSR 2001:X, 4769; Panel and Appellate Body Reports, Thailand – Anti-Dumping Duties on Angles, Shapes and Sections of Iron or Non-Alloy 
Steel and H-Beams from Poland ("Thailand – H-Beams") , WT/DS122/AB/R, adopted 5 April 2001, DSR 
2001:VII, 2701, WT/DS122/R, adopted 5 April 2001, as modified by Appellate Body Report WT/DS122/AB/R; Panel and Appellate Body Reports, 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 ("Mexico – Corn Syrup 
(Article 21.5 – US)") , WT/DS132/AB/RW, adopted 21 November 2001, DSR 2001:XIII, 6675, WT/DS132/RW, 
adopted 21 November 2001, as upheld by Appellate Body Report WT/DS132/AB/RW, DSR 2001:XIII, 6717; 
Panel and Appellate Body Reports, European Communities – Anti-Dumping Duties on Imports of Cotton-Type Bed 
Linen from India ("EC – Bed Linen") , WT/DS141/AB/R, adopted 12 March 2001, DSR 2001:V, 2049, 
WT/DS141/R, adopted 12 March 2001, as modified by Appellate Body Report WT/DS141/AB/R, DSR 2001:VI, 
2077; Panel Report, Egypt – Definitive Anti-Dumping Measures on Steel Rebar from Turkey ("Egypt – Steel 
Rebar") , WT/DS211/R, adopted 1 October 2002, DSR 2002:VII, 2667; Panel Report, Korea –Certain Paper ; 
Panel Report, E C – Salmon (Norway) . 
5876 We note in this regard the "Declaration on Dispute Settlement Pursuant to the Agreement on 
Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 or Part V of the Agreement 
on Subsidies and Countervailing Measures" adopted by  Ministers at Marrakech, which provides that  
"Ministers,  Recognize, with respect to dispute settlement pursuant to the Agreement on Implementation of 
Article VI of GATT 1994 or Part V of the Agreement on Subsidies and Countervailing 
Measures, the need for the consistent resolution of disputes arising from anti-dumping and countervailing duty measures."   
Since the term "injury" is used in Article 5(a) in the same sense as in Part V of the SCM Agreement, 
we consider that this injunction suggests that a similarly consistent resolution in dispute settlement under Article 5(a) is appropriate where possible.   
5877 Indeed, this topic has been the subject of proposals in the current round of negotiations on the 
AD Agreement, which suggests that it is not established that such analysis is a requirement under either the AD 
or SCM Agreement as presently in force.  See, Working Document from the Chairman, document TN/RL/232 
(28 May 2008), Annex A, setting forth a consolidati on of text-based proposals submitted to the Rules 
Negotiating Group on anti-dumping issues up to November 2007.  An earlier compilation of proposals can be found in document TN/RL/W/143 (22 August 2003), with references to the documents containing the proposals 
submitted by Members. WT/DS316/R 
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BCI deleted, as indicated [***] 
 
 countervailing duty or antidumping investigation, must  first consider the question of injury, and only 
if it finds such injury, go on to consider whether the necessary causal link can be established.  
However, by the same light, in the absence of any clea r obligations in this regard, in our view, nothing 
precludes us from undertaking such an analysis, that is, considering first the question of injury, and 
only turning subsequently to the question of causatio n of such injury, if it was found to exist in the 
first step.  As neither party has argued that we should apply a different method of analysis, and as 
nothing in the SCM Agreement precludes such an analysis, we consider it unnecessary to opine 
definitively on the question of the nature of the causal analysis to be undertaken in considering 
material injury to a domestic industry. In addition,  we understand that a two-step analysis of injury 
and causation is commonly employed by investigating authorities in the context of countervailing 
duty investigations.  In light of our view that analys is of injury under Article 5(a) should be consistent 
with analysis under Part V of the SCM Agreement, we conclude that we ma y appropriately undertake 
a two-step analysis of injury and causation in this dispute.   
Injury caused by subsidized imports, or  injury as the effects of the subsidy  
7.2059  A further, and critical, point of disagreement be tween the parties concerns the issue of what 
must be found to be causing injury to the United St ates' LCA industry in order for the United States to 
prevail on its claim of adverse effects under Article 5(a).  The parties have taken sharply different  
positions regarding the agent of causation.  The European Communities argues that the "effect" of 
injury must be caused by the "use of the subsidies".5878   The United States contends that the European 
Communities wrongly seeks to read the "effect of the s ubsidy" standard of Article 6.3 into a material 
injury inquiry under Article 5(a),5879 arguing that Article 15.5 requires that the material injury be the 
effect of subsidized imports.5880   
7.2060  This is an issue that has not previously been  addressed by any panel or the Appellate Body, 
since, as we have noted, this is the first disput e under Part III of the SCM Agreement in which a claim 
of injury under Article 5(a) has b een raised.  In our view, the European Communities' attempt to read 
the "effect of the subsidy" standard set out in Artic le 6.3 into the context of an injury inquiry under 
Article 5(a) is legally incorrect.   
7.2061  Considering the text of the SCM Agreement in  this regard, we note that the chapeau of 
Article 5 provides that "No Member should cause, th rough the use of any subsidy" adverse effects, 
including those set out in Article 5(a), i.e., "injury to the domestic industry of another Member".  
Footnote 11 to Article 5(a) specifies that the term "i njury to the domestic industry is used in the same 
sense as in Part V of the SCM Agreement".  Thus, the text of Article 5 specifically references Part V 
of the SCM Agreement with respect to defining th e term "injury" as used in Article 5(a).   
7.2062  Part V, of course, governs the imposition of countervailing duties, including various 
procedural and substantive issues in the investiga tions that must be undertaken and determinations 
that must be made by national investigating aut horities before such imposition can be justified.  
Article 15, which is in Part V of the SCM Agreem ent, sets out the criteria for a "determination of 
injury", and in doing so, refers repeatedly to consideration of subsidized imports.  For instance, 
Article 15.1 refers to the "volume of the subsidized imports", the "effect of the subsidized imports on 
prices" and the "consequent impact of these  imports".  Article 15.2 refe rs to the "volume of the 
                                                      
5878 EC, FWS, paras. 2144-2158. 
5879 US, SWS, para. 741. 
5880 US, SWS, para 740.  The United States goes on to assert that, were it required to make a showing 
that material injury is the effect of the subsidies in dispute, "on the facts of this  case, the showing that the 
serious prejudice is the eff ect of the subsidy applies, mutatis mutandis , to the effects of th e subsidy in the U.S. 
market."  Id.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
 subsidized imports", a "significant increase in subs idized imports", "the effect of the subsidized 
imports on prices", "significant price undercutting by  the subsidized imports" and "the effect of such  
imports".  Article 15.4 refers to "The examinati on of the impact of the subsidized imports on the 
domestic industry".  Article 15.5 refers to the "cau sal relationship between the subsidized imports and 
the injury to the domestic industry" and requires that injuries caused by "any known factors other than 
the subsidized imports ... must not be attributed to  the subsidized imports".  Article 15.8 refers to 
"cases where injury is th reatened by subsidized imports."  In our view, these repeated references 
strongly imply that the "something" which must  cause injury for purposes of Article 15 is the 
subsidized imports.  It seems to us that, if we ar e to apply the term "injury to the domestic industry" 
consistently with Article 15 in  this dispute under Article 5(a), the same causal factor, i.e., the 
subsidized imports, should be considered in asse ssing the question of causation in both contexts.  
Thus, we conclude that for purposes of determining whether there are adverse effects in the sense of 
injury under Article 5(a) of the SCM Agreement, we must examine whether subsidized imports, in 
this case, subsidized Airbus LCA imported into  the United States, are causing injury to the 
United States' domestic LCA industry.  
7.2063  The single reference to "effects of subsidies" in  Article 15 is in Article 15.5, which provides, 
in pertinent part: 
"It must be demonstrated that the subsidized imports are, through the effects47 of 
subsidies,  causing injury within the meaning of this Agreement.  
_______________ 
47 As set forth in paragraphs 2 and 4." 
 
7.2064  The European Communities argues that footnote 47 provides contextual support for its view 
regarding the appropriate assessment of cau sation in an adverse effects dispute.5881  Panel and 
Appellate Body reports in a recent dispute dealt sp ecifically with the meaning of footnote 47 in the 
context of a countervailing duty investigation un der Article 15.5, and addressed and rejected 
essentially the same argument as that made by th e European Communities in this dispute.   
7.2065  In that dispute, Japan – DRAMs , Korea argued that the Japanese investigating authority acted 
inconsistently with, inter alia , Article 15.5 by failing to demonstrate that subsidized imports were 
causing injury "through the effects of subsidies" , because while it considered the volume and price 
effects of those imports, it did not demonstrate that the volume and prices of those imports, and their 
consequent impact on the domestic i ndustry, were affected by the subsidies in a manner sufficient to 
cause injury.  Korea argued that if an investigating authority could not  demonstrate that the subsidies 
altered the volume or price of the imports, there was no basis for a finding that injury caused by those 
imports occurred "through the effects of the subsidies".5882    
7.2066  The panel rejected Korea's view.  The panel conc luded that "the ordinary meaning of the first 
sentence of Article 15.5 and its acco mpanying footnote is to define the phrase "through the effects of 
subsidies" to mean the effects of subsidized im ports ("{a}s set forth in  Article 15.2 and 15.4")".5883  
The panel found that Article 15.5 could not be read to mean, as Korea contended, that "it must be demonstrated that the subsidies  are causing injury through the effects of subsidized imports ", as 
Articles 15.2 and 15.4, referred to in the footnote, indi cate that consideration must be of the effects of 
                                                     
 
5881 EC, FWS, para 2151. 
5882 Panel Report, Japan – DRAMs , para. 7.399. 
5883 Panel Report, Japan – DRAMs , para. 7.411. WT/DS316/R 
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 the subsidized imports, and not the subsidy.5884  The panel also rejected Korea's argument that the 
"through the effects of subsidies" language of Article  15.5 should be interpreted as requiring the same 
type of causation analysis as panels have develope d under the "effect of the subsidy" language in 
Article 6.3 of the SCM Agreement.  The panel noted, as the US – Upland Cotton Panel had found, 
that references in Articles 5(c) and 6.3(c) to the "eff ect of the subsidy" contrast with the language used 
in the countervailing duty provisions in Part V of the Agreement."5885  
7.2067  The Appellate Body came to the same conclusion, stating that:  
"Article 15.5 as a whole deals with the causal relationship between subsidized 
imports and injury to the domestic industry.  ...  By virtue of footnote 47 to 
Article 15.5, which forms an integral part of the first sentence, the demonstration of 
the causal relationship envisaged in the firs t two sentences of Article 15.5 is to be 
carried out by following the analysis set fo rth in Articles 15.2 and 15.4 for examining 
the 'effects' of the subsidized imports.  According to these paragraphs, such an 
examination will comprise of:  (i) whethe r there has been a significant increase in 
subsidized imports;  (ii) the effect of the subsidized imports on prices;  and (iii) the 
consequent impact of the subsidized  imports on the domestic industry."5886    
Thus, the Appellate Body concluded that it was:  
 
"clear from the architecture of Articles 15.2, 15.4, and 15.5 that, for determining whether the 'subsidized imports are, throug h the effects of subsidies, causing injury' 
to the domestic industry, what is required is the examination of the effects of the 
subsidized imports as set forth in Articl es 15.2 and 15.4.  These paragraphs neither 
envisage nor require the two distinct typ es of examinations suggested by Korea, 
namely, an examination of the effects of the subsidized imports as per Articles 15.2 and 15.4;  and, a second examination of th e effects of the subsidies... . {I}f an 
investigating authority carries out the examination required under Articles 15.2, 15.4, 
and 15.5, such examination suffices to demonstrate that 'subsidized imports are, through the effects of subsidies, causi ng injury' within the meaning of the  
SCM Agreement."
5887 
7.2068  We agree with this view, and consider that it a pplies equally to our analysis in this case.  In 
our view, the term "injury to the domestic industry" , which we are to apply in the same way under 
Article 5(a) as an investigating authority would in  the context of a countervailing duty investigation, 
includes the question of causation.  Thus, we consider that a consistent interpretation of the concept of 
"injury to the domestic industry" requires us to examine, in considering causation, the effects of 
subsidized imports as set forth in Articles 15.2 and 15.4 in our analysis of material injury under 
Article 5(a).  Any other conclusion would, we be lieve, inappropriately establish a different legal 
standard and obligations for analysis of injury in the context of Part III from that developed under 
Part V of the SCM Agreement, which in our view would be contrary to footnote 11.   
7.2069  In addition, as the United States notes in respon se to the European Communities, Article 6.3, 
by its terms, defines conditions in which "seri ous prejudice" may arise, not conditions in which 
                                                      
5884 Panel Report, Japan – DRAMs , para. 7.411 (emphasis in original). 
5885 Panel Report, Japan – DRAMs , para. 7.419, citing Panel Report, US – Upland Cotton , para. 7.1227 
and footnote 1346. 
5886 Appellate Body Report, Japan – DRAMs , paras. 262-63. 
5887 Appellate Body Report, Japan – DRAMs , paras. 264, 268.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
 "material injury" may arise.5888  We agree with the United States that if the drafters of the 
SCM Agreement had intended the causation aspects of Article 6.3 to apply to claims of adverse 
effects in the form of injury under Article 5(a), they would not have used only the term "serious 
prejudice" in the chapeau of Article 6.3.  The use of the term "serious prejudice" alone suggests that 
the provisions of Article 6.3 do not apply when co nsidering other forms of adverse effects, which, 
include injury, in the sense of Part V of the SC M Agreement, under Article 5(a), and nullification and 
impairment under Article 5(b).   
7.2070  With respect to the latter, we note that foot note 12 to Article 5(b) of the SCM Agreement 
provides:  
"{t}he term 'nullification or impairment' is used in this Agreement in the same sense 
as it is used in the relevant provisions of GATT 1994, and the existence of such nullification or impairment shall be esta blished in accordance with the practice of 
application of these provisions."   
Unlike the question of injury under Part V of the SCM Agreement, there is no methodological 
guidance in the text of GATT 1994 on the determin ation of nullification or impairment.  This 
explains, in our view, why there is a specific refere nce to "practice" in the application of nullification 
and impairment provisions in footnote 12.  On the other hand, Part V of the SCM Agreement contains 
extensive, albeit not complete, methodological guidan ce on the determination of injury, including the 
question of causation.    
7.2071  In response to a question from the Panel on a related matter, the European Communities 
reiterated its view that a claim of injury under Artic le 5(a) can only be made out if the "use of any 
subsidy" causes that injury, relying in th is regard on the chapeau of Article 5.
5889  According to the 
European Communities, its position is consistent  with the views of the Appellate Body in Japan-
DRAMS  referring to the fact that the Appellate Body relied in part on the differences between Part III 
and Part V of the SCM Agreement in concluding that there was no basis for importing the specific 
obligations of Part III into the provisions of Part V.5890   However, in our view, footnote 11 clearly not 
only provides a basis for, but indeed obliges  a panel to apply Part V, and all the obligations in 
Article 15, including with respect to causation, in an analysis of injury under Part III.  That footnote 
specifically incorporates the meaning of the term "injury to the domestic industry" as set out in Part V into Part III (Article 5(a)), and thus in our view  incorporates into Part III of the SCM Agreement the 
obligations with respect to determination of inju ry, including those relevant to determining causation 
of injury, set out in Part V of the SCM Agreement.   There is no similar provision even suggesting, 
much less requiring, the application of the obligat ions of Part III in disputes under Part V of the 
SCM Agreement, as noted by the Appellate body in Japan-DRAMS .  Thus, we consider that unlike 
that case, here there is a sound legal basis in the text of the SCM Agreement itself for our conclusion 
that the obligations concerning determinations of injury under Part V of the SCM Agreement, 
including the consideration of subsidized imports as the causal factor, apply in the analysis of claims 
under Article 5(a) of Part III. 
7.2072  On the basis of the foregoing, we reject th e European Communities' view that in an 
examination of injury under Article 5(a), we must  determine whether the use of the subsidies in 
dispute cause the effects asserted to demonstrate the ex istence of injury.  Rather, we consider that an 
examination of the effects of subsidized imports, as set forth in Articles 15.2 and 15.4, is appropriate.  
As the Appellate Body has concluded, this is what  is required in an assessment under Article 15 of the 
                                                     
 
5888 US, SWS, para. 742. 
5889 EC, Answer to Panel Question 284.   
5890 EC, Answer to Panel Question 284, citing Appellate Body Report, Japan – DRAMS , para. 272. WT/DS316/R 
Page 1004 
 
BCI deleted, as indicated [***] 
 
 SCM Agreement, and therefore, in our view, is  also what is required in an assessment under 
Article 5(a). 
7.2073  We recall that we have concluded that the subsid ized product at issue in this dispute is all 
Airbus LCA.5891  Therefore, in assessing the effects of subs idized imports, we will consider the effects 
of all Airbus LCA imported into the United States.   
7.2074  The European Communities argues that we must  consider the nature and effect of the 
subsidies, and their magnitude, in evaluating the questi on of injury, in order to ensure that any injury 
found is an effect of the subsidies.  As we have  just discussed, we do not agree that our analysis 
should focus on the effects of the subsidies, but rather should focus on the effects of the subsidized 
imports on the United States' LCA industry.  Thus, for purposes of our injury analysis, it is in our 
view not necessary to consider whether the nature and effect of the subsidies in dispute is such as to 
cause material injury.  The nature and effects of th e subsidies are not, independently, an element to be 
addressed in our analysis of injury, except as may be rele vant in the context of threat of injury, in light 
of Article 15.7(i) of the SCM Agreement. 
7.2075  With respect to the magnitude of the subsidi es, we have a similar view.  The European 
Communities asserts that the ad valorem  level of subsidy for imports  of A320 LCA into the United 
States was de minimis  in 2006, and similarly low in previous years, and that "{t}hese Airbus imports 
or sales cannot be presumed to cause lost sales, pr ice suppression, or displaced market share simply 
because they are marginally "subsidized"."5892  We note that the Eu ropean Communities does not 
make similar assertions with respect to imports of other models of Airbus LCA, although it has 
undertaken to calculate an ad valorem  subsidy rate with respect to  LA/MSF and R&TD subsidies for 
Airbus LCA over the period 1999-2006, and argues that these subsidies are de minimis  in the context 
of arguing that the subsidies do not cause the serious prejudice alleged by the United States.5893  Thus, 
to the extent the European Communities makes arguments con cerning causation specific to the 
question of material injury, as opposed to its argument s with regard to the effect of the subsidies in 
dispute more generally, it appears to contend that th e magnitude of the subsidies benefiting imports of 
Airbus LCA into the United States is too sm all to cause or threaten material injury. 
7.2076  We do not, however, consider it necessary to consider the ad valorem  rate of subsidization on 
a per aircraft basis in evaluating the United States' cl aim of injury and threat of injury, even assuming 
we were satisfied with the European Co mmunities' calculations in this regard.5894  There is nothing in 
the text of Article 15 linking the magnitude of the su bsidy to the question of injury or the assessment 
of causation.  This is in contrast to Article 3. 4 of the AD Agreement, which includes "the magnitude 
of the margin of dumping" as a relevant factor that  must be evaluated in examining the question of 
injury.  There is no corresponding provision with respect to the magnitude of the subsidy in the parallel provision, Article 15.4, of the SCM Agreem ent, suggesting that there is no linkage between 
the amount of subsidy and the determination of materi al injury caused by subsidized imports.  It is 
true that Article 11.9 provides that an application sh all be rejected and an investigation terminated if 
                                                     
 
5891 See, para. 7.1668 above. 
5892 EC, FWS, para. 2156 
5893 EC, FWS, para. 1624; ITR report, Exhibit EC-1 3)(BCI/HSBI).  Rates ar e calculated for A318, 
A319, A320, A321, A330-200, A330-300, A340-300, A340-500, A340-600, and A380 model LCA.  The 
European Communities refers to the allegedly de minimis  level of subsidization repeatedly in arguing that the 
alleged adverse effects are not the effect of the subsidies in dispute, e.g., paras. 1800, 1855, 1913, 1937, 1977, 2010, 2062, 2088, 2100, 2120, 2128, 2134.  Although we conclude that the magnitude of subsidization is not a 
relevant consideration in the context of our injury an alysis, we note that we have rejected the European 
Communities' calculations as an appropriate basis for considering the magnitude of the subsidies in the context of our analysis of serious prejudice.  See, paras. 7.1969 - 7.1972 above. 
5894 See, paras. 7.1969 - 7.1972 above.  WT/DS316/R 
 Page 1005 
 
BCI deleted, as indicated [***] 
 
 the level of subsidization is de minimis , which is defined as a level of  subsidization of 1 percent ad 
valorem .5895  However, it is clear from previous dispute settlement that there is no basis for the 
proposition that a de minimis  subsidy is non-injurious, even in the context of a countervailing duty 
investigation:   
"there is nothing in Article 11.9 to suggest that its  de minimis  standard was intended 
to create a special category of " non-injurious " subsidization, or that it reflects a 
concept that subsidization at less than a  de minimis   threshold  can never   cause 
injury.  For us, the  de minimis  standard in Article 11.9 does no more than lay down 
an agreed rule that if  de minimis   subsidization is found to exist in an original 
investigation, authorities are obliged to term inate their investigation, with the result 
that no countervailing duty can be imposed in such cases." 5896 
As the Appellate Body has noted, "injury is not de fined in the  SCM Agreement in relation to any 
specific level of subsidization".5897   
 
7.2077  Thus, in our view, an evaluation of injury fo r purposes of Article 5(a) of the SCM Agreement 
does not require consideration of the magnitude of th e subsidy, because the question to be answered is 
not whether the subsidy(ies) cause injury, but whethe r the subsidized imports, that is, the imports of 
the subsidized product, do so.  We have determin ed in this case that the subsidized product is all 
Airbus LCA, and we will proceed to examine th e question of causation by imports of subsidized 
Airbus LCA into the United States according to  the guidance set out in Article 15 of the 
SCM Agreement, and relevant  dispute settlement reports.5898  
Evidence  
7.2078  With respect to the analysis of evidence, we note Article 15.1 of the SCM Agreement, which 
provides: 
"{a} determination of injury for purposes of Article VI of GATT 1994  shall be based 
on positive evidence and involve an objective examination of both (a) the volume of 
the subsidized imports and the effect of the subsidized imports on prices in the domestic market for like products and (b) the consequent impact of these imports on 
the domestic producers of such products. (footnote omitted)." 
7.2079  In the context of countervailing (and anti-du mping) determinations of investigating 
authorities, panels have made clear that an investig ating authority must ensure that its determination 
of injury, and specifically its findings under Artic les 15.2, 15.4 and 15.5 of the SCM Agreement, are 
                                                     
 
5895 The AD Agreement contains a similar provision in Article 5.9. 
5896 Appellate Body Report,  United States – Carbon Steel , para. 83. 
5897 Appellate Body Report,  United States – Carbon Steel , para. 81. 
5898 We note that footnote 35 of th e SCM Agreement specifies that  
"{t}he provisions of Part II or III may be invoked in parallel with the provisions of Part V; 
however, with regard to the effects of a par ticular subsidy in the domestic market of the 
imposing Member, only one form of relief (either a countervailing duty, if the requirements of 
Part V are met, or a countermeasure under Articles 4 or 7) shall be available."   
The availability of  the two tracks simultaneously suggests to us that it is not precluded that one track 
might yield an affirmative result, resulting in relief, while the other does not.  Thus, while a level of 
subsidization that is de minimis  would, in the case of a countervailing duty investigation, preclude the 
imposition of countervailing measures on imports of the subsidized product, we see nothing in the SCM Agreement that would preclude, as a matter of law,  an affirmative determinat ion of adverse effects, 
including injury, with respect to subsidies benefitin g that product in a dispute under Part III.   WT/DS316/R 
Page 1006 
 
BCI deleted, as indicated [***] 
 
 made on the basis of "positive evidence" and involve an "objective examination."5899  In this regard, 
the Appellate Body has interpre ted "positive evidence" as follows: 
"{t}he term 'positive evidence' relates, in our  view, to the quality of the evidence that 
authorities may rely upon in making a determin ation.  The word 'positive' means, to 
us, that the evidence must be of an affirma tive, objective and verifiable character, and 
that it must be credible."5900 
 We also note that the Appellate Body h as defined an "objective examination": 
 
"{t}he term 'objective examination' aims at  a different aspect of the investigating 
authorities' determination.  While the te rm 'positive evidence' focuses on the facts 
underpinning and justifying the injury determ ination, the term 'objective examination' 
is concerned with the investigative process it self.  The word 'examination' relates, in 
our view, to the way in which the evidence is gathered, inquired into and, 
subsequently, evaluated; that is, it rela tes to the conduct of the investigation 
generally.  The word "objective", which qualifies the word 'examination', indicates essentially that the 'examination' process must  conform to the dictates of the basic 
principles of good faith and fundamental fairness."
5901  (footnote omitted) 
 The Appellate Body summed up the requirement to conduct an "objective examination" as follows: 
 
"an 'objective examination' requires that th e domestic industry, and the effects of 
{subsidized} imports be investigated in an unbiased manner, without favouring the 
interests of any interested party, or group of interested parties, in the investigation.  
The duty of the investigating authorities to conduct an 'objective examination' 
recognizes that the determination will be influenced by the objectivity, or any lack 
thereof, of the investigative process."
5902  
 We also note that the Appellate Body in Thailand – H-Beams  confirmed the fundamental nature of 
Article 3.1 of the AD Agreement, which is the para llel provision to Article 15.1, as a guiding principle 
underlying all aspects of an injury determination.   
 
"Article 3 as a whole deals with obligations of Members with respect to the determination of injury.  Article 3.1 is an overarching provision that sets forth a 
Member's fundamental, substantive obligation in this respect.  Article 3.1 informs the 
more detailed obligations in succeeding pa ragraphs.  These obligations concern the 
determination of the volume of dumped imports, and their effect on prices 
(Article 3.2), investigations of imports from  more than one country (Article 3.3), the 
impact of dumped imports on the domestic industry (Article 3.4), causality between 
dumped imports and injury (Article 3.5), the assessment of the domestic production 
of the like product (Article 3.6), and the determ ination of the threat of material injury 
(Articles 3.7 and 3.8).  The focus of Article 3 is thus on substantive obligations that a 
Member must fulfil in making an injury determination."
5903 (emphasis in original) 
                                                      
5899 Panel Report, EC – Countervailing Measures on DRAM Chips , para. 7.272. 
5900 Appellate Body Report, US – Hot-Rolled Steel , para. 192. 
5901 Appellate Body Report, US – Hot-Rolled Steel , para. 193. 
5902 Appellate Body Report, US – Hot-Rolled Steel , para. 193. 
5903 Appellate Body Report, Thailand – H-Beams , para. 106.  WT/DS316/R 
 Page 1007 
 
BCI deleted, as indicated [***] 
 
 7.2080  Like previous panels and the Appellate Body in the trade re medies context, we understand 
Article 15.1 of the SCM Agreement as an overarc hing provision which info rms the more detailed 
obligations set forth in the remainder of Article 15 of the SCM Agreement.  Since in this case we are 
essentially fulfilling the role that would be taken by the investigating authority in a countervailing or 
anti-dumping duty investigation, this means that we  must base our examination and determination 
with respect to injury on positi ve evidence and an objective examination of the various injury 
elements as required by the more specific provisions of Article 15. 
7.2081  With the foregoing in mind, we consider belo w the evidence and arguments presented by the 
parties in support of their contentions rega rding injury and threat of injury.   
(ii) Material injury 
7.2082  As discussed above, we have concluded that it is  appropriate to undertake a two-step analysis 
of the question of injury, that is, to determine in the first instance whether the condition of the United 
States' LCA industry is such as to ju stify a conclusion that it is materi ally injured.  Only in the event 
that we find in the affirmative on this question a nd conclude that the United States' industry producing 
LCA is materially injured will it be necessary for us to go on to determine whether such material 
injury is caused by the subsidized imports, in view  of the volumes and price effects of such imports 
and their consequent impact on the domestic industry.  Therefore, we consider it appropriate to first 
analyze the information before us relevant to the condition of the United States' LCA industry, that is, 
Boeing, before considering developments in the vol ume and prices of subsidized imports.  The latter 
information is, in our view, more re levant to consideration of the ques tion of causation of injury than 
to consideration of the question of whether material injury exists.   
Condition of the United States' LCA industry  
7.2083  Article 15.4 of the SCM Agreement provides that an examination of injury within the 
meaning of Article 15: 
"shall include an evaluation of all rele vant economic factors and indices having a 
bearing on the state of the industry, including actual and potential decline in output, 
sales, market share, profits, productivity, return on investments, or utilization of 
capacity; factors affecting domestic prices; actual and potential negative effects on cash flow, inventories, employment, wages, growth, {and} ability to raise capital or investments . . . . This list is not exhaustive, nor can one or several of these factors necessarily give decisive guidance." 
 
These factors all bear on the performance or condition of the domestic industry, and thus inform our 
judgment concerning whether the industry is in a co ndition which can be termed material injury.  In 
this regard, we note that there is no elaboration of  the word "material" in the SCM Agreement, and 
thus no standard for determining whether a particular degree of "injury" is material.  In our view, the 
determination whether a particular degree of inju ry, as evidenced by the Article 15.4 factors, is 
"material" is fact-specific in each case, depending on the nature of the product and the industry in 
question.  Developments in various of the relevant factors, such as fo r instance a particular decline in 
production, sales, or profit levels, that in one indus try may support a finding of material injury, may 
not in another industry.  Thus, our determinati on must be based on an overall evaluation of the 
condition of the industry before us, taking into account the particularities brought to our attention 
concerning its operations and the re lative importance of the relevant factors with respect to its 
performance.    WT/DS316/R 
Page 1008 
 
BCI deleted, as indicated [***] 
 
 7.2084  In our view, it is clear that it is not necessary that all relevant factors, or even most or a 
majority of them, must show declines in order to  make a finding of injury.  As the text of the 
Article 15.4 makes clear, no one or several factors can necessarily give decisive guidance.  In our view, this means that an overall evaluation of the in formation, in context, is necessary, as well as an 
explanation of how the fact s support the determination.
5904  But this does not mean that injury may not 
be found in the case of an industry whose performan ce is improved or improving.  The outcome of the 
inquiry will depend on the particular facts and the particular industry. 
7.2085  The United States provided the following data on the Article 15.4 factors for Boeing's United 
States' production operations for LCA.5905 
                                                      
5904 See, Panel Report, Mexico – Olive Oil , para. 7.372.  We note that the factual circumstances in 
which injury may or may not be found are also the subject of proposals in the Rules Negotiations.  See, Working 
Document from the Chairman, document TN/RL/232 (28 May 2008), Annex A, setting forth a consolidation of 
text-based proposals submitted to the Rules Negotiating Group on anti-dumping issues up to November 2007.  
An earlier compilation of proposals can be found in document TN/RL/W/143 (22 August 2003), with references to the documents containing the proposals submitted by Members. 
5905 The United States originally presented informa tion on these factors for the period 2001-2005, US, 
FWS, Table 4, para. 746.  The United States subsequently presented the updated information reproduced in the text in answer to a question from the Panel. US, Answer to Panel question 238, para. 81, table 2.  WT/DS316/R 
 Page 1009 
 
BCI deleted, as indicated [***] 
 
 Table 42 – Trends in Boeing's LCA Operations (US data )5906 
 
 
  2001 2002 2003 2004 2005 2006 
Production (aircraft) 518 377 273 280 284 387 
Capacity Utilization5907 [***] % [***] % [***] % [***] % [***] % [***] % 
Sales (US dollars, 
millions)5908 35,056 28,387 
27,202 22,408 
21,380 21,037 
19,925 22,651 
21,365  
28,465 
Operating income (US 
dollars, millions) 1,911 2,107 707 753 1,432 2,733 
Return on assets [***] % [***] % [***] % [***] % [***] % [***] % 
Cash flow (US dollars, 
millions)5909 [***]  [***]  [***]  [***]  [***]  [***]  
Employees [***]  [***]  [***]  [***]  [***]  [***]  
Wages paid (US dollars, 
millions)5910 [***]  [***]  [***]  [***]  [***]  [***]  
Productivity (US dollars, 
thousands)5911 [***]  [***]  
[***]  [***]  
[***]  [***]  
[***]  [***] 
[***]   
[***]  
 
7.2086  The United States did not submit information on in ventories, because, with rare exceptions, 
Boeing produces to order and does not ca rry inventories of unsold aircraft.5912  With respect to "ability 
to raise capital or investments", the United States provided the following chart showing the evolution 
of Boeing's credit rating.   
                                                      
5906 US, Answer to Panel Question 238 (table 2). 
5907 Reflects 2006 reduction in total capacity from [***] aircraft per month to [***] aircraft per month, 
due to the closure of the Boeing 757 production line in 2005. 
5908 The United States notes that Boeing changed its accounting policy in 2006 with respect to 
concessions received from vendors.  The sales data provided for 2006 reflect this change in accounting methodology.  For comparative purpos es, the United States provided sales data for prior years (available for 
2002, 2003, 2004, and 2005) using the adjusted methodology.  US, Answer to Panel Question 238, para. 81, 
Table 2, footnote 106. 
5909 Corrected figure for 2001. US, Answer to Panel Question 238, para. 81, Table 2, footnote 107. 
5910 Corrected calculation.  US, Answer to Panel Question 238, para. 81, Table 2, footnote 108. 
5911 Because productivity is calculated as sales per employee, the 2006 chan ge in Boeing's accounting 
methodology for sales also affects the calculation of productivity. US, Answer to Panel Question 238, para. 81, 
Table 2, footnote 109. 
5912 US, FWS, para. 746, footnote 934.  The Euro pean Communities agrees that inventories are 
generally unimportant.  EC, FWS, para. 2245.  See, also , EC, FWS, footnote 2216.  Based on the shared view of 
the parties, and our own understanding of the operations of the LCA industry based on the evidence before us, 
we do not consider information concerning inventories to be relevant to our analysis of injury, and the lack of such information before us does  not affect our conclusions. WT/DS316/R 
Page 1010 
 
BCI deleted, as indicated [***] 
 
 Chart 15:  Boeing's credit ratings in recent years5913 
 
 
    
 
 
 AAA 
AA+ 
AA 
AA- 
A+ 
A A- 
BBB+ 
BBB 
BBB- Aaa 
Aa1 
Aa2 
Aa3 
A1 
A2 
A3 
Baa1 
Baa2 
Baa3 
   Jan-96  Jan-97  Jan-98  Jan-99  Jan-00  Jan-01  Jan-02  Jan-03  Jan-04  Jan-05  Jan-06 S&P / Fitch Ratin g Mood y's Ratin g  S&P          Moodys         Fitch  
 
 
7.2087  With respect to sales and market share, th e United States relied on the information it 
presented with respect to the volume and market sh are of deliveries of LCA in the United States' 
market.  That information is set out in full at pa ragraph 7.2113 below.  It shows that deliveries of 
Boeing LCA in the United States' market declined  dramatically, from 280 units in 2001, to 126 in 
2002, and declined still further to 75 units in 2003,  before increasing to 88 units in 2004, dropping 
again to 78 units in 2005, and increasing to 81 units in 2006.5914  However, the declines in the early 
part of this period reflect in significant part a collapse of demand in the United States' market for 
LCA, as declines in Boeing's market share of deliver ies were far less dramatic.  Boeing's share of the 
United States' LCA market was 70 percent in 2001, declined to 58 percent in 2002, and further to 56 percent in 2003, increased to 59 percent in 2004, fell again to 52 percent in 2005, and increased to 
57 percent in 2006. 
7.2088  The United States argues that this information de monstrates that Boeing is materially injured, 
in light of the decline in its financial results, despite deep cuts in costs and steady gains in 
productivity, which could not offset the bottom-lin e impact of declines in production, capacity 
utilization, and sales revenue.  The United States points out that Boeing's income on LCA operations declined by nearly two-thirds in 2003 and 2004 as co mpared with 2002, and increased only slightly in 
2005.  Thus, the United States attributes the increase in income in 2005 almost entirely to improved 
productivity.   
7.2089  The European Communities argues that Boeing is not materially injured.  In the European 
Communities' view, a finding of material injury re quires that the condition of the United States' LCA 
industry, as reflected in the Article 15.4 factors, be poor, and/or reflect declines over the relevant 
period.  Thus, the European Communities focuses on its contention that in 2006, Boeing is in "robust 
financial health, dominant in global and United St ates' LCA markets, in improved financial health 
relative to 2004 and 2001 and on a sharply upward trend."
5915  The European Communities presents 
information regarding the Article 15.4 factors which it argues demonstrates that there are no actual or potential declines in Boeing's performance, and no ne gative effects on its financial condition, over the 
period examined.   
                                                     
 
5913 Exhibit US-403. 
5914 See, para. 7.2116 above, explaining our decision to consider deliveries, rather than order data, in 
this context. 
5915 EC, FWS, para. 2159.  WT/DS316/R 
 Page 1011 
 
BCI deleted, as indicated [***] 
 
 Table 43 – Trends in Boeing's LCA Operations (EC data)5916 
 
 2001 2002 2003 2004 2005 2006 
Sales (global LCA 
orders) 316 251 249 277 1,025 1,052 
Share of US market  
(by LCA) 48% 59% 43% 35% 57% 69% 
Share of US market  
(by seats) 47% 54% 40% 33% 55% 73% 
Contractual backlog at 
year end (US dollars,  millions) 75,850 68,159 63,929 70,449 124,132 174,300 
Backlog units at year 
end (LCA) 1,228 1,098 1,066 1,058 1,796 2,455 
Production (LCA 
delivered) 527 381 281 285 288 396 
Net earnings  
(US dollars, millions) 1,911 2,107 707 753 1,432 2,733 
Operating margin 5.45% 7.11% 3.2% 3.6% 6.3% 9.6% 
Return on assets  
(LCA Division-only assets) 15.9% 20.2% 8.1% 10.2% 19.9% 28.2% 
(est.) 
Return on assets  (United States' method) [***]  [***]  [***]  [***]  [***]  [***]  
(est.) 
Cash flow  
(US dollars, millions) 2,244 2,345 977 839 1,206 2,429 
Employment  [***]  [***]  [***]  [***]  [***]  56,310 
Wages per employee  [***]  [***]  [***]  [***]  [***]  n/a 
Utilization of capacity n/a n/a n/a ~100% ~100% ~100% 
Productivity (US 
dollars) [***]  [***]  [***]  [***]  [***]  505,505 
 
7.2090  The European Communities notes, based on the a bove, that Boeing sales of LCA (calculated 
as orders for LCA world-wide) in 2005 and 2006 exceeded by far sales in any prior year.  The European Communities argues that in 2006, Boeing cap tured more than 50% of United States' sales in 
each of the single-aisle, 200-300 seat, and 300-400 seat markets, as well as capturing the only United 
                                                     
 
5916 EC, FWS, para. 2162 (column labelled "change – 2004-2006", and rows reflecting "global market 
share" deleted).  The European Communities presented additional information on some of these factors for 
2007, EC, Comments on US Answer to Panel Question 238, para. 200, and some preliminary data for 2008, 
during the later stages of the proceedings before the Panel.  As we have discussed, we have considered 
information for the period 2001-2006 to be most pertinent for our analysis, and have not relied on later data in reaching our conclusions regarding injury.  See, paras. 7.2051 and 7.2053 above.  We have not set forth the later 
submitted information in the body of our report.   WT/DS316/R 
Page 1012 
 
BCI deleted, as indicated [***] 
 
 States' orders for LCA sized 400 seats or greater.5917  The European Communities contends that 
Boeing's production increased from 2004 to 2006, and is likely to increase sharply in coming years as 
a result of Boeing's record-setting backlog of orde rs as of 2006.  The Eur opean Communities asserts 
that net earnings in 2006 exceeded those of any prior year, 2001-2005, while operating margin in 
2006 was nearly three times the 2004 level and substa ntially exceeded the 2001 level.  The European 
Communities asserts that Boeing's 2006 cash flow and return on assets exceeded  that of any prior 
year, 2001-2005, and credit ratings at year end 2006 exceeded its ra tings in 2004 and were industry-
leading.  The European Communities observes th at wages per employee increased substantially 
between 2001 and 2005 and considers th at this trend presumably continue d in 2006, although relevant 
data was not available.  The European Communities asserts that Boeing has operated at or near full 
capacity between 2004 and 2006.  According to the European Communiti es, this evidence 
demonstrates not only that Boeing is not in an econo mically distressed condition, but that it could not 
be much farther from such a condition, absent a monopoly position in all LCA markets.5918   
7.2091  With respect to sales, the European Communiti es asserts, on the basis of orders for Boeing 
LCA by United States' customers, in addition to the information presented above, that there is no 
actual or potential decline in sales over the most recen t period, relying in part on the following chart: 
 
                                                      
5917 As previously discussed, we have reject ed the European Communities' position regarding 
consideration of separate markets for single-aisle LCA, for 200-300 seat LCA market, for 300-400 seat LCA 
market, for 400-500 seat LCA market and for 500+ seat LCA market.  We note here that, despite its contention that LCA in the 400-500 seat and 500+ seat markets do not compete, the European Communities compares 
Boeing's 747 LCA with Air bus' 500+ seat A380 to demonstrate the relative success of the Boeing 747.  EC, 
FWS, para. 2161, footnote 2182. 
5918 EC, FWS, para. 2161.    WT/DS316/R 
 Page 1013 
 
BCI deleted, as indicated [***] 
 
 Chart 16:  Boeing LCA Orders By United States' Customers5919 
 
163
4868
36193265
050100150200250300
2001 2002 2003 2004 2005 2006Units - LCA
 
 
 According to the European Comm unities, the United States has presen ted no credible evidence to 
suggest that the sharply rising trend evident in the chart will change in the near future.   
 7.2092  We note that the data in Chart 16 represent orders by United States' customers, while the data 
in the Table 43 above represent orders by customers world-wide.  The LCA market is global in scope, 
and thus Boeing's LCA operating results in the Un ited States, which reflect the condition of the 
relevant domestic industry, include sales to custom ers world-wide.  Indeed, in response to a question 
from the Panel asking the extent to which the da ta presented by the United States includes results 
relating to sales for export, the United States stated that it had presented "data on economic factors and indices affecting the entire U.S. domestic indu stry" and went on to observe that the relevant 
domestic industry "includes U.S. production 'as a whole' of LCA products, including production for 
export".
5920  While the United States asserts that it has limited its injury claim to the impact of 
subsidized imports on the United States' market,5921 this appears to be reflected in the data only with 
respect to United States' sales (deliveries), market sh are and prices.  With respect to Boeing's financial 
results, the information presented by the United Stat es appears to relate to Boeing's world-wide LCA 
sales.  While the United States has calculated sa les volume on the basis of deliveries in the 
United States, the dollar amounts set out above in Ta ble 42 appear to reflect world-wide sales.  We 
see no impediment to conducting our analysis of in jury on the basis of the data presented which 
reflects global sales of LCA, as we agree that we are to consider the United States' domestic industry 
"as a whole" in our analysis.   
                                                      
5919 EC, FWS, para. 2164. 
5920 US, Answer to Panel Question 239, para. 83. 
5921 US, Answer to Panel Question 239, para. 83. WT/DS316/R 
Page 1014 
 
BCI deleted, as indicated [***] 
 
 7.2093  The European Communities argues that Boeing is  the dominant player in terms of market 
share, calculating market share on the basis of orde rs for LCA.  The following charts summarize the 
European Communities' position with respect to market share:5922   
Chart 17:  Airbus United States' Orders a nd Market Share, Single-Aisle LCA, 2001 - 20065923 
 
050100150200
2001 2002 2003 2004 2005 2006Single-aisle LC A
0%10%20%30%40%50%60%70%
U.S. Market Shar e
LCA
Orders
Market
Share
 
 
 
Chart 18:  Airbus United States' Orders and Market Share, 200-300 Seat LCA, 2001 - 20065924 
 
0102030405060
2001 2002 2003 2004 2005 2006200-300 seat LCA
0%10%20%30%40%50%60%70%80%90%100%
U.S. Market Share
LCA
Orders
MarketShare
 
 
 
                                                      
5922 The European Communities also presented a series of tables setting forth the number of US orders 
of Boeing and Airbus LCA, counted by seats, and fo r each of the product market s the European Communities 
had defined.  EC, FWS, paras. 2168-2172.  We understand the charts reproduced in the text to be a different 
presentation of the same data, and thus do not discuss the seat-based information separately.   
5923 EC, FWS, para. 2252. 
5924 EC, FWS, para. 2253.  WT/DS316/R 
 Page 1015 
 
BCI deleted, as indicated [***] 
 
 Chart 19:  Airbus United States' Orders and Market Share, 300-400 seat LCA, 2001 - 20065925 
 
01234
2001 2002 2003 2004 2005 2006300-400 seat LCA
0%10%20%30%40%50%60%70%80%
U.S. Market Share
LCA
Orders
MarketShare
 
 
 7.2094  While we have carefully considered the in formation and arguments of the European 
Communities in this regard, we conclude that in formation on orders disaggregated by market 
segments is not probative on the issue of market share in this case.  As we have previously discussed 
in the context of displacement or impedance, we consider that deliveries are the more appropriate 
basis for consideration of market share.
5926   In addition, Boeing's financial performance is to a large 
extent linked to deliveries, when the bulk of revenu es are recorded, and which reflect orders during an 
earlier period.  Thus, in our view, information c oncerning deliveries is more relevant in assessing 
changes in the share of the United States' market held by Boeing and Airbus during the period in the 
context of considering current material injury, as Boeing's performance will reflect in large part those 
deliveries.  We consider the information on orders further below, in the context of our assessment of 
threat of material injury.  The European Commun ities also presents information on global orders for 
LCA in the product markets it has defined, and on the basis of total seats in charts at paragraphs 2173-
2178 of its first written submission.  However, we do not find this information to be of relevance to 
our consideration of market share in the context of injury, which we consider is appropriately limited 
to share of the United States' market, and not share of the global market. 
7.2095  With respect to output, the European Comm unities presents information concerning global 
deliveries of LCA on the basis of the number of seats, rather than numbers of LCA, as well as the 
information concerning production volumes set out in the consolidated Table 43.5927  Measured on the 
basis of seats, the European Communities asserts that Boeing's production has increased.  The 
European Communities acknowledges that Boeing's LCA production was significantly below 2001 levels in 2006, but asserts that future deliver ies will reach and even exceed those levels.
5928  In this 
regard, the European Communities refers to Bo eing's year-end backlog, as well as its delivery 
schedule for existing LCA orders, as of 31 Dece mber 2006.  Based on the latter, the European 
                                                      
5925 EC, FWS, para. 2254. 
5926 See, paras. 7.1745 - 7.1750 above. 
5927 The European Communities notes that the production figures it reports are slightly above those 
reported by the United States, by be tween 4 and 10 LCA in each period, but acknowledges that this does not 
significantly affect the trend over the period 2001-2006.  EC, FWS, footnote 2216. 
5928 EC, FWS, para. 2182. WT/DS316/R 
Page 1016 
 
BCI deleted, as indicated [***] 
 
 Communities asserts that Boeing will make 421 or  more deliveries in each year 2007-2008, as 
indicated in the following chart: 
Chart 20:  Boeing Delivery Schedule for Ex isting LCA Orders, as of 31 December 20065929 
 
0100200300400500600
2007
20082009 2010 2011 2012 2013
2014
2015
2016
UnknownUnits - LCA
Single-Aisle 200-300 seat 300-400 seat 400-500 seat
 
 
The European Communities considers that this in formation demonstrates that Boeing's production has 
increased, and will continue to increase.  We note that this information does not address production levels during the period we are considering, which the European Communities acknowledges were 
lower in 2006 than in 2001.  Rather, this informa tion relates to periods after 2006, and we consider 
that to the extent that it is relevant, it pertains to  the question of threat of material injury, which we 
address below.   7.2096  The European Communities contends that there is  no actual or potential decline in Boeing's 
profits, which it asserts have increased in both absolute terms and as a ratio to sales each year over 
every prior year, from 2001 to 2005.
5930  However, the European Communities information shows a 
significant decline in Boeing's net earnings from 2001 to 2003, with a slight improvement in 2004, 
and significant improvement in 2005 and 2006.5931   
 
                                                      
5929 EC, FWS, para. 2183. 
5930 EC, FWS, para. 2188. 
5931 EC, FWS, paras. 2162 (table), 2189 (table).  WT/DS316/R 
 Page 1017 
 
BCI deleted, as indicated [***] 
 
 Chart 21:  Boeing Net Earnings and Operating Margins, 2001 - 20065932 
02505007501,0001,2501,5001,7502,0002,2502,5002,750
2001 2002 2003 2004 2005 2006Net Earnings ($ millio n
0.00%1.00%2.00%3.00%4.00%5.00%6.00%7.00%8.00%9.00%10.00%
Operating Margi
Net
Earnings
Operating
Margin
 
 
 The European Communities contends that increased  deliveries have driven the increase in net 
earnings in 2004-2006, and not, as the United States argues, increased productivity, pointing to Boeing filings with the US Securities and Exchange  Commission (SEC) and statements to investors 
that increased net earnings in 2005 were due in  large part to increased deliveries of LCA.
5933  The  
European Communities also points to substantial increases in Boeing's operating margins (earnings as 
a ratio to sales) from both 2001 and 2004 to 2006, without commenting on the substantial decline in that margin from 2001 to 2004 (from 5.45 percent to 3.6 percent).
5934  The European Communities 
presents the following data on historic operating margins:  
                                                     
 
5932 Boeing LCA Division Economic Data for 1995 – 2006, Exhibit EC-240.  2006 figures are 
estimated. 
5933 EC, FWS, para. 2188, Exhibits EC-242, 266. 
5934 EC, FWS, para. 2190. WT/DS316/R 
Page 1018 
 
BCI deleted, as indicated [***] 
 
 Chart 22:  Boeing Operating Historic Operating Margin, 1995 – 3rd Quarter 20065935 
 
-8.00%-7.00%-6.00%-5.00%-4.00%-3.00%-2.00%-1.00%0.00%1.00%2.00%3.00%4.00%5.00%6.00%7.00%8.00%9.00%10.00%
1995
1996 1997
1998 1999 2000
2001
20022003 2004 2005 2006Ope r at i ng Ma r
 
 
The European Communities considers Boeing's performan ce to be impressive in light of its expenses 
during this period, notably those related to the launch and development of  the 787 LCA in 2004, and 
the 747-8, the 737-ER, and the 777 freighter vers ion.  The European Communities suggests that 
Boeing had only begun to recoup development co sts for earlier LCA in 2005, when it launched the 
latter two LCA, and contends that is "financial  strength " permitted it to undertake these massive 
expenditures while preserving growing profits.5936   We note, however, that with the exception of the 
787, these are all variants of existing Boeing LC A, and thus do not entail the same level of 
development expense as an entirely new LCA model.  7.2097  The European Communities asserts that Boeing's re turn on investments, considered as return 
on assets,
5937 has more than doubled since 2004 and has in creased substantially compared to every 
prior year since 2001.  The European Communities ta kes issue with the Unite d States' calculation of 
return on assets, which included a share of Boei ng corporate assets allocable to Boeing's LCA 
Division.5938  The European Communities asserts that re turn on assets is commonly measured as net 
earnings or operating income divided by assets.  The European Communities calculated return on 
assets by dividing the LCA Division' s net earnings, as reported in Boei ng's 10-k filings with the US 
                                                      
5935 EC, FWS, para. 2190.  The European Communities notes that Boeing merged with McDonnell 
Douglas in 1997, and the table includes the combined Boeing and McDonnell Douglas revenue and net earnings 
for 1995 and 1996 as provided in the Boeing 1997 10-K; 2001 and 2002 figures based on 2003 restatement of net earnings for those years.  Id. footnote 2242. 
5936 EC, FWS, para. 2191. 
5937 The United States agreed that re turn on assets is the most reas onable measurement of the US LCA 
industry's return on investments.  US, Answer to Panel Question 242, para. 98. 
5938 EC, FWS, para. 2195, referring to US, FWS, footnote 935.    WT/DS316/R 
 Page 1019 
 
BCI deleted, as indicated [***] 
 
 SEC, by the value of LCA Division assets, also re ported in Boeing's 10-k fi lings, thus excluding 
entirely Boeing corporate assets.  Based on its methodology, the European Communities estimated 
Boeing's 2006 estimated return on assets as 28.2 percent, a 175 percent increase over 2004 and a 
77 percent increase over 2001.5939  According to the European Communities, based on predicted 
increases in deliveries and net earnings, Boeing's re turn on LCA assets should continue to increase.5940  
To the extent the European Communities relies on th is predicted increase, we note that it is more 
relevant to a consideration of threat of  injury, which we discuss further below. 
7.2098  In response to a question from the Panel, the United States argued that since Boeing's 
corporate investments do not represent a separate profit center, but rather support the company's 
operations in each of the different industries in whic h it is active, it is appropriate to include a portion 
of those assets in determining Boeing's return  on assets in the context of its LCA operations.5941  
However, the United States concluded that the basi c trend was similar whether the United States' or 
the European Communities' methodology was used, and therefore suggested the Panel need not decide 
which method was more accurate for purposes of this dispute.5942  The European Communities agreed 
that this disagreement over methodology in cal culating return on assets is "of no practical 
consequence."5943  Under either calculation, Boeing's retu rn on LCA assets increas ed each year since 
2003, and therefore we do not consider it necess ary to opine on the choice of methodology. 
7.2099  The European Communities suggests that Boeing opera ted at or near total capacity in the last 
three years of the period, which the European Communities defines at production at or near its 
delivery forecast.  The European Communities notes the United States' calculation of capacity 
utilization in 2005 of [***] percent, and argues that this is impo ssible to reconcile with the evidence 
that Boeing was sold out during 2005 and 2006, turn ing away orders, had met (or nearly) its delivery 
forecasts, and had a substantial order backlog.5944  The European Communities maintains that the 
United States based its calculation on a historical figure from a period of unus ually high production in 
1999, with no explanation, and that this is not an  appropriate basis for calculating capacity utilization 
in 2005-2006.  The European Communities also  considers that the United States' figure 
inappropriately aggregates production lines for diff erent LCA, while the European Communities 
contends that these are not fungible.  Thus, the Eu ropean Communities contends that its calculation, 
based on delivery forecasts adju sted to year to year changes is more meaningful.5945 
7.2100  With respect to "capacity utilization," the parti es do not appear to disagree on the basic fact 
that in the LCA industry, production capacity is planned and established years in advance based on 
actual orders and anticipated demand.  As the European Communities recognizes, "{c}apacity is a 
more complex concept in the LCA industry than in many other industries because it cannot be based 
on machine rated capacity or factory floor bottlenecks."5946  The United States maintains that Boeing 
determines its production levels, a nd consequently capacity over the medium term, based on the level 
of orders it has received and expects to receive.5947  The United States contends that because Boeing 
received fewer orders for deliveries of LCA after 2001, it reduced employment and other factors of 
production, but did not reduce its "basic capacity to produce LCA at prior levels".5948  Thus, the 
                                                      
5939 EC, FWS, para. 2196. 
5940 EC, FWS, para. 2197. 
5941 US, Answer to Panel question 240, para. 89. 
5942 US, Answer to Panel question 240, para. 90. 
5943 EC, Comments on US Answer to Panel Question 242, para. 230. 
5944 EC, FWS, paras. 2207-08. 
5945 EC, FWS, para. 2210. 
5946 EC, FWS, para. 2198. 
5947 US, Answer to Panel Question 210, paras. 226-231; US Comments on EC, Answer to Panel 
Question 210, paras. 291-296. 
5948 US, Answer to Panel Question 240, para. 92. WT/DS316/R 
Page 1020 
 
BCI deleted, as indicated [***] 
 
 United States considers it appropriate to assess Boeing's capacity utilization as actual production 
divided by Boeing's historic actually attained cap acity level.  The European Communities contends, 
on the other hand, that because Boeing did not produce aircraft beyond the number of orders and reduced the number of planned delivery slots in anticipation of fewer deliveries, its capacity 
utilization should be defined as actual production divi ded by the number of planned delivery slots.
5949 
7.2101  In our view, because LCA manufacturers gene rally produce only in response to orders 
received or expected to be received, the Eur opean Communities' methodology for determining 
"capacity utilization" would generally produce a fi gure approaching 100 percent regardless of what 
was occurring in the market to which the manufacturer  was reacting and the reasons for any decline in 
production.  Thus, on the whole we consider that the United States' methodology is more appropriate 
for evaluating capacity utilization.  It is clear th at Boeing reduced both LCA production levels and the 
number of scheduled LCA delivery slots, compared to historic levels, and thus that its utilization of 
capacity declined from 2001 to 2003, and increased th ereafter, albeit not to the level recorded in 
2001.5950   
7.2102  The European Communities contends that Boeing is not experiencing any negative effects on 
cash flow, asserting that not only is 2006 cash flow higher than every prior year since 2001, but the 
rising trend of net earnings suggests that it will  continue to grow.  Moreover, the European 
Communities considers that even if large capita l expenditures reduced cash flow, it would not 
necessarily be a sign of economic distress, as it might indicate investment in Boeing's future.5951  The 
European Communities also maintains that rising trends in Boeing's performance indicate that its 
performance will continue to be strong, with growth  in output likely, indicating no actual or potential 
negative effects on growth.5952  With respect to its ability to rai se capital or investment, the European 
Communities contends that Boeing is strong, improve d relative to 2004, and anticipated to strengthen 
further.5953  In support, the European Communities points to  growth to record levels of Boeing's share 
price 2004-2006, and its high, albeit not top-of-t he-scale, credit ratings, which have improved 2004-
2006.5954 
7.2103  The European Communities maintains that no act ual or negative effects on employment have 
been "conclusively established."5955  The European Communities notes that Boeing employment – 
measured as the number of full-time employees of Boeing's LCA division, excluding executives and 
contract labour – increased from 2004-2006.5956  The European Communities considers that the 
United States' reliance on the decline in employment between 2001 and 2005 is of no value in 
assessing material injury, because employment declin es since 2001 are due in large part to Boeing's 
restructuring, cost cutting, and outsourcing effo rts.  With respect to wages, the European 
Communities asserts that it is not possible to determ ine wages per employee on the basis of available 
information, and that the total wage information relied on by the United States is uninformative and, 
at worst, misleading, as a basis for assessment of  injury.  The European Communities asserts that 
given the evidence that wages per employee have  increased significantly over this period, the 
                                                      
5949 EC, FWS, paras. 2162, 2198-2210. 
5950 This total capacity was reduced for 2006 to refl ect the closure of Boeing's 757 production facilities 
in 2005.  US, Answer to Panel Question 238, para. 81, footnote 105 
5951 EC, FWS, para. 2212. 
5952 EC, FWS, para. 2215. 
5953 EC, FWS, para. 2216. 
5954 EC, FWS, paras. 2216-17 (and tables).   
5955 EC, FWS, heading preceding para. 2221. 
5956 EC, FWS, para. 2221.  The European Communities notes that the figures on which it relies, taken 
from Boeing's website, Exhibit EC-515, do not precisely match the figures provided by the United States in its first written submission, but that this discrepa ncy varies per year upward or downward by [***] and does not 
substantially affect the trend.  Id., footnote 2296.  WT/DS316/R 
 Page 1021 
 
BCI deleted, as indicated [***] 
 
 explanation for a substantial declin e in total wages paid must be a decline in employment, which is 
consistent with Boeing's efficiency initiatives and outsourcing.  But in this context, the European 
Communities contends that neither employment or wage information is of any utility for assessing 
material injury.   
7.2104  As we noted at the outset of our analysis, we are undertaking a two-step analysis of the issue 
of injury.  Turning to our assessment of the condition of the United States' LCA industry, we note that 
the trends in the data presented by the two parties show largely the same picture, although the parties 
emphasize different aspects, and draw different in ferences and conclusion.  For the most part, the 
European Communities does not dispute the figures presented by the United States, but relies on the 
data it has presented in making its arguments, whic h the United States similarly does not dispute for 
the most part.  With respect to the operating perfo rmance of Boeing's LCA division, we see no reason 
not to accept the information presented by both pa rties as accurate, and address differences where 
relevant.  Although neither party has explicitly refe rred to the conditions of competition in the United 
States' market, we consider the discu ssion set out elsewhere in our report5957 reflects conditions of 
competition in the United States' market.   
7.2105  In general, the information presented by both parties demonstrates that Boeing's condition 
deteriorated significantly from 2001 to 2003, and thereafter improved, with significantly better 
performance in 2006, albeit not at the levels reported for 2001 for all factors.  As we have indicated, 
we have focussed our assessment on Boeing's pe rformance during the period 2001-2006, which we 
consider to be an appropriate period as a basis for reaching conclusions in the context of our analysis 
of injury.   
7.2106  With respect to sales of LCA, the European Communities reports sales in terms of the number 
of LCA ordered.  For our analysis, the dollar sales figures reported by the United States are more pertinent to a consideration of the condition of  the United States' LCA industry.  Aircraft 
manufacturers earn the bulk of the revenue on a sale not at the time the aircraft are sold, i.e., ordered, 
but at the time of delivery.  Thus, the operati ng performance of the manufacturer at any given time 
will not reflect the anticipated revenues attributab le to LCA already ordered but not yet delivered.
5958  
However, the strength of a manufacturer's order book is important in assessing its overall condition, 
as it provides indications as to the future performance of the company,  which is likely to be reflected 
in such factors as its share price and credit rating.  In this respect, while these are not factors set out in 
Article 15.4, we note and consider relevant the undisputed information presented by the European 
Communities which reflects significant increases in Boeing's share prices from 2004 to 2006, and 
industry-leading credit ratings from Moody's, Standard & Poor's and Fitch. 5959   
7.2107  It is clear from the information before us th at Boeing suffered significant declines in sales 
from 2001 to 2004.  Sales improved slightly in 2005 , and then improved more significantly in 2006, 
although they remained well below the levels re ported for 2001.  Capacity utilization followed a 
similar trend, declining significantly from 2001 to 2003, and increasing annually thereafter.  Boeing's 
operating income showed a slightly different tre nd, increasing slightly from 2001 to 2002, before 
dropping precipitously to less than half the 2002 le vel in 2003, improving slightly in 2004, almost 
doubling in 2005, and increasing significantly in 2006.  Operating margins, presented by the European 
Communities and not disputed by the United States, showed a similar trend, improving from 2001 to 
2002, before dropping by more than half in 2003, im proving slightly in 2004, almost doubling in 
2005, and improving significantly in 2006.  The United States attributes the improvement in 2002 to 
                                                      
5957 See, Section VII.F.6 of this Report above. 
5958 In addition, orders for LCA, if ultimately delivered, represent future production and revenues, 
although that is a consideration more relevant to the question of threat material injury.   
5959 EC, FWS, paras. 2216-17. WT/DS316/R 
Page 1022 
 
BCI deleted, as indicated [***] 
 
 cost-cutting efforts and improvements in productivit y.  However, the data presented by the United 
States on productivity does not, in fact, show gains until 2004, when productivity  (unadjusted for the 
changes in Boeing's accounting methodology in  2006) was above that reported for 2001, and 
continued to improve in 2005, and substantially in  2006.  While we recognize, as does the European 
Communities, that Boeing engaged in significant cost-cutting efforts during this period, and 
particularly during 2001-2004, the United States ha s not presented data on those efforts, with the 
exception of information showing continuing and sign ificant declines in wages and employment since 
2001.  In our view, cost-cutting efforts do not in them selves reflect injury to an industry, and thus the 
declines in wages and employment undertaken to cut costs and improve production efficiency 
similarly do not necessarily indicate that the industry is injured. 
7.2108  Information on return on assets presented by the parties shows the same trend as operating 
income, improving slightly from 2001-2002, then dec lining precipitously in 2003, improving slightly 
in 2004, more notably in 2005, and almost doubling in 2006.5960  With respect to cash flow, the parties 
presented very similar information, with the exception of 2006.  That data shows a slight decline from 
2001 to 2002, then a collapse to less than half the 20 02 level in 2003, a further decline in 2004, and a 
significant improvement in 2005.  For 2006, the Un ited States' data shows in increase of 57 percent, 
while the European Communities data  shows an increase of just over 100 percent.  The United States 
did not comment on this discrepancy when given the opportunity to do so, and we therefore are not in a position to reconcile it.
5961   
7.2109  We recognize that wages and employment declin ed steadily throughout the period, ending at 
levels just slightly above half those reported in 2001.  However, this decline clearly reflects the 
significant cost-cutting and efficiency programm es instituted by Boeing, as well as increased 
outsourcing, which as we noted, do not necessarily i ndicate that the industry is injured.  The United 
States does not dispute the European Communities' argument that declines in employment and total 
wages reflect Boeing decisions to increase efficiency and reduce costs by, inter alia , significantly 
decreasing its workforce.  Indeed, the United Stat es noted that "Boeing has remained competitive 
despite its loss of market share in its home market and depressed prices, particularly in the downturn, 
by cutting costs and improving productivity."5962  The United States went on to assert that despite the 
"recovery in the financial health of Boeing", employment did not increase.5963  In our view, this fact 
does not support the conclusion that Boeing is injured,  but rather, indicates that the cost-cutting efforts 
of Boeing have had the desired effect of impr oving Boeing's performance, allowing it to record 
significant improvements in its financial condition. 
7.2110  As noted, the declines in Boeing's performance happened during the early part of the period 
we are considering, principally in 2002 and 2003, and the condition of the industry improved 
significantly thereafter.  The United States argues that the improvements must be viewed in the 
context of unusually high demand in 2005 an d 2006, and asserts that Boeing has remained 
competitive despite lost market sh are in the United States' market  and depressed prices, by cutting 
costs and improving productivity.5964  While we do not disagree with the United States' assertion, we 
consider it to be of little weight in terms of de termining whether the United States' LCA industry is 
materially injured.  The parties agree that the LC A industry is strongly affected by cyclical demand 
conditions.  Merely because  improved performance occurs at a time of increased demand does not 
                                                      
5960 As discussed above, this trend is the same whether the calculation is that made by the 
United States, or by the EC.  We do not rely on the absolute levels reported, and thus the difference in the absolute values in question is of no consequence to our analysis. 
5961 US, Answer to Panel question 240, para. 85 ("areas of agreement include ... cash flow"). 
5962 US, SWS, para. 737. 
5963 US, SWS, para. 737. 
5964 US, SWS, para. 737.  WT/DS316/R 
 Page 1023 
 
BCI deleted, as indicated [***] 
 
 mean we cannot conclude that the improved perform ance reflects a lack of ma terial injury to the 
industry.  The United States argues that any injury  resulting from decreased demand is distinguishable 
from the injury resulting from subsidized imports, asserting that if Boeing's market share had 
remained at the 2002 level through 2005, Boeing would have delivered significantly more aircraft, 
and had significantly higher sales.5965  However, this is an argument relating to other factors 
which may be causing injury, and does not directly  address the question whether the condition of the 
United States' LCA industry reflects material injury.   
7.2111  Having reviewed the evidence and arguments of  the parties, we conclude that overall, 
Boeing's performance in 2006, and in 2005 with respect to a number of factors, reflects significant 
improvement over the earlier part of the period.  Wh ile it is true that the levels reported in 2006 for 
production, capacity utilization, sales, and cash fl ow were lower in 2006 than in 2001, figures for 
operating income, and return on assets not only improve d after the early declines, but were well above 
the levels reported in 2001.  Productivity also  showed significant improvement after the early 
declines, and was well above the 2001 level in 2006.  The data demonstrate that following the 
collapse of demand in the LCA market after the events of 9/11, Boeing's performance began to 
recover in 2004, and by the end of the period we ex amined, it was operating at levels which, in our 
view, do not warrant a finding that the United States ' domestic industry producing LCA is materially 
injured. 
7.2112  Having concluded that the United States' LCA i ndustry is not materially injured, we do not 
consider it necessary to make findings on the question of whether subsidized imports, in view of their 
volumes and effects on prices, and consequent impact  on the domestic industry, are causing material 
injury.  As previously discussed, and in the absence of any disagre ement between the parties on this 
approach, we have concluded that a two-step analysis  is appropriate in this dispute, and are applying 
that methodology.  Nonetheless, we will go on to discuss below the principal evidence and arguments 
concerning import volume, effects on prices, and causal link, in order to establish a factual basis for 
further consideration of that issue, should it become  necessary in the context of an appeal of our 
decision.   
Volume of subsidized imports  
7.2113  With respect to the volume of subsidized  imports, Article 15.2 of the SCM Agreement 
requires consideration of "whether there has been a significant increase in subsidized imports, either 
in absolute terms or relative to productio n or consumption in the importing Member." 
7.2114  The United States provided the following informat ion concerning the volume of subsidized 
imports:5966 
Table 44 – Quantity of LCA delivered in the United States' market  
 
  
2001  
2002  
2003  
2004  
2005  
2006 
 Airbus  
122  
91  
60  
60  
71  
61 
 Boeing  
280  
126  
75  
88  
78  
81 
total 402 217 135 148 149 142 
 
                                                      
5965 US, FWS, para. 748.   
5966 US, SWS, para. 731, table 3. WT/DS316/R 
Page 1024 
 
BCI deleted, as indicated [***] 
 
 Table 45 – Market share (quantity of LC A delivered) in United States' market  
 
 
  
2001  
2002  
2003  
2004  
2005  
2006 
 Airbus  
30%  
42%  
44%  
41%  
48%  
43% 
 Boeing  
70%  
58%  
56%  
59%  
52%  
57% 
 Table 46 – Market share of United States' market by value (list price)
 
 
 
  
2001  
2002  
2003  
2004  
2005  
2006 
 Airbus  
28%  
34%  
44%  
50%  
53%  
49% 
 Boeing  
72%  
66%  
56%  
50%  
47%  
51% 
 7.2115  The European Communities does not dispute the in formation presented by the United States.  
Nor does the European Communities present any information or make any arguments regarding the 
volume of subsidized imports per se .  To the extent the European Communities presents information 
on orders for Boeing and Airbus LCA in the United St ates' market, and the consequent "market share" 
represented by those orders, this information does no t, in our view, provide any basis for drawing 
conclusions concerning the volume of imports.   
7.2116  We have previously concluded that, in the c ontext of consideration of displacement or 
impedance under Article 6.3, consid eration of deliveries is more rele vant than information concerning 
orders.
5967  We take the same view with respect to consideration of the volume of imports in the 
context of injury under Article 5(a).  Based on the plain meaning of the text of Article 15.1, 15.2, 
15.4, and 15.5, those provisions all require consid eration of subsidized imports.  In view of the 
ordinary meaning of the term "import", as previously discussed,5968 we consider that a focus on 
deliveries is appropriate, and we therefore consider  the information provided by the United States 
concerning deliveries, which the European Communiti es does not dispute, to be the most directly 
relevant and probative information for considering the volume of subsidized imports.  In our view, 
data about orders for LCA has li mited relevance to the consideration of the volume of subsidized 
imports required by Article 15.2 of the SCM Agreem ent.  Moreover, while order information gives a 
good indication of the likelihood of future impor ts, orders for LCA, even firm orders, do not 
necessarily result in actual deliveries.  In addition, orders may result in delive ries years later, and if 
placed by a leasing company, may result in deliveries to a country other than the country of that 
ordering company, and never actually be imported into the country of that company.  Thus, we 
conclude that consideration of whether there "has been a significant increase in subsidized imports, 
either in absolute terms or relative to produc tion or consumption in the importing Member" as 
required by Article 15.2, should focus on the numbe r of Airbus LCA actually delivered into the 
United States.   
7.2117  Moreover, we have rejected the European Communities' view that we should focus our 
analysis on separate product categories.5969  Thus, even were we to consider the information presented 
                                                      
5967 See, para. 7.1748 above. 
5968 See, para. 7.1747 above. 
5969 See, para. 7.1680 above.  WT/DS316/R 
 Page 1025 
 
BCI deleted, as indicated [***] 
 
 by the European Communities with respect to orders to be relevant, we would only consider it to the 
extent it is related to orders for all LCA.  The European Communities does present a table setting 
forth United States' orders of Boeing and Airbus LCA, by seats.5970  As we understand it, this 
information does not count units of LCA, but rath er the total number of seats represented by the units 
of LCA ordered.  Again, as this information c oncerns orders, we do not find it probative on the 
question of the volume of actual im ports of Airbus LCA into the Un ited States.  Moreover, while in 
principle the number of seats might be a relevant basis for aggregating information across different 
models of LCA, the European Communities has provided no explanation how this information 
describes the volume of imports of LCA into the Un ited States – at best it describes the volume of 
LCA seats ordered by United States' customers, including US-based leasing companies, for delivery 
at some time in the future to unspecified locations .  It is less than clear to us, and the European 
Communities provides no explanation of, how this in formation informs consideration of the volume 
of imports into the United States during the period we examined.   
7.2118  Finally, the European Communities presents in formation on the volume  of LCA ordered over 
the period 2001-2006 by seats, and by number of  LCA for four product categories, on a global 
basis.5971  We do not consider this information to be probative on the question of the volume of 
imports for the same reasons as set out above.  In ad dition, and more importantly, we do not consider 
information about global market share to be relevant to the question of imports into the United States, 
or more generally, to analysis of the United Stat es' market for purposes of analysing injury to the 
United States' LCA industry.  Therefore, we base our consideration of the volume of imports on the 
data presented by the United States. 
7.2119  Measured in terms of number of aircraft delivered, imports of Airbus LCA declined 
significantly during the period for which we have data.  However, the to tal number of aircraft 
delivered in the United States' market during this pe riod also declined significantly, from 402 in 2001 
to less than half that many in 2006.  In the cont ext of this decline, we consider that that the 
information on market share gives a better unders tanding of the market, representing the volume of 
imported Airbus LCA relative to  domestic consumption.   
7.2120  In terms of market share, imports of Ai rbus LCA increased over the period we are 
considering, notably from 2001 to 2003, increasing by  14 percentage points during that period, then 
declined slightly in 2004, increased in 2005, and declined again in 2006, ending with a 43 percent 
share of the market, 13 percentage points higher than  in 2001.  The information on market share by 
value, calculated by list price, we consider to be  of little weight, as the parties are agreed that list 
prices of LCA are not a realistic indicator of the value of the aircraft actually ordered and 
delivered.5972  Given that there are only two producers, ever y gain in market share in the United States' 
market by Airbus represents a commensurate loss of  market share by Boeing.  Thus, although the 
number of imported Airbus LCA delivered into the United States' market decl ined, the market share 
represented by those imports increased significantly,  from 30 percent in 2001 to 43 percent in 2006, 
an increase in market share of more than 40 percent over the period.  Most of that increase, however, 
occurred from 2001 to 2003, during wh ich period Airbus' market share increased from 30 percent to 
44 percent, or by 47 percent. 
                                                      
5970 EC, FWS, paras. 2168, 2169-2172. 
5971 EC, FWS, paras. 2173-2178. 
5972 We note that the market share by value inform ation presented by the United States shows Airbus' 
market share increased steadily from 2001 to 2005, from 28 percent to 53 percent, and then declined in 2006 to 
49 percent, while Boeing's market share declined overall correspondingly.  US, SWS, para 732 table (C).  This 
largely tracks the changes in market sh are by volume, suggesting, as the US ar gues, that the proportion of higher 
and lower value LCA sold by the two companies was relatively similar at any given time.  US, FWS, para 734.   WT/DS316/R 
Page 1026 
 
BCI deleted, as indicated [***] 
 
 Price Effects of Subsidized Imports  
7.2121  Article 15.2 of the SCM Agreement requires that, with respect to "the effect of the subsidized 
imports on prices," considera tion must be given to:  
"whether there has been a significant pri ce undercutting by the subsidized imports as 
compared with the price of a like product of the importing Member, or whether the 
effect of such imports is otherwise to depress prices to a significant degree or to prevent price increases, which otherwise woul d have occurred, to a significant degree." 
 7.2122  The United States observes that "the record does not contain comparable LCA pricing data for 
all U.S. sales," and seeks to demonstrate on the basi s of public information that Airbus achieved its 
growth in the United States' market by undercutting Boeing on price, and that the subsidized imports 
have depressed or suppressed prices.
5973  With respect to its allegations of price undercutting, the 
United States presents anecdotal evidence regarding the sales of Airbus LCA to JetBlue, Frontier and 
America West Airlines, accounting for nearly 40 percent of Airbus deliveries during 2001-2005.  The 
United States notes that all three of these airlines placed their first orders for Airbus LCA in 1999, and 
then made substantial additional follow-on orders with Airbus through 2005, which the United States 
considers to be losses stemming from the earlier sal es campaigns, and which are reflected in lost 
market share to Boeing.5974  The United States asserts that  in each case, Boeing was a strong 
competitor for the initial order, and that while the act ual price that each airline paid to Airbus, taking 
into account all concessions on the sale, is not ava ilable to the United States, publicly available 
information indicates that Airbus price undercutting played a key role in its winning these 
customers.5975  The United States also contends that Boeing lost the "most significant" sales 
campaigns in the United States' market during 2 001-2005 due to price undercutting by Airbus, citing 
in this regard a statement by the head of Virgin  America following the purchase (including options) of 
nearly 100 LCA that while there were "very co mpelling proposals" from both manufacturers, the 
airline was "pleased with the favourable economic terms" received from Airbus.5976 
7.2123  The European Communities does not specifically  address the United States' contentions of 
price undercutting in responding to the United Stat es' claim of injury.  Instead, the European 
Communities "incorporates and references all of  the evidence and argument refuting the United 
States' serious prejudice claims".5977  Thus, the European Communities apparently considers that the 
Panel should revisit this informati on and determine for itself in what respect it is relevant and/or 
probative as a response to the specific allegations of the United States in the context of injury.  We 
consider this method of presenting its case to be le ss than satisfactory, as it leaves the Panel uncertain 
as to the specific arguments th e European Communities seeks to make and which evidence it would 
rely upon in response to the specific arguments and information presented by the United States in support of its claims of price undercutting by subs idized imports in the United States' market.  
Moreover, in the context of injury, as discussed, we are considering the effects of subsidized imports 
on the United States' LCA industry, rather than consid ering the effects of the subsidies themselves, as 
we are in the context of serious prejudice.  Thus, it is not entirely clear how the European 
Communities' arguments in the context of serious prejudice are apposite to the analysis of injury.
  
Nonetheless, we have reviewed the arguments and information referred to by the European Communities, focussing on the specific sales relied upon by the United States in support of its claim 
of price undercutting, involving Jet Blue, Frontier, America West, and Virgin America. 
                                                     
 
5973 US, FWS, para. 737. 
5974 US, FWS, para. 737. 
5975 US, FWS, paras. 738-740. 
5976 US, FWS, para. 740. 
5977 EC, FWS, para. 2250.  WT/DS316/R 
 Page 1027 
 
BCI deleted, as indicated [***] 
 
 7.2124  The European Communities addresses the sales to  Jet Blue, Frontier, America West, and 
Virgin America in the context of its argument that subsidies to A320 model LCA did not cause 
significant lost sales of Boeing 737 aircraft, and di d not have significant price undercutting effects.5978  
The European Communities argues that the Unit ed States has the burden of proving in each 
challenged sales campaign that the magnitude, nature, and age of the subsidies at that point in time 
caused Airbus A320 family prices to be significan tly lower than Boeing's price.  The European 
Communities asserts that a lower winning price does not equal "significant price undercutting" or even "undercutting," and that it is not sufficient if Airbus' winning prices were lower than Boeing's 
last offer.  In the European Co mmunities' view, only if Airbus' winning lower price is significantly 
lower and that significantly lower price is caused by  subsidies that the United States can prevail on its 
significant lost sales claims.
5979  
7.2125  The European Communities argues that "significant price undercutting" involves an objective 
assessment of whether the subsidies have caused Ai rbus prices to be significantly lower, and asserts 
that the United States has not met its burden in this regard.5980   The European Communities contends 
that the amount  of alleged A320 subsidies in each of these alleged lost sales was de minimis , and thus 
too small to provide Airbus sales personnel with sufficient funds to significantly lower  A320 family 
prices, that in some of these sales, Airbus' winning price was actually higher than Boeing's final offer 
and that there were other important non-price-re lated reasons why the company won the particular 
sale which break the causal link between the effects of subsidies and lower pricing.5981  The European 
Communities asserts that while price is a relevant cons ideration, particularly for low-cost carriers, it is 
only one of the many factors a customer will consider in determining the value  of a particular offer, 
and the decision of each customer on the value of an offer to sell is subjective, based on its own particular needs at the time.
5982  Finally, the European Communities asserts that by 2001-2006, any 
initial effects from the 1984 launch of the A320 were  dissipated by Boeing's 1993 launch of the 
737NG, and thus, the effects of the subsidies are attenuated.5983 
7.2126  The European Communities' arguments in this c ontext are concerned with demonstrating that 
the subsidies to A320 LCA did not cause the lost sal es in question, principally because those subsidies 
did not cause price undercutting.  The European Communities does not dispute that Airbus made 
these sales, and Boeing did not.  However, the Unit ed States does not rely on these "lost sales" as 
evidence of injury.  Rather, the United States relies on these sales as evidence of price undercutting by 
subsidized Airbus LCA.  The European Communities ar gues,  specifically with respect to the JetBlue 
sale in 19995984 and the Frontier Airlines sale in 2000,5985 that Airbus's price was not lower than 
Boeing's.  In both cases, the European Communities' contention is supported by public statements of 
airline officials, as is the United St ates' contention to the contrary.   
7.2127  The United States argues that in each case, Boei ng was a strong competitor for the initial 
order, which Airbus eventually won.  The Un ited States acknowledges that it has no information 
regarding the actual price that each airline paid to Airbus, taking into account all concessions on the 
sale, and thus relies on public statements.5986  For instance, with respect  to Frontier Airlines, the 
United States alleges that Boeing withdrew from the competition in the face of aggressive Airbus 
                                                      
5978 EC, FWS, paras. 1820-1873. 
5979 EC, FWS, para. 1821. 
5980 EC, FWS, para. 1824, 1826. 
5981 EC, FWS, para. 1827-29 
5982 EC, FWS, paras. 1831-1833, 2256. 
5983 EC, FWS, para. 1834. 
5984 EC, FWS, para. 1839. 
5985 EC, FWS, para. 1851. 
5986 US, FWS, para. 739. WT/DS316/R 
Page 1028 
 
BCI deleted, as indicated [***] 
 
 discounting, citing a remark by Boeing's CEO that: "T here are places where there is very intense price 
competition.  We've always said we're in business to make money, and if that gets too intense we 
don't go there – that's what happened at Frontier, for example."5987  The United States also points to  
the statement of Frontier Airline's chief financial o fficer in response to being asked whether Boeing's 
claims of Airbus's price undercutting were accura te: "We seem to be hearing that from people around 
us – we're pretty pleased."5988  The European Communities asserts that Frontier Airlines decided to 
order the A320 family LCA because of the product a dvantages of the Airbus aircraft, and not because 
of price.5989  It cites in this regard comments of Fron tier Airline's chief financial officer concerning 
improved operating economics and increased customer  comfort of the Airbus LCA, and concluding 
that "both operationally and from a marketing st andpoint," the airline was "excited" about the 
A320.5990  The European Communities also  points to HSBI in support of its contention that Airbus 
was forced to match Boeing's price in this sales campaign.5991 
7.2128  With respect to America West, the United Stat es cites W.A. Franke, the chairman of America 
West Holdings, who stated, concerning his company's October 1999 Airbus order, that the Airbus 
aircraft were "very competitively priced."5992  The European Communities argues that the United 
States incorrectly asserts that this was America W est's first Airbus purchase, noting that America 
West had already ordered nine A320s and 22 A319s in 1997,5993 and contending that this does not 
demonstrate that low prices were the ultimate reason for America West to buy the A320.   
7.2129  Finally, the United States cites JetBlue's CEO David Neeleman as stating that JetBlue "fully 
expected to choose the {Boeing} 737" until the low A320 price offered by Airbus got its attention.5994  
The European Communities points to different statements by Mr. Neeleman,5995  indicating that 
JetBlue ended up paying more than it woul d have, had it chosen the Boeing 737-80,5996 and  stating 
"{w}e bought the airplane for no other reasons than because it was the right product."5997  
7.2130  As we have previously discussed in the contex t of our analysis of price undercutting in the 
serious prejudice analysis, this type of anecdotal public evidence is of limited value in determining 
which manufacturer's LCA were lower priced, as oppo sed to determining which offer the customer 
considered to be of higher value to it overall.5998  While the evidence clearly indicates that price was 
an important element of these sales campaigns, the conclusion posited by the United States, that each airline, based on having monetized all elements of an offer, makes a purchase decision that will 
                                                     
 
5987 Chris Kjelgaard, Boeing's Condit Reveals Frontier Airbus Deal , Air Transport Intelligence 
(14 October 1999), Exhibit US-397. 
5988 Chris Kjelgaard, Frontier Plans to Complete Airbus Transition by 2005 , Air Transport Intelligence 
(18 October 1999), Exhibit US-398. 
5989 EC, FWS, para. 1850. 
5990 EC, FWS, para. 1850, citing Exhibit US-398. 
5991 EC, FWS, paras. 1851-52, citing Statement of Christian Scherer, paras. 105-106, Exhibit EC-14 
(BCI); Airbus [***]  data, Exhibit EC-425 (HSBI). 
5992 America West Places Orders for A318s, A320s , Aerospace Daily (22 October 1999), Exhibit US-
399. 
5993 EC, FWS, para. 1859.   
5994 Laurence Zuckerman, New Low-Fare Airline to Buy Airbus Industrie Jets , N.Y. Times 
(21 April 1999), Exhibit US-400. 
5995 EC, FWS, para. 1839. 
5996 "JetBlue CEO Delivers Baruch's Second Annual  Burton Kossoff Business Leadership Lecture," 
Baruch College, 7 March 2006, http://www.baruch.cuny.edu/news/DavidNeeleman-
BurtonKossoffBusinessLeadershipLectur e-EOC-Zicklin-News- BaruchCollege.htm  (visited 29 January 2007, 
Exhibit EC-276). 
5997 John Newhouse, Boeing versus Airbus  (1st ed., Alfred A. Knopf, 2007) p. 36, Exhibit EC-253.   
5998 See, 7.1833 - 7.1840 above.  WT/DS316/R 
 Page 1029 
 
BCI deleted, as indicated [***] 
 
 maximize its profitability in operating the LCA purch ased does not, in our view, demonstrate that the 
price of the LCA of the successful manufacturer undercut the competing manufacturer's price.   
7.2131  The European Communities also ar gues that several of these sales [***].5999  We do not see, 
and the European Communities makes no attempt to e xplain, how this responds to the United States' 
argument that these imports of Airbus LCA entered the United States' market at prices that enabled 
them to take sales that Boeing, as the only othe r manufacturer, would have made, thereby increasing 
Airbus' market share.  The [***] were negotiated at the time of the original sales, which we do not 
understand the European Communities to suggest [***].   
7.2132  With regard to its allegations of price depr ession, the United States asserts that the pricing 
pressures of the Airbus sales to Jet Blue, Frontier,  America West, and Virgin America affected the 
prices Boeing obtained on other sales in the United Stat es' market.  In support of this contention, the 
United Sates presented indexed average order prices,  net of all discounts and concessions, obtained by 
Boeing from its United States' sales of B 737 aircraft, reproduced in Chart 23 below.6000  The line in 
Chart 23 with diamonds indicating the data points represents the average actual prices for orders 
placed in each year of the 2001-2005 period, indexed to the 2001 price.  On the basis of the 
comparison, the United States asserts that  the average price for B737s fell by [***] through 2005.  
The United States asserts that US pricing for the 737 [***].6001 
7.2133  The United States also argues that downward trends  in market pricing led to Boeing having to 
reduce prices on undelivered aircraft for certain ma jor customers.  The line in Chart 23 with circles 
indicating the data points is asserted to show how  retroactive price decreases over the period have 
further lowered Boeing's actual prices. 6002   For example, the United States contends that Boeing was 
forced to reduce the price of B737s ordered in 2001 by [***] percent before those aircraft were 
actually delivered, and that adjusted pr ices for B737 aircraft ordered in 2005 were [***] percent 
below their original 2001 levels.6003  Moreover, to the extent that many of these aircraft have not yet 
been delivered, they remain subject to possible additional repricing. 
7.2134  The line with triangles indicating the data points in Chart 23 shows increases in the US 
Aircraft Manufacturing Producer Price Index (PPI), which rose by nearly 17 percent from 2001 to 2005.
6004  The United States asserts that, ordinarily, one would expect that producers would over time 
increase prices generally in line with increases in th eir costs.  The United States asserts that Chart 23 
shows, however, that Boeing has been unable to main tain its US pricing for B737s in line with cost 
increases, demonstrating price suppression. 6005 
                                                      
5999 EC, FWS, paras. 1844, 1846 [***] , 1855 [***] . 
6000 Exhibit US-616 (BCI).  The United States presen ted an earlier version of this information which 
did not contain data for 2006 in Exhibit US-444.   
6001 US, FWS, para. 741. 
6002 US, FWS, para. 742. 
6003 US, FWS, para. 742. 
6004 U.S. Department of Labor, Bureau of Labor Statistics Producer Price Index Industry Data: Aircraft 
Manufacturing 2001-2005 (as of 13 October 2006), available at http://data.bls.gov, Exhibit US-402. 
6005 US, FWS, para. 743. WT/DS316/R 
Page 1030 
 
BCI deleted, as indicated [***] 
 
 Chart 23 
 737 NG (-600/-700/-800/-900) in the U.S. LCA Market Indexed Boeing average orde r prices (based on order-year $s) compared to  
Aircraft Manufacturers Producer Price Index ("PPI") 
 
[***] 
 7.2135  Charts 24 and 25
6006 show price trend information for B747 and B777 sales in the 
United States' market.6007  Although the number of sales is small, the United States asserts that prices 
for the B747 [***], while prices for the B777 [***]. 6008 
Chart 24 
 747 in the U.S. LCA MARKET 
Indexed Boeing average orde r prices (based on order-year $s) compared to 
Aircraft Manufacturers Producer Price Index ("PPI")  
[***]  
 Chart 25 
 
777 in the U.S. LCA MARKET 
Indexed Boeing average orde r prices (based on order-year $s) compared to 
Aircraft Manufacturers Producer Price Index ("PPI")  
 
[***] 
 
7.2136  The United States asserts that the data in Charts 23 to 25 demonstrate that Boeing has 
experienced price depression (actual price decr eases) and price suppression (price increases lower 
than would otherwise occurred) for its United Stat es' LCA sales. The United States maintains that, 
given the evidence of aggressive Airbus prici ng in United States' sales campaigns, the price 
depression and price suppression shown in these figures are plainly attributable to the subsidized 
imports.
6009 
7.2137  The European Communities does not dispute the information on pricing in the US market 
presented by the United States.  Nor does it present an y additional or different information concerning 
price levels in the US market.  Rather, it relies on its arguments that Boeing lost sales in the US 
market for reasons entirely unrelated to subsidies to Airbus, and that the magnitude and age of any 
subsidy available to Airbus for use in the relevant  sales campaigns would not have resulted in price 
effects sufficient to make the difference for the customer in choosing between Boeing and Airbus 
LCA.6010  The European Communities also asserts that ma ny of the orders from United States' airlines 
to Boeing during the period 2001- 2006 did not involve any competitiv e presence by Airbus.  In the 
                                                      
6006 Exhibit US-444( BCI). 
6007 The United States did not present pricing information for Boeing 767 aircraft, stating that there 
were insufficient sales of the 767 in the US market during the period to generate data to show average price trends.  US, FWS, footnote 933. 
6008 US, FWS, para. 744. 
6009 US, FWS, para. 745.  In this regard, the United States referred to the ear lier version of Chart 10, 
which was identical to the revised version reproduced in the text with respect to the information for 2001-2005. 
6010 EC, FWS, para. 2256-57.  WT/DS316/R 
 Page 1031 
 
BCI deleted, as indicated [***] 
 
 European Communities' view, there is little basis to  find that subsidies cause adverse effects where 
there is not direct competition between Airbus and Boeing.6011  In this latter regard, the European 
Communities does not specify the sales campaigns in the US market in which there was allegedly no 
competitive presence by Airbus.6012  We have considered the European Communities' view that 
several of these sales [***] and found it unpersuasive, as it does not directly respond to the United 
States' contention of price suppression in the context of its injury arguments.6013   
7.2138  The European Communities also argues, in the context of its contention that subsidies to 
A320 Aircraft did not cause suppression of world market prices for Boeing 737NG LCA, that the 
magnitude of the subsidies is too small to account  for the difference between actual Boeing prices and 
the prices that would reflect increases in the Aircraft Manufacturers Producer Price Index.6014  Again, 
assuming this to be the European Communities' argum ent with respect to price suppression in the US 
market in the injury context, which is not cl ear as the European Communities has not specifically 
asserted it, we do not see that it responds to the qu estion whether the imports of subsidized Airbus 
LCA caused price suppression, as it focuses exclusively on the effect of the subsidies, which is a 
different question.  As discussed above, we do not c onsider the magnitude of the subsidies to be a 
factor which is required to be considered in assessing whether injury is caused by subsidized 
imports.6015 
7.2139  With respect to the question of price depressi on, the undisputed price information submitted 
by the United States shows that over the period we examined, prices for Boeing 737NG aircraft 
increased slightly from 2001 to 2002, then declined precipitously in 2003, increased in 2004 but did 
not reach the 2002 level, and then declined in 2 005 and remained essentially the same in 2006.  Post-
reprice levels show the same trends at slightly different levels.  Prices for the 747 model LCA in the 
US market declined from 2001 to 2002, and were markedly lower in 2005, although there were apparently no sales during the intervening years.  The picture is slightly different with respect to the 
777 model LCA, whose prices were well above the 2001 levels in 2003, and despite being 
substantially lower in 2005, were  nonetheless above the level reporte d for 2001.  Thus, the evidence 
before us clearly demonstrates price depression, that  is, actual declines in price levels, for the 737NG 
and 747 model LCA, over the entire period being co nsidered, and price depression from 2003 to 2005 
for the 777 model LCA.   
7.2140  With respect to price suppression, we note th at, all else being equal, one might well expect 
that producers would increase prices in line with  increases in costs.  The European Communities 
asserts that the United States Aircraft Manufacturers Producer Price Index ("PPI") is not a reliable 
measure of the cost increases faced by Boeing, and that  the failure of prices of certain aircraft to 
increase commensurate with that index is completely  irrelevant to the question whether there was 
significant price suppression in the relevant period.
6016  We have rejected the European Communities' 
view in this regard, concluding that, as argued by the United States, as a general matter, one would 
                                                      
6011 EC, FWS, para. 2258. 
6012 We note that the Annexes to the statement of Christian Scherer, Exhibit EC-14(BCI) present 
information on what the European Communities consider s to be "competitive" and "non-competitive" sales 
campaigns.  However, even if we considered it appropriate  for us to review that the information in the Annexes 
to the Statement of Christian Scherer relied on by the European Communities in this regard in an attempt to determine which campaigns the European Communities might be referring to in this regard, which we do not, 
we recall that we rejected the European Communities' position with regard to which sales may be considered 
"competitive".  See, para. 7.1722 above.  Moreover, those Annexes do not include all of the lost sales referenced 
by the United States, as they do not contain information for 1999    
6013 See, paragraph 7.2131 above. 
6014 EC, FWS, para. 1803. 
6015 See, paragraph 7.2077 above. 
6016 EC, Answer to Panel question 213, paras. 509, 511. WT/DS316/R 
Page 1032 
 
BCI deleted, as indicated [***] 
 
 expect that in any manufacturing industry, all else being equal, prices should tend to increase with 
production costs, and that the PPI represents a reasona ble proxy for cost inflation, and may be used as 
a reasonable benchmark for the price trends and levels that would ha ve been expected over the period 
we examined.6017  Thus, to the extent Boeing LCA indexed prices in the US market declined relative 
to the US Aircraft Manufactures PPI, this suggests that there was price suppression.   
7.2141  Comparing the PPI in Charts 23 through 25 with the prices of Boeing 737NG, 747, and 777 
LCA in the US market, we consider the informati on demonstrates that there was a degree of price 
suppression in respect of prices for all three models.  This is most apparent in the case of the 737 
prices, where the indexed original order price for 737 LCA increased slightly more than the PPI in 
2002, then dropped precipitously in 2003 while the PPI continued to rise, increased more rapidly than 
the PPI in 2004, and then dropped again in 2005 while the PPI continued to rise, and remained virtually unchanged in 2006.  Indexed post-reprice averages show generally the same trends, albeit at 
slightly different rates of change.  With respect  to the 747, indexed prices declined from 2001 to 2002, 
while the PPI rose slightly, and indexed prices were  lower again in 2006, while the PPI had continued 
to rise.  For the 777, indexed average prices were approximately 17 percentage points lower in 2005 
than in 2003, while the PPI incr eased by just under 11 percentage points.  For these latter two 
categories of aircraft, the lack of price informati on in the intervening years makes it difficult to draw 
conclusions, as it is not clear whether the later pric e points are anomalous, or demonstrate a trend.  
Nonetheless, it is clear to us that Boeing's averag e prices did not keep pace with increased costs as 
represented by the PPI, and by a substantial de gree, supporting the conclusion that there was 
significant price suppression in the US market prices for LCA. 
7.2142  The European Communities argues that "for pur poses of the US Article 5(a) claim it is 
essential to examine the collective effects of any su bsidies on Boeing's commercial health", which the 
European Communities maintains requires a "world-wid e assessment" of the effects of the subsidies, 
and, therefore, the European Communities incorporat es all of the arguments and evidence presented to 
rebut the United States' serious prejudice claims by reference.
6018  In the European Communities' 
view, this evidence is "highly relevant to s how the absence of any effects from the largely de minimis  
magnitude and old age of any subsidies {a}nd ... is sufficient to refute any United States' arguments 
that "subsidized Airbus LCA" cause material injury to Boeing".6019  The European Communities also 
refers to its discussion of sales campaigns involving  United States' customers in the context of its 
response to the United States' serious prejudice claims  to argue that those sales were lost for reasons 
"entirely unrelated to alleged Airbus subsidies", and asserts that the de minimis  magnitude and age of 
subsidies would not have resulted in price effect s sufficient to make a difference for an airline 
choosing between Airbus or Boeing LCA when ordering.6020  
7.2143  We are in something of a quandary with respect  the European Communities' arguments in this 
regard, as they focus on whether the effect of subs idies to Airbus LCA is serious prejudice to the 
United States' interests, while we are here consider ing whether the subsidized imports of Airbus LCA 
into the United States cause materi al injury to the United States' LCA industry.  Thus, in our view, 
arguments concerning the age and magnitude of the subsidies, even if accepted as a matter of fact, 
have little if any relevance to the question whet her subsidized imports caused price suppression or 
depression in the US market.  With respect to th e sales campaigns, as indicated above, the information 
provided by the European Communities makes clear th at pricing was an important factor in each of 
those sales, as indeed would be expected, as the cost  of aircraft, both in terms of purchase costs and 
operating costs, is a major component of an airlines ' ability to operate, and to operate profitably, but 
                                                      
6017 See, para. 7.1861 above. 
6018 EC, FWS, para. 2249. 
6019 EC, FWS, para. 2250. 
6020 EC, FWS, para. 2256.  WT/DS316/R 
 Page 1033 
 
BCI deleted, as indicated [***] 
 
 that there were a number of elements considered  by the customers in choosing between competing 
offers from Airbus and Boeing in the first instance.   
Causal link  
7.2144  The United States argues that Airbus' gains in US  market share have come at the expense of 
Boeing, thus linking the subsidized imports to the significant adverse impact on Boeing's LCA 
production and sales figures.  Moreover, the United St ates contends that the decline in the prices 
Boeing has been able to command (or failure of thos e prices to increase comm ensurate with inflation 
as indicated by the PPI) for the LCA it has been able to sell in the US market is a function of the 
pricing of subsidized imports from Airbus.  The dete rioration in the other relevant indicators of the 
economic health of Boeing's LCA ope rations follows, in the United St ates' view, directly from this 
loss of market share and loss of revenue.  The tempor al correlation of this deterioration with Boeing's 
loss of market share to Airbus, bo th in the US market and worldwid e, is for the United States further 
evidence of the causal relationship between imports of  subsidized Airbus LCA and the injury to the 
United States' LCA industry.  The United States asserts  that the Appellate Body has recognized that a 
temporal correlation between a claimed cause and its e ffect, while not in itself decisive, is relevant 
evidence that "one would normally expect" to  find in examining the effects of a subsidy.6021  
7.2145  The United States argues that the decline in the financial resu lts of Boeing's LCA business 
over the period 2001-2005 occurred despite deep cuts in costs and steady gains in productivity.  The cost-cutting effort led to a rise in operating income  in 2002 over 2001, even though Boeing's sales and 
capacity utilization were lower in 2002 than they ha d been in 2001.  The cost cutting and efficiency 
gains continued in succeeding years, but according to the United States could no longer offset the 
bottom-line impact of declining production, capacity u tilization, and sales revenue.  In absolute terms, 
Boeing's income on its LCA operations fell by nearly  two-thirds in 2003 and 2004, as compared with 
2002.  Further, the partial recovery in Boei ng's LCA income in 2005 is, according to the 
United States, due almost entirely to improved prod uctivity, as revenues increased only slightly from 
their 2004 levels.
6022 
7.2146  The European Communities relies principally on  its argument that the United States' LCA 
industry, i.e., Boeing, is "in robust financial health, dominant in global and United States' LCA 
markets, in improved financial health relative to  2004 and 2001 and on a sharply upward trend"6023 to 
rebut the United States' arguments concerning the e ffects of subsidized imports on the United States' 
LCA industry.6024  The European Communities asserts that  the United States failed to address 
"non-attribution" factors in its arguments generally  and with respect to material injury, and thus 
improperly attributes negative market effects resulting from the events of 9/11 to subsidized Airbus 
LCA.6025   Finally, the European Communities recalls its assertion that many Boeing orders from 
United States' airlines did not involve competition from Airbus, and that there is "little basis" to find 
that the effects of subsidies could cause adver se effects where there is not direct competition. 6026 
7.2147  The European Communities argues th at Boeing was particularly badly affected by the events 
of 9/11 because its orders were predominantly fr om United States' airlines which were themselves 
particularly hard hit by the collapse of the travel  industry, with four major United States' airlines, 
Northwest, United, US Airways, and Delta, fili ng for bankruptcy protection in the subsequent 
                                                      
6021 US, FWS, para. 730 citing Appellate Body Report, US – Upland Cotton , para. 451. 
6022 US, FWS, para. 747. 
6023 EC, FWS, para. 2159. 
6024 EC, FWS, paras. 2247, 2252 – 2255. 
6025 EC, FWS, para. 2257. 
6026 EC, FWS, para. 2258. WT/DS316/R 
Page 1034 
 
BCI deleted, as indicated [***] 
 
 period.6027  Information presented by the European Co mmunities, not disputed by the United States, 
shows that from 1998 to 2001, United States' airlin es accounted for between 47 and 32 percent of 
Boeing's orders annually, but in 2002 that percentage dropped to 16 percent.6028  O r d e r s  b y  
United States' airlines fell from 106 in 2001 to 40 in 2002, or by 62 percent.6029  The United States 
disputes the European Communities' argument, noting that Airbus also was pr esent in the US market 
prior to 2001-2003 and itself was a significant s upplier to United States' airlines that entered 
bankruptcy in this period, noting that 82 of Airbus' 122 United States' deliveries in 2001, or 67 percent, were to Northwest Airlines, United Airlines, and US Airways.
6030   
7.2148  The United States argues that injury resulti ng from the decline in total demand for LCA 
following 9/11 – a factor that affected both Airbus and Boeing – is clearly distinguishable from injury 
resulting from Boeing's loss of market share in the Un ited States to Airbus.  The United States asserts 
that while both Airbus and Boeing were affected  by the decline in overall LCA demand in the US 
market, through the downturn, Airbus increased it s market share and has since maintained that 
increased market share, largely through deliveri es to new customers such as JetBlue, Frontier 
Airlines, and Virgin America, which it gained in  head-to-head campaigns against Boeing from 1999 
onwards.6031   
7.2149  It is clear that both Airbus and Boeing were ba dly affected by the collapse of the LCA market 
following the events of 9/11.  However, we agree with the European Commun ities that the US market 
was particularly badly affected, and Boeing was partic ularly hard hit in the US market, resulting in the 
significant decline in its market share from 2001 to 2003.  In this regard, we note that Airbus 
principally gained market share in the early part of the period we are considering, with its market 
share increasing by 14 percentage points during this same period, from 30 percent in 2001 to 
44 percent in 2003.   
7.2150  With respect to pricing, as noted above, the European Communities does not dispute the 
United States' information showing declines in  indexed prices over the period 2001-2006 for 
Boeing 737NG, 747 and 777 aircraft.  Nor does the European Communities dispute that in 2005, and 
in 2006 for the 737NG aircraft, the Boeing inde xed price was substantially below the Aircraft 
Manufacturers PPI.  The European Communities does, however, contend that these declines were not 
caused by subsidies to A320 LCA, and does not agr ee that as a matter of fact, prices for certain LCA 
have not increased in line with inflation.6032   
7.2151  The United States does not explicitly rely on lost sales in support of its claim of material 
injury, although it does assert that sales lost  to Airbus in 1999 and between 2001 and 2005 
demonstrate price undercutting.  As noted above , the European Communities seeks to rebut the 
United States' arguments by incorporating by re ference its argument asserting a lack of price 
suppression caused by subsidies to A320 LCA, an argum ent which we find difficult to evaluate in the 
context of an evaluation of whether subsidized im ports caused material inju ry.  Nonetheless, for the 
same reasons as discussed in the context of our anal ysis of price undercutting for Article 6.3 (c), we 
do not consider that the anecdotal information relied on by the United States is sufficient to support its assertion of price undercutting, particularly in light  of the conflicting anecdotal information submitted 
by the EC.
6033  The information also indicates that while price is clearly an important factor in LCA 
                                                      
6027 EC, FWS, para 1443. 
6028 EC, FWS, para. 1444 (table). 
6029 EC, FWS, para. 1444 (table). 
6030 US, SWS, para. 732. 
6031 US, SWS, para. 732. 
6032 EC, Answer to Panel question 213, para. 507. 
6033 See, paras. 7.1833 to  7.1840 above.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
 sales, it is not in all cases determinative, which unde rmines the United States' position with respect to 
price undercutting, and thus with respect to the pr ice suppressive and depressive effect of subsidized 
imports.   
7.2152  With respect to alleged other causes of injury , the United States recognizes that much of the 
decline in the condition of Boeing's LCA operations ma y be attributed to the post-2000 drop in LCA 
demand, particularly in the United States.  None theless, the United States argues that any injury 
resulting from this decreased demand is clearly di stinguishable from the alleged injury caused by 
subsidized imports of Airbus LCA.  Accordi ng to the United States, the data concerning LCA 
deliveries and market share show that if Boeing's shar e by volume of the US market had held constant 
at its 2001 level during 2002-2005, Bo eing would have delivered 23 perc ent more aircraft than it 
actually did over the period.6034  Likewise, the United States contends  that if Boeing's share by value 
of the US market had held constant at its 2001 level, its United States ' sales would have been 
54 percent greater in 2005.  To this, the United St ates contends, must be added the negative price 
impact of Airbus' sales on the aircraft that Boeing did deliver during this period.  Thus, the United 
States argues that the direct impact of subsidized Airbus imports in the US market on Boeing's 
operating performance is "materia l" by any reasonable standard.6035 
7.2153  The United States also argues that improvement s in Boeing's financial condition in 2006, 
relied upon by the European Communities to argue th at there is no present material injury, are 
irrelevant, as the relevant question for an adverse effects claim under the DSU and the 
SCM Agreement is whether the European Comm unities was in breach of its obligation under 
Article 5(a) when the Panel was established, and thus  that the Panel must make its determination as of 
2005.  As we have discussed, we do not agree, and consider the period 2001- 2006 is appropriate for 
purposes of determining whether subsidized imports of Airbus LCA cause present material injury to the United States' industry producing LCA.  The United States argues that improvement in the 
financial condition of Boeing must be placed in the context of unusually high demand in 2005 and 
2006 in this cyclical industry.  According to th e United States, Boeing remained competitive despite 
its loss of market share in its home market and de pressed prices, particularly in the downturn, by 
cutting costs and improving productivity.  With respect to employment, the United States contends that despite the recovery in the financial health of  Boeing, most of the jobs that were lost in the 
downturn had not returned to the industry.
6036  Indeed, the United States argu es that the events of 2006 
demonstrate how significantly relief from subsidized  competition improves the fortunes of the United 
States' LCA industry.  The United States points out that in 2006, Airbus could not effectively market 
either its A380 (because of production problems) or its A350 (which had to be redesigned), and 
asserts that what 2006 shows is how the absence of  a subsidized and aggressively marketed new 
Airbus aircraft improves the fortunes of the United States' LCA industry – and, by contrast, how significant the adverse effects of LA/MSF a nd the other Airbus subsidies have been.
6037 
7.2154  In this respect, the United States' argument s uggests that, but for the presence of subsidized 
Airbus imports in the US market, and the prices of those imports, during the period 2001 – 2005, and 
continuing in 2006, Boeing would have been in  a materially better position in terms of its 
performance, and thus considers that the subsidized imports caused material injury to Boeing.  We 
have serious doubts about the appropriateness of such an analysis in the context of this case.  In a 
duopoly market, with one supplier of subsidized  imports and one domestic producer, it could be 
argued that subsidized imports will always cause material injury, because in the absence of such 
imports, the domestic industry would capture the entire market.  
                                                      
6034 US, FWS, para 748. 
6035 US, FWS, para. 748. 
6036 US, SWS, para. 737. 
6037 US, SWS, para. 738. WT/DS316/R 
Page 1036 
 
BCI deleted, as indicated [***] 
 
 7.2155  In response to a question from the Panel raising this proposition, the United States 
acknowledged that in such a case, "the legal standard for determining material injury is the same as it 
would be in any other case".  The United States we nt on to assert that its demonstration on material 
injury did not depend on the Panel finding that the United States' industry would have supplied the 
entire market in the absence of subsidized imports.6038   Rather, the United States argued that relevant 
indicators such as production, revenues, operating ma rgins, and employment levels demonstrated 
material injury.  The United States further contende d that (1) much of Boeing's loss of market share 
could be traced to sales lost to Airbus during and before the period 2001-2005,  and (2) price declines, 
much of which can be traced to price undercutting by  Airbus, were together a not insignificant cause 
of that injury, such that the Panel need not consider the proposition.6039   
7.2156  The European Communities agreed that the Panel need not decide whether the proposition in 
the Panel's question is valid, but for different reasons.6040  In the European Communities' view, the 
proposition is neither legally correct, nor appropriate  in the factual circumstances of this dispute.6041  
The European Communities as serts that in a two-step analysis, it is possible for a domestic industry to 
face competition from subsidized imports and still not be in a condition that constitutes "material 
injury".  Moreover, the European Communities asse rts that the possibility that Boeing might have 
more revenue in the absence of subsidized imports does not prove causation.6042  
7.2157  Having found that the United States' domestic industry is not in a condition that can be 
considered "material injury", we consider that we need not resolve the question of the validity of the 
proposition we raised with the parties.  We note, however, that, as suggested by our conclusion, we 
agree with the view that it is possible for a domes tic industry to compete with subsidized imports and 
not be materially injured.  That is, in our view , what the facts show in this case – following the 
collapse of the LCA market after the events of 9/11, Boeing has managed to successfully compete 
with subsidized imports and better its performance to the extent that  we cannot conclude that it is 
materially injury as of the end of the period we examined.  
(iii) Threat of Material Injury 
7.2158  Article 15.7 of the SCM Agreement requires that a determination of threat of material injury 
shall be "based on facts and not me rely on allegation, conjecture, or remote possibility."  Moreover, it 
establishes that "the change in circumstances whic h would create a situation in which the subsidy 
would cause injury must be clearly foreseen and imminent", and sets out the following series of 
factors which should be considered in making the determination:   
 "(i)  nature of the subsidy or subs idies in questions and the trade effects 
likely to arise therefrom;   (ii) a significant rate of increase of dumped imports into the domestic market indicating the likelihood of substantially increased importation; 
 
 (iii) sufficient freely disposable, or an imminent, substantial increase in, 
capacity of the exporter indicating the likeli hood of substantially increased subsidized 
exports to the importing Member's market, taking into account the availability of 
other export markets to absorb any additional exports; 
                                                     
 
6038 US, Answer to Panel question 284, paras. 136-37. 
6039 US, Answer to Panel question 284, para. 137. 
6040 EC, Comments on US Answer to Panel question 284, para. 312. 
6041 EC, Answer to Panel question 284, para. 214. 
6042 EC, Answer to Panel question 284, paras. 216-17.  WT/DS316/R 
 Page 1037 
 
BCI deleted, as indicated [***] 
 
  
 (iv) whether imports are entering at prices that will have a significant depressing or  suppressing effect on domestic prices, and would likely increase demand for further imports;  and 
 
 (v) inventories of the product being investigated." 
 7.2159  As we have noted, in the context of our assess ment of injury, including threat of material 
injury, we consider our role in this dispute to be ess entially similar to that of an investigating authority 
in a trade remedy investigation.  Previous panels  have considered the meaning of Article 15.7 in 
reviewing the determinations of investigating authorities concerning threat of material injury in 
countervailing duty determin ations.  We consider those reports  to be relevant guidance for our 
analysis in this dispute.  In addition, given th at the provisions of Article 3.7 of the AD Agreement 
parallel those of Article 15.7 of th e SCM Agreement, with the exception of Article 15.7(i), and for the 
same reasons as discussed above,
6043 we also consider reports addressing Article 3.7 of the 
AD Agreement to be equally instructive.   
7.2160  The panel in Mexico-HFCS  concluded that Article 3.7 of the AD Agreement sets forth a 
series of factors that must be considered in each case in assessing threat of material injury, but 
recognizes that factors other than those set out in Ar ticle 3.7 itself will necessarily be relevant to the 
determination.6044  The panel went on to conclude that "{a}  determination that material injury would 
occur cannot, in our view, be made solely on the basi s of consideration of the Article 3.7 factors.  
Rather, it must include consideration of the likel y impact of further dumped imports on the domestic 
industry."6045  This, the panel observed, was because:   
" the Article 3.7 factors do not relate to th e consideration of the impact of the dumped 
imports on the domestic industry.  The Article  3.7 factors relate specifically to the 
questions of the likelihood of increased imports (based on the rate of increase of 
imports, the capacity of exporters to incr ease exports, and the availability of other 
export markets), the effects of imports on future prices and likely future demand for imports, and inventories.  They are not, in themselves, relevant to a decision concerning what the "consequent impact " of continued dumped imports on the 
domestic industry is likely to be.  Howeve r, it is precisely this latter question – 
whether the "consequent impact" of continued dumped imports is likely to be material 
injury to the domestic industry - which must be  answered in a threat  of material injury 
analysis."
6046  
The panel concluded that "considera tion of the Article 3.4 factors in examining the consequent impact 
of imports is required in a case involving threat of injury in order to make a determination consistent 
with the requirements of Articles 3.1 and 3.7".6047    
 7.2161  Thus, the panel concluded that Article 3.4 of  the AD Agreement, which is mandatory and 
requires examination of the listed injury factors in ev ery case, also applies in consideration of threat of 
                                                     
 
6043 See, para. 7.2057 above. 
6044 Panel Report, Mexico – Anti-Dumping Investigation of High Fructose Corn Syrup (HFCS) from the 
United States ("Mexico – Corn Syrup") , WT/DS132/R, adopted 24 February 2000, and Corr.1, DSR 2000:III, 
1345, para. 7.124. 
6045 Panel Report, Mexico – Corn Syrup , para. 7.125. 
6046 Panel Report, Mexico – Corn Syrup , para. 7.126. 
6047 Panel Report, Mexico – Corn Syrup , para. 7.127. WT/DS316/R 
Page 1038 
 
BCI deleted, as indicated [***] 
 
 material injury, along with any other relevant factors,  in order to make a dete rmination consistent with 
the requirements of Articles 3.1 and 3.7.6048  The panel opined that  
"an investigating authority cannot come to a reasoned conclusion, based on an 
unbiased and objective evaluation of the facts, without taking into account the 
Article 3.4 factors relating to the impact of imports on the domestic industry. These 
factors all relate to an evaluation of the general condition and operations of the 
domestic industry – sales, profits, output, ma rket share, productivity, return on 
investments, utilization of capacity, factors affecting domestic prices, cash flow, inventories, employment, wages, growth, ability to raise capital.  Consideration of 
these factors is, in our view, necessary in  order to establish a background against 
which the investigating authority can evaluate whether imminent further dumped imports will affect the industry's condition in such a manner that material injury 
would occur in the absence of protective acti on, as required by Article 3.7. ... Such an 
analysis would be necessary in order to e xplain the present, and anticipated future, 
condition of the domestic industry sufficiently to support the conclu sion that 'material 
injury would occur', as provided in Article  3.7, unless protective action is taken."
6049  
Similarly, in this case, our evaluation of the condition of the United States' industry producing LCA 
provides a background for our consideration of the Artic le 15.7 factors, and the likely effect of future 
subsidized imports on that industry.   
7.2162  In US – Lumber VI , the panel stated that "consideration" of the factors listed in Article 15.7 
must "go beyond a mere recitation of the facts in ques tion, and put them into context.  However, the 
investigating authorities are not required by Article s 3.7 and 15.7 to make an explicit "finding" or 
"determination" with respect to the factors considered".
6050  The panel went on to note that, unlike in 
consideration of the injury factors listed in Ar ticles 15.4 of the SCM Agreement and 3.4 of the 
AD Agreement,  
"consideration of each of the factors listed in Articles 3.7 and 15.7 is not mandatory.  
Consequently, a failure to consider a factor at  all, or a failure to adequately consider, 
a particular factor would not necessarily demonstrate a violation of the provisions.  Whether a violation existed would depend on the particular facts of the case, in light 
of the totality of the factors considered and the explanations given."
6051   
In this case, we have information and arguments c oncerning all of the Article 15.7 factors, and we 
address them below.    7.2163  With respect to the nature of threat of injury  as opposed to injury, an d the possibility of the 
two existing in the same case, we note that in the co ntext of safeguards, "serious injury" is defined as 
"a significant overall impairment in the position of a dom estic industry", and threat  of serious injury is 
defined as serious injury that is clearly imminent".
6052  In addressing the question whether a discrete 
determination of either serious inju ry or threat of serious injury, but not both, must be made by the 
investigating authorities in a safeguards i nvestigation, the Appellate Body noted: 
                                                      
6048 Panel Report, Mexico – Corn Syrup , paras. 7.127 – 128. 
6049 Id., paras. 7.132 – 133. 
6050 Panel Report, US – Softwood Lumber VI , para. 7.67 (footnotes omit ted, citing generally Panel 
Report, Thailand H-Beams  and paras. 7.170 and 7.161). 
6051 Panel Report, US – Softwood Lumber VI , para. 7.68 (footnote omitted). 
6052 Agreement on Safeguards, Article 4.1 (a) and (b).  WT/DS316/R 
 Page 1039 
 
BCI deleted, as indicated [***] 
 
 "these two definitions reflect the reality of how  injury occurs to a domestic industry.  
In the sequence of events facing a domestic i ndustry, it is fair to assume that, often, 
there is a continuous progression of inju rious effects eventually rising and 
culminating in what can be determined to be  "serious injury".  Serious injury does not 
generally occur suddenly.  Present serious injury is often preceded in time by an 
injury that threatens clearly and im minently to become serious injury. "6053 
While the SCM Agreement does not contain a similar definition distinguishing present material injury 
and threat of material injury, the relationship be tween the concepts is in our view the same.   
  
7.2164  The European Communities argues that the United States has not demonstrated a "clearly 
foreseen and imminent" "change in circumstances which would create a situation in which" the alleged subsidies would cause material injury to Boeing.  According to the European Communities, 
the United States faces a "heavy burden" to demons trate new or changed circumstances that would 
change the "improving financial strength and incr easing market dominance" of Boeing in 2005-2006 
to material injury.
6054  This raises a question concerning the consideration of the "the change in 
circumstances which would create a situation in whic h the subsidy would cause injury" referred to in 
the chapeau of Article 15.7, and its import for our analysis.   
7.2165  On this issue, the views of the panel in US-Softwood Lumber VI , are particularly apposite.  In 
that case, the complaining Member, Canada, argu ed before the panel that Article 15.7 of the  
SCM Agreement requires that the "change in ci rcumstances" from the non-injurious period of 
investigation that will create a situation in whic h the dumping or subsidy will cause injury must be 
"clearly foreseen and imminent", calling this the "logical predicate" for an affirmative finding of 
threat of material injury, and that this change in circumstances must be clear ly anticipated and on the 
brink of happening.  Canada asserted that the invest igating authority in that case had failed to explain 
how the evidence provided a basis for a conclusion that  the situation would change such that imports 
that did not cause injury to the domestic industry during the period of investigation would  cause 
material injury in the imminent future. 
7.2166  In its report, the panel considered the meaning of the "change of circumstances" element of 
Article 15.7, noting that it was "not a model of clarity".6055  The Panel observed that the provision 
seemed, on its face, to require that some "'change  of circumstances' must be clearly foreseen and 
imminent, and that it is this change of circumstan ces that would create a situation in which injury 
would occur."6056  The panel referred to footnote 10 to th e parallel provision, Article 3.7, in the 
AD Agreement, which provides an example of what might constitute a change in circumstances: "One 
example, though not an exclusive one, is that there is convincing reason to believe that there will be, 
in the near future, substantially increased importa tion of the product at dumped prices".  That 
example, however, is effectively repeated in Artic le 15.7(ii), which sets out "likelihood of increased 
imports" as a factor to be considered.  The panel noted that "both the change of circumstances, and 
further dumped or subsidized imports, must be im minent, and the likelihood of increased imports is 
both a relevant change of circumstances and a factor to be considered in dete rmining the existence of 
threat."6057  The panel concluded that:  
                                                      
6053 Appellate Body Report, United States – Definitive Safeguard Measures on Imports of Circular 
Welded Carbon Quality Line Pipe from Korea ("US – Line Pipe") , WT/DS202/AB/R, adopted 8 March 2002, 
DSR 2002:IV, 1403, para. 168. 
6054 EC, FWS, para. 2238. 
6055 Panel Report, US-Softwood Lumber VI , para. 7.53. 
6056 Id. 
6057 Panel Report, US-Softwood Lumber VI , para. 7.54. WT/DS316/R 
Page 1040 
 
BCI deleted, as indicated [***] 
 
 "the relevant 'change in circumstances' referred to in Articles 3.7 and 15.7 is one 
element to be considered in making a determ ination of threat of material injury.  
However, we can find no support for the conclusion that such a change in circumstances must be identified as a single or specific event.  Rather, in our view, 
the change in circumstances that would give  rise to a situation in which injury would 
occur encompasses a single even t, or a series of events, or developments in the 
situation of the industry, and/or concerning the dumped or subsidized imports, which lead to the conclusion that injury which h as not yet occurred can be predicted to occur 
imminently."
6058    
7.2167  Overall, based on these reports, we understand that an industry that is not materially injured, 
and whose performance is robust and improving, is  less vulnerable to a deterioration of its 
performance which might be considered material inju ry in the near future.  Conversely, an industry 
whose performance, while not reflecting present materi al injury, is generally weak or declining, 
would be more vulnerable to such deterioration, a nd the likelihood of its being materially injured in 
the near future would be greater.  Of course, whethe r any such future material injury would be caused 
by subsidized imports must also be considered, and consideration of the Article 15.7 factors is 
pertinent to this aspect of the analysis. 
7.2168  We have concluded, based on our consider ation of information concerning relevant 
Article 15.4 factors, that the United States' i ndustry producing LCA is not presently materially 
injured.  Based on that same information, and in pa rticular considering the trends over the most recent 
period and information concerning future trends  in deliveries of Boeing LCA presented by the 
European Communities, we see no indication that th e condition of the United States' industry is likely 
to deteriorate in the near future to a degree that would result in it experiencing material injury.  The 
information before us shows improvements in  Boeing's performance in 2006 over 2005, and the 
significant number of orders booked in 2005 an d 2006 suggests that Boeing's performance will 
continue to be strong, if not even further improve d.  Thus, we do not consider the United States' 
industry to be vulnerable to injury caused by subsidized imports in the near future.   
7.2169  Having established the framework for and context of our analysis, we proceed to review the 
evidence on the Article 15.7 factors, which, as me ntioned, concern primarily the likely volumes and 
prices of future imports. 
Nature and effects of the subsidies  
7.2170  The United States argues that the European  Communities and the Airbus governments 
tailored the subsidies at issue so as to give Airbus  a structural advantage over Boeing.  According to 
the United States, LA/MSF and the other subsidies in dispute transfer much of the cost and risk of 
LCA development from Airbus to the European Communities and the Airbus governments, and the 
continued effects of these subsidies give Airbus fl exibility that it would not otherwise have to launch 
new aircraft and price all models to gain market share.6059  The United States asserts that subsidies 
already bestowed, and already co mmitted for the A350, as well as fu rther anticipated subsidies, 
perpetuate Airbus's structural advantages in th e United States' LCA market, and give Airbus the 
financial flexibility to capture additional orders at aggressively discounted prices, while absorbing 
loss-making A380 sales and designing the A350.6060  
                                                      
6058 Panel Report, US - Softwood Lumber VI ,  para. 7.57. 
6059 US, FWS, para. 755.   
6060 US, FWS, para. 756.  WT/DS316/R 
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BCI deleted, as indicated [***] 
 
 7.2171  We have earlier in this report found that the United States has failed to establish that as of the 
establishment of this Panel, the Airbus government s had committed to provide Airbus with LA/MSF 
for the A350 on unsecured, backload ed, success-dependent and below-ma rket interest rate repayment 
terms.  On the other hand, we have  also concluded that the subsidies that we have found to exist have 
had the effect of enabling Airbus to launch new mo dels of LCA that it would otherwise not have been 
able to, or at least not at the time that it did.  Moreover, we have concluded that LA/MSF granted with 
respect to each successive model of Airbus LCA has effects with respect to both later- and previously-launched models.  The most recently launched Airbus  LCA, the A380, was just entering the market at 
the end of the period we examined, and all earlier models were still being manufactured and sold.
6061  
Thus, we consider that, apart from subsidized LA /MSF to the A350, for which the United States has 
not established a commitment that it will be provided,  imports of Airbus LCA in the near future will 
continue to be subsidized.  However, there is nothing to suggest that there is likely to be an increase in 
subsidization in the near future, as almost all of  the subsidies with respect to currently-marketed 
models of Airbus LCA have already been provided.6062  Nor is there anything in the nature of the 
subsidies we have found to exist which suggests that  there is likely to be an increase in subsidized 
imports in the near future as a conse quence of the subsidies themselves.   
7.2172  The European Communities contends that there are no trade effects likely to arise from the 
measures in dispute that are likely to threaten material  injury to Boeing.  In this regard, the European 
Communities refers to its argument that Boeing is not suffering present material injury.6063  Again, by 
referencing other portions of its argument, the European Communiti es leaves the Panel in something 
of a quandary to determine what aspects of its argument are to be considered.  It would appear that the 
European Communities refers in th is respect to its arguments concerning "potential" declines or 
negative effects on Boeing in its discussion of the Articl e 15.4 factors.  It is not entirely clear how this 
relates to the nature and effect of the subsid ies in dispute, as these portions of the European 
Communities' arguments relate to its view that im provements in Boeing's performance, as reflected in 
the Article 15.4 factors, are likely to continue.  Wh ile this may support the view that Boeing will not 
be materially injured in the future, it is difficult to  see how it relates to the nature and effect of the 
subsidies.   
Rate of increase of subsidized imports  
7.2173  The United States argues that Airbus' market share in the United States has significantly 
increased in recent years, and asserts that the st rength of its firm order backlog for new LCA 
deliveries confirms that the volume of imports  will remain high for th e foreseeable future.6064   We 
have concluded that order data is relevant in assessing threat of injury, as it is a good, albeit not a 
perfect predictor of future deliveries, and thus can serve as a basis for assessing likely trends in  future 
imports.   
7.2174  The European Communities states that imports into the United States ' LCA market increased 
moderately in absolute terms during when the market improved from 2004 to 2005, but declined in 
2006 and continue to lose market share to domestic production.6065  The European Communities 
                                                      
6061 Production of Ai rbus' first LCA models, the A300 and A310, ceased in 2007.   
6062 Of course, it is possible that new or additional subsidies will be granted.  However, these would 
presumably benefit existing models of Airbus LCA.  If they were with respect to a newly launched model, 
imports of such a new LCA would not be likely in the near future, given the development time necessary for a 
new model. 
6063 EC, FWS, para. 2239. 
6064 US, FWS, para. 757. 
6065 EC, FWS, para 2240.  The data on imports in terms of deliveries presented by the United States 
shows that imports of Airbus LCA were the same in 2004 as in 2003, increased in 200 5, and decreased in 2006, 
albeit to a level just above that for 2005.  Market share followed the same trend.  See, paragraph 7.2113 above. WT/DS316/R 
Page 1042 
 
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 reiterates that Airbus' share of orders in the US market decreased substantially between 2004 and 
2006, and between 2001-2006.  The European Comm unities contends that as United States' LCA 
markets rebound from the 2002-2004 recession and grow, Ai rbus is capturing an ever-declining share 
of those markets.6066  
7.2175  The United States presents information concer ning orders for LCA, based on sales allegedly 
lost during the period 2001-2006.  That information indicates a total of 198 firm orders for Airbus 
LCA unfilled as of August 2006, specifically from Je tBlue (89), U.S. Airways (49), America West 
(26), Virgin America (19), and Frontier (15).6067  The United States argues that these scheduled 
deliveries are already contracted for and ar e therefore "clearly foreseen and imminent."6068  I n  
addition, the United States notes that 20 A380s a nd 41 A350s had been ordered by United States' 
customers,6069 and asserts that more such orders can be  anticipated in the near future as these 
programs advance.  In addition, the United States argues that once an air line has chosen one LCA 
manufacturer over the other, it tends to make add itional follow-on orders from that same manufacturer 
in order to enhance its efficiency and minimize its operating costs, and thus that Airbus' increased 
share of the US market places it in a stronger pos ition to win additional follow-on sales and capture a 
higher share of orders and deliveries in future years. 
7.2176  The European Communities has also submitted information on United States' orders of 
Boeing and Airbus LCA for the period 2001 to 2006.   The European Communities' data, following the 
principles on which it has structured its arguments, is  presented separately for each of four categories 
of LCA.  We have compiled the information presen ted by the European Comm unities in the following 
chart: 
                                                      
6066 EC, FWS, para. 2240. 
6067 US, FWS, para. 758, referencing Airclaims CASE database, data query as of August 14, 2006. 
6068 SCM Agreement, Art. 15.7. 
6069 US, FWS, para. 758, referencing Airclaims CASE  database, data query as of August 14, 2006, 
adjusted for cancellation of FedEx A380 order in November 2006.  WT/DS316/R 
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 Chart 26:  United States' orders of Airbus and Boeing LCA, 2001-20066070 
 
163
4868
36193265
179
3491
67143
117
050100150200250300
2001 2002 2003 2004 2005 2006UnitsBoeing
Airbus
 
 
7.2177  We note that there are certain constraints in considering order information with respect to 
likely trends in future imports.  The Airclaims da tabase (on which both parties rely for information 
concerning orders and deliveries of LCA) records orders made by leasing companies, which account 
for a significant percentage of LCA sales, on the b asis of the location of the leasing company, while 
deliveries are recorded on the basi s of the location of the operating ai rline to which the aircraft is 
ultimately delivered.6071  Thus, an order by a leasing company in the United States for delivery to an 
airline in, for example, the United Kingdom, will be reported as a US order, and a UK delivery.6072  
Our review of the information from which this chart is derived, Exhibit EC-21, bears out this concern 
in the context of evaluating likely future imports into the United States.  Thus, for example, Exhibit EC-21 indicates that of the 20 total Airbus A380 LCA reported by the European Communities as United States' orders for the period 2001 – 2006, 10 were ordered by a leasing company, ILFC, in 
2001.
6073  The first scheduled delivery date for any of those aircraft is May 2010, with further 
deliveries scheduled through 2015.  The "operator country" for two of the aircraft ordered by ILFC is 
listed as the United Arab Emirates, suggesting that at least those two aircraft will not, in fact, be 
imported into the United States.  The "operator" for the remaining 8 aircraft ordered by ILFC is listed 
as ILFC.  Of course, ILFC is not an airline a nd does not actually operate aircraft.  Thus, this 
information gives no indication as to the country to which those 8 aircraft will eventually be 
delivered.  Similar concerns arise with respect to the order information for other models of LCA, and 
thus with respect to the data as a whole.   
7.2178  Overall, while the information on orders does demonstrate that there will continue to be 
imports of subsidized Airbus LCA into the US mark et, these types of concerns make this information 
a less than reliable basis on which to draw conclusi ons concerning an imminent increase in subsidized 
                                                      
6070 Compilation of information presented in tabular form, EC, FWS, paras. 2169-2172.  We note that 
this information is based on a query to the Airclaims CASE database as of 19 January 2007, submitted as 
Exhibit EC-21.   
6071 See, Exhibit EC-21. 
6072 US, Answer to Panel Question 132, para 430. 
6073 The other 10 were ordered by UPS, a freight/cargo carrier, in 2005. WT/DS316/R 
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 imports.  In addition, it is clear that even firm or ders do not inevitably result in deliveries, as orders 
are sometimes cancelled, for instance by an airlin e that goes bankrupt, and delivery is sometimes 
subject to unanticipated delays as a result of prod uction problems, or re-negotiation of terms with 
customers.  Moreover, the time frame for the deli veries of these booked orders is often significantly 
longer than could reasonably be de emed "imminent".  While the notion of "imminent" in the context 
of the LCA industry, with its long lead times for orders and extended delivery schedules, may well be 
longer than in other industries with a shorter interv al between order, production and delivery, we do 
not consider that orders for deliveries of LCA th at will not occur within two or three years can 
reasonably be considered "imminent", even if thos e aircraft are eventually delivered to the United 
States.  Lastly, merely because an order is booked as a US order does not mean that the aircraft 
involved will actually be delivered to a customer in the United States, and thus it remains unclear 
whether that order actually represents a future impor t.  While the impact of this latter factor is 
incalculable, given the significant number of LCA purchased by leasing companies, we consider it 
likely to be significant.  Thus, we do not consider  that this information demonstrates a likelihood of 
substantially increased importation in the near future , although it clearly demonstrates that there will 
continue to be a substantial number of subsidized imports of Airbus LCA.   
Additional capacity  
7.2179  The United States argues that Airbus is incr easing its LCA capacity by adding two entirely 
new LCA production lines for the A380 and the A350,  a substantial number of which aircraft have 
already been ordered by United States' customers.  According to the United States, Airbus has also 
announced that it is increasing its capacity to produce its other aircraft and is considering even further 
increases.  The United States considers that this mak es it clear that Airbus is substantially increasing 
its LCA production capacity, and argues that at least some of this capacity can be expected to be 
available to supply additional subsidized LCA to the US market, even taking into account expected 
growth of Airbus LCA sales in other markets as well. 6074 
7.2180  The European Communities does not dispute th e United States' evidence concerning Airbus' 
capacity, arguing only that any capacity added to Air bus' existing capacity could not threaten material 
injury to Boeing, given Boeing's dominant and improving position in the LCA market.6075  T h e  
European Communities notes that deliveries of the A380 will begin in 2007, while deliveries of the 
A350 will not begin before 2013-2014.6076  For the European Commun ities, the increase in orders 
booked by Boeing in 2005 and 2006 "virtually gua rantees" that Boeing will dominate deliveries to 
United States' customers for the ensuing three years,  even given the likelihood of eventual increases in 
Airbus deliveries to the US market as a result of increased production capacity.6077 
7.2181  It seems clear to us that, with the introduction of new model Airbus LCA, manufactured in 
part in newly added production lines, the capacity of Airbus to deliver LCA, including the US market, 
will increase.  Of course, whether that increase tr anslates to increases in imports is a different 
question.  The order information does not suggest  that recently-added additional capacity to produce 
A380 aircraft will have a significant imminent e ffect on imports, and any increases as a result of 
increased capacity to produce A350 aircraft  would seem even more remote in time.6078  Thus, while 
                                                      
6074 US, FWS, para. 760. 
6075 EC, FWS, paras. 2241. 
6076 EC, FWS, para. 2242-43. 
6077 EC, FWS, para. 2243. 
6078 Although we have concluded that the United States has failed to demonstrate a commitment to 
grant subsidized LA/MSF with respect to the A350, we have found that the spillover effects of LA/MSF subsidies to particular models of Airbus LCA benefit other earlier and subsequent models, and, in addition, a 
number of the subsidies we have found to exist benefit Airbus LCA as a whole.  WT/DS316/R 
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 increased capacity does suggest an  eventual increase in production of Airbus LCA, we cannot 
conclude that it supports finding an imminent  increase in imports into the United States. 
Continued price depression and suppression  
7.2182  The United States asserts that available data indi cate that Airbus has systematically priced its 
aircraft below Boeing's prices, particularly in seek ing initial customers for new aircraft, trying to 
capture a Boeing account, or trying to win business at a new airline.  According to the United States, 
recent Airbus sales, both in the US market and el sewhere, have driven global LCA prices to new 
lows.  Each new campaign is conducted in the prev ailing price environment, and the United States 
argues that United States' LCA prices are therefor e likely to remain depressed or suppressed for the 
foreseeable future.6079 
7.2183  The European Communities considers that the United States has failed to establish that 
imports are suppressing or depressing prices, and w ould likely increase demand for further imports.  
The European Communities argues th at the United States has failed to demonstrate price suppression 
or depression in the global market, and in view of th e lack of any link between subsidies and any price 
effects, there is no basis for a conclusion that there will be future price effects.6080 
7.2184  It seems clear that prices in the US market  showed declines and suppression during the period 
we are considering.  However, given the complexitie s of pricing in the LCA market, where each sales 
campaign involves considerable negotiation between  customer and manufacturer, we find it difficult 
to draw any conclusions about likely future pricing,  particularly given the evidence of improvements 
in the market and Boeing's order backlog.  Thus, we  conclude that the information before us does not 
demonstrate that subsidized imports are likely to have price depressing or suppressing effects in the 
near future.   
Inventories  
7.2185  The parties are agreed that LCA producers rarely keep inventories, and therefore this factor 
does not suggest any likelihood that imports of subsidized Airbus LCA will increase in the near 
future.6081 
(iv) Conclusion 
7.2186  We have concluded, based on our assessment  of Boeing's operating performance over the 
period examined, that it is not presently materially injured.  Moreover, the improvements in Boeing's 
performance toward the end of the period we examined  appear likely to continue in the near future 
and result in continued strong and even improved perfo rmance, particularly in light of strong demand 
in the market, and the surge in orders obtained by  Boeing in 2005 and 2006.  In addition, Boeing's 
improved efficiency and productivity over the peri od of 2001-2005, as well as increased out-sourcing 
of various operations, also supports the view that  its strong performance as of 2006 is likely to 
continue into the near future.  Lead times for LCA production and de liveries are long, and while it is 
clear that Airbus has, and will continue to have, increased capacity to deliver  subsidized LCA to the 
US market, there is nothing in the information before  us to suggest that any significant increases in 
such imports are likely to occur in the near future .  Moreover, while indexed price levels declined 
during the period 2001-2005, and in 2006 for the 737NG, and prices in the US market were 
suppressed with respect to the US Aircraft Manufacturers' PPI, in view of the many factors that 
                                                      
6079 US, FWS, para. 762. 
6080 EC, FWS, para. 2244. 
6081 See footnote 5912. WT/DS316/R 
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 determine LCA pricing and the increased demand in  the market, as well as the significant number of 
orders Boeing obtained in 2005 and 2006, we cannot c onclude that subsidized imports are likely to 
have price depressing or suppressing effects in the near future.  On balance, therefore, and considering 
all the evidence and arguments before us, we concl ude that the United States has not demonstrated a 
threat of material injury to the United States' LCA industry. 
VIII.  CONCLUSIONS AND RECOMMENDATION 
A. CONCLUSIONS  
8.1 In light of the findings set out in the foregoing sections of our Report, we conclude that the 
United States has established  the following concerning the existence of subsidies: 
(a) concerning the provision of LA/MSF;  
(i) that each of the challenged LA/MSF m easures constitutes a specific subsidy 
within the meaning of Articles 1 and 2 of the SCM Agreement, and 
(ii) that the German, Spanish and UK A 380 LA/MSF measures are subsidies 
contingent in fact upon anticipated export performance, and therefore 
prohibited export subsidies within th e meaning of Article 3.1(a) and 
footnote 4 of the SCM Agreement.   
(b) concerning the provision of infrastructure and infrastructure-related grants; 
(i) that the provision of the Mühlenberger Loch site constitutes a specific 
subsidy within the meaning of Articles 1 and 2 of the SCM Agreement, 
(ii) that the provision of the lengthened Bremen Airport Runway constitutes a 
specific subsidy within the meaning of Articles 1 and 2 of the 
SCM Agreement, 
(iii) that the provision of the ZAC Aéro constellation site and associated EIG 
facilities constitutes a specific subsidy within the meaning of Articles 1 and 2 of the SCM Agreement, and 
(iv) that challenged grants provided by authorities in Germany and Spain for the 
construction of manufacturing and assembly facilities in Nordenham, Germany, and Sevilla, La Rinconada, Toledo, Puerto de Santa Maria and 
Puerto Real, Spain, and by the gove rnments of Andalusia and Castilla-La 
Mancha to Airbus in Puerto Real, Se villa, and Illescas (Toledo) are specific 
subsidies within the meaning of Articles 1 and 2 of the SCM Agreement. 
(c) concerning the German government's transf er of its ownership share in Deutsche 
Airbus to the Daimler Group; 
(i) that the 1989 acquisition by KfW of a 20 percent equity interest in Deutsche 
Airbus is a specific subsidy within the meaning of Articles 1 and 2 of the SCM Agreement, and  WT/DS316/R 
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 (ii) that the 1992 transfer by KfW of its 20 percent equity interest in Deutsche 
Airbus to MBB is a specific subsidy within the meaning of Articles 1 and 2 of the SCM Agreement. 
(d) concerning the equity infusions that the French government and Crédit Lyonnais 
provided to Aérospatiale; 
(i) that the 1987, 1988, 1992 and 1994 equity infusions to Aérospatiale are 
specific subsidies within the meaning of Articles 1 and 2 of the SCM Agreement, and 
(ii) that the 1998 transfer by the French government of its 45.76 percent interest 
in Dassault Aviation to Aérospatiale is a specific subsidy within the meaning 
of Articles 1 and 2 of the SCM Agreement. 
(e) concerning the research and technological development funding provided by the 
European Communities and certain EC member States;  
(i) that grants under the Second, Third, Fourth, Fifth and Sixth EC Framework 
Programmes identified in Annexes I.1, I.2, I.3, I.4 and I.5 are specific 
subsidies within the meaning of Articles 1 and 2 of the SCM Agreement, 
(ii) that French government grants am ounting to a maximum of EUR 391 million 
between 1986 and 1993 and EUR [***] between 1994 and 2005 are specific 
subsidies within the meaning of Articles 1 and 2 of the SCM Agreement, 
(iii) that German Federal government grants under the LuFo I, LuFo II and LuFo 
III programmes amounting to EUR [***] are specific subsidies within the 
meaning of Articles 1 and 2 of the SCM Agreement, 
(iv) that German sub-Federal govern ment grants amounting to EUR [***] from 
the Bavarian authorities unde r the OZB and Bayerisches 
Luftfahrtforschungsprogramm, EUR 11 million from the Bremen authorities 
under the AMST programmes, and EUR [***] from the Hamburg authorities 
under the Luftfahrtforschungsprogramm are specific subsidies within the meaning of Articles 1 and 2 of the SCM Agreement, 
(v) that loans under the Spanish government PROFIT and PTA programmes 
amounting to, respectively, EUR 62.2 million and EUR [***], are specific 
subsidies within the meaning of Articles 1 and 2 of the SCM Agreement, and 
(vi) that UK government grants unde r the CARAD and ARP programmes 
amounting to GBP [***] are specific subsidies within the meaning of 
Articles 1 and 2 of the SCM Agreement. 
8.2 Furthermore, in light of the findings set out in the foregoing sections of our Report, we 
conclude that the United States has established  the following with respect to adverse effects: 
(a) that the effect of the subsidies is to di splace the imports of a like product of the 
United States into the European market with in the meaning of Article 6.3(a) of the 
SCM Agreement, constituting serious prejudice to the interests of the United States within the meaning of Article 5(c) of the SCM Agreement, WT/DS316/R 
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 (b) that the effect of the subsidies is to displace the exports of a like product of the 
United States from the markets of Australia , Brazil, China, Chinese Taipei, Korea, 
Mexico, and Singapore within the meaning of  Article 6.3(b) of the SCM Agreement, 
constituting serious prejudice to the interests of the United States within the meaning 
of Article 5(c) of the SCM Agreement, 
(c) that the effect of the subsidies is likely displacement of exports of a like product of 
the United States from the market of India with in the meaning of Article 6.3(b) of the 
SCM Agreement, constituting a threat of serious prejudice to the interests of the United States within the meaning of Article 5(c) of the SCM Agreement, and 
(d) that the effect of the subsidies is signifi cant lost sales in the same market within the 
meaning of Article 6.3(c) of the SCM Ag reement, constituting serious prejudice to 
the interests of the United States within  the meaning of Article 5(c) of the 
SCM Agreement.   
8.3 On the other hand, in light of the findings set out in the foregoing sections of our Report, we 
conclude that the United States has not established  the following concerning the existence of 
subsidies: 
(a) concerning the provision of LA/MSF; 
(i) the existence, as of July 2005, of a LA/MSF commitment measure for the 
A350 constituting a specific subsidy with in the meaning of Articles 1 and 2 
of the SCM Agreement, 
(ii) that the French A380, French A340-500/600, Spanish A340-500/600 and 
French A330-200 LA/MSF measures are subsidies contingent in fact upon anticipated export performance within the meaning of Article 3.1(a) and 
footnote 4 of the SCM Agreement, 
(iii) that the French A380, German A380, Spanish A380, UK A380, French 
A340-500/600, Spanish A340-500/60 0 and French A330-200 LA/MSF 
measures are subsidies contingent  in law upon anticipated export 
performance within the meaning of Article 3.1(a) and footnote 4 of the SCM Agreement, and 
(iv) the existence of an unwritten LA/M SF Programme measure constituting a 
specific subsidy within the meaning of Articles 1 and 2 of the 
SCM Agreement. 
(b) concerning the challenged EIB Loans; 
(i) that each of the challenged loans and the 2002 credit facility for the A380  
constitutes a specific subsidy within the meaning of Articles 1 and 2 of the SCM Agreement. 
(c) concerning the provision of infrastructure and infrastructure-related grants;  
(i) that the road improvements by French authorities constitute specific subsidies 
within the meaning of Articles 1 and 2 of the SCM Agreement,   WT/DS316/R 
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 (ii) that the GBP 19.5 million provided to Airbus UK in respect of its operations 
in Broughton, Wales, is a specific subsidy within the meaning of Articles 1 and 2 of the SCM Agreement, and 
(iii) that the grant provided by the government of Andalusia to Airbus in Puerto 
Santa Maria is a specific subsidy within the meaning of Articles 1 and 2 of 
the SCM Agreement.  
(d) that the 1998 settlement by the German gove rnment of Deutsche Airbus' government 
debt constitutes a specific subsidy within the meaning of Articles 1 and 2 of the 
SCM Agreement. 
(e) concerning the research and technological development funding provided by the 
European Communities and certain EC member States; 
(i) that the German Federal government's commitment to provide Airbus with 
EUR [***] under the LuFo III programme is a specific subsidy within the 
meaning of Articles 1 and 2 of the SCM Agreement, and 
(ii) that the challenged grants under the UK Technology Programme are specific 
subsidies within the meaning of Articles 1 and 2 of the SCM Agreement. 
8.4 Furthermore, in light of the findings set out in the foregoing sections of our Report, we 
conclude that the United States has not established  the following with respect to adverse effects; 
(a) that the effect of the subsidies is signi ficant price undercutting by the subsidized 
product as compared with the price of a like product of the United States in the same 
market within the meaning of Article 6.3(c) of the SCM Agreement,   
(b) that the effect of the subsidies is significant price suppression within the meaning of 
Article 6.3(c) of the SCM Agreement,   
(c) that the effect of the subsidies is significant price depression within the meaning of 
Article 6.3(c) of the SCM Agreement, and 
(d) that, through the use of the subsidies, the European Communities and certain EC 
member States cause injury to the Unite d States' domestic industry within the 
meaning of Article 5(a) of the SCM Agreement.    
B. R
ECOMMENDATIONS  
8.5 Under Article 3.8 of the DSU, in cases where there is an infringement of the obligations 
assumed under a covered agreement, the action is considered prima facie  to constitute a case of 
nullification or impairment.  We c onclude that, to the extent that the European Communities, France, 
Germany, Spain and the United Kingdom have acted inconsistently with the SCM Agreement, they 
have nullified or impaired benefits accruing to the United States under that Agreement. 
8.6 Article 4.7 of the SCM Agreement provides that , having found a measure in dispute to be a 
prohibited subsidy, a panel " shall  recommend that the subsidizing Member withdraw the subsidy 
without delay" (emphasis added).  Furthermore, that provision provides that a panel " shall specify in 
its recommendation the time-period within which the measure must be withdrawn" (emphasis added).  
Accordingly, taking into account the nature of the pr ohibited subsidies we have found in this dispute, WT/DS316/R 
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 we recommend that the subsidizing Member granting each subsidy found to be prohibited withdraw it 
without delay and specify that this be done within 90 days. 
8.7 Article 7.8 of the SCM Agreement provides that  "{w}here a panel report or an Appellate 
Body report is adopted in which it is determined that  any subsidy has resulted in adverse effects to the 
interests of another Member within the meaning of  Article 5, the Member granting or maintaining 
such subsidy shall take appropriate steps to remove the adverse effects or shall withdraw the subsidy".  
Accordingly, in light of our conclu sions with respect to adverse eff ects set out in paragraph 8.2 above, 
we recommend that, upon adoption of this report, or of an Appellate Body report in this dispute 
determining that any subsidy has resulted in adverse effects to the interests of the United States, the 
Member granting each subsidy found to have resulted in such adverse effects "take appropriate steps 
to remove the adverse effects or ... withdraw the subsidy".  
8.8 Finally, we note that the special and additiona l rules applicable under Parts II and III of the 
SCM Agreement do not require a panel to specify  how the implementation of recommendations under 
Articles 4.7 and 7.8 should be effected by the subsidiz ing Member(s).  In this context, we recall that 
the second sentence of Article 19.1 of the DSU provid es that a panel "may" suggest ways in which a 
recommendation could be implemented. Assumi ng that this provision also applies to 
recommendations under Articles 4.7 and 7.8 of the SCM Agreement, we note the observation of the 
panel in US – Hot Rolled Steel  that the means of implementation is, pursuant to Article 21.3 of the 
DSU, for the Member concerned, in the first instance.6082  Further, the Appellate Body has made clear 
that the second sentence of Article 19.1 "does not oblige panels to make ... a suggestion".6083  In this 
case, it is possible to speculate as to the appro aches that might be used to implement our 
recommendations.  However, in the absence of an y requirement to do so, and given that the 
United States has not even requested that we do so , we do not make any suggestions concerning steps 
that might be taken to implement those recommendations. 
 
_______________ 
 
 
                                                      
6082 Panel Report, US – Hot-Rolled Steel , para. 8.11.    
6083 Appellate Body Report, US – Anti-Dumping Measures on Oil Country Tubular Goods , para. 189.