UNITED STATES – MEASURES AFFECTING TRADE IN LARGE CIVIL AIRCRAFT
Document: Request for the Establishment of a Panel by the European Communities
Date: 23 January 2006
Document codes: WT/DS317/5
Complainant: EU
Respondent: U.S.
Third parties: Australia, Brazil, Canada, China, Japan, South Korea
Dispute stage: Panel
Agreements cited: Art. 3.1, 3.2, 5, 6.3  Subsidies and Countervailing Measures (SCM)Art. III:4  GATT 1994

UNITED STATES – MEASURES AFFECTING TRADE
IN LARGE CIVIL AIRCRAFT

Request for the Establishment of a Panel by the European Communities

 The following communication, dated 20 January 2006, from the delegation of the European
Communities to the Chairman of the Dispute Settlement Body, is circulated pursuant to Article 6.2 of
the DSU.

 On 6 October 2004 the European Communities (" EC") requested consultations in the above
matter with the United States ("US") pursuan t to Articles 4.1, 7.1, and 30 of the Agreement on
Subsidies and Countervailing Measures (" SCM Agreement "), Article XXIII:1 of the General
Agreement on Tariffs and Trade 1994 (" GATT 1994"), and Article 4 of the Understanding on Rules
and Procedures Governing the Settlement of Disputes ("DSU").
1 Consultations were held on
5 November 2004 but failed to resolve the dispute.

 At the meeting of the Dispute Settlement Body ("DSB") on 13 June concerning the request
for establishment of the panel in the above case
2 the US asserted without any explanation that 13 of
the 28 subsidy programs referenced in the panel requ est were not listed in the consultation request of
6 October 2004 and could not be the subject of pane l proceedings. The EC did not agree with this
unfounded contention but expressed its readiness to c ontinue consultations in order to clarify and
resolve the issues, it being understood that this was without prejudice to the EC's legal position and
rights. Accordingly, the EC on 27 June 2005 request ed a continuation of the consultations held on 5
November 2004.3

 The requested continued consultations were held on 3 August 2005 but failed to resolve the
dispute.

 Regrettably, the US decided to use its unfoun ded procedural objections further to undermine
the Annex V proceeding initiated in this matter by the DSB on 23 September 2005. In particular, the
US decided not to provide answers on measures that the US unilaterally determined to be outside the
scope of the dispute. In addition, the US repeated ly blocked endeavours by th e EC to have the Panel
rule authoritatively on the scope of the dispute.

 As a result, the EC has been deprived of its rights under the SCM Agreement to obtain the
necessary information with respect to approximate ly half of the measures involved. This has
seriously undermined the due process rights of the EC and its ability to prepare its case against the
US.

1 Circulated as document WT/DS317/1 on 12 October 2004.
2 Circulated as document WT/DS317/2 on 3 June 2005.
3 Circulated as document WT/DS317/1/Add.1 on 1 July 2005.

 To resolve this situation, the EC, in good fa ith and in an effort to resolve the dispute
efficiently, hereby requests that a panel be established pursuant to Article 6 of the DSU;
Article XXIII:2 of GATT 1994; and Articles 4, 7, and 30 of the SCM Agreement (to the extent that
Article 30 incorporates by reference Article XXIII of GATT 1994) to consider the matter described
below. This request is without prejudice to th e EC's position that all th e measures described below
are already properly before the Panel that was es tablished on 20 July 2005. The EC has already
contacted the US in order to discuss how most effici ently to follow up on this request in the light of
the developments described above and is prepared to continue these discussions with a view to
ensuring a prompt and positive solution to this dispute.

 This dispute concerns prohib ited and actionable subsidies provi ded to and benefiting the US
producers of large civil aircraft
4 (the "US LCA industry"), including, in particular, the Boeing
Company ("Boeing") and McDonnell Douglas Corporati on prior to its merger with Boeing. The
measures are currently reflected in and derive from the following:

1. State and Local Subsidies

 US States and local authorities, where resea rch, development, production and headquarter
facilities of the US LCA industry are located, transf er in various ways economic resources to the US
LCA industry.

 These economic resources include numerous fi nancial incentives and other advantages
effectuated, for example, through tax breaks, bond financing, fee waivers, lease arrangements,
corporate headquarters relocation assistance, rese arch funding, infrastructure measures and other
benefits.

 Such States and local authorities include, but are not limited to the States of Washington,
Kansas and Illinois and local authorities therein.

a. State of Washington

Governmental authorities in the State of Washington, including municipalities and public
bodies therein, such as Snohomish County, the Port of Everett, and the City of Everett, provide to the
US LCA industry an incentive package of measures benefiting the development, production and sales
of US LCA. These incentives include but are not limited to ta x and other advantages reflected in or
pursuant to, inter alia:

– Washington House Bill No. 2294 (2003);

– Memorandum of Agreement for Project Olympus between Boeing and the
State of Washington of 19 December 2003;

4 In accordance with the 1992 Agreement between the European Communities and the Government of
the United States of America concerning the application of the GATT Agreement on Trade in Civil Aircraft on
trade in large civil aircraft, large civil aircraft ("LCA") includes all aircraft as defined in Article 1 of the GATT
Agreement on Trade in Civil Aircraft, except engines as defined in Article 1.1(b) thereof, that are designed for
passenger or cargo transportation and have 100 or more passenger seats or its equivalent in cargo configuration.
Boeing produces or markets the following families of LCA: 717, 737, 747, 757, 767, 777, and 787.

– The Master Site Development and Location Agreement between Boeing and
the State of Washington of 19 December 2003;

– The First Amendment to the Master Site Development and Location
Agreement of 2 February 2004, and any subsequent amendments; and

– City of Everett Ordinance 2759-04 (2004), amending Chapter 3.24 of the
Everett Municipal Code.

b. State of Kansas

 Governmental authorities in the State of Kansas, including municipalities and public bodies
therein, such as Sedgwick County, the City of Wichita, and local school districts, provide incentives,
including bond financing, tax benefits and other advantages, to the US LCA industry, inter alia ,
through the following:

– Bond financing and payments pursuant to the Economic Revitalization and
Reinvestment Act – Kansas Senate Bill No. 281 (2003), codified at K.S.A. §§
74-50,136 et seq. (2004), as reflected in, inter alia:

• A Resolution of the Kansas Development Finance Authority
Declaring an Intent to Issue its Revenue Bonds to Finance a Project
on behalf of Mid-Western Aircraft Systems, Inc., adopted 9 June
2005;

• Incentive Agreement Between the Kansas Department of Commerce
and Spirit Aerosystems Inc., date d as of 30 June 2005, signed by
Spirit Aerosystems Inc. on 7 October 2005 and 10 October 2005,
signed by the Kansas Department of Commerce on 11 October 2005;

• State of Kansas, State Finance Council Resolution No. 05-544, 18
October 2005; and

• Bond Resolution No. 222 Authorizing the Kansas Development
Finance Authority To Issue Its Kansas Development Finance
Authority Revenue Bonds (Spirit AeroSystems, Inc. Project)
(adopted 5 December 2005).

– Property and sales tax abatements pursu ant to K.S.A. § 79-201a, as amended,
K.S.A. § 79-3606, as amended, and K.S.A. § 79-3640, as amended,
associated with Industrial Revenue Bonds ("IRBs") issued for the financing
of US LCA industry projects by the City of Wichita pursuant to K.S.A. §§
12-1740 et seq., as amended, including, but not limited to, those authorized
by the following Ordinances of the Wichita City Council:

• Wichita City Council Ordinance No. 46-818 authorizing $80 million
in IRBs for Spirit Aerosystems, Inc., dated 15 November 2005;

• Wichita City Council Ordinance No. 46-817 authorizing $29 million
in IRBs for Boeing, dated 15 November 2005;

• Wichita City Council Ordinance No. 46-401 authorizing $67 million
in IRBs for Boeing, dated 16 November 2004;

• Wichita City Council Ordinance No. 45-914 authorizing $60 million
in IRBs for Boeing, dated 18 November 2003;

• Wichita City Council Ordinance No. 45-495 authorizing $96 million
in IRBs for Boeing, dated 19 November 2002;

• Wichita City Council Ordinance No. 45-133 authorizing $84 million
in IRBs for Boeing, dated 20 November 2001;

• Wichita City Council Ordinance No. 44-811 authorizing $41 million
in IRBs for Boeing, dated 21 November 2000;

• Wichita City Council Ordinance No. 44-428 authorizing $155
million in IRBs for Boeing, dated 23 November 1999;

• Wichita City Council Ordinance No. 44-102 authorizing $350
million in IRBs for Boeing, dated 8 December 1998;

• Wichita City Council Ordinance No. 43-642 authorizing $340
million in IRBs for Boeing, dated 25 November 1997;

• Wichita City Council Ordinance No. 43-325 authorizing $194
million in IRBs for Boeing, dated 26 November 1996;

• Wichita City Council Ordinance No. 42-949 authorizing $201
million in IRBs for Boeing, dated 14 November 1995;

• Wichita City Council Ordinance No. 42-553 authorizing $280
million in IRBs for Boeing, dated 15 November 1994;

• Wichita City Council Ordinance No. 42-228 authorizing $292
million in IRBs for Boeing, dated 30 November 1993;

• Wichita City Council Ordinance No. 41-916 authorizing $274
million in IRBs for Boeing, dated 8 December 1992; and

• Wichita City Council Ordinance No. 41-592 authorizing $206
million in IRBs for Boeing, dated 26 November 1991.

Letters of intent for IRBs for the US LCA industry, including, but not limited
to, those issued pursuant to actions of the Wichita City Council taken on 17 May
2005, 13 July 2004, 9 November 1999, 13 February 1996, 24 March 1992,
5 December 1989, 21 December 1982, 9 June 1981, and 23 October 1979.

– Funding provided by the State of Kansas, Kansas Technology Enterprise
Corporation ("KTEC"), and the Federal Government to the National Institute
for Aviation Research at Wichita State University for collaborations with the
US LCA industry.

c. State of Illinois

Governmental authorities in the State of Illinois, including municipalities and public bodies
therein, such as Cook County and the City of Ch icago, provide incentives, including tax incentives,
relocation assistance and other advantages, to the US LCA industry, including but not limited to:

– Tax credits from the State of Illinois pursuant to the Economic Development
for a Growing Economy Tax Credit Act, Public Act 91-0476, as amended, 35
Ill. Comp. Stat. §§ 5/211 et seq., and 35 Ill. Comp. Stat. § 10/5-45;

– Reimbursement of relocation expenses and other benefits from the State of
Illinois pursuant to the Corporate Headquarters Relocation Act, Public Act
92-0207;

– Payments from the State of Illinois pu rsuant to the Illinois Large Business
Development Act, Ill. Rev. Stat. 1989, ch. 127, paras. 2710-1 et seq., and 14
Ill. Admin. Code §§ 590.10 et seq.

– Payments from the State of Illinois pursuant to the Illinois Industrial Training
Program, 20 Ill. Comp. Stat. § 605/605 -800, and 56 Ill. Admin. Code §§
2650.10 et seq.

– Payments from the State of Illinois pursuant to the Technology Challenge
Grant Program, 20 Ill. Comp. Stat. §§ 700/2001 et seq., and 14 Ill. Admin.
Code §§ 545.110 et seq.

– Property tax abatements from Cook Co unty pursuant to § 920 of the above-
mentioned Corporate Headquarters Reloca tion Act, Public Act 92-0207, § 18
of the Property Tax Code, 35 Ill. Comp. Stat. §§ 200/1 et seq. , as amended,
and an Ordinance of the County of Cook, Illinois Approving Execution of a
Tax Reimbursement Payment Agreement with the Boeing Company (2001);

– Property tax abatements from the City of Chicago pursuant to § 920 of the
above-mentioned Corporate Headquarter s Relocation Act, Public Act 92-
0207, § 18 of the Property Tax Code, 35 Ill. Comp. Stat. §§ 200/1 et seq., as
amended, and an Ordinance of the City of Chicago, Illinois Approving
Execution of a Tax Reimbursement Payment Agreement with the Boeing
Company (2001); and

– Payments by the City of Chicago pursuant to the Lease Termination
Compensation Agreement between 100 North Riverside, LLC, and the City
of Chicago, 13 January 2001.

2. NASA Subsidies

The National Aeronautics and Space Administration ("NASA"), acting on the basis of the
National Aeronautics and Space Act of 1958, Pub. L. No. 85-568, as amended, transfers economic
resources on terms more favourable than available on the market or not at arm's length to the US LCA
industry, inter alia, by:

a. allowing the US LCA industry to par ticipate in research programmes, making
payments to the US LCA industry under those programmes, or enabling the US LCA
industry to exploit the results thereof by means including but not limited to the
foregoing or waiving of valuable patent rights, the granting of limited exclusive rights
data ("LERD") or otherwise exclusive or early access to data, trade secrets and other
knowledge resulting from government funded research. The following are examples
of such NASA programmes:

(i) High Speed Research Program

• NASA Budget Requests for FY 1990 – FY 2001;

• NASA Appropriations Acts, Pub. L. No. 101-144 (FY 1990); Pub. L. No. 101-507
(FY 1991); Pub. L. No. 102-139 (FY 1992); Pub. L. No. 102-389 (FY 1993); Pub. L.
No. 103-124 (FY 1994); Pub. L. No. 103-327 (FY 1995); Pub. L. No. 104-134 (FY
1996); Pub. L. No. 104-204 (FY 1997); Pub. L. No. 105-65 (FY 1998); Pub. L. No.
105-276 (FY 1999);

• High Speed Research Program Technology Transfer Control Handbook, April 1998.

(ii) Advanced Subsonic Technology Program

• NASA Budget Requests for FY 1992 – FY 2001;

• NASA Appropriations Acts, Pub. L. No. 102-139 (FY 1992); Pub. L. No. 102-389
(FY 1993); Pub. L. No. 103-124 (FY 1994); Pub. L. No. 103-327 (FY 1995); Pub. L.
No. 104-134 (FY 1996); Pub. L. No. 104-204 (FY 1997); Pub. L. No. 105-65 (FY
1998); Pub. L. No. 105-276 (FY 1999);

• Advanced Subsonic Technology Program Technology Transfer Control Handbook,
August 1998.

(iii) Aviation Safety Program/Aviation Safety & Security Program/Aviation Security &
Safety Program

• NASA Budget Requests for FY 2000 – FY 2007;

• NASA Appropriations and Authorization Ac ts, Pub. L. No. 106-74 (FY 2000); Pub.
L. No. 106-377 (FY 2001); Pub. L. No. 107-73 & Pub. L. No. 107-117 (FY 2002);
Pub. L. No. 108-7 (FY 2003); Pub. L. No. 108-199 (FY 2004); Pub. L. No. 108-447
(FY 2005); Pub. L. No. 109-108 (FY 2006); Pub. L. No. 109-155 (FY 2007 – FY
2008).

(iv) Quiet Aircraft Technology Program

• NASA Budget Requests for FY 2000 – FY 2007;

• NASA Appropriations and Authorization Ac ts, Pub. L. No. 106-74 (FY 2000); Pub.
L. No. 106-377 (FY 2001); Pub. L. No. 107-73 & Pub. L. No. 107-117 (FY 2002);
Pub. L. No. 108-7 (FY 2003); Pub. L. No. 108-199 (FY 2004); Pub. L. No. 108-447
(FY 2005); Pub. L. No. 109-108 (FY 2006); Pub. L. No. 109-155 (FY 2007 – FY
2008).

(v) High Performance Computing and Communications Program

• NASA Budget Requests for FY 1991 – FY 2003;

• NASA Appropriations Acts, Pub. L. No. 101-507 (FY 1991); Pub. L. No. 102-139
(FY 1992); Pub. L. No. 102-389 (FY 1993); Pub. L. No. 103-124 (FY 1994); Pub. L.
No. 103-327 (FY 1995); Pub. L. No. 104-134 (FY 1996); Pub. L. No. 104-204 (FY
1997); Pub. L. No. 105-65 (FY 1998); Pub. L. No. 105-276 (FY 1999); Pub. L. No.
106-74 (FY 2000); Pub. L. No. 106-377 (FY 2001).

(vi) Research & Technology Base Program

• NASA Budget Requests for FY 1991 – FY 2004;

• NASA Appropriations Acts, Pub. L. No. 101-507 (FY 1991); Pub. L. No. 102-139
(FY 1992); Pub. L. No. 102-389 (FY 1993); Pub. L. No. 103-124 (FY 1994); Pub. L.
No. 103-327 (FY 1995); Pub. L. No. 104-134 (FY 1996); Pub. L. No. 104-204 (FY
1997); Pub. L. No. 105-65 (FY 1998); Pub. L. No. 105-276 (FY 1999); Pub. L. No.
106-74 (FY 2000); Pub. L. No. 106-377 (FY 2001); Pub. L. No. 107-73 & Pub. L.
No. 107-117 (FY 2002).

(vii) Advanced Composites Technology Program

• NASA Budget Requests for FY 1994 – FY 1997;

• NASA Appropriations Acts, Pub. L. No. 103-124 (FY 1994); Pub. L. No. 103-327
(FY 1995).

(viii) Vehicle Systems Program

• NASA Budget Requests for FY 2003 – FY 2007;

• NASA Appropriations and Authorization Acts, Pub. L. No. 108-7 (FY 2003); Pub. L.
No. 108-199 (FY 2004); Pub. L. No. 108-447 (FY 2005); Pub. L. No. 109-108 (FY
2006); Pub. L. No. 109-155 (FY 2007 – FY 2008).

(ix) Materials and Structures Systems Technology Program, including advanced
composites materials and structures research

• NASA Budget Requests for FY 1988 – FY 1995;

• NASA Appropriations Acts, Pub. L. No. 100-202 (FY 1988); Pub. L. No. 100-404
(FY 1989); Pub. L. No. 101-144 (FY 1990); Pub. L. No. 101-507 (FY 1991); Pub. L.
No. 102-139 (FY 1992); Pub. L. No. 102-389 (FY 1993).

(x) Aircraft Energy Efficiency Program, including Composite Primary Aircraft
Structures, Transport Aircraft Systems Technology, and Advanced Composite
Structures Technology Programs

• NASA Budget Requests for FY 1976 – FY 1987;

• NASA Appropriations Acts, Pub. L. No. 94-116 (FY 1976); Pub. L. No. 94-378 (FY
1977); Pub. L. No. 95-119 (FY 1978); Pub. L. No. 95-392 (FY 1979); Pub. L. No. 96-
103 (FY 1980); Pub. L. No. 96-526 (FY 1981); Pub. L. No. 97-101 (FY 1982); Pub.
L. No. 97-272 (FY 1983); Pub. L. No. 98-45 (FY 1984); Pub. L. No. 98-371 (FY
1985).

b. providing the services of NASA employees, facilities, and equipment to support the
R&D programmes listed above and paying salaries, personnel costs, and other
institutional support, thereby providing valu able services to the US LCA industry on
terms more favourable than available on the market or not at arm's length:

• NASA Budget Requests for FY 1976 – FY 2007;

• NASA Appropriations and Authorization Ac ts, Pub. L. No. 94-116 (FY 1976); Pub.
L. No. 94-378 (FY 1977); Pub. L. No. 95-119 (FY 1978); Pub. L. No. 95-392 (FY
1979); Pub. L. No. 96-103 (FY 1980); Pub. L. No. 96-526 (FY 1981); Pub. L. No. 97-
101 (FY 1982); Pub. L. No. 97-272 (FY 1983); Pub. L. No. 98-45 (FY 1984); Pub. L.
No. 98-371 (FY 1985); Pub. L. No. 99-160 (FY 1986); Pub. L. No. 99-500 & Pub. L.
No. 99-591 (FY 1987); Pub. L. No. 100-202 (FY 1988); Pub. L. No. 100-404 (FY
1989); Pub. L. No. 101-144 (FY 1990); Pub. L. No. 101-507 (FY 1991); Pub. L. No.
102-139 (FY 1992); Pub. L. No. 102-389 (FY 1993); Pub. L. No. 103-124 (FY 1994);
Pub. L. No. 103-327 (FY 1995); Pub. L. No. 104-134 (FY 1996); Pub. L. No. 104-
204 (FY 1997); Pub. L. No. 105-65 (FY 1998); Pub. L. No. 105-276 (FY 1999); Pub.
L. No. 106-74 (FY 2000); Pub. L. No. 106-377 (FY 2001); Pub. L. No. 107-73 &
Pub. L. No. 107-117 (FY 2002); Pub. L. No. 108-7 (FY 2003); Pub. L. No. 108-199
(FY 2004); Pub. L. No. 108-447 (FY 2005); Pub. L. No. 109-108 (FY 2006); Pub. L.
No. 109-155 (FY 2007 – FY 2008).

c. providing NASA Independent Research & Development, and Bid & Proposal
Reimbursements:

• 48 CFR § 31.205-18;

• 14 CFR § 1274.204(g);

• 48 CFR §§ 9904.420 et seq.

d. allowing the US LCA industry to use th e research, test and evaluation facilities
owned by the US Government, including NASA wind tunnels, in particular the
Langley Research Center.

e. entering into procurement contracts with the US LCA industry for more than
adequate remuneration.

f. granting the US LCA industry exclusive or early access to data, trade secrets, and
other knowledge resulting from government funded research pursuant, inter alia, to:

• Requirements for Documentation, Approval, and Dissemination of NASA Scientific
and Technical Information, section 4.5.7.1 (NPG 2200.2A);

• 48 CFR §§ 27.400 et seq.

g. allowing the US LCA industry to exploit the results of government funded research,
including, but not limited to, the foregoing or waiving of valuable patent rights or
rights in data as such, pursuant, inter alia, to:

• 35 U.S.C. §§ 200 et seq.;

• 48 CFR §§ 27.300 et seq.;

• Memorandum to the Heads of Executive De partments and Agencies: Government
Patent Policy, Pub. Papers 248 (18 February 1983);

• Executive Order 12591 (10 April 1987);

• 14 CFR §§ 1245.100 et seq.;

• 14 CFR §§ 1274.911 - 1274.914;

• 48 CFR §§ 1827.301 et seq.;

• 48 CFR §§ 27.400 et seq.

3. Department of Defense Subsidies

The Department of Defense ("DOD") transfers economic resources to the US LCA industry
on terms more favourable than available on the market or not at arm's length, inter alia, by:

a. allowing the US LCA industry to participate in DOD-funded research, making
payments to the US LCA industry for su ch research, or enabling the US LCA
industry to exploit the results of such res earch, by means including but not limited to
the foregoing or waiving of valuable patent rights, and the granting of exclusive or
early access to data, trade secrets and other knowledge resulting from government
funded research, through, for example:

(i) A number of Research, Development, Test, and Evaluation ("RDT&E") Programs of
the US Air Force, Navy, Army, and the Defense Advanced Research Projects Agency
("DARPA") including, but not limited to:

• Defense Research Sciences (PE# 0601102F)
• Materials (PE# 0602102F)
• Aerospace Flight Dynamics and Aerospace Vehicle Technologies (PE# 0602201F)
• Aerospace Propulsion (PE# 0602203F)
• Aerospace Sensors (PE# 0602204F)
•
 Dual Use Applications and Dual Use Science & Technology (PE# 0602805F)
• Advanced Materials for Weapon Systems (PE# 0603112F)
• Flight Vehicle Technology (PE# 0603205F)
• Aerospace Structures and Aerospace Technology Dev/Demo (PE# 0603211F)
• Aerospace Propulsion & Power Technology (PE# 0603216F)
• Flight Vehicle Technology Integration (PE# 0603245F)
• RDT&E For Aging Aircraft (PE# 0605011F)
• Manufacturing Technology/Industrial Preparedness (PE#
0603771F/0708011F/0708011N)

• C-17 (PE# 0401130F/0604231F)
• CV-22 (PE# 0401318F)
• Joint Strike Fighter (PE#0603800F/0603800N/0603800E/0604800F/0604800N)
• AV-8B Aircraft (PE# 0604214N)
• Comanche (PE# 0604223A)
• F-22 (PE# 0604239F)
• B-2 Advanced Technology Bomber (PE# 0604240F)
• V-22 (PE# 0604262N)
• A-6 Squadrons (PE# 0204134N)
• F/A-18 Squadrons (PE# 0204136N)
• Dual Use Applications Program (incl uding its predecessor, the Technology
Reinvestment Project).

These Programmes are currently reflected in, inter alia:

• DOD RDT&E Budget Item Justification, Exhibits R-2, FY 1991 – FY 2007;

• DOD FY 1991 – FY 2007 Budgets for RDT&E Programs (Exhibit R-1), DOD
Component Summary;

• 10 U.S.C. § 2521 (statutory basis for Manufacturing Technology Program);

• 10 U.S.C. § 2511 (statutory basis for Dual Use Programs);

• DOD Appropriations Acts, Pub. L. No. 101-511 (FY 1991); Pub. L. No. 102-172 (FY
1992); Pub. L. No. 102-396 (FY 1993); Pub. L. No. 103-139 (FY 1994); Pub. L. No.
103-335 (FY 1995); Pub. L. No. 104-61 (FY 1996); Pub. L. No. 104-208 (FY 1997);
Pub. L. No. 105-56 (FY 1998); Pub. L. No. 105-262 (FY 1999); Pub. L. No. 106-79
(FY 2000); Pub. L. No. 106-259 (FY 2001); Pub. L. No. 107-117 (FY 2002); Pub. L.
No. 107-248 (FY 2003); Pub. L. No. 108-87 (FY 2004); Pub. L. No. 108-287 (FY
2005); Pub. L. No. 109-148 (FY 2006).

(ii) providing Independent Research & Development, and Bid & Proposal
Reimbursements.

• 10 U.S.C. § 2372;

• 48 CFR § 31.205-18;

• 48 CFR § 231.205-18;

• 48 CFR §§ 9904.420 et seq.;

• Department of Defense Directive Regarding IR&D, Number 3204.1 (10 May 1999);

• DOD Appropriations Acts, Pub. L. No. 101-511 (FY 1991); Pub. L. No. 102-172 (FY
1992); Pub. L. No. 102-396 (FY 1993); Pub. L. No. 103-139 (FY 1994); Pub. L. No.
103-335 (FY 1995); Pub. L. No. 104-61 (FY 1996); Pub. L. No. 104-208 (FY 1997);
Pub. L. No. 105-56 (FY 1998); Pub. L. No. 105-262 (FY 1999); Pub. L. No. 106-79
(FY 2000); Pub. L. No. 106-259 (FY 2001); Pub. L. No. 107-117 (FY 2002); Pub. L.

No. 107-248 (FY 2003); Pub. L. No. 108-87 (FY 2004); Pub. L. No. 108-287 (FY
2005); Pub. L. No. 109-148 (FY 2006).

b. allowing the US LCA industry to use research, test and evaluation facilities owned by
the US Government, including the Major Range Test Facility Bases.

c. entering into procurement contracts, including those for the purchase of goods, from
the US LCA industry for more than adequate remuneration, including in particular
but not limited to the US Air Force contract with Boeing for the purchase of certain
spare parts for its Airborne Warning a nd Control System (AWACS) aircraft, the
National Polar-orbiting Operational E nvironmental Satellite System-Conical
Microwave Imager Sensor, the C-22 Repl acement Program (C-40), the KC-135
Programmed Depot Maintenance, the C-40 Lease and Purchase Program, the C-130
avionics modernisation upgrade program, th e C-17 H22 contract (Boeing BC-17X),
the US Navy contract with Boeing for the production and maintenance of 108 civil B-
737 and their conversion into long-range submarine hunter Multi-Mission Aircraft,
the Missile Defense Agency's Airborne Laser (ABL) Program, and the Army's
Comanche Program.

d. by allowing the US LCA industry to exploit the results of government funded
research, including, but not limited to, the foregoing or waiving of valuable patent
rights or rights in data as such, pursuant, inter alia, to:

• 35 U.S.C. §§ 200 et seq.;

• 48 CFR §§ 27.300 et seq.;

• Memorandum to the Heads of Executive De partments and Agencies: Government
Patent Policy, Pub. Papers 248 (18 February 1983);

• Executive Order 12591 (10 April 1987);

• 48 CFR §§ 227.303 et seq.;

• 48 CFR §§ 27.400 et seq.;

• 48 CFR §§ 227.7100 et seq.

4. National Institute of Standards & Techno logy (US Department of Commerce) Subsidies

 The US Department of Commerce ("DOC") transfers economic resources to the US LCA
industry on terms more favourable than available on the market or not at arm's length, through the
Advanced Technology Program operated pursuant to the Omnibus Trade and Competitiveness Act of
1988, Pub. L. No. 100-418, as amended, and th e American Technology Preeminence Act of 1991,
Pub. L. No. 102-245 and 15 CFR §§ 295.1 et seq., by allowing the US LCA industry to participate in
this programme, making payments to the US LCA in dustry under this programme, or allowing the US
LCA industry to exploit the results of this progr amme, including but not limited to the foregoing or
waiving of valuable patent rights, and the grantin g of exclusive or early access to data, trade secrets
and other knowledge resulting from government funded research. In particular, economic resources
are transferred to the US LCA industry through a number of projects, including, but not limited to, the
following:

• Project 93-01-0089 (CVD Diamond-Coated Rotating Tools for Machining Advanced
Composite Materials);

• Project 95-12-0024 (An Agent-Based Framewor k for Integrated Intelligent Planning
– Execution);

• Project 95-01-0108 (Precision Optoelectronics Assembly);

• Project 91-01-0267 (Pre-competitive Adva nced Manufacturing of Electrical
Products);

• Project 97-05-0020 (Extended Enterprise Coalition for Integrated Collaborative
Manufacturing Systems);

• Project 98-01-0168 (Hot Metal Gas Forming);

• Project 90-01-0126 (Solid-State Laser Technology for Point Source X-Ray
Lithography);

• Project 95-02-0036 (Plasma-Based Processing of Lightweight Materials for Motor-
Vehicle Components and Manufacturing Applications).

5. US Department of Labor

 The US Department of Labor transfers econom ic resources to the US LCA industry on terms
more favourable than available on the market or not at arm's length, through the Aerospace Industry
Initiative, an element of the President's High Grow th Training Initiative, under the authority of the
Workforce Investment Act, Pub. L. No. 105-220 (1998), by granting to Edmonds Community College
in the State of Washington funds for the training of aerospace industry workers associated with the
Boeing 787.

6. Federal tax incentives

 The US Government transfers economic r esources to the US LCA industry through the
federal tax system, and in particular through the following tax measures:

a. Sections 921-927 of the Internal Revenue C ode (prior to repeal) and related measures
establishing special tax treatment for "Foreign Sales Corporations" ("FSCs");

b. FSC Repeal and Extraterritorial Income Exclusion Act of 2000, Pub. L. No. 106-519; and

c. American Jobs Creation Act of 2004, Pub. L. No. 108-357.

 The European Communities considers that th e above measures are inconsistent with the
obligations of the US under the following provisions:

 (1) Articles 3.1(a), 3.1(b) and 3.2 of the SCM Agreement;

 (2) Article 5(a) of the SCM Agreement;

 (3) Articles 5(c), 6.3(a), 6.3(b) and 6.3(c) of the SCM Agreement;

 (4) Article III:4 of the GATT 1994.

 The European Communities is of the view that the above measures, reflected in the US, State,
and local statutes, regulations, administrative pro cedures, and other programmes and policies as listed
above, including any relevant subsequent amendmen ts thereof or successory acts, are inconsistent
with these provisions as such and as applied.

 The measures listed above are subsidies b ecause in each instance there is a financial
contribution by the US, State or local government, and a benefit is there by conferred within the
meaning of Article 1.1(a)(1) and (b) of the SCM Agreement. They benefit and will continue to benefit
in the future the development, production, sale, a nd export of each of the individual subsidised LCA
products of the US LCA industry. Each of the lis ted subsidies is specific to the US LCA industry
within the meaning of Article 2 of the SCM Agreement.

 The subsidies listed above are de jure or de facto export contingent, and contingent on the use
of domestic over imported goods.

 The use of these measures causes adverse effects – i.e., material injury or threat of material
injury to the European Community LCA industry – and serious prejudice including threat of serious
prejudice to the interests of the European Communiti es within the meaning of Article 5(a) and (c) of
the SCM Agreement, because, inter alia:

– The effect of the measures is material inju ry, or a threat thereof, in violation of
Article 5(a) of the SCM Agreement;

 – The effect of the measures is a significa nt price undercutting by subsidised products
of the US LCA industry as compared w ith the price of competing European
Community LCA products in the world, European Community, US, and third country
markets where US and Community producers compete, or a threat thereof, in
violation of Articles 5(c) and 6.3(c) of the SCM Agreement;

– The effect of the measures is significant depression and suppression of the prices of
competing European Community LCA products in the world, European Community,
US, and third country markets where US and Community producers compete, or a
threat thereof, in violation of Articles 5(c) and 6.3(c) of the SCM Agreement;

 – The effect of the measures is significant lost sales of competing European
Community LCA products in the world, European Community, US, and third country
markets where US and Community producers compete, or a threat thereof, in
violation of Articles 5(c) and 6.3(c) of the SCM Agreement;

 – The effect of the measures is to displa ce or impede exports of competing European
Community LCA products in the US market, or a threat thereof, in violation of
Articles 5(c) and 6.3(a) of the SCM Agreement;

 – The effect of the measures is to displa ce or impede exports of competing European
Community LCA products in third country markets, or a threat thereof, in violation of
Articles 5(c) and 6.3(b) of the SCM Agreement.

 The above measures are neither justified unde r any provision of a covered agreement,
including the Agreement on Trade in Civil Aircraft , nor under the 1992 Agreement between the
European Communities and the Government of the United States of America concerning the
application of the GATT Agreement on Trade in Civil Aircraft on trade in large civil aircraft.

 The European Communities requests that a pa nel be established with standard terms of
reference, in accordance with Articles 4.4 and 7.4 of the SCM Agreement and Article 7 of the DSU.

 The European Communities asks that a special meeting of the Dispute Settlement Body be
convened on Thursday 2 February 2006 and that th is request for the establishment of a panel be
placed on the agenda of that meeting.

 Finally, the European Communities requests that the DSB, together with the establishment of
the panel, initiate the procedures for developi ng information concerning serious prejudice under
Annex V of the SCM Agreement. This request is without prejudice to the EC's position that all the
measures described above are already properly befo re the Panel that was established on 20 July 2005
and therefore were covered by the Annex V proceed ing initiated by the DSB on 23 September 2005.
The EC is prepared to discuss together with th e Representative designated by the DSB to serve the
function of facilitating the information-gathering pr ocess, pursuant to paragraph 4 of Annex V of the
SCM Agreement , Mr. Mateo Diego-Fernandez, and with the US, how the Annex V process can be
pursued most efficiently.