STATES – MEASURES AFFECTING TRADE IN LARGE CIVIL AIRCRAFT
Document: Report of the Appellate Body
Date: 18 May 2011
Document codes: WT/DS316/AB/R
Complainant: U.S.
Respondent: EU, France, Germany, Spain, United Kingdom
Third parties: Australia, Brazil, Canada, China, Japan, South Korea
Dispute stage: Retaliation & Arbitration
Agreements cited: Art. 3.1, 3.2, 5, 6.3  Subsidies and Countervailing Measures (SCM)Art. XVI:1  GATT 1994Art. 1, 2  Subsidies and Countervailing Measures (SCM)Art. III:4  GATT 1994

EUROPEAN COMMUNITIES AND CERTAIN MEMBER
STATES – MEASURES AFFECTING TRADE IN
LARGE CIVIL AIRCRAFT

AB-2010-1

Report of the Appellate Body
BCI deleted, as indicated [***]

W
ORLD TRADE ORGANIZATION
APPELLATE BODY

European Communities and Certain Member

European Union
1, Appellant/Appellee
United States, Other Appellant/Appellee

Australia, Third participant
Brazil, Third participant
Canada, Third participant
China, Third participant
Japan, Third participant
Korea, Third participant
 AB-2010-1

 Present:

 Unterhalter, Presiding Member
 Bautista, Member
 Van den Bossche, Member

I. Introduction
1. The European Union and the United States each appeals certain issues of law and legal
interpretations developed in the Panel Report, European Communities and Certain Member (the "Panel Report").
2 The Panel was established,
on 20 July 2005, to consider a complaint by the Unite d States that a series of measures adopted by the

1This dispute began before the entry into force of the Treaty of Lisbon amending the Treaty on
European Union and the Treaty establishing the European Community (done at Lisbon, 13 December 2007) on
1 December 2009. On 29 November 2009, the World Tr ade Organization received a Verbal Note (WT/L/779)
from the Council of the European Union and the Commission of the European Communities stating that, by
virtue of the Treaty of Lisbon , as of 1 December 2009, the "Europ ean Union" replaces and succeeds the
"European Community". On 13 Ju ly 2010, the World Trade Organiza tion received a second Verbal Note
(WT/Let/679) from the Council of the European Union confirming that, with effect from 1 December 2009, the
European Union replaced the European Community and assumed all the rights and obligations of the
European Community in re spect of all Agreements for which the Director-Gen eral of the World Trade
Organization is the depositary and to which the European Community is a signatory or a contracting party. We
understand the reference in the Verbal Notes to the "European Community" to be a reference to the
"European Communities". Thus, although the European Communities was a party in the Panel proceedings, and
the Panel referred to the European Communities in its Report, it is the European Union that filed a Notice of
Appeal in this dispute after the entry into force of the Treaty of Lisbon , and we will thus refer to the
European Union in this Report in its capacity as appellant (and as appellee). However, when referring to events
that took place during the Panel proceedings, or quoting from the Panel Report, we refer to the
European Communities.
2WT/DS316/R, 30 June 2010.
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European Communities and certain EC member States constituted subsidies to the Airbus companies
3
for the development of large civil aircraft ("LCA") 4 and were inconsistent with the Agreement on
Subsidies and Countervailing Measures (the "SCM Agreement"). The measures at issue that were the
subject of the United States' claims before the Panel include5:
(a) "launch aid" or "member State financing" ("LA/MSF") 6: the provision of financing
by the Governments of France, Germany, Spain, and the United Kingdom
(hereinafter, the "member States") to Airbus for the purpose of developing the
following LCA—the A300, A310, A320, A330/A340 (including the A330-200 and
A340-500/600 variants), A350, and A380
7;
(b) loans from the European Investment Bank (the "EIB") : 12 loans provided by the EIB
to Airbus companies between 1988 and 20 02 for LCA design, development, and
other purposes8;
(c) infrastructure and infrastructure-related grants : the provision of goods and services,
as well as grants, to develop and upgrade Airbus manufacturing sites, including the
provision by German authorities of the Mühlenberger Loch industrial site near
Hamburg, and of the extended runway at the Bremen airport; the provision by French

3The United States used the term "Airbus companies" to describe Airbus SAS, its predecessor Airbus
GIE, and current and predecessor 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 SAS, Airbus UK Limited,
European Aeronautic Defence and Space Company NV (" EADS"), and BAE Systems. In this Report, for
purposes of describing the measures at issue, the Un ited States' claims, and the Panel's findings, we use the
terminology used by the United States. (Panel Report, footnote 10 to para. 2.5; Request for the Establishment of
a Panel by the United States, WT/DS316/2, 3 June 2005) The evolution of the corporate structure of Airbus
SAS is described in section IV.B of this Report.
4The Panel defined "large civil aircraft" ("LCA") as follows:
{L}arge (weighing over 15,000 kilograms) "tube and wing" aircraft, with
turbofan engines carried under low-set wings, designed for subsonic flight.
LCA are designed for transporting 100 or more passengers and/or a
proportionate amount of cargo across a range of distances serviced by
airlines and air freight carriers. LC A are covered by tariff classification
heading 8802.40 of the Harmonized Syst em ("Airplanes and other aircraft,
of an unladen weight exceeding 15,000 kg").
(Panel Report, para. 2.1)
5A detailed description of the measures at issue relevant to these appellate proceedings is contained in
section IV of this Report.
6The United States used the term "launch aid"; the European Communities requested the Panel to use
instead "a more neutral term—'member State Financing' ". The Panel decided to "refer to the challenged
measures as 'LA/MSF' or, wh en referring to a specific contract or measure, {to} use the relevant short titles,
e.g., the 'UK A380 contract' or the 'A380 contract'". (See Panel Report, para. 7.291)
7Panel Report, para. 2.5(a).
8Panel Report, paras. 2.5(b) and 7.717.
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authorities of the Aéroconstellation i ndustrial site in Toulouse and road
improvements related to that site; and regional grants by German authorities in
Nordenham, by Spanish authorities in Ill escas, Puerto Real, and Puerto de Santa
Maria, La Rinconada, and Sevilla, and by Welsh authorities in Broughton
9;
(d) German and French restructuring measures : the provision to Airbus by Germany 10
and France of equity infusions, debt fo rgiveness, and grants through government-
owned and government-controlled banks, in cluding five equity infusions provided by
the French Government to Aérospatiale c onsisting of three capital investments made
by the French Government in 1987, 1988, and 1994, one capital contribution by
Crédit Lyonnais in 1992, and the transfer by the French Government in 1998 of its
45.76% equity interest in Dassault Aviation to Aérospatiale
11; and
(e) research and technological development ("R&TD")12 funding: the provision of grants
and loans for R&TD undertaken by Airbus, including grants by the
European Communities under the Second, Third, Fourth, Fifth, and Sixth
EC Framework Programmes
13; grants by the French Government between 1986 and
2005; and loans by the Spanish Government under the Plan Tecnológico
Aeronáutico (Technological Plan for Aviation) ("PTA programme") and the
Programa de Fomento de la Investigación Técnica (Funding Programme for
Technological Research) ("PROFIT programme").14

9Panel Report, paras. 2.5(c) and 7.1010.
10Panel Report, para. 2.5(e). The United States ch allenged specific transactions arising from the
German Government's restructuring of Deutsche Airbus in the late 1980s, including the 1989 acquisition by the
German Government, through the development bank Kreditanstalt für Wiederaufbau ("KfW"), of a 20% equity
interest in Deutsche Airbus ( ibid., paras. 2.5(e) and 7.1250), the 1992 sale by KfW of that interest to
Messerschmitt-Bölkow-Blohm GmbH ("MBB"), the parent company of Deutsche Airbus ( ibid., paras. 2.5(e)
and 7.1253), and the forgiveness by the German Government, in 1998, of debt owed by Deutsche Airbus in the
amount of DM 7.7 billion (ibid., paras. 2.5(d) and 7.1308).
11Panel Report, paras. 2.5(e), 7.1326, and 7.1380.
12The United States challenged a series of what it te rmed "research, development, and demonstration"
or "R&D" measures. (Request for the Establishment of a Panel by the United States, WT/DS316/2, section (6))
The Panel employed the term "research and technological development" or "R&TD" measures. We also use the
latter term in this Report.
13See infra, footnotes 1475, 1476, 1478, 1479, 1481, 1482, 1484, 1485, 1487, and 1488 in section IV.E
of this Report.
14Panel Report, paras. 2.5(f) and 7.1415. The United States also challenged R&TD funding in the form
of grants by the German Federal Government under the Luftfahrtforschungsprogramm (Aviation Research
Programme) ("LuFo programme") and by the regional governments of Bavaria, Bremen, and Hamburg, and
grants by the UK Government under the Civil Aircraft Research and Development Program ("CARAD
programme"), the Aeronautics Research Programme ("ARP programme"), and the Technology Programme.
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A. The United States' Claims before the Panel
2. Before the Panel, the United States claimed th at the LA/MSF measures by France, Germany,
Spain, and the United Kingdom for the devel opment of the A300, A310, A320, A330/A340,
A330-200, A340-500/600, and A380 were "a form of highly preferential financing that amount{ed} to
a specific subsidy" within the me aning of Articles 1 and 2 of the SCM Agreement.
15 In addition, the
United States maintained that the "systemati c and coordinated" provision of LA/MSF by these
member States demonstrated the existence of an unwritten LA/MSF "Programme", distinct from the
individual LA/MSF measures, which constituted a speci fic subsidy within the meaning of Articles 1
and 2 of the SCM Agreement.16 Finally, the United States claimed that the LA/MSF for the
development of the A330-200, A340-500/600, and A38017 constitute subsidies contingent, both in law
and in fact, upon anticipated export performance with in the meaning of Article 3.1(a) and footnote 4
of the SCM Agreement and, therefore, pursuant to Article 3.2 of the SCM Agreement, must not be
granted or maintained.18
3. The United States further claimed that 12 loans provided by the EIB to Airbus companies
constituted specific subsidies within the meaning of Articles 1 and 2 of the SCM Agreement.19 The
United States asserted that the loans provided financial contributions in the form of direct or potential
direct transfers of funds under Article 1.1(a)(1)(i ), conferred a benefit under Article 1.1(b) by
providing financing on terms more favourable than those available for comparable financing in the
market, and were specific within the meaning of Article 2.1(a) and (c) of the SCM Agreement.20
Further, the United States claimed that the provi sion by French, German, Spanish, and UK authorities
of infrastructure and infrastructure-related gran ts conferred a benefit under Article 1.1(b) and
constituted specific subsidies within the meaning of Articles 1 and 2 of the SCM Agreement.21 I n
addition, the United States claimed that two sp ecific transactions arising from the German
Government's restructuring of Deutsche Airbus in the late 1980s, and the five equity infusions
provided by the French Government to Aérospa tiale, constituted specific subsidies under Articles 1

15Panel Report, para. 7.290. The United States also claimed that an alleged commitment to provide
LA/MSF by the above-mentioned four member States fo r the development of the A350 constituted a specific
subsidy within the meaning of these provisions. ( Ibid., para. 7.297) Neither participant has appealed the Panel's
finding regarding LA/MSF for the A350.
16Panel Report, para. 7.498 (quoting United States' first written submission to the Panel, para. 85).
17More specifically, seven LA/MSF measures were th e subject of the United States' claim on export
contingency, including LA/MSF for: (i) the A380 by France, Germany, Spain, and the United Kingdom;
(ii) the A340-500/600 by France and Spain; and (iii) the A330-200 by France.
18Panel Report, paras. 3.1(a) and 7.582.
19Panel Report, para. 7.717.
20Panel Report, paras. 7.729, 7.739, and 7.890.
21Panel Report, para. 7.1010.
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and 2 of the SCM Agreement.
22 The United States additionally submitted that the R&TD funding
provided under the EC Framework Programmes and by certain member State governments constituted
specific subsidies within the meaning of Articles 1 and 2 of the SCM Agreement.23
4. Finally, the United States alleged that, through the use of the above-mentioned subsidies, the
European Communities, France, Germany, Spain, and the United Kingdom caused or threatened to
cause "injury" to the United States' industry producing LCA and "serious prejudice" to United States'
interests, within the meani ng of Articles 5 and 6 of the SCM Agreement. With respect to its claim on
serious prejudice, the United States submitted that the e ffect of the subsidies was: (i) to displace or
impede the imports of US LCA into the EC market within the meaning of Article 6.3(a) of the
SCM Agreement; (ii) to displace or impede the exports of US LCA from various third country
markets within the meaning of Article 6.3(b); a nd (iii) significant price undercutting by EC LCA as
compared with the price of US LCA in the sam e market, and significant price suppression, price
depression, and lost sales in the same market, within the meaning of Article 6.3(c).24
B. The Panel's Findings
5. The Panel Report was circulated to Members of the World Trade Organization (the "WTO")
on 30 June 2010. The Panel declined the Europ ean Communities' request for a preliminary ruling 25
that certain measures be excluded from the scope of the Panel's review. 26 Specifically, the Panel
rejected the European Communities' argument that certain measures fell outside the temporal scope of
the Panel proceedings because: (i) they were granted before the SCM Agreement came into effect on
1 January 1995; or (ii) they were "grandfathered" 27 under Article 2 of the 1992 Agreement between

22Panel Report, paras. 7.1250-7.1257, 7.1327, 7.1329 , 7.1332, 7.1336, and 7.1385. The United States
maintained that each of th e transactions constituted a direct tran sfer of funds with in the meaning of
Article 1.1(a)(1)(i), and each conferred a benefit under Article 1.1(b) because it was inconsistent with the usual
investment practice of private investors. The United States further asserted that the alleged debt forgiveness by
the German Government constituted a specific subsidy within the meaning of Articles 1 and 2 of the SCM
Agreement, because it was a financial contribution within the meaning of Article 1.1(a) (1)(i) and, as a cash
grant, placed Deutsche Airbus in a better position than it otherwise would have been in the marketplace. ( Ibid.,
paras. 7.1309-7.1311)
23Panel Report, para. 7.1415. According to the Unite d States, this funding constituted direct transfers
of funds within the meaning of Article 1.1(a)(1)(i), conferred a benefit under Article 1.1(b) by placing the
relevant Airbus entity in a better position than it otherwise would have been in the marketplace, and was specific
within the meaning of Article 2 b ecause it was provided to Airbus an d/or the aeronautics industry. ( Ibid.,
paras. 7.1489-7.1491 and 7.1504)
24Panel Report, paras. 3.1(b) and 7.1610.
25The European Communities submitted a request for preliminary rulings on 25 October 2005 and
subsequently updated it on 7 November 2006. (Panel Report, paras. 7.12 and 7.14)
26The Preliminary Ruling of the Panel was communicated to the parties on 11 July 2007. (Panel Report,
footnote 1766 to heading VII.C, p. 264) As separa te matters, the Panel declined requests for enhanced
third-party rights by Brazil, Canada, and Korea ( ibid., para. 7.168) and the request of the
European Communities to be identified as the "proper respondent" in the dispute (ibid., paras. 7.174-7.176).
27Panel Report, para. 7.71.
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the United States and the European Economic Community concerning the application of the GATT
Agreement on Trade in Civil Aircraft
 (the "1992 Agreement") 28, because the 1992 Agreement
rendered them "compatible with", and therefore not challengeable under, the SCM Agreement.29 I n
addition, the Panel rejected the European Communities' contention th at certain measures fell outside
the Panel's terms of reference beca use they were not identified by the United States in the request for
consultations30, or were not properly identified in the re quest for the establishment of a panel in
accordance with Article 6.2 of the Understanding on Rules and Procedures Governing the Settlement
of Disputes (the "DSU").31
6. The Panel also rejected various arguments of the European Communities that, as a
prerequisite to its claims on adverse effects under Articles 5 and 6 of the SCM Agreement, the
United States was required to demonstrate "c ontinuity" of benefits to Airbus SAS ( société par actions
simplifiée under French law), the legal entity responsi ble for the development and manufacture of
Airbus LCA since 2001. 32 Specifically, the Panel rejected th e European Communities' assertion that
it was necessary for the United States affirmatively to demonstrate the "pass-through" to Airbus SAS
of benefits conferred by financ ial contributions that had been provided to companies forming the
Airbus Industrie consortium33 prior to 2001 in order to make out a prima facie case under Article 5 of
the SCM Agreement.34 Moreover, the Panel rejected the European Communities' argument that
certain subsidies at issue in this dispute have be en "extinguished", "extracted", and/or "withdrawn"
within the meaning of Articles 4.7 and 7.8 of the SCM Agreement as a result of two transactions

28Agreement between the European Economic Community and the Government of the United States of
America concerning the application of the GATT Agreement on Trade in Civ il Aircraft on trade in large civil
aircraft, done at Brussels on 17 July 1992, Official Journal of the European Communities , L Series, No. 301
(17 October 1992) 32. Article 2 of the 1992 Agreement provides, in relevant part:
Government support to current large civil aircraft programmes, committed
prior to the date of entry into force of this Agreement, is not subject to the
provisions of this Agreement except as otherwise provided below.
29Panel Report, para. 7.71.
30Panel Report, para. 7.137.
31Panel Report, para. 7.158. In its request for preliminary rulings, the European Communities asserted
that the challenged French R&TD measures were descri bed in the United States' panel request in an "overly
broad, ambiguous or overly inclusive manner". Subsequently, in its first written submission to the Panel, the
European Communities also argued that a set of Spanish loans—known as the PROFIT programme loans—were
not adequately identified in the United States' panel request. (See Panel Report, para. 7.1418)
32Panel Report, paras. 7.286-7.289.
33The Panel used the term "Airbus Industrie" to re fer to the Airbus consortium as it operated between
1970 and 2001; namely each of the four Airbus partners—Aérospatiale (subsequently Aérospatiale Matra),
Deutsche Airbus, CASA, and British Aerospace (subseq uently BAE Systems), as well as Airbus GIE
collectively. Where the Panel referred to Airbus GIE as an entity distinct from the Airbus partners, it used the
term "Airbus GIE". (Panel Report, para. 7.184) Airbus GIE was registered under French law as a groupement
d'intérêt économique ("GIE"), which is a French legal framewo rk that allows its members to carry out
collectively certain economic activities while maintaining their separate legal identities, and which does not
have as its goal the retaining of profits. (Ibid., footnote 2053 to para. 7.183)
34Panel Report, para. 7.286.
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involving the removal of cash from two Airbus predecessor companies—DaimlerChrysler Aerospace
AG ("Dasa")
35 and Construcciones Aeronáuticas SA ("CASA")—and/or as a result of a number of
"arm's-length, fair market value" sales transactions involving Airbus companies.36
7. Turning to the United States' claims concer ning the LA/MSF measures, the Panel dismissed
two preliminary arguments made by the European Communities: first, that LA/MSF contracts for
A320 and A330/A340 models cannot be assessed for compliance with Article 5 of the
SCM Agreement, but must instead be examined in the light of the 1979 T okyo Round Agreement on
Interpretation and Application of Articles VI, XVI and XXIII of the General Agreement on Tariffs and
Trade
37 (the "Tokyo Round Subsidies Code")38; and, second, that Article 4 of the 1992 Agreement is a
"relevant rule{} of international law applicable in the relations between the parties", pursuant to
Article 31(3)(c) of the Vienna Convention on the Law of Treaties (the "Vienna Convention")39, which
should have been applied by the Panel in assessing whether the relevant post-1992 LA/MSF conferred
a "benefit" under Article 1.1(b) of the SCM Agreement.40
8. In considering the LA/MSF measures under the SCM Agreement, the Panel found that the
United States had established that each of the cha llenged measures: (i) involved the provision of a
"financial contribution by a government or any public body" in the form of direct transfer of funds,
within the meaning of Article 1.1(a)(1)(i) of the SCM Agreement 41; (ii) conferred a "benefit" on
Airbus, within the meaning of Article 1.1(b) of the SCM Agreement, because each was provided by
the government on interest rate terms that were mo re advantageous than w ould otherwise have been
the case if financing on the same or similar term s and conditions had been sought by Airbus from a
market lender 42; and (iii) was "specific", within the meaning of Article 2.1(a) of the
SCM Agreement.43 However, the Panel dismissed the Unite d States' complaint against the alleged
LA/MSF measure for the A350, finding that a clear and identifiable commitment to provide LA/MSF
for the A350 on the terms and conditions specified by the United States did not exist on the date of
establishment of the Panel. 44 The Panel also concluded that th e United States failed to demonstrate

35A full description of the entity we refer to in this Report as "Dasa" can be found in section IV.B of
this Report.
36Panel Report, paras. 7.288 and 7.289.
37BISD 26S/56, entered into force 1 January 1980.
38Panel Report, para. 7.325.
39Done at Vienna, 23 May 1969, 1155 UNTS 331; 8 International Legal Materials 679.
40Panel Report, para. 7.389.
41Panel Report, paras. 7.377 and 7.379.
42Panel Report, paras. 7.383 and 7.384.
43Panel Report, para. 7.497.
44Panel Report, para. 7.314.
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the existence of an unwritten LA/MSF Programme constituting a "specific" subsidy within the
meaning of Articles 1 and 2 of the SCM Agreement.
45
9. With respect to the alleged export subsidi es, the Panel found that the United States had
demonstrated that the German, Spanish, a nd UK A380 LA/MSF measures constituted subsidies
contingent in fact upon export performance, within the meaning of Article 3.1(a) and footnote 4 of the
SCM Agreement. However, the Panel found that the United States failed to show that the remaining
four LA/MSF measures challenged by the United States as export subsidies 46 were contingent in fact
upon anticipated export performance within the meaning of the same provisions. 47 Finally, the Panel
dismissed the United States' claim that the provi sion of LA/MSF for the A380, A340-500/600, and
A330-200 was contingent in law upon anticipated export performance, within the meaning of
Article 3.1(a) and footnote 4 of the SCM Agreement.48
10. With respect to the EIB loans, the Panel found that each of the challenged loans amounted to
a subsidy within the meaning of Article 1 of the SCM Agreement, because each consisted of a
financial contribution that was provided at below-market interest rates. 49 However, it found that the
United States failed to establish that each of the loan s at issue was specific under Article 2.1(a) or (c)
of the SCM Agreement, and therefore dismissed the United States' claim that the EIB loans constituted
specific subsidies under the SCM Agreement.50
11. Concerning the United States' claims regarding infrastructure measures, the Panel concluded
that the provision by German authorities of the Mü hlenberger Loch industrial site and the extended
runway at the Bremen airport, and by French au thorities of the Aéroconste llation industrial site,
constituted specific subsidies to Airbus in the form of the provision of goods or services "other than
general infrastructure" within the meaning of Article 1.1(a)(1)(iii), and conferred a benefit within the
meaning of Article 1.1(b) of the SCM Agreement.51 The Panel further found that the grants by
German authorities in Nordenham and Spanish author ities in Illescas, Puerto Real, Puerto de Santa
Maria, La Rinconada, and Sevilla constituted subsidies within the m eaning of Article 1 that were

45Panel Report, para. 7.579.
46These four measures are the French LA/MSF contr acts for the A380 and A3 30-200, and the French
and Spanish LA/MSF contracts for the A340-500/600. (See infra, footnotes 1111 and 1112)
47Panel Report, para. 7.689.
48Panel Report, para. 7.713. The Panel found that the United States' claim was "improperly
constituted", because the United States relied on facts extraneous to the LA/MSF co ntracts. Moreover, the
Panel found that, even assuming that the United States was entitled to bring its case relying upon evidence that
was extraneous to the LA/MSF contracts, the United St ates failed to demonstrate that the LA/MSF subsidies
were granted contingent in law upon anticipated export performance. (Ibid., para. 7.716)
49Panel Report, paras. 7.729, 7.738, and 7.885.
50Panel Report, para. 7.1008.
51Panel Report, paras. 7.1084, 7.1097, 7.1121, 7.1134, 7.1179, 7.1190, and 7.1191.
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specific within the meaning of Article 2.2 of the SCM Agreement.
52 However, the Panel dismissed the
United States' claims with regard to the other infrastructure and infrastructure-related grants.53
12. In addition, the Panel rejected the United States' claim that the alleged debt forgiveness by the
German Government in the amount of DM 7.7 billion constituted a specific subsidy within the
meaning of Articles 1 and 2 of the SCM Agreement. Instead, the Panel found that the
European Communities had demonstr ated that the amount of DM 1.75 billion for which the German
Government agreed to settle Airbus' outstanding re payment obligation was consistent with the present
value in 1998 of Deutsche Airbus' outstandi ng indebtedness to the German Government. 54 As for the
other corporate restructuring measures, the Panel fo und that the United States had established that the
two specific transactions arising out of the German Government's restructuring of Deutsche Airbus, as
well as the five equity infusions by the French Government to Aérospatiale, constituted specific
subsidies within the meaning of Articles 1 and 2 of the SCM Agreement.
55 The Panel found that the
four capital contributions to Aérospatiale made by the French Government between 1987 and 1994, as
well as the 1998 transfer by the French Government of its 45.76% equity interest in Dassault Aviation
to Aérospatiale, conferred a benefit on Aérospa tiale, because the investment decisions were
inconsistent with the usual investment practice of private investors.
13. Concerning the R&TD funding challenged by th e United States, the Panel found that the
following measures were specific subsidies with in the meaning of Articles 1 and 2 of the
SCM Agreement: (i) R&TD grants under the Second, Third, Fourth, Fifth, and Sixth EC Framework
Programmes; (ii) French Government R&TD gran ts between 1986 and 2005; (iii) German Federal
Government R&TD grants under the Luftfahrtforschungsprogramm (Aviation Research Programme)
("LuFo programme"); (iv) grants by Bavarian, Bremen, and Hamburg authorities; (v) loans under the
Spanish Government PROFIT and PTA programmes; and (vi) UK Government grants under the Civil

52Panel Report, paras. 7.1235, 7.1243, and 8.1(b)(iv).
53The Panel found that the provision of road improvements by French authorities was not a subsidy
under Article 1.1(a)(1)(iii) of the SCM Agreement, because it constituted the provision by French authorities of
"general infrastructure" within the meaning of that provision. (Panel Report, para. 7.1196) The Panel further
found that grants provided by the regional government of Andalusia in Puerto Santa Maria, and by the
Government of Wales in Broughton, were not specific to Airbus within the meaning of Article 2.2 of the
SCM Agreement. (Ibid., paras. 7.1137 and 7.1142)
54Panel Report, paras. 7.1321 and 7.1322.
55Panel Report, paras. 7.1302, 7.1380, and 7.1414. Specifically, the Panel found that all of these
measures involved a financial contribution, in the form of a direct transfer of funds, pursuant to
Article 1.1(a)(1)(i). The Pa nel found that a benefit was conferred within the meaning of Article 1.1(b) on
Deutsche Airbus through the 1989 acquisition by KfW of a 20% equity interest in Deutsche Airbus and the 1992
transfer by KfW of that interest to MBB (which, at the time, was the parent company of Deutsche Airbus); and
on Aérospatiale through the four capital contributions to Aérospatiale made by the French Government between
1987 and 1994, as well as the 1998 transfer by the French Government of its 45.76% equity interest in Dassault
Aviation to Aérospatiale. Finally, the Panel found that all of these subsidies were specific within the meaning of
Article 2 of the SCM Agreement.
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Aircraft Research and Development Program ("CA RAD programme") and the Aeronautics Research
Programme ("ARP programme").
56 The Panel, however, rejected th e United States' claims regarding
the other R&TD funding.57
14. Finally, with regard to the United States' clai ms on adverse effects, the Panel found that the
subsidies at issue enabled the launch of each model of Airbus LCA at a time and in a manner that
would not have been possible in the absence of the s ubsidies. On this basis, the Panel concluded that
the United States had established that the Europ ean Communities and the Governments of France,
Germany, Spain, and the United Kingdom have, thr ough the use of specific subsidies, caused serious
prejudice to the United States' interests over the reference period 2001 to 2006 in the form of:
(i) displacement of US imports of LCA into the European Communities market within the meaning of
Article 6.3(a) of the SCM Agreement; (ii) displacement of US exports of LCA from the markets of
Australia, Brazil, China, Korea, Mexico, Singapor e, and Chinese Taipei within the meaning of
Article 6.3(b) of the SCM Agreement, and threat of displacement of US exports of LCA from the
market of India 58; and (iii) lost sales of US LCA in th e same market within the meaning of
Article 6.3(c) of the SCM Agreement.59 However, the Panel could not reach any conclusions
regarding significant price undercutting.60
15. The Panel found that the United States failed to demonstrate that the effect of the subsidies
was to impede US imports into the European Co mmunities market and to impede US exports from
third country markets, within the meaning of Article 6.3(a) and (b) of the SCM Agreement. The Panel
further found that the United States failed to demo nstrate that the specific subsidies at issue, by
allowing Airbus to develop and launc h its family of LCA, or by provi ding Airbus with the financial
flexibility to lower its prices, al so caused the significant price suppression and price depression that
occurred between 2001 and 2006, within the meaning of Article 6.3(c) of the SCM Agreement.61 In
addition, the Panel concluded that the United States failed to establish that the European Communities

56Panel Report, paras. 7.1608 and 7.1609.
57Panel Report, para. 7.1502. Specifically, the Panel found that the United States failed to establish that
a promise to provide funds under part of the LuFo programme conferred a benefit "separate and independent"
from the benefit that might have been conferred by a future transfer of the promised funds. Moreover, the Panel
found that grants under the UK Technology Programme were not specific within the meaning of Article 2.1(a)
of the SCM Agreement. (Ibid., para. 7.1591)
58Panel Report, para. 7.2025. The Panel also found that, with the exception of likely displacement from
the Indian market, the United States failed to substantiate its claims of threat of serious prejudice with respect to
all forms of serious prejudice alleged in this dispute. (Ibid., para. 7.2028)
59Panel Report, para. 7.1845. These relate to sales campaigns by Air Asia, Air Berlin, Czech Airlines,
easyJet, Emirates Airlines, Iberia Ai rlines, Qantas Airways, South African Airways, Singapore Airlines, and
Thai Airways International.
60Panel Report, para. 7.1840.
61Panel Report, para. 7.2026.
BCI deleted, as indicated [***] WT/DS316/AB/R

and certain member States, through the use of the subsidies, caused injury to the United States'
domestic industry within the meaning of Article 5(a) of the SCM Agreement.
62
C. Appellate Proceedings
16. On 21 July 2010, the European Union notified the Dispute Settlement Body (the "DSB") of
its intention to appeal certain issues of la w covered in the Panel Report and certain legal
interpretations developed by the Panel, pursuant to Articles 16.4 and 17 of the DSU, and filed a
Notice of Appeal 63 pursuant to Rule 20 of the Working Procedures for Appellate Review 64 (the
"Working Procedures"). On 5 August 2010, the European Union requested, from the Appellate Body
Division hearing this appeal, authorization to amend its Notice of Appeal pursuant to Rule 23 bis of
the Working Procedures in order to correct certain discrepan cies in the references to paragraph
numbers of the Panel Report. 65 The Division provided the United States and the third participants
with an opportunity to comment in writing on the request. 66 No objections to the European Union's
request were received. On 11 August 2010, the Divi sion authorized the European Union to amend its
Notice of Appeal.67
17. On 21 July 2010, the Division hearing this appeal received a joint letter from the
European Union and the United States requesting that the Division adopt additional procedures to
protect business confidential information ("BCI") and highly sensitive business information ("HSBI")
in these appellate proceedings. They argued that di sclosure of this information could be "severely
prejudicial" to the originators of the information, that is, to the LCA manufacturers that are at the
heart of this dispute, and possibly to the manufacturers' customers and suppliers. The
European Union and the United States attached to their request proposed additional working
procedures for the protection of BCI and HSBI. On 22 July 2010, the Division invited the third
participants to comment in writing on the partic ipants' request to adopt additional procedures to
protect BCI and HSBI, and received written comment s from Australia, Brazil, Canada, and Japan on
28 July 2010. These third participants expresse d their general support for the request of the

62Panel Report, para. 7.2186.
63WT/DS316/12.
64WT/AB/WP/5, 4 January 2005 (Note: Although this version of the Working Procedures applied to this
appeal, it has been replaced by a subsequent version, WT/AB/WP/6, 16 August 2010).
65The European Union requested the authorization to amend "two categories of inadvertent errors".
The first category arose due to a discrepancy between the paragraph numbering in the "business confidential"
version of the Panel Report issued to the parties on 23 March 2010 and the final version of the Panel Report
circulated to WTO Members on 30 June 2010. The s econd category involved two ty pographical errors in the
Notice of Appeal. (Letter dated 5 August 2010 from the European Union to the Director of the Appellate Body
Secretariat)
66Letter dated 6 August 2010 from the Presiding Member to the United States and the third participants.
67WT/DS316/12/Rev.1 (attached as Annex I to this Report).
WT/DS316/AB/R BCI deleted, as indicated [***]

participants, and suggested certain modifications to the procedures proposed by the participants in
order to ensure that the right of third participan ts to participate meaningfully in these appellate
proceedings would be fully protected.
18. On 22 July 2010, the Division declined the partic ipants' request that it ask the Panel to delay
the transmittal to the Appellate Body of any info rmation classified as BCI or HSBI on the Panel
record until after the Appellate Body had adopted additional measures regarding BCI and HSBI. The
Division noted that Rule 25 of the Working Procedures requires that the panel record be transmitted
to the Appellate Body upon the filing of a Notice of Appeal. The Division, taking into consideration
the participants' concern with regard to the protec tion of BCI and HSBI contained in the Panel record
decided, on a provisional basis, to provide additi onal protection to all BCI and HSBI transmitted to
the Appellate Body during the period leading up to the definitive ruling on the participants' request for
additional procedures. Furthermore, noting that consideration of the participants' joint request
required modification to the timelines for filing submissions provided in the Working Procedures, the
Division decided to extend the deadlines for filing submissions in this appeal.
19. The Division held a special oral hearing on 3 August 2010 to explore further the issues raised
in the participants' joint request to adopt additi onal procedures to protect BCI and HSBI and in the
third participants' comments concerning the request. On 10 August 2010, the Division issued a
Procedural Ruling in response to the joint requ est, and adopted Additional Procedures to Protect
Sensitive Information (the "Additional Procedur es"). The Procedural Ruling and Additional
Procedures are attached as Annex III to this Report.
20. On 11 and 12 August 2010, pursuant to paragra ph 28(xiv) of the Additional Procedures, the
participants each provided a list of persons designated as "BCI-Approve d Persons" and persons
designated as "HSBI-Approved Persons". Likewise, in accordance with paragraph 28(xvi) of the
Additional Procedures, each of the third participants designated up to six individuals as "Third
Participant BCI-Approved Persons" on 12 August 2010. On 13 August 2010, the European Union
objected to the designation by Jap an of an outside advisor as a Third Participant BCI-Approved
Person, pursuant to paragraph 28(xv i) of the Additional Procedures.
68 Specifically, the
European Union referred to the provision in paragr aph 28(xvi) that "{t}he participants may object to
the designation of an outside advisor as a Thir d Participant BCI-Approved Person" and that "{t}he
Division will only reject the designation of an outside advisor … upon a showing of compelling

68Letter dated 13 August 2010 from the European Union to the Director of the Appellate Body
Secretariat.
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reasons".
69 On 23 August 2010, the European Union and Japan informed the Appellate Body that
they had reached a "bilateral resolution of the issue". Consequently, the European Union withdrew its
objection to Japan's list of BCI-Approved Persons and its request for a ruling by the Division. 70
Subsequently, the European Union 71, Canada 72, the United States 73, and Japan 74 each requested to
make changes to their respective list. The Division provided the participants and the third participants
with the opportunity to comment in writing on the requests. 75 N o o b j e c t i o n s w e r e m a d e b y t h e
participants or the third participants. The Division authorized all of the changes requested.76
21. The European Union filed an appellant's submission on 16 August 2010. 77 On 19 August
2010, the United States notified the DSB of its intention to appeal certain issues of law covered in the
Panel Report and certain legal interpretations developed by the Panel, pursuant to Articles 16.4 and 17
of the DSU, and filed a Notice of Other Appeal pursuant to Rule 23 of the Working Procedures.78 On
23 August 2008, the United States filed an other appellant's submission. 79 On 30 September 2010, the

69According to the European Union, the outside advisor designated by Japan was a partner of a law
firm in which another partner, as a former counsel to Airbus in this dispute, had been privy to confidential
information concerning certain measur es at issue during the Panel proceedings. Following a letter from the
Division to the participants and third participants on 17 August 2010, the European Union submitted
supplemental information in support of its objection, and requested the Division to make a ruling on its
objection. (Letter dated 18 August 2010 from the European Union to the Presiding Member) Subsequently,
Japan submitted its response to the European Union's objection, arguing that the European Union failed to show
compelling reasons for rejecting the designation of Japan's outside advisor as a Third Participant BCI-Approved
Person. (Japan's response of 20 August 2010 to the European Union's objection concerning the outside advisor
in Japan's list of Third Participant BCI-Approved Persons)
70E-mail communication from the European Union and letter from Japan dated 23 August 2010 to the
Director of the Appellate Body Secretariat.
71Letters dated 13 October 2010, 7 March 2011, and 19 April 2011 from the European Union to the
Director of the Appellate Body Secretariat.
72Letter dated 13 October 2010 from Canada to the Director of the Appellate Body Secretariat.
73Letter dated 3 December 2010 from the United States to the Presiding Member.
74Letters dated 29 October 2010 and 2 December 2010 from Japan to the Director of the Appellate
Body Secretariat.
75Letters dated 14 October 2010, 2 November 2010, 6 December 2010, and 9 March 2011 from the
Presiding Member to the participants and third participants.
76By letters dated 27 October 2010, 5 November 2010, 8 December 2010 , 14 March 2011, and
29 April 2011, the Division auth orized the changes requested by th e European Union, Canada, the
United States, and Japan.
77Pursuant to Rule 21 of the Working Procedures. The European Union appealed the Panel's findings,
that the EIB loans were within the temporal scope of application of the SCM Agreement and conferred a benefit
and that there existed price suppression and price de pression for the Boeing 777, on the condition that the
United States appealed certain findings of the Pane l. (European Union's Notice of Appeal, para. 11;
European Union's appellant's submission, paras. 72, 685, 875) As the conditions on which these appeals were
premised did not arise, the European Union withdr ew, by letter dated 13 September 2010, these conditional
appeals pursuant to Rule 30(1) of the Working Procedures.
78WT/DS316/13 (attached as Annex II to this Report).
79Pursuant to Rule 23(3) of the Working Procedures.
WT/DS316/AB/R BCI deleted, as indicated [***]

European Union and the United States each filed an appellee's submission
80, and Australia, Brazil,
Canada, China, Japan, and Korea each filed a third participant's submission.81
22. In their joint letter of 21 July 2010, the participan ts also requested that the oral hearing in this
appeal be opened to public observation to the extent that this would be possible given the existence of
sensitive information. On 24 September 2010, the Di vision issued a letter requesting the participants
to clarify the extent to which they requested the or al hearing in this appeal to be opened to public
observation, and to propose specific modalities in this respect. The Division invited the third
participants to comment thereafter on the participants' request and proposed modalities. On 5 October
2010, the participants submitted a jo int letter to the Presiding Member confirming their request for a
public hearing. The participants suggested that the Division adopt a further Procedural Ruling
pursuant to Rule 16(1) of the Working Procedures to regulate the conduct of the oral hearing in the
light of the request for public observation and the existence of sensitive information, and proposed
specific modalities for that purpose. Australia, Br azil, Canada, and Japan submitted comments on the
participants' request to open the oral hearing to public observation. 82 On 27 October 2010, the
Division issued a Procedural Ruling authorizing the participants' joint request for opening the hearing
to public observation, and adopt ed Additional Procedures on the Conduct of the Oral Hearings
including the protection of certain sensitive inform ation during the oral hearing. The Procedural
Ruling is attached as Annex IV to this Report.
23. On 25 October 2010, the Division received a letter from the United States indicating that it
understood that this appeal was large and that the participants' requests for special rules to protect
certain information and for extended periods fo r filing written submissions added time to the
proceedings. In the light of Article 17.5 of the DSU, however, the United States considered it
important to reach "agreement" on a date for circ ulation of the Appellate Body report in these
proceedings "without further delay", and requested th e Division to propose to both participants a time
period for completion of this appeal "as soon as possible". On 27 October 2010, the Division received
a letter from the European Union stating that the United States had both agreed to and acquiesced in
derogation from the 90-day period for comp letion of these appellate proceedings. The
European Union further submitted that the Appe llate Body did not require "agreement" of the
participants as to the date of circulation of its repo rt. The European Union noted in this regard that
the Working Procedures clearly state that the relevant time periods are set and modified by the

80Pursuant to Rules 22 and 23(4) of the Working Procedures.
81Pursuant to Rule 24(1) of the Working Procedures.
82Letter dated 8 October 2010 from Australia to the Presiding Member; letter dated 11 October 2010
from Brazil to the Presiding Member; letter dated 8 October 2010 from Canada to the Presiding Member; letter
dated 11 October 2010 from Japan to the Director of the Appellate Body Secretariat.
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Appellate Body and do not require agreement of th e participants. Furthermore, according to the
European Union, requiring agreement of the partic ipants "would open the door to potential abuse and
would not be consistent with the objectives of the dispute settlement system." The European Union
considered that the date of final circulation of the Appellate Body report could be fixed after the
second session of the substantive oral hearing in this appeal, which was to take place in
December 2010. Finally, the European Union cons idered that the Appellate Body should take the
time it required to prepare its report, and that it w ould not be unreasonable if this would be at least
commensurate with the relative extensions in the peri ods of time that the participants had required in
order to prepare their submissions in this appeal.
24. By letter of 28 October 2010, the United States reiterated the importance of setting a date for
issuance of the report in this appeal, noting that it understood that, consistent with Appellate Body
practice, the participants would need to provide lett ers agreeing that additional time is needed for this
appeal and that such letters would specify the date of circulation of the report. The United States
further recalled that it recognized from the outset th at the appeal in this case, which raises an
unprecedented number of issues, would require more th an 90 days to resolve. The United States also
submitted that producing a high-quality report was in the interests of all.
25. In its letter to the participants and third participants of 3 November 2010, the Division
explained that it had carefully considered the above submissions by the United States and the
European Union, and indicated that the participants and third participants may wish to raise the matter
again at the first session of the substantive oral hearing, scheduled to commence on 11 November
2010. The Division further stated that it intended to provide an estimated date for circulation of the
Appellate Body report after the oral hearing, on ce it was in a better position to assess the amount of
time reasonably required to complete its work in this appeal.
26. The substantive oral hearing in this appeal took place in two sessions: the first on
11-17 November and the second on 9-14 December 2010. Pursuant to the Procedural Ruling, the
participants did not refer to any BCI or HSBI in their opening and closing statements, and the third
participants did not refer to any BCI in their opening and closing statements. The opening and closing
statements of the participants and the third partic ipants were videotaped, with the exception of China
(at the second session only) and Korea. After the participants reviewed the videotapes and confirmed
that no BCI or HSBI had been inadvertently uttered, the recording of the opening and closing
statements were broadcast to the public on 25 November and 17 December 2010 respectively.
WT/DS316/AB/R BCI deleted, as indicated [***]

27. At the first session of the hearing, the Division distributed written questions to the participants
and third participants in order to clarify certain factual aspects of the Panel's findings concerning the
evolution of the European Aeronautic Defe nce and Space Company NV ("EADS"), and received
written responses from the participants at the hearing. In addition, upon the Division's invitation to
the participants and third participants, the European Union, the United States, Australia, Brazil, China,
and Japan submitted additional memoranda on 26 N ovember 2010, pursuant to Rule 28 of the
Working Procedures , regarding the issues discussed during the first session of the hearing. On
1 December 2010, the European Union, the Unite d States, and Brazil submitted comments on the
additional memoranda.
28. Pursuant to paragraph 28(xiii) of the Procedural Ruling of 10 August 2010, we informed the
participants and the third participants, on 27 April 2011, that we had not found it necessary to include
in the Appellate Body report intended for circula tion to WTO Members information that was treated
by the Panel as BCI or HSBI. Paragraph 28(xiii) of the Procedural Ruling foresees that an advance
copy of the Appellate Body report intended for ci rculation to WTO Members will be provided to the
European Union and the United States in order for them to indicate whether any BCI or HSBI was
inadvertently included in the report. The advance copy of the Appellate Body report was provided to
the European Union and the United States on 2 May 2011. They were requested to indicate, by
6 May 2011, whether any BCI or HSBI was inadvertently included in the report. On 6 May, the
United States indicated that it had not found any BCI or HSBI outside of the text encompassed in
square brackets in the Appellate Body report inte nded for circulation, and the European Union
indicated that it had identified only one instan ce in which confidential information had been
inadvertently included. On 10 May 2011, the Divi sion informed the European Union and the United
States that it had redacted the confidential inform ation concerned from the Appellate Body report to
be circulated to Members.
II. Arguments of the Participants and the Third Participants
A. Claims of Error by the European Union – Appellant
1. The Panel's Terms of Reference

(a) The Spanish PROFIT programme
29. The European Union argues that the Panel's finding that the Spanish PROFIT programme
loans were within the Panel's terms of refere nce was based on an erroneous interpretation and
BCI deleted, as indicated [***] WT/DS316/AB/R

application of Article 6.2 of the DSU and "defies both the letter and the spirit of Article 6.2".
83
Referring to recent Appellate Body jurisprudence, the European Union argues that the fact that
Article 6.2 states that a panel request must "identify the specific measures at issue" means that not any
identification of a measure is sufficient but, rather, that the identification of the measure must "point
to the 'specific' measure". 84 For the European Union, the due process objective of Article 6.2
indicates that the term "specific" must be interpreted narrowly.85
30. The European Union contends that the Panel di d not pay sufficient regard to the specificity
requirement of Article 6.2. In fact, the Panel' s statement that "the focus of the United States'
complaint is not all Spanish government funding to Airbus for LCA-related activities; rather only
funding provided 'since 1993' 'for civil aeronautics- related R&D projects'" shows that the Panel was
satisfied with an extremely "un-speci fic" identification of the measures. 86 This "very generic
description ... would potentially comprise a multit ude of programmes and other measures without the
European Union knowing which ones constitute th e object of the {United States'} complaint". 87 The
European Union states that it does not know why the United States decided not to include the PROFIT
programme in its panel request, given that the United States was able to identify other specific
measures in the form of the PTA programme loans, and could have been expected to know of the
PROFIT programme loans at the time of its panel request on 31 May 2005. The European Union also
notes that the United States must have known about th e PROFIT programme since it was able to pose
questions about the programme during the Annex V process, immediately following the panel request.
Under these circumstances, "the European Union had to believe that {the} PROFIT {programme}
was not part of the US complaint."88
31. The European Union claims that the Panel also erred when it based its assessment of the
United States' panel request on "attendant circumst ances" that it wrongly considered to be relevant

83European Union's appellant's submission, para. 1206. Section 6(d) of the United States' panel request
reads as follows:
Funding from the Spanish government, including regional and local
authorities, since 1993 for civil aeronautics-related R&D projects in which
Airbus participated, including loans and other financial support provided
under the Plan Tecnológico Aeroná utico I and the Plan Tecnológico
Aeronáutico II.
84European Union's appellant's submission, para. 1205 and 1207 (referring to Appellate Body Report,
US – Zeroing (Japan) (Article 21.5 – Japan) , para. 108; and quoting Article 6.2 of the DSU). (emphasis added
by the European Union)
85European Union's appellant's submission, para. 1207. In support of its view, the European Union
refers to Appellate Body Report, EC – Selected Customs Matters, para. 152.
86European Union's appellant's submission, para. 1208 (quoting Panel Report, para. 7.1420, in turn
quoting Request for the Establishment of a Panel by the United States, WT/DS316/2).
87European Union's appellant's submission, para. 1208.
88European Union's appellant's submission, para. 1209.
WT/DS316/AB/R BCI deleted, as indicated [***]

under Article 6.2 of the DSU. First, the Panel di d not explain how questions by the United States
during the Annex V process could be relevant for assessing the panel request under Article 6.2. In the
European Union's view, to the extent they are re levant, they would "at best demonstrate that the
United States must have had knowledge of {the} PROFIT {programme} when it decided not to
include PROFIT in its panel request."
89
32. Second, the European Union argues that the Pa nel erred when it relied on the fact that the
European Communities had not challenged in its pr eliminary rulings request the inclusion of the
PROFIT programme loans within the Panel's terms of reference. Such a conclusion is inconsistent
with the due process objectives of Article 6.2, because it obliges a defendant to raise in a request for a
preliminary ruling an open-ended number of measur es in order to avoid that any failure to object
would bring such measures within the scope of the di spute. In any event, the Panel's conclusion was
not supported by the preliminary rulings request in this case. The European Union asserts that it did
not raise an issue with regard to the PROFIT progr amme in its preliminary rulings request because it
believed that the United States had decided not to challenge it.90
33. Finally, the European Union argues that the Pa nel erred when referring to the United States'
consultation and panel requests in dispute WT/DS34791, because the fact that those documents refer to
the PROFIT programme cannot bring that measur e within the scope of this dispute. The
European Union similarly dismisses the relevance of the "other attendant circumstances" identified in
footnote 4652 of the Panel Report, since they deal exclusively with the French Government R&TD
measures.
(b) The French R&TD grants
34. The European Union argues that the Panel's finding that the French R&TD grants were within
its terms of reference was based on an erroneous in terpretation and applicatio n of Article 6.2 of the
DSU.92 Recalling prior Appellate Body jurispruden ce, the European Union argues that the Panel

89European Union's appellant's submission, paras. 1210 and 1211.
90European Union's appellant's submission, para. 1212. The European Union maintains that the
Spanish PROFIT programme measures differ from th e French support that the European Communities
challenged in its request for prelimin ary rulings. Whereas the United States made "a fully unspecific reference
to French R&TD support", the inadequacy of which the European Communities raised in its preliminary rulings
request, the United States' panel request identified two specific Spanish measures under the PTA programme.
91European Communities and Certain Member (Second Complaint).
92European Union's appellant's submission, para. 1216. Section 6(e) of the United States' panel request
reads as follows:
Funding from the French government, including regional and local
authorities, since 1986 for civil aeronautics-related R&D projects in which
Airbus participated.
BCI deleted, as indicated [***] WT/DS316/AB/R

"neither examined the precision of the {United St ates'} panel request carefully, nor ensured its
compliance with the letter or spirit of Article 6.2 of the DSU".
93 In particular, the European Union
contends that the Panel did not pay sufficient regard to the "specificity" requirement of Article 6.2 of
the DSU.
35. First, the European Union argu es that the United States' panel request appears "extremely
un-specific" on its face. 94 A complainant "should, at a minimum, be required to identify the legal
basis for such a series of actions." 95 The Panel failed to do this, a nd instead considered it sufficient
that "the United States {had} referred to all f unding for civil aeronautics-related R&D projects in
which Airbus participated provided by France (on a national, regional and local level) over a period
of 19 years."96 Such a broad reference, the European Uni on maintains, is not compatible with the due
process objective of Article 6.2.
36. Second, the European Union argues that the lack of specificity in the identification of the
measures is further illustrated by reading section (6) of the United States' panel request as a whole. In
other parts of section (6), the United States identif ied the "legal basis" for the government support it
was challenging, either by reference to the progr amme through which the funding was provided, or to
the entity providing the funding. This allowed ready reference to the underlying measures authorizing
the programme or the entity's funding activities. S ection 6(e), by contrast, refers to funding on a
national, regional, and local level without identifying the programme or granting entity at issue. The
European Union adds that the global reference to f unding provided over a period of 19 years added to
the difficulty of preparing its defence.
37. Finally, the European Union considers that th e "attendant circumstances" referred to by the
Panel did not lead to an identification of "specific measures" within the meaning of Article 6.2 of the
DSU. The European Union asserts that the Panel's reference to "a ttendant circumstances" was "not
based on any proper analysis of those circumst ances", because it did not evaluate any of the
arguments to which the Panel referred. 97 Moreover, the "attendant circumstances" raised by the
United States did not suffice to identify the specific measures at issue within the meaning of
Article 6.2. The European Union notes, in particul ar, the fact that such issues were raised in
consultations, which are in any event confidential and cannot be verified, would not remedy a later

93European Union's appellant's submission, paras. 1222 and 1223 (referring to Appellate Body Report,
US – Zeroing (Japan) (Article 21.5 – Japan) , para. 108; and Appellate Body Report, EC – Selected Customs
Matters, para. 152).
94European Union's appellant's submission, para. 1224.
95European Union's appellant's submission, para. 1224.
96European Union's appellant's submission, para. 1224.
97European Union's appellant's submission, para. 1226.
WT/DS316/AB/R BCI deleted, as indicated [***]

panel request that failed to identify specific measures. The consultation request itself "{did} not shed
any light on which precise French R&D measures the United States wanted to challenge in its panel
request."
98 The European Union equally dismisses the re levance of statements by the United States to
the DSB, which would present a problematic basis for bringing measures within the scope of a
dispute.99 In any event, the United States made no mention of French R&TD support in those
statements.
2. The Temporal Scope of Article 5 of the SCM Agreement
38. The European Union claims that the Panel erred in concludi ng that the pre-1995 measures
challenged by the United States fall within the temporal scope of Article 5 of the SCM Agreement. In
particular, the European Union argues that LA/MSF committed and paid prior to 1 January 1995 is
outside the temporal scope of Article 5. Accord ing to the European Union, this includes LA/MSF
funding for the A300, A310, and A320 and LA /MSF financing by the United Kingdom for the
A330/A340. The European Union also argues that the extension of the runway at the Bremen Airport,
which was completed in 1989, falls outside the temporal scope of Article 5. For the European Union,
certain French capital contributions occurring in 1987, 1988, 1992, and 1994 and certain German
share transfers occurring in 1989 and 1992 are also outside the temporal scope of Article 5. In
relation to research and development funding, the Eu ropean Union similarly argues that grants or
disbursements made prior to 1 January 1995 unde r the Second and Third EC Framework Programmes
are outside the temporal scope of Article 5 and should be excluded from these proceedings. 100 The
European Union advances several lines of argument in support of its position.
39. First, the European Union contends that the Pane l erred in its application of the principle of
non-retroactivity of treaties reflected in Article 28 of the Vienna Convention101 by wrongly focusing
on the nature of the obligation contained in Article 5 of the SCM Agreement rather than on the nature
of the measures challenged by the United States. Th e European Union recalls that Article 28 of the
Vienna Convention requires that, if a treaty does not provide for its retroactive application or is
otherwise silent, its provisions apply only to "continuing situations" and not to completed situations or

98European Union's appellant's submission, para. 1230.
99European Union's appellant's submission, para. 1231 (referring to Panel Report, footnote 1993 to
para. 7.149).
100See European Union's appellant's submission, paras. 60-76.
101Article 28 of the Vienna Convention provides:
Article 28: Non-retroactivity of treaties
Unless a different intention appears from the treaty or is otherwise
established, its provisions do not bind a party in relation to any act or fact
which took place or any situation which ceased to exist before the date of
the entry into force of the treaty with respect to that party.
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completed "acts" or "facts" that took place before th e treaty entered into force. The relevant question
before the Panel was therefore whether the pre-1995 measures challenged by the United States can be
characterized as "acts" or "facts" that to ok place before the entry into force of the SCM Agreement or
"completed situations", "and not, as the Panel assu med, whether the obligation contained in Article 5
of the SCM Agreement covers a 'situation' {i.e., causing adver se effects through the use of subsidies}
which exists as of the effective date of the SCM Agreement, even if that situation arose as a result of
the granting of a subsidy prior to that date."
102
40. The European Union further argues that, by conc luding that Article 5 refers to a "situation"
comprising both the granting of a subsidy and its eff ects, regardless of when the subsidy was granted,
the Panel effectively negated the principle of non-re troactivity. Yet, under general international law,
the question of whether treaty obligations apply to certain government conduct depends on the nature
of the government conduct and its timing. According to the European Union, "if the government
conduct takes place in an instant (i.e., when 'the act is performed'), such a government conduct
becomes an 'act' (or 'fact')" and, "{i}f the government conduct consists of repe ated acts in time (i.e.,
'continuing wrongful acts')", that government conduct amounts to a "situation". 103 F o r t h e
European Union, the fact that cer tain effects may continue as a r esult of the government conduct is
"irrelevant".104
41. The European Union finds support for its position in the Commentaries 105 of the International
Law Commission (the "ILC") on Article 28 of the Vienna Convention and on the ILC Articles on
Responsibility of States for Internationally Wrongful Acts (the "ILC Articles"). 106 In particular, the
European Union refers to Article 14 of the ILC Articles to argue that "{a} completed act occurs 'at the

102European Union's appellant's submission, para. 28.
103European Union's appellant's submission, para. 43.
104European Union's appellant's submission, para. 43.
105Draft articles on the Law of Treaties with commentaries . Text adopted by the ILC at its eighteenth
session, in 1966, and submitted to the United Nations General Assembly as a part of the Commission's report
covering the work of that session (at para. 38). The report, which also contains commentaries on the draft
articles, appears in the Yearbook of the International Law Commission, 1966, Vol. II.
Draft articles on Responsibility of States for Internationally Wrongful Acts with commentaries . Text
adopted by the ILC at its fifty-third session, in 2001, and submitted to the United Nations General Assembly as
part of the Commission's report covering the work of that session (A/56/10). The report, which also contains
commentaries on the draft articles, appears in the Yearbook of the International Law Commission, 2001, Vol. II,
Part Two, as corrected.
106ILC Articles on Responsibility of States for Internationally Wrongful Acts . Text adopted by the ILC
at its fifty-third session, in 2001, and submitted to the United Nations General Assembly as part of the ILC's
report covering the work of that session. The Genera l Assembly "{took} note of the Articles on responsibility
of States for internationally wrongful acts" for the first time in General Assembly Resolution 56/83 of
12 December 2001, corrected by doc ument A/56/49(Vol. I)/Corr.4, and s ubsequently in Resolution 59/35 of
2 December 2004, Resolution 62/61 of 6 December 2007 , and Resolution 65/19 of 6 December 2010. The
ILC's report, which also contains commentar ies on the draft articles, appears in the Yearbook of the
International Law Commission, 2001, Vol. II, Part Two.
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moment when the act is performed', even though its effects or consequences may continue".
107 The
European Union also refers to several rulings of the European Court of Human Rights (the "ECtHR")
and the International Court of Justice (the "ICJ") to support its argument.108
42. Turning to the specifics of the SCM Agreement, the European Union recalls that Article 1 of
that Agreement defines a subsidy as a financial contri bution by a government that confers a benefit.
The European Union argues that "{t}he moment thes e two elements are present a subsidy is granted
or brought into existence and can be maintain ed by means of an active government conduct". 109 For
the European Union, "{a}bsent any further active government conduct, it can be concluded that the
subsidy was brought into existence and has ended."110 The European Union emphasizes that under the
SCM Agreement the only action taken by the government is the granting of the subsidy, and the
effects of the subsidy are a consequence of that government conduct. Any effects derived from that
government conduct are separate and should be distin guished from the "act" or "situation" attributed
to the government. Accordingly, single acts are necessarily completed acts that do not turn into
"situations" "because of their mere economic effect". 111 The European Union concludes that, under
Article 28 of the Vienna Convention, a subsidy is a "completed act" if it has been fully disbursed, and
a subsidy is a "continuing situation" if it still requires active government conduct. Similarly, a
subsidy programme that has ended (in the sense that no company can benefit from it and all payments
have been disbursed) amounts to a "completed situ ation", whereas a subsidy programme that is still
ongoing after 1995 amounts to a "continuing situation" since it requires active government conduct.
For the European Union, therefore, because the pre-1995 subsidies challenged by the United States
were "fully granted, disbursed or brought into existence and ended before 1995", they amount to
completed "acts" or "situations" and are thus out side the temporal scope of application of the
SCM Agreement, even if the economic effects of such subsidies may continue to be felt
subsequently.112

107European Union's appellant's submission, paras. 41 and 42 (quoting ILC's Commentary on Article 14
of the ILC Articles, supra, footnote 106, pp. 59-60).
108European Union's appellant's submission, para. 44 (referring to ECtHR, Grand Chamber, Malhous v.
The Czech Republic , Application No. 33071/96, p. 16). The European Union also refers to ECtHR, Mayer,
Weidlich, Fullbrecht Hasenkamp, Golf, Klausner v. Germany , Application Nos. 19048/91, 19049/91, 19342/92,
18890/92, Decision and Reports 85-A, p. 5; ECtHR, Grand Chamber, Von Maltzan and others v. Germany ,
Decision to the Admissibility of Applications Nos. 71916/01, 71917/01, and 10260/02 (2 March 2005) ("land
reform" 1945-49 in the Soviet sector of Germany), paras. 82 and 83; and ICJ, Judgment on preliminary
objections, Case Concerning Certain Property (Liechtenstein v. Germany) , ICJ Reports (2005), para. 52. ( Ibid.,
paras. 44 and 45)
109European Union's appellant's submission, para. 47.
110European Union's appellant's submission, para. 47.
111European Union's appellant's submission, para. 52.
112European Union's appellant's submission, para. 77.
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43. The European Union further contends that the Panel erred in finding that Article 5 of the
SCM Agreement sets out an obligation not to cause certain results through a specific causal pathway,
rather than an obligation not to engage in certain conduct. In particular, "the Panel ignored that the
effects caused by the granting of the subsidy are part of the obligation contained in Article 5, but not
the government conduct itself."
113 Instead, for the European Union, the wrongful act is "the
government conduct of granting or maintaining the subsidy concerned and the obligation imposed is
the withdrawal of the subsidy concerned or the removal of the adverse effects caused by the
subsidy."114
44. The European Union contends, in particular, that "the formulation of the obligation in
Articles 3 and 5 and the scope of the remedy in dicate that both provisions refer to the same
government conduct: granting or maintaining subsidies."115 Regarding actionable subsidies, Article 7
of the SCM Agreement also confirms that the relevant government conduct for the purpose of
Article 5 is "granting or maintaining a subsidy". 116 Thus, contrary to the Panel's assumption, the fact
that Part III of the SCM Agreement is concerned with a situation that subsists and continues over time,
rather than with specific acts performed by WT O Members, "has nothing to do with the question of
whether Article 5 addresses the granting or maintaining of a subsidy and the effects caused together as
part of the same government conduct." 117 The European Union also points to the grammatical
structure of Article 5 itself to illustrate that the phrase "through the use of {a} subsidy" refers to the
government conduct of granting subsidies.118
45. The European Union submits that Article 8 of the 1979 Tokyo Round Subsidies Code , the
predecessor provision of Article 5 of the SCM Agreement, also confirms that the government conduct
at issue is the granting of subsidies by governme nts, because it separately states that "subsidies are
used by governments" and that "subsidies may cause adverse effects".119
46. The European Union considers that the Panel erred in finding that Article 28.1 of the
SCM Agreement "was not of contextual assistance in deciding whether subsidies granted prior to
1 January 1995 may be subject to the obligations of Article 5." 120 Specifically, the European Union
contends that Article 28.1 of the SCM Agreement "addresses subsidy programmes, as opposed to

113European Union's appellant's submission, para. 88. (original emphasis)
114European Union's appellant's submission, para. 88.
115European Union's appellant's submission, para. 84.
116European Union's appellant's submission, paras. 84 and 88.
117European Union's appellant's submission, para. 89.
118European Union's appellant's submission, paras. 94 and 95.
119European Union's appellant's submission, para. 96 (referring to Article 8 of the 1979 Tokyo Round
Subsidies Code). (emphasis added by the European Union)
120European Union's appellant's submission, para. 101.
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individual subsidies", and that "{t}he fact that the Part dealing with 'Transitional Arrangements' refers
only to subsidy programmes indicates the intention to exclude prior individual acts of subsidisation"
from the temporal scope of Article 5.
121
47. The European Union further argues that Article 32.3 of the SCM Agreement supports the
proposition that "actions taken by Members before 1995, in the sense of bringing a subsidy into
existence, insofar as they are 'completed', shoul d be examined in view of the contemporaneous
obligation at that time (i.e., the 1979 Tokyo Rou nd Subsidies Code) and thus do not fall within the
scope of Article 5 of the SCM Agreement."122 The European Union further argues that Article 32.5 of
the SCM Agreement also applies to "'continuing situations' in the form of 'laws, regulations and
administrative procedures'" and "does not refer to co mpleted 'acts' or 'situations' such as individual
subsidies granted before 1995."123
48. The European Union submits that the Panel also erred in interpreting paragraph 7 of
Annex IV to the SCM Agreement as suggesting that the benefit of every pre-1995 subsidy is deemed
to "continue" after 1995 for Article 5 purposes. C ontrary to the Panel's findings, that provision
authorizes the "exceptional inclusion" of a benef it from a pre-1995 subsidy in the calculation of the
overall amount of subsidization post-1995. 124 According to the European Union, if all pre-1995
subsidies were covered by Article 5 of the SCM Agreement, the requirement to allocate "existing
benefits" to future production arising from such s ubsidies would already flow from Article 5, and
therefore paragraph 7 of Annex IV would be rendered redundant.
49. Finally, the European Union submits that the Panel disregarded the fact that "there were
dramatic changes between the 1979 Tokyo Round Subsidies Code and the SCM Agreement", which
"called for separate rules and th e need for transitional periods". 125 The absence of any transitional
period with respect to individual subsidies brought into existence before 1995 indicates that those past
government actions should be assessed in the light of the rules that were in force when the subsidies
were granted, because "a common legislative technique is to provide for an appropriate transitional
period, in order to give the persons concerned re asonable time to extricate themselves from the
lawfully created situation." 126 The European Union further subm its that, even if the substantive
provisions in the 1979 Tokyo Round Subsidies Code were similar to the substantive provisions of the
SCM Agreement insofar as actionable subsidies are concerne d, "the obligation contained in Article 5

121European Union's appellant's submission, para. 102. (original emphasis)
122European Union's appellant's submission, para. 104.
123European Union's appellant's submission, para. 105.
124European Union's appellant's submission, para. 108.
125European Union's appellant's submission, para. 114.
126European Union's appellant's submission, para. 117. (original emphasis)
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of the SCM Agreement could not apply to government actions which took place wholly before the
SCM Agreement came into force."
127 According to the European Union, the United States had until
1997 to bring dispute settlement pr oceedings against such actions, a nd "{a} failure to do so cannot
lead to expanding the temporal scope of Article 5 of the SCM Agreement as the Panel did."128
3. The Life of a Subsidy and Intervening Events
(a) Whether the Panel erred in its in terpretation and application of
Articles 1, 5, and 6 of the SCM Agreement
50. The European Union requests the Appellate B ody to find that the Panel erred in the
interpretation and application of Articles 1, 5, and 6 of the SCM Agreement. According to the
European Union, the Panel ignored the legal principl e reflected in Articles 1, 5, and 6 that, when a
benefit to a recipient arising from prior subsidies diminishes over time or is removed or taken away,
this "significant change" must be taken into account in the application of the SCM Agreement and in
particular in the examination of the causal link be tween the granting of the subsidy and the alleged
adverse effects.129
51. The European Union argues that the text of Articles 1, 5, and 6 of the SCM Agreement
supports the notion of a "continuing benefit". First, Article 1 of the SCM Agreement defines the
conditions under which a subs idy "shall be deemed to exist". The use of the word "exist", in the
present tense, demonstrates that the SCM Agreement is not concerned with subsidies that no longer
exist and that are not capable of causing adverse eff ects. Moreover, once a "financial contribution" is
given, the element under Article 1 that can "cease to exist" or be discontinued over time if there is a
significant change, either through the passage of time or any other intervening event or action, is the
"benefit".130 Second, the European Union recalls that Article 5 of the SCM Agreement provides that
WTO Members should not cause, "through the use of any subsidy", adverse effects to the interests of
other Members. In the European Union's view, the word "cause", in the present tense, implies that
subsidies that have been withdrawn, ceased to exist, or whose effects have diminished with the
passage of time, cannot currently "cause" present adverse effects. 131 The European Union finds
further support for its interpre tation in the term "through the use of any subsidy"132, which in its view
could not mean that a Member, through granting or maintaining a subsidy that is later withdrawn or

127European Union's appellant's submission, para. 116.
128European Union's appellant's submission, para. 121.
130European Union's appellant's submission, para. 205.
131European Union's appellant's submission, para. 207.
132European Union's appellant's submission, para. 207. (emphasis added by the European Union)
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otherwise discontinued or diminished to a neg ligible amount, could cause present adverse effects.
133
Indirect effects of subsidies that have ceased to ex ist are not sufficient; even if "historic" subsidies
caused something to happen many years ago, the continuing existence of what was caused and the fact
that it may have "continuing effects" today does not satisfy the requirements of Article 5 of the
SCM Agreement. The European Union considers that such an interpretation wo uld "overstretch" the
concept of adverse effects caused by a subsidy and render it meaningless. 134 Finally, the
European Union refers to Article 6.3 of the SCM Agreement, which identifies certain situations in
which "the effect of the subsidy is to" cause certain phenomena.135 The use of the present tense in that
phrase confirms that a subsidy that is withdrawn or has ceased to exist cannot trigger these effects,
and requires an examination of whether the subsidy, because of the passage of time, is still capable of
causing present adverse effects. The European Un ion notes that such an examination can be done
through the use of "amortisation" rules that inves tigating authorities, panels , and the Appellate Body
have recognized as a "practical way" of assessing benefit or effects over time.136
52. The European Union refers to the "privatization" case law of the Appellate Body—in
particular US – Lead and Bismuth II and US – Countervailing Measures on Certain EC Products , in
which the Appellate Body found that the full priva tization of state-owned companies "extinguished"
the prior benefits of subsidies enjoyed by those state-owned companies. The European Union submits
that this "privatization" case law is an "application" of the "principle" that the removal or diminution
of subsidies over time has to be taken into account under the SCM Agreement. These Appellate Body
reports also illustrate that the removal of the "subs idized value"—indirectly through "extinction", or
directly through "extraction" 137—has to be considered in the est ablishment of the existence of
subsidization or the aggrieved Member's right to a remedy. The European Union acknowledges that
this "privatization" case law arose in a counterva iling duty context involving full privatizations.

133European Union's appellant's submission, para. 207. The European Union refers to various
calculations presented to the Panel that in its view show that any present benefit from the subsidies is
de minimis. ( Ibid., footnote 198 to para. 207 (referring to the European Communities' comments on US –
Upland Cotton (Article 21.5 – Brazil) submitted to the Panel, paras. 8-34 and 74-98; European Communities'
first written submission to the Panel, paras. 1468-1490 and 1569-1634 (detailed description of the methodology
and further references on which it is based); Intern ational Trade Resources LLC ("ITR") expert statement on
subsidy allocation, "Calculating Magnitude of the Subsidies Provided to the Recipient Entities" (5 February
2007) (Panel Exhibit EC-13 (BCI/HSBI)); ITR rebuttal of the United States' critique of allocation methodology,
"Response to US Assertions that ITR's Method of Calculating the Magnitude of Subsidies is Flawed" (21 May
2007) (Panel Exhibit EC-660 (BCI/HSBI)); and ITR report, "Updated Subsidy Magnitude and Cash Flow
Calculations" (12 July 2007) (Panel Exhibit EC-839 (BCI))).
134European Union's appellant's submission, para. 207.
135European Union's appellant's submission, para. 208.
136European Union's appellant's submission, para. 208 (referring to Appellate Body Report, Japan –
DRAMs (Korea), para. 210).
137These concepts, as used by the European Union, are further explained in section V.C.2 of this
Report.
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However, in its view, the rationale of the Appellate Body was based on the definition of "subsidy" in
Article 1 of the SCM Agreement, and thus is common to the entire SCM Agreement. The
European Union therefore rejects the Panel's finding th at the "continued benefit" analysis is relevant
only in Part V cases because, as explained above , the panels and the Appellate Body in the
privatizations cases based their decisions on a definition of subsidy in Article 1 of the
SCM Agreement, which applies equally to Part III of the SCM Agreement.
53. The European Union also finds support for the c oncept of "continuing benefit" in Articles 4.7
and 7.8 of the SCM Agreement, which it likens to Articles 21.2 and 21.3 in Part V of the
SCM Agreement. The European Union recalls that the Appellate Body noted in the privatization cases
that Articles 21.2 and 21.3 require the terminati on of remedial action against subsidies once those
subsidies have been removed in some way. Acco rding to the European Union, a "harmonious" or
contextual interpretation of the provisions of the SCM Agreement precludes a finding that after a
subsidy is "withdrawn", within the meaning of Articles 4.7 and 7.8 of the SCM Agreement, it can
nonetheless "continue to exist" within the meaning of Article 1 of the SCM Agreement or be capable
of having "adverse effects" within the meaning of Articles 5 and 6 of the SCM Agreement.
138
54. Turning to the Panel's findings, the European Union recalls the Panel's statement that the
word "thereby", as used in Article 1.1(b) of the SCM Agreement, indicates that the financial
contribution and the benefit come into existence at the same time, which in turn led it to reject the
notion of a "continuing benefit". 139 In the European Union's view , the simultaneous coming into
existence of the financial contri bution and benefit has no relevance for the question of whether the
benefit must be continuing in order to cause adve rse effects. The European Union submits that a
finding that a subsidy exists or has been gr anted does not preclude the possibility of using
amortization rules to allocate the amount of benef it over time in order to determine whether a subsidy
still confers a benefit.140 Moreover, the Panel attempted to replace the concept of "continuing benefit"
with an examination of "how the effect of a subsidy is to be analyzed over time" within its causation
analysis.141 As the European Union sees it, the two concep ts are different: a causation analysis is
"obsolete" in circumstances where a subsidy does not confer a present benefit due to its withdrawal or

138European Union's appellant's submission, para. 201.
139European Union's appellant's submission, para. 223 (referring to Panel Report, para. 7.218). The
European Union submits that, in Japan – DRAMs (Korea), the Appellate Body found that the calculation of the
amount of benefit and the allocation of benefit over time once that amount has been established are two separate
issues. (See Appellate Body Report, Japan – DRAMs (Korea), para. 199)
140The European Union argues that this is particularly relevant in the causation analysis since a subsidy
which can be considered to be fully amortized before the reference period cannot be found to cause adverse
effects. (European Union's appellant's submission, para. 223 and footnote 211 thereto).
141European Union's appellant's submission, para. 224 (quoting Panel Report, para. 7.218 (original
emphasis)).
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discontinuation, or where due to amortization it is found to be non-existent or negligible.
142
Furthermore, the European Union observes that, d espite announcing that it would do so, the Panel
never addressed the "effects of the subsidy over time" in its causation analysis.143
(b) Whether the Panel erred in its inte rpretation and application of the
"privatization" case law
55. The European Union submits that the Panel e rred by "improper{ly} reading" the panel and
Appellate Body reports in the privatization cases, and that it thereby "improperly narrowed the scope
of situations in which subsidies are extinguished". 144 In the European Union' s view, the privatization
cases establish the principle that the sale of a co mpany at arm's length and for fair market value
removes any benefit of prior subsidies to the buyer. This principle is equally applicable to full and
partial privatizations, as well as to "private-to-private sales". 145 In this regard, the European Union
refers to a number of sales transactions that it cont ends involved partial privatizations and "private-to-
private sales", resulting in changes of ownershi p in Airbus companies and consequently the
"extinction" of a portion of the subsidies that had been granted to these companies. These
transactions include: (i) the French Government's sale of shares in Aérospatiale-Matra through a
public offering in 2000; (ii) the combination of the LCA-related assets and activities of the Airbus
partners to form EADS and the public offering of EADS shares in 2000; (iii) market sales of EADS
shares by various EADS shareholders (including the French Government) between 2001 and 2006;
and (iv) the sale by BAE Systems of its interest in Airbus SAS to EADS in 2006.
146
56. The European Union alleges a number of errors in the Panel's analysis of the Appellate Body
privatization case law. First, the European Union submits that the Panel misrepresented the Appellate
Body's findings in US – Countervailing Measures on Certain EC Products as to whether a distinction
is to be made between a firm and its owners in analyzing whet her a benefit is conferred or
extinguished. In that dispute, the Appellate Body st ated that both a firm and its owners could be the
recipient of a subsidy, but that investigating aut horities should not overlook the fact that some of the

142European Union's appellant's submission, para. 224.
143European Union's appellant's submission, para. 224. The European Union refers to section VII.F of
the Panel Report, which deals with adverse effects. The European Union submits that, since the Panel never
returned to this issue, the European Union had difficu lty in identifying the precise paragraph containing the
Panel's error. Moreover, it notes that, although currently raised in the context of the Panel's benefit analysis, and
in particular in the Panel's findings at paragraphs 7.218 and 7.222, this error also has consequences for the
Panel's findings in its assessment of the causal link, including issues relating to the quantification of the amount
of the subsidy and the age of the subsidy.
144European Union's appellant's submission, para. 227.
145European Union's appellant's submission, para. 226.
146Panel Report, para. 7.204. See European Union's appellant's submission, para. 147 and 226
(referring to European Communities' response to Panel Question 111, para. 311; and Panel Report, para. 7.204).
We describe these transactions in further detail in section V.C of this Report.
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financial contribution provided to the owners ma y not flow to the firm. The Appellate Body
supported its conclusion on the basis that treating a firm and its owners as distinct could potentially
undermine the disciplines of the SCM Agreement because it would allow governments to circumvent
the Agreement by bestowing benefits on the firms' owners rather than on the firms themselves.
147 The
European Union also notes that the Appellate Body in that case criticized the panel for not restricting
its finding to the circumstances of that case, which involved a full privatization. The European Union
submits, however, that, contrary to the Panel's sugge stion, the Appellate Body did not thereby also
conclude that the panel's "no distin ction" finding should apply only to full privatizations; rather, the
Appellate Body expressed the view that investiga ting authorities should not be entitled to assume that
a benefit to the owners of a firm equates to a benefit to the firm in the full amount. The
European Union further describes the Appellate Body's finding that a firm and its owners can both be
treated as the recipients of a subsidy as "rooted in economic common sense".
148 In its view, an
"identity of interest" between a firm and its ow ners extends beyond a case of full privatization to
situations involving a smaller percentage of shares so ld, since in either instance "the payment in a fair
market, arm's length transaction would be made by the firm's new owners, whose relationship with the
firm and interest in its success would be the same, whatever the amount of their shareholding."149
57. Second, the European Union rejects the Panel's fi nding that the European Union's approach in
US – Countervailing Measures on Certain EC Products "conflated" two different "financial
contributions"—the financial contribution origina lly provided to the producer and the financial
contribution involved in the sale of an interest in that firm to the new owner—and the two "relevant
markets" according to which the benefit conferred by the respective financial contributions is to be
assessed under Article 14 of the SCM Agreement. The European Union recalls that it was on this
basis that the Panel in this dispute found that, while a change in ownership at fair market value may
prevent the creation of a new subsidy, it will have no impact on prior subsidies. 150 T h e
European Union submits that the Panel's conclusion is invalidated by the Appellate Body's finding
that privatizations at fair market value remove benefits of prior subsidies. The European Union
further submits that, although it is "perfectly possi ble" to have two financial contributions, they are
"not comparable".151 The first financial contribution—which may be, for example, a grant or equity
infusion—to the extent it confers a benefit, involves a subsidy that increases the value of the firm.

147European Union's appellant's submission, paras. 237-239 (referring to Appellate Body Report,
US – Countervailing Measures on Certain EC Products, paras. 115 and 118).
148European Union's appellant's submission, para. 241.
149European Union's appellant's submission, para. 241.
150European Union's appellant's submission, paras. 242 and 243 (referring to Panel Report, paras. 7.243
and 7.244).
151European Union's appellant's submission, para. 245.
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The second financial contribution—the sale by the gove rnment of its interest in the firm—involves
the transfer of the firm's value (increased by the fi rst financial contribution) to new owners, which, if
it corresponds to a fair market value, not only fails to create a new subsidy but also, "because it by
definition includes the market value of the subsidy created by the original financial contribution, it
also removes the benefit of this subsidy."
152 Accordingly, rather than being "conflated", the two
financial contributions are treated appropriately under Articles 1 and 14 of the SCM Agreement.
58. Third, the European Union submits that, throug h its use of "selective, out-of-context, quotes"
from the Appellate Body report in US – Countervailing Measures on Certain EC Products , the Panel
misrepresented the Appellate Body's treatment of that panel's findings, and thereby supported its
perception that the Appellate Body had invalidated those findings. 153 The European Union observes,
however, that, with the exception of a situation where government intervention distorts the market and
renders an arm's-length transaction that is a pparently for fair market value "unreliable" 154, the
Appellate Body agreed with the panel that priva tizations at arm's length for fair market value
extinguish prior subsidies.155
59. Fourth, with respect to a situation involving "private-to-private" sales, the European Union
recalls the Appellate Body's statement in US – Countervailing Measures on Certain EC Products that
"{t}he Panel's absolute rule of 'no benefit' may be defensible in the context of transactions between
{...} private parties taking place in reasonably competitive markets". 156 According to the
European Union, the extinction of benefits in a situation involving two private entities is "founded on
economic common sense" since, as distinct from a government-to-private sale where the government
may have reason to shape the circumstances and cond itions of the transaction, a private seller's only
objective is to obtain maximum value. 157 In support, the European Union refers to the United States'

152European Union's appellant's submission, para. 245. (original emphasis)
153European Union's appellant's submission, para. 247.
154European Union's appellant's submission, para. 252 (referring to Appellate Body Report, US –
Countervailing Measures on Certain EC Products, paras. 121-124).
155European Union's appellant's submission, paras. 250-252 (referring to Appellate Body Report, US –
Countervailing Measures on Certain EC Products , para. 126, where the Appellate Body stated in relevant part
that "{i}n the absence of such proof, the fact of the arm' s-length, fair market value privatization is sufficient to
compel a conclusion that th e 'benefit' no longer exists for the priv atized firm"; and para. 158, where the
Appellate Body expressed its agreement with the panel that "privatization at arm's length and at fair market
price will usually extinguish the remaining part of a benefit bestowed by a prior, non-recurring financial
contribution. However, we disagree with the Panel that this result will necessarily and always follow from
every privatization at arm's length and for fair market value." (original emphasis; footnotes omitted)).
156European Union's appellant's submission, para. 253 (quoting Appellate Body Report, US –
Countervailing Measures on Certain EC Products, para. 124).
157European Union's appellant's submission, para. 254 (referring to Appellate Body Report, US –
Countervailing Measures on Certain EC Products, para. 124).
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countervailing duty presumptions that "now establish a presumption of extinguishment of subsidy in
... private-to-private transactions".
158
60. With respect to partial privatizations, or "par tial" sales, the European Union finds support in
the approach taken by the compliance panel in US – Countervailing Measures on Certain EC
Products (Article 21.5 – EC). The European Union argues that th e Panel should have recognized that
the compliance panel had "legitimized a 'segmented' approach to an analysis of changes in ownership"
and had approved the conclusions of the investigating authority that a portion (5.16%) of the
pre-privatization benefit to the state-owned comp any, Usinor, had not been extinguished because it
had been transferred to employees for less than fair market value.159
61. Finally, the European Union disagrees with th e Panel that the recognition of a "principle"
according to which changes in underlying ownershi p automatically or presumptively eliminate the
benefit would "potentially eviscerate" the disciplines of the SCM Agreement, particularly where the
producer is a corporation whose shares are publicly traded. 160 The European Union highlights that,
contrary to the Panel's implication, the transactions in this case do not involve the "daily trading" of
shares but, rather, significant sales by government, i ndustry, or institutional sh areholders. Moreover,
they involve transactions in assets of an enterprise by strategic sharehol ders rather than shares held as
investments, and realize for the seller the underlying enterprise value rather than the investment value
of the shares. Accordingly, the European Union submits, they are analogous to kinds of sales of
shares already found to extinguish or reduce benefits from past financial contributions.161
(c) Whether the Panel erred in finding that the transactions did not
"withdraw" the benefit conferred by the past subsidies, within the
meaning of Articles 4.7 and 7.8 of the SCM Agreement
62. The European Union argues that the Panel erred in its interpretation and application of the
word "withdraw" in Articles 4.7 and 7.8 of the SCM Agreement by failing to find that two sets of
transactions involving Airbus companies had the effect of "withdrawing" the value of prior subsidies.

158European Union's appellants' submission, para. 254, and footnote 250 thereto (referring to
US Department of Commerce (the "USDOC"), Issues and Decision Memorandum for the Final Results of the
2002 Administrative Review of the Countervailing Duty Order on Certain Pasta from Italy (Case C-475-819),
p. 2, footnote 1 ( United States Federal Register , Vol. 69, No. 234 (7 D ecember 2004) 70657)). The
European Union also refers to a statement of the US Court of Appeal for the Federal Circuit that a "private seller
... seeks the highest market price for its assets". ( Delverde vs. United States , 202 F 3d 1360, 1369 (Fed. Cir.
2000) (Panel Exhibit EC-591))
159European Union's appellant's submission, paras. 258 and 259.
160European Union's appellant's submission, paras. 261 and 262 (referring to Panel Report, para. 7.246,
and para. 7.252 (in the context of private-to-private sales)).
161European Union's appellant's submission, para. 263 (referring to European Communities' response to
Panel Question 197, para. 225).
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The first set of transactions (referred to by the Euro pean Union as "cash extractions") were aimed at
aligning the values of two Airbus predecessor comp anies—Dasa and CASA—with the value of the
percentage share in EADS agreed to be held by their parent companies, DaimlerChrysler and the
Spanish Government (through its holding company, So ciedad Estatal de Participaciones Industriales
("SEPI")) prior to and following the Initial Public Offering of EADS.
162 For purposes of this
"alignment", €340 million in cash was removed from CASA by the Spanish Go vernment, and €3.133
billion in cash was removed from Dasa by DaimlerChrysler.163 The second set of transactions that the
European Union argues resulted in the "withdrawal " of subsidies are the same sales transactions
described at paragraph 55 above.
63. According to the European Union, both set s of transactions meet the definition of
"withdrawal" as interpreted by the Appellate Body in Brazil – Aircraft (Article 21.5 – Canada) to
mean the "removal" or "taking away" of a subsidy. 164 Moreover, the Europ ean Union observes that,
to the extent that it has already "withdraw{n}" the subsidy within the meaning of Articles 4.7 and 7.8,
the Panel erred in recommending that it do so.165
(i) "Cash extractions" involving CASA and Dasa
64. The European Union argues that the benefit of any prior subsidies to CASA and Dasa existed
as "enhancements" to their balance sheets, meaning that, "but for" the provision of the subsidies, these
entities would have been of lesser value. 166 The European Union submits that the "cash extractions"
from CASA and Dasa therefore had the effect of reducing the companies' values and removing any
"incremental value" created by subsidies 167, resulting in the withdrawal, removal, or taking away of
any value that was enhanced by prior subsidies. Moreover, according to the European Union, the
"withdrawn" funds were not likely to return to E ADS for its LCA operations or otherwise since there

162See European Union's appellant's submission, paras. 137-140 and 174. We describe these
transactions in more detail in Section V.C of this Report.
163The European Union submits that, of the €342. 4 million extracted from CASA before the
contribution of the company to EADS, the Spanish Government deposited €340 million into the Spanish
Treasury and provided the remaining €2.4 million to Dasa, which held a 0.71% stake in CASA. With respect to
Dasa, the European Union refers to the offering memo randum accompanying the public float of EADS shares
that states that all Dasa assets and liabilities save €3.133 billion in cash, and certain other assets and liabilities
were contributed to EADS. (European Union's appellant's submission, paras. 175 and 176 and footnotes 179 and
180 thereto (referring to EADS' Final International Offering Memorandum (9 July 2000) (Panel Exhibit EC-24),
pp. 142-143))
164European Union's appellant's submission, para. 170 (quoting Appellate Body Report, Brazil –
Aircraft (Article 21.5 – Canada), para. 45).
165European Union's appellant's submission, para. 171.
166European Union's appellant's submission, para. 172.
167European Union's appellant's submission, para. 173.
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was a "serious disincentive" for the Spanish Governme nt or DaimlerChrysler to reinvest the extracted
funds in EADS and its LCA subsidiaries.
168
65. The European Union also rejects the two reasons proffered by the Panel for concluding that
the "cash extractions" did not c onstitute "withdrawal" of prior subsidies within the meaning of
Articles 4.7 and 7.8 of the SCM Agreement. First, the European Union disagrees with the Panel that
the "cash extraction" by the Spanish Government did not constitute a "withdrawal" since it provided
"something of ... value"—specifically, a reducti on in CASA's equity or its capital—for the
€340 million removed from CASA. 169 The European Union submits that, although the removal of
€340 million cash from CASA did reduce CASA's capital, the removal of this cash was reflected in
CASA's balance sheet. Second, the European Union rejects the Panel's finding that the cash extracted
from CASA and Dasa was not truly "withdr awn", because the Spanish Government and
DaimlerChrysler, with their othe r partners, the French Government and Lagardère, collectively
"control{led}" EADS170 and therefore they did not have a disincentive to re-inject the extracted cash
in EADS and LCA operations. According to the European Union, the "Contractual Partnership" 171
had no impact on whether cash could be consider ed to be permanently "withdrawn" from CASA,
Dasa, or their successors, since that partnership affects the exercise of voting rights but does " nothing
whatsoever" to reduce the economic disincentive for th e Spanish Government and DaimlerChrysler
against re-injection of the cash given their limited claim to EADS' earnings and net assets.172
66. Finally, with respect to the "cash extraction" from CASA, the European Union submits that
the Panel's finding incorrectly suggests that a gove rnment can never "withdraw", within the meaning
of Articles 4.7 and 7.8, a subsidy from a company that it owns or in which it has an interest, and that a
government, having "withdrawn" a subsidy, is pr esumed to be about to grant a new subsidy to
replace it.

168European Union's appellant's submission, paras. 178 and 180. The European Union recalls that,
following the "cash extractions", the Spanish Government and DaimlerChrysler contributed CASA and Dasa,
respectively, to EADS in exchange for shares in E ADS, and thereafter shared returns on earnings from
operations of CASA and Dasa with all other EADS shareholders, who, through EADS, owned 80% of Airbus
GIE (later Airbus SAS), as well as with BAE Systems, which owned the remaining 20% of Airbus GIE. As a
result, if the Spanish Government or DaimlerChrysler ha d re-injected the "extracted" cash in EADS for use by
Airbus GIE, the European Union posits, they would have "gifted", respectively, 96% and 76% of the cash and
any associated returns to their fellow shareholders. The European Union explains that diluting the Spanish
Government's 5.5% stake in EADS by EADS' 80% stake in Airbus SAS results in a 4.4% stake in Airbus SAS.
The European Union explains that diluting DaimlerC hrysler's 30% stake in EADS by EADS' 80% stake in
Airbus SAS results in a 24% stake in Airbus SAS. (Ibid., footnotes 182 and 183 to para. 180)
169European Union's appellant's submission, para. 183.
170European Union's appellant's submission, para. 185 (referring to Panel Report, paras. 7.283, 7.285,
and footnote 2218 to para. 7.275).
171See para. 581 and footnotes 1397 and 1398 thereto of this Report.
172European Union's appellant's submission, paras. 186 and 189. (original emphasis)
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(ii) Sales transactions
67. The European Union submits that, although it made relevant arguments be fore the Panel, the
Panel failed to make any findings that the sales tran sactions resulted in the "withdrawal" of subsidies
within the meaning of Articles 4.7 and 7.8 of the SCM Agreement
173 thereby committing "legal error"
under these provisions. The European Union recalls its arguments that privatization, whether partial
or full, of a subsidized company at arm's length and for fair market value results in the seller retaining
the benefit of the subsidy. 174 In such a situation, the buyer must earn a return on an investment made
at fair market value rather than the subsidized valu e, and does not retain any of the benefit from prior
subsidies. With the benefit of a subsidy remaining with the seller, that subsidy is "removed" or "taken
away" from the recipient, and is therefore "withdraw n" within the meaning of Articles 4.7 and 7.8 of
the SCM Agreement.
68. Moreover, the European Union alleges that the Panel should have found that the sales
transactions were conducted at arm's length and for fair market value and therefore "withdrew" prior
subsidies from the recipient entity. First, they were at "fair market value" si nce they occurred on the
stock exchange, which "by definition" constitut es a market, or were based on valuations by
independent investment banks. 175 Second, the transactions were conducted at "arm's length", in the
sense that the parties were independent, acted in their own interests, were not in control of each other,
and had roughly equal bargaining power.176
(d) Whether the Panel violated Article 11 of the DSU
69. The European Union submits that, in additio n to the aforementioned errors, the Panel
committed five further errors, under Article 11 of th e DSU, when it made factual findings involving
the alleged "cash extractions" and sales transactions at issue.
70. First, the European Union recalls the Panel's finding that the Spanish Government "provided
something of equal value" for the €340 million extracted from CASA—namely a reduction in the
equity or capital of CASA. Given that it is " obvious{}" that the removal of cash from a company will

173European Union's appellant's submission, para. 192 (referring to European Communities' first
written submission to the Panel, paras. 284-288; Euro pean Communities' response to Panel Question 123,
paras. 385, 391, and 392; European Communities' response to Panel Question 222, paras. 557-559;
European Communities' comments on the United States' responses to Panel Question 168, para. 318 and Panel
Question 222, paras. 392-394 and 402).
174European Union's appellant's submission, para. 194 (referring to Appellate Body Report, US –
Countervailing Measures on Certain EC Products, para. 126).
175European Union's appellant's submission, para. 195. See also paras. 131-146.
176European Union's appellant's submission, para. 196 (referring to Panel Report, US – Countervailing
Measures on Certain EC Products (Article 21.5 – EC), para. 7.134).
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reduce that company's capital, the European Union c onsiders that the Panel acted inconsistently with
Article 11 by failing to provide a "reasoned and adequate" explanation as to why the extracted cash
was not considered "withdrawn" from CASA for purposes of Articles 4.7 and 7.8 of the
SCM Agreement.
177
71. Second, the European Union considers that the Panel violated Article 11 of the DSU because
(i) it failed to provide a "reasoned and adequate" explanation and (ii) lacked a sufficient evidentiary
basis for its finding that an agreement to pool the voting rights among contracting partners augmented
DaimlerChrysler's and the Spanish Government's cl aims to earnings on any cash re-injected in EADS
and its LCA operations, such that they had no disin centive to reinvest the extracted cash and therefore
had not "withdrawn" prior subsidies.178
72. Third, the European Union raises an Article 11 claim regarding the Panel's finding that the
Spanish Government's "cash extraction" from CA SA did not constitute "withdrawal" of prior
subsidies because it lacks coherence and is "internally inconsistent" 179 with findings elsewhere in its
Report that the French Government's capital contri butions, including the contribution of its 45.76%
stake in a company, Dassault, to its wholly ow ned LCA manufacturer, Aéro spatiale, qualifies as a
"financial contribution". 180 According to the European Un ion, the positions are "internally
inconsistent", since the Panel's logic suggests that the provision of money to a state-owned entity by a
government shareholder could qualify as a "financial contribution", whereas the removal of money
from a state-owned entity also by a government sh areholder would not qualify as a "withdrawal" of
those payments.
73. Fourth, the European Union argues that the Pane l's failure to address its arguments that the
sales transactions constituted "withdrawals" of subs idies within the meaning of Articles 4.7 and 7.8

177European Union's appellant's submission, para. 273. For its "reasoned and adequate" explanation
standard, the European Union relies on Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) ,
footnote 618 to para. 293.
178European Union's appellant's submission, para. 275. For its "reasoned and adequate" explanation
standard, the European Union relies on Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) ,
para. 293 and footnote 618 thereto. See also Appellate Body Report, EC – Hormones, para. 133.
179For its contention that two positions adopted by a panel that are "internally inconsistent" constitute
error under Article 11 of the DSU, the European Union relies on Appellate Body Report, US – Upland Cotton
(Article 21.5 – Brazil), para. 292.
180European Union's appellant's submission, para. 276 (referring to Panel Report, paras. 7.1400-
7.1403).
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constitutes a denial of its claim, and that the Pane l acted inconsistently with Article 11 by failing to
provide a "reasoned and adequate" explanation of that denial.
181
74. Finally, the European Union submits that th e Panel's finding that the European Communities
"did not argue" 182 that the sales transactions at issue were at arm's length is inconsistent with
Article 11 because it is incorrect and ignores the f act that the European Union did make these
arguments and provided supporting evidence. Furthe r, the European Union submits that the Panel's
finding that, other than the stock exchange sales, none of the transactions were at arm's length 183, is
also inconsistent with Article 11 of the DSU b ecause the Panel provided no "reasoned and adequate"
explanation for such a finding184, which "enjoys no basis" on the panel record.185
(e) Whether the Panel erred by finding that there was no requirement to
conduct a "pass-through" analysis
75. The European Union argues that the Panel's fi nding that there was no requirement to conduct
a "pass-through" analysis between past subsidy r ecipients and current Airbus LCA producers was
premised on an erroneous interpretation and app lication of the requirement to demonstrate a
"continuing benefit" that is based on Articles 1, 5, and 6 of the SCM Agreement. In the
European Union's view, contrary to the Panel's finding, a "pass-through" analysis is equally applicable
to Part V as to Part III of the SCM Agreement given the common definition of subsidy in Article 1 of
the SCM Agreement.
76. The European Union refers to the finding of the Appellate Body in Canada – Aircraft that a
benefit arises only if a person (natural or lega l) or a group of persons has in fact received
something.186 This suggests that the United States had th e burden of proving that alleged subsidies to
recipients other than the current producer of LCA, Airbus SAS, currently be nefit Airbus SAS, since
the adverse effects under Articles 5 and 6 of the SCM Agreement are defined as a particular type of
competitive harm that is the "effect of the subsid y" and are transmitted through a recipient company's

181European Union's appellant's submission, para. 278 (referring to Appellate Body Report, US –
Continued Zeroing , para. 338; and Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) ,
paras. 288, 292, footnote 618 to 293, and 294).
182European Union's appellant's submission, para. 279 (referring to Panel Report, para. 7.249).
183European Union's appellant's submission, para. 281 (referring to Panel Report, footnote 2175 to
para. 7.249).
184European Union's appellant's submission, para. 281 (referring to Appellate Body Report, US –
Continued Zeroing , para. 338; and Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) ,
paras. 288, 292, footnote 618 to 293, and 294).
185European Union's appellant's submission, para. 281 (referring to Appellate Body Report, US –
Softwood Lumber VI (Article 21.5 – Canada), para. 93; and Appellate Body Report, EC – Hormones, paras. 132
and 133). (original emphasis)
186European Union's appellant's submission, para. 271 (referring to Appellate Body Report, Canada –
Aircraft, para. 154).
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products. The European Union recalls that, in US – Upland Cotton , the Appellate Body found that a
prerequisite to a finding of causation is that the ch allenged subsidy does in fact benefit the subsidized
product.
187 For these reasons, the European Union argues, the United States was required to establish
that the alleged subsidies are provided or "passed through" to Airbus SAS as the entity presently
developing, producing, and selling LCA.
(f) Conclusion
77. In conclusion, the European Union requests the Appellate Body to reverse the findings of the
Panel relating to "pass-through", "e xtinction", and "extraction" a nd "withdrawal" of subsidies.
Moreover, as a consequence of the Appellate Body reve rsing the Panel's finding that Article 5 of the
SCM Agreement does not require an additional demonstration that all or part of the "benefit" found to
have been conferred by the provision of a financia l contribution continues to exist or presently exists,
the European Union requests a reversal of the Pane l's analysis of the causal link between the alleged
subsidies and present adverse effects. 188 In the European Union's vi ew, the Panel s hould have taken
into account, inter alia , the passage of time in order to examine whether past subsidies were still
capable of causing present adverse effects by, for instance, applying amortization rules. 189 T h e
European Union also requests reversal of the Panel's recommendation that the European Union
"withdraw the subsidy" and "remove the advers e effects or ... withdraw the subsidy", under
Articles 4.7 and 7.8 of the SCM Agreement, to the extent that the European Union has already
done so.190
4. The 1992 Agreement
78. The European Union requests the Appellate Body to reverse the Panel's finding that Article 4
of the 1992 Agreement is not relevant to an in terpretation of "benefit" within the meaning of
Article 1.1(b) of the SCM Agreement. The European Union argues that, contrary to the Panel's
finding, Article 4 of the 1992 Agreement is a "relev ant rule{} of international law applicable in the
relations between the parties", within the meaning of Article 31(3)(c) of the Vienna Convention, and
should be taken into account in determining whethe r a "benefit" was conferred through the provision
of post-1992 LA/MSF for the development of Ai rbus models A330-200, A340-500/600, and A380. 191

187European Union's appellant's submission, para. 271 (referring to Appellate Body Report, US –
Upland Cotton, para. 472).
188The European Union refers to the Panel's findings on adverse effects in section F of its Report, and
in particular in paragraphs 7.1949, 7.1961, 7.1966-7.1968, 7.1973, 7.1976, and 7.1984.
189European Union's appellant's submission, para. 285 and footnote 283 thereto.
190European Union's appellant's submission, para. 286.
191European Union's appellant's submission, para. 701.
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Alternatively, the European Union submits that the Panel should have taken into account the existence
and operation of Article 4 of the 1992 Agreement as part of the facts establishing the relevant market
benchmark at the time LA/MSF was granted.
79. As a result of the Panel's error, the European Union requests the Appellate Body to reverse
the Panel's finding that Article 4 of the 1992 Agr eement does not provide the proper benchmark for
assessing whether post-1992 LA/MSF confers a benefit under Article 1.1(b) of the
SCM Agreement
192, to complete the analysis193, and to find that post-1992 LA/MSF did not confer any
"benefit" within the meaning of Article 1.1(b) of the SCM Agreement. Moreover, the European Union
requests the Appellate Body to "declare moot and w ith no legal effect" the pa ragraphs of the Panel
Report in which the Panel examined any of tho se post-1992 LA/MSF measures in its analysis under
Articles 1 and 2 of the SCM Agreement194 and to reverse its findings that such measures constitute
prohibited subsidies and actionable subsidies causing adverse effects.195
(a) The meaning of Article 31(3)(c) of the Vienna Convention
80. The European Union submits that an examinati on of the text, context, and object and purpose
of Article 31(3)(c) of the Vienna Convention, as well as the practice of the WTO dispute settlement
bodies, confirms its view that the 1992 Agreement is a "relevant rule{} of international law applicable
in the relations between the parties" with in the meaning of Article 31(3)(c) of the Vienna
Convention.196 The European Union argues for an interpretation of "the parties" to mean only to "the
parties to the dispute", and not all of "the parties to the treaty being interpreted". According to the
European Union, the text of Article 31(3)(c) of the Vienna Convention is "neutral" as between these
two notions, and the definition of "party" in Article 2(1)(g) of the Vienna Convention ("a State which
has consented to be bound by a treaty and for which the treaty is in force") could "apply equally" to

192European Union's appellant's submission, para. 734 (referring to Panel Report, para. 7.389).
193The European Union notes that there are no relevant factual findings by the Panel as to whether the
post-1992 LA/MSF provided for the A330-200, the A340-500/600, and the A380 is in compliance with the
provisions of Article 4 of the 1992 Agreement. However, the European Union argues that it had demonstrated
in the course of the Panel's proceedings that the LA/MSF in question was provided in conformity with the terms
and conditions stipulated in Article 4 of the 1992 Agreement. (European Union's appellant's submission,
para. 734 (referring to European Communities' first wr itten submission to the Panel, paras. 405-441)) The
European Union claims that the United States did not contest this. For these reasons, the European Union
argues, the Appellate Body may complete the analysis based on the uncontested facts as provided by the
European Union. (Ibid., para. 734)
194European Union's appellant's submission, para. 734 and footnote 911 thereto (referring to Panel
Report, paras. 7.365-7.497).
195European Union's appellant's submission, para. 734 and footnote 912 thereto (referring to Panel
Report, paras. 7.689, 7.1949, 7.1993, 7.2025, 8.1(a)(i), 8(1)(a)(ii), and 8.2).
196European Union's appellant's submission, para. 701.
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parties to the SCM Agreement as well as to the 1992 Agreement.
197 As a result, the European Union
considers the context and object and purpose of Article 31(3)(c) to be "determinative".198
81. With respect to "context", the European Union notes that other provisions, including
Article 31(2) of the Vienna Convention, refer to "all the parties" 199, implying that, "{i}f the drafters'
intention was to require that the relevant rules of international law must be applicable in the relation
between 'all the parties', they would have said so explicitly".200 Regarding the "object and purpose" of
Article 31(3)(c), the European Union refers to the preambular provisions of the Vienna Convention ,
which "highlight the relevance of international tr eaties and their respect in the relationship between
States, including in international disputes" and th at "{i}f two States have signed an international
agreement on a particular issue, the respect of that commitment in the context of an international
dispute is of fundamental importance." 201 The European Union considers Article 31(3)(c) to be a
principle of "systemic integration"202 of all international agreements applicable in the parties' relations
and notes that it has been applied in this way by other international courts, including the Permanent
Court of Arbitration.203
82. Finally, the European Union draws attention to past panel and Appella te Body reports. The
European Union notes the two "contradictory panel re ports" on the interpretation of "the parties": on
the one hand, the panel report in US – Shrimp (Article 21.5 – Malaysia) supports an interpretation of
"parties to the dispute" and, on the other hand, the panel report in EC – Approval and Marketing of
Biotech Products supports an interpretation of "the parties" as all WTO Members. The
European Union observes that the panel report in EC – Approval and Marketing of Biotech Products
has been "severely criticised" by the ILC Study Group for its "limitative" approach 204, since it "makes
it practically impossible ever to find a multilatera l context where reference to other multilateral
treaties as aids to interpretation unde r Article 31(3)(c) would be allowed." 205 Finally, the

197European Union's appellant's submission, para. 703.
198European Union's appellant's submission, para. 703.
199European Union's appellant's submission, footnote 879 to para. 704 (referring also to Articles 15(c),
20(2), 30(3) and (4), 40(2), 54(b), 57, and 59(1) of the Vienna Convention).
200European Union's appellant's submission, para. 704.
201European Union's appellant's submission, para. 707.
202European Union's appellant's submission, para. 708.
203European Union's appellant's submission, footnote 880 to para. 709 (referring to Permanent Court of
Arbitration, Final Award, Dispute concerning Access to Information under Article 9 of the OSPAR Convention
(Ireland v. the United Kingdom) (2 July 2003), ILM Vol. 42 (2003), p. 1118, paras. 105-116).
204European Union's appellant's submission, para. 711 (referring to Fragmentation of International
Law: Difficulties Arising from the Diversific ation and Expansion of International Law , Report of the Study
Group of the International Law Commission at its fifty-eighth session, finalized by Martii Koskenniemi,
205European Union's appellant's submission, para. 711 (referring to ILC Report on Fragmentation,
supra, footnote 204, paras. 443-450).
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European Union points to the Appellate Body reports in EC – Poultry , US – Shrimp , US – FSC
(Article 21.5 – EC) , and EC – Computer Equipment , in which the Appellate Body, through the
interpretative tools in Article 31 and Article 32, used non-covered agreements to which not all WTO
Members are parties to interpret WTO agreements.
206
(b) Whether Article 4 of the 1992 Agreem ent is relevant to interpreting
the term "benefit" in Article 1.1(b) of the SCM Agreement
83. The European Union argues that Article 4 of the 1992 Agreement is relevant to the
interpretation of "benefit" in two ways. First, the European Union refers to the concept of
development "support" as well as to the two "thres holds" provided for—one setting out the ceiling of
"support" in terms of the amount and the other setting out the minimum price for LA/MSF. 207 The
European Union observes that the term "support" a ppears as part of the definition of subsidy in
Article 1.1(a)(2) of the SCM Agreement, in Article XVI of the General Agreement on Tariffs and
Trade 1994 (the "GATT 1994"), and in Article 3.2 of the Agreement on Agriculture. Like Article 4 of
the 1992 Agreement, other provisions of the SCM Agreement were "drafted having in mind the idea of
a threshold", including footnote 1 and Article 14(d) of the SCM Agreement and paragraphs (g), (h),
(i), and (k) of the Illustrative List of Export Subsidies in Annex I to the SCM Agreement.208 On this
basis, the European Union submits that the reference to "support" and the thresholds in Article 4 of
the 1992 Agreement, as in other provisions of the GATT 1994, the SCM Agreement, and the
Agreement on Agriculture , "speak to the existence of 'benefit' and thus to the existence of a subsidy
and the obligation for the government conduct (i.e., not to exceed such a ceiling when providing
development support)."209
84. Second, the European Union argues that the 1 992 Agreement is the "understood benchmark"
that serves to inform the benefit analysis under Article 1.1(b) of the SCM Agreement. The
European Union notes that a subsidy has to be estab lished on the basis of market conditions existing
at the time the subsidy was granted.210 The European Union submits that, as at the time "development

206European Union's appellant's submission, paras. 713-717.
207In particular, the European Union notes that Article 4 concerns "development support" provided by
governments. Such support is subject to two thresholds: one in terms of the amount (government support "shall
not exceed" 33% of development costs), and the other in terms of price (the amount of royalty payments are set
at an interest rate "no less than" the cost of borrow ing to government). The European Union explains that
Article 4.2(a) covers the part of development support equivalent to 25% of 33% of eligible costs and that,
pursuant to Article 4.2(b), the remaining 8% has to be repaid at a rate of government borrowing cost plus 1%.
The European Union notes that this means that, in order to respect the minimum conditions of the 1992
Agreement, European Union me mber States had to charge an interest rate of government borrowing rate plus
0.2424%. (European Union's appellant's submission, para. 720 and footnote 897 thereto)
208European Union's appellant's submission, para. 722.
209European Union's appellant's submission, para. 723.
210European Union's appellant's submission, para. 725.
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support" was granted with respect to the A330-20 0, A340-500/600 and A380, "the United States had
agreed that (1) the European Union and its Member States could rely on the 1992 Agreement to define
the terms and conditions for the {LA/}MSF in question at the time it was granted; and that (2) the
terms and conditions mentioned in th e 1992 Agreement were legitimately 'available' to Airbus 'in the
market'."
211 In the European Union's view, the United States attempts to have "two bites of the
cherry", since, by signing the 1992 Agreement, it gave the European Union assurances that funding in
accordance with the 1992 Agreement would allow it to comply with its intern ational obligations, but
then several years later it withdrew from the 1992 Ag reement and claimed that the market benchmark
should be something different.
(c) Whether Article 4 of the 1992 Agreement is a relevant fact to
establish the market benchmark
85. The European Union argues, in the alternative, that "the Panel should have taken into account
the existence and operation of Article 4 of the 1992 Agreement as part of the facts to establish the
relevant market benchmark at the time {LA/}MSF was granted." 212 The European Union asserts that
benefit does not exist in the abstract: it requires that the beneficiary be made better off by the
financial contribution, compared with what it could obtain or what was available on the market. The
European Union refers to the pane l and Appellate Body reports in US – Softwood Lumber IV , which
state that "{t}he text of Article 14(d) {of the} SCM Agreement does not qualify in any way the
'market' conditions which are to be used as the be nchmark ... . As such, the text does not explicitly
refer to a 'pure' market, to a market 'undistorted by government intervention', or to a 'fair market
value'."
213 Accordingly, the European Union submit s, the existence of a benefit requires an
examination of the specific market conditions existing at the time the financial contribution is granted.
Since the 1992 Agreement is part of the "specific market conditions existing at the time the financial
contribution is granted", it should be examined in determining the existence of benefit.214
5. LA/MSF Benefit Benchmark
(a) Whether the Panel erred in finding that the LA/MSF measures confer
a benefit within the meaning of Article 1.1(b) of the SCM Agreement
86. The European Union submits that, to the extent that the Appellate Body disagrees with the
European Union's appeal based on the 1992 Agreem ent, and in any event with respect to pre-1992

211European Union's appellant's submission, para. 726.
212European Union's appellant's submission, para. 730.
213European Union's appellant's submission, para. 731 (referring to Appellate Body Report, US –
Softwood Lumber IV, para. 87, in turn quoting Panel Report, US – Softwood Lumber IV, paras. 7.50 and 7.51).
214European Union's appellant's submission, para. 731.
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LA/MSF measures
215, the Appellate Body should reverse the Panel's findings regarding the levels of
the project-specific risk premium that formed part of the Panel's benchmark for LA/MSF for each of
the aircraft projects at issue. 216 The European Union does not, howe ver, request a reversal of the
Panel's finding that the LA/MSF loans at issue confer a benefit within the meaning of Article 1.1(b) of
the SCM Agreement, with the exception of the French LA/MSF provided for the A330-200.217
(i) Errors of application of the law to the facts of the case
87. The European Union recalls that, before the Panel, the United States and the
European Communities agreed that the assessment of any subsidy arising from the LA/MSF measures
should be based on the difference, if any, between th e member State's expected rate of return and the
expected return a private investor would demand fo r a loan on similar terms (that is, the benchmark
rate).218 Moreover, it notes that the participants pr oposed benchmark rates against which to assess
whether the returns expected by the member States reflected market rates. The benchmark rates
proposed by both the United States and the European Communities for each of the projects consisted
of three elements: the first was a "risk-free" ra te equal to the yield on 10-year government bonds at
the time each LA/MSF loan was agreed to by the respective member State; the second was a "general
corporate risk" premium at the time of the LA/MSF loan agreement to capture the risk of default by
the borrower (derived from the yields on 10-year bonds issued by BAE and Aérospatiale); and the
third was a premium to capture project risk. 219 The United States and the European Communities
each proposed a different project-specific risk prem ium. The project-specific risk premium proposed
by the United States was derived by Dr. David M. Ellis from a 2004 empirical study of venture capital
investments undertaken by Kerins, Sm ith, and Smith (the "KSS Study").
220 T h e
European Communities contested the project-speci fic risk premium calculated by Dr. Ellis and
proposed instead a project-specific risk premium derived by Professor Robert Whitelaw from the rates
of return of a sample of risk-sharing suppliers that participated in the A380 project. The

215Including LA/MSF provided for the A300, A310, and A320. (See Panel Report, footnote 2248 to
para. 7.290)
216European Union's appellant's submission, para. 735 (referring to Panel Report, paras. 7.469, 7.480,
7.481, 7.483-7.488, 7.490, and 8.1(a)(i)).
217European Union's appellant's submission, footnote 915 to para. 735 (referring to Panel Report,
paras. 7.489, 7.490, and 8.1(a)(i)). The European Union notes that the alleged errors could inappropriately
increase its implementation burden.
218European Union's appellant's submission, para. 739 (referring to Panel Report, para. 7.434).
219European Union's appellant's submission, para. 739 (referring to Panel Report, paras. 7.432
and 7.433).
220Panel Report, para. 7.437 (referring to Kerins, Sm ith, and Smith, "Opportunity Cost of Capital for
Venture Capital Investors and Entrepreneurs" (June 2004) 39(2) Journal of Financial and Quantitative Analysis
385 (Panel Exhibit US-470)). See also European Union's appellant's submission, para. 741.
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European Union describes its disagreement with the United States as limited to the amount of specific
risk premium.
88. The European Union acknowledges that it "agreed with the United States that ... it would be
appropriate to apply a consta nt project-specific risk premium" to all LA/MSF measures.
221 T h e
European Union states that it does not appeal the Panel's conclusion that the project-specific risk
premium should vary from project to project. The European Union argues, however, that, although
the Panel found that the project-specific risk prem ium should vary from product to product, "rather
than examining the nature and circumstances su rrounding each project, the Panel lump{ed} some
projects together despite releva nt distinctions between them". 222 Specifically, the European Union
asserts that the Panel "considered jointly, and made findings collectively, for (i) the A300 and the
A310 projects, and (ii) the A320, A330/A340, A330-200 and A340-500/600 projects".223
89. The European Union also maintains that the Panel did not take into account some of the
factors that it found affected the level of project risk, including changes in the "conditions of
competition in the aircraft industry" and changes in "the level of risk that the finance industry is
willing to accept at different moments of its own economic cycle".
224 In spite of having identified
these factors, the Panel did not actually apply them and could not have done so due to a lack of
evidence. The European Union argues that "the absence of evidence from the Panel's record is no
excuse for the Panel's failure to apply the very factors it had set out itself for determining the
applicable project-specific risk premium." 225 Referring to the Appellate Body report in US –
Continued Zeroing, the European Union asserts that the Panel could and should have asked the parties
for evidence necessary to develop and apply the sta ndard the Panel itself had chosen to determine
project-specific risk premia for each Airbus LCA project.226
90. The European Union claims that the Panel add itionally erred in the application of the two
factors that it did consider, because it failed to apply th em to each of the aircraft projects at issue.
Instead, the Panel only applied the "relative experience" factor to the A300 and A310 and the "level of
technology" factor to the A380. 227 The European Union notes that th e Panel's failure is particularly
glaring given that, in the assessment of the effect of the LA/MSF on launch decisions, "the Panel

221European Union's appellant's submission, para. 740.
222European Union's appellant's submission, para. 760 (referring to Panel Report, paras. 7.468
and 7.481).
223European Union's appellant's submission, para. 760.
224European Union's appellant's submission, para. 761.
225European Union's appellant's submission, para. 761.
226European Union's appellant's submission, para. 761 (referring to Appellate Body Report, US –
Continued Zeroing, para. 347).
227European Union's appellant's submission, para. 763.
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relied heavily on findings that each successive launc h built on Airbus' experience gained in previous
launches".
228
91. Moreover, the European Union challenges the Pa nel's finding that the United States' project-
specific risk premium would be the " minimum project-specific risk premium" for both the A300 and
A310 projects.229 The Panel justified its finding on the b asis that "Airbus was in its early stages of
existence" when it launched these two projects. 230 However, the European Union faults the Panel for
failing to consider that the associated manufacturers that formed Airbus themselves had a wealth of
experience in the aerospace industry. Despite r ecognizing elsewhere in the Panel Report that a
derivative LCA poses less risk and costs less to deve lop, the Panel failed to take this into account in
its project-specific risk premium analysis. 231 The European Union notes that, in grouping the A300
and A310 together, the Panel ignored its technologi cal complexity criterion, "as the A310 builds on
the A300 and, as an essentially derivative aircraft, should exhibit much lower technological risk."232
92. The European Union notes that the Panel made collective findings regarding a group of
diverse aircraft projects, namely the A320, A330/A340, A330-200, and A340-500/600. The
European Union submits that, in grouping these diverse LCA projects, "the Panel did not apply any of
the factors composing its standard." 233 The European Union contends that the Panel erred by
considering that the rejection of a constant project-specific risk premium could only result in
increasing the benchmark above proposed by the Eu ropean Communities, even where the Panel found
that a particular LCA project involved lower relative risk than the LCA project that served as a basis
for the European Communities' proposed benc hmark. In this regard, the A330-200 and
A340-500/600 were derivative aircraft, and the Pa nel's reasoning and financial theory support the
proposition that the project-specific risk premiu m applicable to the A330-200 and A340-500/600
projects should be lower than the premium applicable to the A380 project.
234 The European Union
adds that the Panel itself implied that risk-sharing suppliers would demand a lower rate of return and
project-specific risk premium for their participation in a derivative aircraft project than for their

228European Union's appellant's submission, para. 763 (referring to Panel Report, paras. 7.1932-
7.1949).
229European Union's appellant's submission, para. 765 (quoting Panel Report, paras. 7.469, 7.481,
and 7.487 (original emphasis)); see also para. 770.
230European Union's appellant's submission, para. 765.
231European Union's appellant's submission, para. 765 (referring to Panel Report, footnote 5657 to
232European Union's appellant's submission, para. 765 (original emphasis) (referring to Panel Report,
para. 7.1622).
233European Union's appellant's submission, para. 766. (original emphasis)
234European Union's appellant's submission, para. 768 (referring to Panel Report, para. 7.1947).
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participation in the A380 project on which the Eu ropean Communities' proposed project-specific risk
premium was based.
235
93. Regarding the assessment of the A380, the Eu ropean Union challenges the Panel's finding
that "'the United States' project -specific risk premium could be reasonably accepted to represent the
outer limit of the risk premium that a market lender w ould ask Airbus to pay', and that the A380
project-specific risk premium lies 'in the range above those submitted by the European Communities
and up to the values advanced by the United States'." 236 The Panel justified this finding solely on "the
acknowledged technological challenges as sociated with the A380 project". 237 The European Union
claims that, even assuming that the Panel was not referring to ex post realized risks that caused delays
in A380 deliveries, but was instead referring to some ex ante increased risk encountered by Airbus 238,
the Panel failed to take account of the significantly enhanced technological experience that Airbus had
built up over 30 years of "successful LCA developmen t", which would appear to counterbalance "the
acknowledged technological challenges" of the A380.239
94. In addition, the European Union alleges that the Panel's ultimate reliance on the United States'
proposed risk premium with respect to th e A300, A310, and A380 constitutes error under
Article 1.1(b) of the SCM Agreement. The Panel found that the Unite d States' project-specific risk
premium constituted the " minimum project-specific risk premium" 240 for the A300 and A310 and the
"outer limit of the risk premium"241 for the A380 even though the Panel had rejected the United States'
project-specific risk premium on the basis that "venture capital financing is inherently more risky than
LA/MSF, even when considered in the form of a portfolio" 242, that it included equity elements in a
debt benchmark, that it was inappropriately based on venture capital returns that also cover fees for a
fund manager, and that it was not supported by any of the United States' "cross-checks". 243 In the
European Union's view, the Panel erred when it relied on a benchmark that is "inherently more risky"
than LA/MSF for these LCA projects.244

235European Union's appellant's submission, para. 768 (referring to Panel Report, para. 7.1947).
236European Union's appellant's submission, para. 770 (original emphasis) (quoting Panel Report,
paras. 7.469, 7.481, and 7.487).
238European Union's appellant's submission, para. 770 (referring to Panel Report, para. 7.1927).
239European Union's appellant's submission, para. 770 (referring to Panel Report, para. 7.463).
240European Union's appellant's submission, para. 771 (quoting Panel Report, para. 7.469 (original
emphasis) and referring to paras. 7.481 and 7.483).
241European Union's appellant's submission, para. 771 (quoting Panel Report, para. 7.469 (original
243European Union's appellant's submission, para. 771.
244European Union's appellant's submission, para. 772 (referring to Panel Report, para. 7.464 (original
emphasis omitted)).
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(ii) Whether the Panel erred under Article 11 of the DSU
95. The European Union submits that, in its assessment of benefit, the Panel failed to provide a
reasoned and adequate explanation for its findings, was incoherent in its reasoning
245, and failed to
request the information it considered necessary fo r its assessment of the European Communities'
argument. Accordingly, the European Union consid ers that these findings constitute reversible legal
error under Article 11 of the DSU.
96. The European Union explains that, given the absence of directly applicable arguments and
evidence from the parties regarding the relative risk of the various aircraft projects at issue, the Panel's
findings cannot, by definition, constitute an "objective assessment of the facts". 246 According to the
European Union, the Panel's findings lacked the required basis in positive evidence on the record.247
97. The European Union also points out that, a lthough the Panel found that the project-specific
risk premium should be determined specifically fo r each product, the Panel disregarded the relevance
of its own finding and joined together the A300 and A310 projects and the A320, A330/A340,
A330-200, and A340-500/600 projects for purposes of assessing the relative level of the applicable
project-specific risk premium. The European Uni on submits that, in proceeding in this manner, the
Panel failed to provide a reasoned and adequate e xplanation for grouping these projects together and
that these failures also resulted in incoherent reasoning, in violation of Article 11 of the DSU.
98. The European Union asserts that, in making findings for these two project groupings and the
A380, the Panel ignored most of the factors it iden tified for assessing the appropriate project-specific
risk premium. Specifically, the Panel did not assess the impact of changes in two factors that it
identified, namely "conditions of competition in the aircraft industry" and changes in "the level of risk
that the finance industry is willing to accept at different moments of its own economic cycle". 248
Thus, the Panel failed to provide a reasoned and adequate explanation of the impact on the appropriate
project-specific risk premium of each of the factors it had determined to be relevant. The
European Union also claims that for the one fact or used for the A380—the level of technology—the
Panel did not explain why it automatically considered the A380 a more risky project, highlighting that

245European Union's appellant's submission, para. 777.
246European Union's appellant's submission, para. 778 (referring to Appellate Body Report, US –
Continued Zeroing, para. 347).
247European Union's appellant's submission, para. 778 (referring to Appellate Body Report, US –
Softwood Lumber VI (Article 21.5 – Canada), para. 93; and Appellate Body Report, EC – Hormones, paras. 132
and 133).
248European Union's appellant's submission, paras. 783 and 784 (referring to Panel Report, paras. 7.463
and 7.469).
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the Panel failed to assess the totality of the evidence relating to both the "level of technology" and the
"relative experience" factors.
249
99. The European Union submits that the Panel's findings regarding the applicable project risk for
the A300, A310, and A380 are inconsistent with other findings made by the Panel, resulting in
incoherent and inconsistent reas oning. The Panel concluded that the benchmark proffered by the
United States was the minimum return a market investor would demand fo r the A300 and A310 and
the maximum return a market investor would dema nd in relation to the A380, but that, "only a few
paragraphs before, the Panel had accep ted essentially every argument by the
European {Communities} that the United States' pr oject-specific risk premium, based on venture
capital returns was overstated".250 For these reasons, the European Union argues that the Panel failed
to comply with its duties under Article 11 of the DSU.
(b) The Panel's criticisms of the European Communities' benchmark
100. The European Union appeals the Panel's conclusion that "the European Communities' project-
specific risk premium for the A380 is unreliable a nd understates the risk premium that a market
operator would have reasonably demanded Airbus pa y for financing on the same or similar terms as
LA/MSF for this particular model of LCA." 251 As noted above, the European Communities put
forward a project-specific risk premium derived by Professor Whitelaw from the rates of return of a
sample of risk-sharing suppliers participating in the A380 project. The European Union challenges
each of the reasons provided by the Panel to support its conclusion, namely the Panel's findings that:
(i) it had "no way of verifying" Professor Whitelaw's assertion that the contracts used in the sample of
risk-sharing suppliers amounted to 100% of those for which an inte rnal rate of return could be
calculated, "because the European Communities has submitted little if any of the underlying data used
in Professor Whitelaw's calculations" and the size of the risk-sharing supplier sample was "clearly
insufficient"; (ii) "the one contract that the Eu ropean Communities has submitted shows that there is
at least one major difference between the repaym ent terms under the contract and LA/MSF which we
believe reduces its relative level of risk"; (iii) there is "logical me rit to the United States' arguments
suggesting that risk-sharing suppliers had incentive to lower their expected rates of return"; (iv) the
Panel "agree{d} with the view expressed by Brazil and the United States" that {LA/MSF} to Airbus
lowers the risk to risk-sharing suppliers; and (v) th ere is information that "s uggests that {the} risk-

249European Union's appellant's submission, para. 785 (referring to Appellate Body Report, US –
Continued Zeroing , para. 336; Appellate Body Report, US – Countervailing Duty Investigation on DRAMS ,
para. 150; Appellate Body Report, Japan – DRAMs (Korea) , para. 139; and Appellate Body Report, Korea –
Dairy, para. 137).
250European Union's appellant's submission, para. 786 (referring to Panel Report, paras. 7.461-7.467).
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sharing participants' involvement in the A380 project may not have been on strictly market terms for
all participants".
252
101. The European Union asserts that each of these cr iticisms is inconsistent with the Panel's
obligations under Article 11 of the DSU to make an objective assessment of the facts because, in
certain instances, there is no evidentiary basis for the finding; the Panel failed to assess the totality of
the evidence; the Panel failed to request the inform ation it considered necessary for its assessment of
the European Communities' argument; and the Pa nel failed to provide a reasoned and adequate
explanation for its findings. The European Union al so claims that some of the Panel's criticisms
amount to an error in the interpretation and application of Article 1.1(b) of the SCM Agreement.253
102. The European Union challenges, under Article 11 of the DSU, the Panel's findings that it
could not verify that the contracts used by Pr ofessor Whitelaw amounted to 100% of those for which
an "internal rate of return" could be calculated a nd that the size of the risk-sharing supplier sample
was "clearly insufficient".254 The Panel failed to ask for evidence that it considered necessary255, even
though the United States had raised the issue of the European Communities providing summary data
and a sample contract prior to the Panel pos ing three sets of questions to the parties. 256 Moreover, the
Panel did not consider the totality of the evidence before it when finding that the size of the risk-
sharing supplier sample was clearly insufficient. 257 The European Union additionally claims that the
Panel failed to provide a reasoned and adequate explanation for its finding, because the Panel made a
one-sentence summary finding without any explanati on regarding its reasoning or its criteria for
determining the adequacy of the sample size, even though the parties had submitted hundreds of pages
of argument with accompanying evidence.258
103. Regarding the Panel's finding that "the one contract that the European Communities has
submitted shows that there is at least one major difference between the repayment terms under this
contract and LA/MSF, which we believe reduces its relative level of risk" 259, the European Union

253European Union's appellant's submission, para. 793.
255European Union's appellant's submission, para. 795 (referring to Appellate Body Report, US –
Continued Zeroing, para. 347).
256European Union's appellant's submission, para. 796 (r eferring to United States' oral statement at the
257European Union's appellant's submission, para. 798 (referring to Appellate Body Report, US –
Continued Zeroing , para. 336; Appellate Body Report, US – Countervailing Duty Investigation on DRAMS ,
para. 150; Appellate Body Report, Japan – DRAMs (Korea) , para. 139; and Appellate Body Report, Korea –
Dairy, para. 137).
258European Union's appellant's submission, para. 799 (referring to Appellate Body Report, US –
Continued Zeroing, para. 338).
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asserts that the Panel failed to provide a reasone d and adequate explanation for this finding.
260 The
European Union observes that the Panel made this one-sentence summary finding without any
analysis of the parties' arguments regarding the European Communities' benchmark, including
Professor Whitelaw's expert testimony addressing this specific issue.
104. The European Union argues that the Panel also erred under Article 11 of the DSU in finding
that there is "logical merit to the United States ' argument suggesting that the risk-sharing suppliers
had incentives to lower their expected rates of return". 261 The Panel's one-sentence conclusion lacked
any assessment or analysis of the arguments and contrary evidence submitted by the
European Communities and failed to provide a reasone d and adequate explanation in the light of the
evidence before it.
262 The European Union also claims that the Panel erred in the interpretation and
application of Article 1.1(b) of the SCM Agreement by reasoning that the actions of a market actor
that has an existing business relationship with a comp any that is allegedly subsidized cannot serve as
a benchmark because that market actor would somehow be tainted, contradicting the Appellate Body's
guidance in Japan – DRAMs (Korea).263
105. Furthermore, the European Union mainta ins that the Panel failed to assess the
European Communities' arguments and contrary ev idence when it found that it "agree{d} with the
view expressed by Brazil and the United States" th at LA/MSF to Airbus lowers the risk to risk-
sharing suppliers.264 The European Union contends that the Panel also erred in the interpretation and
application of Article 1.1(b) of the SCM Agreement to the extent that the Panel considered that
LA/MSF for the A380 reduced the level of risk associ ated with risk-sharing supplier financing. The
European Union asserts that the Panel failed to take into account Professor Whitelaw's explanation
that there is no reason why LA/MSF provided to Airbus for the A380 would in any way affect how
the risk-sharing suppliers perceive the project's development and market risks, in particular since risk-
sharing suppliers do not know whether or on what terms Airbus will receive LA/MSF loans.
106. The European Union additionally alleges that the Panel erred under Article 11 of the DSU in
finding that "'there is information contained in the Airbus A380 business case which suggests that the
risk-sharing participants' involvement in the A380 pr oject may not have been on strictly market terms

260European Union's appellant's submission, para. 807 (referring to Appellate Body Report, US –
Continued Zeroing , para. 338; and Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) ,
paras. 288, 291, 292, footnote 618 to 293, and 294).
262European Union's appellant's submission, para. 820 (referring to Appellate Body Report, US –
Continued Zeroing, para. 338).
263European Union's appellant's submission, para. 811 (referring to Appellate Body Report, Japan –
DRAMs (Korea), para. 172).
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for all participants."
265 The European Union argues that th e Panel's one-sentence summary finding
failed to provide a reasoned and adequate explan ation, because the Panel failed to address or assess
unrebutted evidence to the contrary offered by the European Communities.266
107. Hence, the European Union asserts that the Pa nel's criticisms of the European Communities'
proposed benchmark constitute error under Article 11 of the DSU and demonstrate that the Panel
erred in the interpretation and app lication of Article 1.1(b) of the SCM Agreement in making some of
the criticisms.
(c) The relevance of sales forecasts
108. The European Union takes issue with the Pane l's statement that "the number of sales over
which full repayment is expected says little, if anything, about the appropriateness of the rate of return
that will be achieved by the lender." 267 To the extent that the Appellate Body treats this as a finding
made by the Panel 268, the European Union requests that it be reversed because the Panel erred under
Article 1.1(b) of the SCM Agreement.269 The European Union asserts that the Panel's conclusion
"flies in the face of economic logic" 270 and contradicts the Panel's acceptance that an unreasonable
repayment forecast may signal that a loan confers a benefit. 271 The European Union further argues
that the Panel's reasoning is contradictory to th e reasoning it employed regarding other arguments
concerning LA/MSF, including the Pa nel's conclusions that the appropriateness of the risk premium
and the rate of return should be based on an i ndividual assessment of the supposed commercial and
technical risk of each model. 272 The European Union acknowledges, however, that the Panel's
consideration of sales forecasts did not affect its benefit finding, because the Panel aimed to compare
LA/MSF with loans having the same or similar conditions, including a comparable schedule of
repayment.
6. Export Subsidies

109. The European Union claims that the Panel erred in finding that the LA/MSF measures granted
to Airbus by the Governments of Germany, Sp ain, and the United Kingdom for the A380 constituted

266European Union's appellant's submission, para. 832 (referring to Appellate Body Report, US –
Continued Zeroing, para. 338).
267European Union's appellant's submission, para. 839 (quoting Panel Report, para. 7.397). (emphasis
added by the European Union omitted)
268At the oral hearing, the European Union confirmed its view that the statement constitutes a finding.
269European Union's appellant's submission, paras. 841 and 842 (referring to Panel Report, para. 7.397).
270European Union's appellant's submission, para. 843.
271European Union's appellant's submission, para. 844 (referring to Panel Report, para. 7.397).
272European Union's appellant's submission, para. 846 (referring to Panel Report, para. 7.469).
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subsidies contingent in fact upon export performan ce within the meaning of Article 3.1(a) and
footnote 4 thereto of the SCM Agreement. The European Union raises four sets of grounds of appeal.
(a) The first set of grounds of appeal: Alleged legal errors in the Panel's
interpretation of the terms "continge nt", "tied-to", and "actual or
anticipated"
110. The European Union's first set of grounds of app eal concerns the alleged errors in the Panel's
legal interpretation of the terms "c ontingent", "tied to", and "actual or anticipated" in Article 3.1(a)
and footnote 4 of the SCM Agreement. The European Union alleges that the Panel erroneously
interpreted these provisions by replacing the legal standard for de facto export contingency with a
"dependent motivation" standard, whereby a subsidy is contingent in fact upon export performance if
a government grants a subsidy because of anticipated exportation.
273
(i) The interpretation of Article 3.1 and footnote 4
111. The European Union maintains that Article 3.1( a) and footnote 4 constitute a single provision
containing a single standard and must be interprete d together in a coherent and harmonious manner,
taking into account the overall design and architecture of that provision. Thus, the legal standard for
export contingency in law and expor t contingency in fact is the same. The European Union further
maintains that "a correct interpretation and appli cation of the provision requires adjudicators to begin
with a correct understanding of the standard and evidentiary requirements in law."
274
112. The European Union maintains that the term "contingent … upon export performance" in
Article 3.1(a) of the SCM Agreement expresses an "if A, then B" relationship with respect to both
de jure and de facto export-contingent subsidies. More sp ecifically, A is a condition that must be
fulfilled in order for B to occur, and, under Article 3.1(a), A is export performance and B is a subsidy.
Thus, to establish that a subsidy is contingent up on export performance, "the obligation to grant the
subsidy and the right to receive it would have to be limited by the condition of export." 275 Therefore,
"{t}his is not a standard to be equated with motivation"276, and "{a}n unconditional subsidy … does
not become a subsidy contingent in law upon expor t merely because the granting authority adds
preambular language stating th at the subsidy is granted because exports are anticipated." 277 T h e
European Union further submits that a subsidy contingent upon export performance " favours exports

273European Union's appellant's submission, paras. 1282 and 1336.
274European Union's appellant's submission, para. 1307.
275European Union's appellant's submission, para. 1311.
276European Union's appellant's submission, para. 1312. (original emphasis)
277European Union's appellant's submission, para. 1312. (original emphasis)
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and creates an incentive for a company to prefer exports over domestic sales, because an export sale
attracts a payment, or the right to retain funds, which a domestic sale does not."
278
113. Turning to the phrase "actual or anticipated expor tation" in footnote 4, the European Union
argues that, as indicated by the dictionary definitions for "actual" and "anticipated"279, the term "actual
exportation" means an export that exists at the moment when the measure granting a subsidy is
enacted, while the term "anticipated exportation" m eans an export in the future. According to the
European Union, "{t}he use of the term 'or' establis hes that the terms 'actual' and 'anticipated' are
alternatives, the export being either in the past/pre sent, or in the future, the two alternatives being
mutually exclusive."280 The European Union submits that, "when considered together, the temporal
connotations in the ordinary meanings of each of th e two terms 'actual' and 'anticipated' lend mutual
support to each other and mutually strengthen each ot her, such that the overall temporal connotation
of the phrase is confirmed."281
114. The European Union maintains that its interp retation of Article 3.1(a) and footnote 4 "is
consistent with the object and purpose of the SCM Agreement".282 In the European Union's view,
export-contingent subsidies are prohibited "because su ch measures are a particularly effective method
for partitioning markets, allowing Members to create an incentive for companies to discriminate in
favour of exports, whilst avoiding that domestic pr ices are driven down (and avoiding unsustainable
pressure on the Member's budget), thus frustrating th e basic objective of the WTO {a}greements to
promote fair international trade in an open global market." 283 The European Union submits that its
interpretation of the term "actual or anticipated" is "entirely consistent with this object and purpose,
because it systematically catches t hose subsidies that create an incentive for companies to favour
exports."284
115. According to the European Union, the difference between in law and in fact export
contingency is the evidence required to meet the legal standard. For in law export contingency, the
direct evidence is the text of the measure. More over, in the case of an ad hoc subsidy contingent
in law upon export performance, the measure "constitutes the initial grant of the subsidy", and the
export, once it takes place, "fulfils the condition and thus completes the grant ".285 The

278European Union's appellant's submission, para. 1318. (original emphasis)
279European Union's appellant's submission, paras. 1326 and 1327 (referring to Shorter Oxford English
Dictionary, 5th edn, W.R. Trumble, A. Stevenson (eds) (Oxford University Press, 2002), Vol. 1, pp. 23 and 91).
280European Union's appellant's submission, para. 1328.
281European Union's appellant's submission, para. 1328.
282European Union's appellant's submission, para. 1330.
283European Union's appellant's submission, para. 1330. (original emphasis)
284European Union's appellant's submission, para. 1330. (original emphasis)
285European Union's appellant's submission, para. 1314. (original emphasis)
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European Union submits that the export "generally occurs after the initial grant" and is thus an
"anticipated
" export286, although "{i}t is also possible that the export occurs before the initial grant"
and is therefore "actual" export.287 As soon as the initial grant exists, the measure could be subject to
challenge in WTO dispute settlement proceedings regardless of whether export occurs or the timing of
the subsidy payment. The European Union adds that the above description would be "unchanged in
the case of subsidy programmes", such as a programme that automatically grants subsidies where the
condition on export performance expressed in the programme is fulfilled.288
116. In contrast, for in fact export contingency, the European Union submits that "the text of the
alleged measure does not demonstrate contingency … or is not adduced". 289 Rather, "other indirect
evidence is adduced and a complaining Member e xplains how all the evidenced facts, working
together, demonstrate the existence and precise content of a subsidy contingent/conditional upon
export."290 Thus, for an "in fact" claim, "{a} panel 'm ust not lightly assume' the existence and precise
content of an unwritten or undisclosed measure or pr ovision", because "there is a 'high threshold' for
such claims; and a panel must exercise 'particular rigour' when considering them." 291 Furthermore,
footnote 4 confirms that, "where individual subsidies are advanced because of 'actual' (that is, past or
present) exports, that can also be indirect evidence of the existence and operation of a subsidy
contingent/conditional upon export (particularly if there is a repetitive pattern and an absence of other
explanation)."292
117. The European Union further argues that establis hing in fact export contingency is a "much
more difficult task" than establishing in law export contingency. 293 In the European Union's view, the
task is "particularly formid able (indeed insurmountable)" 294 in this dispute for two reasons: (i) the
present case does not involve circumvention of th e discipline under Article 3.1; and (ii) the
United States' claim that the subsidies at issue were contingent upon export performance "flatly
contradict{s}" what is provided for in the LA /MSF measures, under which funds are
"unconditionally" disbursed and "remain with the company even if no export ever occurs".295

286European Union's appellant's submission, para. 1314. (original underlining and boldface)
287European Union's appellant's submission, para. 1319. (original italics, underlining, and boldface)
288European Union's appellant's submission, para. 1320.
289European Union's appellant's submission, para. 1305.
290European Union's appellant's submission, para. 1305.
291European Union's appellant's submission, para. 1308 (quoting Appellate Body Report, US – Zeroing
(EC), paras. 196 and 198).
292European Union's appellant's submission, para. 1332. (original emphasis)
293European Union's appellant's submission, para. 1308 (quoting Appellate Body Report, Canada –
Aircraft, paras. 167 and 168).
294European Union's appellant's submission, para. 1308.
295European Union's appellant's submission, paras. 1309 and 1310. (original emphasis)
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(ii) The alleged double standard of "dependent motivation"
imposed by the Panel
118. The European Union alleges that, instead of interpreting Article 3.1(a) and footnote 4 as
imposing the same standard for in law and in fact export contingency, the Panel made a "fundamental
legal error"
296 by interpreting those provisions as containing a double standard of "dependent
motivation"297 for assessing de facto export contingency. Under the "dependent motivation" standard
imposed by the Panel, a subsidy is contingent in fact upon export performance when a Member grants
the subsidy "because" it anticipates export.298
119. The European Union submits that the Panel's error in imposing a "dependent motivation"
standard resulted from its erroneous interpretation of the term "actual or anticipated". According to
the European Union, "{t}he erroneous interpreta tion that underpins the US submissions and is
adopted in the Panel Report assumes that the term 'a ctual' refers to an export that takes place
at whatever time —that is, 'actually' has taken place in the past or 'actually' takes place in the
future."299 The Panel "fail{ed} to analyse the term ' actual'" but simply used the term "actually"
"without any analysis, in the sense advocated by the United States". 300 Consequently, "the term
'anticipated export' {was} erroneously understood {by the Panel} to refer to something else, that is, to
the notional state of mind of the granting authority." 301 The European Union argues that, contrary to
the Panel's finding, the term "anticipated" is an ad jective that "describes an objective characteristic of
the export; it is not a verb that describes a granting authority's hypothetical and subjective state of
mind."302 Thus, "{b}y reasoning that the required conditi on is the 'anticipating of' exports the Panel
{found} that the requirement of contingency … that is at the heart of the provision can be replaced by
mere 'dependent motivation', rather than the imposition by the granting Member of a requirement that
the recipient export in order to obtain (or retain) the subsidy".
303
120. The European Union further argues that, by im posing a "dependent motivation" standard, the
Panel was forced to enquire into the alleged stat e of mind of natural persons whose motivation was
imputed to the granting Member in order to determine whether the granting of the subsidy was
"dependent" on such motivation. However, "{t}h e question of whether or not measures are ...

296European Union's appellant's submission, para. 1336.
297European Union's appellant's submission, para. 1336.
298European Union's appellant's submission, para. 1282 (quoting Panel Report, paras. 7.636, 7.644,
7.648, 7.680, 7.681, and 7.683 (original emphasis)).
299European Union's appellant's submission, para. 1325. (original underlining and boldface)
300European Union's appellant's submission, paras. 1351 and 1352 (referring to Panel Report,
para. 7.633, first sentence).
301European Union's appellant's submission, para. 1325.
302European Union's appellant's submission, para. 1352.
303European Union's appellant's submission, para. 1331.
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prohibited by the SCM Agreement does not turn on the supposed state of mind of an unspecified
number of natural persons associated in some unspecified way with the grant of a subsidy."
304
Moreover, "{f}aced with {the} impossible task" to determine the alleged state of mind of natural
persons, the Panel was also forced to examine the effects of the measure. 305 Consequently, the
European Union maintains, the Panel also erred in introducing an effect-based approach under
Article 3.1(a) and footnote 4, even though the effects of subsidies are not addressed under these
provisions but are addressed under Part III of the SCM Agreement.
(iii) Other alleged legal errors in the Panel's legal interpretation
121. The European Union further alleges the following "other legal errors" 306 of the Panel in its
interpretation of Article 3.1(a) and footnote 4. Fi rst, the European Union submits that, although the
United States made claims on both in law and in f act export contingency, the Panel wrongly began its
examination with the "in fact" claim. The Europ ean Union contends that, although "{p}anels do have
a margin of discretion when deciding on the order of analysis, ... {such discretion} is not
unfettered."307 Moreover, for the European Union, "{i }t is really impossible to understand why an
adjudicator faced with both in law and in fact clai ms referencing substantially the same evidence and
arguments would not first address the in law claims." 308 In the European Union's view, had the Panel
"begun by properly assessing the standa rd and evidentiary requirements in law", the Panel could have
avoided imposing a different standard for assessing the "in fact" claim.309
122. Second, the European Union submits that the double standard used by the Panel led to
contradictory findings with respect to the United States' "in law" claim and its "in fact" claim. More
specifically, on the basis of repayment provisions in the LA/MSF contracts and relevant market
forecasts, the Panel found that the granting of LA/MSF was at least in part conditional upon
anticipated exportation when examining the "in fact" claims, but found that the same evidence did not
demonstrate in law export contingency.
123. Third, the European Union maintains that, by imposing a "dependent motivation" standard
when assessing the "in fact" claims, the Panel's finding discriminates against certain types of
subsidies. Specifically, "the Panel's thesis necessar ily implies that financial contributions that foresee

304European Union's appellant's submission, para. 1353.
305European Union's appellant's submission, para. 1331.
306European Union's appellant's submission, heading I.D. 3, "Other legal errors that are also constituent
elements of the Panel's fundamental legal error", p. 529.
307European Union's appellant's submission, para. 1339.
308European Union's appellant's submission, para. 1339.
309European Union's appellant's submission, para. 1339.
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a return (such as loans) are more susceptible to be found to {be c ontingent on export} than financial
contributions in the form of outright grants."
310 This result is "manifestly absurd and
unreasonable"311, because the prohibition on export subsidies under Article 3.1(a) applies to all types
of financial contributions. The European Uni on also submits that, by imposing a "dependent
motivation" standard and an "effect-based" test, th e Panel's findings "discriminate{} against small or
export dependent economies" because "{t}he smaller th e domestic market, the more likely the finding
of export contingency/conditionality."312
124. Fourth, the European Union argues that the Pa nel's findings rendered in effective the second
sentence of footnote 4, which states that "the mere fact that a subsidy is granted to enterprises that
export shall not for that reason alone be considered to be an export subsidy". 313 I n t h e
European Union's view, "what the second sentence of footnote 4 does is to require an adjudicator ... to
further consider whether or not {a finding of export contingency} could be sustained if the fact that
the beneficiary exports would be removed from the equation."314 If the finding could not be sustained,
"then the adjudicator must find no export subsidy, because otherwise it would be the fact of export
that would alone be determining a finding of cont ingency/conditionality, which is what the second
sentence of footnote 4 precludes."
315 By including the second sentence, the negotiators during the
Uruguay Round "rejected" the United States' attempt to make a recipient's export orientation a
decisive criterion in determining export contingency. However, the European Union argues, the Panel
failed to address properly the second sentence of f ootnote 4, despite the European Communities'
argument before the Panel that "removing the fact that Airbus exports from the equation would ... be
fatal to the US claims."
316
125. Finally, the European Union argues that th e Panel imputed certain arguments to the
European Communities that it had not made. Speci fically, contrary to the Panel's finding, the
European Communities did not argue that the only way to demonstrate de facto export contingency is
by pointing to an instrument legally requiring pe rformance of an obligation necessitating exports.
Rather, it "repeatedly expressed the view that the existence of a subsidy contingent in fact upon export
must be assessed on the basis of all the facts." 317 The European Union al so argues that the Panel
wrongly imputed to the European Communities an argument it did not make by accepting the

310European Union's appellant's submission, para. 1356.
311European Union's appellant's submission, para. 1356.
312European Union's appellant's submission, para. 1359.
313European Union's appellant's submission, para. 1359.
314European Union's appellant's submission, para. 1363.
315European Union's appellant's submission, para. 1363.
316European Union's appellant's submission, para. 1370.
317European Union's appellant's submission, para. 1345.
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United States' submission that, based on the European Communities' interpretation, an inconsistency
only arose when an export was realized. Instead , the European Union maintains that the export
contingency standard does not require export to have taken place. However, if an export-contingent
subsidy "remains hidden and unused it is quite possible that no one will know about it and there will
be no evidence to make a case."
318 Thus, "some evidence that might be relevant to demonstrating the
existence and operation of the hidden measure may not come into existence until export occurs."319
(b) The second set of grounds of appeal: Alleged legal errors in the
Panel's application of the standard set out by the Panel
126. The European Union's second set of grounds of app eal concerns the Panel's alleged errors in
its application of the "dependent motivation" standard to the facts of the case. This set of grounds of
appeal "includes an appeal pursuant to Article 11 of the DSU, because … the evidence cannot support
the findings of export contingency." 320 The European Union also submits that "{i}t is possible that
the Appellate Body may not need to consider {these grounds of appeal}, for example if it reverses all
of the Panel's findings of export c ontingency/conditionality on the basis of the first set of grounds of
appeal."321
(i) The 1992 Agreement
127. The European Union argues that, in its applicati on of the "dependent motivation" standard to
the facts of the case, the Panel should have take n the 1992 Agreement into account, because a panel
must consider all of the facts constituting and surrounding the granti ng of the alleged subsidy. The
European Union argues that "the existence and operation of the 1992 Agreement are, by definition,
facts surrounding the adoption of the relevant {LA/MSF} measures, because the 1992 Agreement was
concluded between the Parties and refers directly and expressly to the type of measures of which the
United States now complains; and because the {L A/MSF} measures themselves refer back to the
1992 Agreement."322 Therefore, "the Panel was obliged to take into consideration {the existence and
operation of the 1992 Agreement} when assessing the credibility and plausibility of the
{United States'} claims".323

318European Union's appellant's submission, para. 1349.
319European Union's appellant's submission, para. 1349. (original emphasis)
320European Union's appellant's submission, para. 1372.
321European Union's appellant's submission, para. 1372.
322European Union's appellant's submission, para. 1373.
323European Union's appellant's submission, para. 1377. (original emphasis)
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(ii) The alleged internal conflicts within the Panel's findings
128. Furthermore, the European Union alleges that "{t}here are fundamental and irreconcilable
internal conflicts between" the Panel's analysis of whether the LA/MSF measures conferred a benefit,
on the one hand, and the Panel's findings on export contingency, on the other hand.
324 When finding
that the LA/MSF measures constituted export-continge nt subsidies, the Panel relied on contract
provisions allegedly showing that the govern ments placed contractual reliance on certain
representations made by Airbus in its LA/MSF a pplications when entering into the LA/MSF
contracts.325 For the European Union, the Panel's finding s that these contract provisions demonstrate
a conditional relationship between the granting of th e contracts and export performance contradict the
Panel's statements in its examination of the al leged benefits conferred by these contracts.
Specifically, the Panel found that the LA/MSF contr acts were provided "without any guarantee", that
repayment depended "entirely" on the success of the projects, and that "governments have no
recourse" in the event of non-payment.326
129. The European Union alleges that the sales-de pendent repayment provisions, whereby Airbus
is required to repay the LA/MSF loans upon the airc raft delivery over a specified period, mean that
risk "remains with the provider of the finance", that is, the governments. In contrast, "{i}f there
would be subsidies contingent upon export, then the re levant risk would be carried by Airbus, and not
the Member State." 327 Thus, the European Union argues, "{t}he Panel cannot construe the risk as
being with Member States for the purposes of its subsidy assessment, but as being with Airbus for the
purposes of its export contingency ... assessment."
328
(iii) Whether the sales-dependent repayment provisions support a
finding of export contingency
130. The European Union maintains that the roya lty-based financing mechanism provided under
the sales-dependent repayment provisions does not s upport the Panel's finding of export contingency.
The European Union maintains that, as it explained to the Panel, "the motivation for using royalty-
based financing {under the sales-dependent repaym ent terms} has nothing to do with export
contingency ... but is simply a commercial decisi on reflecting the particular features of LCA
development."329 The European Union recalls its argumen ts before the Panel that, because "Airbus'

324European Union's appellant's submission, para. 1378.
325European Union's appellant's submission, para. 1381 (referring to Panel Report, paras. 7.680
and 7.683).
326European Union's appellant's submission, para. 1379 (quoting Panel Report, paras. 7.375 and 7.462).
327European Union's appellant's submission, para. 1383.
328European Union's appellant's submission, para. 1383.
329European Union's appellant's submission, para. 1386.
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revenues are generated by and la rge from LCA sales, with between 83% and 85% of the gross price
paid on delivery{,} ... aircraft deliveries {constitute} the most relia ble indication that sufficient cash-
flow will be on hand to make repayments".
330 In addition, "timing repayment with deliveries allocates
the risk between Airbus and the EC member State governments in accordance with the risk each party
agreed to accept."331
131. The European Union contends that, contrary to the Panel's finding that the
European Communities had not provided evidence to substantiate the alleged commercial reasons, "it
is immediately apparent" from the "overall design and architecture " and the "context of the LCA
market" that the royalty-based financing mechan ism in the repayment provisions reflects a
commercial decision of the LA/MSF governments. 332 Yet "the Panel ignore{d} the very evidence on
the basis of which it makes its benefit and adver se effects findings and which explains the true
commercial reasons for the decision to use royalty-based financing."333
132. The European Union alleges that the Panel also erred in finding that the alleged "exchange of
commitments" under the repayment provisions sup ported a finding of export contingency. The
European Union maintains that, contrary to the Un ited States' assertion, there is no "performance
commitment" by Airbus to export under the repaym ent provisions of the LA/MSF contracts, because
"{a} commitment to repay when sal es occur is not an export 'performance' 'target'" but "simply
reflects a decision" to allocate risk and recoup investment.334
133. The European Union further submits that, alt hough "{t}he Panel appears to have agreed with
the European {Communities}" that the alleged "exchange of commitments" and the alleged
"expectations" of the member States in gr anting the LA/MSF did not demonstrate export
contingency/conditionality335, the Panel nonetheless found that th e evidence regarding alleged
exchange of commitments and expectations "s upport{ed} the finding of export contingency". 336
However, the Panel failed to explain the conn ection between such evidence and the finding.
Moreover, the Panel erroneously assumed that "roy alty-based financing in a global market somehow
move{d} one closer to a finding of contingency" 337, and the Panel, in so doing, seemed to reason that
the measures are "almost" con tingent upon export performance. 338 The Panel's finding, in the

332European Union's appellant's submission, para. 1389. (original underlining)
333European Union's appellant's submission, para. 1389.
334European Union's appellant's submission, para. 1395.
335European Union's appellant's submission, paras. 1394 and 1396.
336European Union's appellant's submission, paras. 1394 and 1396.
337European Union's appellant's submission, para. 1393.
338European Union's appellant's submission, paras. 1393, 1395, and 1397.
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European Union's view, is "irrational and illogical"
339, because "{a} subsidy is either export
contingent{} or it is not."340
134. Finally, the European Union maintains that the Panel's assessment of the LA/MSF contracts is
"incomplete and erroneous" 341 because the Panel failed to address pr operly the fact that the LA/MSF
contracts allow Airbus to make accelerated repa yments at any time and provide for guarantees for
loan repayments by other group companies. In the European Union's view, the possibility of
accelerated payments means there is no obligation to repay the loans upon delivery, and the existence
of guarantee for the loan repayments means that repayments need not be achieved through export
revenue.
(iv) Whether the "additional evidence" examined by the Panel
does not support a finding of export contingency
135. The European Union contends that the "additiona l" or "corroborating" evidence identified by
the Panel with respect to the LA/MSF measures by Germany, Spain, and the United Kingdom for the
A380 does not demonstrate export contingency. With respect to the "additional" evidence concerning
the German measures, the European Union alleg es that the Panel acted inconsistently with
Article 12.7 of the DSU by failing to provide the basic rationale behind its findings. Instead, the
Panel "simply listed the four pieces of evidence, a nd declared itself 'satisfi ed'" that the evidence
demonstrated export contingency. 342 According to the European Union, the use of "corroborating
evidence" involves "explaining precisel y how evidenced facts work together to imply other facts, of
which there is no direct evidence." 343 Yet the Panel simply "jumbl{ed} facts together without
explanation and {declared itself} satisfied that an ambiguously expressed standard {was} met."344
136. The European Union further asserts that none of the additional evidence supports the Panel's
finding that the German LA/MSF measure for the A380 was contingent upon export performance, and
that, in making this finding, the Panel acted incons istently with Article 11 of the DSU by failing to
conduct an objective assessment of the facts before it. Noting the Panel's reliance on a document
referenced in the preamble of the German LA/MSF contract345, the European Union maintains that the
referenced document is authored by Airbus, not by the German Government, and does not

339European Union's appellant's submission, paras. 1393, 1395, and 1397.
340European Union's appellant's submission, para. 1393.
341European Union's appellant's submission, paras. 1458 and 1460.
342European Union's appellant's submission, para. 1399.
343European Union's appellant's submission, para. 1429.
344European Union's appellant's submission, para. 1429.
345European Union's appellant's submission, para. 1400 (referring to Panel Report, para. 7.680).
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"substantiate the supposed 'motivation' of Germany".
346 Moreover, even assuming that such a
statement could be imputable to the German G overnment, it does not "lawfully and objectively"
support a finding that the German Government gran ted the subsidy "dependent" upon its "motivation"
concerning exportation. 347 Regarding the second piece of additio nal evidence, the European Union
alleges that the Panel did not explain why Ai rbus' obligation under section 2.5 of the German
LA/MSF contract supported a finding of export contingency. As for the Panel's reliance on section 12
of the German LA/MSF contract in reaching its find ing on export contingenc y, the European Union
alleges that the Panel "misrepresent{ed} and distor t{ed} irrelevant and gene ral contractual provisions
in direct conflict with the specific {repayment} provisions of the {contract}". 348 In conclusion, the
European Union emphasizes that "consideration of sales" by the German Government "in assessing
whether to provide financial support for the project at issue was a prudent way to evaluate whether to
invest taxpayers' money." 349 However, in finding that the granting of LA/MSF was contingent on
export performance simply because sales considered by the government included export sales, the
Panel's analysis is, in the European Union's view, contrary to the object and purpose of the
SCM Agreement "to encourage governments to subject industrial policy to the disciplines of the
marketplace."
350
137. Turning to the additional evidence concerni ng the Spanish LA/MSF measure for the A380,
the European Union submits that its arguments w ith regard to the German LA/MSF measure for the
A380 apply mutatis mutandis. The European Union contends that the contract provisions relied upon
by the Panel do not provide additional support for the United States' argument that royalty-based
financing in a global market demonstrated export contingency, do not indicate any commitment to
export, and are incapable of supporting a finding of "dependent motivation". 351 Therefore, the
European Union maintains, the Panel also acted in consistently with Article 11 of the DSU by failing
to conduct an objective assessment of the facts.
138. With respect to the additional evidence regard ing the UK LA/MSF measure for the A380, the
European Union maintains that its arguments w ith respect to the German and Spanish LA/MSF
measures for the A380 apply mutatis mutandis. The European Union recalls that the Panel noted the
statement reportedly made by Prime Minister Tony Blair at the public unveiling of the A380 that

346European Union's appellant's submission, para. 1407.
347European Union's appellant's submission, para. 1407.
348European Union's appellant's submission, para. 1423.
349European Union's appellant's submission, para. 1426.
350European Union's appellant's submission, para. 1428.
351European Union's appellant's submission, paras. 1436 and 1439.
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"{t}he export gains will run into the billions of pounds".
352 In the European Union's view, such
evidence "has no probative value at all", because the statement "refers to wings and landing gear (not
aircraft)" and "was made almost five years after the date of the {LA/}MSF measure." 353 The
European Union further recalls that the Pane l also noted a press release published by the
UK Department of Trade and Industry in Marc h 2000 announcing that the UK Government had
agreed to invest £530 million in the A380 project, explaining that "{w}ithin 25 years Airbus has
grown to take 55% of the civil aircraft produc tion market and contributes {£}1 billion to the UK's
trade balance."354 The European Union contends that this statement "has no probative value", because
it "refers only to wings destined for another part of the European Union and ... the reference to the UK
trade balance simply has no bearing on exports from the {European Union}." 355 Furthermore, the
Panel additionally relied on the representation and warranty made by BAE Systems in Article 3 of the
contract. However, "{t}he obligations assumed by Airbus" under the contract "do not include any
obligation to manufacture or sell any aircraft". 356 Moreover, the European Union contends that, "with
respect to the only determinative document on whic h the Panel relies for its finding, the Panel has
simply misstated the terms of the contract."357
(c) The third set of grounds of appeal: Alleged legal errors in the Panel's
application of the correct legal standard of contingency
139. With respect to the third set of grounds of a ppeal, the European Union submits that, "{i}f the
Appellate Body considers that the Panel applied the correct standard of contingency/conditionality (if-
then), then the European Union appeals because the evidence, including the 'additional' 'corroborating'
evidence, is incapable of supporting a finding of ex port contingency/conditionality on the basis of the
correct standard." 358 Specifically, the Panel acted inconsistently with Article 7.2 of the DSU by
failing to address relevant provisions of the covere d agreements, acted incons istently with Article 11
of the DSU by failing to make an objective ass essment of the law and the facts, and acted
inconsistently with Article 12.7 of the DSU by failin g to provide the basic rationale for its findings.
The European Union states that it incorporates all the legal errors and arguments it has identified,
mutatis mutandis, into its third set of grounds of appeal.

352European Union's appellant's submission, para. 1443 (quoting Panel Report, para. 7.682, in turn
quoting "Blair Says Airbus A380 will repay 530 mln stg UK govt investment", AFX News Limited, 18 January
2005 (Panel Exhibit US-361)).
353European Union's appellant's submission, para. 1443.
354European Union's appellant's submission, para. 1444 (quoting Panel Report, para. 7.682, in turn
quoting "Byers announces £530 million government investment in Airbus", UK Department of Trade and
Industry, Press Release P/2000/173, 13 March 2000 (Panel Exhibit US-360)).
355European Union's appellant's submission, para. 1444.
356European Union's appellant's submission, para. 1451.
357European Union's appellant's submission, para. 1451.
358European Union's appellant's submission, para. 1461.
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(d) The fourth set of grounds of appeal: Further alleged legal errors
140. The European Union's fourth set of grounds of a ppeal relates to certain additional legal errors
in the Panel Report.
359 First, the European Union argues that the Panel erroneously accepted an
untimely submission by the United States. Speci fically, the Panel accepted the United States'
argument that the LA/MSF contracts involved an "exchange of commitments" between Airbus and the
respective governments, even though the United States introduced this argument for the first time in
its second written submission by referring to sever al new items of evidence, namely various
provisions in the LA/MSF contracts. Second, the European Union contends that, although the
United States never made a claim on the basis of a "dependent motivation" standard, the Panel made
the case for the United States by applying such a sta ndard to the evidence relating to the governments'
anticipation on export performance.
141. Third, the European Union submits that, by accepting the United States' argument that the
sales envisaged under the repayment provisions of th e contracts at issue necessarily include export
sales, the Panel wrongly equated performance with export performance. The European Union
contends that the LA/MSF contracts are neutral as to where sales occur and are therefore not
prohibited under Article 3.1(a) and footnote 4 of the SCM Agreement. This is because these
provisions do not prohibit subsidies contingent upon performance in a global market, but only prohibit
subsidies contingent upon export performance. The European Union further argues that the
Illustrative List of Export Subsidies in Annex I to the SCM Agreement "all refer to exports and/or the
'favouring' thereof".
360 Moreover, Article XVI:4 of the GATT 1994, which is referenced in Annex I,
refers to subsidies on the export of a product that result in an export price lower than the domestic
price. The European Union further submits that, although the SCM Agreement does not have a
preamble, its object and purpose can be discerned from the preamble of the GATT 1994, which states
that the GATT 1994 is directed to "the elimination of discriminatory treatment in international
commerce".361 Thus, consistent with the object and purpose of the GATT 1994, subsidies that are
"neutral"362 as to whether export performance exists are not prohibited, although the adverse effects
they cause remain subject to Parts III and V of the SCM Agreement. The European Union further

359The European Union states that "{i}t is possible that the Appellate Body may not need to consider
this {set of grounds} if it finds in favour of the European Union for other reasons, although it would also be
possible for the Appellate Body to reverse based only on this {set of grounds} in whole or in part."
(European Union's appellant's submission, para. 1464)
360European Union's appellant's submission, para. 1477.
361European Union's appellant's submission, para. 1480. (original emphasis)
362European Union's appellant's submission, para. 1481.
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submits that the preparatory work of the SCM Agreement confirms that the rationale for prohibiting
export subsidies was that "they favoured exports".
363
142. Fourth, the European Union maintains that the Pa nel equated a "financial contribution" with a
"subsidy" in applying its "depe ndent motivation" standard to the facts. Specifically, because a
subsidy is "a financial contribution" that "confer s a benefit", the Panel should have required the
United States to demonstrate that both elements —the financial contribut ion and the benefit—are
contingent upon export performance. Yet the Panel merely required a demonstration that each of the
LA/MSF contracts was contingent/conditional upon e xport, and failed to require the United States to
show that "'the anticipating of exports' was a 'depen dent motivation' for the decision to fix the terms
of the {LA/}MSF measures at below market rate{s}." 364 Finally, the European Union alleges that the
Panel failed to assess what the United States m eant by the terms "exports" and "Europe".
Specifically, the United States "failed to explain or demonstrate what it meant by 'Europe' (as opposed
to the European Union)", and failed to explain "how what is financed by each of the {LA/}MSF
measures relates to what might eventually be 'exported' from the European Union."365
143. On the basis of the above, the European Uni on requests the Appellate Body to reverse the
Panel's finding that the LA/MSF measures by Germany, Spain, and the United Kingdom for the A380
are contingent in fact upon anticipated export performance.
7. The EC Framework Programmes
144. The European Union submits that the Panel's finding that "the R&TD subsidies granted to
Airbus under each of the Framework Programmes are specific within the meaning of Article 2.1(a) of
the SCM Agreement" was based on an erroneous in terpretation and applica tion of this provision.
366
The European Union summarizes the Panel's view as follows: "that a subsidy programme aimed at
advancing R&TD in general is , nevertheless, specific pursuant to Article 2.1(a) of the
SCM Agreement if it constitutes a legal regime that allo cates part of the funding exclusively to
research activities relevant for certain industry sectors." 367 The European Union considers that this
interpretation is flawed for several reasons.

363European Union's appellant's submission, para. 1484. (original emphasis)
364European Union's appellant's submission, para. 1488.
365European Union's appellant's submission, para. 1491.
367European Union's appellant's submission, para. 1184.
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145. First, the European Union main tains that, in the case of general subsidy programmes such as
the Framework Programmes, the reference to "subsi dy" in Article 2.1(a) must mean the subsidy
programme as a whole. In the European Union's vi ew, this follows from language in Article 2.1(c)
that refers to use of a "subsidy programme" by a lim ited number of certain enterprises, and taking into
account the length of time during which the "subsidy programme" has been in operation. Since "the
subsidy programme as a whole is the benchmark for assessing de facto specificity, there is no reason
to choose another benchmark for assessing de jure specificity within the meaning of Article 2.1(a) of
the SCM Agreement."
368 The European Union adds that the Pane l's interpretation also runs the risk of
rendering the specificity criterion in Article 2 meaningless, since "{e}xamining benchmarks below the
level of the subsidy programme as a whole will, at a certain level, inevitably indicate specificity."369
146. The European Union submits that the Pane l's description of the budget allocations to
aeronautics-related research as a "closed sy stem" of subsidisation is a "misnomer". 370 T h e
European Union acknowledges that such funding could not be accessed by entities seeking support for
non-aeronautics-related research, but adds that "it is equally true that entities involved in aeronautics-
related R&TD projects could not access funds under th e remainder (and therefore the great majority)
of the Framework Programme budgets." 371 Because there is no discrimination or special treatment in
favour of aeronautics-related research within the co ntext of the whole programme, there is therefore
no "closed system". Instead, the European Union ma intains, "there is a broad-based allocation that
ensures equal access to a wide range of sectors and enterprises".372
147. The European Union also finds contextual support in Article 2.1(c) of the SCM Agreement for
its critique of the Panel's interpretation. Under that provision, two factors indicating de facto
specificity are the "predominant use of a subsidy pr ogramme by certain enterprises" and "the granting
of disproportionately large amount s of subsidy to certain enterprises". If a WTO Member seeks to
pre-allocate funds in order to distribute them ev enly across sectors, "such measures taken to avoid
de facto specificity of the programme should not in turn cause its de jure specificity". 373 R a t h e r ,
subparagraphs (a) and (c) of Article 2.1 of the SCM Agreement "must be interpreted harmoniously".374

368European Union's appellant's submission, para. 1187.
369European Union's appellant's submission, para. 1188.
370European Union's appellant's submission, para. 1189 (referring to Panel Report, para. 7.1563).
371European Union's appellant's submission, para. 1189.
372European Union's appellant's submission, para. 1189.
373European Union's appellant's submission, para. 1190.
374European Union's appellant's submission, para. 1190.
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148. Finally, the European Union claims that th e Panel's reasoning penalizes WTO Members that
administer their R&TD programmes in an open and transparent manner, and instead encourages them
to allocate funds within a diverse research programme so as "to avoid any clear indication of
sectors".
375 The European Union submits that a programme in which part of the funding is clearly
allocated to the research area "aerona utics and space" will be considered de jure specific, whereas a
programme allocating funding to apparently gene ric research areas will not, "even if the granting
government decided (but did not make public) that 100% of the funding of such an apparent generic
research would benefit aeronautics and space, and this turns out to be the case."376
149. For these reasons, the European Union requests the Appellate Body to reverse the Panel's
finding that the R&TD subsidies granted to Ai rbus under each of the Framework Programmes are
specific within the meaning of Article 2.1(a) of the SCM Agreement.377
8. Infrastructure Measures
(a) Financial contribution
150. The European Union claims that the Panel's an alysis of the infrastructure measures at issue
"was premised on an incorrect interpreta tion of Article 1.1(a)(1)(iii) of the SCM Agreement and
accordingly resulted in an erroneou s application of that provision." 378 According to the
European Union, the Panel started its analysis by posing the wrong question: that is, "when does the
provision of goods or services in the form of infrastructure constitute the provision of infrastructure
which is 'other than general' within the meaning of Article 1.1(a)(1)(iii), such that there is a financial
contribution by a government."
379 By entering into the analysis of what amounts to "general
infrastructure" in the context of the provision of goods or services, "the Panel fundamentally ignored
the {European Communities'} argument that a distinction must be made between, on the one hand, the
creation of infrastructure and, on the other hand, the provision of infrastructure to the recipient."
380
151. Quoting a passage by the panel in US – Softwood Lumber III, the European Union argues that
a measure cannot constitute a subsidy unless it qualifi es as one of the enumerated forms of financial
contributions listed in Article 1.1( a)(1), consisting of "only those me asures that are concerned with a
direct or indirect act or an omission by the government involving the transfer of money or an in-kind

375European Union's appellant's submission, para. 1192.
376European Union's appellant's submission, para. 1192.
378European Union's appellant's submission, para. 1024.
380European Union's appellant's submission, para. 1026.
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transfer of resources".
381 In contrast, the European Union submits that government actions taken by a
public authority, and "in particular those invol ving the creation of infrastructure (such as the
development of agricultural land into urban or i ndustrial land, the creation of natural parks, the
creation or improvement of infrastructures, such as roads, railways, land, etc.) are not the type of
actions which qualify as 'financial contributions'"
382 within the meaning of Article 1.1(a)(i). Rather,
until provided to a particular recipient, they ar e government interventions that do not constitute
measures covered by the SCM Agreement.
152. The European Union argues that the reason that the creation or improvement of infrastructure
is carved out from the SCM Agreement is evident: the SCM Agreement does not interfere with
legitimate government choices to pursue public policies for the benefit of the population as a whole.
In principle, the creation of infrastructure benef its society as a whole and therefore reflects such
legitimate economic development policies. As the European Union explains, "{o}nly the provision to
an economic operator (as opposed to creation) of infr astructures 'other than general infrastructures' is
captured by the notion of financial contribution sin ce this government action is capable of distorting
trade."383
153. In the European Union's view, the Panel ignored the fact that Article 1.1(a)(1)(iii) requires
that a government "provide" a good or service to a recipient in order to constitute a financial
contribution. In order to conclude whether th e financial contribution amounts to a subsidy, an
assessment is required to determine whether the pr ovision of that good or service by the government
occurred on market terms. However, "actions taken by the government prior to the provision of the
good or service in question are not relevant" for a pa nel's assessment of the existence of a financial
contribution or benefit. 384 Accordingly, Article 1.1(a)(1)(iii) "only applies once infrastructure has
been created, and establishes that the provision of general infrastructure does not amount to a
financial contribution, whereas the provision of non-general infrastructure does." 385 According to the
European Union, the Panel ignored the structure of Article 1.1(a)(1) to avoid this conclusion.
154. The European Union notes the Panel's conclusion that it was not legally required to analyze
separately the "creation" and "provision" of infrastru cture, and argues that this is wrong as a matter of
law and upsets the balance of rights and obligations negotiated by WTO Members. Pointing to WTO
jurisprudence on privatization, the European Union argues that "the measure at issue for the financial

381European Union's appellant's submission, paras. 1027 and 1028 (referring to Panel Report, US –
Softwood Lumber III, para. 7.24). (original emphasis; footnotes omitted)
382European Union's appellant's submission, para. 1029.
383European Union's appellant's submission, para. 1030. (original emphasis)
384European Union's appellant's submission, para. 1031. (original emphasis)
385European Union's appellant's submission, para. 1032.
WT/DS316/AB/R BCI deleted, as indicated [***]

contribution analysis would not be the creation of the State-owned company and its provision to the
buyer, but only the provision of the company."
386 The question of whether a privatized company was
created through the use of subsidies "is irreleva nt to any subsidy assessment of the relevant
transaction at issue, i.e., the 'provision' of the privatised company". 387 The European Union thus
draws a comparison with infrastructure measures, repeating its argument that the creation of
infrastructure is not covered by the paragraphs of Article 1.1(a); rather, only the provision of
infrastructure at below market value may constitute a subsidy.
155. The European Union considers the Panel's concern that exclusion of the creation of
infrastructure would circumvent the fundamental purpose of subsidies disciplines to be
"unwarranted".
388 In the European Union's view, "{t}he exclusion of the creation of
infrastructure ... reflects a conscious choice by Members when they negotiated the
SCM Agreement."389 Referring to the statement by the panel in US – Export Restraints that "not every
government intervention in the market w ould fall within the coverage of the { SCM Agreement}"390,
the European Union considers that the creation of infrastructure is one of the measures excluded from
the SCM Agreement.
156. The European Union argues that the Panel i gnored the fundamental difference between the
creation and the provision of infrastructure, and in stead "entered into a pointless analysis as to
whether something (composed of a set of several measures) amounts to provision of general or non-
general infrastructure".391 The European Union submits that th e Panel's analysis of what constitutes
"general infrastructure" was irrelevant, because the question of whether infrastructure is general or
non-general "is only relevant when it is provided to someone." 392 This is supported by the Panel's
view that infrastructure may be general at one point in time and non-general at a different point in
time. This indicates that the proper point of refere nce in determining whether a provision of goods or
services is non-general infrastructure "is the time when the act of provision that is alleged to constitute
a subsidy takes place." 393 Moreover, even if the circum stances surrounding the creation of
infrastructure demonstrate that it was created for the particular needs of the entity or group, this is
relevant only in assessing the provision—not the cr eation—of infrastructure. The European Union

386European Union's appellant's submission, para. 1034. (original emphasis)
387European Union's appellant's submission, para. 1035.
388European Union's appellant's submission, para. 1036.
389European Union's appellant's submission, para. 1036.
390European Union's appellant's submission, para. 1036 (referring to Panel Report, US – Export
Restraints, paras. 8.63 and 8.73).
391European Union's appellant's submission, para. 1037. (original emphasis)
392European Union's appellant's submission, footnote 1384 to para. 1037. (original emphasis)
393European Union's appellant's submission, para. 1038. (original emphasis)
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therefore requests the Appellate Body to reverse the Panel's findings regarding whether the challenged
measures constitute "general or non-general infrastru cture", and to declare them moot and with no
legal effect.
394
157. The European Union maintains that it was legal error for the Panel to conclude that, in respect
of the Mühlenberger Loch site, "the entire transac tion of creating and providin g an industrial site to
Airbus constitutes the alleged subsid y" and that "there is no legal re quirement that we separate the
various elements of the project for the purposes of our analysis." 395 If the Panel had properly
conducted its analysis by examining which part of the measures constituted the "provision" of "goods
and services" in the form of "infrastructure", the Panel "should have examined only the relevant
transaction and financial contribution, i.e., the provi sion of the industrial site to Airbus through the
lease of the land and the special-purpose facilities."
396 According to the European Union, all steps
taken by the city of Hamburg for the creation of th e Mühlenberger Loch industrial site are irrelevant,
and the Panel was wrong to conclude that both th e creation of infrastructure and its provision to
Airbus was a "single measure" that amounted to a financial contribution under Article 1.1(a)(1)(iii) of
the SCM Agreement.
158. The European Union faults the Panel for focusi ng on aspects of the project indicating that it
was tailor-made for Airbus. Even if true, the relevant issue in the financial contribution determination
is the relevant transaction in the form of the provisi on of the goods or services in question. The fact
that the city of Hamburg retains ownership of the Mühlenberger Loch industrial site and leases it to
Airbus Deutschland indicates that only a temporary right to use a particular piece of land in the
industrial site for a particular period of time is provided to Airbus. Moreover, the European Union
considers that the Panel's approach of combining cr eation and provision of infrastructure may lead to
"absurd" results, since it will be difficult to draw the line to establish whet her certain measures are
part of the same project. In the European Uni on's view, "all steps necessary for the creation of
infrastructure are actions of public authority (e.g., such as 'moving waters from one side to the other',
as was the case of the Mühlenberger Loch) which do not fall under the SCM Agreement."397
159. For these reasons, the European Union requests the Appellate Body to reverse the Panel's
finding that the creation and provision of the Mühle nberger Loch industrial site constituted a financial
contribution within the meaning of Article 1.1(a)(iii) of the SCM Agreement. Instead, the

394European Union's appellant's submission, para. 1037; Panel Report, paras. 7.1034-7.1044.
395European Union's appellant's submission, para. 1041 (quoting Panel Report, paras. 7.1077
and 7.1078).
396European Union's appellant's submission, para. 1041.
397European Union's appellant's submission, para. 1043. (footnote omitted)
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European Union requests the Appellate Body to find (i) that the creation of the Mühlenberger Loch
industrial site, including the turning of the wetlands into usable land, the building of flood protection
measures, and the building of special-purpose facilities on the site, amounted to infrastructure
measures that do not fall within the scope of the SCM Agreement, and (ii) that only the lease of the
land and of the special-purpose facilities in the M ühlenberger Loch industrial site constitute a
financial contribution under Article 1.1(a)(1)(iii) of the SCM Agreement.
160. The European Union also maintains that it was le gal error for the Panel to conclude that, in
respect of the Bremen airport runway extensi on, "the entire project, extending the runway, the
associated noise reduction measures, and the right of exclusive use, constitute a financial contribution
to Airbus, within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement."
398 The
European Union submits that the extension of the runway and the associated noise reduction measures
amounted to improvements of existing infrastructure, as a government action of public authority.
Thus, even if the use of the ex tended runway was limited to Airbus, the improvements "benefited all
users of the Bremen airport since, for security reas ons, the extensions of the runway can be used by
any airline (e.g. interrupted take-offs, emergenc y landings) and the noise reduction measures had a
positive impact on the people working, circulating or living close to the airport." 399 A s t h e
European Union contends, evidence of limitations on the use of the extended runway or that it was
undertaken for the use of Airbus are not relevant fo r the financial contribution analysis; rather, it is
the right to exclusive use of the extended runway as a provision of services to Airbus Deutschland that
is the relevant transaction for the purpose of Article 1.1(a)(1)(iii).
161. For these reasons, the European Union requests the Appellate Body to reverse the Panel's
finding that the entire project, the runway extens ion, the associated noise reduction measures, and the
right of exclusive use, constitute a financial contribution to Airbus, within the meaning of
Article 1.1(a)(1)(iii) of the SCM Agreement. Instead, the European Union requests the Appellate
Body to find: (i) that extending the runway and building the associated noise reduction measures are
infrastructure measures that do not fall within the scope of the SCM Agreement; and (ii) that the right
to exclusive use of the extended runway amounts to a financial contribution in the sense of
Article 1.1(a)(1)(iii) of the SCM Agreement.
162. The European Union also maintains that it was le gal error for the Panel to conclude that, in
respect of the Aéroconstellation site, the équipement d'intérêt général ("EIG") facilities constituted an
integral part of the site, and that it therefore did not need to analyze the EIG facilities separate from its

399European Union's appellant's submission, para. 1045.
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consideration of the provision of th e Aéroconstellation site as a whole. The lease of the EIG facilities
amounts to the provision of a service, and the sal e of land in the industrial site amounts to the
provision of a good. The European Union also maintains that only the provision of the
Aéroconstellation site and the EIG facilities, rather than the creation of the site in question, is the
relevant transaction for the purpose of the financial contribution determination.
163. For these reasons, the European Union requests the Appellate Body to reverse the Panel's
finding that the creation and provision of the Aé roconstellation site and the EIG facilities was not a
measure of general infrastructure within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.
Instead, the European Union requests the Appellat e Body to find (i) that the creation of the
Aéroconstellation site and the EIG facilities are infr astructure measures that do not fall within the
scope of the SCM Agreement, and (ii) that the sale of land and the lease of the EIG facilities in the
Aéroconstellation site to Airbus France amount to a financial contribution in the sense of
Article 1.1(a)(1)(iii) of the SCM Agreement.
(b) Benefit
164. The European Union claims that the Panel erre d in its interpretation and application of the
term "benefit", within the meaning of Article 1.1(b) of the SCM Agreement. In particular, the Panel
assessed the existence of a benefit not from the pers pective of the recipient, but instead from the
perspective of the governments, which the Pane l found incurred costs in excess of the returns
generated by Airbus' purchase and/or lease payments . In doing so, "the Panel essentially adopted
what amounts to a 'return-to-government' or 'cost-to -government' standard that was explicitly rejected
by the Appellate Body in Canada – Aircraft."
400 The European Union requests the Appellate Body to
reverse the Panel's findings 401 and, consequently, also to reverse the Panel's conclusions that these
measures constitute actionable subsidies.402
165. The European Union notes that the Panel recalle d certain findings of th e panel and Appellate
Body in Canada – Aircraft that indicate that the existence of a "benefit" must be determined by
reference to whether the terms of the financial c ontribution enjoyed by the recipient are consistent
with a market benchmark. The European Union ar gues that the Panel "ignored that it must assess the
terms of the financial contribution that the recipient obtained against a market benchmark" 403, and
instead assessed the existence of a benefit from the perspective of the granting governments.

400European Union's appellant's submission, para. 1063 (referring to Appellate Body Report, Canada –
Aircraft, paras. 149-161). (footnote omitted)
401Panel Report, paras. 7.1097, 7.1134, and 7.1190.
402Panel Report, paras. 7.1958, 8.1(b)(i)-(iii), and 8.2.
403European Union's appellant's submission, para. 1066.
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According to the European Union, the Panel erre d by asking "whether the returns enjoyed by the
granting governments were sufficient, relative not to th e market value of the land or facilities sold or
leased or the exclusive right of use provided, but to the returns a market investor creating that land or
facilities would have sought."
404 The European Union maintains that this error resulted from the
Panel's consideration of the government as an investor, instead of, as required by Article 1.1(a)(1)(iii),
as a provider of a good or service. Any benefit must rather "be measured against the market value of
that good or service provided, not the cost of creating it". 405 The return to a government is a relevant
measure for assessing "benefit" only where a financ ial contribution under Article 1.1(a)(1)(i) is
involved. In such a case, the expected return th at a market investor would have demanded constitutes
the relevant benchmark for assessing whether th e government's expected return constitutes the
conferral of a "benefit" on the recipient. This is confirmed by Article 14(a) through (c) of the
SCM Agreement, which provides specific guidance for assessing against a market benchmark the
government return involved in an equity infusion, a loan, and a loan guarantee. However, where the
financial contribution constitutes the provision of a good or a service, the European Union argues that
Article 14(d) supports assessing any "benefit" based on ma rket value and price, rather than any return
earned.
166. The European Union argues that the Panel app lied a legally incorrect "return-to-government"
standard to the Mühlenberger Loch measures. The Panel explicitly recognized that Airbus
Deutschland did not receive land and facilities "wor th" €750 million, but land and facilities of a
considerably lesser market value. The Europe an Union notes that the Panel found that the
Mühlenberger Loch measures conferred a benefit on Airbus Deutschland "in an amount equivalent to
the extent of the difference between the actual rent paid by Airbus for the land and the facilities in
question, and a reasonable rate of return on the inv estment of the Hamburg authorities in creating that
land and those facilities." 406 The European Union contends that, instead of focusing on the
government as a provider of the goods or services and on the value of the land and the special-
purpose facilities, the Panel focused on the government as an investor and on the value of the city of
Hamburg's investment, finding that the city of Hamburg received an insufficient return on an
investment "worth" €750 million.407

404European Union's appellant's submission, para. 1067.
405European Union's appellant's submission, para. 1067.
407European Union's appellant's submission, para. 1070.
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167. The European Union notes that the Panel ju stified its approach by asserting that the
investment by the city of Hamburg in bringing the site into existence was "relevant" in its assessment,
and that its approach was "simply a reflection, in th e particular circumstances of this measure, of the
basis on which a market actor would determine the am ount of rent to be charged for that particular
parcel of land, and thus the a ppropriate 'market' benchmark."
408 The European Union argues,
however, that the Panel's approach departs from established panel and Appe llate Body guidance on
the approach to the "benefit" determination under Article 1.1(b) of the SCM Agreement. In Canada –
Aircraft, the Appellate Body explicitly rejected Ca nada's reliance on a "cost to government"
perspective, holding that "the word 'benefit', as used in Article 1.1 , is concerned with the 'benefit to
the recipient ' and not with the 'cost to government'."409 In the European Union's view, the Panel's
assessment of "benefit" amounts to a reversible erro r. The European Union repeats its prior argument
that the cost to the government in creating or im proving infrastructure is irrelevant in the benefit
analysis because it consists of government actions of public authority outside the scope of the
SCM Agreement. Only when something is provided to an economic operator does the benefit analysis
require examining whether the recipient obtained that something on better terms than the market
would provide. The European Union also submit s that the Panel's approach is "economically
naïve".410 The European Union argues that no market ac tor can set a price for a good solely on the
basis of its own investment or cost, because no buyer will pay more than the market value of the good.
If the market value of the good is less than the inv estment necessary to create it, the seller will fail to
recuperate its investment.
168. The European Union maintains that the Panel also attempts to justify its departure from
established panel and Appellate Body guidance by recourse to unspecified purposes and goals of the
SCM Agreement. Noting that the Appellate Body has identified the agreement's object and purpose as
"to strengthen and improve GATT di sciplines relating to the use of both subsidies and countervailing
measures"411, the European Union submits that the Panel does not explain how this broad statement of
object and purpose allows it to discard an establis hed interpretation of Article 1.1(b). The
European Union also labels as "misplaced" the Pa nel's criticisms of the European Communities'
approach as leading to a wholesale circum vention of subsidies disciplines in the SCM Agreement.
The European Union explains that no circumvention exists because the exclusion of the creation of
infrastructure from the SCM Agreement was a "conscious choice by Members"; rather, "it is the

409European Union's appellant's submission, para. 1073 (quoting Appellate Body Report, Canada –
Aircraft, paras. 155 and 156 (original emphasis)).
410European Union's appellant's submission, para. 1074.
411European Union's appellant's submission, para. 1075 (quoting Appellate Body Report, US –
Softwood Lumber IV, para. 64, in turn referring to Appellate Body Report, US – Carbon Steel, paras. 73 and 74).
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Panel's approach that upsets the balance of right s and obligations negotiated by Members in the
SCM Agreement."
412 Moreover, the European Union considers that the Panel erred when it found that
by creating infrastructure that the market might not create, governments distort the market in a
manner that is disciplined under the SCM Agreement. The European Union argues that, on the facts at
issue, the governments were not investors when th ey created the infrastructure and thus were not
required to cover all of their costs and obtain a retu rn. Rather, the governments were the providers of
goods and services, and any benefit conferred to the recipient of those goods and services must be
assessed on market terms.
169. The European Union maintains that the Panel's e rror is manifest in its finding that "whether
the rent paid by Airbus for the land and the speci al purpose facilities is commensurate with a market
rate for rental of existing industrial land and fac ilities in Hamburg ... is simply not relevant to our
analysis."413 To the contrary, the European Union argues, the relevant financial contribution within
the meaning of Article 1.1(a)(1)(iii) was the lease of the Mühlenberger Lo ch industrial site, and
therefore "the question whether the rent paid by Airbus Deutschland for the land and the special-
purpose facilities is commensurate with a market rate is the only relevant question." 414 T h e
European Union also disagrees with the Panel's view that there was a benefit to Airbus because the
market would not have developed the land. Instead , the European Union maintains, had Hamburg not
invested in the Mühlenberger Loch project, Airbus would have located the entire A380 final assembly
line in Toulouse.
170. The European Union concludes that the Panel' s finding that the Mühlenberger Loch measures
conferred a benefit on Airbus Deutschland because th e city of Hamburg is not earning a "reasonable
rate of return on the investment" is in error, because it did not assess whether Airbus Deutschland
received the financial contributions at issue on te rms better than those available on the market. 415 The
European Union therefore requests the Appellate Body to reverse the Panel's finding, and asserts that
there are no relevant factual findings or uncontest ed facts on the record that would allow the
Appellate Body to complete the analysis.
171. The European Union submits that the Panel wrongly relied on the "return on the investment"
standard when it found that there was "no return to the City of Bremen on its investment in the
runway extension and noise reduction measures" and, thus, that a benefit had been conferred to

412European Union's appellant's submission, para. 1076.
414European Union's appellant's submission, para. 1077. (original italics and boldface)
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Airbus "by the provision of that extension and noise reduction measures".
416 In particular, the Panel
failed to assess whether Airbus Deutschland received the relevant financial c ontribution—that is, the
exclusive right to use the extended runway—on terms better than those available at market. Instead,
the European Union notes, the Panel observed that Airbus did not pay "additional charges for the use
of the runway extension{}" and that "no connecti on has been established suggesting that Airbus pays
fees relating to the use of the extended runway".
417
172. The European Union contends that the Panel ignored the European Communities' explanation
showing that Airbus Deutschland was paying the hi ghest user fee and how that was connected to the
use of the extended runway. According to the Europ ean Union, it explained to the Panel that Airbus
pays higher user fees to the city of Bremen for the use of the extended runway, since aircraft using
that runway pay the highest weight-related fee, approximately three times higher than the average
payment. The fact that Airbus pays the highest u ser fees implies that no benefit is granted by the
exclusive right to use the extended runway. Th e Panel ignored this and wrongly focused on the
"return on the investment" standard when finding that "t here is no return to the City of Bremen on its
investment in the runway extension and noise reduction measures." 418 The European Union requests
the Appellate Body to reverse the Panel's finding , and asserts that there are no relevant factual
findings or uncontested facts on the record that would allow the Appellate Body to complete the
analysis.
173. The European Union submits that the Panel also erred when finding that the Aéroconstellation
measures conferred a benefit on Airbus France. Re ferring to the Panel's finding that "the investment
by the French authorities in developing the site to make land suitable for industrial use is the relevant
basis for assessing whether a benefit was conferred on Airbus" 419, the European Union argues that the
Panel's assessment of "benefit" and its application of that standard to the Aéroconstellation measures
amount to reversible error, for th e same reasons that the European Union has set out with respect to
the Mühlenberger Loch measures.
174. The European Union notes the Panel's finding that the price paid by Airbus for land at the
Aéroconstellation site and the lease of the EIG faciliti es "does not provide a market rate of return on
the investment by the French authorities to develop the site, including the EIG facilities." 420 Based on
this finding, the Panel concluded that the provisi on of the Aéroconstellation site, including the EIG

417European Union's appellant's submission, para. 1081 (quoting Panel Report, paras. 7.1133 and
 7.1132 respectively).
419European Union's appellant's submission, para. 1084.
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facilities, constitutes a subsidy within the meaning of Article 1 of the SCM Agreement.
421 These
findings were based on consideration of the retu rn on the investment by French authorities and
therefore constitute legal error, because the Pane l did not assess whether Airbus France received the
financial contributions at issue on terms better than those available at market. Moreover,
Article 14(d) of the SCM Agreement confirms that the appropriate benchmark for the sale of land to
Airbus France was its market price. As the Eur opean Union explains, Article 14(d) establishes that
any "benefit" under Article 1.1(b) has to be assessed against "prevailing market conditions" for the
good or service provided; it does not require that the au thorities be able to recoup their internal costs.
The European Union requests the Appellate Body to reverse the Panel's finding, and asserts that there
are no relevant factual findings or uncontested fact s on the record that would allow the Appellate
Body to complete the analysis.
9. Equity Infusions
(a) Capital investments
175. The European Union claims that the Panel erred in the interpretation of Article 1.1(b) of the
SCM Agreement. The European Union states that the Panel correctly noted that the question posed by
Article 1.1(b) is whether the terms of the contribu tion are more favourable than those that would have
been available on the market from a private investor. The European Union refers to the United States'
arguments before the Panel that Aérospatiale was not equity worthy, and that a private investor would
not have made the capital contribution at all. In th e European Union's view, "{t}he relevant question,
therefore, was whether the United States had provid ed contemporaneous evidence demonstrating that
Aérospatiale was not equity worthy, and therefore that a private investor would not have made the
capital contributions at all, such that a 'benefit' was conferred."422
176. The European Union argues, however, that after correctly setting out the standard, "the Panel
curiously restated the standard, noting that it would ask whether the French State 'could have expected
to achieve a reasonable rate of return on its investment'." 423 This standard begs the question of what
a "reasonable rate of return" would have been, a qu estion that, in the European Union's view, "the
Panel made no attempt to explore, let alone resolve." 424 The European Union charges that the Panel
neither addressed what rate of return a private inv estor would have considered to be "reasonable", nor
compared any such rate with the rate of return anticipated by the French Government, but concluded

421European Union's appellant's submission, para. 1085 (referring to Panel Report, para. 7.1190).
422European Union's appellant's submission, para. 1102.
423European Union's appellant's submission, para. 1104 (quoting Panel Report, paras. 7.1364, 7.1366,
7.1370, and 7.1374). (emphasis added by the European Union)
424European Union's appellant's submission, para. 1104. (original emphasis)
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nevertheless that the French Government anticipated a rate of return lower than would have been
required by a private investor. In other words, th e European Union argues, despite an "initial nod" to
the correct standard, the Panel erred in applying the wrong "reasonable rate of return" standard.
425
177. Moreover, even in applying its "reasonable rate of return" standard to the capital contributions
at issue, the European Union asser ts that the Panel "failed to identify, much less assess, any evidence
concerning what a private investor would have considered to be a 'reasonable rate of return'."426 In the
European Union's view, the Panel failed to apply th e legal standard it adopted to the facts of the
dispute, and therefore erred in the application of Article 1.1(b). This failure also gives rise to error
under Article 11 of the DSU, because the Panel ma de findings "without any basis in the evidence
before it"; that is, without determ ining what rate of return a privat e investor would have considered
"reasonable", or how that rate differed from the rate of return anticipated by the French
Government.
427
178. The European Union claims, in the alternative, that, even if the Panel applied the correct
standard, it still erred in its application of that standard to determine whether any evidence on
expected returns for the four capital contributions demonstrates a shortfall compared to a market
benchmark. The Panel failed to assess properly what constitutes "usual investment practice", within
the meaning of Article 14(a) of the SCM Agreement, and therefore failed to assess properly whether a
"benefit" was conferred by the capita l contributions. In particular, "t he Panel failed to apply the one
benchmark that provides the most relevant insight into contemporaneous private investor behaviour in
the LCA sector—the behaviour of Boeing's investors." 428 The European Union adds that this would
have enabled the Panel to assess "the actual investment practice of a private investor similarly
situated to Aérospatiale's principal investor", thus obviating the need for the Panel "to pose the
hypothetical question of how a private invest or standing in the French State's shoes would have acted,
according to 'usual investment practice'."429
179. The European Union argues that the Panel's fa ilure to address the benchmark established by
Boeing's investors is a "curious omission" since, in the absence of guidance in the SCM Agreement
regarding the nature of evidence necessary to est ablish market-based terms, evidence concerning
Aérospatiale's peer companies "was a priori relevant to the Panel's enquiry". 430 Moreover, the
European Union notes that the Panel specifically stated that evidence concerning other firms operating

425European Union's appellant's submission, para. 1105.
426European Union's appellant's submission, para. 1106. (original emphasis)
427European Union's appellant's submission, para. 1107.
428European Union's appellant's submission, para. 1109.
429European Union's appellant's submission, para. 1109. (original emphasis)
430European Union's appellant's submission, para. 1111.
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in the same industries is "particularly probative of the question whether a private investor would have
chosen to make the capital investments in Aérospatiale at issue in this dispute."
431 T h e
European Union agrees with this statement of the Panel, adding that "Boeing was, at the time,
Aérospatiale's closest peer."432
180. The European Union submits that "{t}he behavi our of Boeing's investors demonstrates that
private investors were willing to sustain and indeed increase investment in LCA product development,
even during periods of weak demand and poor fina ncial performance, in light of positive future
prospects."433 Citing evidence of the poor financial performance of Boeing in the early 1990s, the
European Union nevertheless notes investments by Boeing's investors that enabled the company to
achieve, for example, the development and launc h of the Boeing 737 and 777 programmes. The
European Union insists that what drove Boeing's investors to continue investing in product
development despite the company's poor current and past performance were "{c}ontemporaneous
assessments by Boeing, Airbus and the US government forecasting extensive passenger traffic growth
and robust demand for LCA well into the future". 434 Such positive forecasts "motivated Boeing's
investors to support the company's decision to make massive investments in product development that
would enable the company to benefit when the market improved, as was uniformly forecast."435
181. The European Union argues that the behaviour of Boeing's private investors during this period
serves as a relevant benchmark against which to measure whether Aérospatiale's government
investors were acting in accordance with "usual in vestment practice". The European Union asserts
that, during this period, both Aérospatiale's and Boeing's investors decided, despite poor past
performance, to support the comp anies' decisions to fund product development that would boost
competitiveness when the market improved. The Eu ropean Union adds that "a future-oriented
approach to investment decisions is particularly pe rtinent in industries, such as LCA, with long and
costly development cycles, which require invest ment even during periods of weak performance." 436
Moreover, because Boeing was, prior to its acquis ition of McDonnell Douglas, even more dependent
on LCA revenues than Aérospatiale, "Boeing's invest ments in product development were a bellwether
for others making investment decisions in the LCA market."437

431European Union's appellant's submission, para. 1112 (quoting Panel Report, para. 7.1360). (emphasis
added by the European Union)
432European Union's appellant's submission, para. 1113. (original emphasis)
433European Union's appellant's submission, para. 1114.
434European Union's appellant's submission, para. 1116.
435European Union's appellant's submission, para. 1116.
436European Union's appellant's submission, footnote 1519 to para. 1117.
437European Union's appellant's submission, para. 1117.
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182. The European Union submits that, instead of examining the contempor aneous behaviour of
Boeing's investors, the Panel "effectively concluded th at the French State, as Aérospatiale's principal
investor, would have found no appeal in a market with future prospects bright enough to motivate
Boeing's investors to maintain their investments."
438 This is tantamount to concluding that a private
investor in Aérospatiale would have made the "utte rly nonsensical decision" to cede the market to a
principal competitor. 439 The European Union also argues th at the Panel's approach required it
"to pose and answer the hypothetical question of how a private investor standing in the French State's
shoes would have acted".440
183. Thus, the European Union contends, "{n}ot only did the Panel fail ... to identify, much less
assess, any evidence concerning how a private investor would have acted", it also "failed to apply a
benchmark based on how private investors in Boeing did in fact act , in the face of past performance
and future prospects similar to that faced by Aérospatiale." 441 The European Union finds this
"surprising", given the Panel's statement that ev idence regarding other firms operating in the same
industries, presumably subject to similar business ri sks and cycles as Aérospatiale, was "particularly
probative of the question whether a private inv estor would have chosen to make the capital
investments in Aérospatiale at issue". 442 This evidence was available to the Panel, and the Panel's
failure to apply that benchmark amounts to an error in the application of Article 1.1(b) of the
SCM Agreement.
184. Moreover, the European Union argues that the Pa nel's failure to apply a benchmark based on
the actual behaviour of Boeing's investors, without any reasoned explanation for its decision to do so,
constitutes a failure to make an obj ective assessment of the matter, in violation of Article 11 of the
DSU. The European Union contends that the Panel' s failure to apply this benchmark "is particularly
egregious, as evidence concerning the contemporaneous behaviour of Boeing's investors in the face of
the company's weak past perform ance formed a central part of the European {Communities'}
defence."
443 The European Union claims that the Panel accepted evidence by the United States
concerning the financial performance of certain of Aérospatiale's peer companies, yet disregarded
similar evidence regarding Boeing when offered by the European Communities. The European Union

438European Union's appellant's submission, para. 1119. (original emphasis)
439European Union's appellant's submission, para. 1119.
440European Union's appellant's submission, para. 1120. (original emphasis)
441European Union's appellant's submission, para. 1120. (original emphasis)
442European Union's appellant's submission, para. 1121.
443European Union's appellant's submission, para. 1122.
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maintains that the Panel's "variable treatment of th e same class of evidence is internally incoherent,
and contrary to its obligation to provide coherent reasoning, under Article 11 of the DSU."
444
(b) Share transfer
185. The European Union argues that the Panel committed legal error by disregarding the relevant
benchmark establishing that the French Government w as paid fair market value for the transfer of its
45.76% stake in Dassault Aviation to Aérospatiale. According to the European Union, the report by
the French Commissaires aux apports (the " Commissaires' report") 445 concluded that the exchange
ratio applied for the transfer of the French Governme nt's shares in Dassault Aviation, in exchange for
new Aérospatiale shares, was consistent with a ma rket valuation of Aérospatiale and Dassault using
the discounted cash flow method. This assessment , together with the confirmation by several
investment banks (Lazard Frères, Rothschild and Compagnie Financière Edmond de Rothschild),
demonstrated that "the French State had been full y compensated for the market value of the Dassault
shares transferred to Aérospatiale", and that Aéro spatiale had therefore not received Dassault shares
on terms more favourable than those available on the market.
446 The European Union asserts that
because this confirms that no benefit was conferred, the Panel's analysis should have ended at that
point.
186. The European Union maintains that, instead of heeding the benchmark assessed in the
Commissaires' report, the Panel set out to determine whether the Dassault transfer was "inconsistent
with the usual investment practice of private investors in France". 447 The European Union claims that
the Panel's statement "shows considerable confusion about the interpretation of the 'benefit' standard",
since it suggests that " different legal standards apply to the determination of 'benefit', when
considered under Article 1.1(b) as opposed to under Article 14(a)." 448 According to the
European Union, the guidelines set out in Article 14 " do not replace Article 1.1(b)"; rather, the
question posed under both Articles "is the same—did Aé rospatiale receive the French State's Dassault
stake on terms more favourable than would have be en extended by a private investor at market?" 449
The European Union argues that the Commissaires' report answers that question, confirming that the
French Government, in transferring its shares in Dassault, received payment commensurate with the

444European Union's appellant's submission, para. 1125 (referring to Appellate Body Report, US –
(6 May 1999) (Panel Exhibit EC-892), section 3.
446European Union's appellant's submission, para. 1140.
448European Union's appellant's submission, para. 1142. (original emphasis)
449European Union's appellant's submission, para. 1142. (original emphasis)
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market value of those assets. The European Union adds that "{w}here a government is paid fair
market value for a capital contribution, there is no 'benefit', because the government is acting in
accordance with the usual investment practice of a private investor, who would similarly seek fair
market value for a capital contribution."
450 In finding that the benchmark used in the Commissaires'
report could not serve as a benchmark in assessing "b enefit", the Panel erred in its interpretation of
Article 1.1(b). Accordingly, the European Union requests the Appellate Body to reverse the Panel's
finding that the transfer to Aérospatiale of the French Government's stake in Dassault conferred a
"benefit" and constituted a subsidy.
187. As a conditional appeal, the European Union s ubmits that the Panel committed an "additional
error" in applying the "benefit" standard in Article 1.1(b) of the SCM Agreement to the facts. The
European Union recalls that the Panel set out to determine "whether the United States ha{d}
demonstrated that a private investor would not have made the equity investment in question based on
the information available at the time", and conc luded that, without the Dassault shares on its balance
sheet, Aérospatiale's financial position and future pros pects were insufficient to enable it to attract the
private capital necessary to privatize. 451 In the European Union's vi ew, however, the fact that the
Dassault transfer increased the ch ances that the Aérospatiale privatization would occur on schedule
does not demonstrate that a private investor would not have made the transfer. The European Union
argues that "{a} private owner would presumably al so take actions designed to increase the chances
that a planned sale of its wholly-owned assets would occur as scheduled."452
188. The European Union notes that the Panel turned to the question posed by the
European Communities concerning "whether the United States had provided evidence establishing
that a private owner, standing in the French State' s shoes, would not have consolidated its wholly-
owned aerospace assets in advance of a planned sale of those assets." 453 The European Union
contends that the United States offered no such ev idence. In contrast, the European Communities
provided valuations by investment banks involved in estimating the combined value of Aérospace and
Matra Haute Technologies, which were combined to create Aérospatiale-Matra. In providing those
valuations, the investment banks arrived at an offering price for Aérospatiale-Matra's shares only after
valuing Dassault separately from the other operations of Aérospatiale, thus guaranteeing that the per
share price paid to the French Government in th e privatization fully captured, and compensated the

450European Union's appellant's submission, para. 1143.
451European Union's appellant's submission, para. 1146 (referring to Panel Report, paras. 7.1407
and 7.1409).
452European Union's appellant's submission, para. 1147.
453European Union's appellant's submission, para. 1148 (referring to Panel Report, paras. 7.1410
and 7.1412).
WT/DS316/AB/R BCI deleted, as indicated [***]

French Government for, the market value of the 45.76% stake in Dassault. In other words, "the
investment banks' valuations furthered the conclusion reached in the Commissaires' report."
454
189. The European Union argues that the Panel rejected this evidence, considering it insufficient to
demonstrate that the French Government had been pa id fair market value for its stake in Dassault,
both at the time of the transfer to Aérospatiale, and at the time of the privatization. Instead, the Panel
faulted the European Communities for failing to prov ide evidence demonstrating that the anticipated
returns from the combined sale of Aérospatiale a nd the French Government's Dassault stake exceeded
the anticipated returns from the sale of Aérospatiale alone, and the retention by the French
Government of its stake in Dassault. The Europ ean Union argues that the Panel did not address, nor
was there any evidence to demonstrate, that such returns from the combined sale were lower than the
returns from the sale of Aérospatiale alone, coupled with retention by the French Government of its
stake in Dassault. In th e absence of such evidence, the European Union contends, "it is unclear on
what basis the Panel was able to find the exis tence of a 'benefit', within the meaning of
Article 1.1(b)."455
190. The European Union further claims that, by considering it insufficient that the
European Communities had shown that the French G overnment was paid fair market value for its
Dassault stake, the Panel in effect was demandi ng that the French Government had to have
"anticipated earning more than a market return for its combined aerospace assets". 456 T h e
European Union considers that the Panel's finding "i s tantamount to saying that, to avoid conferring a
'benefit', a government cannot privatise a state-ow ned company, even in a public offering (and thus,
by definition, at fair market value), unless the government can prove that it anticipates earning a better
rate of return, through the privatisation, than it would have earned had it not privatised, and instead
retained ownership of the company." 457 According to the European Union, the Panel's logic would
require that a government "must retain shareholdings, even where those shareholdings can be sold
and fair market value realised".458
191. The European Union submits that the Panel committed additional errors in rejecting the
investment bank valuations provided by the European Communities. The European Union claims that
the Panel discounted the investment bank valuatio ns because they were done after the Dassault
transfer, and were provided to parties other than the French Government, and therefore were not

454European Union's appellant's submission, para. 1150.
455European Union's appellant's submission, para. 1152.
456European Union's appellant's submission, para. 1155. (original emphasis)
457European Union's appellant's submission, para. 1155. (original emphasis)
458European Union's appellant's submission, para. 1157. (original emphasis)
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known to the French Government at the time of the transfer of the Dassault shares. The
European Union considers that the Panel erred by requiring not only that the financial contribution
was market consistent, but that the evidence was known and received by the government at the time
the contribution was made. As the European Union ar gues, Article 1.1(b) "does not require proof that
the French State knew of, received or relied on su ch evidence in deciding to make the capital
contribution ... {but} only that the info rmation recorded in that evidence evaluated financial
conditions that existed at the time of the capital contribution ".
459 Similarly, the Panel erred in
disregarding the investment bank valuations, because the reports post-dated the Dassault transfer. In
the European Union's view, "as long as the valuations assessed financial facts and conditions in effect
at the time the capital contribution is made , they can serve as legitimat e evidence of the absence of
'benefit'."460 The European Union contends that the investment bank valuations satisfied these
standards, and the Panel's findings are therefore an erroneous application of the "benefit" standard in
Article 1.1(b).
10. The Subsidized Product and Product Market
192. The European Union appeals what it describes as the Panel's finding that "as a matter of law
{the Panel} had no discretion to divide a broad singl e 'subsidized product' as alleged in a complaining
Member's request for establishment {of a panel} and that it need not independently and objectively
assess the scope of the 'subsidized produ ct', as defined by the United States". 461 The European Union
argues, first, that the Panel acted inconsistently with its duty to make an objective assessment of the
matter before it, as required under Article 11 of th e DSU, by failing to assess "independently" the
scope of the "subsidized product" proposed by th e United States. The European Union emphasizes
that previous panels have found that, even where the parties agree on an issue, the panel is required to
make an independent and objective assessment. The Eu ropean Union adds that, if this is required in
circumstances where the parties agree, it certainly is required in cases where the parties disagree.
193. The European Union further claims that the Pa nel erred in concluding that "there is a
complete absence of any guidance in the text of the SCM Agreement as to the bases on which a
decision as to the appropriate subsidized product {might (sic)} be made" 462, and that nothing in the
SCM Agreement required that it "make an independent dete rmination of the 'subsidized product', as
opposed to relying on the complaining Member's identification of that product". 463 Contrary to what

459European Union's appellant's submission, para. 1161. (original emphasis)
460European Union's appellant's submission, para. 1162. (original emphasis)
461European Union's appellant's submission, paras. 298, 301, and 304; see also para. 288.
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the Panel assumed, the text and context of Article 6.3 of the SCM Agreement provide guidance for an
assessment of the term "subsidized product". For example, "{e}very one of the subparagraphs of
Article 6.3 defines serious prejudice with respect to certain effects in 'markets
'."464 The
European Union adds that the term "mar ket" "covers both geographic and product markets."465 With
respect to the "product market dimension", the European Union argues that "two products would be in
the same market if they were engaged in actual or potential competition in that market" and where
there is "homogeneity of the conditions of competition". 466 According to the European Union, "{t}his
means that a panel must objectively assess whether th e product market(s) asserted by the complaining
Member exist and can serve as a proper basis for an alysing the complaining Member's adverse effects
claims."467 This analysis, the European Union argu es, "must start with an assessment of the
complaining Member's definition of the 'subsidized product'".468
194. Referring to the report of the panel in Korea – Commercial Vessels , the European Union
argues that "without retaining the flexibility to an alyse critically a complaining Member's proffered
scope of the subsidised product within the contex t of actual competition and markets, a complaining
Member may advance an entirely absurd definition of a 'subsidized product'." 469 Turning to the
specifics of this dispute, the European Union argues that "{s}ubsidized aircraft may be considered to
be in the same market, and hence a single 'subsidi zed product', only if they are engaged in actual or
potential competition."470 For the European Union, it follows th at, to the extent the United States has
identified a group of aircraft that contains products that do not "generally compete", these aircraft
cannot be considered to be in the same market , and, therefore, cannot be considered a single
"subsidized product". 471 The European Union further explai ns that a "coherent" adverse effects
analysis "requires an assessment of the extent and nature of actual or potential competition among
particular products in the relevant markets". 472 That assessment must begin with an objective
assessment of the "subsidized product" in the light of the subsequent requirement to assess serious
prejudice on the basis of product markets.

464European Union's appellant's submission, para. 307. (original underlining)
465European Union's appellant's submission, para. 307 (referring to Appellate Body Report, US –
Upland Cotton, para. 408). (underlining added by the European Union)
466European Union's appellant's submission, para. 307 (quoting Appellate Body Report, US – Upland
Cotton, paras. 405-410).
467European Union's appellant's submission, para. 307.
468European Union's appellant's submission, para. 307.
469European Union's appellant's submission, para. 309 (referring to Panel Report, Korea – Commercial
Vessels, para. 7.624).
470European Union's appellant's submission, para. 310.
471European Union's appellant's submission, para. 310.
472European Union's appellant's submission, para. 311. (original emphasis)
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195. The European Union therefore requests the Appellate Body to reverse the Panel's "reasoning",
and find that "a panel must make an independe nt and objective assessment of the scope of the
'subsidized' product."
473
(a) Whether the Panel erred in assessing displacement on the basis of a
single product and a single-product market
(i) The Panel's interpretative approach
196. The European Union claims that the Panel erred under Article 6.3(a) and (b) of the SCM
Agreement in its interpretation of the term "market" in the context of the terms "subsidized product"
and "like product" and, in applying its interpretation to the facts, "finding that there is only a single
product market in which all Boeing and Airbus LCA compete." 474 According to the European Union,
"{t}he concepts of 'markets' and 'competition'—a s well as 'subsidized' and 'like' products—are
inseparable concepts that play a crucial role in assessing serious prejudice under Article 6.3 of the
SCM Agreement."475 The European adds that "both Ar ticles 6.3(a) and (b) discipline the
'displacement' in a particular 'm arket' of imports or exports of a 'like product' of one Member by
subsidies benefiting a competing 'subsidized product' of another Member."476
197. Referring to the report of the Appellate Body in US – Upland Cotton, the European Union
argues that the "markets" referred to in Article 6.3( a) and (b) "are defined including by reference to
their product dimension" 477 and that "two products are in the same market if they are in 'actual or
potential competition' and there exists 'homogeneity of the conditions of competition' in a market." 478
The "terms 'subsidized product' and 'like product' provide important context, and their previous
interpretations provide guidance, for assessing whether two products are in the same product
'market'."479 The European Union recalls that, in EC – Asbestos, the Appellate Body listed a number
of criteria that could be assessed for purposes of determining whether two products are in the same
product market. Such criteria include "identical or similar characteristics and qualities" based on
factors that might "rang{e} from physical properti es such as composition, size, shape, texture, and

473European Union's appellant's submission, para. 313.
474European Union's appellant's submission, para. 340.
475European Union's appellant's submission, para. 341.
476European Union's appellant's submission, para. 341.
477European Union's appellant's submission, para. 342 (referring to Appellate Body Report, US –
Upland Cotton, para. 408).
478European Union's appellant's submission, para. 343 (referring to Appellate Body Report, US –
Upland Cotton, para. 408).
479European Union's appellant's submission, para. 344.
WT/DS316/AB/R BCI deleted, as indicated [***]

possibly taste and smell, to the end- uses and applications of the product."
480 The Appellate Body
also referred to the Border Tax Adjustment criteria consisting of: "(i) the properties, nature and
quality of the products; (ii) the end-uses of the products; (iii) consumers' tastes and habits
—more comprehensively termed c onsumers' perceptions and behavi our—in respect of the products;
and (iv) the tariff classification of the products."481
198. The European Union argues that in the LCA i ndustry "objective evidence of the scope of an
LCA product market" would consist of "contem poraneous sales campaign evidence and data
demonstrating 'direct head-to-head competition' in all LCA sales during the reference period." 482
According to the European Union, such evidence "reflects airlines ' perceptions of where competition
exists", and "it is the airlines themselves that determine the competition between products and that
define the product markets by demanding compe ting offers from Airbus and Boeing for their
particular LCA needs." 483 To the extent that all, or the gr eat majority, of sales campaigns involve
competition only between certain Boeing and Airbus products , "this would constitute a strong basis to
find that those products are in a 'product' mark et separate from other Airbus and Boeing LCA." 484
Moreover, "evidence of rare cases of competition or substitutability in 'unusual circumstances' is not a
proper basis for finding that such products compete in the same product market."485
199. The European Union claims that the Panel further erroneously set a "no competition"
threshold for two products not to be in the same product market. 486 The European Union underscores
that "{t}he fact that certain products 'share partic ular characteristics' ... or that they have the 'same
general uses' does not constitute a basis on which to find that they compete in the same product
market."487
200. The European Union takes the position that the Panel erred when it found "relevant to its
'market' assessment the possibility of linkages and spill-over effects of the subsidies in question." 488
In particular, the Panel explained that these subsid ies "are not limited to one model of Airbus LCA,

480European Union's appellant's submission, para. 344 (quoting Appellate Body Report, EC – Asbestos,
paras. 91 and 92).
481European Union's appellant's submission, para. 344 (quoting Appellate Body Report, EC – Asbestos,
para. 101).
483European Union's appellant's submission, para. 345.
484European Union's appellant's submission, para. 345.
485European Union's appellant's submission, para. 345 (referring to Panel Report, footnote 5089 to
para. 7.1668).
486European Union's appellant's submission, para. 351 (referring to Panel Report, para. 7.1668 and
footnote 5089 thereto).
487European Union's appellant's submission, para. 351 (referring to Panel Report, para. 7.1664).
488European Union's appellant's submission, para. 353 (referring to Panel Report, para. 7.1655).
BCI deleted, as indicated [***] WT/DS316/AB/R

but rather benefit the entire family of Airbus LCA."
489 According to the European Union, "{t}his
explanation reveals what appears to be the Pane l's major concern in making its finding of a single
product market—namely that any other finding would prevent it from assessing linkages and
spill-over effects in separate product markets for purposes of causation."490
201. The European Union submits that the Panel's conc ern is "unwarranted", and explains that it
"fully accepts" that any linkages and spill-over effect s—for example, the relevance to Airbus' later
product launches of the company's technological experience gained from earlier product launches—
could be relevant to an assessment of causation under Article 6.3 of the SCM Agreement.491 T h e
European Union also accepts that "the relevance of Airbus' ability to offer a full product line to, for
example, its ability to benefit from commonality e ffects or 'bundled' sales, or to gain sufficient
technological experience are factors that the Pane l might {have} take{n} into account when assessing
causation and the effects of subsidies to one product spilling over to another product." 492 In addition,
the European Union agrees that "such production efficiencies, if they can be traced to subsidies, might
be important for assessing causation, at least to th e extent they speak to Airbus' ability to launch a
product or offer lower prices."493
202. The European Union considers that "{t}he Pa nel's reliance on these causation-related factors
to support its single subsidised product finding creat es the impression that the Panel, in effect, pre-
judged its own causation findings." 494 However, "the steps necessary to assess serious prejudice
cannot start with causation."495 Rather, "they must first involve a detailed analysis of the 'market' or
'markets' in which the subsidies at issue can have effects." 496 This "involves assessing the nature and
extent of head-to-head competition between different products."497 According to the European Union,
"{o}nly on that basis can a finding be made on the number of markets and the number of subsidised,
and like, products that compete therein."498

490European Union's appellant's submission, para. 353 (referring to Panel Report, paras. 7.1667
and 7.1669).
491European Union's appellant's submission, para. 354.
492European Union's appellant's submission, para. 355.
493European Union's appellant's submission, para. 356.
494European Union's appellant's submission, para. 357.
495European Union's appellant's submission, para. 357. (original emphasis)
496European Union's appellant's submission, para. 357.
497European Union's appellant's submission, para. 357.
498European Union's appellant's submission, para. 357.
WT/DS316/AB/R BCI deleted, as indicated [***]

203. For these reasons, the European Union requests the Appellate Body to reverse the Panel's
interpretation and application of the te rms "market" and "subsidized product".
499 According to the
European Union, these interpretative "errors had si gnificant consequences for the Panel's improper
assessment of the markets to examine displacement and threat of displacement."500
(ii) Article 11 of the DSU
204. The European Union submits that, in finding that there is "only one, rather than several, LCA
product markets" and that it "could assess displacement on the basis of a single LCA product market",
the Panel acted inconsistently with its obligations under Article 11 of the DSU. 501 According to the
European Union, the Panel's interpretative e rror "allowed" it "to marginalise and disregard
overwhelming evidence that competition takes place al most exclusively between certain Airbus and
Boeing products—and not between every Airbus product and every Boeing product." 502
205. In any event, the European Uni on maintains that the "key factor for the Panel's determination
{of} whether there is a single or multiple product market(s) is the assessment of where competition
actually takes place—i.e., evidence of actual sales tr ansactions that reflect the market(s) where the
product(s) are bought and sold, as well as market perceptions by LCA manufacturers, purchasers and
operators, as well as market experts."
503 The European Union notes that "{t}he United States
provided a document with data that listed the sales campaigns Boeing and Airbus each won in the
period 2000-August 2005, a nd that identified the competing Boeing product for each of the sales that
Airbus won."504 This evidence showed that "in every sales campaign Airbus won with its single-aisle
A320 family LCA" it competed against the Boeing single-aisle family LCA. 505 Moreover, "{i}n
approximately 75 percent of sales campaigns in which Airbus won with its 200-300 seat Airbus A330
and A350 families, it competed agains t Boeing 767 and 787 family LCA." 506 The European Union
submits that, "{i}n the other 25 percent of the sal es campaigns, Boeing offered the 777 in particular
because the customer did not want to purchase ol d-technology 767, and th e Boeing 787 was not yet
available."507 Furthermore, "in every sales campaign Airbus won with its 300-400 seat A340 family

499European Union's appellant's submission, para. 358 (referring to Panel Report, paras. 7.1638, 7.1650,
500European Union's appellant's submission, para. 358.
501European Union's appellant's submission, paras. 340 and 359.
502European Union's appellant's submission, para. 360 (referring to evidence summarized in Annex II
(Product Markets Annex) (BCI) to its appellant's submission, sections II.A and III.A).
503European Union's appellant's submission, para. 361.
504European Union's appellant's submission, para. 362 (referring to Panel Exhibit EC-322 (BCI)).
505European Union's appellant's submission, para. 363. (original emphasis)
506European Union's appellant's submission, para. 363.
507European Union's appellant's submission, para. 363 (referring to European Communities' response to
Panel Question 114, paras. 320-328).
BCI deleted, as indicated [***] WT/DS316/AB/R

LCA, it competed against the 300-400 seat Boeing 777 family LCA."
508 That is, "there were no sales
campaigns in which Airbus' 300-400 seat A340 competed with Boeing's 767 or 787, further
supporting the 'unusual circumstance s' that are the basis for the limited 777 v A330 competition." 509
The European Union further argu es that "{t}here were, moreover, no sales campaigns in which the
Airbus A380 competed against Boeing 737NG, 767, 777 or 787 family LCA." 510 In other words, "the
United States' evidence showed that competition takes place almost exclusively between specific
Airbus and Boeing products that, therefore, compete in separate product markets."511
206. The European Union also notes that the Un ited States had presented pricing evidence " not on
the basis of a single like product, but separatel y for the 737NG, the 747, the 767, and the
Boeing 777."512 When assessing that evidence, the Panel found that "prices for each aircraft moved in
quite different directions." 513 The European Union argues that this evidence regarding price
developments for Boeing aircraft "demonstrates th at the different Boeing products—the 737NG, 767,
777 and 747 LCA families—are not facing 'hom ogeneity of the conditions of competition' and are,
therefore, not in the same product market."514
207. The European Union further submits that "{t}h e existence of more than one product market
was confirmed by other uncontested evidence." 515 That evidence "included evidence on the LCA
offered by Boeing and Airbus in sales campaigns won by Boeing." 516 It also included Boeing and
Airbus marketing materials together with st atements from both Boeing and Airbus officials 517, and

508European Union's appellant's submission, para. 363. (original emphasis)
509European Union's appellant's submission, para. 363.
510European Union's appellant's submission, para. 363. (original emphasis)
511European Union's appellant's submission, para. 363.
512European Union's appellant's submission, para. 364 (original emphasis) (referring to the
United States' first written submission to the Panel, charts at paras. 803-809 and Boeing indexed average aircraft
price charts (Panel Exhibit US-444 (BCI)); and United States' second written submission to the Panel, para. 734
and Boeing US market pricing chart, revised with 2006 data (Panel Exhibit US-616 (BCI)).
513European Union's appellant's submission, para. 364 (referring to Panel Report, Chart 11 at
para. 7.1848 (Boeing 737NG average indexed order prices), Chart 12 at para. 7.1849 (Boeing 767 average
indexed order prices), Chart 13 at para. 7.1850 (Boeing 747 average indexed order prices), and Chart 14 at
para. 7.1851 (Boeing 777 average indexed order prices)).
514European Union's appellant's submission, para. 364 (quoting Appellate Body Report, US – Upland
Cotton, para. 408).
515European Union's appellant's submission, para. 365.
516European Union's appellant's submission, para. 365 (referring to Panel Exhibit EC-323 (BCI); and
Expert statement of Christian Scherer, Head of Fu ture Programmes, Airbus, "Commercial Aspects of the
Aircraft Business from the Perspective of a Manufacturer" (Panel Exhibit EC-14 (BCI)), Annex I (Airbus orders
for January 2000 through Decembe r 2006) and Annex II (Boeing or ders for January 2000 through
December 2006)).
517European Union's appellant's submission, para. 365 (referring to Panel Exhibits EC-298, EC-307,
EC-309, EC-311, EC-312, EC-313, EC-314 (HSBI), EC-315, EC-316, EC-318, EC-317 (BCI), EC-319,
EC-320, EC-322 (BCI), and EC-323 (BCI).
WT/DS316/AB/R BCI deleted, as indicated [***]

statements of market experts
518, including experts testifying before the Panel. 519 The European Union
considers that "{a}ll of this evidence confirmed that head-to-head competition is limited to particular
Airbus and particular Boeing LCA." 520 This evidence "also confirmed that direct head-to-head
competition reflected considerable differences be tween LCA in terms of their ranges, seating
capacities, prices, and performance characteris tics, evidence which is largely undisputed." 521 T h e
European Union asserts, that "{f}or the most part, the Panel did not refer to, or otherwise address in
any substantive manner, any of this evidence." 522 Rather, the Panel focused on some isolated
occasions in which multiple Airbus and Boeing LC A from different product groupings were offered
to meet a customer's needs. In these "rare instance s", the evidence showed that "the airline customer
simply required for multiple types of LCA (e.g., for both a single-aisle and a 300-400 seat LCA) at the
same time and, therefore, requested offers fro m Airbus and Boeing in a single sales campaign." 523
However, according to the European Union, "in these sales campaigns, competition took place
between Boeing and Airbus LCA in the same pr oduct groupings and markets identified by the
European Union (e.g., Airbus A320 v. Boeing 737, and Airbus A340 v. Boeing 777)."524
208. Furthermore, the European Union argues that , in finding a single "subsidized product", the
Panel also "relied on evidence submitted by the United States, referring to Airbus as creating an
'entire family of Airbus LCA' to suggest that all LCA compete with one another." 525 According to the
European Union, the evidence before the Panel "shows that the use of a singular 'Airbus family' refers
to production and technological cross-benefits between various products (economies of scope)." 526
However, "{i}t does not suggest or establish that th ere is competition between the LCA that make up
the alleged 'Airbus family'." 527 Instead, the use of the term "fam ily", as it applies to competition,
"refers, for example, to the A320 'family' of th e A318, A319, A320, and A321 single-aisle LCA, and

518European Union's appellant's submission, para. 365 (referring to Expert statement of Rod P. Muddle,
Airline Capital Associates Inc., "The Dynamics of the Large Civil Aircraft Industry" (Panel Exhibit EC-19);
and Expert statement of Christian Scherer, supra, footnote 516).
519European Union's appellant's submission, para. 365 (referring to European Communities' oral
statement at the second Panel meeting, paras. 311-341, and paras. 118-156. See also Expert statement of
Christian Scherer, supra, footnote 516).
520European Union's appellant's submission, para. 365.
521European Union's appellant's submission, para. 365.
522European Union's appellant's submission, para. 365.
523European Union's appellant's submission, para. 366. (original emphasis)
524European Union's appellant's submission, para. 366 (referring to European Communities' second
written submission to the Panel, paras. 721-726).
526European Union's appellant's submission, para. 369.
527European Union's appellant's submission, para. 369.
BCI deleted, as indicated [***] WT/DS316/AB/R

the corresponding and competing Boeing family of single-aisle LCA, the 737-600, 737-700, 737-800,
and the 737-900."
528
209. Finally, the European Union underscores that, under Article 11 of the DSU, the Panel was
required to make an objective assessment of the facts and determine the number of markets and
subsidized products. The European Union conced es that the Panel "need not have accepted the
European {Communities'} argument that there were five different LCA markets."
529 But neither was
it required to adopt the United States' proffered single subsidized product. According to the
European Union, the Panel's judgement in this dispute exceeded the bounds of its discretion as the
trier of fact when it found a single-product mark et and a single subsidized product against the
considerable bulk of the evidence to the contrary. The Panel either "disregarded" or "marginalized"
the European Communities' evidence on where actual competition takes place, and did not address it
adequately in its findings. The Panel also failed to provide a "reasoned a nd adequate explanation"
based on "coherent reasoning" of how this overwhelm ing evidence did not contradict, and did in fact
support, its finding that there is only a single LC A product market. In doing so, the Panel erred under
Article 11 of the DSU.
210. Accordingly, the European Union requests the Appellate Body to reverse the Panel's finding
that there is a single LCA product market and only one subsidized product. The European Union also
requests the Appellate Body to complete the analysis and find that there is a "separate product market
for single-aisle LCA".
530 The European Union recognizes that there is "limited conflicting evidence
that likely prevents the Appellate Body from co mpleting the analysis for the other LCA product
markets."531 For purposes of this appeal, the European Union considers market share developments
on the basis of two sets of wide-body aircraft markets, one involving four wide-body LCA markets 532
and one involving two wide-body LCA markets. 533 The European Union stresses, however, that "the
weight of the evidence supports its approach based on four separate wide-body LCA product
markets."534 Although it considers that the Panel's errors undermine the Panel's displacement
findings, the European Union explains however th at it "does not request that the Appellate Body
reverse the displacement findings in their entirety."535

528European Union's appellant's submission, para. 369.
529European Union's appellant's submission, para. 370.
530European Union's appellant's submission, para. 375.
531European Union's appellant's submission, para. 375.
532These four markets are 200-300 seat, 300-400 seat, 400-500 seat, and 500+ seats.
533These two markets are twin-aisle aircraft and very large aircraft.
534European Union's appellant's submission, para. 375.
535European Union's appellant's submission, para. 376.
WT/DS316/AB/R BCI deleted, as indicated [***]

211. The European Union maintains that the Panel's error of assessing displacement on the basis of
a single-product market resulted in distorted displacement findings. In particular, the European Union
argues that market share informa tion summarized in section 2 of Annex III (Displacement Annex) to
its appellant's submission "demonstrates that the Pa nel's failure to conduct a 'differentiated analysis'
that distinguishes LCA product markets based on actual competition resulted in significant distortions
and exaggerated the extent of any di splacement observed by the Panel."
536 The European Union
points out that "the Panel even recognised the risk of 'distorting' its displacement analysis by adopting
an 'undifferentiated or monolithic' subsidised product analysis." 537 Nonetheless, it "proceeded to
ignore that recognition and failed—indeed, it refused—t o return to this issue in its displacement
analysis beyond asserting, without explanation, that its approach would not distort its displacement
analysis."538
212. The European Union submits that, by conductin g its "displacement analysis on a cumulative
(single product market) basis, the Panel found that Boeing was displaced—i.e. that it lost market
share—in Brazil, Mexico, Chinese Taipei and Singapore."
539 However, when displacement is
examined "from a transparent perspective by using the product markets where actual competition took
place, the data reveals that Boeing was not displaced in any of these markets." 540 Similarly, the
European Union argues that "a transparent displace ment analysis reveals that, in Australia, Boeing
only lost market share in the single-aisle LCA market; in China and Korea it only lost market share in
the single-aisle and 200-300 seat LCA markets; whereas in the {European Union}, it lost market
share in the single-aisle, 200-300 and 300-400 seat LCA markets."541
213. According to the European Union, "{e}ven if one were to apply a broader categorisation of
LCA product markets, a similar result emerges." 542 In particular, "the results again show that Boeing
was not displaced in any LCA market in Brazil, Me xico, Chinese Taipei or Singapore"; in Australia,
"again Boeing was only displaced in the single-aisl e LCA market"; and in China, Korea and the
European Communities, "Boeing was only displa ced in the single-aisle and twin-aisle LCA

537European Union's appellant's submission, para. 378 (quoting Panel Report, paras. 7.1742
and 7.1679).
538European Union's appellant's submission, para. 378 (referring to Panel Report, paras. 6.305-6.314
and 7.1742).
539European Union's appellant's submission, para. 382 (referring to Panel Report, paras. 7.1790
and 7.1791).
540European Union's appellant's submission, para. 382. (original emphasis)
541European Union's appellant's submission, para. 382.
542European Union's appellant's submission, para. 383.
BCI deleted, as indicated [***] WT/DS316/AB/R

markets."
543 Boeing was not displaced in the very large aircraft market in any of the country
markets.544
214. The European Union argues that panels do not have "unlimited" discretion in assessing the
existence of serious prejudice under Article 6.3 of the SCM Agreement.545 According to the
European Union, "{t}he use of a methodology to assess displacement that obscures and hides the
absence of displacement in the ma rkets where competition takes place cannot, under any justification,
be a legally acceptable methodology for assessing 'displ acement' within the meaning of Article 6.3(a)
or (b)."546 Nor would it constitute "a methodology that r esults in an objective ass essment of the facts
under Article 11 of the DSU."547
215. The European Union further argues that ther e was no overall threat of displacement for
Boeing's market share, based on cumulative data for a single LCA product market. Nor "was there a
threat of displacement in any of the separate produc t markets, whether assessed on the basis of five or
on the basis of three such separate product markets." 548 In any event, the European Union contends
that the Panel also erred in finding, "based on 2005 and 2006 order data, that there was a 'likelihood
of future displacement of Boeing LCA from the Indian market' in the 'immediate future'." 549
According to the European Union, "the undisputed evidence before the Pa nel demonstrated that
Boeing's market share of deliveries in the Indian market actually increased in the 'immediate future'
post-2006, and followed an upward trend." 550 The European Union adds that, "while Boeing had a
24 percent market share of deliveries in 2005, its market share almost doubled in 2006, and in 2007
Boeing had 51 percent market share of LCA deliveries to India." 551 As a legal matter, therefore, the
European Union concludes that there was "no threat of displacement in the Indian market."552
216. For all these reasons, the European Union request s the Appellate Body to reverse the Panel's
single-product market finding, complete the analysis , and find that there is a separate single-aisle
LCA market. With respect to the markets for wi de-body LCA, the European Union recognizes that
"the evidence is less clear and might support the existence of four or two wide-body LCA product

543European Union's appellant's submission, para. 384.
544European Union's appellant's submission, para. 384.
545European Union's appellant's submission, para. 385.
546European Union's appellant's submission, para. 385.
547European Union's appellant's submission, para. 385.
548European Union's appellant's submission, para. 386.
549European Union's appellant's submission, para. 388 (referring to Panel Report, paras. 7.1784
and 7.1790). (original emphasis)
550European Union's appellant's submission, para. 389. (original emphasis)
551European Union's appellant's submission, para. 389.
552European Union's appellant's submission, para. 390.
WT/DS316/AB/R BCI deleted, as indicated [***]

markets."
553 On this basis, the European Union furthe r requests the Appellate Body to reverse the
Panel's finding that there was displacement in th e LCA markets of Brazil, Mexico, Singapore, and
Chinese Taipei; reverse the Panel's finding that there was a threat of displacement in the LCA
markets of India; reverse the Panel's finding that there was displacement in the LCA markets of
Australia, with the exception of the single-aisle LC A market; reverse the Panel's finding that there
was displacement in the LCA markets of China and Korea, with the exception of the single-aisle and
200-300 seat LCA (or twin-aisle) markets; a nd reverse the Panel's finding that there was
displacement in the LCA markets of the European Union, with the exception of the single-aisle,
200-300 seat and 300-400 LCA (or twin-aisle) markets.
11. Serious Prejudice
217. The European Union claims that the Panel e rred in finding that the European Communities
caused, through the use of the subsidies, serious prej udice to the United States' interests, within the
meaning of Article 5(c) of the SCM Agreement. The European Union submits that the Panel
erroneously found that serious prejudice took the fo rm of displacement of imports of Boeing LCA
into the European Communities ma rket under Article 6.3(a), displ acement (and threat thereof) of
exports of Boeing LCA from certain third country markets under Article 6.3(b), and significant lost
sales in the same market under Article 6.3(c) of the SCM Agreement. The European Union requests
the Appellate Body to reverse each of these findings by the Panel for the reasons set out below.
(a) Displacement of Boeing LCA fro m the European Communities and
certain third country markets
218. The European Union submits that the Panel erred in finding that the effect of the subsidies
was to displace Boeing LCA from the markets of the European Communities, Australia, Brazil,
China, Korea, Mexico, Singapore, and Chinese Taipei, and likely future displacement from the market
of India, within the meaning of Article 6.3(a) and (b) of the SCM Agreement. Consistent with the
Panel's "bifurcated approach" 554 to the analysis of the United States' serious prejudice claims, the
European Union advances separate claims of error in relation to the Panel's findings concerning the
existence of displacement of Boeing LCA from the various markets at issue, and the Panel's findings
that such displacement was the effect of the subsidies.

553European Union's appellant's submission, para. 392.
554European Union's appellant's submission, para. 289.
BCI deleted, as indicated [***] WT/DS316/AB/R

(i) Existence of displacement
219. The European Union maintains that the Panel erred under Articles 5(c) and 6.3(b) of the
SCM Agreement in finding displacement of Boeing LCA fro m the markets of Brazil, Korea, Mexico,
Singapore, and Chinese Taipei. The Panel correc tly determined that it should evaluate the
United States' displacement claims on the basis of sales and market share data, and correctly
determined that a decrease in Boei ng's market share would be sufficient to demonstrate the existence
of displacement.
555 Nevertheless, the European Union submits that the data before the Panel did not
support a finding of displacement because it did not permit the identification of any "discernible
trend"556 in those markets.
220. The European Union cites as an example the ma rket of Brazil, where Boeing's share of LCA
deliveries decreased from 50% in 2001 to 29% in 2002, increased to 100% in 2004 557, and decreased
to 14% in 2005 before incr easing again to 57% in 2006. 558 Similarly, Boeing's share of LCA
deliveries in Mexico decreased from 71% in 2001 to 60% in 2003 559, increased to 69% in 2004, and
declined to 50% in 2005 before increasing again to 79% in 2006.560
221. According to the European Union, the Panel made its displacement findings on the basis that
"any market share achieved by Airbus was at the expense of Boeing." 561 However, the
European Union posits that the existence of a duop oly in the LCA industry is an insufficient basis for
a finding of displacement under Article 6.3(b). This is because, in a duopoly market, securing "any"
market in a particular year does not necessarily involve a decrease in the market share of the
complaining Member over the reference period examined.562
222. In this regard, the European Union notes that the Panel correctly distinguished between the
concepts of "impedance" and "displacement" under Article 6.3(b). Impedance involves sales "that
would have otherwise ... occurred { but} were obstructed or hindered" 563, while displacement refers to
"a situation where sales volume has declined". 564 Thus, according to the European Union, while a

555European Union's appellant's submission, para. 319 (referring to Panel Report, para. 7.1739).
556European Union's appellant's submission, para. 323.
557There were no deliveries of either Boeing or Airbus LCA in Brazil in 2003.
558European Union's appellant's submission, para. 321 and Annex III (Displacement Annex).
559There were no deliveries of either Boeing or Airbus LCA in Mexico in 2002.
560European Union's appellant's submission, para. 322 and Annex III (Displacement Annex).
561European Union's appellant's submission, para. 3 23 (quoting Panel Report, para. 7.1791). (emphasis
added by the European Union)
562European Union's appellant's submission, para. 324.
564European Union's appellant's submission, para. 325 (quoting Panel Report, para. 7.1738, in turn
quoting Panel Report, Indonesia – Autos, para. 14.218).
WT/DS316/AB/R BCI deleted, as indicated [***]

claim of impedance does not depend on a decrease in market share, a claim of displacement
necessarily does. The Panel's statement that "any market share achieved by Airbus was at the expense
of Boeing" reflects an impedance rather than a disp lacement standard. However, the Panel made no
findings of impedance. The European Union ma intains further that the Panel's finding of
displacement is "incongruous"
565 with its subsequent causation analysis, insofar as the Panel
acknowledged that Airbus would have been able to obtain "some" market share even in the absence of
the subsidies.566
223. In addition, or in the alternative, the European Union claims that the Panel erred in finding
displacement of Boeing LCA from the markets of Brazil and Mexico, because Boeing's share of such
markets did not decrease over the reference period. According to the European Union, the Panel's
statement that "in no case did Boeing's market share recover to 2001 levels" 567 is erroneous. The
"undisputed data"568 before the Panel showed that Boeing's market share in Brazil increased from 50%
in 2001 to 57% in 2006. Similarly, data before the Panel demonstrated that Boeing's market share in
Mexico increased from 71% in 2001 to 79% in 2006. Thus, the European Union claims that the Panel
erred in applying the displacement standard of Article 6.3(b), which requires a decline of market share
during the reference period, to the facts of the case. The European Union maintains further that, in
making displacement findings without a sufficient fact ual basis, the Panel acte d inconsistently with
Article 11 of the DSU.
(ii) Causation – Observed displacement
224. Turning to the second prong of the Panel's bifur cated analysis of the United States' serious
prejudice claims, the European Union argues that the Panel erred in finding that the effect of the
subsidies was to cause displacement of Boeing LC A from the markets of th e European Communities,
Australia, Brazil, China, Korea, Mexico, Singapore, and Chinese Taipei, and threat of displacement of

565European Union's appellant's submission, para. 329.
566European Union's appellant's submission, para. 329. (original emphasis)
567European Union's appellant's submission, para. 332 (quoting Panel Report, para. 7.1785, in turn
quoting United States' second written submission to the Panel, para. 703).
568European Union's appellant's submission, para. 332. The European Union explains that the delivery
data used by the Panel was extracted from the Airclaim s CASE database contained in Panel Exhibit EC-21, the
accuracy of which has never been contested by the pa rties. (See European Union' s appellant's submission,
footnote 339 to para. 332)
BCI deleted, as indicated [***] WT/DS316/AB/R

Boeing LCA from the market of India, within th e meaning of Article 6.3(a) and (b) of the
SCM Agreement.
569
225. As an initial matter, the European Union notes that the Appellate Body has established that
the causation standard to be a pplied under Article 6.3 of the SCM Agreement is the "genuine and
substantial relationship of cause a nd effect" standard, similar to that applicable under other WTO
agreements.570 Although panels have a "certain degree of discretion in selecting an appropriate
methodology"571 for establishing causation, the Appellate Body has held that a "but for" methodology
is an appropriate methodology to examine serious prejudice that is "'counterfactual' in nature". 572
However, recourse to a counterfactual does not absolv e panels from ensuring that "the effects of other
factors on prices {do} not dilute th e 'genuine and substantial' link" 573 between the subsidies and the
adverse effects, including displacement under Article 6.3(a) and (b).
226. Referring to the panel report in Indonesia – Autos , the European Union stresses the
requirement to analyze serious prejudice based on the market segments where competition is alleged
to have been distorted by the subsidies. 574 Article 6.3(a) and (b) both discipline "displacement" in a
"market" where imports or exports of a like pr oduct of a Member competes with the subsidized
product of another Member. According to the European Union, an analysis of causation of
displacement under Article 6.3(a) and (b) involves both geographic and product competition elements.
The Appellate Body has explained that two products would be in the same market "if they were
engaged in actual or potential competition in that market", depending on several factors such as "the
nature of the product, the homogeneity of the c onditions of competition, and transport costs".575 This,

569The European Union explains that its appeal of the Panel's displacement causation findings is limited
to sales of the A320 and A330 during the reference period. For this reason, the European Union does not appeal
the Panel's causation finding as applied to any sales of th e A340 during the reference period. Consequently, the
European Union appeals the entirety of the Panel's causation findings with respect to the displacement observed
in the markets of Australia, Brazil, Ko rea, and Mexico, and the threat of di splacement in the market of India,
because these markets involved only sales of the A320 an d A330 during the reference period. However, the
European Union only partially appeals the Panel's causation findings in relation to the markets of China, the
European Communities, Singapore, and Chinese Taipei, to the extent they involve A320 and A330 sales. (See
European Union's appellant's submission, footnote 623 to para. 527)
570European Union's appellant's submission, para. 426 (quoting Appellate Body Report, US – Upland
Cotton, para. 438).
571European Union's appellant's submission, para. 428 (quoting Appellate Body Report, US – Upland
Cotton, para. 436).
572European Union's appellant's submission, para. 428 (quoting Appellate Body Report, US – Upland
Cotton (Article 21.5 – Brazil), para. 370).
573European Union's appellant's submission, para. 430 (quoting Appellate Body Report, US – Upland
Cotton (Article 21.5 – Brazil), para. 375).
574European Union's appellant's submission, paras. 433-435 (referring to Panel Report, Indonesia –
Autos, paras. 14.215 and 14.236).
575European Union's appellant's submission, para. 436 (quoting Appellate Body Report, US – Upland
Cotton, para. 408).
WT/DS316/AB/R BCI deleted, as indicated [***]

in the European Union's view, logically implies th at there could be multiple product markets within a
single geographic area.
227. The European Union underscores further that th e requirement to examine causation based on
the market segments where competition occurs pr ecludes panels from "slavishly adher{ing}" to a
particular product grouping by the complaining Member that may distort the causation analysis.
576
For this reason, the panels in Indonesia – Autos , Korea – Commercial Vessels , and US – Upland
Cotton properly examined the effects of the subsid ies in the particular product markets where
competition took place.577 The European Union adds that Articles 5(c) and 6.3, read in the context of
Articles 7.8 to 7.10 of the SCM Agreement and Articles 3.4 and 3.7 of DSU, require panels to identify
a causal link to the precise portion of the displacement that it found to exist in a given geographic
market.
228. Turning to its specific claims of error, the European Union argues that the Panel improperly
presumed rather than established causation in finding that the "presence" of subsidized Airbus LCA in
all relevant market segments sufficiently establis hed that the subsidies caused the entirety of the
displacement observed in each of the country market s at issue. In the light of the Panel's earlier
finding that, in the absence of the subsidies, Ai rbus could have launche d "fewer LCA 'products'
(models) at a later time than {it} actually did"
578, the Panel was required to determine further that a
non-subsidized Airbus could not have secured the sa me market share that it did in every country
market at issue. Instead, the Panel implicitly pr esumed that a non-subsidized Airbus would not cover
all market segments, would offer technologically infe rior aircraft at non-competitive prices, and that
no other non-attribution factors would have caused Bo eing's market share to fall. According to the
European Union, the Panel's presumption of causatio n is contradicted by evidence on the record, and
by the Panel's own findings, which suggest that a non-subsidized Airbus: could have existed as a
viable LCA manufacturer; could have launched LCA in the single-aisle and 200-300 seats market
segments before 2000; could have competed aggress ively for market share and deliveries in several
of the market segments in each of the country market s at issue; could have offered LCA that would

576European Union's appellant's submission, para. 437.
577European Union's appellant's submission, para. 438 (referring to Panel Report, Indonesia – Autos ,
para. 14.222; Panel Report, Korea – Commercial Vessels, para. 7.622; and Panel Report, US – Upland Cotton,
paras. 7.1245, 7.1312, and 7.1313).
578European Union's appellant's submission, para. 532 (referring to Panel Report, para. 7.1985, 7.1986,
7.1993, and 7.2024).
BCI deleted, as indicated [***] WT/DS316/AB/R

be technologically at the same level or superior to LCA launched earlier; and could have priced its
LCA aggressively in each country market.
579
229. The European Union maintains further that the Panel failed to establish a "genuine and
substantial relationship of cause and effect" 580 on the basis of a "chain of causation" 581 between the
subsidies and the observed displacement. The Panel incorrectly articulated its causation standard as
"an effect" standard, suggesting that displacement need merely be "an effect" of the subsidies. 582 The
European Union concedes that the causal step s necessary to establish a "causal chain" under
Article 6.3 will vary on a case-by-case basis. 583 However, the Panel's acknowledgement that a
non-subsidized Airbus could have "a more limited offering of LCA models" 584 during the 2001-2006
reference period required it to complete the necessar y causal steps by determining whether Boeing's
market share in each of the country markets at issue would not have fallen "in a counterfactual
competition with a non-subsidised Airbus". 585 In order to make this de termination, the Panel had to
examine evidence relating to: Airbus' ability to launch a particular LCA in the absence of the
subsidies; technological advances available to a non-subsidized Airbus; levels of demand in
particular LCA market segments; competitive de velopments such as new Boeing launches or its
ageing product offering; and the availability of fi nancing for launching a LCA. According to the
European Union, "considerable evidence" on the re cord demonstrated that a non-subsidized Airbus
could have launched a single-aisle LCA and a tw in-aisle 200-300 seat LCA and could have made
deliveries in these market segments during the reference period.586
230. In addition, the European Union posits that the Panel erred in failing to apply such
counterfactual analysis for each of the market segme nts at issue. The Panel's failure to conduct a
market segment analysis in each country at issu e prevented it from determining whether the "more
limited market presence" that Airbus would have had in the absence of the subsidies would have
prevented Boeing LCA from losing market share in the relevant country markets. 587 In failing to

579European Union's appellant's submission, paras. 535-538, 540, and 542 (referring to Panel Report,
paras. 7.1725, 7.1726, 7.1893, 7.1906, 7.1911, 7.1934, 7.1978, 7.1979, 7.1984, 7.1993, and 7.1995) and Annex I
(Counterfactual Annex) (BCI).
580European Union's appellant's submission, para. 544 (quoting Appellate Body Report, US – Upland
Cotton (Article 21.5 – Brazil), para. 374).
581European Union's appellant's submission, para. 544 (quoting Appellate Body Report, US – Upland
Cotton (Article 21.5 – Brazil), para. 372).
583European Union's appellant's submission, para. 547 (referring to Panel Report, Korea – Commercial
Vessels, para. 7.619).
585European Union's appellant's submission, para. 549.
586European Union's appellant's submission, para. 552.
587European Union's appellant's submission, para. 557.
WT/DS316/AB/R BCI deleted, as indicated [***]

determine whether a non-subsidized Airbus would ha ve secured the same market share that Airbus
actually obtained in each of the relevant country ma rkets, the Panel further neglected to evaluate
"non-attribution" factors that would arise in those circumstances. In particular, the Panel failed to
examine whether the particular LCA that a non-su bsidized Airbus would have offered would be
technologically inferior, whether it would fail to satisfy a customer's preference for fleet
"commonality", or whether other non-attribution fact ors would have influenced customers' decisions
to purchase Airbus LCA. In this regard, the Panel also erred in failing to consider country-specific
non-attribution factors that suggested that the decr ease in Boeing's market sh are in Australia, Brazil,
China, Korea, Mexico, Singapore, and Chinese Taipei was caused by factors other than the subsidies,
such as fleet strategy and the requirements of Boeing's main customers in those countries. The
European Union submits that the Panel also erred in failing to identify the extent of the displacement
that was caused by the subsidies.
231. Finally, and in the alternative, the Eur opean Union maintains that the Panel acted
inconsistently with Article 11 of the DSU in finding that the effect of the subsidies was the
displacement (or threat thereof) of Boeing LCA from the markets of Australia, Brazil, China,
European Union, India, Korea, Mexico, Singapore, and Chinese Taipei within the meaning of
Article 6.3(a) and (b) of the SCM Agreement. The European Union argues that these findings are
based on "inconsistent a nd incoherent reasoning"
588, insofar as the Panel's presumption that a non-
subsidized Airbus could not have increased its market share is contradicted by its findings that a non-
subsidized Airbus could exist as a competitor, albeit one with a "more limited offering of LCA
models".589 Moreover, the Panel failed to provide a reas oned and adequate explanation for its finding
that the subsidies caused the obser ved displacement by failing to determine whether the particular
aircraft that Airbus could have produced in the absence of the subsidies could not have obtained
similar market share in each third country market at issue. The European Union adds that the Panel
failed to analyze non-attribution factors that prev ented Boeing from securing market share in those
countries, such as political considerations in China, and Boeing's own decision not to participate in
sales campaigns in India.
(b) Lost sales in the same market
232. The European Union claims that the Panel erred in finding that the effect of the subsidies was
lost sales in the same market within the meaning of Article 6.3(c) of the SCM Agreement. Consistent

588European Union's appellant's submission, para. 574 (referring to Appellate Body Report, US –
BCI deleted, as indicated [***] WT/DS316/AB/R

with the Panel's "'bifurcated' approach"
590 to the assessment of the United States' claims of serious
prejudice, the European Union advances separate clai ms of error in relation to the Panel's findings
concerning the existence of a certain lost sale, and in relation to the Panel's findings that Boeing lost
significant sales as a result of the subsidies.
(i) Existence of a lost sale
233. The European Union claims that the Panel erre d in finding that the Emirates Airlines' order
for the A380 in 2000 constituted a significant sale that was "lost" by Boeing within the meaning of
Article 6.3(c) of the SCM Agreement. The European Union requests the Appellate Body to reverse
this finding, and exclude that sale from the Panel's causation assessment and from its ultimate
conclusion that the effect of the subsidies was to cause serious prejudice to the United States'
interests, in the form of significant lost sales, with in the meaning of Articles 5(c) and 6.3(c) of the
SCM Agreement.
234. First, the European Union argues that the Panel erred in its application of Articles 5 and 6.3(c)
by not addressing, or otherwise requiring proof, that Emirates Airlines would have purchased Boeing
aircraft had it not decided to buy Airbus aircraft . For the European Union, the Panel improperly
characterized the duopoly competition betw een Boeing and Airbus as a "zero sum"
591 game, because
there are instances, such as the Emirates Airlines ' purchase of the A380, where a sale won by a
duopoly competitor is not "lost" by the rival firm.592
235. The European Union submits further that, si milarly to the concept of "impedance" under
Article 6.3(a) and (b), a finding of lost sales under Article 6.3(c) requires evidence demonstrating that,
if Airbus had not secured the order, Boeing woul d have actually secured it. According to the
European Union, instead of requiri ng the evidence that was necessary to make a finding of lost sales
under Article 6.3(c), the Panel improperly presumed a lost sale.
236. Second, the European Union maintains that th e Panel failed to make an objective assessment
of the matter, as required by Article 11 of the DSU, by failing to address or adequately explain
evidence that contradicted its finding that the Emirat es Airlines' sale was one that was lost by Boeing.
In particular, the European Union argues that th e Panel failed to address or adequately explain
evidence demonstrating that Emirates Airlines could not have purchased competing Boeing aircraft,
because Boeing only started marketing its 747-X after Emirates Airlines had announced its decision to

590European Union's appellant's submission, para. 414.
592European Union's appellant's submission, para. 585. (footnote omitted)
WT/DS316/AB/R BCI deleted, as indicated [***]

order the A380.
593 In addition, the Panel failed to address or adequately explain evidence indicating
that Boeing had "no serious intention" of launchi ng a competitor to the A380 at the time of the
Emirates Airlines' sales campaign.594 The European Union refers in pa rticular to public statements by
Boeing officials, Airbus officials, customers, and industry analysts indicating that Boeing never
intended to launch a 747 derivative to compete direc tly with the A380 at the time of the Emirates
Airlines sale.
(ii) Causation – Single-aisle lost sales
237. The European Union argues that the Panel erred in finding, with respect to sales by Airbus of
single-aisle aircraft to Air Asia, Air Berlin, Czech Airlines, and easyJet, that the effect of the subsidies
was significant "lost sales in the same market" w ithin the meaning of Article 6.3(c) of the
SCM Agreement. The European Union requests the Appellate Body to reverse the Panel's finding that
the effect of the subsidies was lost sales in the sa me market within the meaning of Article 6.3(c), to
the extent it covers the lost sales in these campaigns, for the following reasons.
238. First, the European Union maintains that the Panel erred in presuming, rather than
establishing, causation in the single-aisle Airbus A320 family sales to Air Asia, Air Berlin,
Czech Airlines, and easyJet. The Panel incorrectly assumed that the "presence" of the Airbus A320 in
each of the four sales at issue was a "fundamental cause" of Boeing losing those sales.
595 According
to the European Union, the Panel' s conclusion that "but for" the subsidies Airbus could not have
offered the "particular" LCA that it actually offered did not conclusively establish that the subsidies
caused Boeing to lose all the A320 sales at issue. Given the Panel's recognition that Airbus would
exist and would offer different LCA in the absence of the subsidies, the Panel should have compared
the actual A320 sales during the reference period with Airbus' ability to secure such sales in the
absence of the subsidies. Instead, the Panel erroneously "fill{ed} the gaps" 596 in its causation
analysis, by implicitly presuming that a non-subsidized Airbus would have lost the four sales at issue,
because it could not have launched (or would have launched technologically inferior) single-aisle
LCA, would not have been able to meet any t echnical specifications or "commonality" requirements
of the four airlines, or would have offered A320s at non-competitive prices.

593European Union's appellant's submission, paras. 589 and 590 (referring to, inter alia, "We need more
A380s – Emirates" (September-November 2006) Orient Aviation/A380 Quarterly Update (Panel Exhibit
EC-365); and "Boeing and Emirates correspond about 747X/400X", Reuters, 2 July 2000 (Panel Exhibit
EC-368).
594European Union's appellant's submission, para. 591.
595European Union's appellant's submission, para. 447 (quoting Panel Report, paras. 7.1937, 7.1938,
7.1984, 7.1986, 7.1993, and 7.2025).
596European Union's appellant's submission, para. 472.
BCI deleted, as indicated [***] WT/DS316/AB/R

239. In the European Union's view, these presumptions are contradicted by the Panel's findings
that a non-subsidized Airbus would have offered a "more limited" range of LCA at a later point in
time, which implies that Airbus would have had "some" market presence during the reference
period.
597 The Panel's presumptions are further contradicted by the fact that Air Asia, Air Berlin,
Czech Airlines, and easyJet only purchased single-ai sle aircraft during the reference period, which
suggests that fleet commonality did not play a role in any of those sales. Moreover, the Panel's
presumption that a non-subsidized Airbus would not have been able to offer competitive prices is
contradicted by its finding that conditions of competition in the LCA market would have provided
entrants with an incentive to offer prices that were lower than Boeing's. In addition, the
European Union submits that more recently launc hed LCA would likely have been technologically
superior to both the original A320 family and the competing Boeing 737. Thus, instead of relying on
the conclusion that Airbus' LCA would have been "different" in the absence of the subsidies, the
Panel should have determined further what kind of LCA a non-subsidized Airbus could have
launched, when it could have done so, and how comp etitive such LCA could have been in the context
of the Air Asia, Air Berlin, Czech Airlines, and easyJet sales.598
240. For the European Union, the fact that su ch counterfactual is "inherently speculative" 599 did
not excuse the Panel from procuring a proper evidenti ary basis for its causation findings, taking into
account fully the counterfactual scenar ios in which, in the absence of the subsidies, Airbus would
exist and would have sold different aircraft. In recognizing that the United States "proceed{ed} too
hastily"600 to the conclusion that Boeing would have sold more aircraft in the absence of the subsidies,
the Panel seemed to have been aware of the need to further examine what Airbus sales would have
been in that counterfactual scenario. Similarly, the Panel's rejection of the United States' price effects
arguments on the basis that a new market entrant co uld have offered lower pr ice levels implies that
the Panel required the United States to provide fu rther evidence on the conditions of competition in
the absence of the subsidies.
241. Second, the European Union argues that the Pa nel failed to establish properly a "chain of
causation" linking the subsidies provided to Airbus to the four "significant lost sales" at issue, as
required by Articles 5(c) and 6.3(c) of the SCM Agreement. The Panel inappropriately articulated an

597European Union's appellant's submission, paras. 457-459.
598European Union's appellant's submission, paras. 480 and 481. The European Union further stresses
that a counterfactual dating back 40 years does not excuse the Panel from having properly established causation,
and that the Panel correctly required additional counterfa ctual demonstration in its analysis of causation for
price effects. (See ibid., paras. 473-480)
WT/DS316/AB/R BCI deleted, as indicated [***]

"an effect"
601 standard, when it should have applied "a 'ge nuine and substantial relationship' of cause
and effect" standard in its causa tion analysis under Article 6.3(c). 602 Having accepted that Airbus
would exist in the absence of the subsidies, th e Panel should have comple ted "the counterfactual
scenarios to a point where they would enable it to assess whether each of the specific sales at issue
was lost by Boeing due to the subsidies." 603 This involved making findings on what kind of LCA a
non-subsidized Airbus could have la unched, in what market segments, and at what prices. The Panel
further failed to address non-attribution factors su ch as Boeing's mismanagement of customer and
government relationships, which partially explain why Airbus secured the sales at issue. The
European Union insists that the ev idence before the Panel on (i) the prior technological experience of
the Airbus companies in the regional aircraft sect or, (ii) the growing demand in the single-aisle and
200-300 seat market segments, and (iii) Boeing's ag eing product offerings, w ould have enabled the
Panel to complete its counterfactuals and determine that a non-subsidized Airbus could have launched
a single-aisle LCA in or about 1987.
242. Third, and in the alternative, the European Un ion argues that the Panel acted inconsistently
with Article 11 of the DSU in finding that the effect of the subsidies was to cause "significant lost
sales" in A320 purchases by Air Asia, Air Berlin, C zech Airlines, and easyJet. The European Union
suggests that this finding was based on "inconsistent and incoherent" reasoning, insofar as it cannot be
reconciled with the Panel's findings that a non-subs idized Airbus with a "more limited offering of
LCA models" could have won sales in the single-aisle market. 604 The European Union further
submits that the Panel failed to provide a "reasone d and adequate explanati on" for its finding that a
different LCA that a non-subsidized Airbus could have produced would not be competitive and would
not have won the four sales at issue. In particul ar, the Panel failed to explain adequately why a non-
subsidized Airbus would not have won the four sales at issue, in the light of its other findings that
price played a significant role in those sales, and th at a non-subsidized Airbus would be an aggressive
competitor that would offer low prices in the more limited market segments where it could compete.
(iii) Causation – A380 lost sales
243. The European Union argues that the Panel e rred in its interpretation of Articles 5(c)
and 6.3(c) of the SCM Agreement, and acted inconsistently with Article 11 of the DSU, in finding that
the effect of the subsidies was to cause Boeing to lose the A380 sales to Emirates Airlines, Qantas

602European Union's appellant's submission, para. 484 (quoting Appellate Body Report, US – Upland
Cotton (Article 21.5 – Brazil), para. 374). (emphasis added by the European Union omitted)
603European Union's appellant's submission, para. 489.
604European Union's appellant's submission, paras. 507 and 508.
BCI deleted, as indicated [***] WT/DS316/AB/R

Airways, and Singapore Airlines. The European Un ion requests the Appellate Body to reverse this
finding, and exclude the Emirates Airlines, Qantas Airways, and Singapore Airlines sales from the
scope of its finding that the effect of the subs idies was significant "lost sales in the same market"
within the meaning of Article 6.3(c), for the reasons set out below.
244. First, the European Union argues that the Pane l erred in its assessment of the Airbus A380
business case. In particular, the Panel erred in fi nding that Airbus had an "economic incentive" to
base the A380 business case on an overly "optimistic" delivery forecast.
605 This finding is based on
the ex post consideration that the deliveries of the A380 were delayed many years after its launch in
2000. However, Article 6.3(c) required the Panel to evaluate the A380 business case on the basis of
the information available ex ante, at the time of the launch of the A380. Moreover, the Panel acted
inconsistently with Article 11 of the DSU in faili ng to address considerable evidence suggesting that
"sophisticated and well-informed" private investors who financed two thirds of the A380 development
costs based their own investment decisions on Airbus' delivery forecasts. 606 According to the
European Union, the Panel's speculation concerni ng Airbus' "economic incentives" to base the A380
business case on overly optimistic delivery forecasts imp lies that Airbus would have acted against its
own economic interest by launching a non-viable project, and that its directors acted in breach of their
fiduciary duty to shareholders.
245. Second, the European Union submits that the Panel erred in finding that, without access to
LA/MSF, Airbus could not have financed the devel opment of the A380. The Panel incorrectly relied
on Aérospatiale's financial conditio n in 1997 to draw the conclusion that Airbus SAS could not have
financed its part of the A380 project in 2000 without access to LA/MSF. 607 The Panel also acted
inconsistently with Article 11 of the DSU in faili ng to examine evidence indicating that Airbus SAS'
parent companies, EADS and BAE Systems, could have funded the development of the A380 without
access to LA/MSF. In particular, the Panel failed to take into account evidence that demonstrated
that, as a result of a fully subscribed public stoc k offering, EADS held approximately €8 billion in
cash, cash equivalents, and short-term securities merely 11 days after the A380 programme launch. 608
In addition, the Panel failed to explain adequa tely or address the totality of the evidence
demonstrating that Airbus could have raised from ri sk sharing suppliers at least a significant portion
of the 33% of the A380 development costs covered by LA/MSF. 609 Furthermore, the Panel's finding

605European Union's appellant's submission, paras. 603 and 604 (quoting Panel Report, para. 7.1926).
606European Union's appellant's submission, para. 609.
607European Union's appellant's submission, para. 614 (referring to Panel Report, para. 7.1947).
608European Union's appellant's submission, para. 616 (referring to EADS, Reference Document –
Financial Year 2000 (26 April 2001) (Panel Exhibit EC-54)).
609European Union's appellant's submission, paras. 618-621.
WT/DS316/AB/R BCI deleted, as indicated [***]

that the "significant amount of debt"
610 generated from the developmen t of previous LCA models
would have made it impossible for Airbus to launch the A380 programme without access to LA/MSF
is contradicted by its finding that a non-subsidized Airbus would have launched fewer LCA. In so
finding, the Panel acted inconsistently with Article 11 of the DSU, because it failed to take into
account evidence suggesting that, in the absence of the subsidies, Airbus could have launched a
single-aisle LCA in or about 1987, and a twin-aisle 200-300 seat LCA in or about 1991.
246. Finally, the European Union maintains that the Panel erred in finding that, in the absence of
the subsidies, Airbus would not have had the technological experience necessary to develop the A380.
In order to establish causation under Articles 5(c) and 6.3(c), the Panel had to determine whether the
smaller product offering that Air bus would have had in the absence of the subsidies would not have
permitted it to obtain the technological experience necessary to launch the A380 in 2000. In failing to
examine evidence that suggested that this was the case, the Panel acted inconsistently with its duty to
conduct an objective assessment of the matter under Article 11 of the DSU.
247. The European Union claims that the Panel erred in finding that the effect of non-LA/MSF
subsidies was to cause displacement of Boeing LCA from the various markets at issue and lost sales
in the same market within the meaning of Article 6.3(a), (b), and (c) of the SCM Agreement. In
particular, the Panel erred in finding that equity and share transfer measures of France and Germany,
infrastructure measures, and R&TD subsidies "compl emented and supplemented" the "'product' effect
of LA/MSF". 611 The European Union requests the Appella te Body to reverse this finding, and
exclude non-LA/MSF subsidies from the scope of the Pa nel's finding that the effect of the subsidies
was to cause displacement of Boeing LCA from the various markets at issue and lost sales in the same
market within the meaning of Article 6.3(a), (b), and (c) of the SCM Agreement.
248. The European Union argues that the Panel erred in cumulatively assessing the effects of
LA/MSF and non-LA/MSF subsidies for the purposes of establishing causation under Article 6.3(a),
(b), and (c). The Panel incorrectly presumed th at non-LA/MSF subsidies impacted the launch of
particular LCA products, despite the absence of fa ctual findings to this effect. Referring to US –
Upland Cotton , the European Union notes that the panel in that dispute declined to cumulate the
effects of price-contingent and non- price contingent subsidies because of differences in their nature

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and effects.
612 According to the European Union, it is on ly appropriate to aggregate the effects of the
subsidies for the purpose of establishing causation where "the nature of the subsidy, the way in which
the subsidy operates, {and} the extent to which th e subsidy is provided in respect of a particular
product or products" 613 is "identical or similar". 614 However, in the light of the distinct nature,
structure, and operation of the non-LA/MSF subsidi es, the Panel was required to conduct a detailed
causation analysis for each of the subsidies at issue. 615 For the European Union, in cumulating non-
LA/MSF with LA/MSF subsidies for the purposes of its causation analysis, the Panel erroneously
presumed that all non-LA/MSF measures had the same effect as LA/MSF.
249. According to the European Union, the Panel's conclusion that the non-LA/MSF subsidies
"complemented and supplemented" the effect of LA/MSF does not provide a sufficient basis for
establishing causation under Article 6.3(a), (b), and (c) of the SCM Agreement. This is particularly
the case where the United States' overall theory of causation is based on a specific factual finding that,
but for LA/MSF, Airbus would not have been able to launch each of its LCA models of aircraft.
Thus, unless the Panel could establish that each of the challenged subsidies was necessary to enable
Airbus to launch a particular LCA model at a par ticular time, it was required to conduct a full
causation analysis for each of the measures found to c onstitute specific subsidies in order to establish
a "genuine and substantial" causal link between each of those subsidies and the observed market
effects.616
250. Turning to each specific set of non-LA/MSF subsid ies, the European Union submits that the
Panel's conclusion that the French and German Gove rnments' equity investments and share transfer
measures "ensured the continued existence and fi nancial stability of the respective national entities
engaged in the Airbus enterprise" does not suffi ciently establish the impact of those measures on
Airbus' ability to launch a particular LCA at a particular point in time. 617 In particular, the
European Union underscores that there is no evidence on the record to suggest that the transfer by the
French Government to Aérospatiale of a 45.76% stake in Dassault Aviation enabled a product launch

612European Union's appellant's submission, para. 639 (referring to Panel Report, US – Upland Cotton,
paras. 7.1349 and 7.1350).
613European Union's appellant's submission, paras. 640 and 646 (quoting Panel Report, Korea –
Commercial Vessels, para. 7.560).
614European Union's appellant's submission, para. 646.
615European Union's appellant's submission, paras. 639 and 640 (referring to Panel Report, US –
Upland Cotton , paras. 7.1349 and 7.1350, and Panel Report, Korea – Commercial Vessels , para. 7.560
respectively).
616European Union's appellant's submission, paras. 648, 650, and 651 (quoting Appellate Body Report,
US – Upland Cotton (Article 21.5 – Brazil), para. 368).
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by Airbus.
618 Similarly, the transfer of the 20% equity of Kreditanstalt für Wiederaufbau ("KfW") in
Deutsche Airbus to Messerschmitt-Bölkow-Blohm GmbH ("MBB") in 1992 was presumed to have
impacted Airbus' ability to launch its LCA, despite th e fact that it benefited an independent entity that
did not produce Airbus LCA.619
251. Similarly, the Panel erroneously found that infrastructure subsidies "relieved Airbus of
significant expenses related to facilities and production, and thereby enabled Airbus to 'continue with
the launch of successive models of LCA'"620, despite the lack of evidentiary support in this respect. In
particular, the European Union charges the Pane l with establishing "causation by association" in
finding that the Mühlenberger Loch project enable d the establishment of the final assembly line in
Hamburg, which in turn was necess ary to ensure the launch of the A380. Furthermore, the Panel's
finding that the Aéroconstellation site and the co nstruction of EIG facilities were dependent on the
development and production of the A380 does not conclu sively establish that "but for the creation of
the infrastructure", the A380 would not have been developed and produced. 621 The European Union
underscores further that the Panel made no separate mention of regional aid measures in Germany and
Spain, despite the fact that their purpose and effect was to offset the additional burden of investing in
less-developed regions.
252. With respect to R&TD subsidies, the Europ ean Union emphasizes that the Panel found that
such measures enabled Airbus to develop "featur es and aspects" of its LCA, but failed to link any
such features and aspects to any of Airbus' actual launch decisions.622 The Panel also made no finding
as to the relative importance of the development of such "features and aspects" to the launch of one or
more models of LCA, nor did it examine their timing. Moreover, the Panel recognized that the impact
of pre-competitive R&TD on Airbus' market presence was "perhaps more attenuated, compared with
the other subsidies at issue".623
253. Finally, the European Union contends that the Panel acted inconsistently with Article 11 of
the DSU by making findings without a sufficient evidentiary basis, and by failing to provide a
"reasoned and adequate" explanation for its findings. The European Union posits that the Panel failed
to point to any evidence establishing a "genuine and substantial relationship of cause and effect"

618European Union's appellant's submission, para. 653 (referring to Panel Report, paras. 7.1414
and 7.1957).
619European Union's appellant's submission, para. 654 (referring to Panel Report, para. 7.1294).
621European Union's appellant's submission, para. 657 (referring to Panel Report, para. 7.1177).
(emphasis omitted)
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between non-LA/MSF subsidies and Boeing's lost sales and market share. In addition, in finding that
the non-LA/MSF subsidies "complement" and "supplement" the effect of LA/MSF, the Panel failed to
provide an adequate explanation for its finding that those subsidies caused displacement or lost sales
under Article 6.3(a), (b), and (c) of the SCM Agreement.
(d) The relevance of the 1992 Agreement
254. Finally, the European Union claims that the Pane l erred in its interpretation of Article 5(c) of
the SCM Agreement, and further acted inconsistently with Articles 11 and 12.7 of the DSU, in failing
to take into account the 1992 Agreement in its analys is of the United States' adverse effects claims.
The European Union argues that the United States failed to demonstrate that its interests were
adversely affected by LA/MSF, insofar as these subs idies met the terms of Article 4 of the 1992
Agreement. For the European Uni on, the Panel's failure to take this argument into account in its
analysis of the United States' adverse effects clai ms amounts to an error in the interpretation of
Article 5(c) of the SCM Agreement, and failure to conduct an objective assessment and set out the
basic rationale for the Panel's findings under Articles 11 and 12.7 of the DSU.
(e) Contingent appeal on the existence of suppressed and depressed
prices for the Boeing 777
255. In the event that the United States appeals th e Panel's finding that the United States did not
establish that the effect of the subsidies was significant price suppression and price depression within
the meaning of Article 6.3(c) of the SCM Agreement, the European Union conditionally appeals the
Panel's assessment of significant price suppression and price depression on the basis of a single
product market, consisting of all m odels of LCA, and the Panel's fi nding concerning the existence of
significant price suppression and price depression with respect to the Boeing 777. As the
United States has not appealed the Panel's finding th at the United States failed to demonstrate that the
price effects observed during the reference period were the effect of the subsidies, the condition upon
which the European Union's appeal rests has not materialized.
B. Arguments of the United States – Appellee
1. The Panel's Terms of Reference

(a) The Spanish PROFIT programme
256. The United States supports the Panel's finding that the Spanish PROFIT programme loans
were within the Panel's terms of reference. The United States argues that, although it did not
explicitly reference the PROFIT programme in its panel request, it asked questions about the
WT/DS316/AB/R BCI deleted, as indicated [***]

programme four months later during the Annex V pro cess and "demonstrated continued interest in the
program by including it in an updated consultation request".
624 The United States also notes that the
European Communities, after objecting during the Annex V process that the PROFIT programme was
outside the Panel's terms of reference, failed to present that objection in its subsequent request for
preliminary rulings. The United States considers the European Union's appeal "an exaggeration",
noting that the Panel found that the description in section (6)(d) of the United States' panel request
identified the provider, the time, the purpose, an d the subject of the funding at issue. The
United States further contends that its Annex V questions confirmed what it thought was clear from
the panel request—that, because the PROFIT progr amme provided funding for aeronautics research, it
fell within the scope of the United States' panel request.
257. The United States argues that the European Un ion has "no basis" for its supposition that
references in the panel request to the Spanish PTA programme loans show that the United States
should have known about the PROFIT programme at the time it filed its request and that the
United States' Annex V questions show that it actually did know. 625 The United States maintains that
its consultations request indicated both that there was a vast quantity of information and that it had
listed everything of which it was aware. The United States adds that a more general reference to the
Spanish subsidy programmes was sufficient to put the European Communities on notice that the
issues that had been part of its consultations re quest, and which would become part of its Annex V
procedures request, were the subject of the United States' panel request. The United States disagrees
with the European Union that the Panel referred to the Annex V questions to expand the scope of the
dispute; instead, it confirmed its initial conclusion that the panel request on its face was not overly
expansive. The United States maintains that th e Appellate Body has endorsed reference to a
complaining party's first written submission for this purpose; and such reference should apply with
greater force to Annex V questions because they are more contemporaneous with the panel request.
258. The United States also takes issue with the Eur opean Union's contention that it did not object
to the PROFIT programme claim because it believed it was not part of the United States' case, and
that to hold against the European Union would require defendants "to raise, through preliminary
ruling requests, Article 6.2 issues concerning an open-ended number of measures not mentioned in a
panel request."
626 In the United States' view, the Europ ean Communities should have been aware of
the United States' continued interest in PROFIT pr ogramme loans, and its decision not to reference

626United States' appellee's submission, para. 470 (quoting European Union's appellant's submission,
para. 1212).
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those loans in its preliminary rulings request "is evidence of how it understood the terms of
reference".
627 Also, the United States maintains, the Panel did not purport to state a general rule that
preliminary ruling requests are always relevant to requests under Article 6.2 of the DSU.
259. Finally, the United States points out that it "addressed {the} PROFIT {programme} explicitly
in its first written submission". 628 The Appellate Body has endorsed "reference to the complaining
party's first written submission 'to confirm the meani ng of the words used in the panel request and {to
determine if} the ability of the respondent to defend itself was prejudiced'." 629 In addition, the
United States maintains that "the context provided by other claims against R&D subsidies in other
jurisdictions indicated that the {United States'} cl aims were exhaustive, applying to every known
example of government R&D funding".630
(b) The French R&TD grants
260. The United States contends that the Appellate Body's findings in US – Carbon Steel and US –
Continued Zeroing indicate that scrutiny of a panel request for purposes of Article 6.2 allows
reference to materials other than the panel request, and leaves open the possibility that a panel request
can afford sufficient specificity wit hout identifying each measure by name. 631 Although it did not
reference funding sources by name, the United States asserts that: its consultation request referenced
information on these programmes in the Statement of Available Evidence; it asked questions about
these programmes during consultations; and it s uggested additional questions concerning these
programmes during the Annex V process. That process revealed that subsidies were conferred by the
Direction des Programmes Aéronautiques et de la Coopération ("DPAC"), information that the
United States referenced in its first written submission. The United States notes that, on this basis, the
Panel concluded that the panel requ est "identifie{d} the measures at issue in a manner sufficient to
present the problem clearly", thereby satisfying Article 6.2 of the DSU.
632
261. The United States contends that the European Union "identifies no basis" 633 in the DSU or the
SCM Agreement for its assertion that a complainant should, at a minimum, be required to identify the
legal basis of the measures it challenges. The Unite d States argues that "compliance with Article 6.2

628United States' appellee's submission, para. 472 (referring to United States' first written submission to
the Panel, paras. 697-703).
629United States' appellee's submission, para. 472 (quoting Appellate Body Report, US – Carbon Steel,
para. 127).
631United States' appellee's submission, paras. 462-464 (referring to Appellate Body Report, US –
Carbon Steel, para. 127; and Appellate Body Report, US – Continued Zeroing, para. 169).
WT/DS316/AB/R BCI deleted, as indicated [***]

of the DSU depends not on an abstract level of specifi city or identification of the 'legal basis for such
a series of actions', but on communicating enough information that the panel, the parties, and the third
parties can understand what the dispute is about."
634 The United States submits that its panel request
"did that, especially in light of the attendant ci rcumstances", consisting of questions posed to the
European Communities during consultations, information in the Statement of Available Evidence, and
the United States' statement to the DSB at the time its panel request was first tabled.635
262. The United States maintains that the confidentia l nature of consultations does not prevent
reference to the questions posed by the United St ates during that process. According to the
United States, reference to those questions help to understand what the panel request covered, and not,
as the European Union contends, that the Panel reli ed on the questions to remedy a deficiency in the
panel request; they list pertinent facts about Fr ench R&TD subsidies, including the amounts and
years of grants, which help to identify which pr ogrammes the United States sought to challenge and
how they related to the Statement of Available Evid ence. In the United States' view, "they elucidate,
rather than add to, the panel request."636
263. The United States accepts that the French Sena te reports identified in its Statement of
Available Evidence do not refer to a subsidy progra mme or to the entity that provided the funding.
However, the reports list amounts of money budgeted and link them to an official document of the
French Government, thus giving the French G overnment and the European Communities "solid
information to identify both particular program s that the United States had challenged and the
agencies that administered those programs." 637 The French Senate reports established that the French
Government subsidized Airbus research, but "did not indicate how, under what program, or by
whom."638 The United States argues that its claim matche d the level of specificity of information that
France made available to the public. To hold the United States to a higher standard of specificity
"would create a rule whereby Members could shield any subsidy from WTO scrutiny by simply not
talking about it."
639

634United States' appellee's submission, para. 476 (quoting European Union's appellant's submission,
para. 1224).
635United States' appellee's submission, paras. 476 and 477.
639United States' appellee's submission, para. 481. (footnote omitted)
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264. Finally, the United States argues that the European Union "is mistaken"
640 when it asserts that
the United States' statement to the DSB did not me ntion French R&TD support. The United States
argues that it "provided further information that would help the government of France understand the
extent of the panel request's reference to French research and development subsidies". 641 The
United States maintains that the absence of any reference to particular programmes is irrelevant
because Article 6.2 of the DSU "does not dictate how Members satisfy this standard, let alone require
that they do so by naming specific programs or administrative agencies."
642 Thus, the United States
concludes, it "was free to satisfy Article 6.2 w ith a functional description of the French R&D
subsidies it challenged, rather than by naming them."643
2. The Temporal Scope of Article 5 of the SCM Agreement
265. The United States submits that the Appellate Body should uphold the Panel's finding that
Article 5 of the SCM Agreement applies to all of the subsidies at issue in this dispute.
266. First, the United States considers that the Panel correctly applied the principle of
non-retroactivity of treaties reflected in Article 28 of the Vienna Convention by focusing on the nature
of the obligation contained in Article 5 of the SCM Agreement. The United States disagrees with the
European Union's assertion that "the proper appr oach was 'to identify the relevant government
conduct in the first place, characterise it as 'act' or 'situation' and examine whether such an 'act' or
'situation' was completed before 1995 or continued afterward."644 The United States considers that the
European Union's proposed approach "would have the Appellate Body start with the assumption that
the grant of subsidies is the relevant act, fact, or situation in relation to which Article 5 of the
SCM Agreement binds the Members."645 According to the United States, this approach "is essentially
circular", because "starting with the assumption that the only relevant activity is something that
occurred in the past ... foreordains the conclusion that the provision applies to acts, facts, or situations
that have already ceased to exist."646

641United States' appellee's submission, para. 482 (re ferring to United States' statement at the DSB
meeting held on 13 June 2005, WT/DSB/M/191, para. 3).
642United States' appellee's submission, para. 483. (original emphasis)
644United States' appellee's submission, para. 20 (quoting European Union's appellant's submission,
para. 33).
645United States' appellee's submission, para. 20. (original emphasis)
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267. The United States maintains that "Article 28 of the Vienna Convention frames the
retroactivity analysis in terms of the acts, facts, or situations with respect to which a treaty binds its
parties", and argues that nothing in the text of Article 28 "limits those acts, facts, or situations to
governmental 'conduct' as opposed to a government ob ligation that continues after particular conduct
has occurred."
647 The United States notes that the Europ ean Union contends that, "under general
international law, the question of whether tr eaty obligations apply is associated with the government
conduct and its timing "648, highlighting that the European Unio n "does not claim to derive this
conclusion from the Vienna Convention, nor even from commentary on the Vienna Convention."649
268. The United States counters that the ILC Articles 650, which the European Union cites in
support of its argument, "are not onl y irrelevant to the interpretation of the {non-}retroactivity rules
reflected in Article 28 of the Vienna Convention, they also do not suppor t the proposition for which
the European Union cites them." 651 Where, as in the case of Article 5 of the SCM Agreement, "the
primary obligations of a treaty are concerned with causing effects through prior government action,
causing those effects itself is the 'wrongful act', a nd the conclusion as to retroactivity will 'depend' on
whether it is 'completed' or 'has a continuing character'". 652 The United States points in this regard to
Article 14(1) of the ILC Articles, which "applies only to 'an act of a State not having a continuous
character'."653 The United States further highlights that Article 14(3), which, "by contrast, deals with
'an international obligation requiring a State to pr event a given event'—analogous to the obligation in
Article 5 of the SCM Agreement not to cause adve rse effects ... {and} provides specifically, that a
breach of such an obligation 'occu rs when the event occurs and extends over the entire period during
which the event continues and remains not in conformity with the obligation.'"654
269. The United States argues that the decisions by the ICJ and the ECtHR cited by the
European Union do not support the European Union' s view that "government conduct alone, and not
the effects of government conduct, is relevant to an analysis of retroactivity, depending on the actual
text of the treaty that is being interpreted". 655 These rulings therefore do not provide guidance as to

648United States' appellee's submission, para. 24 (quoting European Union's appellant's submission,
para. 43 (original emphasis)).
650Supra, footnote 106.
651United States' appellee's submission, para. 24 (referring to European Union's appellant's submission,
paras. 40-43).
652United States' appellee's submission, para. 27 (quoting Commentary on Article 14 of the ILC
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the non-retroactivity rule reflected in Article 28 of the Vienna Convention , or how that rule would
apply to the specific legal obligation contained in Article 5 of the SCM Agreement.
270. The United States further submits that the Panel correctly found that application of Article 5
of the SCM Agreement to "the causing of adverse effects through the use of subsidies" was consistent
with the non-retroactivity principl e reflected in Article 28 of the Vienna Convention .
656 T h e
United States recalls in this regard that "the object and purpose of the SCM Agreement 'is to
strengthen and improve GATT disciplines relating to the use of both subsidies and countervailing
measures, while, recognizing at the same time, th e right of Members to impose such measures under
certain conditions'." 657 According to the United States, the Pa nel's approach is consistent with the
established object and purpose of the SCM Agreement in that it allows Members to grant or maintain
subsidies while ensuring that, "when they cause a dverse effects, the subsidizing Member must
withdraw them or eliminate the adverse effects."658
271. The United States also rejects th e European Union's argument that the act, fact, or situation
under Article 5 of the SCM Agreement is, for purposes of Article 28 of the Vienna Convention, limited
to government conduct. For example, the indicia of serious prejudice laid out in Article 6.3 of the
SCM Agreement "are largely independent of government action". 659 In addition, "Article 5 itself
provides no grammatical agent for the noun 'use', i ndicating that the obligation applies whenever a
Member causes adverse affects through the 'use' of a subsidy by anyone—whether the subsidy
recipient, the government, or some other entity."660
272. The United States submits that the Panel corr ectly rejected the European Communities'
arguments regarding the treatment of transitional issues under the SCM Agreement and the
implications for the temporal scope question arising in this dispute. The United States argues that the
Appellate Body's findings in EC – Hormones with regard to the application of the non-retroactivity
principle to the SPS Agreement provide relevant guidance in this re gard. The Appellate Body stated
in that case that, "{i}f the negotiators had wanted to exempt the very large group of {sanitary and
phytosanitary} measures in existence on 1 January 1995 from the disciplines of provisions ... , it

657United States' appellee's submission, para. 42 (quoting Appellate Body Report, US – Softwood
Lumber IV, para. 64, in turn referring to Appellate Body Report, US – Carbon Steel, paras. 73 and 74).
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appears reasonable to us to expect th at they would have said so explicitly."
661 According to the
United States, the same is true for the SCM Agreement.
273. The United States disagrees with the European Union's critique that "paragraph 7 of
Annex IV merely sets out 'a method to estimate the amount of subsidies granted to a particular
product in a given year'." 662 The argument that paragraph 7 addresses a "transitional issue" of
preventing circumvention of Article 6.1(a) of the SCM Agreement is factually incorrect, because
Article 31 describes Article 6.1(a) as subject to "pro visional application" rather than as a transitional
measure.663 According to the United States, nothing in the SCM Agreement serves to characterize
paragraph 7 of Annex IV as an anti-circumventi on measure. The United States also disputes the
European Union's argument that, "if all pre-1995 subsidies are covered by Article 5, the requirement
to allocate 'existing benefits' to future producti on arising from pre-1995 subsidies would already be
covered by that rule", because the Annex states explicitly some rules that might otherwise be
considered obvious.
664 In this context, the United States ar gues, the statement that the calculation
includes subsidies granted prior to the entry into force of the SCM Agreement is not redundant since it
merely "clarifies" that the "general rule" also applies under Article 6.1(a).665
274. The United States disagrees with the European Union that the absence of any mention of
individual subsidies in Article 28 of the SCM Agreement reflects an intention to exclude individual
subsidies from the SCM Agreement as completed acts or situations. 666 The United States asserts that
the only conclusion to draw from the silence in Article 28 of the SCM Agreement with respect to
individual pre-1995 subsidies (as opposed to subsidy programmes) is that Article 28 does not apply to
such pre-1995 subsidies. This does not imply, however, that the other provisions of the
SCM Agreement do not apply to such subsidies.
275. The United States also disputes the European Union's arguments regarding Article 32.3 of the
SCM Agreement. In the United States' view, "the omission of any transitional provision for individual
pre-1995 subsidies signifies only one thing—that the negotiators saw no need for a transitional

661United States' appellee's submission, para. 48 (quoting Appellate Body Report, EC – Hormones ,
para. 128).
662United States' appellee's submission, para. 51 (quoting European Union's appellant's submission,
para. 106 (original emphasis)).
663United States' appellee's submission, para. 52 (referring to European Union's appellant's submission,
paras. 106 and 107).
664United States' appellee's submission, para. 54 (quoting European Union's appellant's submission,
paras. 109).
666United States' appellee's submission, para. 57 (referring to European Union's appellant's submission,
para. 102).
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arrangement."
667 Similarly, the United States argues that the explicit obligation in Article 32.5
"to bring named classes of measures into complian ce with international obligations does not imply
that other measures are free from the obligations."668
276. The United States submits in the alternative that, if the Appellate Body finds that the granting
of the subsidy itself is the relevant act, fact, or situation under Article 28 of the Vienna Convention, it
should complete the Panel's analysis and find that pre-1995 subsidies are "a situation that did not
cease to exist before entry into force of the SCM Agreement."669
277. In support of its position, the United States argues that, "{b}y its terms, Article 1.1 indicates
when a subsidy begins to 'exist,' but not when it ends." 670 The remainder of the SCM Agreement
makes clear that the subsidy continues to exist afte r the act of conferring the financial contribution.
For example, the requirement under Article 4. 7 and the option under Article 7.8 of the
SCM Agreement "to 'withdraw' the subsidy would be meani ngless if the subsidy did not continue to
exist."671 For the United States, the same holds true for Article 21.1 of the SCM Agreement, which
provides that a countervailing duty shall remain in fo rce only as long as and to the extent necessary to
counteract subsidization that is causing injury. The United States finds support in this regard in the
finding by the Appellate Body that "an investiga ting authority may presume, in the context of an
administrative review under Article 21.2, that a 'benefit' continues to flow from an untied,
non-recurring 'financial contribution'." 672 In addition, the United States recalls that the Appellate
Body "has confirmed that it is consistent with th e SCM Agreement for Members to treat subsidies as
having a 'duration' and to allocate the benefit over that period."673
278. The United States further submits that "{t}he government act of giving the subsidy may end
upon final transfer of the funds." 674 However, under Article 1.1 of the SCM Agreement, a subsidy is
deemed to "exist" if there is a financial contribu tion and a benefit is thereby conferred. A subsidy
therefore exists once a complaining party establish es these conditions. A responding party is free to
show that the subsidy subsequently ends at so me point thereafter because "it is a {non-}recurring

669United States' appellee's submission, para. 64 (referring to European Union's appellant's submission,
para. 47).
670United States' appellee's submission, para. 65. (footnote omitted)
672United States' appellee's submission, para. 65 (quoting Appellate Body Report, US – Lead and
Bismuth II, para. 62; and referring to Appellate Body Report, US – Countervailing Measures on Certain EC
Products, para. 84).
673United States' appellee's submission, para. 65 (referring to Appellate Body Report, Japan – DRAMs
(Korea), para. 210F).
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subsidy or because of a full privatization, end of the allocation, or operation of some other mechanism
that rebuts the evidence that the benefit exists."
675 There is no legal basis, however, to assume that the
subsidy ends upon completion of the financial contribution. The United States submits that "{t}his
legal conclusion reflects the economic reality that the benefit of a subsidy may continue long beyond
actual receipt of the funds."676
279. Finally, the United States supports the Panel's conclusion that the 1979 Tokyo Round
Subsidies Code is not relevant for purposes of the present dispute. The United States asserts that the
general rule of interpretation reflected in Article 31 of the Vienna Convention also "places limits on
the intertemporal application of international law" , namely that, "{i}f the ordinary meaning of the
terms of a treaty in their context and in light of the treaty's object and purpose creates a change in the
legal regime applicable to existing measures, that is the legal regime that applies." 677 The
United States disagrees with the European Union's description of the intertemporal application
principle, and states that "the whole point of the SCM Agreement was to make 'dramatic changes' to
existing disciplines, including the Tokyo Round Subsidies Code."678
3. The Life of a Subsidy and Intervening Events
(a) Whether the Panel erred in its in terpretation and application of
Articles 1, 5, and 6 of the SCM Agreement
280. The United States submits that the Appellate B ody should uphold the Panel's finding that, on
a proper interpretation of Articles 1, 5, and 6 of the SCM Agreement, there is no requirement to
demonstrate a "continuing benefit" for purposes of an adverse effects analysis.
281. The United States contends that the structure of Article 1.1 of the SCM Agreement does not,
by itself, require a "subsidy extinction analysis". 679 The United States disagrees that the use of the
term "exist" in the present tense in Article 1 of the SCM Agreement signifies that the SCM Agreement
does not concern subsidies that no longer exist and th at are not capable of causing adverse effects.
The United States claims that the phrase "shall be deem ed to exist" indicates that application of the
definition means that a subsidy must be considered to exist, at the time of analysis, if it meets the
listed criteria in Article 1—namely that "there is" a financial contribution and a benefit "is" thereby
conferred. The United States supports the Panel's finding that the use of the present tense with respect

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to the "financial contribution" and "benefit", a nd the use of the term "thereby" to indicate the
relationship between them, indicates that they exist at the same time.
680 C o n t r a r y t o t h e
European Union's arguments, the United States a sserts that the use of the present tense in the
definition in Article 1 has never been taken to suggest that the financial contribution must occur at the
same time as the alleged adverse e ffects under Part III or material injury under Part V. In fact, the
Appellate Body, panels, and parties have accepted that "there is" a financial contribution even where
it occurred many years before the injury or adver se effects that the subsidy is alleged to have
caused.681
282. Although the United States acknowledges that the Appellate Body has required a
demonstration of a "continuing benef it" in situations where there is full privatization for fair market
value and at arm's length in which the government no longer retains control, the United States submits
that the analysis of the Appellate Body was "gr ounded" in Articles 19.4 and 21.1 of Part V of the
SCM Agreement.682 According to the United States, this does not mean that the definition operating
by itself, or applied in the context of another part of the SCM Agreement, would necessitate the same
result. The United States observes the Appellate Body's finding in US – Upland Cotton that
Article 6.3(c) of the SCM Agreement contains no indication regarding the methodology for
quantifying subsidies.683
283. The United States notes the European Union's reliance on the Appellate Body report in
Japan – DRAMs (Korea) , in which it alleges that the Appellate Body treated the calculation of the
amount of benefit and its allocation over time separately. 684 The United States agrees that
quantification and allocation are different issues, bu t asserts that this does not mean either or both
calculations are necessary to find the existence of a subsidy under Article 1 of the SCM Agreement.
284. The United States disagrees that the verb tense of the word "cause" in Article 5 and "is" in
Article 6.3 supports the notion that "subsidies that have been withdrawn or ceased to exist cannot
'cause' adverse effects or trigger" the typ es of adverse effects set out in Article 6.3. 685 According to
the United States, the present tense indicates only that th e "effect" is in the present, in the form of one

681United States' appellee's submission, para. 90 (referring to Appellate Body Report, US – Lead and
Bismuth II , para. 60; and Appellate Body Report, US – Countervailing Measures on Certain EC Products ,
para. 84).
683United States' appellee's submission, para. 91 (referring to Appellate Body Report, US – Upland
Cotton, para. 465).
684United States' appellee's submission, para. 92 (referring to European Union's appellant's submission,
para. 223, in turn referring to Appellate Body Report, Japan – DRAMs (Korea), para. 199.
685United States' appellee's submission, para. 99 (referring to European Union's appellant's submission,
paras. 207 and 208).
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of the four situations that indicate, in the present, the existence of serious prejudice. It says nothing
about whether the source of that effect is in the present or in the past.
285. With respect to "cause", the United States argues th at its use in the infinitive, paired with the
auxiliary verb "should", renders it mandatory through the operation of the remedies in Article 7.8 of
the SCM Agreement. The United States argues that the use of "should", as the past tense of "shall",
could refer to action in the present or future, so th at its use in Article 5 conveys no indication as to
whether the "causing" is in the past or the present. Furthermore, the word "subsidy" appears in an
adverbial clause ("through the use of any subsid y") showing instrumentality—the means used to
accomplish the action. For the United States, neither the clause, nor the use of the word "cause"
indicates whether that instrumentality occurs before or at the same time as the resulting "adverse
effects".
686 Moreover, the United States disagrees with th e assertion by the European Union that it is
inconceivable that a subsidy that is withdrawn or ot herwise discontinued or diminished to a negligible
amount could cause present adverse effects, and th at "{i}ndirect effects ... cannot be sufficient". 687
According to the United States, Article 5 does not di fferentiate between direct and indirect effects,
present subsidies, past subsidies, or subsidies th at have ceased to confer a benefit. Although a
complaining party may have difficulty in demonstr ating a causal link where a subsidy is provided in
the distant past or where effects are indirect, such an inquiry is part of the adverse effects analysis and
is "not a matter to resolve through a presumption as to what a subsidy with a diminished benefit can
do".688 Moreover, the United States submits that the European Union's arguments suggest a
"de minimis" requirement, as in Article 11.9 of the SCM Agreement, which requires the termination of
a countervailing duty investigation if th e subsidy margin is less than 1% ad valorem . The
United States observes that Article 5 contains no su ch provisions. Finally, the United States believes
that, contrary to the European Union's assertions, the Panel "carefully" considered, as part of its
causation analysis, the effect of subsidies "over the passage of time".689
286. The United States rejects the European Uni on's argument that the availability of a
"withdrawal" remedy under Articles 4.7 and 7.8 of the SCM Agreement provides contextual support
for the notion of a "continuing benefit". 690 The United States disagrees that Articles 4.7 and 7.8 are
the "equivalent of" Articles 21.2 and 21.3 of the SCM Agreement or that the Appellate Body had
recognized that those provisions require the term ination of remedial action against subsidies once

687United States' appellee's submission, para. 101 (quoting European Union's appellant's submission,
para. 207).
689United States' appellee's submission, para. 103 (referring to Panel Report, paras. 7.1921-7.1949).
690United States' appellee's submission, paras. 94 and 98.
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those subsidies had been removed in some way.
691 Referring to the case law in US – Countervailing
Measures on Certain EC Products and US – Lead and Bismuth II , the United States asserts that the
Appellate Body did not couch its reasoning in terms of "remedies" generally, but rather in terms of the
permissible levels of application of countervailing duties.
(b) Whether the Panel erred in its inte rpretation and application of the
"privatization" case law
287. The United States supports the Panel's finding th at the Appellate Body's statements about a
presumption of "extinction" of past subsidies in its privatization case law do not apply to the sales
transactions involving Airbus companies between 1999 and 2006. In the United States' view, the
Panel properly relied on the A ppellate Body's reasoning in US – Countervailing Measures on Certain
EC Products that "only one kind of change in ownership (t hat is, a privatization at arm's length and
for fair market value where the government transfers all or substantially all the property and retains no
controlling interest in the firm)" pr esumptively extinguishes past subsidies. 692 The United States
submits that the Appellate Body should uphold the Panel's conclusion that the reasoning in that
dispute does not, as the European Union asserts, creat e a general "principle" that "the sale of a
company at arm's length and for fair market valu e removes any benefit of prior subsidies to the
buyer"693, nor does it justify the application of such a "pri nciple" to private-to-private sales and partial
privatizations.
288. The United States disagrees with the European Union that the Appellate Body's reasoning in
US – Countervailing Measures on Certain EC Products "effectively established a rebuttable
presumption that there is no distinction between a fi rm and its owners for the purpose of the
SCM Agreement."694 According to the United States, the Appe llate Body criticized the panel in that
dispute for making the same erroneous assertion and f ound that the distinction between a firm and its
owners was "certainly not conclusive" and "is not necessarily relevant" for determining whether a
benefit exists. 695 In the United States' view, these statemen ts indicate that the Appellate Body was
open to consider the distinction between a firm an d its owners as a relevant factor in its overall
evaluation of a transaction. The United States as serts that "{a} better characterization {of the

691United States' appellee's submission, para. 96 (referring to European Union's appellant's submission,
para. 200).
692United States' appellee's submission, para. 105 (quoting Appellate Body Report, US –
Countervailing Measures on Certain EC Products, para. 117).
693United States' appellee's submission, para. 107 (quoting European Union's appellant's submission,
para. 226, in turn quoting European Communities' response to Panel Question 197, para. 223).
694United States' appellee's submission, para. 113 (quoting European Union's appellant's submission,
para. 240 (original emphasis)).
695United States' appellee's submission, para. 113 (quoting Appellate Body Report, US –
Countervailing Measures on Certain EC Products, para. 115).
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Appellate Body's finding} would seem to be that the sameness of a firm and its owners is an
analytical construct, warranted in some instances ... and not warranted in others".
696 T h e
United States also rejects the Eu ropean Union's attempts to defend its presumption as "rooted in
economic common sense" by hypothesizing sales of less than 100% of a firm's shares, and then
proceeding to ask why the Appellate Body's finding that a fully privatized firm and its new owners are
the same should not apply to such sal es of lesser portions of the firm.
697 In the United States' view, a
number of factors should be analyzed in consider ing whether a firm and its owners are distinct,
including whether the owners have the ability to control the assets of the firm.698
289. The United States also notes the European Uni on's criticism of the Panel on the ground that
the "two financial contributions"—the original subsidy and the sale of the company to private
owners—"are not comparable". 699 The United States explains that the two transactions are not
comparable since they involve different fina ncial contributions measured against different
benchmarks.700 In the United States' view, the Europ ean Union's argument that the difference is
significant because the original subsidy "increases the value of the firm" while the sale price "includes
the market value of the subsidy create d by the original financial contribution ", and therefore
"removes the benefit of the subsidy", ignores the fact that the increase in the value of the firm is not
the benefit of the subsidy, but the effect of the subsidy—a consideration which should not affect the
evaluation of the benefit.701
290. The United States notes the European Union's ar gument that the Appellate Body's statement
in US – Countervailing Measures on Certain EC Products , that "{t}he Panel's absolute rule of
'no benefit' may be defensible in the context of transactions between private parties taking place in
reasonably competitive markets" 702, creates an " irrebuttable" presumption in private-to-private sales

696United States' appellee's submission, para. 114 (referring to Appellate Body Report, US –
Countervailing Measures on Certain EC Products, paras. 113, 115, and 118).
697United States' appellee's submission, para. 115 (quoting European Union's appellant's submission,
para. 241).
698United States' appellee's submission, para. 115 (quoting Appellate Body Report, US –
Countervailing Measures on Certain EC Products , paras. 117 and 119, where the Appellate Body specifically
disagreed with the panel's "overreaching conclusion that 'f or the purpose of the bene fit determination under the
SCM Agreement , {investigating authorities should make} no distinction ... between a company and its
shareholders'", and noted that the panel "should have confined its findings to {the} specific circumstances" of "a
privatization at arm's length and for fair market value wh ere the government transfers all or substantially all the
property and retains no controlling interest in the firm").
699United States' appellee's submission, para. 125 (referring to European Union's appellant's
submission, para. 245).
701United States' appellee's submission, para. 125 (quoting European Union's appellant's submission,
para. 245 (original emphasis)).
702United States' appellee's submission, para. 116 (quoting Appellate Body Report, US –
Countervailing Measures on Certain EC Products, para. 124).
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that an arm's-length, fair market value sale "precludes the pass-through of benefit from seller to
buyer".
703 The United States submits that the caveat u sed by the Appellate Body—namely that it
"may be defensible"—signals the Appellate B ody's lack of confidence in its conclusion. 704 The
United States argues further that, upon full priva tization, the relationship between a firm and its
owners changes, since private owners are "profit-maximizers" 705 while the government is not.
Moreover, the subsidizing government receives a pa yment from the new owners equal to the market
value of any subsidized and non-subsidized contribu tions to the company. As the United States sees
it, these changes in the owner-company relationship and the company-government relationship in a
privatization context do not occur in a transaction between two private parties. The United States
observes that the US Department of Commerce (the "USDOC") methodology memorandum, relied on
by the European Union for its arguments that under US law a private-to-private transaction establishes
a presumption of extinction of subsidy 706, demonstrates that such a presumption applies only to full
privatizations and is rebuttable if "parties can de monstrate that the broader market conditions were
severely distorted by the government and that the transaction price was meaningfully different from
what it would otherwise have been absent the distortive government action."707
291. The United States disagrees with the European Union that the compliance panel's finding in
US – Countervailing Measures on Certain EC Products (Article 21.5 – EC) supports the view that
partial sales extinguish prior subsidies. The United States observes that, although the French
Government in that case allowed one group of purchasers (the employees) to pay less than fair market
value for their shares, the case involved a full pr ivatization of a state-owned company, Usinor. 708
Even if the employee share purchases led to the conc lusion that the privatization did not cover 100%,
the sale of the remaining 94.84% of shares, in the c ontext of a transfer to the public of 100% of the

703United States' appellee's submission, para. 116 (quoting European Union's appellant submission,
para. 253 (original emphasis)).
704United States' appellee's submission, para. 116 (quoting Appellate Body Report, US –
Countervailing Measures on Certain EC Products, para. 124).
705United States' appellee's submission, para. 122 (quoting Appellate Body Report, US –
Countervailing Measures on Certain EC Products, para. 103).
706United States' appellee's submission, para. 117 (referring to European Union's appellant's
submission, para. 254; and USDOC, Issues and Decision Memorandum, supra, footnote 158, p. 2).
707United States' appellee's submission, para. 117 (quoting USDOC, Issues and Decision Memorandum,
supra, footnote 158, p. 2).
708The United States submits that, save for 5.16% of the shares that were sold to Usinor employees at a
substantial discount and not at fair market value, the privatization was exactly the "one kind of change in
ownership" covered in US – Countervailing Measures on Certain EC Products, involving "privatization at arm's
length and for fair market value where the government tran sfers all or substantially al l the property and retains
no controlling interest in the firm." (United States' appellee's submission, para. 128 (quoting Appellate Body
Report, US – Countervailing Measures on Certain EC Products, para. 117) (footnote omitted))
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shares and complete surrender of government cont rol, would meet the criterion of transferring
"substantially all the property".
709
292. Finally, the United States supports the Panel' s finding that adopting a "principle" whereby
"changes in the underlying ownership of a subsid ized producer automatically or presumptively
eliminate the benefit conferred by prior financial contributions" would "potentially eviscerate the
SCM Agreement". 710 The United States agrees with the Pa nel that any exchange of shares in a
publicly held company would, under the European Union's reasoning, eliminate a corresponding share
of the benefit of subsidies, even though it ch anged nothing about the company's operations and
nothing meaningful about the company's ownership.711
(c) Whether the Panel erred in finding that the transactions did not
"withdraw" the benefit conferred by the past subsidies, within the
meaning of Articles 4.7 and 7.8 of the SCM Agreement
293. The United States submits that, contrary to th e European Union's arguments, Articles 4.7
and 7.8 of the SCM Agreement do not create a "separate and independent" requirement to evaluate
whether the subsidizing Member has "withdrawn" or "extracted" a subsidy. The provisions specify
the remedies available following a finding that subsid ies are prohibited or cause adverse effects, and
do not contain or imply substantive rules as to when subsidies exist for purposes of Article 5 of the
SCM Agreement. Moreover, the United States observes that the provisions create an obligation on the
Member, or in the case of Article 7.8 give the Me mber an option, to withdraw the subsidy.
Accordingly, the Member must do something affirmative to "remove" or "take away" the subsidy. 712
The United States does not consider a transfer of fu nds or other assets by the subsidy recipient to an
entity other than the government to be action by the Member to remove or take away the subsidies, as
required under Articles 4.7 and 7.8 of the SCM Agreement.
(i) "Cash extractions" involving CASA and Dasa
294. As a general matter, the United States rejects the "theory underlying" the European Union's
arguments on "extraction" or "withdrawal", name ly that "benefits from subsidies existed as

709See United States' appellee's submission, paras. 126-128 (quoting Appellate Body Report, US –
Countervailing Measures on Certain EC Products, para. 117).
710United States' appellee's submission, para. 129 (quoting Panel Report, paras. 7.246 and 7.252).
711The United States contends that the European Union fails to explain the distinction it draws between
the daily trading of shares and the tr ansactions in this case, which, according to the European Union, involve
"significant" sales by government, industry or institutio nal shareholders. (United States' appellee's submission,
para. 130)
712United States' appellee's submission, para. 135 (referring to Appellate Body Report, Brazil – Aircraft
(Article 21.5 – Canada) para. 45; Appellate Body Report, US – FSC (Article 21.5 – EC) , paras. 226 and 227;
and Panel Report, Australia – Automotive Leather II (Article 21.5 – US), para. 6.27).
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enhancements to CASA's and {Dasa's} balance shee ts" and that, through the "cash extraction", the
"incremental value" created by the subsidies was removed.
713 In the United States' view, a number of
other factors may increase (or decrease) the incremental value of a company, and it would be incorrect
to equate the "effect of the subsidy on the company" to the "benefit" of a subsidy. Although the
United States does not dispute that there are circumstances in which a Member may remove cash from
a subsidized company in a way that "withdraws" the subsidy for purposes of Articles 4.7 and 7.8
—such as where a Member takes back the valu e of the subsidy and gives nothing in return
714—paying
a third party, such as DaimlerChrysler in this dispute, carries no such implication.
295. Turning to the transactions at issue in this dispute, the United States agrees with the Panel's
conclusions that there was no "extraction" or "withdrawal" of subsidies with respect to Dasa. 715 In the
United States' view, since the "cash extraction" did not involve a payment to the German Government,
there is no basis to conclude that "the Member gr anting or maintaining such subsidy ... withdr{e}w
the subsidy" for purposes of Article 7.8. Moreover, in the United States' view, the European Union's
argument focuses on the wrong corporate relationship, because DaimlerChrysler's incentives to return
money to Dasa following the transaction were unchanged as it still owned 100% of Dasa. 716 T h e
United States also notes the Panel's finding that th e Airbus creation process "was structured so as to
maintain the overall interests of DaimlerChrysler and the Spanish government in Airbus Industrie as a
whole."717 In the United States' view, evidence as to ongoi ng control of the recipient by Dasa, and by
DaimlerChrysler through Dasa, is important to an inquiry into whether the "cash extraction" "removed
the incremental contribution of alleged prior subs idies" and whether anything in fact left the
recipient.718 Finally, the United States points out that Da imlerChrysler did in fact confer "something
to Dasa in exchange for the funds transferred to it". 719 The United States recalls that the "cash
extraction" from Dasa reduced the value of its assets to a level where it was equivalent to the number

713United States' appellee's submission, para. 136 (quoting European Union's appellant's submission,
paras. 172 and 173).
714In support, the United States refers to the panel report in Australia – Automotive Leather II
(Article 21.5 – US) , where the panel found that where the subsidized entity made cash payments to the
government this could constitute "withdrawal" of subsidies. (United States' appellee's submission, para. 137
(referring to Panel Report, Australia – Automotive Leather II (Article 21.5 – US), para. 6.28))
715The United States disagrees with the European Union's argument that the transfer of cash from Dasa
to DaimlerChrysler was "permanent" on the ground that, after the formation of EADS, DaimlerChrysler held a
much smaller share of EADS than it had previously held of Dasa, and any return of the money would therefore
be spread over a larger shareholder base. (United States' appellee's submission, para. 142 (referring to
European Union's appellant's submission, para. 190))
716United States' appellee's submission, para. 143 (referring to Panel Report, section VII.E.1
(attachment), footnote 2241 to para. 4).
emphasis)).
718United States' appellee's submission, para. 144 (quoting Panel Report, para. 7.268; and referring to
European Communities' response to Panel Question 200, para. 247).
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of EADS shares agreed upon.
720 In such a circumstance, argues the United States, no one would
argue that this was a "withdrawal" for purposes of Articles 4.7 and 7.8 of the SCM Agreement.
296. With respect to the transaction involving CA SA, the United States notes the different
approach taken by the Panel given the involvement of the government. The United States agrees with
the Panel that SEPI provided "somet hing of equal value" in return for the transfer—namely, as with
Dasa, the reduction of capital in CASA in preparation for its contribution to EADS. 721 The
United States also agrees with the Panel that, give n that the Spanish Government exercised the same
degree of ownership and control over Airbus before and after the creation of EADS, the funds had not
left the company-shareholder unit.722
(ii) Sales transactions
297. The United States submits that, despite the Eur opean Union's assertions to the contrary, the
European Communities "never made arguments" that the sales transactions were "extractions" or
constituted "withdrawals" within the meaning of Articles 4.7 and 7.8 of the SCM Agreement.723 The
United States submits that the European Communiti es used the term "extraction" interchangeably
with "extinction". 724 Moreover, the European Communities' discussions on "extraction" addressed
only the specific facts of the Dasa and CASA transactions. 725 According to the United States, the
references cited by the European Communities do not contain separate arguments that the sales
transactions "withdrew" prior subsidies fo r purposes of Articles 4.7 and 7.8 of the SCM Agreement,
but rather reflect the European Communities' view that subsidies that have been "extinguished" for

720In the United States' view, the transaction was no different from a situation where Dasa contributed
its assets to EADS without the cash transfer, and received a higher number of shares than it was entitled to, after
which DaimlerChrysler sold the excess back to EADS in exchange for cash.
722United States' appellee's submission, para. 149 (referring to Panel Report, para. 7.285). Finally, the
United States asserts that, contrary to the European Union's arguments, the Panel did not make general
statements as to whether the transfer from a government-owned company to the government for nothing in
return might indicate that the relevant Member withdrew the subsidy to the extent of the transfer; rather, the
Panel in this dispute simply found that the CASA-SEPI transfer did not satisfy these criteria. (Ibid., para. 150)
724United States' appellee's submission, para. 152 (r eferring to European Communities' first written
submission to the Panel, paras. 263, 271, and 282).
725United States' appellee's submission, para. 152 (referring to European Communities' oral statement at
the first Panel meeting, paras. 32 and 61; European Communities' responses to Panel Question 80, para. 152,
Panel Question 81, para. 161, and Panel Question 112, paras. 313 and 315; European Communities' second
written submission to the Panel, para. 990; European Communities' responses to Panel Questions 198-201,
paras. 235-254, and Panel Question 222, paras. 55 7-559; and European Communities' comment on the
United States' response to Panel Question 222, paras. 392 and 397-401).
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purposes of Articles 1, 5, and 6 of the SCM Agreement are also "withdrawn" for purposes of
Articles 4.7 and 7.8.
726
298. In the United States' view, the concepts of "e xtinction" and "withdrawal", as argued by the
European Union with respect to th e sales transactions, are mutually exclusive. On the one hand, the
European Union's "extinction" argument rests on the proposition that a new buyer extinguishes a
subsidy by paying the owners money that reflects th e value added to the company by past subsidies,
such that there is an exchange of value for value. On the other ha nd, the European Union argues that
a subsidy is "withdrawn" when the recipient pays money without getting something in return.
According to this view, no transaction for fair ma rket value could ever withdraw a subsidy because,
by definition, the parties would be exchanging equal values. The United States also contends that,
since most of the sales transactions involved priv ate entities, they would not qualify as withdrawals
under Articles 4.7 and 7.8, which only apply when the government removes money from the subsidy
recipient. Finally, the United States argues that , since the European Communities never explained
how the sales transactions "withdrew" the subsidies, the Panel would have been required to devise its
own explanations to support any conclusion, whic h is not a permissible role for panels under the
DSU.727
(d) Whether the Panel violated Article 11 of the DSU
299. The United States rejects the five claims of error alleged by the European Union under
Article 11 of the DSU. According to the United States, the Panel correctly applied the relevant
provisions of the covered agreements and presente d a thorough and well-reasoned explanation of its
findings. In the United States' view, the European Union's arguments consist primarily of a mere
repetition of its arguments that the Panel improperl y understood the substa ntive provisions of the
SCM Agreement. The United States considers that it has shown these arguments to be "unfounded".728
The United States submits that, even if the European Union were correctly to identify legal errors, this
is not a sufficient basis for a claim under Article 11 of DSU. In this regard, the United States recalls
the Appellate Body's statement that Article 11 clai ms are not to be "made lightly" or "merely as a

726According to the United States, since the European Communities' argument that the sales
transactions "extinguished" benefits failed before the Pa nel, its argument with resp ect to Articles 4.7 and 7.8
also fails. (United States' appellee's submission, para. 154 (referring to Panel Report, para. 7.266))
727United States' appellee's submission, para. 157 (referring to Appellate Body Report, Japan –
Agricultural Products II, paras. 130 and 131).
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subsidiary argument or claim in support of a claim of a panel's failure to construe or apply correctly a
particular provision of a covered agreement".
729
300. Second, the United States observes that the Eu ropean Union bases many of its claims of
violation of Article 11 of the DSU on the alleged failure by the Panel to provide a "reasoned and
adequate explanation" of its findings. According to the United States, the European Union thereby
attempts to apply "a new standard of review" b ased on whether the explanation of the Panel's finding
is sufficiently robust. 730 While the United States acknowledges th at the panel's lack of explanation
and coherent reasoning was one considera tion that led the Appellate Body in US – Upland Cotton
(Article 21.5 – Brazil) to find that grounds for reversal ex isted, the Appellate Body did not put
forward "lack of a 'reasoned and adequate explanatio n' as a new and independent basis for reversing a
panel's findings."731
301. In addition to these "overarching legal flaws", the United States addresses each of the five
claims of error alleged by the European Union. 732 First, with respect to the European Union's
argument that the Panel failed to explain the signi ficance of its finding that the reduction in CASA's
capital represented something of value received fro m SEPI in exchange for the CASA-SEPI transfer,
the United States considers that the significance of the Panel's finding was clear and that the Panel
provided a reasoned and adequate explanation.
302. Second, regarding the argument that the Panel failed to provide a "r easoned and adequate
explanation of", and had insufficient evidence for, its finding that the agreement to pool voting rights
gave SEPI and DaimlerChrysler a greater claim to the earnings of any funds returned to EADS, the
United States recalls that the Panel made no finding that the agreement affected claims on earnings.
Rather, the Panel's finding that the agreement affect ed the control of the company was one of several
reasons cited by the Panel for its conclusion th at the CASA-SEPI and Dasa-DaimlerChrysler "cash

729United States' appellee's submission, para. 164 (quoting Appellate Body Report, US – Steel
Safeguards, para. 498).
730United States' appellee's submission, para. 165. The United States considers that there is little
support in the existing jurisprudence for this argument, and does not consider that the footnote in the Appellate
Body's report in US – Upland Cotton (Article 21.5 – Brazil) referred to by the European Union supports the
proposition. By contrast, the United States reads the finding of the Appellate Body in that case to be that the
compliance panel violated Article 11 of the DSU because it "effectively disr egarded the re-estimates data" and
used "internally inconsistent reasoning"—both grounds for past findings of Article 11 inconsistencies. ( Ibid.,
paras. 165-167 (referring to Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , paras. 294,
295, and footnote 618 to paragraph 293; Appellate Body Report, Korea – Alcoholic Beverages, para. 164; and
Appellate Body Report, US – Wheat Gluten, para. 161))
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extractions" did not move cash out of the company- shareholder unit. Therefore, the United States
considers that the Panel did explain its findings in this respect carefully and in appropriate detail.
733
303. Regarding the third claim by the European Uni on—namely that the Panel contradicted itself
by finding elsewhere in its Report that the French Government's contribution of Dassault shares to
Aérospatiale, a state-owned entity, was a fina ncial contribution, while finding that "the removal of
money from a state-owned entity by its government shareholder does not qualify as 'withdrawal' of
those payments"—the United States considers this to be a "misperception" by the European Union. 734
The Panel did not dispute the possibility that in certain conditions, removal of money from a state-
owned entity by the state could qualify as withdrawal of a subsidy; rather its finding was that those
conditions were not present in this one instance.735
304. Fourth, the United States notes the European Union's argument that the Panel violated
Article 11 of the DSU by not addressing whether th e six sales transactions "withdrew" past subsidies
for purposes of Articles 4.7 and 7.8 of the SCM Agreement. According to the United States, while the
European Union had made arguments with regard to "cash extractions" involving CASA-SEPI and
Dasa-DaimlerChrysler, it never pursued that argumen t with any clarity with respect to the sales
transactions.
305. Finally, with respect to the European Union's claims that the Panel erred in finding that the
European Communities did not argue that each of th e sales transactions was at "arm's length", the
United States notes that the reference cited by the European Union regarding two of the sales does not
even mention the term "arm's length" 736, and that other citations referred to by the European Union
"can scarcely be considered 'arguments'." 737 With respect to other transactions that the
European Union argues were at arm's length, the Unit ed States submits that a panel is not required to
address every argument raised by a party. 738 For the United States, "the larger point" is that the
Panel's statement regarding whether the sales were at "arm's length" was made in the context of its
analysis of whether a "continuing benefit" require ment applies beyond the factual situation following
privatization at arm's length for fair market value where the government transfers all or substantially

733United States' appellee's submission, para. 170 (ref erring to Panel Report, paras. 7.275, 7.283,
and 7.285, referred to in European Union's appellant's submission, para. 274).
734United States' appellee's submission, para. 171 (quoting European Union's appellant's submission,
paras. 277 and 284 (original emphasis)).
735United States' appellee's submission, para. 171 (referring to Panel Report, paras. 7.283 and 7.284).
736United States' appellee's submission, para. 173 (referring to European Union's appellant's
submission, para. 279, third bullet).
738United States' appellee's submission, para. 173 (referring to Appellate Body Report, US – Anti-
Dumping Measures on Oil Country Tubular Goods , para. 134, in turn quoting Appellate Body Report, EC –
Poultry, para. 135).
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all control to a privatized producer.
739 The United States argues that, to the extent that the Panel was
incorrect, any such error did not affect the Pane l's ultimate conclusion since none of the sales
transactions involved the transfer of all or substantia lly all the property, or the surrender of all of the
controlling interest by the relevant governments. Therefore, the United States concludes, regardless
of whether the transactions were at "arm's length", they would in any case not have created a situation
in which a subsidy extinction analysis was necessary or appropriate.
(e) Whether the Panel erred by finding that there was no requirement to
conduct a "pass-through" analysis
306. The United States submits that the Panel was co rrect in finding that the changes to the
corporate structure through which Airbus LCA we re produced did not require the United States to
demonstrate, as part of its prima facie case, that subsidies to previous producers of Airbus LCA
"passed through" to Airbus SAS. In support, the United States refers to the Appellate Body's
reasoning in US – Upland Cotton , where it affirmed that, in contrast to a Part V context, a
"pass-through" analysis is not critical for an assessment of significant price suppression under
Article 6.3(c) in Part III of the SCM Agreement.740 Moreover, the United States explains that an
analysis of subsidies differs between Part III and Part V: whereas Part V addresses a Member's
remedy against subsidized imports causing material injury to a domestic industry, Part III provides a
multilateral remedy against a more general categor y of adverse effects of subsidies themselves. 741
Additionally, the United States observes that Part V has different substa ntive and procedural
requirements than Part III, including a requirement to quantify the subsidy that is absent from Part III.
307. The United States submits that, as the complaining party, its only burden was to establish that
the European Communities' subsidies caused adverse effects to the United States' interests, which it
did by establishing that the four member States ma de financial contributions that each conferred a
benefit on producers of Airbus LCA and that these subsidies caused adverse effects to the
United States' interests. To the extent that th e Appellate Body considers that the United States bore
some further burden, the United States argues that it satisfied that burden by establishing that the
corporate predecessors of Airbus SAS were all produ cers of Airbus LCA and that, as the Panel found,
there was no indication that the reorganization am ong the Airbus entities to create Airbus SAS had
any impact on the "quality or nature of control" of Airbus Industrie or on the work share distribution

740United States' appellee's submission, para. 159 (referring to Appellate Body Report, US – Upland
Cotton, para. 472).
741United States' appellee's submission, para. 160 (referring to Appellate Body Report, US – Upland
Cotton, para. 436).
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between the Airbus partners.
742 For these reasons, the United States submits that the Panel did not err
in finding that "the Airbus Industrie consortium (i .e., each of the Airbus partners, their respective
affiliates and Airbus GIE) {is} the same producer of Airbus LCA as Airbus GIE."743
(f) Conclusion
308. For the above reasons, the United States requests the Appellate Body to uphold the Panel's
finding that there was no requirement for the United States to demonstrate a "continuing benefit"
pursuant to Articles 1, 5, and 6 of the SCM Agreement. Moreover, the United States requests that the
Appellate Body reject the European Union's argument s that any and/or all of the transactions at issue
resulted in "extinction" or "withdrawal" of subsidies to Airbus companies. Finally, the United States
requests the Appellate Body to dismiss the European Union's claim that the Panel failed to make an
objective assessment of the matter pursuant to Article 11 of the DSU.
4. The 1992 Agreement

309. The United States disagrees that Article 4 of the 1992 Agreement constitutes the relevant
benchmark for a determin ation of "benefit" under Article 1.1(b) of the SCM Agreement. The
United States agrees with the Panel that the 1992 Agreement contains no defi nition of subsidy, nor
does it make any reference to the notion of benefit. First, the United States argues that, by its own
terms—in particular, Article 4 and the fifth r ecital to the preamble of the 1992 Agreement 744—the
1992 Agreement has no bearing on, and is therefore not "relevant" to, the parties' rights and
obligations under the SCM Agreement. The United States submits th at the 1992 Agreement was not
aimed at putting in place a new "benchmark" for what would constitute a s ubsidy and a benefit under
the SCM Agreement, but rather was only intended to place constraints on the amount and terms of
LA/MSF, without any prejudice to the parties' differe nt views as to the consistency of the measures
under the GATT 1947 or any successor agreement. Second, even assuming that Article 4 were
"relevant" to an interpretation of the SCM Agreement pursuant to Article 31(3)(c) of the Vienna
Convention, the United States does not consider it to be "applicable in the relations between the

742United States' appellee's submission, para. 161 (quoting Panel Report, para. 7.199, in turn referring
to European Commission, Merger Procedure Article 6(2) Decision, Case No. COMP/M 1745 – EADS (11 May
2000) (Panel Exhibit US-479), para. 16 (emphasis added by the Panel omitted)).
emphasis)).
744The fifth recital to the Preamble of the 1992 Agreement reads:
NOTING {the European Economic Community's and the Government of
the United States of America's} intention to act without prejudice to their
rights and obligations under the GATT and under other multilateral
agreements negotiated under the auspices of the GATT[.]
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parties" based on a proper interpretation of Article 31, and in the light of past panel and Appellate
Body reports.
745
(a) The meaning of Article 31(3)(c) of the Vienna Convention
310. The United States disagrees with the interpreta tion of "the parties" advocated by the
European Union. The United Stat es points to the numerous references to the term "treaty" in the
subparagraphs of Article 31, and argues that its use each time "makes it clear that it refers to the treaty
that is subject to 'interpretation'". 746 Applying the definition in Article 2(1)(g) of "party" to
Article 31(3)(c) of the Vienna Convention could only mean "States which have consented to be bound
by the treaty subject to the interpretation and for which that treaty is in force".747
311. Turning to "context", the United States su bmits that, although worded differently,
Articles 31(2)(a) and 31(2)(b) of the Vienna Convention refer respectively to agreements "between all
the parties", and that any instrument made "by one or more parties ... and accepted by the other
parties" illustrates that all the parties must endorse an instrument "in some fashion" before it can
become one of the interpretive tools to which Article 31 of the Vienna Convention refers. 748 T h e
United States rejects the European Union's argument th at the use of "all the parties" in Article 31.2(a)
indicates that "the parties" in Article 31(3)(c) must mean "some or all of the parties". 749 T h e
United States points out that, even under Article 31(2) , the use of two different phrases to refer to all
the parties indicates that the negotiators of the Vienna Convention recognized multiple ways to
capture this concept.
312. With respect to the "object and purpose", the Un ited States disagrees that the preamble of the
Vienna Convention provides a basis for reading Article 31 in a manner that would require that an
agreement between only two parties to the SCM Agreement would affect the meaning for other WTO
Members that did not accept the bilateral agreemen t. The United States observes that Articles 3.2
and 11 of the DSU provide support for the view that the DSU establishes jurisdiction over only those
disputes arising under the covered agreements and not over all disputes among WTO Members with
regard to all treaties to which they are parties. Fi nally, the United States recalls that the fifth recital of
the preamble of the 1992 Agreemen t states that the disciplines of the 1992 Agreement are "without
prejudice" to the parties' rights and obligations under the GATT and other multilateral agreements
negotiated under the auspices of the GATT. In the United States' view, this provision illustrates that

745See United States' appellee's submission, paras. 230-240 and 252-263.
747United States' appellee's submission, para. 245. (emphasis added)
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"the 1992 Agreement itself rejects any applicab ility to the covered agreements, including the
SCM Agreement."
750
313. Neither does the United States consider that th e various panel and A ppellate Body reports
relied on by the European Union support its interpre tation that bilateral agreements among only two
WTO Members can be used to interpret the covere d agreements. First, the United States notes that
the panel's ruling in EC – Approval and Marketing of Biotech Products was never appealed and was
adopted by the DSB, and therefore remains persuasi ve. The United States also refers to findings of
panels and the Appellate Body in US – Shrimp, US – Shrimp (Article 21.5 – Malaysia) , EC – Poultry,
and US – FSC (Article 21.5 – EC) , and explains that the non-WTO rules at issue in those disputes did
not qualify as instruments within the meaning of Artic le 31(3)(c), but were instead used to interpret
the ordinary meaning of terms under Article 31(1) or the special meaning of terms under Article 31(4)
of the Vienna Convention.751 The United States also asserts that , even using these other interpretative
tools, the Appellate Body did not consider the isolated practices of one or two countries.752
(b) Whether Article 4 of the 1992 Agreem ent is relevant to interpreting
the term "benefit" in Article 1.1(b) of the SCM Agreement
314. The United States submits that the 1992 Agreem ent, on its own terms, has no bearing on
parties' rights and obligations under the SCM Agreement. According to the United States, the use of
the term "support" in Article 4 and in other provisions of the SCM Agreement, and the reference in
Article 4 of the 1992 Agreement and the SCM Agreement to "thresholds" as a mechanism to trigger
obligations, do not create a link that is relevant for purposes of the SCM Agreement. The term
"support", as used in Article 1.1(a)(2) of the SCM Agreement, only defines income and price
"supports" as a "financial contribution", which are separate from "development support" in Article 4
of the 1992 Agreement. Moreover, the United States highlights that "support" in Article 3.2 of the
Agreement on Agriculture is not a synonym for "subsidy", since the use of the "support" as opposed to
subsidy indicates that the two terms have different meanings under the covered agreements.

750United States' appellee's submission, para. 251. Th e United States consider s that the agreements
negotiated in the Uruguay Round of Multilateral Trade Negotiations—including the SCM Agreement —are
encompassed by the phrase "multilateral agreements negotiated under the auspices of the GATT". Thus, the
Ministerial Declaration launching the Uruguay Round st ated that the Contracting Parties to the GATT 1947
"DECIDE to enter into Multilateral Trade Negotiations on trade in goods within the framework and under the
aegis of the General Agreement on Tariffs and Trade". Accordingly, argues the United States, the fifth recital to
the 1992 Agreement confirms that the Agreement does not prejudice the rights of the United States under the
SCM Agreement. (United States' appellee's submission, footnote 407 to para. 239)
751In this respect, the United States refers to Appellate Body Report, US – Shrimp, and Appellate Body
Report, US – FSC (Article 21.5 – EC). (United States' appellee's submission, paras. 255, 260, and 261)
752See United States' appellee's submission, para. 260 (referring to Appellate Body Report, US – FSC
(Article 21.5 – EC), para. 143).
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315. The United States also rejects the European Un ion's argument that Article 4 is relevant
because it creates "market" conditions that serve as a benchmark for the interest rates charged for
LA/MSF. The United States submits that this argument "confuses government lending conditions
with the broader 'market' for financing" since, although the 1992 Agreement may have put constraints
on state lenders, private financiers remained free to offer whatever terms the commercial market
would bear. Moreover, the 1992 Agreement did not affect the market in a way relevant for a
determination of benefit under Article 1.1(b) of the SCM Agreement.
(c) Whether Article 4 of the 1992 Agreement is a relevant fact to
establish the market benchmark
316. The United States submits that, even if the Appe llate Body were to treat Article 4 of the 1992
Agreement as a "fact", this would not affect the outcome given that the Panel never found that the
1992 Agreement influenced the market in the way al leged by the European Union. For these reasons,
the United States argues that there were "no relevant facts" for the Panel to "take into account".
753
5. LA/MSF Benefit Benchmark
(a) Whether the Panel erred in finding that the LA/MSF measures confer
a benefit within the meaning of Article 1.1(b) of the SCM Agreement
317. The United States requests the Appellate Body to uphold the Panel's findings under
Article 1.1(b) of the SCM Agreement regarding the applicable project-specific risk premium. The
United States maintains that the Panel made an objective assessment of the facts as required by
Article 11 of the DSU in criticizing and rejecti ng the risk premium benchmark proposed by the
European Communities. The United States also cl aims that the Panel validly found that the
reasonableness of repayment forecasts does not dictate the appropriateness of the rate of return.
(i) Errors of application of the law to the facts of the case
318. The United States asserts that "there is no dispute ... as to whether {LA/MSF} conferred a
benefit" and that "{t}he only question is what the market would have demanded for comparable
financing".754 The United States points to the Panel's finding that "even relying on the
European Communities' own estimates of the rates of re turn and market interest rate benchmarks, it is

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clear that the financial contributions provided in the form of LA/MSF conferred a benefit on
Airbus."
755
319. The United States contends that the European Un ion understates the substantial risk that the
member State governments undertook in providing LA/MSF. The United States notes that financing
the development of LCA is expensive and risky, costing as much as US$10 billion or more per new
LCA model, and that once the investment has been made, very little can be recovered in the event the
programme fails to perform as e xpected. LA/MSF is a highly prefer ential form of financing with
unique terms that absorb the extrao rdinary costs and offset the massi ve risks of LCA development.
The United States asserts that the European Union has not identified any errors with the Panel's
finding that all LA/MSF measures include long-term unsecured loans at zero or below-market rates of
interest with back-loaded repayment schedules that al low Airbus to repay the loans through a levy on
each delivery of the financed aircraft and provisions that allow outstanding balances to be indefinitely
extended or forgiven if Airbus fails to sell a sufficient number of the aircraft to repay the loan.
320. The United States rejects the European Union's clai m that the Panel erred in its application of
Article 1.1(b) of the SCM Agreement. According to the United States, the European Union is
challenging findings that the Panel did not make or arguments that the United States did not proffer.
The United States submits that the European Union's claim under Article 1.1(b) of the
SCM Agreement fails because "it is merely a thinly-veiled critique of the Panel's careful weighing and
balancing of the facts—not a proper legal challenge to the actual application of the Article 1.1(b)
'benefit' standard".
756
321. First, the United States argues that neither the Panel nor the United States agreed to apply or
attempted to apply a constant project-specific ri sk premium to all LA/MSF measures. Instead, the
Panel found that the inquiry must "identify{} the most appropriate project-specific risk premium for
each of the challenged LA/MSF contracts".
757 The Panel then identified ranges in which it considered
the appropriate premium was likely to fall and found th at certain groups of LCA entail levels of risk
that, though not necessarily identical, fall in the same range. On this basis, the United States
concludes that the Panel's finding that premia for mu ltiple aircraft may fall in the same range is fully
consistent with the Panel's criticism of a "one-siz e-fits-all" premium and with its finding that the
"most appropriate" premium should be ascr ibed to each model of aircraft. 758 The United States also

756United States' appellee's submission, para. 187. (footnote omitted)
emphasis)).
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rejects the European Union's contention that the United States and the European Communities "agreed
in the course of the Panel's proceedings that it w ould be appropriate to apply a constant project-
specific risk premium to all {LA/}MSF loans."
759 The United States is of the view that the
European Union misunderstood the testimony of th e United States' expert Dr. Ellis, who proposed a
single premium of 700 basis points as a conservative estimate applicable to all transactions, but
recognized that "a model-based benchmark rate mu st reflect, in addition to the company's general
level of riskiness (as reflected in the general cor porate borrowing rate), project-specific risk resulting
from the particular risk profile of {LCA} deve lopment and other project- or {LA/MSF}-specific
features."
760 The United States adds that Dr. Ellis recognized that the actual premium might be
higher, for example, noting that "a 40 percent risk premium or something of that order of magnitude
would probably be quite appropriate for the earlier years of Airbus' existence given the high-risk of
LA/MSF and the project-specific repayment during the early life of the company."
761
322. Second, the United States maintains that, in pa ragraph 7.468 of its Report, the Panel did not
lay out a roadmap that the Panel then failed to follow, but instead described the detailed factual
analysis that it actually performed and which led to its conclusions. Specifically, the Panel itself
noted that the categories of facts it listed are some of the "{v}arious pieces of evidence and arguments
provided by the parties indicat{ing} that the risk associated with LCA development will vary over
time depending on a variety of factors."762 The United States therefore concludes that the factors were
simply the categories of facts that the Panel consid ered in concluding that different projects might
warrant different premia and in identifying the range in which to put each project.763
323. Third, the United States maintains that the Panel did not apply the "relative experience" factor
solely to the A300 and A310 and the "level of technology" factor solely to the A380. 764 T h e
United States asserts instead that the Panel's placeme nt of the different Airbus models into three
different ranges of risk premia re flects its appreciation of all of the factors that it considered
relevant.765 The United States clarifies that it is "unsur prising" that the Panel found that technological
challenges played a noteworthy role for the A 380 and that the relative experience factor was

759United States' appellee's submission, para. 190 (quoting European Union's appellant's submission,
footnote 969 to para. 759).
760United States' appellee's submission, para. 190 (quoting NERA, Economic Assessment of the Benefits
of Launch Aid (10 November 2006) (Panel Exhibit US-80 (BCI ) (hereinafter the "Ellis Report")). (emphasis
added by the United States omitted)
761United States' appellee's submission, para. 190 (quoting Panel Report, para. 7.468, in turn quoting
Ellis Report, supra, footnote 760, at footnote 28).
764United States' appellee's submission, para. 192 (quoting European Union's appellant's submission,
para. 763).
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particularly significant with respect to some of the first models that Airbus developed.
766 However,
the specific mention of technological challenges or relative experience for the A300, A310, and A380
does not signal that other aircraft developments did not pose technical challenges or were not
influenced by relative experience. The United St ates also notes that, under Article 1.1(b) of the
SCM Agreement, the Panel was required to find that a benefit was conferred but not to quantify the
exact amount of the benefit conferred.
324. Fourth, the United States contends that ther e is no evidence that the Panel ruled out the
possibility that the project-specific benchmark mi ght be lower than the European Communities'
generalized, all-aircraft risk premium for the A330-200 and A340-500/600. For the United States, the
European Union appears to be suggesting that the Panel was required to decide the issue based on an
argument that the European Communities did not make before the Panel, "which is not the function of
a {p}anel".767 The United States argues that it is clear from the Panel's description of its analysis that
it reviewed the totality of the facts before it and concluded that the A330-200 and A340-500/600
benchmarks "lie in the range of interest rates a dvanced by both of the parties—that is, above the
interest rate benchmarks proposed by the Eur opean Communities but below the benchmark levels
submitted by the United States."768
325. Furthermore, the United States claims that the Eu ropean Union is incorrect in arguing that the
Panel applied a risk premium based on venture capita l financing with respect to the A300, A310, and
A380, which the Panel had previously rejected as inherently more risky than LA/MSF. The Panel
concluded, with respect to the A300 and A310 (the earliest Airbus models), that "the premium
proposed by the United States was a reasonable proxy for the minimum project-specific risk
premium".769 Moreover, the Panel found "specifically that for the A380, the premium proposed by
the United States 'could be reasonably accepted to represent the outer limit of the risk premium that a
market lender would ask'."
770 Thus, the Panel merely found that "for some contracts, the U.S.
premium was 'an appropriate proxy'". 771 The United States notes that, "{b}y using the premium from
a venture capital portfolio, the United States avoided the extremel y risky types of projects that may
have motivated the Panel's concerns" and that "{t}he 'risk premium' that the Panel applied, moreover,

767United States' appellee's submission, para. 193 (referring to Appellate Body Report, US – Continued
Zeroing, para. 343; and Appellate Body Report, US – Wool Shirts and Blouses, p. 14, DSR 1997:I, 323, at 335).
omitted)
769United States' appellee's submission, para. 194 (referring to Panel Report, para. 7.485). (original
emphasis)
771United States' appellee's submission, para. 194 (referring to Panel Report, para. 7.469). (original
emphasis)
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is only an addition to the company-specif ic 'general corporate borrowing rate'."
772 The United States
concludes that the Panel's qualified use of the Unit ed States' risk premium derives from the careful
factual assessment that the Panel undertook and is not incoherent or internally inconsistent.
(ii) Whether the Panel erred under Article 11 of the DSU
326. The United States rejects the European Union's argument that the Panel's assessment fails to
meet the requirements of Article 11 of the DSU. According to the United States, the Panel undertook
an analysis that was more than lengthy, thorough, and explained how the Panel arrived at its finding
that the benchmark proposed by the European Communities was not valid.
327. The United States disagrees with the European Union's position that the Panel lacked the
"purportedly required 'positive evidence' to make its finding". 773 The United States asserts that the
Panel had before it substantial evidence concerning the relative riskiness of the Airbus projects at
issue.774
328. The United States also argues that the Panel properly grouped together slightly different LCA
models with similar risk characteristics for purposes of determining a risk premium, as the Panel was
not obligated and did not attempt to provide a preci se explanation of the risk applicable to each
aircraft model.
329. The United States rejects the European Union's cl aim that the Panel failed to explain why the
acknowledged technological challenges of the A380 indicate that the A380 was a more risky project,
because the Panel had explicitly r ecognized that the eventual su ccess of an LCA project was highly
uncertain. Technological challenges, according to th e United States, are a "critical component of this
uncertainty".
775
330. The United States denies that the Panel was incons istent in finding that the benchmark return
proffered by the United States was a suitable mini mum return a market investor would demand for
investment in the A300 and A310 and the maximum retu rn an investor would demand to invest in the
A380. The United States asserts th at the European Union's argument rests on the flawed assumption
that the Panel fully accepted the European Communities' arguments with regard to the project-specific
risk premium while rejecting the United States' ve nture capital-based premium. The United States

772United States' appellee's submission, para. 195. (original emphasis)
774United States' appellee's submission, para. 200 (referring to Panel Report, footnote 2679 to
para. 7.468; and United States' first written submission to the Panel, paras. 142-145, 260-265, and footnotes 113
and 185 thereto).
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argues that, even though the Panel found that LA/M SF is not entirely comparable with venture capital
investments, the Panel did not reject the use of a venture capital risk premium as a suitable analogue
where warranted.
(b) The Panel's criticisms of the European Communities' benchmark
331. The United States asserts that the Panel made an objective assessment of the facts relating to
the European Communities' propo sed benchmark and provided th e European Communities full
opportunity to rebut the United States' prima facie case. The United States claims that the
European Union's arguments relate to the Panel's conclusions as to the credibility of evidence and the
particular arguments that it addressed, and do not identify any inconsistency with Article 11 of the
DSU or Article 1.1(b) of the SCM Agreement. Specifically, the United States argues that, instead of
failing to "address some of the {European Communities'} arguments and ... not prompt{ing} the
European {Communities} to provide further argu ments and information", the Panel actually made
extensive findings on the evidence given by the Eu ropean Communities' expert, Professor Whitelaw,
and found that "the overall record did not support the expert's conclusions".
776 The United States
argues that this approach is consistent with the Appellate Body's finding in US – Upland Cotton
(Article 21.5 – Brazil) that "a well-considered analysis of economic evidence and modeling falls
within a panel's discretion as trier of fact." 777 Moreover, the United States asserts that "the Panel was
not required to espouse a view on every argument ma de in the parties' respective expert reports" 778, a
concept emphasized by the Appellate Body in EC – Poultry.779
332. The United States contends that the European Union's allegations that the Panel erred under
Article 11 of the DSU address isolated findings and ignore the broad weight of the evidence on which
the Panel relied. The Panel outlined several defi ciencies indicating that the European Communities'
proposed benchmark underestimated the appropriate level of project-specific risk properly associated
with LA/MSF for each of the challenged measures, and based its ultimate conclusion on a number of
flaws, rather than on any one single fault in th e European Communities' proposed approach. The
United States further claims that the European Uni on's assertions that the Panel violated Article 11 of
the DSU fail at the overall level. Specifically, th e United States contends that the European Union
never explains why, assuming arguendo that its individual criticisms we re valid, it would change the

776United States' appellee's submission, para. 211. (original emphasis)
777United States' appellee's submission, para. 210 (referring to Appellate Body Report, US – Upland
Cotton (Article 21.5 – Brazil), para. 435).
779United States' appellee's submission, para. 212 (referring to Appellate Body Report, EC – Poultry ,
para. 135).
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Panel's conclusion based on the totality of the ev idence that the European Communities' benchmark
was not valid, as required by the Appellate Body's finding in US – Continued Zeroing.
780
333. The United States asserts that the European Union has not provided a reason to overturn
individual findings that led the Panel to conc lude that the European Communities' proposed
benchmark was invalid. Referring to the Appellate Body report in US – Wool Shirts and Blouses , the
United States rejects the European Union's contention that "the Panel's finding that it had 'no way of
verifying' the value of the European {Communitie s'} proposed project-specific risk premium was in
error because the Panel 'failed to ask for evidence it considered necessary'." 781 The United States
argues that the European Communities never provided the relevant underlying data. Furthermore, the
United States claims that the Panel could not have expressed more detail in its Report regarding the
European Communities' proposed project-specific risk premium because th e European Communities
had designated the specific repayment provisions of the risk-sharing supplier contract, to which it
referred, as HSBI.
334. The United States rejects the European Uni on's contention that the Panel erred under
Article 11 of the DSU by failing to assess evidence presented by the Euro pean Communities when
finding that "there is 'logical merit to the Unite d States' argument suggesting that risk-sharing
suppliers had an incentive to lower their expected rates of return'." 782 The Panel's finding with regard
to the incentives facing risk-sharing suppliers is a findi ng of fact that is outside the scope of appellate
review. The Panel asked specific questions regard ing the issue, which the Panel reviewed in the
context of the totality of the evidence before it. The fact that the Panel did not discuss each of the
specific arguments proffered by the European Co mmunities is not, in itself, inconsistent with
Article 11 of the DSU. In addition, as a result of the European Communities' own designations, most
of the information relevant to this point was HSBI . The United States further argues that neither the
Panel nor the United States can be faulted for fa iling to present sufficient evidence to substantiate
their arguments with regard to the risk-sharing suppl iers' expected rate of return because the inability
to produce that evidence was a r esult of the European Communiti es' failure to provide the full
information necessary. Despite the European Co mmunities' failure to provide information, the
United States demonstrated that the supplier rela tionships do involve significantly lower risk than
LA/MSF contracts. The United States also disagrees with the European Union's claim that the Panel

780United States' appellee's submission, paras. 213-215 (referring to Appellate Body Report, US –
Continued Zeroing, para. 331).
European Union's appellant's submission, paras. 794-800; and referring to Appellate Body Report, US – Wool
Shirts and Blouses, p. 14, DSR 1997:I, 323 at 335).
782United States' appellee's submission, para. 219 (referring to the European Union's appellant's
submission, paras. 809-821).
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erred in the interpretation and app lication of Article 1.1(b) of the SCM Agreement by reasoning that
the actions of a market actor that has an exis ting business relationship with a company that is
allegedly subsidized cannot serve as a benchmar k because that market actor would somehow be
tainted.
783 The United States asserts that the Panel's findi ngs on this issue do not rely on this premise,
but instead the Panel found that, in this particular sc enario, the risk-sharing suppliers could not in fact
have been acting on strictly market terms and th at they may have had incentives to lower their
expected rates of return.784
335. The United States rejects the European Union's c ontention that "the Panel violated Article 11
of the DSU by engaging in 'speculation' when it ag reed with the view expressed by Brazil and the
United States that LA/MSF to Airbus lowers th e risk imparted to risk-sharing suppliers." 785 In
addition, the United States disagrees with the Eu ropean Union's assertion that the Panel erred in
finding that LA/MSF for the A380 reduced the leve l of risk associated with risk-sharing supplier
financing. The United States argues that the Pa nel found elsewhere in its Report that LA/MSF
reduced the risk associated with development of LCA, and that risk would obviously affect the
company's ability to pay other debt, including risk-sharing supplier financing.
336. The United States also disagrees with the Europ ean Union's argument that "the Panel failed
'to provide a reasoned and adequate explanation of its finding' that available information 'suggests that
risk-sharing participants' involvement in the A380 pr oject may not have been on strictly market terms
for all the participants'." 786 Specifically, the United States ment ions the Panel's reference to the
information cited by Dr. Ellis showing that a nu mber of suppliers used in Professor Whitelaw's
analysis themselves received financing like LA/MSF or other government subsidies that reduced their
cost of capital and would therefore reduce the re turns they required on contracts with Airbus. 787 The
Panel did not use this information as an independe nt reason for concluding that the European Union's
benchmark was invalid, but as one of a number of considerations supporting that conclusion. The
United States maintains, therefore, that there w as no need to show that LA/MSF-like financing to

783United States' appellee's submission, footnote 382 to para. 221 (referring to European Union's
appellant's submission, para. 811, in turn referring to Appellate Body Report, Japan – DRAMs (Korea) ,
para. 172).
784United States' appellee's submission, footnote 382 to para. 221 (referring to Panel Report,
para. 7.480).
785United States' appellee's submission, para. 222 (referring to European Union's appellant's
submission, para. 826).
786United States' appellee's submission, para. 223 (quoting and referring to European Union's
appellant's submission, paras. 829-834).
787United States' appellee's submission, para. 223 (referring to NERA, Response to Whitelaw Report
(24 May 2007) (Panel Exhibit US-534a (BCI/HSBI)), p. 24).
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suppliers by itself explained the differential be tween LA/MSF terms and the terms for risk-sharing
supplier financing.
337. Therefore, the United States asserts that the Eu ropean Union's allegations under Article 11 of
the DSU and Article 1.1(b) of the SCM Agreement should be rejected.
(c) The relevance of sales forecasts
338. The United States rejects the European Union's argument that the Panel erred under
Article 1.1(b) of the SCM Agreement in finding that "the number of sales over which full repayment is
expected reflects little regarding the ap propriateness of the rate of return."
788 The United States notes
the implicit uncertainty in long-term forecasts, in addition to the massive investments required for
LCA projects. On that basis, the United States ar gues that, "even if the programs at issue could be
expected to be profitable and the return expecta tions {could be} 'reasonable', it does not follow that a
manufacturer or investor bearing the full commercia l risk of the launch would 'bet the company' by
investing {US}$10 billion on the simple expectation that certain forecast sales, however reasonable,
may be achieved over a 20-year period of time."789
6. Export Subsidies
339. The United States submits that, contrary to the European Union's arguments, the Panel
correctly found that the LA/MSF measures by the Governments of Germany, Spain, and the United
Kingdom for the A380 were contingent in fact upon export performance within the meaning of
Article 3.1(a) and footnote 4 thereto of the SCM Agreement. The United States responds to the four
sets of grounds of appeal raised in the European Union's appeal.
(a) The first set of grounds of appeal: Alleged legal errors in the Panel's
interpretation of the terms "continge nt", "tied-to", and "actual or
anticipated"
340. The United States contends that, contrary to the European Union's argument, the Panel
"carefully reviewed the specific legal meaning of e ach of the relevant terms in Article 3.1(a) and
footnote 4 of the SCM Agreement{,} ... {and} ex amined the ordinary meaning of the terms
'contingent', 'tied to', 'actual or anticipated', in their context and in light of the object and purpose of

788United States' appellee's submission, para. 224 (referring to European Union's appellant's
submission, paras. 839-847).
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the SCM Agreement, in particular relating them to the concept of an 'in fact' as opposed to 'in law'
export contingency."
790
(i) The interpretation of Article 3.1(a) and Footnote 4
341. The United States argues that "{t}he reasoning in the Canada – Aircraft Appellate Body
report continues to offer the primary guidance on the meaning of Article 3.1(a)" and footnote 4. 791
Specifically, the Appellate Body found that an "i n fact" subsidy determination under these provisions
involves proving three elements: (i) the "granting" of a subsidy (ii) that is "tied to" (iii) "actual or
anticipated exportation or export earnings".
792 The Appellate Body further stated that "in fact"
contingency must be "inferred from the total conf iguration of facts constituting and surrounding the
granting of the subsidy, none of which is likely to be decisive in any given case". 793 In addition, "{a}
relationship of 'conditionality' or 'dependence' be tween the subsidy and exports demonstrates the
existence of a 'tie' between the grantin g of a subsidy and export performance." 794 The United States
further recalls that the Appellate Body noted that "the type of evidence that may be employed to
demonstrate the two types of contingency will be different, but that the standard is the same."795
342. The United States submits that, contrary to the European Union's argument, nothing in
Article 3.1(a) or footnote 4 "limits the notions of a 'c ontingency' or 'tie' to 'if-then' relationships where
subsidies lead inexorably to exports, or 'favour{} exports' or 'create an incentive for a company to
prefer exports over domestic sales'". 796 In the United States' view, although "the {European Union}
may have identified one way to sa tisfy Article 3.1(a) of the SCM Agreement, there is nothing to
indicate that it is the only way". 797 Moreover, the United States submits that "Article 3.1 and
footnote 4 do not require that a subsidy follow 'as a consequence of' exports actually being 'realized'
(that is, if there is export, then you get a subsidy)". 798 Rather, the legal standard focuses on whether a
relationship of conditionality existed between exports and the granting of the subsidy.

792United States' appellee's submission, para. 276 (quoting Appellate Body Report, Canada – Aircraft,
para. 169).
793United States' appellee's submission, para. 276 (quoting Appellate Body Report, Canada – Aircraft,
para. 167).
794United States' appellee's submission, para. 276 (quoting Appellate Body Report, Canada – Aircraft,
paras. 170 and 171).
795United States' appellee's submission, para. 276 (referring to Appellate Body Report, Canada –
796United States' appellee's submission, para. 291 (quoting European Union's appellant's submission,
para. 1318).
798United States' appellee's submission, para. 292. (original emphasis and underlining)
WT/DS316/AB/R BCI deleted, as indicated [***]

343. Turning to the phrase "actual or anticipated e xportation" in footnote 4, the United States
submits, contrary to the European Union's argument, that the word "actual", by its ordinary meaning,
means "real" rather than "existing".
799 Thus, "actual" exports may be either current or future "real"
exports. Moreover, "{a}s a participle, 'anticipated' simply acts as an adjective describing the nature or
attribute of 'being anticipated'" and "i mplies that someone is 'anticipating'." 800 This interpretation is
consistent with the Appellate Body's finding that the word "anticipated" means "expected" and that
"anticipated exportation" refers to "the anticipation … that exports will result." 801 The United States
further submits that, consistent with this interpre tation, actual exportation may be either current or
future "real" exportation, whereas anticipated exportation is expected at present but may not
necessarily occur in the future. If "anticipated" exports simply meant future exports, as the
European Union alleges, then "it is unclear why that term was needed at all, as 'actual' exports would
already include both current and future 'actual' exports."802 Therefore, the United States contends that
"the {European Union's} interpretations of the term{s } 'actual' as 'past or present', and 'anticipated' as
'future', and each of the conclusions it draws from this, are contrary to the ordinary meaning and
context of those terms, as explained in past Appellate Body findings."
803
344. As to the evidence required to demonstrate e xport contingency in fact, the United States
contends that the European Union erroneously s uggests that there is a higher threshold for finding
export contingency in fact and that this th reshold is "insurmountable" in this dispute. 804 T h e
United States notes the European Union's assertion th at a panel must determine the "precise content"
of a subsidy before finding that the subsidy is contingent in fact upon export performance. 805 T h e
United States argues that neither the Appellate Body nor any panel has articulated such a standard for
"in fact" contingency. In prior disputes, the "preci se content" criterion was referred to in the specific
context of a question about the legal standard for an "as such" challenge based on an "unwritten rule
or norm".806 The United States further maintains that, even if a "precise content" test would apply, it
is clear from the detailed and thorough assessment that the Panel made of the structure, meaning, and
context of the LA/MSF agreements and the surroundi ng facts that its analysis met the "precise
content" test that the European Union argues should apply.

801United States' appellee's submission, para. 286 (quoting Appellate Body Report, Canada – Aircraft,
para. 172).
802United States' appellee's submission, para. 288. (original emphasis)
804United States' appellee's submission, para. 278 (quoting European Union's appellant's submission,
para. 1308).
806United States' appellee's submission, para. 283 (referring to Panel Report, US – Zeroing (EC) ,
para. 7.319).
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(ii) The alleged double standard of "dependent motivation"
imposed by the Panel
345. The United States submits that, contrary to the European Union's arguments, the Panel did not
apply a double standard for determ ining export contingency in fact. Rather, the Panel applied the
same standard for the United States ' claims on in fact and in law export contingency, and examined
"a different, broader set of factual evidence in its assessment of the former, as compared to the
latter".
807 The United States maintains that the Pane l's approach did not "equate" the contingency
standard with "motivation" in reaching these findings 808 and "is entirely consistent with prior
Appellate Body and panel findings and reasoning".809
346. According to the United States, "apart from its inclusion of an additional 'subjective
motivation' requirement", the Panel correctly artic ulated the standard for finding a prohibited export
subsidy based on an in fact contingency on "antic ipated" exports as opposed to in law contingency. 810
More specifically, the Panel recalled the Appellate Body's finding that "satisfaction of the standard for
determining de facto export contingency ... requires proof of three different substantive elements:
first, the 'granting' of a subsidy; second, is 'tied to'; and third, 'actual or anticipated exportation or
export earnings'." 811 Moreover, the United States argues that the Panel correctly applied the same
standard to export contingency in fact and export co ntingency in law, but considered that the former
may rely on different evidence, as compared to the la tter. In particular, the Panel found that "in fact"
contingency must be "inferred from the total conf iguration of facts constituting and surrounding the
granting of the subsidy, none of which is likely to be decisive in any given case" 812, whereas "in law"
contingency must be demonstrated primarily on th e basis of "the text of the challenged LA/MSF
contracts" and "as a matter of law". 813 The United States submits that the Panel's approach was
consistent with Article 3.1(a), which "makes clear that 'in fact' and 'in law' contingency are not
materially different".814 Moreover, the Panel's approach was also consistent with the Appellate Body's

810United States' appellee's submission, para. 279 (referring to United States' other appellant's
submission, paras. 7-24).
811United States' appellee's submission, para. 280 (quoting Panel Report, para. 7.630, in turn quoting
Appellate Body Report, Canada – Aircraft, para. 169 (original emphasis omitted)).
812United States' appellee's submission, para. 280 (quoting Panel Report, para. 7.648, in turn quoting
Appellate Body Report, Canada – Aircraft , para. 167 (original emphasis omitted)).
WT/DS316/AB/R BCI deleted, as indicated [***]

finding that "the legal standard expressed by the word 'contingent' is the same for both de jure and
de facto contingency."
815
347. With respect to the Panel's interpretation of the term "anticipated exportation", the
United States submits that the Panel recalled the Appe llate Body's finding that the word "anticipated"
means "expected". 816 The United States maintains that, bu ilding on the findings of the Appellate
Body, the Panel noted that the ordinary meaning of th e verb "anticipate" is "{t}ake into consideration
before due time", "{o}bserve ... be fore due time", "look forward to" 817, "be aware of (a thing) in
advance and act accordingly" and "expect, foresee, regard as probable". 818 Thus, the Panel found that
"the term 'anticipated' does not impose a relati onship between the granting of a subsidy and the
realization of anticipated export performance, as is imp licit in the European Union's argument that
'anticipated' exports are 'future' exports." 819 According to the United States, the Panel therefore
correctly concluded that "anticipated" exportatio n "may be understood to be exportation that a
granting authority considers, expects or foresees will occur after it has granted a subsidy".820
348. With regard to the Panel's interpretation of th e terms "contingent on" in Article 3.1(a) and
"tied to" in footnote 4, the United States recalls the Panel's finding that "{t}he ordinary meaning of the
word 'contingent' has been held in previous dispute settlement pr oceedings to be 'conditional' or
'dependent for its existence on something else'." 821 The United States further recalls the Panel's
finding that "the expression 'tied to' has been interp reted as connoting to 'limit or restrict as to ...
conditions'."822 Thus, the Panel followed the relevant jurisprudence and did not "equate" the
contingency standard with "motivation" in reaching these findings. Furthermore, the Panel concluded
that "{o}ne way of describing the standard may well be in terms of an 'if-then' relationship" 823, as the
European Communities contended, but cautioned that "it would be wrong to conclude that this means

815United States' appellee's submission, para. 282 (quoting Appellate Body Report, Canada – Aircraft,
para. 167). (underlining added by the United States omitted)
816United States' appellee's submission, para. 286 (quoting Panel Report, para. 7.641, in turn quoting
Appellate Body Report, Canada – Aircraft, para. 172).
817United States' appellee's submission, para. 286 (quoting Panel Report, para. 7.641, in turn quoting
The New Shorter Oxford English Dictionary, 4th edn, L. Brown (ed.) (Clarendon Press, 1993), Vol. 1, p. 88).
818United States' appellee's submission, para. 286 (quoting Panel Report, para. 7.641, in turn quoting
The Concise Oxford Dictionary, 9th edn, D. Thompson (ed.) (Clarendon Press, 1995), p. 53). The United States
notes that the European Union also cites several of these same definitions. (Ibid., para. 286)
819United States' appellee's submission, para. 286 (referring to Panel Report, para. 7.641). (original
emphasis)
emphasis)).
821United States' appellee's submission, para. 289 (quoting Panel Report, para. 7.634, in turn referring
to Panel Report, Canada – Aircraft, para. 9.331; and Appellate Body Report, Canada – Aircraft, para. 166).
822United States' appellee's submission, para. 289 (quoting Panel Report, para. 7.634, in turn quoting
Appellate Body Report, Canada – Aircraft, para. 170).
823Panel Report, para. 7.640.
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that the contingency standard focuses on a relationship between the realization of anticipated export
performance and the granting of a subsidy."
824 The United States submits that, in so doing, the Panel
properly found that the legal standard for subsid ies contingent on anticipated exportation does not
require that a subsidy follow as a consequence of exports being achieved.
349. The United States maintains that the Panel's inte rpretation of Article 3.1(a) and footnote 4 is
consistent with relevant findings of panels and the Appellate Body in prior disputes. Specifically, in
Canada – Aircraft, it was export sales "ensuing" from the subsidy rather than the subsidy following as
a consequence of export sales that supported a finding of export contingency. 825 I n Australia –
Automotive Leather II, no actual exportation was required under th e grant contract found to constitute
an export subsidy, and the first payment under th e grant contract was made before any of the
anticipated export performance had occurred. 826 The United States submits that, in those cases, the
panels' finding of "contingency on anticipated exports was not, as the {European Communities}
asserted before the Panel, that the ' consequence required by Article 3.1(a) and footnote 4 (grant of a
subsidy) was demonstrated'" 827, "but that the grant contract was tied to 'anticipated' export
performance in a broader, more literal sense of that term."828
350. Finally, the United States submits that it agr ees with the European Union that "the Panel
imposed an unsupported and subjective additional requirement of 'subjective motivation'", but
disagrees with the European Union that evidence of "motivation" or "intent" cannot be a relevant
factor in a panel's analysis of the total configuration of the facts. 829 In the United States' view, "the
motivation or intent behind a measure may well be probative evidence of its export contingency, but
is not in and of itself an additional requirement beyond the three export subsidy criteria—granting of a
subsidy, that is tied to, actual or anticipated exportation."830

emphasis)).
825United States' appellee's submission, para. 295 (referring to Panel Report, Canada – Aircraft ,
para. 9.339 (original emphasis)).
826United States' appellee's submission, para. 296 (referring to Panel Report, Australia – Automotive
Leather II, para. 9.67).
827United States' appellee's submission, para. 296 (quoting European Communities' first written
submission to the Panel, para. 669). (emphasis added by the United States)
829United States' appellee's submission, paras. 304 and 305 (referring to the European Union's
appellant's submission, paras. 1353-1355 and 1371). (original emphasis)
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(iii) Other alleged legal errors in the Panel's legal interpretation
351. The United States further submits that the remaining legal errors alleged by the
European Union in its first set of grounds of app eal are unfounded. First, the United States contends
that the Panel did not err in reviewing the "in f act" claim first, because the United States' claim was
"principally a claim of de facto contingency".
831 In any event, the Panel's approach "in no way
affected the outcome of its analysis" because, as the European Union also acknowledges, "there is a
single standard for 'in fact' and 'in law' contingency."832 Therefore, that "{i}t is ... entirely logical for a
panel to begin its analysis with a party's claims of contingency 'in fact', if that party itself has
indicated that it believes the evidence to be primarily supportive of such a claim."833 Furthermore, the
United States argues that the Panel did not find, on the basis of the same evidence, that certain
subsidies were contingent in fact on export performance, but not contingent in law on export
performance. Instead, the Panel "simpl y found that certain legal documents alone were not sufficient
to establish contingency 'in law', whereas tho se documents in combination with additional
surrounding facts were sufficient for a finding of contingency 'in fact'."834
352. Third, the United States maintains that the Pa nel's findings did not "discriminate" against
certain types of subsidies or small economies. Spec ifically, the Panel did not find that a normal loan
repayable on a monthly or quarterly basis would be export contingent, but found that a loan to be
repaid through sales that cannot be achieved wit hout exportation was export contingent. Under the
Panel's finding, therefore, "{t}he subsidizing Member can structure the subsidy in different ways, and
only if it does so in a way that 'ties' it to the 'an ticipated exports' is a finding of 'export contingency'
justified."835 Similarly, the Panel did not find that an ticipated exportation, which may arise more
easily in a small economy, would alone be sufficien t to establish export contingency, but found that
the requirement to show a "tied to" relationship must be satisfied.
353. Fourth, the United States asserts that the Panel's findings did not render the second sentence
of footnote 4 ineffective. Rather, the Pane l "followed the Appellate Body's guidance in Canada –
Aircraft that ... 'the export orientation of a recipien t may be taken into account as a relevant fact,
provided that it is one of several facts which are considered and is not the only fact supporting a
finding'".836 Thus, the Panel appropriately considered th e export orientation of Airbus, but based its

834United States' appellee's submission, para. 302. (original emphasis)
836United States' appellee's submission, para. 306 (quoting Appellate Body Report, Canada – Aircraft,
para. 173).
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ultimate findings of export contingency on a range of factors, "the most important of which were the
sales-based repayment structure of LA/MSF and the exchange of commitments between Airbus and
the Airbus governments."
837
354. Finally, the United States submits that the Pa nel did not impute to the European Communities
arguments it did not make. The United States highli ghts the European Communities' argument before
the Panel that "none of the provisions that the United States relie{d} upon as evidence of a
commitment to export oblige Airbus to make any sales at all, let alone export sales." 838 Thus, as the
Panel rightly found, the European Communities er roneously argued that th e absence of a legal
condition requiring the company to export is dispos itive as to the lack of export contingency.
Similarly, the Panel did not err in finding that the European Communities argued that "an
inconsistency only arises when an export 'is re alised'", because this is "precisely what the
European Union does argue when it a sserts that only current or future actual exports can give rise to
the anticipation that serves as the basis for a 'tie' that establishes export contingency."
839
(b) The second set of grounds of appeal: Alleged legal errors in the
Panel's application of the standard set out by the Panel
355. With regard to the European Union's second set of grounds of appeal, the United States
maintains that the Panel "did not err in its applicati on of the legal standard to the facts, other than to
impose on the United States the additional requirement of 'subjective motivation' for demonstrating
'in fact" contingency". 840 Moreover, the United States submits that the Panel "performed a thorough
and complete assessment of the facts and carefully applied each of the elements of the legal standard",
and did not act inconsistently with Article 11 of the DSU when finding that the German, Spanish, and
UK A380 LA/MSF constituted subsidies contingent in fact upon export performance.841
(i) The 1992 Agreement
356. The United States argues that, contrary to the European Union's assertion, the Panel was not
required to take into account the 1992 Agreemen t in examining the United States' claims on de facto
export contingency. Rather, the Panel properly rejected the European Communities' argument that the
United States "acquiesced" to the LA/MSF subsidies.842 Moreover, according to the United States, the
Panel rightly noted that "the 1992 Agreement, by its own terms, was 'without prejudice to the rights

839United States' appellee's submission, para. 303. (original emphasis)
840United States' appellee's submission, para. 310. (original emphasis)
842United States' appellee's submission, para. 337 (referring to Panel Report, paras. 7.99 and 7.100).
WT/DS316/AB/R BCI deleted, as indicated [***]

and obligations of the parties under the GATT and any agreement negotiated under its auspices'."
843
The United States adds that the European Uni on's argument "would have required the Panel to
determine the consistency of LA/MSF with the te rms of an agreement that is not a 'covered
Agreement' which ... {was} simply not within the competence of the Panel."844
(ii) The alleged internal conflicts in the Panel's findings
357. The United States argues that, contrary to the Eu ropean Union's assertion, the Panel's findings
regarding export contingency do not contradict its findings on the existence of benefit and adverse
effects. The United States recalls the Panel's fi nding, in the context of its findings on benefit and
adverse effects, that loans granted under th e LA/MSF contracts are unsecured and depend on the
success of the financed projects, because repayment is sales-depende nt and the governments have no
recourse to Airbus' assets if the company fails to repay. In the context of its findings on export
contingency, the Panel referred to the contract ual warranties concerning the accuracy of sales
forecasts and other representation that reinforced the contractual tie between the provision of LA/MSF
contracts and anticipated exports. Thus, the United States contends that "there is no basis for the
{European Union's} argument that the Panel's 'sta tement{s} in its assessment of {LA/MSF} are in
direct conflict with its subsequent statements in its assessment of export contingency'."845
358. The United States further submits that the only inconsistency in the Panel's findings exist
between its finding that all of the seven LA/MSF me asures are at least in part contingent upon
anticipated exportation, and its subsequent findin g that only the German, Spanish, and UK LA/MSF
contracts were contingent upon anticipated exportati on. According to the United States, the Panel's
finding that the sales-dependent repayment terms showed that the LA/MSF measures were "at least in
part" conditional on anticipated exportation "was sufficient to determine" that all seven measures were
export-contingent.846 The United States submits that this in consistency, which the European Union
fails to point out, is discussed in detail in its other appellant's submission.

845United States' appellee's submission, para. 331 (quoting European Union's appellant's submission,
para. 1382).
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(iii) Whether the sales-dependent repayment provisions support a
finding of export contingency
359. According to the United States, the Panel pr operly found that the use of royalty-based
financing in the seven LA/MSF contracts at issue, as well as the exchange of commitments between
the governments and Airbus pursuant to these contra cts, demonstrated that the provision of LA/MSF
was "at least in part, 'conditional' or 'dep endent for its existence'" upon exportation.
847 T h e
United States contends that the Panel correctly found that the two legitimate commercial reasons
alleged by the European Communities did not explain why the LA/MSF governments required each
of the challenged LA/MSF loans to be repaid wi th revenue generated from aircraft sales. The
United States recalls that the two alleged legitimate commercial reasons are: aircraft deliveries are the
most reliable indication that sufficient cash-flow w ill be on hand to make repayment; and sales-based
repayment reflects the allocation of risk that Ai rbus and the member State governments agreed to
accept. According to the United States, the Pane l properly found that the European Communities
failed to substantiate its claim that the alleged co mmercial reasons explain why Airbus is required to
repay the loans through revenues generated from LCA sales.
360. Moreover, the United States submits that, as th e Panel correctly found, an exchange of
commitments exist under all seven LA/MSF contract s because, "under each of the seven LA/MSF
contracts at issue, Airbus was required to repay the loaned princi pal plus any interest from the
proceeds of the sale of a specified number of LCA developed with the financing provided ."848
Moreover, the Panel properly found that "achieving the level of sales needed to fully repay each loan
would require Airbus to make a substantial nu mber of exports" and that, consequently, the
governments "must have held a high degree of certainty that the provision of LA/MSF would result in
Airbus making those export sales".
849 On this basis, the United States submits, the Panel properly
found that "the provision of {LA/MSF} on sales-depe ndent repayment terms was, at least in part,
'conditional' or 'dependent for its existence' upon the EC member States' anticipated exportation or
export earnings."850

emphasis)).
WT/DS316/AB/R BCI deleted, as indicated [***]

361. Finally, the United States submits that it agre es with the European Union's argument that "a
subsidy is either export contingent or it is not."
851 In the United States' view, "it is well established
that even partial export contingency (that is, wher e exports or anticipated exports are only one among
several conditions) constitutes export contingenc y within the meaning of Article 3.1(a)." 852 Thus, the
Panel's finding that each of the seven measures ch allenged is "at least in part" contingent or
"dependent for its existence" on anticipated exports is sufficient for a finding of contingency under
Article 3.1(a)", and "{t}he Panel should have ended its analysis there."853
(iv) Whether the "additional evidence" examined by the Panel
did not support a finding of export contingency
362. The United States notes that, in addition to the sales-dependent repayment provisions, the
Panel also examined certain additional evidence to corroborate the existence of export contingency.
The United States recalls that, as it argues in its ot her appeal, in examining the additional evidence,
the Panel erroneously applied a standard that would require evidence of the relevant LA/MSF
governments' subjective motivation in order to find that the LA/MSF contracts at issue constituted
export subsidies. The United States submits, however, that, although evidence concerning a
government's subjective motivation should not be required for a finding of export contingency, it
could be taken into account as part of the total conf iguration of facts surrounding the granting of the
subsidy.
363. The United States maintains that, contrary to the European Union's argument, the Panel did
not err in finding that the additional evidence co rroborated the finding of export contingency with
respect to the German, Spanish, and UK LA/MSF contracts and that, in so finding, the Panel
conducted an objective assessment of the facts, cons istently with Article 11 of the DSU. As a
preliminary matter, the United States notes that the European Union's arguments under Article 11 of
the DSU appear to focus on the Panel's treatment of the additional evidence relating to the LA/MSF
governments' motivation in providing the subsidies at issue. Thus, should the Appellate Body agree
with the United States that no additional evidence concerning motivation is required in order to
establish export contingency, the Appellate Body n eed not examine the European Union's arguments
under Article 11 of the DSU.

851United States' appellee's submission, para. 316 (referring to European Union's appellant's
submission, para. 1393).
852United States' appellee's submission, para. 316 (referring to Article 3.1(a) of the SCM Agreement ;
and Appellate Body Report, Canada – Aircraft, para. 166).
853United States' appellee's submission, para. 316 (referring to Article 3.1(a) of the SCM Agreement ;
and Appellate Body Report, Canada – Aircraft, para. 166).
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364. The United States argues that the Panel perfo rmed an objective assessment of the matter
before it, including the facts, by taking into acc ount all evidence and arguments, carefully reviewing
the evidence, and drawing its conclusion upon the review. According to the United States, the
European Union pointed to no evidence that would justify a finding that the Panel failed to conduct an
objective assessment of the matter before it. Noti ng the Appellate Body's finding that a claim under
Article 11 constitutes "a very serious allegation "
854 and requires a demonstration of "egregious
error"855, the United States maintains that the European Union's claim under Article 11 does not meet
the standard.
365. Moreover, the United States argues, the Pane l "reviewed in detail the numerous facts it
considered relevant", and its "k ey findings provide clear reasoning and explanation of the specific
facts on which they are based and are fully consis tent with the legal standard that the Panel
articulated."856 In addition, the United States maintains that "the European Union's approach of
segregating the individual elements of fact on which the Panel relied is at odds with the requirement
for the Panel to base its findings of export contingency on the total configuration of the facts." 857
Finally, the United States submits that, even if the Appellate Body were to review the
European Union's arguments concerning each of th e individual elements, the Appellate Body would
find that none of the arguments is supported by evid ence. For example, the European Union provides
no evidence for its argument that a document refe renced in the preamble of the German LA/MSF
contract was authored by Airbus. In any event, according to the United Stat es, the European Union's
argument is irrelevant because th e Panel relied, not on this partic ular document, but on a specific
provision in the German LA/MSF contract that refers to this documen t and demonstrates the
government's reliance on it.
(c) The third set of grounds of appeal: Alleged legal errors in the Panel's
application of the correct legal standard of contingency
366. The United States notes that, in its third set of grounds of appeal, the European Union again
claims that the Panel acted inconsistently with Ar ticle 11 of the DSU. The United States submits that
the European Union's claims and arguments in th is respect are addressed in the context of the
European Union's second set of grounds of appeal. In addition, the United States maintains that the

854United States' appellee's submission, para. 322 (quoting Appellate Body Report, US – Zeroing (EC),
para. 253, in turn quoting Appellate Body Report, EC – Poultry , para. 133). (emphasis added by the
United States)
855United States' appellee's submission, para. 322 (quoting Appellate Body Report, US – Wheat Gluten,
857United States' appellee's submission, para. 325. (original emphasis)
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European Union failed to demonstrate that the Pane l acted inconsistently with Article 12.7 of the
DSU. Specifically, the Panel set out the basic rati onale behind its findings and, contrary to the
European Union's assertion, was not required to e xplain the specific reasoning with respect to its
assessment of each individual piece of factual evidence. Finally, the European Union failed to explain
how the Panel's findings would have resulted in a failure to meet the requirement of Article 7.2 to
"address the relevant provisions in any covered agreement or agreements cited by the parties".
858
(d) The fourth set of grounds of appeal: Further alleged legal errors
367. With respect to the European Union's fourth set of grounds of appeal, the United States
submits that none of the European Union's allegations of errors by the Panel has any merit. First, the
United Sates argues the Panel did not accept an untimely submission by the United States when
considering the United States' argument in its second written submission that the LA/MSF contracts
involved an "exchange of commitments". Rather, the Panel properly found that the United States was
entitled to expand and explain certain arguments by discussing various aspects of the evidence already
submitted in its first written submission. Second, the United States contends that there is no basis for
the European Union's argument that the Panel ma de the case for the United States by adopting a
"dependent motivation" standard. On the contra ry, the Panel's application of a motivation-based
standard led to its rejection of the United States' claim that four of the LA/MSF contracts constituted
export subsidies.
368. Third, the United States maintains that the Eur opean Union's argument that the Panel equated
performance with export performance is untrue and, in any event, is a restatement of one of the
fundamental issues addressed by the Panel, namely whether the LA/MSF contracts were contingent
upon export performance. Fourth, the United States argues that the Panel di d not equate financial
contribution with subsidy, because the Panel considered both benef it and financial contribution in
reaching its conclusion that the LA/MSF contracts at issue were subsidies within the meaning of
Article 1.1 of the SCM Agreement. In the United States' view, "the European Union argument ... that
export contingency has to relate specifically to the 'decision to fix the terms of the {LA/}MSF
measures at below market rate' equates 'benefit' with 'subsidy'". 859 Finally, the United States contends
that the European Union failed to provide any expl anation as to how the use of the terms "export" or
"Europe" impacted the Panel's consideration and that , in any event, a panel is under no obligation to
address every argument of a party.

859United States' appellee's submission, para. 348 (quoting European Union's appellant's submission,
para. 1488).
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369. On this basis, the United States requests the A ppellate Body to reject the European Union's
appeal that the Panel erred in finding that the German, Spanish, and UK LA/MSF measures for the
A380 were contingent in fact upon export performance.
7. The EC Framework Programmes

370. The United States rejects the European Union's contention that, because support to Airbus is
organized under the EC Framework Programmes, the anal ysis of specificity must occur at that level.
According to the United States, "{t}he European Union observes that a large number of industry
sectors receive funding under each Framework, and argu es that this variety is dispositive evidence of
non-specificity, even though individual disbursemen t categories applicable to aerospace set tight
limitations on eligibility."860 The United States argues that, under such an approach, "the bureaucratic
organization of subsidy programs, rather than th e substance of how they limit funding, dictates
whether they are specific", and "{n}othing in the SCM Agreement supports such a formalistic
analysis."861
371. The United States considers that the te rm "subsidy" in Article 2 of the SCM Agreement is a
"flexible term" that can mean either "individual act s of granting subsidies within a broader subsidy
program" or "multiple grants of the same type of subsidy". 862 The United States contends that there is
"no textual support" for the European Union's argument that the specificity analysis under
Article 2.1(a) "should start with whatever 'progr am' generated the subsidy and examine the program
as a whole". 863 Unlike other provisions of the SCM Agreement, Article 2.1(a) does not mention the
word "programme".864 The European Union's th eory "leads it to a specificity analysis in which the
bureaucratic organization of subsidization dictates the results, to the exclusion of the actual limitations
on access to funds". The United States also notes that the theory indicates that, "if a funding system
embraces a large enough number of targeted subsid ies, none is specific b ecause they collectively
benefit a multitude of enterprises."865

864United States' appellee's submission, para. 450. The Un ited States also states that there is no reason
to conclude that the criteria for de facto specificity concerning a subsidy "programme" under Article 2.1(c)
"would inform the meaning of the criteria for de jure specificity under Article 2.1(a)". (Ibid., para. 452)
WT/DS316/AB/R BCI deleted, as indicated [***]

372. The United States also disagrees with the Eu ropean Union's argument that focussing the
specificity analysis on individual acts of granting subsidies "would reduce the specificity requirement
to a nullity".
866 The Panel's approach examines the cond itions imposed on access to pools of money,
such that if the pool funds multiple subsidy grants, the Panel's analysis would not apply to individual
grants. The United States also addresses the Eur opean Union's argument that the Panel's standard
would prevent Members from ensuring an even distribution of funds among multiple sectors by
targeting funds to particular sectors. The Unite d States considers that "{t}he notion that targeted
subsidies lessen specificity does not comport well with the definitions of 'specific' in Article 2.1." 867
Moreover, the United States maintains that the facts do not support, and the Panel findings contradict,
the European Union's contention that "the Framework Programmes were non-specific because
companies in all sectors, including the aerospace sector, faced the same situation of access to sector-
specific funds but exclusion from other funds."868
373. Furthermore, the United States addresses the Eu ropean Union's argument that the Panel's
analysis penalizes Members who target funds to particular sectors to avoid triggering de facto
specificity under Article 2.1(c) of the SCM Agreement, or who are transparent about the
administration of subsidies. First, the United States recalls that targeted subsidies that are specific are
subject to SCM Agreement disciplines. Moreover, nothing in the Panel's reasoning prevents other
methods to ensure even distribution of subsidies, such as caps on the amount that any one applicant or
any one sector could access. Second, the United St ates maintains that the Panel's analysis only
penalizes Members with transparent subsidy pr ogrammes if the criteria are specific. The
United States posits that, "{i}f a Member maintains a program that ensures impartial, general access,
such as by allowing a large number of sectors acc ess to a unitary fund based on the merit of the
research project as evaluated by neutral panels of scientists, transparency can only help to establish
non-specificity."869
374. For these reasons, the United States requests the A ppellate Body to uphold the Panel's finding
that "subsidies to Airbus under the Second throu gh Sixth EC Framework Progr ammes are specific to
aerospace enterprises" within the meaning of Article 2.1(a) of the SCM Agreement.

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8. Infrastructure Measures

(a) Financial contribution
375. The United States submits that there is no s upport for the European Union's argument that
creation of infrastructure is excluded from the SCM Agreement, and requests the Appellate Body to
uphold the Panel's reasoning, "which ensures a proper an alysis by using all of the available evidence
to understand exactly what the government provided, and to whom it was provided".870
376. According to the United States, the Panel recognized that member State and local
governments provided subsidies in the form of several infrastructure projects designed specifically for
Airbus and made them available to Airbus for less remuneration than a market-based supplier would
have charged. The United States observes that the Panel concluded in each case that "the authorities
built the infrastructure specifically to address the needs of one company (Airbus) or group of
companies (the aerospace industry)", and that "sp ecific limitations existed on the use of and access to
the infrastructure, either de facto (e.g., no possibility to access excep t from Airbus-owned land) or
de jure".
871 Specifically, the United States asserts that, in evaluating whether the Mühlenberger Loch
project, the Bremen runway extension, and the Aéroc onstellation site were general infrastructure, "the
Panel focused on exactly what the relevant govern ments provided, and to whom", and complied fully
with the requirements of the SCM Agreement.872
377. The United States disagrees with the European Union's argument that the Panel failed to
distinguish the "provision of infrastructure", which is covered by the SCM Agreement, from the
"creation of infrastructure", which is "carved out" of the Agreement. The United States argues that
the use of the term "provides" in the present tense in Article 1.1(a)(1)(iii) does not signify that "any
pre-provision activity—such as 'creation' of infrast ructure—is outside the scope of the Agreement." 873
The United States submits that th e European Union's unsupported gene ralizations about the "type of
actions which qualify as 'financial contributions'", an d its assertion that negotiators carved creation of
infrastructure out of the SCM Agreement, are insufficient to bolster the European Union's claims.
378. The United States argues that the meaning of the word "provides" should be properly applied
to the facts in this dispute. The United States not es that several dictionary definitions "confirm that
the act of 'providing' a thing includes 'making availa ble', 'equipping', 'preparing' and, therefore, can

871United States' appellee's submission, para. 351 (referring to, inter alia, Panel Report, para. 7.1043).
WT/DS316/AB/R BCI deleted, as indicated [***]

involve or coincide with the act of 'creating' that thing."
874 This is especially the case, the
United States contends, when the totality of the fact s demonstrate that the creation of the thing and its
subsequent delivery to someone else are, as a fact ual matter, two interrelate d parts of one and the
same activity. The United States further submits that the use of the present tense of "provides" does
not indicate that "actions taken by the government prior to the provision of the good or service in
question are not relevant for the notion of 'fin ancial contribution' in Article 1.1(a)(1)(iii)." 875
According to the United States, events preceding the actual act of delivering a subsidy are often
critical to understanding the subsidy; the totality of the facts may indicate that an assessment of the
measure as a whole should take into account the broader set of circumstances.
379. The United States also considers it significant that neither Article 1.1 nor any other provision
of the SCM Agreement refers to the "creation" of infrastruct ure. If the negotiators had wanted to
completely exclude the creation of infrastructure from the SCM Agreement, they would have done so
explicitly. The United States submits that the cont ext of Article 1.1(a)(1)(iii) supports the Panel's
interpretation in two ways. First, the other subpara graphs of Article 1.1(a)(1) use more specific and
narrow terms than "to provide", which is used in Article 1.1(a)(1)(iii); if the drafters of the
Agreement had intended that only the actual "transfe r" of goods or services be covered, they could
have used that term, as they did in Article 1.1(a)(1)(i). Second, the United States points to the lack of
examples in Article 1.1(a)(1)(iii), which suggests th e need for "a careful analysis of the total
configuration of the facts", as performed by the Panel.876
380. The United States submits that the European Union takes "an overly narrow view of the
government-recipient economic relationship".877 The United States argues that, while the provision of
infrastructure may become final upon the "act of provi sion", that does not mean that the "transfer" or
"provision" is limited to that point in time. In respect of the Mühlenberger Loch project, the Bremen
runway extension, and the Aéroconstellation site , the government did not merely provide a piece of
land or an undifferentiated landing right; rather, the Panel determined that the government action
included designing and building the infrastructure for the recipient. The United States also claims that
the European Union speculates on the economic, so cial, and cultural development reasons WTO
Members would have had for carving out the creation of infrastructure from the SCM Agreement
without citing any negotiating history or text. The Un ited States explains that other, more plausible,

874United States' appellee's submission, para. 359 (referring to, inter alia , The New Shorter Oxford
English Dictionary, 4th edn, L. Brown (ed.) (Clarendon Press, 1993), Vol. 2, p. 2393).
875United States' appellee's submission, para. 361 (quoting European Union's appellant's submission,
para. 1031 (original emphasis)).
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intentions could be ascribed to the WTO Members, namely that they intended to include all of the
steps of providing a particular piece of infrastructure within the analysis under the SCM Agreement.
381. The United States rejects the European Union's th eory that the "creation" and "provision" of
infrastructure are two distinct actions for purposes of analyzing whether a provision of goods is a
financial contribution under the SCM Agreement. The United States asserts that the European Union
"simply assumes that the facts comport with its th eoretical construct", and accuses the Panel of failing
to distinguish between the "creation" and "provision" of the infrastructure.
878 A careful review of the
Panel's factual findings reveals that "the creation of infrastructure was not distinct from its provision
in Hamburg, Bremen, and Toulouse as a matter of fact."879
382. With respect to the Mühlenberger Loch site, the United States asserts that the Panel began
with a careful review of the facts pertaining to that transaction, first considering whether it was
possible to review the creation of the land (that is, the turning of wetland into usable land) separately
from the lease to Airbus of the land and facilitie s (that is, the Mühlenberger Loch site). The
United States supports the Panel's finding that the lease of the land and sp ecial purpose facilities to
Airbus cannot be separated from the creation of th e land (including the flood protection measures and
the building of the special purpo se facilities), "because it was necessary to create the land in the first
place in order to allow the remainder of the project, including the building and subsequent lease of the
special purpose facilities, to be undertaken." 880 The United States also points to the Panel's findings
that "the land reclamation in question was undertak en in order to make possible the expansion of
Airbus' existing facilities, and not for any independen t purpose" and that "the project was undertaken
exclusively for Airbus." 881 In the United States' view, "the government of Hamburg sought to help
Airbus by creating new land in Mühlenberger Loch "; "if not for the objective of giving land to
Airbus, the land would not exist." 882 The United States concludes that "creation" and "provision"
cannot be viewed separately, because they are one and the same.
383. The United States submits that similar considerations emerge from the Panel's findings with
respect to the extension of the main runway at the Bremen airport. The United States supports the
Panel's finding that "the extension of the runway at Bremen airport, and the associated noise reduction
measures, were undertaken by the Bremen city au thorities specifically for Airbus' needs", and notes
the Panel's reference to statements in the Bremen Parliament indicating that the runway extension was

879United States' appellee's submission, para. 370. (original emphasis)
881United States' appellee's submission, paras. 373 and 374 (quoting Panel Report, paras. 7.1078
and 7.1084).
WT/DS316/AB/R BCI deleted, as indicated [***]

intended for Airbus' use.
883 Having found that the runway extension was undertaken to fulfil Airbus'
specific needs, and that use of the extended runway is de jure limited to Airbus for the purpose of
transporting aircraft wings, the Panel concluded that the entire project (including the runway
extension, the associated noise reduction measures, and the right of exclusive use) constitutes a
financial contribution to Airbus within th e meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.
The United States argues that these f acts indicate that there is no difference between the creation and
provision of this infrastructure. According to the United States, the runway extension would not have
occurred without the objective of transferring it to Airbus, since it was "conceived, planned, and
executed as part of a single package".884
384. Regarding the Aéroconstellation site, the Unite d States quotes the Panel at length, noting the
Panel's findings that "it is clear" that the de velopment of the Aéroconstellation site and the
construction of the EIG facilities "was undertaken speci fically to enable Airbus to situate an A380
final assembly line in an advantageous location, in France". 885 The site was from the outset uniquely
adapted to Airbus' needs, from its situation next to and connected to the Toulouse-Blagnac airport, to
the highly specific EIG facilities. The United States argues that the Aéroconstellation site, similar to
the Mühlenberger Loch and Bremen runway extensi on, indicates that the "project conception, project
planning, and execution {are} all directed at provision of a specialized site to Airbus". 886 According
to the United States, identifying some of these step s as "creation" of the site and others as its
"provision" would be "an artificial exercise with no grounding in the SCM Agreement or in reality".887
Therefore, the United States concludes, even if the A ppellate Body were to find that, in principle, the
creation of infrastructure and its provision coul d be different, the tailor-made, user-specific
infrastructure in this dispute is not such a case.
385. Finally, the United States submits that the Panel did not ignore the European Communities'
arguments regarding the creation of infrastructure. The United States observes that the Panel referred
to the European Communities' "two-step approach" argument 888 whereby, first, the government may
build general infrastructure, and second, a government may limit the use of that general infrastructure
to certain companies. The United States notes that the Panel rejected that argument because it was
"not convinced" that a distinction must be draw n between the creation of the infrastructure and
subsequent limitations on its use or access. The United States also supports the Panel's conclusion

883United States' appellee's submission, paras. 375 and 376 (quoting Panel Report, para. 7.1116).
888United States' appellee's submission, para. 379 (referring to Panel Report, paras. 7.1042 and 7.1043).
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that, if it were to accept the European Communities' "two-step approach", this would imply that the
general nature of some infrastructure is inherent and that circumstances surrounding the provision of
that infrastructure do not change its general nature . The United States notes that the Panel considered
that, "if an evaluation of the circumstances surroundi ng the creation of the infrastructure demonstrates
that it was provided to a single entity or a limited group of entities, this supports the conclusion that
the infrastructure created is not properly considered general."
889
(b) Benefit
386. The United States notes that, having found that the provision of the Mühlenberger Loch
project, the Bremen runway extension, and the Aé roconstellation site were the relevant financial
contributions, the Panel "based the benefit analysis on how much a market investor would charge to
provide comparable infrastructure." 890 In each case, the United States contends, "the government
made substantial upfront investments to create infrastructure tailor-made for Airbus which the
company would otherwise have had to create itsel f or rely on commercial project developers to
create."891 The United States claims that, taking into ac count these facts, as well as the legal standard
set out in Article 1.1(b) of the SCM Agreement, the European Union's clai m that the Panel adopted
what amounts to a "return-to-government" or "cost-to-government" standard fails.
387. The United States argues that, contrary to the European Union's claim, the Panel did not apply
a "cost-to-government" standard. The United States refers to the Panel's statement that "a benefit will
be conferred whenever a financial contribution is granted to a recipient on terms more favourable than
those available to the recipient in the market." 892 The Panel therefore used the cost of the initial
infrastructure development "not because that was how much the subsidy cost the government, but as a
factual element indicative of the return that a commercial investor would have demanded." 893 The
United States submits that the Pa nel's approach was not a "cost-to-government" approach; instead,
the Panel "simply ask{ed} what 'price' a comme rcial real estate developer, under the same
circumstances would have demanded to provide a tailo r-made site, a runway extension, or facilities
exclusively for a certain company or companies." 894 The United States adds that the best proxy for
that market price is what a commercial investor wo uld have sought as a return on that investment,
namely recovery of its cost plus a certain profit. The United States thus considers that the "cost" to

added by the United States)
893United States' appellee's submission, para. 382. (original emphasis)
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the government of developing the infrastructure involved "was a factor in determining whether Airbus
would have had to pay more on the market to receive the same thing it actually received from the
governments. It was not itself the standard against which the Panel determined the existence of a
benefit."
895
388. The United States submits that Article 14(d) of the SCM Agreement supports the Panel's
approach. By directing the benefit inquiry at "w hether a market actor would have provided the good
or service to the recipient at the time, on the sa me terms and conditions as the government provision
at issue", the Panel evaluated the adequacy of the remuneration paid by Airbus. 896 On that basis, in
addressing the Mühlenberger Loch project, the Panel concluded that "a market actor who invested
{€}750 million in land, whether by purchasing it or by creating it through reclamation, would, in
renting the property, seek a return on that investment." 897 The United States maintains that the Panel
followed a similar approach for the Bremen runway extension and the Aéroconstellation site.
389. The United States claims that the European Union does not dispute the accuracy of the Panel's
findings regarding the government's costs, or that a private investor would spend that sum of money
only if it could obtain a commercial return. Instead , the European Union contends that these figures
are "pointless", because Article 14(d) of the SCM Agreement "guides towards assessing any 'benefit'
based on market value and price, rather than any return earned".
898 This, the United States argues, is
not what Article 14(d) does. Rather, it frames th e benefit analysis in terms of "adequacy of
remuneration" based on "prevailing market conditi ons", including a number of factors. The
United States argues that the Panel followed the approach laid out in Article 14(d) "by considering the
price the authorities paid for creating the infrast ructure in question, based on prevailing market
conditions".899
390. The United States also contends that the Eur opean Union's claims based on the panel and
Appellate Body reports in Canada – Aircraft fail. The United States argues that, in Canada –
Aircraft, the Appellate Body found that "the word 'ben efit', as used in Article 1.1(b), implies some
kind of comparison", and that "there can be no 'benefit' to the recipi ent unless the 'financial
contribution' makes the recipient 'better off' than it would otherwise have been." 900 The United States

895United States' appellee's submission, para. 383. (original emphasis)
898United States' appellee's submission, para. 385 (quoting European Union's appellant's submission,
paras. 1037 and 1067).
900United States' appellee's submission, para. 386 (quoting Appellate Body Report, Canada – Aircraft,
para. 157).
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also notes the Appellate Body's statement that, for that determination, "the marketplace provides an
appropriate basis for comparison."
901 The United States argues that, although the European Union
insists the marketplaces in question ar e for the rental of industrial property in Hamburg, the usage of
runways in Bremen, and the purchase of industrial pr operty in the Toulouse region, "in none of these
cases did Airbus receive the item the {European Uni on} seeks to value in the marketplace in which
the {European Union} seeks to value it."902 The proper marketplaces, the United States contends, "are
for the reclamation and protection of swampland al ong the River Elbe, for exclusive use of a runway
in Bremen, and customized aerospace-ready property in Toulouse".903 In addition, the standard under
Article 14(d) of the SCM Agreement for evaluating these items is not the generalized "market value",
but the adequacy of the remuneration received by the government that provided the infrastructure.
The United States considers that, "{b}y examining what a commercial investor would expect, the
Panel satisfied that standard."
904
391. The United States also addresses th e European Union's critique th at the Panel's approach was
"economically naïve" because "{n}o market actor can , as the Panel implies, set a price for a good
simply based on its own investment or cost, and independent from the market value of the good
created."905 This criticism simply reflects the "central flaw" of the European Union's analysis,
because "{i}t assumes that a good, in the form of infr astructure, specially designed and developed for
the recipient, can properly be compared to an ordinary good." 906 The United States argues, by
analogy, that clothing designed by a tailor for a pa rticular person will invariably cost more than
comparable clothing purchased off the rack at a stor e, because it is customized; the price will be
negotiated up front as a fixed fee, or based on hours worked, and therefore cannot be compared to
average or "off-the-rack" goods. The United States cont ends that the Panel's approach "demonstrates
a sophisticated understanding of the economics of the situation", and that it is the European Union
that is being "unrealistic".
907 The United States therefore requests the Appellate Body to reject the
European Union's appeal in respect of whether a benefit was conferred under Article 1.1(b) of the
SCM Agreement and to uphold the findings of the Panel.

901United States' appellee's submission, para. 386 (quoting Appellate Body Report, Canada – Aircraft,
para. 157).
905United States' appellee's submission, para. 388 (quoting European Union's appellant's submission,
para. 1074).
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9. Equity Infusions

(a) Capital investments
392. The United States maintains that the Panel identif ied the correct legal standard to determine
whether the challenged equity infusions provided by the French Government to Aérospatiale between
1987 and 1994 conferred a benefit. Recalling evidence cited by the Panel, the United States notes that
Aérospatiale's president told journalists in 1994 that the company's state was "repellent" from an
investor's point of view, and that this statement wa s made at the end of an eight-year period in which
the French Government had made almost FF 6 b illion in capital contributions to Aérospatiale. 908 The
United States contends that this statement is suppor ted by the Panel's review of Aérospatiale's return
on equity, debt-to-equity ratio, a nd debt coverage ratios, and its conclusion that, "between 1985 and
1994, Aérospatiale's financial ratios were uniformly and, in many cases, significantly inferior to the
corresponding average ratios of its peer group of companies."909
393. The United States notes the Panel's observation that "it is well established that a financial
contribution confers a benefit within the meaning of Article 1.1(b) where the terms of the financial
contribution are more favourable than the terms available to the recipient in the market." 910 The Panel
considered that Article 1.1(b) of the SCM Agreement does not describe exactly how to perform this
analysis; however, Article 14 of the SCM Agreement provides further guidance. The Panel's
approach to the issue was "to ask whether the United States ha{d} demonstrated that a private investor
would not have made the capital investments in question based on information available at the
time".911 The United States argues that the European Un ion is thus incorrect to assert that the Panel
considered the relevant legal standard to be whet her the French Government could have expected to
achieve a reasonable rate of return on its investment.
394. The United States also maintains that the Panel a pplied the legal standard that it had set out.
The Panel noted that a private investor will seek a reas onable rate of return, but it did not "elevate this
observation to become a standard in and of itself". 912 Instead, the Panel did three things in its
analysis: first, it set out a legal standard, namely whether a private investor would not have made the
capital investments in question based on the information available at that time; second, it noted that it
is relevant in this regard that a private investor evaluating an equity investment will be seeking to

908United States' appellee's submission, para. 396 (quoting "EC to Review France's Aerospatiale Capital
Injection", Aerospace Daily, 9 February 1994 (Panel Exhibit US-275), pp. 217 and 218).
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achieve a reasonable rate of return on its investment ; and third, it gave an overview of information
relevant to such an evaluation.
913 The United States argues that "an expectation of a reasonable rate of
return is simply part of the usual investment pr actice of private investors as a matter of economics." 914
In the United States' view, the Panel therefore correctly articulated the standard set out in
Articles 1.1(b) and 14(a) of the SCM Agreement and identified a set of factor s that allowed it to apply
that standard correctly.
395. The United States further contends that the Pa nel did not fail to assess properly the evidence,
but rather performed a thorough analysis of the fact s and, on that basis, concluded that the equity
infusions were inconsistent with the usual investme nt practice of private investors. Moreover, the
Panel applied a range of factors throughout its analys is and relied on an extensive factual record. The
evidence on which the Panel relied, including market forecasts and studies, and statements contained
in Airbus's annual reports, indicated perceptions of the company's commercial expectations and
anticipated future performance. The financial ratios that the Panel reviewed and to which it attributed
particular weight also reflected such potential or in creased risk for future i nvestment returns. When
the Panel found that this information indicated that the government's decision was not consistent with
the usual practice of private investors in France, "t hat necessarily implied that the investment did not
promise a rate of return reasonable in the eyes of a private investor." 915 The United States argues that
the Panel thus performed a deta iled and thorough assessment, and produced a careful analysis as to
each of the specific factual elements it considered rele vant, and that there is no basis to argue that the
Panel failed to make an objective assessment of the facts.916
396. The United States takes issue with the European Union's argument that the Panel should have
used the behaviour of Boeing's investors as the market benchmark, rather than the financial
performance of the peer group of aerospace and de fence companies in France on which the Panel
relied. The United States argues that the Panel specifically rejected the European Communities'
attempt to rely on certain information relating to the market for LCA in general, as well as Boeing's
performance and outlook in particular. The United States submits that the European Union's appeal
"provides no reason to consider the practice of Boeing's investors to be relevant".917

916United States' appellee's submission, para. 414 and footnote 694 thereto.
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397. The United States contends that the Panel did not base its analysis solely on the peer group
comparison, but rather on a careful review of the totality of the facts, including Airbus' own market
forecasts and statements in Aérospatiale's financial re ports. Even if the Appellate Body were to agree
with the European Union's argumen t that Boeing's performance was somehow a relevant benchmark,
"this would not by itself change the overall outcome of the Panel's analysis."
918 The United States
also argues that, because Article 14(a) prescribes a comparison to the usual investment practice of
private investors "in the territory of that Member", it "calls for a comparison to French peer group
companies and French investors, not a U.S. company traded on U.S. financial markets." 919 T h e
United States claims that the Panel's own findings reflect this territorial focus on the behaviour of
private investors in France. Moreover, prior pa nel and Appellate Body reports "make clear that
Article 1.1(b) itself requires a comparison with 'the market'", and that the market "in which Boeing's
investors operate—the United States, U.S. stock exchange, U.S. dollar denominated, etc.—is of
course neither the same nor easily comparable to th e market in which Aérospatiale's investors or
potential investors operate—France, the French st ock exchange and, at the time, French franc
denominated."920 According to the United States, "{t}he qu estion is not who Aérospatiale or Airbus
competes with in terms of its own product markets, but rather which financial markets it is a part of
and where its investors are (predominantly) active."921
398. The United States argues that further factual c onsiderations "support the Panel's reliance on a
peer group of French aerospace and defen se companies as opposed to a U.S.-based {LCA}
company".922 The United States notes that, during the rele vant time period, Aérospatiale was much
more of a European defence company, and that Boeing had not yet merged with McDonnell Douglas
and was therefore much more heavily invested in LCA markets. In other words, the United States
maintains, "{f}rom a financial and private investor perspective, ... the two companies were not very
easily comparable at all."923
399. Finally, the United States asserts that much of the evidence to which the European Union
refers relates not to Boeing's or Aérospatiale's i nvestors, but to general market expectations, or the
expectations of Boeing's management, the Un ited States Government, or independent and ex post
outside observers. The United States contends that the Panel "considered this evidence and either
rejected it or accorded it relatively less weight". 924 The United States also dismisses the

923United States' appellee's submission, para. 419. (footnote omitted)
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European Union's reference to Boeing's stock price and its development over time, stating that "{t}he
fact that Boeing investors invested in Boeing, however, indicates nothing about their or anyone else's
attitudes towards Aérospatiale."
925 Moreover, the United States claims that "it is useful to look in a
little more detail" at the European Union's propo sed comparison between Boeing and Aérospatiale,
adding that the European Union's "numbers are highly selective". 926 The United States refers to
revenues for Boeing and financial ratios for the two companies and concludes that "Boeing, in the
relevant period of time, produced solid revenue and outperformed the market. The same simply
cannot be said for Aérospatiale."927
(b) Share transfer
400. In response to the European Union's contentio ns that control of Dassault Aviation had no
market value, and that the two-for-one exchange of Aérospatiale and Dassault Aviation shares was,
considered in isolation, an even exchange, the United States argues that "control does have definite
economic value and ceding control in a highly profitable company like Dassault Aviation is not
something that a private investor would do without compensation." 928 The United States also argues
that the Panel never reached the question of wh ether the evidence showed that the two-for-one
exchange was an even exchange. Nor did it have to, because the investment decision challenged by
the United States "was not the decision as to the rati o for the exchange of shares, but the decision
whether to convey the Dassault Aviation shares to Aérosp atiale, and to do so despite having to forego
significant value in the form of control over Dassault Aviation." 929 The United States adds that the
Panel found this decision to be inc onsistent with the usual investment practice of private investors,
and that the European Union offers no arguments why that finding was in error.
401. The United States maintains that the Panel, as it did for the 1987 through 1994 equity
infusions, based its assessment of "benefit" in th e 1998 Dassault Aviation share transfer on a standard
based on the "usual practice of private investors". The United States submits that the Panel's approach
was to ask whether a private investor would have transferred shares it held in Dassault Aviation to
Aérospatiale "based on the information available at the time, including Aerospatiale's financial
position and health, and knowing that to do so w ould require surrendering control of Dassault

925United States' appellee's submission, para. 421. (original emphasis)
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Aviation."
930 The United States asserts that the Panel's fi ndings "were clear" that "a private investor
would not have transferred shares."931
402. The United States argues that the Panel could not have limited its analysis as the
European Union maintains because "the transacti on was not limited to the exchange of shares or
valuation of such shares, as the French State's arra ngement with the Dassault family played a critical
role in the process." 932 Thus, the European Union's analysis fails to address the transfer "taken as a
whole".933 For the same reasons, the European Union's argument concerning the Commissaires' report
also fails. That report "assesses the exchange ra tio between the Aérospatiale and Dassault Aviation
shares"934, and is therefore not relevant to the determ ination that the Panel made. The United States
claims that what it challenged was the 1998 share transfer taken as a whole. The United States
considers that the exchange ratio findings in the Commissaires' report, "even if taken at face value, go
to only part of that issue", and at most "underscore{} that the French State received nothing for
surrendering control of Dassault Aviation."935
403. In response to the European Union's argument that the 1998 share transfer was consistent with
the usual investment practice of private investor s because it was part of a government effort to
"consolidate" wholly owned assets in advance of a sale, the United States notes the Panel's conclusion
that the European Communities presented no persu asive evidence that transferring the Dassault
Aviation shares to Aérospatiale would improve the French Government's overall returns on its
aerospace assets. The European Union now on appeal "makes essentially the same argument" it made
before the Panel, and "provides no basis to reverse the Panel's finding". 936 The United States further
notes that the Panel did not question that the 1998 shar e transfer was part of a broader strategy, and in
fact found, as a factual matter, that the French Government's transfer of its 45.76% interest in
Dassault Aviation to Aérospatiale was envisaged as a preliminary step in the consolidation of the
French aeronautics industry. The United States furt her supports the Panel's conclusion that there was
no evidence that the overall return s the French Government could expect from a public offering of
shares in a combined entity exceeded the rate of return it could expect from retaining its Dassault
shares, including the double voting rights, separately from its ownership of Aérospatiale.
937

937United States' appellee's submission, para. 437 (referring to the Panel Report, para. 7.1411).
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404. The United States supports the Panel's finding that the evidence came from a time when the
French Government had already decided to transfer the Dassault Aviation shares to Aérospatiale. The
Panel further found that the assessments did not provide any information that would allow the
comparison the Panel considered relevant—that is, "between returns from the sale of Aérospatiale
with the Dassault shares and the retu rns that the government would ha ve made if it kept Dassault
Aviation and Aérospatiale separate."
938 In its arguments, the United States refers to two scenarios:
the "Combination Scenario" and the "Separate Scen ario". In response to the European Union's
argument that the Panel failed to establish that the rate of return for the Combination Scenario was
less than the rate of return for the Separate Scenario, the United States maintains that this amounts to a
burden of proof argument. Because the European Communities was the party that asserted that the
share transfer was consistent with the usual inv estment practice because it was part of a larger
consolidation that was itself consistent with us ual investment practice, the European Communities
was responsible for "proving that that was the case".939
405. The United States argues that the European Union "accuses the Panel of holding the
{European Communities} to an inappropriate better-t han-market standard when it rejected evidence
that the French State received fair mark et value for its Dassault Aviation shares." 940 T h e
United States maintains that the European Union "misunderstands th e situation", because the Panel
did not reject evidence regarding the relative va lue of Dassault Aviation and Aérospatiale shares
themselves in the 1998 share transfer, but "instead concluded that the relative value was only one
element of a larger transaction that, considered as a whole, was inconsistent with the usual investment
practice of private investors in France." 941 The Panel found that a private investor in the shoes of the
French Government would have entered into the Co mbination Scenario only if there was "a rational
basis for believing" that it would yield great er returns than the Separate Scenario. 942 T h e
United States contends that this conclusion "is ax iomatic if one accepts that private investors are
rational."943 According to the United States, the Pane l was not suggesting that the returns on the
Combination Scenario had to be higher than market, only higher than the status quo, and its analysis
therefore "reflects the reality that the market offers investments with many different rates of return,
and that private investors routinely reject market -consistent returns that are not as high as returns on
their existing investments."944

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406. Regarding the European Union's contention that the Panel acted improperly in rejecting the
relevance of the investment analyses because "they were not available to the French State at the time
of the contribution"
945, the United States submits that the timing was not the only reason for
considering that this information did not support the European Communities' argument. The Panel
considered that these assessments discussed the vi rtues of the Combination Scenario, but did not
compare those returns to the returns of the Separate Scenario. The United States also contends that,
like the Commissaires' report, these assessments did not address the question before the Panel as to
"whether a private investor would have engaged in the transactions at all"; rather, "{t}hey assume{d}
that Aerospatiale and {Matra Hautes Technologies} we re to merge and that the further consolidation
was to take place."946
407. In any event, the United States ma intains, the Panel was right to conclude that the timing of
the assessments meant that they did not support th e European Communities' argument, because they
do not "provide any guidance as to whether the tran saction was consistent with the usual investment
practice of private investors in Fr ance at the time of the transaction." 947 In response to the
European Union's assertion that the assessments were nevertheless relevant to the Panel's analysis
because they "evaluated financial conditions that existed at the time of the capital contribution" 948, the
United States argues that the Eur opean Union "has merely cited the assessments themselves, and has
not shown that they rel{ied} on da ta available to a private investor at the time of the 1998 share
transfer."949 The United States also notes that its valuati on expert found that "serious questions could
be raised as to the independence of the analysis reflected in the reports, which may simply have
served the purpose of supporting the government's intention to privatize {Aérospatiale-Matra}."950
408. The United States submits that each of the Eu ropean Union's arguments on appeal fails
because they are based on "misperception{s} of the legal standard, the Panel's actual findings in its
report, and the facts underlying the issues to which this appeal relates".
951 The United States
consequently requests the Appellate Body to reject the European Union's claims on appeal and to
uphold the Panel's findings.

945United States' appellee's submission, para. 441 (quoting European Union's appellant's submission,
para. 1159).
948United States appellee's submission, para. 443 (quoting European Union appellant's submission,
para. 1161). (original emphasis omitted by the United States)
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10. The Subsidized Product and Product Market

409. The United States submits that the Panel properl y assessed the United States' adverse effects
claims on the basis presented by the United States, including the United States' identification of "all
Airbus LCA" as the "subsidized product". The Un ited States disagrees with the European Union's
contention that the Panel afforded the United States "absolute and unreviewable" 952 discretion to
frame the definition of the "subsidized" and "like" products at issue. Instead, the United States argues
that, as required by Article 11 of the DSU, "the Pa nel understood its task was to objectively assess the
'matter' before it, including whether the subsidized product identified by the United States as a basis
for assessing its adverse effects claim was consistent with the SCM Agreement." 953 The Panel
correctly recognized that a complainant has the right to structure its own complaint as it chooses, and
confirmed the reasonableness of the United States' "s ubsidized product" and "like product" definitions
in the light of the evidence before it. In particul ar, the Panel based its conclusion on the United States
having "reasonably defined the subsidized product as all Airbus LCA on several findings of fact,
including those based on characteristics and uses, a lack of clear dividing lines between models and
families of Boeing and Airbus LCA, the nature of the LCA market, considerations of LCA family
'commonality,' and that the subsidies in disput e have benefited Airbus' full family of LCA." 954 The
United States adds that "even if the European Un ion's approach could be considered a factually
reasonable alternative to the United States' subsidized product definition, the Panel's decision to reject
that alternative would not constitute reversible error in light of its finding that the definition of the
product offered by the United States was reasonable." 955 The United States further agrees with the
Panel that there is no specific guidance in the SCM Agreement regarding the identification of a
"subsidized product" or a panel's role in that pro cess, and rejects the European Union's contention that
the Panel failed to comply with its obligations under Article 11 of the DSU. On the contrary,
declining to "reformulate" the United Stat es' claim in the manner requested by the
European Communities was consistent with the Pane l's obligations under Article 11 of the DSU. The
United States further adds that, "{h}ad the Pa nel accepted the European {Communities'} argument
regarding the appropriate subsidi zed product definition, it would ha ve overstepped the boundaries of
its mandate pursuant to Article 11 to make an 'objective assessment of the matter before it.'"956

952United States' appellee's submission, para. 510 (quoting European Union's appellant's submission,
para. 298).
953United States' appellee's submission, para. 499 (referring to Panel Report, paras. 7.1653-7.1655,
7.1662, and 7.1663).
954United States' appellee's submission, para. 512 (referring to Panel Report, paras. 7.1664-7.1667).
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410. The United States argues that the Appellate Body should also reject the European Union's
appeal of the subsidized product issue under Article 11 of the DSU "because it falls well short of the
requirements for an Article 11 claim on appeal."
957 The European Union's claim under Article 11 of
the DSU "consists of arguments that the Panel faile d to correctly interpret and apply provisions of
Articles 5 and 6.3 of the SCM Agreement and the contention that the Panel afforded the United States
'absolute and unreviewable discretion' with respect to its identification of the 'subsidized product.'" 958
The United States considers that "{t}his blanket assertion coupled with recast arguments going to the
interpretation and application of the SCM Agre ement cannot support a claim under Article 11." 959 In
any event, the United States argues that the Panel's "thorough review" of the "subsidized product"
disposes of the European Union's "assertion that the Panel abdicated its responsibilities or otherwise
failed to act objectively."
960
411. Referring to previous findings by the Appellate Body, the United States further noted that a
claim pursued under Article 11 of the DSU must sta nd on its own and should "not be made merely as
a subsidiary argument or claim in support of a claim that a panel failed to apply correctly a provision
of the covered agreements."961 In US – Zeroing (EC) (Article 21.5 – EC), the Appellate Body rejected
the claims under Article 11 of the DSU because it was "not persuaded that the claims and arguments
by the European Communities under Article 11 of th e DSU differ{ed} from its claims that the Panel
failed to apply correctly other provisions" 962 According to the United St ates, the same basis exists
here for the Appellate Body to reject the European Union's Article 11 claim, which is "nothing more
than an appendage" to the European Union's argum ents concerning the requirements in Articles 5
and 6.3 of the SCM Agreement with respect to the identification of the subsidized product.963
412. The United States also disagrees with the Eu ropean Union's argument that "{s}ubsidized
aircraft may be considered to be in the same ma rket, and hence a single 'subsidized product', only if
they are engaged in actual or potential competition." 964 According to the United States, the
European Union's "proffered 'rationale'" for this supposed requirement is based on a misreading of the

958United States' appellee's submission, para. 522 (quoting European Union's appellant's submission,
para. 301).
961United States' appellee's submission, para. 523 (quoting Appellate Body Report, US – Zeroing (EC)
(Article 21.5 – EC), para. 401).
962United States' appellee's submission, para. 524 (quoting Appellate Body Report, US – Zeroing (EC)
(Article 21.5 – EC), para. 402).
963United States' appellee's submission, para. 524 (referring to European Union's appellant's
submission, paras. 301-304).
964United States' appellee's submission, para. 527 (quoting European Union's appellant's submission,
para. 310).
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Appellate Body's report in US – Upland Cotton.
965 The United States emphasizes that, in that dispute,
the Appellate Body was not considering the defi nition of the subsidized product; rather, it was
evaluating the participants' contentions regarding th e geographic scope of the term "same market" in
the context of Brazil's price suppression claim under Article 6.3(c) of the SCM Agreement.966 T h e
United States considers that "{t}he Appellate Body's report in US – Upland Cotton is relevant to the
European Union's appeal, however, because it demons trates that even under Article 6.3(c) 'the
determination of the relevant market unde r Article 6.3(c) of the SCM Agreement depends on the
subsidized product in question .'"967 Hence, "the order of analysis is to establish first the definition of
the subsidized product and then the definition of the like product against which it competes, and then
to determine the geographic scope of the market in which that competition occurs and adverse effects
are alleged to have been caused." 968 Referring to further findings made by the Appellate Body in
US – Upland Cotton , the United States argues that "'actual or potential competition' may be relevant
'for determining the area of competition between two products' but it is not a concept that limits the
definition of the term 'subsidized product'."969
(a) Whether the Panel erred in assessing displacement on the basis of a
single product and a single-product market
(i) The Panel's interpretative approach
413. The United States claims that the European Un ion's attempt to use the notion of "product
markets" as a means of "restructuring the displacement analysis" has no basis in the SCM Agreement
and the facts of this case.970 For the United States, "{i}t is the definition of the subsidized product and
the like product that sets the product framework for the displacement analysis, while the references to
'market' in Article 6.3(a) and (b) define the geographic scope of that analysis."971

965United States' appellee's submission, para. 527 (referring to European Union's appellant's
submission, para. 307, in turn referring to Appellate Body Report, US – Upland Cotton, paras. 405-410).
966United States' appellee's submission, para. 527 (referring to Appellate Body Report, US – Upland
Cotton, para. 409).
967United States' appellee's submission, para. 529 (quoting Appellate Body Report, US – Upland
Cotton, para. 408). (emphasis added by the United States)
969United States' appellee's submission, para. 530 (quoting Appellate Body Report, US – Upland
Cotton, para. 408). (emphasis added by the United States)
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414. The United States submits that European Union's argument is "anchored to a
mischaracterization" of the findings by the Appellate Body in US – Upland Cotton .
972 In that case,
the Appellate Body neither found nor implied that a "product market" is a requisite element of a
displacement claim under Article 6.3(a) and (b) of the SCM Agreement. Rather, it found that
Article 6.3(c) calls for evidence and argumentatio n to define the geographic scope of the "same
market".973 Moreover, "given the Panel's findings that indicate homogenous conditions of
competition amongst all Airbus and Boeing LCA", the US – Upland Cotton report provides "no basis"
for the European Union to argue that the Panel e rred in treating all LCA as competing "in the same
market".974
415. The United States submits that th e European Union's citation to EC – Asbestos is also
misplaced. In that dispute, the Appellate Body was not looking at the definition of "market"; rather it
was considering whether domestic and imported products are "like" within the meaning of
Article III:4 of the GATT 1994. 975 The United States notes, however, that in this case the
European Union is not appealing the Panel's determin ation of the product that is "like" the subsidized
product. Rather, "it argues that having identified th e subsidized and like product, the Panel was then
obligated to segment each subsidized product/like product pairing into multiple market segments for
the purpose of assessing displacement of the like product." 976 In the United States' view, however,
neither the SCM Agreement nor prior Appellate Body findings regarding the definition of the "like
product" provide support for the European Union's arguments in this regard.
416. According to the United States, the approach taken by the panel in Indonesia – Autos in
assessing claims concerning displacement and impedance is instructive. 977 After identifying the
relevant subsidized product and like product for purposes of its assessment of displacement or
impedance in the Indonesian market, the panel in that case "proceeded to examine market share data
without the additional 'product market' inquiry pr oposed by the European Union in the current
dispute".978 The panel's assessment "properly confirmed that the identity of the subsidized product

972United States' appellee's submission, para. 542 (referring to European Union's appellant's
submission, paras. 342-344).
973United States' appellee's submission, para. 543 (quoting Appellate Body Report, US – Upland
Cotton, para. 408).
974United States' appellee's submission, para. 543 (quoting Appellate Body Report, US – Upland
Cotton, para. 408).
975United States' appellee's submission, para. 544 (quoting Appellate Body Report, EC – Asbestos ,
para. 103).
977United States' appellee's submission, para. 545 (referring to Panel Report, Indonesia – Autos ,
para. 14.164).
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and like product, respectively, address 'product' issues."
979 Thus, "the term 'market' in Article 6.3(a)
and (b) pertains only to the geographic location in which competition between the subsidized product
and like product is to be assessed." 980 The United States concludes on this basis that the decision by
the Panel in this case, after evaluating all the facts presented, to accept the United States' definition of
a single "subsidized product" rather than five separate "products" offered by the
European Communities, as the basis for its displacement analysis, was "a reasonable one".981
417. Regarding the issue of whether the Panel erred in considering that it would be precluded from
assessing alleged linkages and spill-over effects of subs idies provided to different models of Airbus
LCA in the case that it accepted the European Communities' views concerning the subsidized product,
the United States submits that the European Commun ities made a "concerted effort" to have the Panel
disregard the spill-over effect of "the subsidies prior to subsequent product launches".982 In particular,
the European Communities "attempted to quantify th e magnitude of subsidies only with respect to
those provided for a particular LCA program and, on that basis, argued that the subsidy magnitude
was de minimis for each Airbus LCA model."
983 Finally, the United Stat es argues that, even if the
SCM Agreement "called for a separate 'product market' an alysis under Article 6.3(a)-(d), there is
evidence of 'product market' in which all Ai rbus LCA compete against all Boeing LCA under
homogenous conditions of competition irrespective of the European Union's proposed 'product
markets,' and there is uncontested evidence of LCA competition outside the {European Union's}
proposed 'product markets'."984
(ii) Article 11 of the DSU
418. The United States also disagrees with the Eu ropean Union's contention that the Panel
"marginalised and disregarded entire categories of highly relevant and c ontemporaneous evidence"
and "failed to provide a reasone d and adequate explanation base d on a coherent reasoning", and
thereby acted inconsistently with its obligations under Article 11 of the DSU. 985 Rather than
disregarding this evidence, the United States argues that the Panel found it "unpersuasive".986

984United States' appellee's submission, para. 554 (referr ing to Panel Report, paras. 7.1725 and 7.1668,
respectively).
985United States' appellee's submission, para. 555 (quoting European Union's appellant's submission,
para. 359).
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419. The United States notes that, as a factual matter, the Panel found that "there is at least some
degree of competition between adjacent product groups identified by the European Communities, for
instance, between a Boeing 747 and an Airbus A380."
987 Consistent with the Panel's findings, the
United States submits that "the evidence ... shows a number of actual, 'head-to-head' campaigns in
which Boeing and Airbus offered LCA across ev ery adjacent 'product market' identified by the
European Union."988 Pointing to a table it compiled using information from Panel Exhibits EC-322
and EC-323, the United States disagrees with the Eu ropean Union's assertion that there is competition
across the product groupings identified by the European Union "{o}nly in rare instances". 989 To the
contrary, "none of the 'product markets' identified by the European Union is a self-contained segment,
capturing the full scope of competition for the models within it"; "{i}n fact, LCA from each 'product
market' have competed head-to-head against LCA from other "product markets."990
420. The United States further submits that, "{w}hen the European Union refers to Exhibit EC-322
and states that '{t}here were no sales campaigns in which Airbus A340 LCA family competed against
any Boeing models other than the 777 LCA family,' it fails to mention that Exhibit EC-322 shows the
Boeing 777 as having competed against the A330 (which the European Un ion places in a separate,
'distinct product market') in {a number of} campaigns won by Airbus." 991 Similarly, "when the
European Union states that Exhibit EC-322 shows that '{t}here were no sales campaigns in which the
Airbus A380 LCA family competed against Boeing 737NG, 767, 777 or 787 LCA family,' it ignores
{a certain number of} competitions between the 747 and the A380, which are somehow in separate
'product markets' according to the European Union."
992
421. In a similar vein, the United States notes that the European Union cites to a variety of
materials in an attempt to show a "lack of di rect head-to-head competition" between the A380
and 747-8 (a derivative of earlier 747 models that was launched in 2005). 993 According to the
United States, "{w}hile it is true that the A380 and 747-8 do not have identical characteristics (e.g.,
the standard A380 configuration has approximately 90 more seats than the 747-8), this does not
change the essential fact that the A380 has competed against the 747 for sales."994 As the Panel noted,

988United States' appellee's submission, para. 557. (original emphasis)
989United States' appellee's submission, para. 558 (quoting European Union's appellant's submission,
Annex II (Product Markets Annex) (BCI), para. 11).
990United States' appellee's submission, para. 558. (original emphasis)
991United States' appellee's submission, para. 559 (quoting European Union's appellant's submission,
Annex II (Product Markets Annex) (BCI), para. 11, second bullet (original emphasis)).
992United States' appellee's submission, para. 559 (quoting European Union's appellant's submission,
Annex II (Product Markets Annex) (BCI), para. 11, third bullet (original emphasis)).
993United States' appellee's submission, para. 561 (quoting European Union's appellant's submission,
Annex II (Product Markets Annex) (BCI), section III(A) heading).
BCI deleted, as indicated [***] WT/DS316/AB/R

the Airbus A380 business case clearly contemplates competition between the A380 and the 747.
995 In
rejecting the European Union's argument that the A380 should be separated from all other LCA
competition, the Panel also considered evidence that customers purchased Boeing's 777 "to replace
the delayed A380".996 And while the European Union finds Boeing's list of campaigns lost to Airbus
persuasive in other aspects of its product arguments , the United States argues that it fails to mention
that the Boeing document shows the 747 competed ag ainst, and lost to, the A380 in campaigns during
the reference period. 997 In this connection, the European Un ion cites to the statement of Airbus'
Christian Scherer, to the effect that "Airbus did not compete—i.e., it made no offers, in any sales
campaigns that resulted in orders for Boeing 747 family LCA during the 2001-2005 period" 998,
without acknowledging the numerous campaigns in which the 747 lost to the A380.
422. The United States argues that the European Uni on cites a number of campaign-specific and
other documents in an attempt to "demonstrate that demand {from (sic)} customers in sales
campaigns for new LCA is specifically targeted at the particular groups of Boeing and Airbus LCA
products".
999 However, "{a}ll these sources show is th at, in many instances where a customer
conducts a formal head-to-head campaign, the offe rings from each manufacturer will have been pared
down to a single aircraft—something the United States has never contested." 1000
423. The United States also notes that "{t}he Europ ean Union cites to statements from Boeing
officials and marketing materials from Airbus and Boeing that, in its view, 'point towards the
existence of different product groupings.'" 1001 In doing so, "the European Union fails to acknowledge
that the Panel duly considered the European Un ion's arguments and evidence concerning 'distinct
product markets' but found them contradicted by the weight of the evidence showing competition of a
far broader scope, as well as by an inadequate le gal basis for disturbing the {United States'}
definition."
1002

995United States' appellee's submission, para. 561 (referring to Panel Report, paras. 7.1676, 7.1831,
and 7.1832).
997United States' appellee's submission, para. 561 (referring to Panel Exhibit EC-322 (BCI)).
998United States' appellee's submission, para. 561 (quoting European Union's appellant's submission,
Annex II (Product Markets Annex) (BCI), section III(A)(1), last bullet, p. 23).
999United States' appellee's submission, para. 562 (quoting European Union's appellant's submission,
Annex II (Product Markets Annex) (BCI), para. 14).
1001United States' appellee's submission, para. 563 (quoting European Union's appellant's submission,
Annex II (Product Markets Annex) (BCI), para. 16).
WT/DS316/AB/R BCI deleted, as indicated [***]

424. Similarly, the European Union now claims that Airbus statements relied upon by the Panel
concerning the importance of a full family of LCA ar e "irrelevant to the question of whether all the
Airbus LCA can be grouped together as one 'subs idised product' competing in one single product
market."
1003 The United States submits that the term "Air bus family" originated in Airbus' marketing
materials to its customers .1004 According to the United States, it is difficult the reconcile dismissal of
the term "Airbus family" as irrelevant to compe tition, as the European Union claims, when Airbus
markets its LCA as a full family to customers, st ressing the economic benefits of buying from the
"Airbus family" over buying from Boeing's product line.
425. Finally, the United States argues that "the European Union's proposed multiple product
market definitions have no support in the facts of the case." 1005 The United States submits that
"Airbus and Boeing each produce a full line of LCA models that compete against each other" and that
"{t}he evidence before the Panel demons trated actual competition outside the
European {Communities'} so-called 'product markets,' including: (1) bundled sales (such as the South
African Airways lost sale, in which the airlin e chose A319s, A320s, and A340s over Boeing 737s
and 777s); and (2) Emirates and FedEx ordering the 777 when Airbus' A380 delays left those
customers short on capacity." 1006 The United States points out that the Europ ean Union itself
recognizes that the Appellate Body "could reas onably find fewer, broader product markets". 1007 The
United States further notes that the European Uni on concedes that the Panel "need not have accepted
the European {Communities'} argument that there were five different LCA markets."1008
426. In sum, the United States considers that th e European Union has offered no basis on which
the Appellate Body could find that the Panel's assessment of displacement under Article 6.3(a) and (b)
on the basis of the specified geographic markets in which "all Boeing LCA" compete with "all Airbus
LCA" is inconsistent with Article 11 of the DSU.
1009 The United States also submits that there is no

1003United States' appellee's submission, para. 565 (quoting European Union's appellant's submission,
Annex II (Product Markets Annex) (BCI), para. 23).
1004United States' appellee's submission, para. 565 (referring to Airbus marketing material, "Excellence
runs in the family" (Panel Exhibit US-390), available at <http://events.airbus.com/img/media/multimedia/
advertising/press/excellence.pdf> (visited 20 September 2006)).
1006United States' appellee's submission, para. 566 (referring to Panel Report, paras. 7.1655, 7.1822-
7.1824, and 7.1831).
1007United States' appellee's submission, para. 566 (referring to European Union's appellant's
submission, para. 375).
1008United States' appellee's submission, para. 566 (quoting European Union's appellant's submission,
para. 370).
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basis for the Appellate Body to "complete the anal ysis and find that there is a separate single-aisle
LCA product market."
1010
427. Finally, the United States disagrees with the Eur opean Union's allegation of a general error of
"distortion" resulting from the Panel's assessment of displacement under Article 6.3(a) and (b) on the
basis of the subsidized product, like product, and geographic market. 1011 According to the
United States, the European Union "offers no textual support" for its argument that the Panel erred in
applying the applicable provisions of the SCM Agreement.1012 The United States reiterates its position
that "the framework for a displacement analysis under Article 6.3(a) and (b) is set by the definition of
the subsidized product, the like product, and the geographic market." 1013 According to the
United States, "{b}y testing the {United States'} subsidized product definition for reasonableness, the
Panel ensured, in the first instance, that the analysis of displacement is not based on an
'inappropriately broad' product; and, notably, the European Union has not challenged the Panel's
findings that 'all LCA' is a reasonabl e and coherent 'subsidized product.'" 1014 According to the
United States, "{o}ther factors indicating that the market position of the subsidized product in any
particular segment of the market is not an eff ect of subsidy is a legitimate issue for a causation
analysis; however, the Panel raised every other factor raised by the European {Communities'} and
found no attenuation of the causal link."
1015
11. Serious Prejudice
428. The United States argues that the Panel corr ectly found that the European Communities
caused, through the use of the subsidies, serious pr ejudice to the United States' interests within the
meaning of Article 5(c) of the SCM Agreement. This serious prejudice took the form of displacement
of imports of Boeing LCA into the European Co mmunities under Article 6.3(a), displacement (and
threat thereof) of Boeing LCA exports in various third country markets under Article 6.3(b), and
significant lost sales in the same market under Article 6.3(c) of the SCM Agreement. The
United States requests the Appellate Body to uphold the Panel's finding to this effect for the reasons
set out below.

1010United States' appellee's submission, para. 568 (referring to European Union's appellant's
submission, para. 374).
1011United States' appellee's submission, para. 569 (referring to European Union's appellant's
submission, para. 90).
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(a) Displacement of Boeing LCA fro m the European Communities and
certain third country markets
429. The United States submits that the Panel correct ly held that the effect of the subsidies
provided to Airbus was to displace Boeing LCA from the markets of the Euro pean Union, Australia,
Brazil, China, Korea, Mexico, Singapore, and Chinese Taipei, and likely future displacement from the
market of India, within the meaning of Article 6.3(a) and (b) of the SCM Agreement. Reflecting the
Panel's "bifurcated analysis" of the United States ' serious prejudice claims, and the structure of the
European Union's arguments on appeal, the United States also makes separate arguments in relation to
the existence of displacement, on the one hand, and the question of causation, on the other hand.
(i) Existence of displacement
430. The United States argues that the Panel correc tly held that exports of Boeing LCA were
displaced from the markets of Brazil, Korea, Me xico, Singapore, and Chinese Taipei within the
meaning of Article 6.3(b) of the SCM Agreement. The European Union's appeal concerning the
existence of displacement cannot be reconciled with the market gains that subsidized Airbus LCA
made at the expense of Boeing LCA in those markets. Moreover, the Panel's analysis and findings
concerning the existence of displacement are fully supported by evidence of substantial market share
losses by Boeing LCA, and corresponding market share gains by Airbus LCA in the
European Communities and third country markets, and should therefore be upheld by the Appellate
Body.
431. According to the United States, the European Union concedes that the Panel correctly
evaluated the existence of displacement on the basis of volume and market share data. The
European Union also agrees with the Panel that data showing a decline in Boeing's market share
during the reference period would sufficiently establish the existence of displacement. However, the
European Union's assertion that the Panel found that a "trend was absent" in the third country markets
at issue is "not accurate".
1016 In the United States' view, the Panel simply found that the situation in
the markets of Brazil, Korea, Mexico, Singapore, and Chinese Taipei was "less compelling" than in
Australia and China, because LCA sales in those markets were more "spor adic" and sales volumes
were "relatively small". 1017 For the United States, the Panel's conclusion that the identification of a
trend in a given market was "more difficult" does not indicate that a trend was absent.1018

1016United States' appellee's submission, para. 571 (quoting European Union's appellant's submission,
para. 320). (emphasis added by the United States)
BCI deleted, as indicated [***] WT/DS316/AB/R

432. The United States submits further that Article 6.3(b) does not provide textual guidance for
determining "whether a given amount of data ... in the form of e xport volumes, market share, or
both"
1019 provides a sufficient basis for finding the ex istence of displacement. The United States
acknowledges that Article 6.4 contemplates a finding of displacement under Article 6.3(b) based on "a
change in relative shares of the market to the disadvantage of the non-subsidized like product" where
such trend occurs "over an appropriately representative period sufficient to demonstrate clear trends in
the development of the market for the product concerne d, which, in normal circumstances, shall be at
least one year."1020 However, the term "shall include" indicat es that Article 6.4 is not exhaustive, and
the Panel correctly found that a complaini ng Member may demonstrate displacement under
Article 6.3(b) in a manner not described in that provision. The United States adds that, if the
Appellate Body were to rely on Article 6.4 as contex t in determining the sufficiency of the evidence
concerning the existence of displacement, Article 6.4 speaks of "clear trends" only in temporal terms,
and does not specify the "level of data or quantum of evidence" that is required to establish a trend of
displacement.
1021 The United States highlights that the sal es and market share data reviewed by the
Panel covered a period of time far longer than the one -year threshold provided for in Article 6.4, and
that such data reveals an "unmistakable" 1022 trend of Boeing losing market share to Airbus in each of
the relevant third country markets.
433. Moreover, the United States emphasizes that the European Union's attempt to show
insufficient data to establish the existence of di splacement is limited to evidence concerning the
Brazilian and Mexican markets, and that the Europ ean Union's appeal does not address the data for
the markets of Korea, Singapore, or Chinese Taipei . The United States underscores that in each of
these three markets the data confirms that Boeing lost market share to Airbus over the 2001-2006
reference period 1023, and that multiple LCA deliveries by both Boeing and Airbus occurred in each
year of the reference period.
434. The United States considers "unavailing" the Eu ropean Union's arguments on the distinction
between displacement and impeda nce under Article 6.3(a) and (b). 1024 For the United States, these
arguments are irrelevant for the markets where Bo eing's market share did in fact fall during the

1023The United States notes that Boeing's market share between 2001 and 2006 dropped from 83% to
5 8 % i n K o r e a ; f r o m 8 9 % t o 5 4 % i n S i n g a p o r e ; a n d from 62% to 44% in Chinese Taipei. (United States'
appellee's submission, para. 574)
1024United States' appellee's submission, para. 575 (referring to European Union's appellant's
submission, paras. 323-328).
WT/DS316/AB/R BCI deleted, as indicated [***]

reference period. The United States stresses that the European Union concedes that the "concept of
'displacement' revolves around the notion that market shares of 'like' imports or exports fall over a
reference period."
1025
435. Finally, the United States argues that the Panel did not err in its interpretation of
Article 6.3(b) of the SCM Agreement, and did not act inconsistently with Article 11 of the DSU, in
finding the existence of threat of displacement of Boeing LCA from the market of India. The
United States maintains that the order data that s howed a "surge" in Airbus orders in India in 2005,
with Airbus obtaining more than double the orders of Boeing, provided a "sufficient and objective"
basis upon which the Panel could make a finding of threat of displacement. 1026 Furthermore, the
United States questions the European Union's asse rtion that "undisputed evidence before the Panel
demonstrated that Boeing's market share of deliver ies in the Indian market actually increased" after
2006.1027 The United States considers that no such "undisputed evidence" exists on the record, insofar
as the evidence referred to by the European Uni on refers to order rather than delivery data. 1028 The
United States also observes that post-2006 order data was offered by the European Communities "at a
very late stage" in the panel proceedings, and ther efore the Panel did not err in basing its threat of
displacement findings on "the most recent available, relevant and reliable data that {it} could evaluate
in a manner consistent with the requirements of due process".1029
(ii) Causation – Observed displacement
436. The United States argues that the Panel correc tly found that the subsidies caused serious
prejudice to the United States' interests under Article 5(c), in the form of displacement of Boeing
LCA from the European Communities and third country markets within the meaning of Article 6.3(a)
and (b) of the SCM Agreement.
437. The United States observes that the Appellate Body's reasoning in US – Upland Cotton that
Article 6.3(c) "requires the establishment of a causal link between the subsidy and the significant
price suppression" applies with "equal force" to a ll the indicia of serious prejudice, including lost
sales, displacement, and impedance. 1030 The Appellate Body also observed that Article 6.3 does not

1025United States' appellee's submission, para. 575 (quoting European Union's appellant's submission,
para. 324 (original emphasis)).
1027United States' appellee's submission, para. 578 (quoting European Union's appellant's submission,
para. 389). (original emphasis and underlining added by the United States omitted)
1028United States' appellee's submission, para. 578 and footnote 969 thereto (referring to Airclaims
CASE database, 2007 Orders, data query as of 28 January 2008 (Panel Exhibit EC-987)).
1030United States' appellee's submission, para. 593 (quoting Appellate Body Report, US – Upland
Cotton, para. 435).
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contain "the more elaborate and precise 'causation' and 'non-attribution' language" found in Part V of
the SCM Agreement, which suggests that panels have a de gree of discretion in establishing how to
conduct a causation analysis.
1031 Referring to the Appellate Body report in US – Upland Cotton
(Article 21.5 – Brazil) , the United States posits that a "central aspect" of any serious prejudice
analysis is that "the effect ... must result from a chain of causat ion that is linked to the impugned
subsidy."1032 According to the United States, such chai n of causation must focus on the way in which
the subsidies were actually used and their resulting effects, and does not involve "speculative,
alternate market developments or events that did not happen."1033
438. In this regard, the United States emphasizes th at the European Union does not challenge the
"crux of the Panel's causation finding" 1034, namely that, but for LA/MSF, Airbus would not have been
able to launch each of its LCA models at the time and in the manner that it did. Instead, the
European Union's appeal focuses on the absence of Panel findings concerning the allegation that
Airbus "might have, at some other point in time, under differe nt circumstances, and in the absence of
subsidies, launched different airc raft that might have won sales." 1035 However, the findings that the
European Union alleges are missing from the Panel's an alysis "do not relate to the actual use of the
subsidies in light of their impact on the recipient a nd in relation to other factors actually present in the
market at the same time as the subsidy." 1036 According to the United States, there is no basis in
Article 6.3 for a causation standard that requires a panel to speculate about whether a non-subsidized
Airbus could have launched "fewer but technologically superior airc raft" and "priced those aircraft
aggressively"1037 so that it would have won any sales or market share. According to the United States,
in establishing "a chain of causation that is linked to the impugned subsidy" 1038, a panel must examine
"what were the actual effects in the markets in question"1039, and must ensure that it does not attribute
to the subsidies the effect of other factors. Simila rly, in a "but for" analysis, a panel must focus on
"the market as it actually existed absent the subsidy". 1040 However, the United States underscores that

1031United States' appellee's submission, para. 594 (quoting Appellate Body Report, US – Upland
Cotton (Article 21.5 – Brazil), para. 368).
1032United States' appellee's submission, para. 595 (quoting Appellate Body Report, US – Upland
Cotton (Article 21.5 – Brazil), para. 372).
1035United States' appellee's submission, para. 582. (original emphasis)
1038United States' appellee's submission, para. 595 (quoting Appellate Body Report, US – Upland
Cotton (Article 21.5 – Brazil), para. 372).
1039United States' appellee's submission, para. 595. (original emphasis)
1040United States' appellee's submission, para. 595 (referring to Appellate Body Report, US – Upland
Cotton (Article 21.5 – Brazil), para. 375).
WT/DS316/AB/R BCI deleted, as indicated [***]

the chain of causation that must be established und er Articles 5 and 6 does not involve "speculative,
alternate market developments or events that did not happen".
1041
439. In the United States' view, the Panel properly f ound a "genuine and subs tantial" link between
the subsidies and the effects of displacement of Bo eing LCA and that no other factors attenuated such
causal link. Based on the nature and magnitude of the subsidies, the conclusions of the "Dorman
Report"1042, the A380 business case, undisputed public statem ents of government and Airbus officials,
and the "individual and cumulative" effect of LA /MSF in terms of generating economies of scope and
scale1043, the Panel correctly concluded that LA/MSF and other subsidies enabled Airbus to bring its
LCA to the market. The United States adds that the Panel correctly rejected the
European Communities' argument that the structure, operation, and design of the different subsidies at
issue precluded a cumulative assessment of their effects on the basis that non-LA/MSF subsidies were
granted during the period in which each successi ve model was being developed, and that these
subsidies "complemented and supplemented" the product effect of LA/MSF.
440. According to the United States, the Panel corr ectly concluded that, by enabling Airbus to
bring its LCA to the market, the subsidies caused Boeing to lose its position in the
European Communities and third country markets, thus causing serious prejudice to the United States'
interests within the meaning of Article 6.3(a) and (b) of the SCM Agreement. The Panel correctly
based this finding on the conditions of competition in the LCA industry, where aircraft availability at
the time of purchase is "the fundamental factor" 1044 in winning sales. Consequently, the Panel did not
err in concluding that once Airbus was able to de velop its LCA family, the conditions of competition
in the market were such that its market presence resulted in Boeing's reduced market shares in each
relevant third country market be tween 2001 and 2006. In reaching its findings, the Panel also took
appropriate account of the "magnit ude of the benefit" of LA/MSF, both in terms of percentage of
development costs covered and the amount of the discount off market interest rates. 1045 The Panel
further fulfilled its obligation to ensure that any other factors, such as Boeing's alleged
mismanagement of customer relationships, geo political considerations, the role of engine
manufacturers, or the events of the 11 September 2001 attacks on the World Trade Center ("9/11"),
did not dilute the "genuine and s ubstantial" link between the subsid ies and Boeing's loss of market

1042Gary J. Dorman, The Effect of Launch Aid on the Econo mics of Commercial Airplane Programs
(6 November 2006) (Panel Exhibit US-70 (BCI)).
1043United States' appellee's submission, paras. 596-60 0; Panel Report, para. 7.1881, 7.1911, 7.1913-
7.1918, 7.1923, 7.1935, 7.1937, 7.1939-7.1941, and 7.1948.
1044United States' appellee's submission, para. 604 (referring to Panel Report, paras. 7.1720, 7.1722,
and 7.1724).
BCI deleted, as indicated [***] WT/DS316/AB/R

share in each third country market.
1046 The Panel correctly held that, regardless of these other factors,
the availability of the subsidized LCA in the ma rket was a "fundamental cause" of the sales and
market share lost by Boeing. 1047 The Panel further found that the European Communities' arguments
concerning the market contraction caused by th e events of 9/11 did not "detract from {its}
conclusions concerning the effects of the subsidies in this dispute, which enabled Airbus to have
available the particular models of LCA that it sold and delivered in the distressed market." 1048
Therefore, the United States argues, the Panel's non- attribution analysis is fully in line with the
requirements of Articles 5 and 6.3 as in terpreted by the Appellate Body in US – Upland Cotton
(Article 21.5 – Brazil).1049
441. According to the United States, once the Pane l found that the subsidies were the cause of
market displacement and lost sales and that no othe r causal factors undermined that causal link, it was
unnecessary for the Panel to speculate about what else might have occu rred in the LCA market in the
absence of the subsidies. The possibility that an unsubsidized competitor might have emerged in the
place of a subsidized Airbus does not negate the actu al effects of the subsidies. In any event, the
Panel concluded that it was unlikely that a non-subsid ized Airbus would have been able to enter the
LCA market, and that even if Airbus had done so, it would have been a much weaker entity that was
incapable of achieving the same market share.1050
442. Moreover, the United States suggests that the European Union's appeal in this respect is based
on an incorrect interpretation of Articles 5 and 6.3 of the SCM Agreement. For the United States,
speculation about conditions of competition in the absence of the subsidies would not affect the
Panel's finding that, "but for" the subsidies, Ai rbus would not have launched its LCA when and as it
did, and that the presence of those aircraft in th e market was the "fundamental cause" of Airbus'
market share gains. According to the United States, a "but for" analysis of the effects of the subsidies
is limited to determining whether the subsidy reci pient could have done what it actually did in the
absence of the subsidies. Therefore, a "but for" analysis does not require consideration of one or more
counterfactuals and speculating how the subsidy reci pient might have evolved differently without the
subsidies.

1046United States' appellee's submission, paras. 608-611.
1047United States' appellee's submission, paras. 609 and 611 (quoting Panel Report, para. 7.1985).
omitted)
1049United States' appellee's submission, para. 612 (referring to Appellate Body Report, US – Upland
Cotton (Article 21.5 – Brazil), para. 381).
1050United States' appellee's submission, para. 617 (referring to Panel Report, para. 7.1984 and 7.1993).
WT/DS316/AB/R BCI deleted, as indicated [***]

443. The United States adds that the European Union mischaracterizes the Panel's findings when it
claims that the Panel found that a "non-subsidized Airbus would exist" and that "there would have
been different, fewer or later in time Airbus LCA products."
1051 The Panel never found that a
non-subsidized Airbus would exist; rather, it speculated that Airbus might have entered the LCA
market without the subsidies in two "plausible scenar ios", which the Panel referred to as "the unlikely
event that Airbus would have been able to en ter the LCA market as an unsubsidized competitor." 1052
In addition, the United States emphasizes that th e European Union's counterfactual scenario is
contradicted by the Panel's findings concerning: (i ) the existence of significant barriers to entry into
the LCA market, and spillover and learning effects across models of LCA; (ii) the significant
proportion of the development costs of the A300 and A310 that were covered by the subsidies; and
(iii) the four-year lag between order and delivery of ai rcraft that suggested that Airbus could not have
benefited from high demand for single-aisle aircraft during the late 1980s and early 1990s.
1053
444. The United States further argues that the Panel di d not act inconsistently with its duty under
Article 11 of the DSU to conduct an objective assessm ent of the matter in reaching its findings that
the effect of the subsidies wa s the displacement of Boeing LC A from the various third country
markets at issue. The United States considers that the Panel properly considered the evidence and
arguments advanced by the parties, and produced a "reasoned and comprehensive" 1054 analysis to
support its causation findings. Referring to US – Zeroing (EC) (Article 21.5 – EC) as support, the
United States requests the Appellate Body to reject the European Union's claims under Article 11 of
the DSU as mere reiterations of its claims that th e Panel erred in interpreting and applying Articles 5
and 6.3 of the SCM Agreement.1055 The United States further request s the Appellate Body to refrain
from interfering with the Panel's discretion to weigh the evidence before it.
(b) Lost sales in the same market
445. The United States argues that the Panel correctly held that the use of the subsidies caused
serious prejudice to the United States' interests under Ar ticle 5(c), in the form of significant lost sales
in the same market within the meaning of Article 6.3(c) of the SCM Agreement. Consistent with the
Panel's bifurcated approach to the analysis of its serious prejudice claims, and the structure of the

1051United States' appellee's submission, para. 631 (quoting European Union's appellant's submission,
para. 401 (original emphasis omitted)).
1053United States' appellee's submission, paras. 636-638; Panel Report, paras. 7.1717, 7.1749, 7.1750,
7.1934, 7.1935, 7.1948, and 7.1976.
1055United States' appellee's submission, para. 620 (referring to Appellate Body Report, US – Zeroing
(EC) (Article 21.5 – EC), paras. 401 and 402).
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European Union's claims on appeal, the United States presents separate claims of error in relation to
the Panel's finding concerning the existence of a lost sale and the Panel's finding that the significant
lost sales were caused by the subsidies.
(i) Existence of a lost sale
446. The United States argues that the Panel did not err in finding that the Emirates Airlines sale
constituted a "significant lost sale" under Article 6.3(c) of the SCM Agreement. The United States
requests the Appellate Body to uphold this finding for the reasons set out below.
447. The United States disagrees with the European Union that the Panel presumed that Boeing
would have secured the Emirates Airlines sale had Ai rbus not won it. According to the United States,
the Panel relied on evidence contained in the A380 business case to come to th e conclusion that the
Boeing 747 competed with the A380. The United St ates further underscores the Panel's finding that
customers in the LCA industry consider all availabl e aircraft to fulfil their purchasing requirements,
and therefore LCA sales campaigns involve compe tition between Airbus and Boeing even in the
absence of a "formal, binding proposal" by either manufacturer.
1056
448. In addition, the United States emphasizes that the European Union does not dispute the
Panel's conclusion that "Boeing lost sales to Airbus , in the sense that the customer purchased Airbus
rather than Boeing LCA." 1057 Instead, in noting that seating capac ity was the deciding factor in the
Emirates Airlines' sales campaign, the European Union acknowledges that Emirates Airlines would
have purchased a Boeing 747 had it not purchased an Airbus A380.
449. Finally, the United States maintains that the European Union has failed to establish that the
Panel acted inconsistently with Article 11 of the DSU in reaching its findings. The United States
suggests that the evidence on the record supported the Panel's finding that Emirates Airlines would
have turned to the Boeing 747 had it not purch ased the A380, because it was the only other aircraft
that could fulfil its seating capacity needs. The United States further dismisses the European Union's
argument that Boeing was never "serious" 1058 about launching a competitor to the A380. For this
argument to be relevant, the European Union would have had to demonstrate that Boeing's 747-X was
the only aircraft that Emirates could have considered if the A380 was not available. However, the
evidence before the Panel demonstrated that Emirat es itself purchased other Boeing aircraft to fulfil
its needs. Therefore, the United States maintain s that Boeing's decision not to launch the 747-X does

1058United States' appellee's submission, para. 646 (quoting European Union's appellant's submission,
para. 591).
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not provide a basis for disturbing the Panel's finding that the sale to Emirates was a "lost sale" under
Article 6.3(c).
(ii) Causation – Single-aisle lost sales
450. The United States submits that the Panel did not err in finding, with respect to sales by Airbus
of single-aisle aircraft to Air Asia, Air Berlin, Czech Airlines, and easyJet, that the effect of the
subsidies was significant "lost sales in the same mark et" within the meaning of Article 6.3(c) of the
SCM Agreement. On the basis of the same arguments artic ulated with respect to the Panel's finding
that the effect of the subsidies was to disp lace Boeing LCA from the European Communities and
certain third country markets, the United States requests the Appellate Body to uphold the Panel's
finding that the effect of the subsidies was significant lost sales in the same market under
Article 6.3(c), to the extent it covers the lost sales in those campaigns.
451. First, the United States disagrees with the Eur opean Union that the Panel presumed, rather
than established, causation when it found that the pr esence of Airbus LCA in the market sufficiently
established that the subsidies that enabled a partic ular Airbus product launch caused Boeing to lose
sales. The Panel, in essence, properly establishe d a "genuine and substantial" link between the
subsidies and Boeing's lost sales on the basis of the nature and magnitude of the subsidies, the
conclusions of the Dorman Report, the A380 business case, undisputed public statements of
government and Airbus officials, and the "individual and cumulative" effect of LA/MSF in terms of
generating economies of scope and scale.
1059 The Panel correctly took into account the conditions of
competition in the LCA industry, where aircraft availability is "the fundamental factor" 1060 in winning
sales, in coming to the conclusion that Airbus' ma rket presence resulted in Boeing's significant lost
sales between 2001 and 2006. In addition, th e Panel correctly considered—and rejected—non-
attribution factors, such as Boeing's alleged mism anagement of customer relationships, geopolitical
considerations, the role of engine manufacturers, and the events of 9/11. The Panel correctly held that
these factors did not dilute the "genuine and substa ntial" link between the subsidies and Boeing's lost
sales, insofar as the availability of the subsidized LCA in the market was a "fundamental cause" of the
sales lost by Boeing.1061

1059United States' appellee's submission, paras. 596-60 0; Panel Report, para. 7.1881, 7.1911, 7.1913-
7.1918, 7.1923, 7.1935, 7.1937, 7.1939-7.1941, and 7.1948.
1060United States' appellee's submission, para. 604 (referring to Panel Report, paras. 7.1720, 7.1722,
and 7.1724).
1061United States' appellee's submission, paras. 609 and 611 (quoting Panel Report, para. 7.1985).
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452. Second, the United States maintains that Articles 5 and 6.3 of the SCM Agreement did not
require the Panel to engage in sp eculation about what the conditions of competition would have been
in the LCA market in the absence of the subsidies. The possibility that an unsubsidized competitor
might have emerged in the place of a subsidized Airbus does not negate the actual effects of the
subsidies. In this sense, speculation about th e conditions of competition in the absence of the
subsidies would not affect the Panel's finding that , but for the subsidies, Airbus would not have
launched its LCA when and as it did, and that the presence of those aircraft in the market was the
"fundamental cause" of Airbus' sales.
1062 According to the United States, a "but for" analysis of the
effects of the subsidies is limited to determining wh ether the subsidy recipient could have done what
it actually did in the absence of the subsidies. Therefore, Articles 5(c) and 6.3 do not require
consideration of one or more counterfactuals sp eculating how the subsidy recipient might have
evolved differently without the subsidies.
453. In addition, the United States argues that the European Union mischaracterizes the Panel's
findings when it claims that the Panel found th at "a non-subsidized Airbus would exist".
1063 T h e
Panel merely speculated that Airbus might have entered the LCA market without the subsidies in two
"plausible scenarios" in "the unlikely event that Airbus would have been able to enter the LCA market
as an unsubsidized competitor." 1064 In addition, the European Union's counterfactual scenario that a
non-subsidized Airbus could have launched a si ngle-aisle LCA by 1987 and a twin-aisle LCA by
1991 is contradicted by the Panel's findings concerni ng: (i) the existence of significant barriers to
entry into the LCA market, and spillover and learni ng effects across models of LCA; (ii) the
significant proportion of the development costs of the A300 and A310 that were covered by the
subsidies; and (iii) the four-year lag between order and delivery of aircraft that suggested that Airbus
could not have benefited from hi gh demand for single-aisle aircraft during the late 1980s and early
1990s.1065
454. Finally, the United States contends that the Panel did not act inconsistently with its duty under
Article 11 of the DSU to conduct an objective assessment of the matter in reaching its finding that the
effect of the subsidies was significant lost sales within the meaning of Article 6.3(c). The Panel
properly considered the evidence and arguments adva nced by the parties, and produced a "reasoned
and comprehensive"
1066 analysis to support its causation findings. Referring to US – Zeroing (EC)

1063United States' appellee's submission, para. 631 (quoting European Union's appellant's submission,
para. 401 (original emphasis omitted)).
1065United States' appellee's submission, paras. 636-638; Panel Report, paras. 7.1717, 7.1934, 7.1935,
7.1948-7.1750, and 7.1976.
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(Article 21.5 – EC) as support, the United States requests the Appellate Body to reject the
European Union's claims under Article 11 of the DSU as mere reiterations of its claims that the Panel
erred in interpreting and applying Articles 5 and 6.3 of the SCM Agreement.
1067 The United States
further requests the Appellate Body to refrain from interfering with the Panel's discretion to weigh the
evidence before it.
(iii) Causation – A380 lost sales
455. The United States argues that the Panel correctly found that the subsidies enabled Airbus to
launch the A380, thus causing Boeing to lose the Em irates Airlines, Qantas Airways, and Singapore
Airlines significant sales under Article 6.3(c) of the SCM Agreement. The United States requests the
Appellate Body to reject the European Union's cl aims of error and uphold the Panel's finding that the
effect of the subsidies was to cau se significant lost sales in the same market within the meaning of
Article 6.3(c) of the SCM Agreement for the reasons set out below.
456. The United States considers that the European Union seeks to re-litigate a factual question
decided by the Panel in arguing that Airbus coul d have launched the A380 in the absence of the
subsidies. The United States considers that the Eur opean Union's appeal is directed at the Panel's
weighing of the evidence, which, according to the A ppellate Body, falls within a panel's discretion as
the initial trier of facts in a serious prejudice claim. 1068 Nonetheless, the United States underscores
that the Panel's factual findings concerning Airbus ' inability to finance the A380 in the absence of
LA/MSF are "sound".1069
457. The United States maintains that the Panel's fi nding that Airbus could not have launched the
A380 in the absence of LA/MSF was not based on its assessment of the credibility of the delivery
forecasts contained in the A380 business case. Instea d, the Panel specifically observed that the A380
business case did not examine the viability of a wo rst-case scenario in the absence of LA/MSF, and
that the ex post sensitivity analysis submitted by the Eur opean Communities for this purpose failed to
demonstrate that the launch would have been possible in the absence of LA/MSF. 1070 T h e
United States adds that the Appellate Body need not consider this aspect of the European Union's
appeal because, despite its concerns regarding the completeness and accuracy of the A380 business

1067United States' appellee's submission, para. 620 (referring to Appellate Body Report, US – Zeroing
(EC) (Article 21.5 – EC), paras. 401 and 402).
1068United States' appellee's submission, para. 649 (referring to Appellate Body Report, US – Upland
Cotton (Article 21.5 – Brazil), para. 357).
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case, the Panel actually assumed that "the {A380} business case ... demonstrate{s} a positive {net
present value} in a no-LA/MSF and Realistic Worse Case Scenario."
1071
458. Second, the United States submits that the Panel objectively assessed and correctly rejected
evidence concerning the availability of financing from EADS and BAE Systems for the development
of the A380. The Panel correctly found that EADS' Offering Memorandum 1072 did not demonstrate
how its corporate restructuring would have enabled the company to raise the funds that its constituent
companies were unable to raise a few years earlier. Similarly, the European Union's reference to BAE
Systems' annual balance sheet does not sufficiently establish that the company would have committed
additional funds to the A380 project. The United St ates adds that the UK Department of Trade and
Industry specifically contradicted this assertion when it stated that "the fundamental rationale of
{LA/MSF} is to address the apparent unwillingness of the capital markets to fund projects with such
high product development costs, high technological and market risks and such long pay back
periods."
1073
459. In addition, the United States submits that the Panel took into account and correctly rejected
the European Communities' argument that risk-sha ring suppliers would have been willing to put
additional capital into the development of the A380. The Panel correctly held that Boeing securing a
larger share of risk-sharing supplier financing for the development of the 787 a few years later did not
establish that Airbus would have been able to incr ease that modality of financing for the development
of the A380. The fact that the Panel reached a di fferent conclusion than the European Union in this
respect does not provide a basis for a reversal of this finding.
460. Finally, the United States argues that the Eu ropean Union seeks to avoid the financial and
technical cumulative effects of the subsidies gran ted for the development of earlier Airbus LCA by
invoking a counterfactual scenario in which Airbus could have launched a single-aisle aircraft in
1987, a 200-300 seat LCA in 1991, and the A380 in 2000, without access to LA/MSF. The Panel
considered such a hypothetical scenario, but found it "unlikely" that Airbus would have achieved its
market position, sales, and technical expertise in the absence of the subsidies. 1074 The United States
adds that the Panel's findings concerning the effect s of the subsidies would not be undermined by
additional findings with respect to a "wholly sp eculative counterfactual under which an entirely

1072EADS' Offering Memorandum, supra, footnote 163.
1073United States' appellee's submission, para. 656 (quoting Panel Report, para. 7.1917; and referring to
paras. 7.1918 and 7.1920).
1074United States' appellee's submission, para. 660; see also ibid., section IX.D.4.
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unsubsidized Airbus could have la unched fewer and different LCA at different times", and still have
been able to launch the A380 in 2000.
1075
461. The United States argues that the Panel correc tly held that non-LA/MSF subsidies caused
displacement and lost sales within the meaning of Article 6.3 (a), (b), and (c) of the SCM Agreement.
In particular, the Panel correctly held that equity infusion and share transfer measures undertaken by
the Governments of France and Germany, infrastru cture subsidies, and R&TD subsidies caused the
displacement of Boeing LCA from the European Communities and third country markets under
Article 6.3(a) and (b), and significant lost sales in the same market under Article 6.3(c), of the
SCM Agreement.
462. The United States submits that the Panel's decisi on to analyze the effect of all subsidies at
issue on an aggregated basis is consistent with the SCM Agreement and with past panel and Appellate
Body findings in this regard. The United Stat es stresses that Article 6.3 does not provide a
methodology for the establishment of causation, and simply requires demonstration that a subsidy
causes serious prejudice. According to the United Stat es, an aggregated analysis of the effects of the
subsidies at issue satisfied the requirements of Article 6.3 because each of the subsidies at issue
shared a common causal link, in that they "fac ilitated Airbus' development of its LCA family."
1076
Referring to the panel and A ppellate Body reports in US – Upland Cotton , the United States recalls
that a panel may assess the effects of subsidies collectively, provided those subsidies share a sufficient
nexus with the subsidized product and their effects manifest themselves collectively.1077
463. The United States maintains further that the European Union mischaracterizes the Panel's
findings in arguing that the Panel established "causation by association". 1078 In the United States'
view, the Panel's aggregated analysis was based on its finding that the nature and operation of each of
the challenged subsidies enhanced Airbus' ability to develop and bring to the market its LCA family,
consequently allowing Airbus to gain market shar e and significant sales at Boeing's expense. Thus,
the Panel's finding, that differences in "structure, operation, and design" 1079 of the different subsidies

1077United States' appellee's submission, para. 664 (referring to Panel Report, US – Upland Cotton ,
para. 7.1192; and Appellate Body Report, US – Upland Cotton, paras. 483 and 484).
1078United States' appellee's submission, para. 666 (quoting European Union's appellant's submission,
para. 656).
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did not preclude an aggregated analysis, was base d on a "shared nexus" between each of the subsidies
and the demonstrated displacement and lost sales.
1080
464. The United States emphasizes that the Panel's causation findings fo r non-LA/MSF subsidies
were based on its review of an "exhaustive record " that led it to conclude that all non-LA/MSF
subsidies "were granted during the period each succeeding model of Airbus LCA was being
developed and brought to market" 1081 and that they "complemented and supplemented" the product
effect of LA/MSF.1082 The United States emphasizes that, elsewhere in its appellant's submission, the
European Union clearly acknowledges the nexus am ong the subsidies in explaining that the purpose
of the French Government's capital contribut ions "was to fund expansion in LCA product
development".1083
465. The United States charges the European Union with trying to re-litigate factual issues decided
by the Panel on the nature, magnitude, and timing of each subsidy. In addition, the United States
contends that the European Union entirely overlooks the Panel's analysis of the timing of each subsidy
in supporting the development of the Airbus product in respect of which the subsidies were provided.
The United States opines further that the European Union's argument that the Panel should have
established that each subsidy was "necessary" to enab le a particular product launch implies too high
of a standard for an aggregated analysis of causa tion under Article 6.3. Su ch standard would permit
circumvention of the disciplines of Article 6.3 by subdividing subsidy programmes into smaller
measures that individually would not have been found to cause adverse effects, but which, in the
aggregate, would negatively affect competition in a manner inconsistent with Articles 5 and 6.3.
Thus, the Panel's decision to assess cumulatively the effects of measures operating the same causal
mechanism was correct, even if certain subsidies, in isolation, would not have caused adverse effects.
466. On this basis, the United States submits that the Panel correctly applied the causation standard
in Article 6.3 when it undertook an aggregated analysis of LA/MSF and non-LA/MSF measures based
on its finding that these measures sh ared a sufficient nexus both with the subsidized product and the
particular effects-related variable under consideration. The Panel correctly held that each subsidy that
was provided in respect of Airbus LCA was "granted during the period {that} each succeeding model

1081United States' appellee's submission, para. 668 (quoting Panel Report, footnote 5692 to
para. 7.1956).
1083United States' appellee's submission, para. 670 (quoting European Union's appellant's submission,
para. 1094, in turn referring to European Communities' first written submission to the Panel, paras. 1134
and 1135 (original emphasis omitted)).
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of Airbus LCA was being developed and brought to market"
1084, and that each subsidy operated by the
same causal mechanism—facilitating Airbus' ability to bring to market its full family of LCA.
(d) The relevance of the 1992 Agreement
467. Finally, the United States rejects the European Union's claims that the Panel erred in its
interpretation of Article 5(c) of the SCM Agreement, and acted inconsistently with Articles 11
and 12.7 of the DSU, by failing to address the European Communities' arguments with respect to the
relevance of the 1992 Agreement in its assessment of the United States' claims of serious prejudice.
468. The United States argues that the European Union fails to explain why the Panel's failure to
"make reference" to its arguments on the relevance of the 1992 Agreement in its serious prejudice
analysis amounts to legal error under Articles 11 and 12.7 of the DSU. These provisions require
panels to make an "objective examination" and to set out "the basic rationale behind any findings and
recommendations that it makes." The Appellate Body has found that Article 11 of the DSU gives a
panel the discretion to "address only those arguments it deems necessary to resolve a particular
claim."1085 The Appellate Body has also explained that Article 12.7 "establishes a minimum standard
for the reasoning that panels must provide in support of their findings and recommendations", one that
"disclose{s} the essential, or fundamental, jus tification" for those findings and recommendations. 1086
The United States argues that the Panel's findings of violation under Article 5(c) of the
SCM Agreement provided an objective assessment of the a pplicability of and conformity with the
covered agreements under Article 11 and disclosed the "essential, or fundamental, justification for
those findings" under Article 12.7 of the DSU.
469. In the event the Appellate Body were to consid er that the European Union's arguments on the
1992 Agreement were relevant for the Panel's anal ysis under Article 5(c), the United States submits
that the European Union's arguments in this r espect would fail. As the Panel correctly noted,
Article 2 of the 1992 Agreement suggests that the par ties intended to preserve their right to challenge
pre-1992 measures for consistency with the GATT/WTO subsidies disciplines. This suggests that the
1992 Agreement does not preclude a party from raisi ng claims of violati on in respect of WTO
obligations. In addition, contrary to the Eu ropean Union's suggestion, compliance with the

1084United States' appellee's submission, para. 673 (quoting Panel Report, footnote 5692 to
para. 7.1956).
1085United States' appellee's submission, para. 680 (quoting Appellate Body Report, EC – Poultry ,
para. 135). (emphasis added by the United States omitted)
1086United States' appellee's submission, para. 679 (quoting Appellate Body Report, Chile – Price Band
System (Article 21.5 – Argentina) , para. 243, in turn quoting Appellate Body Report, Mexico – Corn Syrup
(Article 21.5 – US), para. 106).
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1992 Agreement is not a "fact" that the Panel was re quired to take into account, but rather a "legal
conclusion" that was not within the Panel's terms of reference. Thus, in the United States' view, it
would have been improper for the Panel to take into account as a "fact" something that constitutes a
legal conclusion that it was not entitled to make.
C. Claims of the United States – Other Appellant
1. The LA/MSF "Programme"

470. In its other appeal, the United States claims that the Panel erred in concluding that the
United States had not demonstrated the existenc e of the alleged LA/MSF "Programme". The
United States requests the Appellate Body to rever se the Panel's finding and complete the analysis by
ruling that the challenged measure "constitutes a sp ecific subsidy, provided by France, Germany,
Spain and the United Kingdom to Airbus, that cau ses adverse effects to the interests of the
United States."1087
471. The United States emphasizes that it informed the Panel on "multiple occasions" that its claim
against the alleged LA/MSF Programme was not an "as such" challenge. 1088 Rather, it challenged the
LA/MSF Programme as "a measure that currently is breaching EC obligations under the {SCM
Agreement} by causing adverse effects to the interests of the United States."1089 Yet the Panel applied
the legal framework set out by the Appellate Body in US – Zeroing (EC) for determining whether an
alleged measure could be challenged "as such" in WTO dispute settlement proceedings. According to
the United States, in so doing it "committed legal error and incorrectly inferred from the facts before it
that the United States had not demonstrated the existence of the {LA/MSF} Program."1090
472. Referring to the Appellate Body report in US – Continued Zeroing, the United States suggests
that "a Member's 'ongoing conduct' may itsel f be challengeable in WTO dispute settlement
proceedings, separate from the specific applications of that conduct in particular circumstances." 1091
Rather than applying this approach in evaluati ng the United States' claim against the alleged LA/MSF
Programme, the Panel began its analysis by re viewing the Appellate Body's findings in US – Zeroing
(EC), where one of the measures at issue was challenge d "as such". In doing so the Panel erred by

1087United States' other appellant's submission, paras. 82 and 83(e).
1088United States' other appellant's submission, para. 43 (referring to Panel Report, para. 7.518;
United States' response to Panel Question 136, para. 4; and United States' oral statement at the second Panel
meeting, paras. 34-37).
1089United States' other appellant's submission, para. 43 (quoting United States' response to Panel
Question 136, para. 4 (original underlining)).
1090United States' other appellant's submission, para. 42.
1091United States' other appellant's submission, para. 44 (referring to Appellate Body Report, US –
Continued Zeroing, paras. 180 and 181).
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requiring the United States to demonstrate the "gener al and prospective application" of the LA/MSF
Programme, although such a requirement, according to the United States, "is uniquely related to 'as
such' challenges", and the United States had explaine d to the Panel that it was not challenging the
1092
473. The United States also takes issue with the Pa nel's alternative finding that, even if the
United States was not required to establish the gene ral and prospective application of the alleged
unwritten LA/MSF Programme, the Panel would neverthe less have concluded that the United States
had not demonstrated that an unwritten LA/MSF Progr amme exists. In reaching this conclusion, the
Panel effectively continued to require the Un ited States to establish general and prospective
application, although the Panel had said it would not do so. The United States argues that the Panel
appeared to have considered this characteristic to be inherent in any "programme" and therefore
imposed a higher burden for complaining Members that direct their challenge against a "programme"
instead of "some other label"1093 for an unwritten measure. Yet, for the United States, the standard for
evaluating whether a measure exists should not depe nd on whether a complaining party describes the
object of its challenge as a "programme", "po licy", "ongoing conduct", "continued use", or
"moratorium".1094
474. The United States requests the Appellate Body to complete the legal analysis using the
"proper legal framework" for evaluating the Unit ed States' claim against the alleged LA/MSF
Programme and on the basis of the factual findings made by the Panel. The United States suggests
that, had the Panel followed the approach set out by the Appellate Body in US – Continued Zeroing ,
where the Appellate Body found that "'ongoing condu ct' itself may be challengeable in WTO dispute
settlement proceedings", it would have found the existence of an unwritten LA/MSF Programme.1095
475. The United States describes the alleged LA /MSF Programme as "ongoing conduct" or
"repeated provision of {LA/MSF} to each and ever y major Airbus model, under the same four core
conditions and benefiting the same subsidized product".1096 The United States further explains that its
challenge before the Panel "was based on a demonstr ation that over the past four decades (since
1969), the Airbus governments have consistently s ubsidized Airbus, in the form of {LA/MSF}, by
underwriting the costs of developing each and every single model through long-term unsecured loans
at zero or below-market rates of interest, with b ack-loaded repayment schedules that allow Airbus to

1092United States' other appellant's submission, paras. 42, 45, and 47.
1093United States' other appellant's submission, para. 51.
1094United States' other appellant's submission, para. 51.
1095United States' other appellant's submission, paras. 53 and 58.
1096United States' other appellant's submission, para. 61.
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repay the loans through a levy on each delivery of the financed aircraft."
1097 According to the
United States, the Panel's factual findings, viewed in the light of the Appellate Body's analysis in US –
Continued Zeroing , demonstrate the existence of the LA/MSF Programme "as a measure subject to
challenge in WTO dispute settlement proceedings". 1098 The United States emphasizes that its
complaint is not directed against a measure with "general and prospective application". Instead, it
refers to the alleged LA/MSF Programme as consis ting "of the repeated provision of {LA/MSF} on
the same four 'core terms'" and argues that "{LA/M SF} had been provided in respect of every model
of aircraft for which Airbus sought such assistance over four decades." 1099 According to the
United States, "the Panel's factual findings, viewed in the light of the Appellate Body's analysis in
US – Continued Zeroing , make clear that the United States had demonstrated the existence of the
{LA/MSF} Program as a measure subject to ch allenge in WTO dispute settlement proceedings." 1100
Additional factual findings 1101 by the Panel "indicate that the provision of {LA/MSF} in respect of
each of the models challenged by the United States we re not 'one-off grant{s} of a single subsidy' for
the development of that model" 1102, but instead reflect "a concerted and coherent approach—that is, a
'program' or 'ongoing conduct'—designed to cont ribute to the long-term competitiveness of
Airbus".1103
476. In conclusion, the United States submits that the facts found by the Panel demonstrate the
existence of the measure challenged by the Unite d States as a repeated course of action by the
responding Members. Specifically, those facts show the consistent and repeated use of LA/MSF, "on
the same four 'core terms', for all major models of Airbus aircraft since 1969, together with the
recognition by governments and Airbus that an LCA manufacturer needed to produce a range of
aircraft models in order to be successful, which was the objective of establishing Airbus." 1104 Thus
"each individual grant of {LA/MSF} effectuated the broader scheme that the Airbus governments
maintain to ensure that at least one of the world's LCA producers will be European." 1105 T a k e n
collectively, the United States argues, "these fact s evince the {LA/MSF} Program, a specific course

1097United States' other appellant's submission, para. 60.
1098United States' other appellant's submission, para. 64.
1099United States' other appellant's submission, para. 64.
1100United States' other appellant's submission, para. 64.
1101United States' other appellant's submission, para. 69 (referring to Panel Report, paras. 7.1665-
7.1667, 7.1721, and 7.1726).
1103United States' other appellant's submission, para. 70.
1104United States' other appellant's submission, para. 71.
1105United States' other appellant's submission, para. 71.
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of ongoing conduct comprising a 'measure', separate from the individual instances of {LA/MSF}, that
is the proper subject of challenge in WTO dispute settlement proceedings."
1106
477. The United States maintains that the alleged LA/MSF Programme constitutes a subsidy that
causes adverse effects to the interests of the United States. In support of its position, the United States
recalls that the Panel found the existence of a fi nancial contribution and a benefit for each of the
individual instances of LA/MSF, and that the Panel agreed with the United States that each of these
subsidies was "specific". 1107 The Panel also found that the effect of the subsidies in this dispute was
displacement in the EC and third country market s and significant lost sales within the meaning of
Article 6.3 of the SCM Agreement.1108 In addition, the United States points to the Panel's finding that
the ability of Airbus "to launch, develop, and intr oduce to the market, each of its LCA models was
dependent on subsidized LA/MSF." 1109 On this basis, the United States submits that the Panel's
findings and analysis provide the factual and legal basis for the Appellate Body to find that the
LA/MSF Programme "caused serious prejudice to the interests of the United States in the form of
displacement of United States' LCA from the EC an d certain third country markets and the significant
lost sales during the period 2001-2006 found by th e Panel with respect to individual instances of
{LA/MSF}".1110
2. Export Subsidies
478. The United States appeals the Panel's finding that the LA/MSF contracts by France for
the A380 and the A330-200 1111, and the LA/MSF contracts by France and Spain for the

1106United States' other appellant's submission, para. 71.
1107United States' other appellant's submission, para. 73 (referring to Panel Report, paras. 7.377, 7.379,
7.488-7.490, and 7.497).
1108United States' other appellant's submission, paras. 77 and 78 (referring to Panel Report,
para. 7.1993).
1110United States' other appellant's submission, para. 81.
1111The "French A380 contract" (Panel Exhibit US-116 (BCI)) is the Agreement (of 20 March 2002)
between the aeronautical programme service (SPAé) as signatory authority of the agreement acting on behalf
and for the account of the State, on the one hand, and the company Airbus France, on the other hand,
concerning the Airbus A380 repayable advance.
The "French A330-200 contract" (Panel Exhibit US-78 (BCI)) is the Agreement (of 28 November 1996)
between the signatory authority of the agreement acting on behalf and for the account of the State, on the one
hand, and Aérospatiale, on the other hand, concerning the development of the Airbus A330-200.
BCI deleted, as indicated [***] WT/DS316/AB/R

A340-500/600
1112, do not constitute subsidies contingent in fact upon anticipated export performance
within the meaning of Article 3.1(a) and footnote 4 of the SCM Agreement. Although the Panel also
found that the United States failed to establish that the subsidies at issue were contingent in law upon
anticipated export performance, the United States has not appealed this finding.
(a) The alleged requirement imposed by the Panel on evidence
concerning motivation
479. The United States submits that a de facto contingent relationship between the granting of a
subsidy and anticipated exportation, within the meani ng of footnote 4, must be inferred from the total
configuration of the facts constituting and surrounding the granting of the subsidy. According to the
United States, "{n}othing in the text of Article 3.1 or footnote 4 compels an inquiry into the subjective
intent of a Member in the context of the tie between the subsidy and anticipated exports." 1113 Rather,
the Appellate Body has emphasized that "this rela tionship of contingency, between the subsidy and
export performance, must be inferred from the total configuration of the facts constituting and
surrounding the granting of the subsi dy, none of which ... is likely to be decisive in any given
case."1114 Thus, the "subjective motivation of a granting authority may be one factor in that analysis,
but is not in and of itself a necessary condition for a finding of contingency". 1115 Furthermore,
referring to the disputes in Australia – Automotive Leather II and Canada – Aircraft , the
United States maintains that "{p}revious A ppellate Body and panel reports examining de facto export
subsidies make clear that the demonstration of the tie between a subsidy and anticipated exports does
not require evidence of subjective motivation of the subsidizing Member."1116

1112The "French A340-500/600 contract" (Panel Exhibit US-36 (BCI)) is the Agreement (of
29 December 1998) between the signatory authority of the agreement on behalf and for the account of the State,
on the one hand, and Aérospatiale, on the other hand, concerning the development of the Airbus A340-500 and
A340-600. We note that the Panel interchangeably referred to Panel Exhibits US-35 (BCI) and US-36 (BCI) as
the French A340-500/600 contract, and at times it referred to Panel E xhibit US-36 (BCI)) as the French A340-
500/600 convention (see Panel Report, footnotes 2259 and 3243). In this Report, we refer to the agreement
contained in Panel Exhibit US-36 (BCI) as the French A340-500/600 contract.
The "Spanish A340-500/600 contract" (Panel Exhibits EC-87 (BCI) and US-37 (BCI)) is the
Framework Cooperation Agreement (of 28 December 1998) between the Ministry of Industry and Energy and
the company Construcciones Aeronáuticas S.A. on finan cing the participation of the said company in the
development of the programme Airbus A340-500 and A340-600.
1113United States' other appellant's submission, para. 8. (original emphasis)
1114United States' other appellant's submission, para. 8 (quoting Appellate Body Report, Canada –
Aircraft, para. 167 (original emphasis)).
1115United States' other appellant's submission, para. 8.
1116United States' other appellant's submission, para. 9. (original emphasis)
WT/DS316/AB/R BCI deleted, as indicated [***]

480. The United States submits that the Panel "departed significantly"
1117 from the objective legal
standard of contingency under Artic le 3.1(a) and footnote 4 in its analysis of the United States' export
subsidy claims. Instead, "the Panel effectively an d erroneously applied a standard, not found in the
text of the SCM Agreement, that requires evidence of specific member State 'motivation' to find
export subsidization." 1118 The United States recalls that, as the Panel found, each of the seven
LA/MSF contracts at issue established repayment terms that required Airbus to make a substantial
number of exports. 1119 This finding led the Panel to conclude that the evidence supported the view
that the provision of the seven LA/MSF contracts on sales-dependent repayment terms was, at least in
part, "conditional" upon the LA/MSF governments' anticipated exportation or export earnings. 1120
The Panel's recognition of "conditionality" or "depende nce" at this point "was sufficient to determine
that the provision of all seven instances of {L A/MSF} contracts was tied to anticipated exports". 1121
For the United States, the Panel erroneously conclu ded that this demonstration was "{not} decisive"
and, following a review of additional evidence provided by the United States, found that only the
German, Spanish, and UK A380 LA/MSF constituted de facto export subsidies.1122
481. Quoting the Panel's finding in paragraph 7.690 of its Report, the United States argues that the
Panel found the following four elements "critical" to its finding of de facto export contingency with
respect to the German, Spanish, and UK A380 LA /MSF: (i) repayment terms that necessarily
involved exportation; (ii) anticipation of export pe rformance; (iii) member States' reliance on full
repayment by Airbus; and (iv) the motivation of the member States to promote exports through the
LA/MSF contracts. According to the United States, the Panel "found the first three of these factors to
exist with respect to all seven challenged instances of {LA/MSF}" 1123, and the "only element that the
Panel did not find for the French A380, French and Spanish A340-500/600 and French A330-200
{LA/MSF} was the specific motivation of the respective member State to promote exports."1124 Thus,
the Panel "effectively required evidence of specific motivation in order to find a tie between the
subsidy and anticipated exports".1125

1117United States' other appellant's submission, para. 12.
1118United States' other appellant's submission, para. 12. (original emphasis)
1119United States' other appellant's submission, para. 13 (referring to Panel Report, para. 7.678). The
seven contracts include the four that are the subject of the United States' other appeal, as well as the German,
Spanish, and UK LA/MSF contracts for the A380 that were found by the Panel to be subsidies contingent in fact
upon export performance. (See Panel Report, para. 7.690)
1120United States' other appellant's submission, para. 13 (referring to Panel Report, para. 7.678).
1121United States' other appellant's submission, para. 13.
1123United States' other appellant's submission, para. 16 (original emphasis) (referring to Panel Report,
paras. 7.654, 7.657, 7.660, and 7.678).
1124United States' other appellant's submission, para. 16.
1125United States' other appellant's submission, para. 16. (original emphasis)
BCI deleted, as indicated [***] WT/DS316/AB/R

482. According to the United States, the Panel's "quest for evidence of the subjective motivation of
the member States is particularly apparent in its analysis" with respect to the Spanish A340-500/600
contract.
1126 As the Panel acknowledged, the preambul ar language in the Spanish A340-500/600
contract was similar to the language contained in the Spanish A380 contract. 1127 Further, the Panel
had found that the Spanish A380 contract constituted a subsidy contingent in fact upon export
performance. However, the Pane l determined that the pream bular language in the Spanish
A340-500/600 contract "did not reflect the motivati on of the Spanish government in entering into the
{LA/MSF} contract" and was therefore "meaningful ly different" from the language in the Spanish
A380 contract. 1128 Thus, given that the Panel ultimately concluded that the Spanish A340-500/600
contract did not constitute a s ubsidy contingent in fact upon export performance, the Panel
"effectively concluded that what it considered to be the absence of direct evidence of ... specific
motivation was dispositive and precluded a finding of de facto export subsidization."1129
483. The United States further submits that, "{a}s pa nels and the Appellate Body have recognized,
divining the subjective motivation of a Member pur suing a particular policy may not always be
possible, particularly given the multiple motiva tions that may underlie the adoption of a given
measure."1130 Thus, if "subjective motivation were a necessary requirement for reaching a finding of
de facto export subsidization, a subsidizing Member c ould tie the grant of a subsidy to exports and
still avoid a finding of WTO-inconsiste ncy, for example, simply by ensuring no public statements of
motivation were made or included in the measure or discussion of it, or by publicly declaring
additional motivations that did not rela te to the desire to increase exports." 1131 As a result, the
prohibition on export subsidies under Artic le 3.1(a) and footnote 4 of the SCM Agreement "would be
easily circumvented".1132

1126United States other appellant's submission, para. 17.
1127United States' other appellant's submission, para. 17 and footnote 16 to para. 18 (referring to Panel
Report, para. 7.681, in turn quoting the "Spanish A380 contract" (Panel Exhibits EC-88 (BCI) and US-73
(BCI)), Cooperation Agreement between the Ministry of Science and Technology (MCYT) and the company
EADS Airbus SL on financing the par ticipation of the said company in th e development of the Airbus A-380
family programme, preamble, 7th recital, which is BCI).
1128United States' other appellant's submission, para. 18.
1129United States' other appellant's submission, para. 19.
1130United States' other appellant's submission, para. 21 (referring to Panel Report, Japan – DRAMs
(Korea), para. 7.104; Appellate Body Report, Japan – Alcoholic Beverages II , pp. 27-29, DSR 1996:I, 97,
at 119-121; GATT Panel Report, EEC – Parts and Components, para. 5.6; Appellate Body Report, US – Offset
Act (Byrd Amendment), para. 259; Panel Report, Japan – Film, para. 10.87; Panel Report, EC – Approval and
Marketing of Biotech Products , para. 7.2558; and Appellate Body Report, Chile – Alcoholic Beverages ,
paras. 62 and 63).
1131United States' other appellant's submission, para. 21.
1132United States' other appellant's submission, para. 20.
WT/DS316/AB/R BCI deleted, as indicated [***]

484. Moreover, the United States contends that the Panel derived evidence concerning the
governments' motivation from contract language revea ling that the member Stat es' decisions to enter
into these contracts were driven by, or in "contractual reliance"
1133 on, Airbus' assurance that a
substantial amount of sales would be exports. Accord ing to the United States, by explicitly making
such contract language the determinative basis fo r finding that the subsidies were contingent upon
export performance, "the Panel has essentially reduced compliance with Article 3.1 and footnote 4 to
a semantic matter of deleting a few phrases from future financing agreements."1134
485. On this basis, the United States maintains that the Panel introduced a subjective requirement
that does not exist in Article 3.1(a) and footnote 4, and requests the Appellate Body to reverse the
Panel's finding that the United States had not show n that the French A380 contract, the French and
Spanish A340-500/600 contracts, and the French A330-200 contract were contingent in fact upon
anticipated export performance.
(b) The United States' request for completion of the analysis
486. The United States requests the Appellate Body to complete the analysis by applying the
correct legal standard and by concluding, on the b asis of the Panel's factual findings or undisputed
facts, that the French LA/MSF contracts for th e A380, the A340-500/600, and the A330-200, and the
Spanish LA/MSF contract for the A340-500/600, constituted subsidies contingent in fact upon
anticipated export performance w ithin the meaning of Article 3.1(a) and footnote 4 of the
SCM Agreement.
487. The United States maintains that, before the Pa nel, it established that the member States
expected certain levels of export performance in re turn for the provision of LA/MSF, and that these
expectations "were based not only on the significan t export-oriented nature of Airbus, but also on
assurances provided by Airbus forecasts and existing orders for certain models at the time the member
States committed to provide {LA/MSF}." 1135 The United States furt her argues that "{t}hese
expectations, and Airbus' commitment to meet or exceed them, were codified in the form of
{LA/MSF} contracts signed by each member State for a particular model of aircraft" and that,
"{w}ithout these contracts, {LA/MSF} would not have been provided." 1136 Thus, each of the
LA/MSF contracts reflects an "exchange of commi tments", whereby the governments committed to

1134United States' other appellant's submission, para. 22.
1135United States' other appellant's submission, para. 26.
1136United States' other appellant's submission, para. 26.
BCI deleted, as indicated [***] WT/DS316/AB/R

provide the loans in exchange for Airbus' commitment to repay the lo ans on the basis of a specified
number of aircraft sales that could not be achieved without exports.
488. The United States emphasizes that "it is the particular structure of the {LA/MSF} contracts
that provides the 'conditionality' required under Article 3.1(a) and footnote 4".
1137 Specifically, the
member States "could have structured these contracts in other ways", for example, "by establishing a
repayment calendar based on specific dates without re gard to the deliveries made by Airbus" or by
requiring "repayment over much smaller numbers of deliveries" that "could be reached without
necessarily exporting".
1138 Instead, "by tying repayment of ... loan s to a specific numb er of deliveries
that required exportation"1139, the LA/MSF contracts reflect an exchange of commitments that "is the
essence of 'conditionality'" between the granting of a subsidy and export performance, within the
meaning of Article 3.1(a) and footnote 4 of the SCM Agreement.1140
489. On this basis, the United States requests the Appellate Body to find that the French A380
contract, the French and Spanish A340-500/600 contracts, and the French A330-200 contract
constituted subsidies contingent in fact upon export performance within the meaning of Article 3.1(a)
and footnote 4 of the SCM Agreement. The United States further requests the Appellate Body to
clarify that the Panel's recommendation, pursuant to Article 4.7 of the SCM Agreement, that the
measures found to constitute export subsidies in th is dispute be withdrawn within 90 days, also
applies to these contracts.
D. Arguments of the European Union – Appellee
1. The LA/MSF "Programme"
490. The European Union supports the Panel's finding that the United States failed to establish the
existence of the alleged LA/MSF Programme. As a preliminary matter, the European Union argues
that the United States has failed, in its Notice of Ot her Appeal, to identify the legal provision alleged
to be erroneously interpreted or applied by the Panel, as require d under Rule 23(2)(c)(ii) of the
Working Procedures for Appellate Review. The European Union submits th at, even in the light of the
United States' other appellant's submission, "it is still not clear which legal provision(s) of the covered
agreements the United States is alleging the Panel violated."1141

1137United States' other appellant's submission, para. 31.
1138United States' other appellant's submission, para. 31.
1139United States' other appellant's submission, para. 32.
1140United States' other appellant's submission, para. 33.
1141European Union's appellee's submission, para. 203.
WT/DS316/AB/R BCI deleted, as indicated [***]

491. In addition, the European Union contends, a revi ew of the actual content of the United States'
arguments on appeal reveals a focus on the Panel's factual determination regarding the existence of
the alleged LA/MSF Programme, yet the United States has failed to properly raise this appeal under
Article 11 of the DSU. According to the European Union, the United States is confusing two distinct
issues. The first is whether a measure, as describ ed by the complaining Member, exists. For the
European Union, this issue is a matter of facts and evidence, "and would have to be appealed pursuant
to Article 11 of the DSU".
1142 The second issue relates to the legal question of whether a measure,
assuming it exists, can be challenged under WTO disput e settlement. This latter issue was addressed
by the Appellate Body in US – Continued Zeroing , and serves as the core focus of the United States'
other appellant's submission. This issue is not relevant to the present case, however, "because the
Parties agree that a subsidy programme is capable of being a measure for the purposes of dispute
settlement."1143 Based on this reasoning, the European Uni on argues that, to the extent the Appellate
Body finds that the United States is "lodging implicit challenges" under Article 11 of the DSU, "those
challenges must be dismissed due to the US failure to include them in its Notice of Other Appeal, and
the lack of due process that would result if the Appellate Body were to evaluate them."
1144
492. In any event, the European Union argues that the Panel properly relied on the Appellate Body
report in US – Zeroing (EC) for guidance, given that the United States describes the alleged LA/MSF
Programme in terms of the measure at issue in that dispute. According to the European Union, the
United States also failed in its attempt to identify any inconsistency between the Panel's findings and
the Appellate Body report in US – Continued Zeroing , on which the United States asserts the Panel
should have relied. Moreover, wh ile "that Appellate Body Report stands for the proposition that
'ongoing conduct' might constitute an unwritten measu re that can be challenged in WTO dispute
settlement, such 'ongoing conduct' must constitute more than simply a 'repeated course of action'." 1145
The European Union recognizes, however, that a "'repeated course of action' can, in certain
circumstances, be evidence of an unwritten measure with prospective applicability", noting that, when
completing the analysis and assessing the existence of the measures asserted by the
European Communities in US – Continued Zeroing , the Appellate Body emphasized that "it was
looking for evidence of future applicability."
1146 Thus, the Appellate Body assessed the "'repeated
course of action' not as automatically constituting a measure, but simply as evidence of an unwritten

1142European Union's appellee's submission, para. 205.
1143European Union's appellee's submission, para. 205.
1144European Union's appellee's submission, para. 227.
1145European Union's appellee's submission, para. 250 (original emphasis) (referring to United States'
1146European Union's appellee's submission, para. 250 (original emphasis) (referring to Appellate Body
BCI deleted, as indicated [***] WT/DS316/AB/R

measure that would 'likely continue to be applied'".
1147 According to the European Union, the
United States has in this case disregarded this asp ect of the reasoning by the Appellate Body in US –
Continued Zeroing.
493. The European Union further argues that, in US – Continued Zeroing , "there was clearly an
intermediate level between the zeroing methodolog y and the individual administrative reviews." 1148
According to the European Union, "{t}his intermedia te level was variously referred to as the duty, or
the order, or the methodology as applied to a part icular product exported from the European Union to
the United States." 1149 This is why the European Union "w as able to explain that it was not
challenging the methodology ('as such'), but that in addition to challenging the administrative reviews
it was also challenging the intermediate level that implied the continued future use of the zeroing
methodology."1150 The European Union emphasizes that "the point about the intermediate level was
that it was of prospective application."1151 By contrast, in the present dispute "there is no intermediate
level: there is only the alleged {LA/}MSF progr amme and the instances of its application." 1152 The
European Union concludes from this that the attemp ts by the United States to articulate an alleged
legal error, based on a supposed distinction with US – Zeroing (EC) and the assertion that the
United States is not challenging the alleged LA/MSF Programme "as such", "must necessarily
fail".1153 The European Union further ar gues that any finding by the A ppellate Body that the alleged
LA/MSF Programme existed and cons tituted a subsidy that caused adverse effects would not extend
the scope of the European Union's implementati on obligations, "as it does not add to the 'adverse
effects' to be removed under Article 7.8 of the SCM Agreement or those 'determined to exist', within
the meaning of Articles 7.9 and 7.10 of the SCM Agreement" as a result of individual LA/MSF
measures.1154
494. The European Union argues that the United States has changed the description of the measure
it challenges on appeal, now simply combining into a single measure all instances of past LA/MSF
loans. Under the United States' approach, "the whole is not greater than the sum of its constituent
parts."1155 The European Union adds that, while it ass erts that the alleged LA/MSF Programme is a
"broader scheme" than, and "separate from", th e individual instances of LA/MSF loans, "the

1147European Union's appellee's submission, para. 250.
1148European Union's appellee's submission, para. 211.
1149European Union's appellee's submission, para. 211.
1150European Union's appellee's submission, para. 211.
1151European Union's appellee's submission, para. 211.
1152European Union's appellee's submission, para. 212.
1153European Union's appellee's submission, para. 213.
1154European Union's appellee's submission, footnote 237 to para. 214.
1155European Union's appellee's submission, para. 209. (original emphasis)
WT/DS316/AB/R BCI deleted, as indicated [***]

United States fails to cite to any evidence other th an that relating to the individual {LA/}MSF loans
for the proposition that the alleged programme c onstitutes a subsidy and causes adverse effects."
1156
The European Union also emphasizes that th e present challenge against the alleged LA/MSF
Programme is "markedly different than a challenge that the United States could have attempted to
lodge, but did not—i.e., an 'as such' challenge to an {LA/}MSF programme, as a whole, where the
programme was demonstrated to satisfy the characteristics of an ongoing programme."
1157
495. Even assuming that the Appellate Body were to find that the Panel had applied an erroneous
legal standard, the European Union submits that th e Appellate Body should nevertheless reject the
United States' request to complete the legal analys is to find the existence of the alleged unwritten
LA/MSF Programme. First, the United States failed to notify, in its Notice of Other Appeal, its
request that the Appellate Body complete the an alysis. Second, completing the analysis is not
expressly provided for in the DSU and "should, ther efore, be limited to exceptional circumstances
only".1158 The European Union adds that the "Appellate Body should be vigilant to preserve the due
process rights of the European Union, including its ri ght to have facts assessed by a panel, and the
option of having that assessment reviewed by the Appellate Body, under Article 11 of the DSU."1159
496. The European Union further argues that the A ppellate Body is precluded from completing the
analysis regarding the existence of the allege d LA/MSF Programme "given that the United States
relies on a set of facts and related factual finding s that it raises on appeal for the first time in
connection with the question of the existence of the alleged {LA/}MSF programme."1160 In particular,
the European Union asserts that, "in support of its request that the Appellate Body find that the
alleged {LA/}MSF programme exists", the United Stat es refers "for the first time to various Panel
findings suggesting that 'a successful LCA manufacturer requires a family of aircraft' and the positive
effects on its competitiveness of 'commonality' between its models." 1161 According to the
European Union, since "the United States did not refe r to that evidence in the context of its argument
to the Panel about the existence of the {LA/MSF} programme, the European Union had no reason to
comment on the relevance ... for the proposition it is currently being used to support—specifically
whether France, Germany, Spain and the Un ited Kingdom operated {an LA/MSF programme}." 1162
The European Union maintains that, if, "in the cont ext of completing the analysis, the Appellate Body

1156European Union's appellee's submission, footnote 233 to para. 209.
1157European Union's appellee's submission, para. 210.
1158European Union's appellee's submission, para. 266.
1159European Union's appellee's submission, para. 266.
1160European Union's appellee's submission, para. 268.
1161European Union's appellee's submission, para. 268 (quoting United States' other appellant's
1162European Union's appellee's submission, para. 268.
BCI deleted, as indicated [***] WT/DS316/AB/R

were to use these facts and related factual findings in an entirely new context, it would deprive the
European Union of its due process rights to comment on the relevance of those facts in that new
context."
1163
497. Finally, even if the Appellate Body were to complete the analysis pursuant to any legal
framework set out in US – Continued Zeroing , the European Union argues that the alleged LA/MSF
Programme does not involve conduct that can be attributed to France, Germany, Spain, and the United
Kingdom. Nor is there a clear definition of what the conduct entails. In particular, the
European Union argues that the "four core terms" to which the United States alludes "are neither very
specific, nor well defined, nor monolithic or automatic as was the zeroing methodology at issue in
US – Continued Zeroing."
1164 Rather, according to the European Union, such "core terms" "constitute
generic descriptions of features in a financing agreement, and mask the significant differences
between the various, individually negotiated {LA/}MSF loans that the Panel pointed out in its factual
findings quoted above." 1165 Moreover, and contrary to the measures at issue in US – Continued
Zeroing, the European Union claims that the alle ged LA/MSF Programme is not prospectively
applicable.
2. Export Subsidies
498. The European Union maintains that the Appellate Body should reject the United States' claim
that the Panel erred in finding that the French A380 contract, the French and Spanish A340-500/600
contracts, and the French A330-200 contract were not contingent in fact upon export performance. As
a preliminary matter, the European Union contends that the Appellate Body should examine each of
the four LA/MSF measures separately. The Europ ean Union noted that, in its other appellant's
submission, the United States does not "clearly separate and distinguish between" the above four
measures.1166 According to the European Union, "it is appropriate and necessary" to examine each
measure individually because "the United States makes 'in fact' claims and the facts of each case are
different".1167 The European Union notes that, before the Panel, the United States identified the four
measures separately, the European Communities struct ured its defence by reference to each measure
separately, and the Panel structured its analysis in the same way. Thus, the European Union argues

1163European Union's appellee's submission, para. 269.
1164European Union's appellee's submission, paras. 302 and 303 (referring to Panel Report, para. 7.525).
1165European Union's appellee's submission, para. 303.
1166European Union's appellee's submission, para. 20.
1167European Union's appellee's submission, para. 21.
WT/DS316/AB/R BCI deleted, as indicated [***]

that "the same approach should apply in these app eal proceedings, both with respect to the US
requests for reversals and the US requests for 'completion of the analysis'".
1168
499. The European Union submits that the United St ates' appeal "is precluded by the terms of
Article 17.6 of the DSU and must be rejected", be cause it does not concern issues of law covered in
the Panel Report or legal interpretations made by the Panel.1169 According to the European Union, the
deficiency in the Panel's findings appealed by the United States relates to the weighing of the
evidence and the Panel's failure to explain how the evidenced facts work together to demonstrate the
existence and precise content of a subsidy contingent in fact upon anticipated exportation. Therefore,
the United States should have brought its other appeal under Article 11 of the DSU, but the
United States failed to do so. The European Un ion further argues that the United Sates neither
claimed that the Panel erred in its interpretation of the legal standard, nor claimed that the Panel
adopted an erroneous legal characterization of the facts. Thus, in the European Union's view, the
Appellate Body should reject the United States' appeal as outside the scope of its review.
(a) The alleged requirement imposed by the Panel on evidence
concerning motivation
500. The European Union maintains that, contrary to the United States' argument, the Panel neither
established, nor applied, a standard that requi res evidence of motivation. Instead, the Panel
established a double standard for de termining export contingency by finding that the grant of the
subsidy must be "conditional" upon actual or anticipated export perfo rmance, or, the subsidy must be
granted " because" of actual or anticipated export performance. 1170 To the European Union, the
"double legal standard articulated and expressly a pplied by the Panel, and particularly the first
element of it, manifestly does not require any consideration of motivation." 1171 Therefore, the
European Union argues that the Panel applied the double standard it articulated and did not require
evidence of motivation in reaching its conclusion. Ra ther, the Panel merely stated that "it reached its
finding on the basis of the total configuration of the facts ".1172 The European Union further noted
that, although the United States referred to the Panel' s finding in paragraph 7.690 of the Panel Report

1168European Union's appellee's submission, para. 21.
1169European Union's appellee's submission, paras. 22 and 23.
1170European Union's appellee's submission, para. 38 (quoting Panel Report, para. 7.648 (original
emphasis)).
1171European Union's appellee's submission, para. 44. (original emphasis)
1172European Union's appellee's submission, para. 45. (original emphasis)
BCI deleted, as indicated [***] WT/DS316/AB/R

in support of its assertion, the Panel did not stat e in that finding that motivation was "critical"
1173, but
simply stated that "the evidence it considered included evidence about motivation".1174
501. Moreover, the European Union maintains that, with respect to the French LA/MSF contracts
for the A380, the A340-500/600, and the A330-200, the United States provides no further evidence
and develops no further legal ar gument in support of its assertion that the Panel applied a legal
standard that requires evidence of motivation. Wi th respect to the Spanish LA/MSF contract for the
A340-500/600, the European Union submits that th e United States seeks to rely on the Panel's finding
in paragraph 7.687, even though the Panel merely stated in that paragraph that "the evidence it
considered included evidence about motivation."
1175 In these circumstances, the European Union
maintains, the Appellate Body must conclude that there is simply no basis for the United States'
appeal of the Panel's findings regarding these measures.
502. The European Union thus submits that the A ppellate Body should reject the United States'
appeal that the Panel erred in establishing and appl ying a standard requiring evidence of motivation in
order to find that a subsidy is contingent in fact upon export performance. The European Union
further maintains that, in its Other Appeal, "the United States incidentally expressly agrees with the
European Union that 'motivation' cannot be 'd ispositive' of a finding of export contingency."
1176 The
European Union therefore submits that "there is no disagreement between the Parties on this point"
and that, consequently, the Appellate Body should acc ept the European Union's first set of grounds of
appeal, that the Panel erred in interpreting Article 3.1(a) of the SCM Agreement by imposing a
dependent motivation standard.1177
(b) The United States' request for completion of the analysis
503. The European Union argues that the United States' request that the Appellate Body complete
the analysis should be rejected because the United St ates failed to include such a request in its Notice
of Other Appeal. The European Union submits that, consistent with the principle of due process, if a
Notice of Other Appeal does not contain a statemen t of the nature of the other appeal, the other
appellant is precluded from enlarging the scope of appeal by raising that matter in its written
submission.

1173European Union's appellee's submission, para. 46 (quoting United States' other appellant's
submission, para. 16).
1174European Union's appellee's submission, para. 46. (original emphasis)
1175European Union's appellee's submission, para. 50. (original emphasis)
1176European Union's appellee's submission, para. 54 (quoting United States' other appellant's
submission, para. 19).
1177European Union's appellee's submission, para. 54.
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504. Moreover, the European Union submits that, because completion of the analysis is not
expressly provided for in the DSU and is c onsidered an "implied or inherent power"
1178, it should "be
exercised with restraint". 1179 The European Union sets out the following general principles that it
considers should guide the Appellate Body's deci sion as to whether to complete the analysis:
completion of the analysis should not take place for matters not subject to co nsultations pursuant to
Article 4 of the DSU; completion of the analysis should respect the rights of third parties;
completion of the analysis should not take place in relation to any matter with respect to which the
complaining party failed to make a prima facie case; completion of the analysis should not extend to
fact-finding; completion of the analysis should r espect the "fundamental two-tier structure of WTO
dispute settlement"; completion of the analysis may not be based on facts other than those submitted
in the first written submission or in response to a pa nel's questions; completion of the analysis should
not be based on factual inferences unless the party concerned was given a full opportunity during the
panel proceedings to rebut such inferences; co mpletion of the analysis should not be based on
disputed facts; and completion of the analysis shou ld not be based on facts on the panel record that
have not been referenced or discussed.
1180
505. The European Union argues that the Appellate Body has typically "completed the analysis"
where a panel had not ruled on a claim due to consid erations for judicial economy, or had erred with
respect to its terms of reference. However, ne ither situation exists in this dispute. The
European Union further submits that completion of the analysis by the Appellate Body should not
extend to fact-finding, either on the basis of direct evidence or on the basis of inference drawn from
the evidence on the panel record. Acco rding to the European Union, in this appeal, "it is exactly such
a process of fact finding, based on inference from other facts that are evidenced, that the United States
is requesting the Appellate Body to undertake." 1181 Specifically, the European Union notes that the
United States has limited its other appeal to the Pa nel's findings on in fact export contingency. The
European Union maintains that, for an analysis of in fact export contingency, "an adjudicator will
have to first consider how the directly ev idenced facts, working together, imply that other facts
(of which there is no direct evidence) may reasonably be found."1182
506. Moreover, the European Union contends that, in past disputes, the Appellate Body completed
the analysis only if there was sufficient factual b asis on which to do so. Yet, the European Union
argues, such a sufficient factual b asis is lacking in this dispute. Specifically, although the issue of

1178European Union's appellee's submission, para. 62.
1179European Union's appellee's submission, para. 63.
1180European Union's appellee's submission, paras. 62-74.
1181European Union's appellee's submission, para. 84.
1182European Union's appellee's submission, para. 84. (original emphasis)
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whether the LA/MSF contracts were consistent with the terms of the 1992 Agreement was part of the
total configuration of the facts surrounding the granting of the subsidies, the Panel Report contains no
findings in this respect. Moreover, the facts regarding the following are in dispute: (i) the meaning of
"export" and "Europe"; (ii) the size of the Eur opean Union market; (iii) the assertion that the
LA/MSF contracts would be construed by a domestic judge as imposing an obligation to export; and
(iv) the alleged "anticipation" regarding exports.
1183 The European Union further contends that, in its
request for completion of the analysis, the United States "completely failed" to set out the uncontested
facts and evidence on which it might seek to rely.1184
507. In addition, the European Uni on asserts that completion of the analysis would be "highly
prejudicial" to the due process rights of the European Union. 1185 Specifically, the United States
introduced new claims and eviden ce in its second written submission to the Panel. Moreover, the
Panel erroneously made the case for the United States by imposing the "dependent motivation"
standard1186, and erroneously transposed evidence rela ting to anticipated exportation into the
assessment of contingency. 1187 Thus, all of the relevant fact ual assertions and evidence "have not
been subject to and tested and refined in th e proper procedural dialectic" before the Panel. 1188 For
these reasons, the European Union alleges, completion of the analysis would also be prejudicial to the
due process rights of the third parties to this dispute.
508. The European Union also contends that "fundamental and irreconcilable internal
contradictions" in the Panel Report preclude the Appellate Body from completing the analysis. The
European Union recalls the contradiction between the Panel's findings, reached on the basis of the
same evidence, that the LA/MSF measures were not contingent in law upon export performance, but
were contingent in fact upon export performance. According to the European Union, should the
Appellate Body complete the analysis, as request ed by the United States, and find all seven LA/MSF
measures to be contingent in fact upon export pe rformance, the "fundamental" contradictions in the
Panel's findings would remain in the final panel a nd Appellate Body reports to be adopted by the
DSB. In the European Union's view, the Appellate Body should avoid such an outcome.

1183European Union's appellee's submission, paras. 88-92.
1184European Union's appellee's submission, para. 109.
1185European Union's appellee's submission, para. 93.
1186European Union's appellee's submission, para. 97.
1187European Union's appellee's submission, para. 100 (referring to European Union's appellant's
submission, paras. 1471-1473).
1188European Union's appellee's submission, paras. 96 and 99.
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509. In any event, the European Union argues, shoul d the Appellate Body decide to complete the
analysis, it would find that the French and Spanish A340-500/600 contracts and the French A380 and
A330-200 contracts do not constitute subsidies contingent in fact upon export performance. The
European Union maintains that, if the Appella te Body accepts the United States' claim that
motivation, alone, cannot be "dispositive" of a determ ination regarding export contingency, then the
Appellate Body must also reject the legal standard advanced by the United States for the purpose of
completing the analysis. Specifically, the United States has advanced a legal standard whereby a
subsidy must be prohibited if the granting Member's anticipation of exports motivates them to grant
the subsidy. Therefore, the Appellate Body will no t be able to complete the analysis, as requested, on
the basis of the legal standard advanced by the United States.
510. The European Union argues that, to complete the analysis, the Appellate Body must also
consider whether the facts surrounding the granting of the four LA/MSF contracts demonstrate that,
"in each case", the measure constitutes a subs idy contingent in fact upon export performance.
1189 For
this purpose, the European Union maintains, th e Appellate Body should take into account all the
relevant claims and arguments of the European Union in its appellant's submission. The
European Union further maintains that, applying the correct legal standard, the Appellate Body should
find that none of the four LA/MSF contracts cons titutes an export subsidy. In particular, the
European Union submits that Airbus is under no ob ligation to export under these contracts, and none
of the contracts provides any preference to exports over domestic sales. Moreover, the
European Union asserts that none of the contracts demonstrates that the member State granted a
subsidy because it "anticipated" exports. 1190 In addition, the European Union contends that the
Appellate Body should find that sales-dependent repayment provisions were incorporated under the
LA/MSF contracts because such repayment provisions correspond to the allocation of risk between
the relevant governments and Airbus. 1191 Therefore, the fact that the market for LCA "might happen
to extend beyond the territory of the granting Member (as most product markets do these days) does
not lead to the conclusion that there is a subs idy contingent/conditional in fact upon anticipated
export."1192
511. On this basis, the European Un ion contends that the Appellate Body should not complete the
analysis and find that the French A380 contract, th e French and Spanish A340-500/600 contracts, and
the French A330-200 contract are contingent in fact upon export performance, as requested by the

1189European Union's appellee's submission, para. 124.
1190European Union's appellee's submission, paras. 130, 137, 144, and 151.
1191European Union's appellee's submission, paras. 131, 138, 145, and 152.
1192European Union's appellee's submission, paras. 132, 139, 146, and 153.
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United States. Consequently, the European Union subm its that the Appellate Body should also reject
the United States' request that the Appellate Body recommend that the seven LA/MSF measures
found to constitute export subsidies be withdrawn without delay.
E. Arguments of the Third Participants
1. Australia

(a) The temporal scope of Article 5 of the SCM Agreement
512. Australia disagrees with the European Union's argument that the Panel erred by "concluding
that all alleged actionable subsidies granted by th e European Union prior to 1 January 1995 were not
excluded from the temporal scope of this dispute, and thereby fall under the obligation contained in
Article 5 of the SCM Agreement."1193 According to Australia, the "benefit" that is "thereby conferred"
under Article 1.1(b) of the SCM Agreement, and the effect of the subsidies on the United States under
Article 5 of the SCM Agreement, have not necessarily "ceased to exist" under Article 28 of the Vienna
Convention simply because the "act" or the "fact" of the provision of the "financial contribution" has
already occurred under Article 1.1(a)(1) of the SCM Agreement. Australia concludes that "{t}he
provisions of Article 5 of the SCM Agreemen t (which are concerned with the effects caused through
the use of a subsidy ) can thus apply with respect to a subsidy granted prior to 1 January 1995." 1194
Australia further submits that "the 'economic effe cts of government {conduct}' are precisely what is
disciplined by Part III of the SCM Agreement."1195
513. For Australia, the Panel's conclusion that the United States had not demonstrated the
existence of the alleged LA/MSF Programme appears to have "turned mainly" on the fact that the
United States failed to prove that the alleged measure would necessarily be continued into the
future.1196 However, according to Australia, such a s howing "is of less relevance" when considering
an alleged measure that consists of "ongoing conduct" as was the case in US – Continued Zeroing.1197
To the extent that the Appellate Body shares the Panel's concern in this case that "future LA/MSF
'would {not} necessarily involve the provision of loans … at below-market interest rates'" 1198,

1193Australia's third participant's submission, para. 16 (quoting European Union's appellant's
submission, para. 27).
1194Australia's third participant's submission, para. 21. (original underlining)
1195Australia's third participant's submission, para. 22 (quoting European Union's appellant's
submission, para. 46).
1196Australia's third participant's submission, para. 66.
1197Australia's third participant's submission, para. 69.
1198Australia's third participant's submission, para. 71 (quoting Panel Report, paragraph 7.531).
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Australia argues that if a future round of LA/MSF we re provided at market in terest rates then this
would mean that the alleged LA/MSF Programme "had e ither not been used in that instance and/or no
longer existed."
1199 According to Australia, "{a}ny dispute settlement action in respect of that round
of funding that relied on the existence of the {LA/MSF Programme} would thus necessarily fail."1200
(c) The 1992 Agreement
514. Australia submits that the Appellate Body must examine, "as a threshold issue" 1201, whether
the 1992 Agreement is a "relevant rule{} of internati onal law applicable in the relations between the
parties" pursuant to Article 31(3)(c) of the Vienna Convention , given its importance to the present
case, as well as the "significant systemic implications" for the WTO dispute settlement regime.1202
515. Australia submits that "the parties" in Article 31(3)(c) of the Vienna Convention , must be
understood as referring to all the parties to the treaty be ing interpreted. In support, Australia refers to
previous Appellate Body reports in which the A ppellate Body interpreted "the parties" in
Article 31(3)(a) and (b) of the Vienna Convention as meaning all WTO Members. 1203 Australia
asserts that, "{i}f all parties are required to have entered into an agreement for the purposes of
Article 31(3)(a) or to have accepted, albeit tacitly, a subsequent practice for Article 31(3)(b) to apply
... it would be unlikely that the drafters of Article 31 would have intended, by the use of the identical
term 'the parties' in Article 31(3)(c), that rul es of international law which are only applicable in
relations between a subset of the parties to a treaty could be taken into account under that
provision."1204 Turning to the context provided by Article 31(2) of the Vienna Convention, Australia
supports the view of the panel in EC – Approval and Marketing of Biotech Products that "all the
parties" is used in Article 31(2)(a) to make clear the difference between the class of documents at
issues in that provision (namely agreements made be tween all the parties) and the class of documents
at issue in Article 31(2)(b) (nam ely instruments made by some of the parties and accepted by all). 1205
Moreover, Australia submits that when the drafters of the Vienna Convention intended to refer to a
subset of the parties to a treaty, they did so expr essly, as evidenced in the reference to "one or more
parties" in Article 31(2)(b) of the Vienna Convention . Australia further argues that the

1199Australia's third participant's submission, para. 71.
1200Australia's third participant's submission, para. 71.
1201Australia's third participant's submission, para. 3.
1202Australia's third participant's submission, para. 3.
1203Australia's third participant's submission, paras. 8 and 9 (referring to Appellate Body Reports, EC –
Bananas III (Article 21.5 – Ecuador II) / EC – Bananas III (Article 21.5 – US) , para. 391; and Appellate Body
Report, EC – Chicken Cuts, footnote 515 to para. 272).
1204Australia's third participant's submission, para. 10.
1205Australia's third participant's submission, para. 11 (referring to Panel Report, EC – Approval and
Marketing of Biotech Products, footnote 242 to para. 7.68).
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European Union in its submission refers mistakenly to the object and purpose of Article 31(3)(c) of
the Vienna Convention , and not the object and purpose of the treaty overall, as mandated by
Article 31(1) of the Vienna Convention, and as previously mandated by the Appellate Body.
1206
(d) Export subsidies
516. Australia submits that "the Panel placed undue emphasis on one fact in the 'total configuration
of the facts'" constituting and surrounding the granting of the subsidy, that is, "the motivation of the
grantor of the subsidy." 1207 Australia argues that, contrary to the Panel's finding, a consideration of
the "facts" should go beyond a consideration of whether or not "the subsidy was granted because the
granting authority anticipated export performance". 1208 Australia maintains that the Panel, by using
the term "because", "appears to be moving away fro m the interpretation of footnote 4 espoused by the
Appellate Body in Canada – Aircraft ".1209 Furthermore, Australia contends that, although a
government's motivations for granting a subsidy may be relevant, it will not, as the Panel found,
necessarily be "highly relevant" to the question of contingency.1210
517. In Australia's view, the facts examined by th e Panel regarding anticipated exportation and the
sales-dependent repayment provision in the LA/MSF contracts "demonstrate a close relationship
between the granting of the subs idy and anticipated exportation".
1211 Yet the Panel failed to
"convincingly explain" why these facts were not sufficient and why the "additional evidence" in
respect of the German, Spanish, and UK LA/MSF cont racts, together with these facts, demonstrated
the relationship of contingency.1212
518. Australia further submits that, contrary to the European Union's argument, the applicability of
footnote 4 is not limited to "situations where there is no 'direct evidence' of the granting of a subsidy
made legally contingent upon export". 1213 Rather, "footnote 4 comes into play where a complaining
Member alleges that 'the granting of a subsidy, without having been made legally contingent upon
export performance, is in fact tied to actual or anticipated exportation or export earnings'." 1214 I n
addition, Australia disagrees with the European Union that a subsidy is contingent in fact upon export

1206Australia's third participant's submission, para. 15 (referring to Appellate Body Report, China –
1207Australia's third participant's submission, para. 26.
1208Australia's third participant's submission, para. 27 (quoting Panel Report, para. 7.644 (original
italics)). (underlining added by Australia)
1209Australia's third participant's submission, para. 31.
1211Australia's third participant's submission, para. 34.
1212Australia's third participant's submission, para. 34.
1213Australia's third participant's submission, para. 36.
1214Australia's third participant's submission, para. 36.
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performance only if it was granted "because of" an export that has occurred, or only if the subsidy
must be repaid should the anticipated export fail to occur.
1215 According to Australia, "the granting of
the subsidies may be found to be tied to the grantor' s anticipation that exports would occur" even if "a
grantee does not subsequently export". 1216 Moreover, consistent with the panel's and the Appellate
Body's approach in Canada – Aircraft, "{t}here was no requirement that the assistance be repaid if the
exportation or export earnings did not, in fact, eventuate."1217
519. Finally, Australia requests that the Appellate Body "be mindful of" 1218 the European Union's
concerns regarding potential discrimination created by the Panel's findings "against small or export
dependent economies". 1219 Australia submits that the Appellate Body should consider the second
sentence of footnote 4 to be relevant in this regard . In Australia's view, although export propensity of
the recipient of a subsidy is one element in the total configuration of facts surrounding the granting of
a subsidy, it must not be confused with export contingency.
(e) Infrastructure measures
520. Australia submits that the Panel correctly analyzed whether a government had provided goods
or services other than general infrastructure to Air bus, and whether a benefit was thereby conferred.
Australia argues that it is artificial to separate the "creation" and "provision" of infrastructure because
the infrastructure in this case was "created" sp ecifically for Airbus, to which it was to be
"provided".1220 Australia asserts that the Mühlenberger Lo ch site, the extension of the runway at the
Bremen airport and the associated noise reduction m easures, and the Aéroconstellation site and EIG
facilities were "goods or services" provided by "a go vernment", and that each was specifically created
for Airbus.1221
521. In respect of benefit, Australia summarizes th e Panel's assessment of the provision of the
Mühlenberger Loch site, the extension of the runw ay at the Bremen airport and the associated noise
reduction measures, and the development of the Aéroconstellation site and the construction of the EIG
facilities, and argues that the Panel correctly assesse d whether a benefit was conferred by focusing on
whether the financial contribution was received "on te rms more favourable than those available to the

1215Australia's third participant's submission, paras. 37-42.
1216Australia's third participant's submission, para. 44.
1217Australia's third participant's submission, para. 45 (referring to Panel Report, Canada – Aircraft ,
para. 9.343).
1218Australia's third participant's submission, para. 47.
1219Australia's third participant's submission, para. 46 (quoting European Union's appellant's
submission, para. 1359).
1220Australia's third participant's submission, para. 74.
1221Australia's third participant's submission, para. 75.
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recipient in the market", as required by Article 1.1 of the SCM Agreement and the Canada – Aircraft
decisions.
1222
(f) The subsidized product and product market
522. Referring to the Panel report in Korea – Commercial Vessels , Australia argues that "in this
dispute, it was for the United States to determine th e basis and nature of its complaint and then to
establish the required causal relationship." 1223 According to Australia, in the context of a claim under
Part III of the SCM Agreement, if the complaining Member frames its complaint in such a way that it
is unable to show that the other Member has caused "through the use of any subsidy" adverse effects
to its interests—either because of its choice of th e "subsidized product" or otherwise—then its claim
will fail.1224 Australia adds that "{t}here is no requireme nt in the SCM Agreement that a panel 'make
the case' for the complainant."1225
(g) Adverse effects
523. Australia agrees with the European Union that the Panel should have completed its
counterfactual analysis in order to determine the conditions of competition in the LCA market in the
absence of the subsidies. Austra lia asserts that in order for a subsidy to cause serious prejudice under
Article 6.3 of the SCM Agreement, there must be a "genuine and su bstantial relationship of cause and
effect" between the subsidy and the effect. 1226 Australia argues that a panel's consideration of a
hypothetical situation that would have exis ted in the absence of the contested subsidy
—a "counterfactual"—is a legitimate tool to use to determine the effect of a subsidy. 1227 Australia
points out that "the Panel found 'that there ar e multiple possibilities for the LCA industry in the
counterfactual world that would exist in the absence of subsidies to Airbus'". 1228 Australia maintains
that the Panel made multiple findings regarding causa tion that allowed for the possibility that Airbus
could have sold LCA in competition with LCA produced by United States' manufacturers even
without subsidies. 1229 Australia notes that the Panel did not address the fundamental question of

1222Australia's third participant's submission, paras. 78-81 (referring to Panel Report, paras. 7.1093,
7.1096, 7.1133, 7.1182, 7.1188, and 7.1190; and Appellate Body Report, Canada – Aircraft, para. 157).
1223Australia's third participant's submission, para. 50 (referring to Panel Report, Korea – Commercial
Vessels, paras. 7.559 and 7.560).
1224Australia's third participant's submission, para. 51.
1225Australia's third participant's submission, para. 51.
1226Australia's third participant's submission, para. 55 (referring to Appellate Body Report, US –
Upland Cotton (Article 21.5 – Brazil) , para. 374, in turn quoting Appellate Body Report, US – Wheat Gluten ,
para. 69).
1227Australia's third participant's submission, para. 56.
1229Australia's third participant's submission, paras. 55-61 (referring to Panel Report, paras. 7.1967,
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whether a non-subsidized Airbus c ould have launched, sold, and deliv ered any particular LCA that
Airbus actually launched, sold, and delivered afte r finding that subsidies to Airbus resulted in
"different" competition.
1230 Australia stresses that the Appellate Body should carefully assess whether
the Panel should have considered counterfactual situations as part of its causation analysis.
2. Brazil
524. Brazil submits that, in finding that the LA /MSF Programme could not be challenged as an
actionable subsidy, the Panel incorrectly requi red the United States to demonstrate that the
programme existed as an unwritten norm that had "general and pr ospective application". Brazil
emphasizes that "it would not be proper to require a demonstration of the 'general and prospective
application' of measures that are not challenged on an 'as such' basis as a 'norm'."1231
525. According to Brazil, the approach followed by the Appellate Body in US – Continued Zeroing
when examining "ongoing conduct" was the more a ppropriate framework given that this dispute
"essentially concerns the question of continuous {L A/MSF} as a prohibited or actionable subsidy,
rather than specific inst ances of past {LA/MSF}". 1232 While Brazil does not express a view on the
factual findings of the Panel in this case, it suggests that the Panel's misguided approach to analyzing
the LA/MSF Programme as a "norm" that required "g eneral and prospective application" may have
had an impact on its factual assessment of the evidence presented by the United States.
(b) Export subsidies
526. Brazil contends that the Panel "appears to ha ve treated the subjective motivation of the
subsidizing Member as expressed through the text of the {LA/MSF} contracts and public statements
as a necessary element of proof of de facto export contingency."1233 According to Brazil, the Panel's
approach seems inconsistent with the Appellate Body's finding, in Canada – Aircraft , that the
elements required to show de facto contingency "must be inferred from the total configuration of facts
constituting and surrounding the granting of the subsid y, none of which on its own is likely to be
decisive in any given case."1234 Brazil recalls that the Panel found de facto export contingency if there

1230Australia's third participant's submission, paras. 61 (quoting European Union's appellant's
submission, para. 399) and 62.
1231Brazil's third participant's submi ssion, para. 26 (referring to Panel Report, para. 7.518 and quoting
para. 7.519).
1232Brazil's third participant's submission, para. 31.
1233Brazil's third participant's submission, para. 3 (referring to Panel Report, para. 7.690).
1234Brazil's third participant's submission, para. 4 (quoting Appellate Body Report, Canada – Aircraft ,
para. 167 (original italics)). (underlining added by Brazil)
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was an "exchange of commitments" and if th ere was sufficient evidence of the respective
government's motivation. Furthermore, Brazil argues, the Panel reached its conclusion in relation to
motivation in large part by considering public statements, and by dissecting the language of the
LA/MSF contracts, with certain text being sufficien t to show motivation and certain other text being
insufficient. In Brazil's view, this amounts to a very narrow approach in analyzing the "total
configuration of the facts". Brazil expresses c oncern that, if the most probative evidence of
motivation is the inclusion of certain key words or phrases in a contract or in public statements, a
Member could escape applicable disciplines by simply avoiding such references. According to Brazil,
therefore, the Panel's approach could easily lead to circumvention of the disciplines under Article 3 of
the SCM Agreement. Brazil thus submits that "{t}he 'motivation' of a government should remain only
one element in the total configuration of the facts—not the decisive factor."
1235
527. Moreover, Brazil argues that the Appellate Body should continue to follow the "precedent set
out in Canada – Aircraft " by finding de facto export contingency when the three elements set out in
footnote 4 of the SCM Agreement are present—that is: (i) the "granting" of a subsidy; (ii) is "tied to";
and (iii) "actual or anticipated exportation or export earnings". 1236 Based on this approach, Brazil
submits that "it would be sufficient to demonstrate the existence of a relationship of conditionality, to
be inferred from the facts, between the granting of the subsidy, on the one hand, and expected
exportation or export earnings, possibly as one among several conditions, on the other hand." 1237
Brazil further submits that "{d}emonstrating that a subsidy was granted because of anticipated export
performance (in the form of expected export sales or earnings) may satisfy the requirements for
demonstrating de facto export contingency." 1238 Nonetheless, "{t}he 'anticipated' (or 'expected')
export performance" need not "act ually occur in order to find de facto contingency" and need not
"necessarily ... be expressed in the form of a future performance obligation."1239
528. With respect to the specific m easures at issue, Brazil contends that the European Union's
statements that "{the LA/}MSF measures unconditionally advance the funds" and that such "{an}
unconditional subsidy is, by its express terms, not a subsidy contingent upon export" 1240, do not
accord with certain factual findings of the Panel. Brazil highlights the Panel's findings that "the
per-aircraft levies expressly called for under each of the challenged contracts are mandatory and

1235Brazil's third participant's submission, para. 8.
1236Brazil's third participant's submission, para. 13 (quoting Appellate Body Report, Canada – Aircraft,
para. 169.)
1237Brazil's third participant's submission, para. 15.
1238Brazil's third participant's submission, para. 12. (original emphasis)
1239Brazil's third participant's submission, para. 12.
1240Brazil's third participant's submission, para. 16 (quoting European Union's appellant submission,
paras. 1310 and 1312). (emphasis added by Brazil)
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therefore must be complied with after each and ever y relevant aircraft sale" and that "under each of
the seven LA/MSF contracts at issue, Airbus was required to repay the loaned principal plus any
interest from the proceeds of the sale of a specifi ed number of LCA developed with the financing
provided by the EC member States."
1241 Brazil further notes that the Panel found that "{a}lthough the
text of the repayment provisions is neutral as to the origin of the required sales, it is clear from various
pieces of information that achieving the level of sal es needed to fully repay each loan would require
Airbus to make a substantial number of exports."1242 Brazil thus contends that the evidence before the
Panel "indicated that the {LA/MSF} contracts were concluded on the basis of an explicit commitment
that could only be met through sales that neces sarily would imply exportation of subsidized
products."1243 Moreover, Brazil asserts that "this pattern clearly fits into the standard whereby the
'granting of a subsidy' is 'tied to' 'anticipated exportation or export earnings,' because the conditions
for the granting of the subsidy—the commitments undertaken by Airbus—involved expected export
earnings."1244
(c) The subsidized product and product market
529. Brazil argues that, in finding that there is a single subsidized product in this dispute,
consisting of all Airbus LCA, the Panel deferred to the United States' formulation of the subsidized
product, noting that it is for the complaining Member , not the panel, to formulate its complaint.
Brazil considers that this approach is consistent w ith the Panel's obligation to remain within its terms
of reference for the particular dispute. In particul ar, Brazil argues that by virtue of Article 11 of the
DSU, a panel is limited to the "matter" within its terms of reference, "which are based on the
complainant's request for establishment of a panel and include the measures (i.e., the subsidies) and
the products to which the measures appl y (i.e., the 'subsidized products')."
1245 According to Brazil, if
a panel disregards "the complainant's formulation of its claim, it would be acting outside of its terms
of reference."1246 Brazil underscores, however, that the co mplaining Member must still demonstrate
the remaining elements of proving an actionable subsidy.
530. Brazil further notes that, in assessing displacement, the Panel determined that all Boeing LCA
sufficiently resembled all Airbus LCA such that all Boeing LCA constituted the like product. Brazil
does not take a position regarding whether the entir e Boeing family of LCA is the appropriate like

1241Brazil's third participant's submission, para. 16 (quoting Panel Report, paras. 7.668 and 7.678).
1243Brazil's third participant's submission, para. 18.
1244Brazil's third participant's submission, para. 18.
1245Brazil's third participant's submission, para. 41.
1246Brazil's third participant's submission, para. 41.
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product or products, but agrees with the Pa nel's interpretation of "like product".
1247 Brazil adds that
the like product should be determined with reference to the scope of the "subsidized product". If, as
was the case here, the subsidized product is defi ned broadly, Brazil considers that "the like product
can also cover a broad range of products."1248
(d) Adverse effects
531. Brazil argues that the Panel correctly held that the effect of the subsidies was the
displacement of Boeing LCA from the EC and third country markets, under Article 6.3(a) and (b);
and significant lost sales, under Article 6.3(c) of the SCM Agreement. Brazil submits that a panel
should examine whether a group of subsidies as a whole causes adverse effects to a Member's
interests "if such subsidies manifest themselves collectively."
1249 The central question in Brazil's view
is whether LA/MSF and non-LA/MSF subsidies "concern the same product and whether there exists a
sufficient nexus with the subsidized product an d the particular effects-related variable under
examination".1250 According to Brazil, the Panel was not required to determine that each of the non-
LA/MSF subsidies were necessary for a specific product launch because the SCM Agreement does not
stipulate that each specific subsidy must be found to cause adverse effects in isolation. Brazil asserts
that, in this case, LA/MSF was often combined with ot her types of subsidies to the same recipient for
the same purposes, and, therefore, the Panel co rrectly did not require that adverse effects be
demonstrated with respect to each subsidy individually, in line with the approach adopted by the panel
in US – Upland Cotton.1251
3. Canada
(a) The life of a subsidy and intervening events
532. Canada submits that the Panel improperl y interpreted Articles 5 and 6 of the SCM Agreement
when it concluded that there is no need for a subsidy to confer a present benefit for it to be found to
cause adverse effects under the SCM Agreement. Canada asserts that Articles 5, 6, and 7 of the
SCM Agreement, read together, demonstrate that, in assessing the effect of subsidies, a panel can only
consider the subsidies that are still conferring a benefit at the time serious prejudice must be found.

1247Brazil's third participant's submission, para. 47.
1248Brazil's third participant's submission, para. 47.
1249Brazil's third participant's submission, para. 68.
1250Brazil's third participant's submission, para. 70. (footnote omitted)
1251Brazil's third participant's submission, para. 68 (referring to Panel Report, US – Upland Cotton ,
paras. 7.1191 and 7.1192).
WT/DS316/AB/R BCI deleted, as indicated [***]

533. Canada cites to a number of provisions in s upport of its argument. Canada observes that
Article 6.3(a) refers to the prejudicial effect of the subsidy in the market of the "subsidizing" Member.
In Canada's view, the use of the present participle "subsidizing" shows that a Member must still be
providing a subsidy at the time when serious prej udice must be found. Moreover, in the French
version of that provision, the use of the present tens e of the verb "accorder" confirms that a Member
must still be providing a subsidy at the time the effe ct of the subsidy is assessed. Canada considers
that the requirement for a current benefit is furthe r demonstrated by the multiple references to the
"subsidized product" in Articles 6.3 and 6.4. Referri ng in particular to Articles 6.3(c), Canada notes
that the effect of the subsidy cannot be a significant price undercutting by the subsidized product if the
subsidy no longer confers a benefit with respect to that product.
1252
534. Canada submits that Article 7 confirms the re quirement for a current benefit. Article 7.8
refers to the actions that must be taken by a Member granting or maintaining a subsidy 1253 that has
resulted in adverse effects. Article 7.8 is only con cerned with those subsidies that are still conferring
a benefit after they have caused serious prejudice. Canada asserts that, in its serious prejudice
analysis, a panel should similarly only consider subs idies that are currently conferring a benefit.
Otherwise, a panel could analyze a nd make findings with respect to subsidies for which there are no
available remedies.
535. For these reasons, Canada disagrees with the Pane l that there is no need for a subsidy to
confer a "present" or "continuing" benefit to find th at it causes serious prejudice. In Canada's view,
the Panel's approach has "unacceptable systemic consequences"
1254, since, irrespective of whether the
benefit expires, a cause of action would remain once effects of the subsidy subsist. Canada submits
that such an approach could give rise to "endless potential liability" under the SCM Agreement, and
would be contrary to the objectives of "security and predictability" that lie at the core of the WTO
dispute settlement system.1255

1252Canada refers to the Appellate Body's statement in US – Upland Cotton : "{W}e acknowledge that
the 'subsidized product' must be properly identified for purposes of significant price suppression under
Article 6.3(c) of the SCM Ag reement. And if the challenged payments do not, in fact, subsidize that product,
this may undermine the conclusion that the effect of the subsidy is significant suppression of prices of that
product in the relevant market". (Canada's third participant's submission, footnote 28 to para. 53 (quoting
Appellate Body Report, US – Upland Cotton, para. 472))
1253Canada notes that the French version of Article 7.8 refers to " le Membre qui accorde ou maintient
cette subvention". (Canada's third participant's submission, footnote 29 to para. 54)
1254Canada's third participant's submission, para. 56.
1255Canada's third participant's submission, para. 59.
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(b) Export subsidies
536. Canada submits that the Panel improperly in terpreted and applied Article 3.1(a) and
footnote 4 of the SCM Agreement when it found that the LA/MSF provided by Germany, Spain, and
the United Kingdom for the A380 constituted prohib ited export subsidies. Moreover, Canada
maintains that the absence of reasoning in the Panel Report to support the Panel's findings is
inconsistent with Article 12.7 of the DSU.
537. Canada recalls the Appellate B ody's finding that establishing de facto export contingency
under Article 3.1(a) and footnote 4 requires proof of three elements: (i) the granting of a subsidy;
(ii) is tied to; and (iii) actual or an ticipated exportation or export earnings.
1256 According to Canada,
"establishing that a subsidy is 'tied to' or 'continge nt' on exportation requires the complaining party to
establish that actual or anticipated exports were a necessary or determinative condition for the
granting of the subsidy." 1257 Canada emphasizes that "{t}he references in Article 3.1(a) and
footnote 4 to 'export performance', 'exportation' and 'export earnings' must not be conflated with the
term 'sales'", because "'{s}ales' covers both domestic and export transactions while 'exportation',
'export performance' and 'export earnings ' cover export transactions only." 1258 Thus, in this dispute,
"no export contingency would exist if the EC member States would have provided the subsidy
regardless of whether anticipated sales were domestic or export sales."1259
538. Canada maintains that the Panel set out an incorrect standard for de facto export contingency
by finding that the element of conditionality or cont ingency is satisfied by a finding that subsidization
occurred at least in part "because of" the anticipation of export performance or when the anticipation
of export performance is at least one of the 'reasons for' the subsidization. 1260 According to Canada,
"{t}he ordinary meaning of 'by reason of' or 'becau se of' denotes a motive or explanation for a course
of action". 1261 In contrast, the words "conditionality" a nd "contingency" "go further" in that "they
describe a situation where a decision or action depends for its existence on something; that something

1256Canada's third participant's submission, para. 11 (referring to Appellate Body Report, Canada –
Aircraft, para. 169).
1257Canada's third participant's submission, para. 13 (referring to Appellate Body Report, Canada –
Aircraft, para. 167).
1258Canada's third participant's submission, para. 15.
1259Canada's third participant's submission, para. 14.
1260Canada's third participant's submission, para. 18 (referring to Panel Report, para. 7.677).
1261Canada's third participant's submission, para. 20 (referring to Shorter Oxford English Dictionary ,
5th edn, W.R. Trumble, A. Stevenson (eds) (Oxford University Press, 2002), Vol. 1, p. 205 "because", and
Vol. 2, p. 2483 "reason" (Appellate Exhibit CDA-1)).
WT/DS316/AB/R BCI deleted, as indicated [***]

is a prerequisite for the decision or action."
1262 Canada argues, therefore, that "anticipation of exports
may be a reason for the grant of a subsidy, but unless that anticipation is a necessary or determinative
condition or a prerequisite for the granting of the subsidy, there is no export contingency."1263
539. Canada further argues that "{n}one of the ev idence cited by the Panel, whether considered
individually or in its totality, indicates that the EC member States' anticipation of export sales played
any role in their decision to enter into the LA/MSF contracts with Airbus, let alone a determinative
role."1264 Canada recalls that the Panel first assessed evidence that was common to all seven LA/MSF
contracts at issue and reached "a preliminary conclusion" 1265 when it stated that, "without being
decisive, this evidence supports the view that the provision of LA/MSF on sales-dependent repayment
terms was, at least in part, 'conditional' or 'dependent for its existence' upon the EC member States'
anticipated exportation or export earnings."
1266 Canada further recalls that the Panel referred to
"additional" evidence that was specific to each LA /MSF contract, and found the "additional" evidence
to be decisive in its findings that the German , Spanish, and UK A380 LA/MSF constituted prohibited
export subsidies while the French A380, A 340-500/600, and A330-200 and the Spanish
A340-500/600 LA/MSF did not. 1267 In Canada's view, "{a}ll of this evidence simply shows that the
EC member States anticipated that Airbus would export." 1268 Yet, "as noted by the Panel itself, the
anticipation of exportation is not enough to show that the granting of a subsidy is contingent on export
performance."1269
540. Finally, Canada submits that, in examining th e additional evidence specific to each contract,
"the Panel did not satisfy its ob ligation under Article 12.7 of the DS U to provide a 'basic rationale'
with respect to its findings that the German, Spanish, and UK A380 LA/MSF constituted prohibited
export subsidies."1270 Canada maintains that the Panel "simpl y set out this 'additional' evidence and
then, without any explanation, immediately concluded that this evidence, toge ther with the evidence
supporting its preliminary view, de monstrated export contingency." 1271 In Canada's view, "this lack
of a basic rationale" is "particularly problematic" because the additional evidence "was decisive" in

1262Canada's third participant's submission, para. 20 (referring to Shorter Oxford English Dictionary ,
5th edn, W.R. Trumble, A. Stevenson (eds) (Oxford University Press, 2002), Vol. 1, p. 480 "conditional", p. 501
"contingent", and pp. 479-480 "condition" (Appellate Exhibit CDA-1)).
1263Canada's third participant's submission, para. 20.
1264Canada's third participant's submission, para. 29. (original emphasis)
1265Canada's third participant's submission, para. 24.
1267Canada's third participant's submission, para. 27 (referring to Panel Report, paras. 7.685-7.689).
1268Canada's third participant's submission, para. 28.
1269Canada's third participant's submission, para. 28 (referring to Panel Report, para. 7.641; and
Appellate Body Report, Canada – Aircraft, para. 172).
1270Canada's third participant's submission, para. 38.
1271Canada's third participant's submission, para. 36.
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the Panel's finding concerning de facto export contingency.
1272 Therefore, Canada argues, "the Panel
should have provided at least some explanation or justification for its conclusions" because, without
such explanation, "WTO Members are left to guess at how the 'additional' evidence" to which the
Panel referred supported its overall finding of export contingency.1273
(c) The EC Framework Programmes
541. Canada argues that the Panel improperly inte rpreted and applied Article 2.1(a) of the
SCM Agreement by focusing on particular segments of th e EC Framework Programmes to find that
they were de jure specific. Canada contends that "{s}p ecificity in law must be determined by
considering a subsidy programme as an integrated w hole rather than focusing on particular segments
of the programme, such as a segm ent defined by budget allocation." 1274 Analysing Article 2.1(c) of
the SCM Agreement, Canada argues that the benchmark of comparison for de jure specificity should
be the same as that for de facto specificity. Canada asserts that, although the Panel identified each
Framework Programme as a "single legal regime", the Panel nevertheless "failed to consider each
Framework Programme as a whole when determining whether that regime explicitly limits access to a
subsidy to certain enterprises."1275
542. Canada notes, however, that a panel is not "oblig ed to adhere formalistically to the definition
of the subsidy programme provided by the subsid izing Member when assessing whether a subsidy
programme is specific." 1276 Rather, a proper analysis "should consider factors such as whether the
programme has separate sets of objectives for diffe rent sectors or whether separate sets of criteria
determine programme eligibility". 1277 If such factors are present, Canada maintains, "an umbrella
programme may be broken up into two or mo re programmes for purposes of the specificity
analysis."1278
(d) Infrastructure measures
543. Canada argues that the Panel's conclusion as to th e scope of "general infrastructure" might be
interpreted to exclude infrastructure "the use of whic h is limited by external circumstances instead of
government action". 1279 Canada notes that, because "{e}ntities located near infrastructure are most

1272Canada's third participant's submission, para. 37. (original emphasis)
1273Canada's third participant's submission, para. 37.
1274Canada's third participant's submission, para. 101.
1275Canada's third participant's submission, para. 103.
1276Canada's third participant's submission, para. 104.
1277Canada's third participant's submission, para. 104.
1278Canada's third participant's submission, para. 104.
1279Canada's third participant's submission, para. 88.
WT/DS316/AB/R BCI deleted, as indicated [***]

likely to access or use it ... infrastructure located in remote or rural areas may be accessed or used by a
limited number of entities."
1280 Canada submits, however, that infrastructure should not be considered
as provided to or for the advantage of only a singl e entity or limited group of entities, and thus as
"'other than general' infrastructure", "simply b ecause it is used by a small number of entities". 1281
Rather, infrastructure is "general infrastructure" when it is available for access or use by all entities
that could potentially access or use it, and theref ore only limitations on access or use by government
action should be considered to be "other than general".1282
544. Canada argues that the ordinary meaning of the word "general" supports this position,
suggesting an interpretative focus on "the area surro unding a particular piece of infrastructure where
potential users may be located". 1283 In Canada's view, "if access to or use of a particular piece of
infrastructure is available to all potential users in this area, this infrastructure should be considered
'general' infrastructure even though there is only a small number of potential users." 1284 C a n a d a
further submits that, if limitations due to external circumstances are not distinguished from limitations
due to government action, "infrastructure built in ru ral or remote areas may be more susceptible to
being considered 'other than general' than when that same infrastructure is built in urban areas."1285
(e) Adverse effects
545. Canada argues that the Panel improperly interpre ted and applied Articles 5(c) and 6.3 of the
SCM Agreement by basing its findings on serious prejudice and threat of serious prejudice on the
effects of benefits conferred by the subsidies before the time when serious prejudice was assessed.
According to Canada, when examining present seri ous prejudice under Article 6.3, the Panel should
have limited its analysis to the present benefit that is conferred by the subsidies at issue. Thus, the
Panel should have evaluated the na ture of the subsidies and the magnitude of the benefit that was
being conferred by the subsidies at the time in wh ich serious prejudice had to be found. Canada
maintains further that the Panel improperly appl ied Articles 5(c) and 6.3(a) and (b) of the
SCM Agreement in finding that the effect of the subs idies would cause displacement of Boeing LCA
from the European Communities, Australian, and Chin ese markets. In Canada's view, in finding that
"but for the subsidies Boeing 'would have had a la rger market share in the {European Communities}
and certain third country markets than it actua lly did over {the 2001-2006 reference} period'"
1286, the

1280Canada's third participant's submission, para. 89.
1281Canada's third participant's submission, para. 90.
1282Canada's third participant's submission, para. 90. (footnote omitted)
1283Canada's third participant's submission, para. 93.
1284Canada's third participant's submission, para. 93.
1285Canada's third participant's submission, para. 94.
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Panel failed to establish a "genui ne and substantial causal link" between the subsidies and the
decrease in Boeing's share of those markets.
1287
4. China
(a) The life of a subsidy and intervening events
546. China notes that the Panel reached negative conclu sions to the two relevant legal questions to
be answered in this dispute: (i) whether an arm's-le ngth, fair market value sale of part of a subsidized
producer by a government presumptively extinguishes a corresponding portion of the benefit
conferred by prior financial contributions provided to that producer; and (ii) whether an arm's-length,
fair market value sale of part of a subsidized pr oducer by a private owner presumptively extinguishes
a portion of the benefit conferred by prior financia l contributions provided to that producer. While
China expresses no view with respect to the second qu estion, China submits that the Panel erred in
answering the first question in the negative.
547. With respect to the question of whether a privatized firm and its owner together should be
considered the recipient of the benefit, China notes that the Appellate Body in US – Countervailing
Measures on Certain EC Products did not preclude the possibility that the "no distinction" approach
could be applied to situations other than full privatization. China notes that the Panel applied an
"alignment of economic interests" test
1288 to find that, because a firm's general economic interests can
be aligned with its owner and its creditors, and because it cannot be right to assess the benefit to the
firm and the creditor together, it is inappropriate to consider the firm and its owner together in
assessing benefit. China disagrees with the Panel's reasoning and conclusion which it considers to be
"in sharp contrast" to the conclusion drawn by the Appellate Body in US – Countervailing Measures
on Certain EC Products , namely that "the legal distinction be tween firms and their owners … is not
necessarily relevant, and certainly not conclusive, for the purpose of determining whether a "benefit"
exists under the SCM Agreement".1289
548. On the question of whether the fact that the pur chaser of a subsidized producer pays fair
market value to acquire that producer has any re levance to the continued existence of a benefit
conferred by the original provision of a financ ial contribution to the subsidized producer, China
asserts that the Panel manifestly failed to recognize th e relevance of a subsequent privatization to the

1287Canada's third participant's submission, para. 85 (quoting Appellate Body Report, US – Upland
Cotton, para. 438).
1288China's third participant's submission, para. 14 (referring to Panel Report, para. 7.241).
1289China's third participant's submission, para. 18 (quoting Appellate Body Report, US –
Countervailing Measures on Certain EC Products, para. 115).
WT/DS316/AB/R BCI deleted, as indicated [***]

benefit conferred by a previously granted financial contribution. China notes that, for the Appellate
Body in US – Countervailing Measures on Certain EC Products , the fact that the privatization was
effected at arm's length and for fair market value was relevant to the continued existence of a previous
benefit, but for the Panel in this dispute, it was not.
1290 China asserts that, accord ing to the Panel, if
the sale by a government of a state-owned company to a private actor is made on terms better than
market benchmark, this would involve the gran ting of a new subsidy, which is tantamount to
"ask{ing} a panel or an investigating authority to turn a blind eye on the specific situation surrounding
a privatization and to rule that no privatization would extinguish a previously conferred benefit".
1291
549. Finally, China claims that the Appellate Body in US – Countervailing Measures on Certain
EC Products clearly reached a conclusion that "privatization at arm's length and for fair market value
presumptively results in the extinguishment of benef its conferred by a prior financial contribution to
such producer."1292 China notes that, in reaching this conc lusion, the Appellate Body distinguished
between the concepts of "utility value" and "market value", finding that, although the utility value of
equipment acquired as a result of a financial contribution is not extinguished following a privatization,
its market value is redeemed. 1293 Moreover, China highlights that following a privatization there
would be a change to the cost of capital of the company. 1294 Therefore, China submits, a private
investor who purchases a state-owned company (either in full or in part) at fair market value repays
the subsidy received by the company back to the government and extinguishes the corresponding
benefits.
(b) Export subsidies
550. China maintains that the following two aspect s should be noted for the interpretation and
application of the legal standard of in fact export contingency under Article 3.1(a) of the
SCM Agreement: "(i) {p}rohibition on in fact export c ontingent subsidies only applies when it has
been demonstrated that the granting of a subsidy is contingent upon export performance; and
(ii) {t}he SCM Agreement should not be interpreted in a way that discriminate small economies or
global industries".
1295

1290China's third participant's submission, para . 21 (referring to Appellate Body Report, US –
Countervailing Measures on Certain EC Products, para. 102).
1291China's third participant's submission, para. 24.
1292China's third participant's submission, para . 25 (referring to Appellate Body Report, US –
Countervailing Measures on Certain EC Products, para. 126).
 1293China's third participant's submission, para . 26 (referring to Appellate Body Report, US –
Countervailing Measures on Certain EC Products, para. 102).
1294China's third participant's submission, para . 27 (referring to Appellate Body Report, US –
Countervailing Measures on Certain EC Products, para. 103).
1295China's third participant's submission, para. 36. (original emphasis)
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551. China submits that, for a determination on export c ontingency in fact, "Article 3.1(a) must be
interpreted together with footnote 4."
1296 China recalls the Appellate Body's finding in Canada –
Aircraft that "{t}he second sentence of footnote 4 precludes a panel from making a finding of de facto
export contingency for the sole reason that the s ubsidy is 'granted to enterprises which export'." 1297 In
China's view, the second sentence of footnote 4, as in terpreted by the Appellate Body, clarifies the
meaning of Article 3.1(a) by ensuring that "o nly subsidies 'tied to export' and thus favoring export
over domestic sales should be deemed as export subsidies under Article 3.1(a); otherwise, the
subsidies should be 'export-neutral' and not subject to the prohibition."1298
552. China recalls that Article 3.1(b) of the SCM Agreement, which provides context to
Article 3.1(a), prohibits subsidies contingent on th e use of domestic over imported goods. In China's
view, subsidies prohibited under Article 3.1(b) tr eat "imported goods in a discriminatory manner",
thereby distorting trade.1299 Given the "adjacent and close-related" relationship between Article 3.1(a)
and Article 3.1(b), China argues, "Article 3.1(a) should be interpreted as something of {a} similar
nature and of a similar distortion level to interna tional trade as that of import substitution subsidies"
under Article 3.1(b).1300 Thus, "an appropriate understanding of Article 3.1(a) should be that it deals
with a subsidy that favors export sales over domestic sales, which is also a {discriminatory} treatment
in international trade and thus should be prohibited."1301 China further submits that the items provided
under the Illustrative List of Export Subsidies in Annex I to the SCM Agreement, which also
constitute context for the interpretation of Ar ticle 3.1(a), all refer to "subsidies favoring export sales
over domestic sales."1302 Finally, turning to the negotiating history of Article 3.1, China highlights the
view expressed by some negotiators during the Ur uguay Round negotiations that "the rationale for
prohibiting subsidies had always been that these subsidies aimed at distorting trade by favouring
exports".1303 China therefore argues that "the rationale for prohibiting export subsidies is to prohibit
those subsidies aimed at distorting trade by favoring exports."1304 In contrast, "domestic subsidies ...
aimed at achieving 'important domestic objectiv es of socio-economic policy' … should not be

1296China's third participant's submission, para. 39.
1297China's third participant's submission, para. 41 (quoting Appellate Body Report, Canada – Aircraft,
para. 173).
1298China's third participant's submission, para. 42. (original emphasis)
1299China's third participant's submission, para. 44.
1300China's third participant's submission, para. 45.
1301China's third participant's submission, para. 45. (original emphasis)
1302China's third participant's submission, para. 48. (original emphasis)
 1303China's third participant's submission, para. 50 (quoting Negotiating Group on Subsidies and
Countervailing Measur es, Meeting of 30 November-1 Decembe r 1989, Note by the Secretariat,
MTN.GNG/NG10/15, para. 4). (underlining added by China)
1304China's third participant's submission, para. 52. (original emphasis)
WT/DS316/AB/R BCI deleted, as indicated [***]

prohibited ex ante"
1305 but "should be subject to remedial action only when they have some
'demonstrably negative effects on trade'". 1306 On this basis, China submits that "a performance
requirement per se on an export-oriented enterprise by the granting authority for the granting of a
subsidy shall not, by that reason alone, prove that the subsidy is contingent upon export
performance."1307
553. Turning to the issue of export contingency in the context of global industries and small
economies, China submits that the legal standard for export contingency has important implications
for small economies, as well as for "global industr {ies}" in which products are sold on the global
market.1308 According to China, the LCA industry is a global industry in which returns from both
domestic and export sales are needed to cover the "huge investment cost{s}". 1309 Moreover, in
China's view, "the whole world needs {LCA} from two or even more producers" because competition
among producers would give LCA purchasers more choice and enable consumers to enjoy long-
distance transportation at an affordable price. 1310 China argues that the export-orientation of the LCA
industry "is not, by itself, sufficient to preclude that sector from being expressly identified as an
eligible or privileged recipient of subsidies."1311
554. In addition, China contends that "{t}he sma ller the WTO Member in which {a} producer is
based, the greater the proportion of {the producer's} sales is likely to be for export". 1312
Consequently, China argues, "it is very probable" that the WTO Member, when granting a subsidy to
the producer, "is aware of the fact that its domestic market is too small to absorb its domestic
production and thus anticipates … exportation or export earnings" by the producer.
1313 However,
China emphasizes, such anticipation "alone is not proof that the granting of the subsidy is tied to the
anticipation of exportation" within the mean ing of the footnote 4 to Article 3.1(a). 1314 Otherwise, the

1305China's third participant's submission, para. 52 (quoting Negotiating Group on Subsidies and
Countervailing Measures, Elements of the Framework for Negotiations, Communication from the Republic of
Korea, MTN.GNG/NG10/W/34, p. 1).
1306China's third participant's submission, para. 52 (quoting Negotiating Group on Subsidies and
Countervailing Measur es, Meeting of 30 November-1 Decembe r 1989, Note by the Secretariat,
MTN.GNG/NG10/15, para. 4).
1307China's third participant's submission, para. 53. (original emphasis)
1308China's third participant's submission, para. 55.
1309China's third participant's submission, para. 56.
1310China's third participant's submission, para. 56.
1311China's third participant's submission, para. 57. (original emphasis)
1312China's third participant's submission, para. 60.
1313China's third participant's submission, para. 60.
1314China's third participant's submission, para. 61 (referring to Panel Report, Canada – Aircraft
Credits and Guarantees , paras. 7.371-7.378, in turn quoting Appellate Body Report, Canada – Aircraft ,
para. 172 (original emphasis)).
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prohibition on export subsidies could be "more easily invoked with respect to some Members over
{the} others", making the same rule more "burdensome" for some WTO Members.
1315
555. Finally, China recalls that the object and purpose for establishing the WTO, as provided in the
preamble of the Marrakesh Agreement Establishi ng the World Trade Organization (the " WTO
Agreement"), states that "relations in the field of trade and economic endea vor should be conducted
with a view to raising standards of living, ensu ring full employment and a large and steadily growing
volume of real income and effective demand, and expanding the production of and trade in goods and
services."1316 In China's view, "if subsidies to global in dustries (such as the LCA industry) were more
likely to be found as in fact export con tingent subsidies and thus be prohibited ex ante, the
development of such global industries—which are us ually of critical importance to the whole world
and the products of which could even be re garded as a kind of quasi-public goods—will be
influenced."1317 Moreover, "if subsidies granted or mainta ined in a small economy were more likely
to be captured by the in fact export subsidy rul es and thus be prohibited from the outset, the socio-
economic development of that WTO member would be discriminatorily affected." 1318 Therefore,
China submits, "the legal standard of in fact e xport contingency should be interpreted consistently
with the object and purpose" of the covered Agre ements and global industries or small economies
should not be adversely discriminated against.1319
(c) Infrastructure measures
556. China considers that the Panel's interpretation of "general infrastructure" is "problematic"
because the Panel "failed to see that 'general' could be defined as 'all or nearly all the parts of a ...
community, organization, etc.'".1320 China also submits that the "cr eation" of infrastructure should be
distinguished from the "provision" of infrastructure, as the "creation" of infrastructure "is not a kind
of 'financial contribution' for the purpose of Article 1.1 of the SCM Agreement".1321 In China's view,
it is clear from the text of Article 1.1(a)(1)(iii) that "only the 'provision' of goods or services is
relevant in establishing a financial contribution", a nd that the two points of concern are "the act of
provision" and "what is being provided".
1322 China notes, by way of example, that although Hamburg
built the flood protection dykes for the Mühlenberger Loch, those dykes were not provided to Airbus

1315China's third participant's submission, para. 62. (original emphasis)
1316China's third participant's submission, para. 64. (original emphasis)
1317China's third participant's submission, para. 66.
1318China's third participant's submission, para. 67.
1319China's third participant's submission, para. 68.
1320China's third participant's submission, para. 74.
1321China's third participant's submission, para. 75.
1322China's third participant's submission, para. 77. (original emphasis)
WT/DS316/AB/R BCI deleted, as indicated [***]

and therefore were not the subject of the financial contribution. China submits, rather, that what was
provided to Airbus was "the use rights to the in dustrial land and the special purpose facilities for a
definitive period of time".
1323
557. China also argues that, in distinguishing the "cr eation" from the "provision" of infrastructure,
the "creation" of infrastructure "bears unique considerations by a government in discharging its public
policy duties", including the pursuit of social benefits such as employment, regional development, and
government revenue.1324 China contends that the SCM Agreement does not interfere with legitimate
government choices. It adds that, "to drag the 'creat ion' of infrastructure into the scope of financial
contribution would amount to requiring a government to act in a manner consistent with a private
actor when creating infrastructures", which would "deprive a government of its inherent right to
implement public policy." 1325 China notes that the negotiating history of the SCM Agreement
highlights that several delegations expressed the vi ew that certain subsidies such as infrastructure
"should be acceptable, because they merely contri bute to setting the terms and conditions of a
country's economic and business environment, but do not alter the competitive position of firms."1326
558. China also considers that the problem with the Panel's comparison of the actual rental or fees
paid by Airbus, with the market rate of return on the investment of the granting authorities, "flows
from its previous decision to consider creation and provision of infrastructures together". 1327 B y
doing so, "the Panel failed to consider the legitimat e functions and considerations of a government in
its capacity as an authority serving the general interests of the people, in creating infrastructure."1328
In China's view, a private investor will presumptivel y look for the market return for its investments,
but a government will often create infrastructure for public policy reasons, "and therefore may not
expect to recover its investment costs solely from the direct economic return". 1329 The Panel's
conclusion is based on the assumption that any investment by a government in creating infrastructure
is to be recovered by rent or other financial in come directly accrued, but this "ignores the public
functions of a government and prevents a government from considering any public policies or social
benefit objectives in its decision-making process."
1330 Referring again to the example of the
Mühlenberger Loch, China submits that "the inqui ry of the benefit issue should be conducted by
comparing the price at which Airbus obtained use ri ghts of the lands and facilities at issue with the

1323China's third participant's submission, para. 80.
1324China's third participant's submission, para. 83.
1325China's third participant's submission, para. 83. (original emphasis)
1326China's third participant's submission, para. 84. (footnote omitted)
1327China's third participant's submission, para. 88.
1328China's third participant's submission, para. 89. (original emphasis)
1329China's third participant's submission, para. 91. (original emphasis)
1330China's third participant's submission, para. 92.
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prevailing market price of obtaining the use rights to the same or similar lands and facilities." China
finds support for this position in Article 14(d) of the SCM Agreement.
1331
5. Japan
(a) The life of a subsidy and intervening events
559. Japan agrees with the Panel's rejection of the European Union's argument that the
presumption of extinction of benefits "always applies" in circumstances where of all or part of a
subsidized state-owned enterprise is sold at ar m's length for fair market value to a private
purchaser.1332 Japan notes that the Appellate Body in US – Countervailing Measures on Certain EC
Products rejected the original panel's determination th at the presumption of extinction must apply to
sales of a subsidized state-owned enterprise at arm's length for fair market value, and further stated
that "the actual exchange value of the continuing be nefit of past non-recurring financial contributions
bestowed on the state-owned enterprise will be fairly reflected in the market price."1333 Given that the
"issue turns on whether the sales price of the subs idized state-owned enterprise to private entities
reflected the actual exchange value of the continui ng benefit" conferred on the subsidized producer,
Japan "requests that the Appellate Body, taking in to account this perspective, examine the Panel's
findings on {the} question of whether there is a presumption of extinction of subsidy benefits."1334
(b) Export subsidies
560. Japan contends that the Panel failed to conduct "a rigorous and fact-intensive application of
Article 3.1(a) and Footnote 4 of the SCM Agreemen t", and instead "applied an 'inherently subjective'
standard".1335 Japan argues that "the Pane l determined the existence of de facto export subsidization
in the absence of any implicit export requireme nts in the LA/MSF A380 contracts analyzed." 1336 In
Japan's view, "the Panel determined that the commer cial or effective need for Airbus to export ...
LCAs ... to meet sales targets was not only decisi ve, but determinative as to the issue of export
subsidization."1337 In addition, Japan recalls that the Panel considered "other 'additional' evidence"1338

1331China's third participant's submission, para . 95 (referring to Appellate Body Report, Canada –
Aircraft, para. 155).
1332Japan's third participant's submission, para. 50.
1333Japan's third participant's submission, para. 51 (quoting Appellate Body Report, US –
Countervailing Measures on Certain EC Products, para. 122). (emphasis added by Japan omitted)
1334Japan's third participant's submission, para. 51.
1335Japan's third participant's submission, para. 14 (quoting European Union's appellant's submission,
para. 1371).
1336Japan's third participant's submission, para. 15.
1337Japan's third participant's submission, para. 16.
1338Japan's third participant's submission, para. 17 (quoting Panel Report, subheading to paras. 7.679-
7.688). (emphasis added by Japan)
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when it discerned "government's motivation ... that alluded to the need for Airbus to improve its
export competitiveness."
1339 Japan contends that "{m}otivation is therefore an inappropriate tool to
determine the WTO-permissibility" because it "risks being over-inclusive, in that an otherwise WTO-
consistent subsidy may be deemed an export subsidy owing to overzealous drafting on the part of a
government."1340
561. Moreover, Japan submits that the wording of footnote 4 of the SCM Agreement "renders clear
that mere anticipation of exportation, in and of it self, is insufficient to warrant a finding of export
subsidization."1341 Japan therefore argues that "a tension" exists between, on the one hand, the Panel's
conclusion that a subsidy contract containing sal es targets at levels that cannot be met without
exportation constitutes an export subsidy and, on the other hand, the "explicit requirement" under
footnote 4 that possible exportation, alone, shoul d not be determinative of a finding of export
subsidization.1342
562. Japan further maintains that the Panel's above conclusion has a "critical logical flaw", which
"places small economies at risk of having any su bsidy granted to domestic producers be deemed
export subsidies."1343 Japan illustrates its argument with an example, where Member A has a small
domestic market and wants to offer production subsidies to domestic producers in a given industry. In
Japan's view, according to the Panel's finding on ex port contingency, "{u}nless the size of Member
A's relevant domestic market exceeds the minimum size of efficient produ ction, the viability of
pertinent domestic producers to meet sales targ ets will necessarily rely on the foreign markets" 1344,
and thus it runs a greater risk that a "given pro duction subsidy conferred by it to domestic producers
be found 'export contingent'".1345 Japan thus contends that the Pane l's interpretation of Article 3.1 and
footnote 4 "risks arbitrarily discriminating against economies such as that of Member A, in a manner
that 'adds to or diminishes' the rights of WTO Members under the WTO Agreements."
1346 Therefore,
Japan requests that the Appellate Body re-examine th e Panel's standard for export contingency, so as
to avoid the misinterpretation that "production subsidies granted by a government whose domestic
market is relatively small would more likely be found as 'export contingent'".1347

1339Japan's third participant's submission, para. 17.
1340Japan's third participant's submission, para. 19.
1341Japan's third participant's submission, para. 21.
1342Japan's third participant's submission, para. 22.
1343Japan's third participant's submission, para. 23.
1344Japan's third participant's submission, para. 26.
1345Japan's third participant's submission, para. 25. (original emphasis)
1346Japan's third participant's submission, para. 26.
1347Japan's third participant's submission, para. 27. (original emphasis)
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(c) Infrastructure measures
563. Japan agrees with the Panel that a case-by- case analysis "is more appropriate towards
evaluating what constitutes 'general' and 'other than general' infrastructure than sweeping
characterizations, which may otherwise unduly constrain WTO Members' sovereign prerogatives to
provide constituents with a broa d range of public infrastructure."
1348 Japan contends that the Panel
rightly dismissed the European Communities' approach to distinguishing between the creation and
provision of infrastructure "as it leads to a presumption that any infrastructure is general in nature."1349
Japan also considers that "there is no textual basi s" for the distinctions the European Union seeks to
draw.1350 Japan submits that reading the word "creat e" and the phrase "limit use or access" into the
word "provides" in Article 1.1(a)(1)(iii) "is contrary to the customary rules of treaty interpretation and
would unduly narrow the intended scope of this provision."1351 Japan therefore agrees with the Panel's
conclusion that certain infrastructure may be constructed for non-general purposes.
(d) Adverse effects
564. Japan notes that there is not a single test that a panel must apply when analyzing causation,
but maintains that causation under Article 6.3 of the SCM Agreement always requires a finding that
there is a "genuine and substantia l relationship of cause and effect". 1352 Japan asserts that the Panel
held that the requirement to find a "genuine and substantial relationship of cause and effect" applies to
the "entire universe of claims of adverse effects". 1353 Japan argues that the Panel failed to establish a
"genuine and substantial" link between the subs idies at issue and serious prejudice to the
United States' interests because the Panel failed to engage in a meaningful non-attribution analysis,
instead merely citing and summarily discar ding intervening factors pleaded by the
European Communities. Japan notes that the Pa nel found that Airbus would still exist without
subsidization, albeit with one less launched LCA mo del, and therefore argues that the Panel should

1348Japan's third participant's submission, para. 52.
1349Japan's third participant's submission, para. 53 (referring to Panel Report, para. 7.1043).
1350Japan's third participant's submission, para. 55.
1351Japan's third participant's submission, para. 56.
1352Japan's third participant's submission, para. 30 (quoting Appellate Body Report, US – Upland
Cotton, para. 438, in turn quoting Appellate Body Report, US – Wheat Gluten , para. 69). (emphasis added by
Japan omitted)
1353Japan's third participant's submission, para. 34 (quoting Panel Report, para. 7.1967). (emphasis
added by Japan omitted)
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have conducted a non-attribution analysis, focusing on the difference in serious prejudice caused by a
subsidized Airbus and a non-subsidized Airbus
1354, as required by Appellate Body jurisprudence. 1355
Japan is concerned that the Appellate Body upholdi ng the Panel's causation analysis will imply that a
causal link will near-automatically be inferred despite the existence of other factors that may have
affected the level of serious prejudice. Japan ther efore requests that the Appellate Body clarify that a
panel should clearly examine and identify the effe cts of other, non-subsidy factors when finding
causation under Articles 5 and 6.3 of the SCM Agreement.
6. Korea
(a) Export subsidies
565. Korea submits that, in the light of the findings in Canada – Aircraft, "in order to establish that
the challenged program is 'tied to' export performance, the questio n is whether the subsidy would not
have been granted to Airbus if the Airbus G overnments had known that no export sales may ensue
from the subsidy to be provided under the program." 1356 Korea argues that the Panel seemed "to have
adopted a looser threshold" and "apparently focuse{d} on the motivation of the granting government",
as opposed to "the demonstration of {'a relationship of} conditionality or dependence'."1357
566. Korea argues that, under the standard adopted by the Panel, "when it is demonstrated that
there is the anticipating of exports by the granting authority, and that because of such anticipating of
exports a subsidy is granted, that is also in consistent with Article 3.1(a) and footnote 4." 1358
Moreover, Korea recalls the Panel's finding that a government's motivation for granting a subsidy is
"highly relevant" to an examination of export c ontingency under Article 3.1(a) and footnote 4. 1359
Korea argues that the Panel's approach focused on the motivation of the granting government, as
opposed to the demonstration of conditionality or dependence between the programme and actual or
anticipated export performance. Kore a also argues that the Panel, in exploring a correct standard for
determining de facto export contingency, has adopted a "tota lity of circumstances" test in which all

1354Japan's third participant's submission, para. 36 (referring to Panel Report, paras. 7.1985-7.1987
and 7.1993).
1355Japan's third participant's submission, paras. 37-42 (referring to Appellate Body Report, US –
Upland Cotton (Article 21.5 – Brazil) , para. 374; Appellate Body Report, US – Upland Cotton , paras. 437
and 438; Appellate Body Report, US – Line Pipe , para. 215; Appellate Body Report, US – Hot-Rolled Steel ,
1356Korea's third participant's submission, para. 28. (original emphasis)
1357Korea's third participant's submi ssion, para. 29 (quoting Panel Report, para. 7.640, in turn quoting
Appellate Body Report, Canada – Aircraft, para. 171).
1358Korea's third participant's submission, para. 29 (referring to Panel Report, para. 7.636 (original
emphasis)).
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relevant elements are taken into account.
1360 Korea is of the view that such a "totality of
circumstances" test would require caution, as it "see ms always vulnerable to the selective adoption of
information and evidence from a wide range of sources, including sometimes unsubstantiated press
reports or government officials' statements."1361
567. Korea contends that, consistent with the a pproach adopted by the Appellate Body in
Canada – Aircraft, a determination of de facto contingency requires a panel to "look into the very
nature of {a subsidy} to confirm the existence of the 'tied to' requirement as opposed to merely
speculating on 'motivation' of a granting government." 1362 Korea notes that the Panel's approach "has
its own merit", because "this approach may be ab le to deter a circumvention attempt by certain
Members."1363 Nonetheless, Korea contends that the appr oach "would have the potential of creating a
situation where findings of export contingency b ecomes more likely in the case of small or export
dependent economies in the global markets."1364
(b) Infrastructure measures
568. Korea argues that the explicit exclusion of "gener al infrastructure" in Article 1.1(a)(1)(iii) of
the SCM Agreement ensures certain "maneuvering room" for WTO Members to pursue legitimate
public objectives.1365 Thus, "to the extent the infrastructure ta kes the form of 'general infrastructure'
which benefits the population as a whole, the SCM Agreement simply excludes it from the reach of
the agreement." 1366 Korea considers, however, that the Pane l's analysis in this case may in certain
respects unduly restrict WTO Members' ability to carry out the important socio-economic function of
providing "general infrastructure".
569. Korea considers that "the provision of infrastru cture to a specific recipient, which, by
reference to its technical requirements and use, is only suitable to the needs of that recipient, would
fall outside the scope of 'general infrastructure'".
1367 Korea therefore agrees with the Panel's reasoning
that "where the relevant infrastructure is not accessible by the public at large or where the
infrastructure is not for the common good of the public ... these facilities simply do not fall under the
category of the general infrastructure within the meaning of Article 1.1(a)(1)(iii)."
1368

1360Korea's third participant's submission, para. 30.
1361Korea's third participant's submission, para. 30.
1362Korea's third participant's submission, para. 32.
1363Korea's third participant's submission, para. 33. (footnote omitted)
1364Korea's third participant's submission, para. 34.
1365Korea's third participant's submission, para. 13.
1366Korea's third participant's submission, para. 13.
1367Korea's third participant's submission, para. 14.
1368Korea's third participant's submission, para. 15.
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570. Korea expresses concern, however, about the Panel's finding that infrastructure can be general
at certain points of time but not at others. Korea argues that "the overly broad reference of the Panel
regarding the amorphous nature of the general infrastructure may cause an unintended problem in the
long run as it may carry the potential of undermining the concept of 'general infrastructure'."
1369
Korea suggests that the term "gen eral infrastructure" may have been understood as a single term, as
opposed to the combination of two different words of "general" and "infrastructure". Korea adds that,
in its view, it is "difficult to read into Article 1.1(a)(1)(iii) a term which qualifies 'provision of
"general infrastructure"' with a temporal element". 1370 Korea thus contends that, by holding that
"general infrastructure" is a malleable concept that does not exist on its own, the Panel's finding "may
offer an erroneous signal that sometimes legitimate general infrastructure projects (such as airports,
railroads, highways, harbours, etc.) may constitute financial contribution{s} by a government ...
simply because of the disproportionate utilization rate by some companies at some point in time."1371
III. Issues Raised in This Appeal
571. The following issues are raised on appeal by the European Union:
(a) Whether the Panel erred in finding that me asures consisting of R&TD grants by the
French Government, and R&TD loans by the Spanish Government under the PROFIT
programme, had been properly identified in the United States' panel request in
accordance with Article 6.2 of the DSU;
(b) Whether the Panel erred in its interpreta tion and application of Article 5 of the
SCM Agreement by rejecting the European Comm unities' request to exclude all
alleged actionable subsidies granted prior to 1 January 1995 from the temporal scope
of the dispute;
(c) Whether the Panel erred in its interpretation of Articles 1, 4.7, 5, 6, and 7.8 of the
SCM Agreement and their application to a number of transactions involving certain
Airbus companies. In particular:
(i) whether the Panel erred in finding that Articles 5 and 6 do not require that a
complainant demonstrate that a benefit "continues" or is "present" during the
reference period for purposes of an adverse effects analysis;

1369Korea's third participant's submission, para. 18.
1370Korea's third participant's submission, para. 20.
1371Korea's third participant's submission, para. 22.
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(ii) whether the Panel erred by failing to take into account and find that a number
of transactions involving certain Airbus companies resulted in the
"extinction" and/or "extraction" of subsidies; and
(iii) whether the Panel erred in failing to find that, as a result of these transactions,
subsidies were "withdrawn" within the meaning of Articles 4.7 and 7.8 of the
SCM Agreement;
(iv) whether, in its treatment of th e European Communities' arguments
concerning the "extinction", "extraction" , and "withdrawal" of subsidies, the
Panel failed to make an objective assessment and thereby acted inconsistently
with Article 11 of the DSU; and
(v) whether the Panel erred in finding that the United States was not required to
demonstrate, as part of its prima facie case under Article 5 of the
SCM Agreement, that subsidies provided to the Airbus Industrie consortium
"passed through" to the current producer of Airbus LCA;
(d) Whether the Panel erred in assessing if LA/MSF support provided a "benefit" under
Article 1.1(b) of the SCM Agreement. More specifically:
(i) whether, in interpreting and applying the notion of "benefit" under
Article 1.1(b) of the SCM Agreement, the Panel erred by failing to take into
account Article 4 of the 1992 Agreement as a relevant rule of international
law applicable in the relations between the parties, within the meaning of
Article 31(3)(c) of the Vienna Convention , or as part of the facts in
establishing the relevant market benchmark; or, in the alternative
(ii) whether the Panel erred by improperl y applying Article 1.1(b) of the
SCM Agreement, and failed to make an objec tive assessment of the matter
under Article 11 of the DSU, in its assessment of the project-specific risk
premium proposed by the United States for purposes of constructing the
market benchmark used to compare against the rates of return obtained by the
member States under the challenged LA/MSF measures;
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(iii) whether the Panel erred by incorrectly interpreting and applying
Article 1.1(b) of the SCM Agreement, and failed to make an objective
assessment of the matter under Article 11 of the DSU, in its assessment of the
project-specific risk premium proposed by the European Communities for
purposes of constructing the market benchmark used to compare against the
rates of return obtained by the memb er States under the challenged LA/MSF
measures; and
(iv) whether the Panel erred under Article 1.1(b) of the SCM Agreement in
stating, in paragraph 7.397 of the Panel Report, that "the number of sales over
which full repayment is expected says little, if anything, about the
appropriateness of the rate of return that will be achieved by that lender";
(e) Whether the Panel erred in its interpretati on and application of Article 2.1 of the
SCM Agreement in finding that R&TD funding granted to Airbus under the
EC Framework Programmes constituted "speci fic" subsidies within the meaning of
Article 2.1(a) of the SCM Agreement;
(f) Whether the Panel erred in its interpreta tion and application of Article 1 of the
SCM Agreement in finding that infrastructure me asures concerning the Mühlenberger
Loch industrial site in Hamburg, the air port runway extension in Bremen, and the
Aéroconstellation industrial site in Toulouse, constitute financial contributions within
the meaning of Article 1.1(a)(1)(iii), and c onferred a benefit within the meaning of
Article 1.1(b), of the SCM Agreement;
(g) Whether the Panel erred in its interpretation and application of Article 1.1(b) of the
SCM Agreement, and failed to make an objective assessment of the matter under
Article 11 of the DSU, in finding that a be nefit was conferred by each of four capital
investments by the French Government in Aérospatiale between 1987 and 1994;
(h) Whether the Panel erred in its interpretation and application of Article 1.1(b) of the
SCM Agreement , and failed to make an objec tive assessment of the matter under
Article 11 of the DSU, in finding that a benefit was conferred by the 1998 transfer by
the French Government to Aérospatiale of its shares in Dassault Aviation;
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(i) Whether the Panel erred in finding that th e United States had demonstrated that the
German, Spanish, and UK A380 contracts amount to prohibited export subsidies
within the meaning of Article 3.1(a) and footnote 4 of the SCM Agreement. More
specifically:
(i) whether the Panel erred in the interpretation of Article 3.1(a) and footnote 4
of the SCM Agreement, in particular the terms "con tingent", "tied to", "actual
or anticipated", and "export performance", in finding that, in order to qualify
as a prohibited export subsidy, a subsidy must be granted because of actual or
anticipated export performance;
(ii) whether the Panel erred in the applicati on of Article 3.1(a) and footnote 4 of
the SCM Agreement in finding that, together with the evidence the
United States advanced concerning the exchange of commitments between
Airbus and the German, Spanish, and UK Governments, the additional
evidence submitted by the United Stat es demonstrated that the German,
Spanish, and UK A380 contracts were in fact concluded, at least in part, on
the condition or because of the three LA/MSF governments' anticipation of
exportation; and
(iii) whether the Panel acted inconsistently w ith Articles 7.2, 11, and 12.7 of the
DSU in making the above findings by (1) failing to address the relevant
provisions cited by the parties, (2) failing to make an objective assessment of
the matter before it, and (3) failing to state the basic rationale for its findings;
(j) Whether the Panel erred in its interpre tation and application of Articles 5(c)
and 6.3(a) and (b) of the SCM Agreement, in particular the term "market" read in the
context of the terms "subsidized" and "like product", and acted inconsistently with its
obligations under Article 11 of the DSU, when it found that it did not need
independently and objectively to make a determination regarding the "subsidized
product"; and consequently in assessing "displacement" on the basis of a single
subsidized product and a single market for LCA;
(k) Whether the Panel erred in finding, under the first step of its two-step approach
pursuant to Article 6.3(a) of the SCM Agreement, that Boeing LCA were displaced
from the European Communities market;
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(l) Whether the Panel erred in finding, under the first step of its two-step approach
pursuant to Article 6.3(b) of the SCM Agreement, that Boeing LCA were displaced
from the markets of Australia, Brazil, Chin a, Korea, Mexico, Singapore, and Chinese
Taipei, and acted inconsistently with its obligations under Article 11 of the DSU in
finding that Boeing LCA were displaced from the markets of Brazil and Mexico;
(m) Whether the Panel erred in finding, under the first step of its two-step approach
pursuant to Article 6.3(b) of the SCM Agreement, that there was a threat of
displacement of Boeing LCA from the market of India;
(n) Whether the Panel erred in finding, under the first step of its two-step approach
pursuant to Article 6.3(c) of the SCM Agreement, that the sale to Emirates Airlines of
A380 aircraft constituted a "lost sale", and failed to make an objective assessment of
the matter under Article 11 of the DSU in reaching this finding
1372;
(o) Whether the Panel erred in finding, pursuant to Article 6.3 of the SCM Agreement,
that the following market phenomena were "the effect" of the subsidies provided to
Airbus and thus gave rise to "serious prej udice" to the interests of the United States
within the meaning of Article 5(c) of the SCM Agreement:
(i) "displacement" of Boeing LCA from the markets of the European
Communities, Australia, Brazil, China, Korea, Mexico, Singapore, and
Chinese Taipei, and threat of displacement from the market of India;
(ii) significant "lost sales" in the A320 sales to Air Asia, Air Berlin, Czech
Airlines, and easyJet;
(iii) significant "lost sales" in the A380 sales to Emirates Airlines, Qantas, and
Singapore Airlines; and
(iv) whether, in reaching these findings, th e Panel failed to make an objective
assessment of the matter under Article 11 of the DSU;

1372Although the European Union alleges an inconsiste ncy under Article 12.7 of the DSU in its Notice
of Appeal in respect of subparagraphs (j) through (p) above, it has not pursued these claims in its appellant's
submission.
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(p) Whether the Panel erred in its interp retation and application of Articles 5
and 6.3(a), (b), and (c) of the SCM Agreement, and failed to make an objective
assessment of the matter under Article 11 of the DSU, in failing to distinguish the
effects of the subsidies other than LA/MSF from the LA/MSF measures in assessing
adverse effects, and in failing to provide a reasoned and adequate explanation as to
how the non-LA/MSF measures could cause or contribute to causing adverse effects;
and
(q) Whether the Panel erred in its interpretati on and application of Article 5(c) of the
SCM Agreement, and acted inconsistently with Articles 12.7 and 11 of the DSU, in
failing to take into account the 1992 Agreement in its adverse effects analysis.
572. The following issues are raised by the United States in its other appeal:
(a) Whether the Panel erred in finding that the United States has not established the
existence of an unwritten LA/MSF "Progra mme" that constitutes a specific subsidy
within the meaning of Articles 1 and 2 of the SCM Agreement; and
(b) Whether the Panel erred in finding that the United States had not shown that the
granting of the French LA/MSF for the A380 and A330-200, and the French and
Spanish LA/MSF for the A340-500/600, were contingent in fact upon anticipated
exportation, within the meaning of Ar ticle 3.1(a) and footnote 4 of the
SCM Agreement, including whether the Panel e ffectively required evidence of
specific motivation in order to find a tie between the subsidies and anticipated
exports.
WT/DS316/AB/R BCI deleted, as indicated [***]

IV. Overview of the Measures at Issue
A. Introduction
573. This dispute concerns a challenge brought by the United States against numerous alleged
instances of subsidization to Airbus companies
1373 over the course of four decades by the
European Communities1374 and four of its member States—France, Germany, Spain, and the
United Kingdom (herein the "member States")—with respect to large civil aircraft ("LCA").1375
574. The measures that were the subject of the Unite d States' complaint may be grouped into five
general categories: (a) "launch aid" or "member State financing" ("LA/MSF") for the development of
various Airbus LCA, consisting of the A300, A310, A320, A330/A340 (including the A330-200 and
A340-500/600 variants), A350, and A380; (b) loans from the European Investment Bank ("EIB") to

1373By this term, we mean the Airbus companies described by the United States in its panel request,
namely:
Airbus SAS, its predecessor Airbus GIE and current and predecessor
affiliated companies, including each person or entity that directly, or
indirectly through one or more intermed iaries or relationships, controls or
controlled, or is or was controlled by, or is or was under common control
with Airbus SAS or Airbus GIE, such as parent companies, sibling
companies and subsidiaries, including Airbus Deutschland GmbH, Airbus
España SL, Airbus France S.A.S., Airbus UK Limited, European Defence
and Space Company ("EADS"), and BAE Systems.
(Request for the Establishment of a Panel by the United States, WT/DS316/2, footnote 1)
1374This dispute began before th e entry into force of the Treaty of Lisbon amending the Treaty on
European Union and the Treaty establishing the European Community (done at Lisbon, 13 December 2007) on
1 December 2009. On 29 November 2009, the World Tr ade Organization received a Verbal Note (WT/L/779)
from the Council of the European Union and the Commission of the European Communities stating that, by
virtue of the Treaty of Lisbon , as of 1 December 2009, the "Europ ean Union" replaces and succeeds the
"European Community". On 13 Ju ly 2010, the World Trade Organiza tion received a second Verbal Note
(WT/Let/679) from the Council of the European Union confirming that, with effect from 1 December 2009, the
European Union replaced the European Community and assumed all the rights and obligations of the
European Community in re spect of all Agreements for which the Director-Gen eral of the World Trade
Organization is the depositary and to which the European Community is a signatory or a contracting party. We
understand the reference in the Verbal Notes to the "European Community" to be a reference to the
"European Communities". Thus, although the European Communities was a party in the Panel proceedings, and
the Panel referred to the European Communities in its Report, it is the European Union that filed a Notice of
Appeal in this dispute after the entry into force of the Treaty of Lisbon , and we will thus refer to the
European Union in this Report in its capacity as appellant (and as appellee). However, when referring to events
that took place during the Panel proceedings, or quoting from the Panel Report, we refer to the
European Communities.
1375In paragraph 2.1 of its Report, the Panel defined "large civil aircraft" ("LCA") as follows:
{L}arge (weighing over 15,000 kilograms) "tube and wing" aircraft, with
turbofan engines carried under low-set wings, designed for subsonic flight.
LCA are designed for transporting 100 or more passengers and/or a
proportionate amount of cargo across a range of distances serviced by
airlines and air freight carriers. LC A are covered by tariff classification
heading 8802.40 of the Harmonized Syst em ("Airplanes and other aircraft,
of an unladen weight exceeding 15,000 kg").
BCI deleted, as indicated [***] WT/DS316/AB/R

Airbus companies; (c) research and technological development ("R&TD") funding granted to Airbus
companies by the European Commun ities and the member State governments at central and regional
levels; (d) infrastructure and infrastructure-relate d grants by the member State governments; and
(e) corporate restructuring measures undertaken by the French and German Governments.
575. The United States claimed before the Panel that each challenged measure is a specific subsidy
within the meaning of Articles 1 and 2 of the SCM Agreement, and that the European Communities
and the member States, through the use of these subsid ies, caused adverse effects to the United States'
interests within the meaning of Articles 5 and 6 of the SCM Agreement. In addition, the United States
claimed that certain LA/MSF measures are prohib ited export subsidies within the meaning of
Article 3 of the SCM Agreement.
576. The Panel's findings that are subject to appeal are identified in Part III of this Report.
Because of the large number of claims made and me asures challenged, and in order to provide some
background to and context for our findings, we cons ider it useful first to explain the corporate
evolution of the Airbus companies to form Airbus SAS, the company that today develops and
manufactures Airbus LCA. We then set out an overvie w of the measures at issue in this dispute. We
note that the following overview places specific emphasis on those findings of the Panel that are
relevant to this appeal. For a complete account of the background to the evolution of the Airbus
companies as well as the measures at issue and the Panel's reasoning and findings, direct reference
should be had to the Panel Report.
B. Background to the Creation of Airbus SAS
577. Prior to 2001, Airbus LCA were produced by a consortium of French, German, Spanish, and
UK aerospace companies (the Airbus partners), operating in a partnershi p arrangement through the
French entity, Airbus GIE.
1376 We use the term "Airbus Industrie " to refer to the Airbus consortium
as it operated between 1970 and 2001; that is, each of the four Airbus partners and Airbus GIE
collectively. In contrast, reference to Airbus GIE as an entity distinct from the Airbus partners will be
made through use of the term "Airbus GIE".1377

1376Airbus Industrie GIE was regist ered under French law as a " groupement d'intérêt économique "
("GIE"), which is a French legal fr amework that allows its members to carry out collectively certain economic
activities while maintaining their separate legal identities, and which does not have as its goal the retaining of
profits. A GIE has a separate legal personality from its members, although, in other respects, it resembles a
partnership. (Panel Report, footnote 2053 to paragraph 7.183)
1377See, similarly, Panel Report, para. 7.184.
WT/DS316/AB/R BCI deleted, as indicated [***]

578. Airbus Industrie was founded in 1970. At the time, it included the French aerospace
manufacturer, Aérospatiale Société Nationale Industrielle ("Aérospatiale")
1378 and the German
aerospace manufacturer, Deutsche Airbus GmbH. 1379 The Spanish aerospace manufacturer,
Construcciones Aeronáuticas SA ("CASA")—which was 99% owned by a Spanish Government
holding company, Sociedad Estatal de Particip aciones Industriales ("SEPI")—became a member of
the consortium in 1971 1380; and British Aerospace Corporati on, a UK aerospace manufacturer,
subsequently joined the consortium in 1979. 1381 Between 1979 and 2000, there were a number of
corporate restructurings involving three of the four Airbus partners: in 1998, Aérospatiale merged
with Matra Hautes Technologies ("MHT") to form Aérospatiale-Matra SA 1382; in 1992, pursuant to a
restructuring plan by the German Government, De utsche Airbus became a wholly owned subsidiary
of Deutsche Aerospace AG ("Dasa"), which was in turn owned by Daimler-Benz Aérospace AG
("Daimler-Benz")1383; and in 1999, British Aerospace Corpora tion, through a series of transactions,
became BAE Systems PLC. 1384 In spite of these changes to the Airbus partners, their membership

1378Aérospatiale was founded in 1970 through the merger of thr ee French aerospace
companies: Sud Aviation, Nord Aviation, and Société d'études et de réalisation d'engins balistiques.
Aérospatiale was owned directly and indirectly by the French Government until 1998. (Panel Report,
footnote 2054 to para. 7.183)
137960% of the interest in Deutsche Airbus was held by Messerschmitt-Bölkow-Blohm GmbH
("MBB"), a merger of three German companies, and the remaining 40% was held equally by two other
German companies, Dornier and Vereinigte Flugtechnische Werke ("VFW"). MBB took over VFW in 1981.
(See Panel Report, footnote 2055 to para. 7.183)
1380CASA was founded in 1923 and was Spain's largest aerospace and defence manufacturer. SEPI was
entrusted with the management and privatization of cer tain Spanish Government-controlled companies. (Panel
1381British Aerospace Corporation was formed in 1977 as a Crown corporation w ithout shares, wholly
owned by the UK Government. It was formed as a result of the me rger of the UK aerospace companies,
Hawker Siddeley Aviation Ltd, Hawker Siddeley Dynamics Ltd, Scottish Aviation Ltd, and British Aircraft
Corporation (Holdings) Ltd. (Panel Report, footnote 2057 to para. 7.183)
1382The French Government sold a portion of its shar es in Aérospatiale-Matra in a public offering
in 1999. As a result, 48% of Aérospatiale-Matra was owned by the French Government and 2% by employees.
The rest was acquired by a private company (33%) and the public (17%). (European Union's appellant's
submission, paras. 131-133 (referring to, inter alia, Aérospatiale-Matra, Offering Memorandum (25 May 1999)
(Panel Exhibit EC-53), pp. 3, 13-14, and 30)). See also Panel Report, para. 4.20 and footnote 2054 to
para. 7.183.
1383See Panel Report, footnote 2055 to para. 7.183. The Panel explained that "Deutsche Airbus AG
was a subsidiary of MBB until MBB's merger with Daim ler Benz's subsidiary Deutsche Aerospace AG (Dasa)
in 1992, after which it was an indirect subsidiary of Daimler-Benz. Although Dasa was originally founded as
Deutsche Aerospace AG in 1989, its name was changed to Daimler-Benz Aerospace AG in 1995, and then to
DaimlerChrysler Aerospace AG in 1998 (following the merger of Daimler-Benz AG with Chrysler
Corporation). We refer to this entity as 'Dasa' thro ughout this report." (Panel Report, footnote 2061 to
paragraph 7.184; see also footnote 2055 to para. 7.183) Similarly, our references to Dasa in this Report are to
this entity.
1384Panel Report, footnote 2057 to para. 7.183. In 1981, the assets and business of the British
Aerospace Corporation were transferred to the newly in corporated British Aerospace PLC, a UK public limited
company. The UK Government sold 51.57% of its shares in British Aerospace in a public offering in 1981 and,
subject to retaining a share to ensure that the company remained under UK control, sold the remainder of its
shares in 1985. In 1999, British Aerospace PLC merg ed with Marconi Electronic Systems to become BAE
Systems PLC. (Ibid. (referring to European Communities' first written submission to the Panel, paras. 59-61))
BCI deleted, as indicated [***] WT/DS316/AB/R

interests in Airbus GIE between 1979-2000 remain ed as follows: Aérospatiale (subsequently
Aérospatiale-Matra) (37.9%); Deutsche Airbus (37.9%); CASA (4.2%); and British Aerospace
(subsequently BAE Systems) (20%).
1385
579. The Airbus partners in France, Germany, Spain, and the United Kingdom produced specific
parts of Airbus LCA, which were then assembled in France by Aérospatiale. 1386 Airbus GIE did not
carry out any production activities; rather, it coordinated the production efforts of the Airbus partners,
allocated revenues and profits to each of the pa rtners, and assumed responsibility for areas such as
marketing, sales, aircraft delivery, and customer service.1387
580. In July 2000, the French, German, and Spanish Airbus partners merged their activities in the
aeronautics, space, and defence sectors by contri buting all of the shares of the subsidiaries of
Aérospatiale-Matra and Dasa, and all of the shares of CASA 1388, to the newly formed
European Aeronautic Defence and Space Company NV ("EADS"), a public limited liability company
(naamloze vennootschap ) organized under the laws of the Netherlands. 1389 Prior to these
contributions, Aérospatiale-Matra and Dasa had each conducted in ternal reorganizations of the
subsidiaries in which they held the assets and liabilities related to thei r Airbus-related and non-
Airbus-related activities.1390 The contributions were made in exch ange for shares in EADS issued in

 1385See Panel Report, section VII.E.1 (attachment), para. 3, p. 361. The Panel noted that two other
European aerospace companies, Fokker an d Belairbus, participated in certai n Airbus programmes as associated
manufacturers, although they did not become partners in Airbus GIE. (Ibid., footnote 2238 to para. 3, p. 361).
1386For a description of the activities of each of the Airbus GIE partners, see Panel Report,
footnote 2058 to para. 7.183.
1387Panel Report, para. 7.183.
1388Panel Report, section VII.E.1 (attachment), para. 4, p. 362, and footnote 2214 to para. 7.274.
1389Panel Report, section VII.E.1 (attachment), para. 4, p. 362.
1390Panel Report, section VII.E.1 (attachment), para. 4, p. 362 and footnote 2241 thereto, which states:
Aérospatiale Matra Airbus was the Aérospatiale-Matra subsidiary which
held Aérospatiale Matra's Airbus-related assets and liabilities, including
its 37.9 percent membership interest in Airbus GIE. Other Aérospatiale-
Matra subsidiaries held assets that were not related to Aérospatiale-Matra's
LCA activities, such as Aérospatiale-Matra's helicopter, defence, space
transport, satellite and telecommunica tions businesses. Dasa's Airbus-
related activities had been grouped into a subsidiary called DaimlerChrysler
Aerospace Airbus Beteiligungs GmbH, wh ich held a 99.99 percent of the
shares of DaimlerChrysler Aerospace Ai rbus GmbH, which in turn held a
37.9 percent membership interest in Airbus GIE. Dasa separately held a
direct 0.71 percent interest in CASA, which it also contributed to EADS
pursuant to the combination transactions. Assets and liabilities relating to
activities other than the Airbus-related activities were grouped into other
Dasa subsidiaries, with the exception of (i) liabilities relating to Dornier
aircraft; (ii) all claims and liabilities relating to the Fokker group; (iii) Dasa
AG's participating interests in MTU, Temic Telefunken microelectronic
GmbH and debis AirFinance B.V.; and (iv) a cash amount of Euro
3,133 million; EADS Offering Memorandum, 9 July 2000, Exhibit EC-24,
pp. 140-144.
WT/DS316/AB/R BCI deleted, as indicated [***]

proportion to the relative values of the resp ective contributions of Aérospatiale-Matra
1391, Dasa, and
SEPI.1392 EADS thereafter owned all of the subsidiaries of Aérospatiale-Matra and Dasa that had
previously conducted the Airbus-related design, engineering, manufacturing, and production activities
located in France and Germany, and all of the sh ares of former Spanish Airbus partner, CASA.
EADS also held the membership interests in Ai rbus GIE that had previously been held by
Aérospatiale-Matra, Dasa, and CASA. 1393 BAE Systems continued to hold its 20% interest in Airbus
GIE.1394
581. Following these transactions, DaimlerChrysler1395 and Société de gestion de l'aéronautique, de
la défense et de l'espace ("SOGEADE")—a French partnership limited by shares to which the French
Government and other French companies belong 1396—each held approximately 30% of the share
capital of EADS, while SEPI held 5.48% of EADS shares. 1397 DaimlerChrysler, SOGEADE, and
SEPI entered into a contractual partnership under Du tch law (the "Contractual Partnership") in which
they agreed that a Dutch company, EADS Participations BV 1398, would exercise the voting rights
attached to the 65.48% shares held among them.1399
582. In 2001, EADS and BAE Systems placed their Airbus-related assets and operations and their
membership rights in Airbus GIE under the comm on control of a newly created holding company,

1391Aérospatiale-Matra was subsequently wound up, so that the EADS shares issued to Aérospatiale-
Matra were distributed by Aérospatiale-Matra to its ow n shareholders simultaneously with the liquidation of
Aérospatiale-Matra on the basis of one EADS share fo r every one Aérospatiale-Mat ra share. Simultaneously
with these transactions, EADS issued shares and the French Government, Lagardère, and the French financial
institutions, BNP PARIBAS and AXA, sold EADS shares in a public offering. (Panel Report, section VII.E.1
(attachment), footnote 2242 to para. 4, p. 362 (referring to EADS' Offering Memorandum, supra, footnote 163,
pp. 140-144))
1392Panel Report, section VII.E.1 (attachment), para . 4, p. 362. See EADS' Offering Memorandum,
supra, footnote 163, pp. 140-144.
1393Panel Report, section VII.E.1 (attachment), para. 5, p. 362.
1394Panel Report, section VII.E.1 (attachment), para. 4, p. 362.
1395DaimlerChrysler Aerospace AG ("DaimlerChrysler") was formed in 1998 following the merger of
Daimler-Benz with the Chrysler Corporation. (See Panel Report, footnote 2061 to para. 7.184)
1396SOGEADE (Société de gestion de l'aéronautique, de la défense et de l'éspace) is a French
partnership limited by shares ( société en commandite par actions ). SOGEADE is 50% owned by the French
Government (through a French Government-owned holding company, Société de gestion de participations
aéronautique (SOGEPA)) and 50% owned by Désirade, which comprises Lagardère as well as the French
financial institutions, BNP PARIBAS and AXA. (Panel Report, section VII.E.1 (attachment), footnotes 2242
and 2243 to para. 4, p. 362, and para. 6, p. 363 (referring to EADS' Offering Memorandum, supra, footnote 163,
pp. 38, 65, 74, 132, 137-138, and 141-142))
1398EADS Participations BV is a Dutch private comp any with limited liability and is the managing
partner of the Contractual Partnership. (EADS' Offering Memorandum, supra, footnote 163, p. 133)
1399See EADS' Offering Memorandum, supra, footnote 163, pp. 132-133. With the "indirect shares"
pledged to it, EADS Participations BV was granted the exclusive power to exercise the voting rights attaching to
these shares (including the right to attend and speak at shareholders' meetings) in accordance with a Contractual
Partnership agreement. (Ibid., p. 132)
BCI deleted, as indicated [***] WT/DS316/AB/R

Airbus SAS, a société par actions simplifiée under French law.
1400 The LCA-related assets located in
France, Germany, Spain, and the United Kingdom were transferred to Airbus SAS subsidiaries: those
previously held by Aérospatiale-Matra were transfer red to Airbus France SAS; those previously held
by Dasa were transferred to Airbus Deutschland GmbH; and those previously held by CASA were
transferred to Airbus España. BAE Systems tran sferred its LCA-related assets to Airbus SAS in
exchange for a 20% stake in Airbus SAS, assets which were later transferred to Airbus UK Ltd.
1401
EADS held an 80% interest in Airbus SAS (and ha d effective control over its operations), while BAE
Systems, with the remaining 20% inte rest, enjoyed specific minority rights. 1402 I n 2 0 0 6 , E A D S
purchased BAE Systems' 20% interest in Airbus SAS, so that Airbus SAS became a wholly owned
subsidiary of EADS.
1403
C. Launch Aid/Member State Financing
583. A significant part of the United States' case concerns a form of financing for LCA design and
development provided by France, Germany, Spain, and the United Kingdom to Airbus over a period
of approximately 40 years beginning in 1969. Th e United States refers to all such financing as
"launch aid". The European Union uses different te rms to describe such financing, including "MSF"
(member State financing), "member St ate loans", and "launch investment". 1404 In this Report, we
refer to these measures as "LA/MSF".1405
584. Before the Panel, the United States argued that the Governments of France, Germany, Spain,
and the United Kingdom provided LA/MSF to Airbus for each new model and variant 1406 of Airbus
LCA—in particular the A300, A310, A320, A330/A340 1407, A330-200, A340-500/6001408, A350, and

1400Panel Report, section VII.E.1 (attachment), para. 7, p. 364.
1401European Union's response to questioning at the oral hearing; Panel Report, section VII.E.1
(attachment), para. 7, p. 364.
1402Panel Report, section VII.E.1 (attachment), para. 7, p. 364.
1403Panel Report, section VII.E.1 (attachment), para. 7, p. 364.
1404The European Union also refers to avances remboursables (repayable advances), rückzahlbare
Zuwendungen (repayable aid), Entwicklungsbeihilfen (development aid), Zuschüsse zur Entwicklung von zivilen
Flugzeugen (contributions for the development of civil aircraft), anticipo reembolsable (repayable advance), and
prestamo reembolsable (repayable loan). The United States refers to all such types of financing as "launch aid",
regardless of the specific term or terms used by the entity providing the financing. (See Panel Report, para. 4.87)
1405See also Panel Report, para. 7.291.
1406The Panel and the parties used the terms "variant" and "derivative" interchangeably and we should
be understood to do the same.
1407The European Communities explained that, notw ithstanding the different characteristics and
market profile of the A330 and A340, the basic versio ns of these LCA models are sometimes referred to
collectively as the "A330/A340 basic", reflecting the fact that they were launched at the same time. (See
European Communities' first written submission to the Panel, footnote 53 to para. 84)
1408The A340-500 and A340-600 are two different variants of the A340. However, because of their
similarities, they are often referred to collectively as the "A340-500/600". (See European Communities' first
written submission to the Panel, footnote 53 to para. 84)
WT/DS316/AB/R BCI deleted, as indicated [***]

A380.
1409 According to the United States, each one of the challenged grants of LA/MSF evidences a
"financial contribution" that conferred a "benefit" on Airbus, and therefore amounted to a subsidy
within the meaning of Article 1.1 of the SCM Agreement.1410
585. The European Communities contested the United States' claim that each of the disputed
LA/MSF measures amounted to a subsidy within the meaning of Article 1 of the SCM Agreement.
However, in doing so, it did not contest the United States' allegations in respect of LA/MSF being a
"financial contribution" within the meaning of Article 1.1(a)(1)(i) of the SCM Agreement. Instead, the
European Communities focused on arguing that th e challenged LA/MSF measures did not confer a
"benefit" upon their recipient within the meaning of Article 1.1(b) of the SCM Agreement.1411 The
European Communities did not contest the United States' submission that the LA/MSF measures were
"specific" within the meaning of Article 2 of the SCM Agreement.1412
586. We identify below each of the specific instances of LA/MSF financing at issue in this appeal,
describe the contractual framework for LA/MSF, and examine key features of LA/MSF based on the
contracts submitted by the parties to the Panel.

587. Before the Panel, the United States challenge d multiple instances of development funding
provided by the four member States to Airbus. In addition, the United States challenged what it
referred to as the LA/MSF "Programme" as a measure distinct from individual LA/MSF measures.
588. We begin by describing the specific LA/MSF measures challenged by the United States. We
understand that no LA/MSF was sought from any of the member States for the A318, A319, and
A321 models.
1413 We further understand that: (i) the UK Government did not provide LA/MSF for

1409The Airbus LCA variants that ar e not the subject of the United St ates' complaint against LA/MSF
are the A318, A319, and A321. (Panel Report, footnote 2430 to para. 7.369) We understand that no LA/MSF
was provided for the development of these variants. ( Ibid., para. 7.526; see also footnote 2430 to para. 7.369)
Further details regarding LA/MSF, including alleged amounts of funding per model, is provided below in
subsection C.3 at page 257 of this Report.
1410Further detail is provided below at paragraph 589 of this Report. The United States also argued that
the French, German, Spanish, and UK Governments had each individually agreed to support the development of
the A350 by lending Airbus "at least" US$1.7 billion in the form of LA/MSF. The Panel rejected this claim,
finding that the United States had failed to demonstrate that the A350 LA/MSF measur e existed at the time of
the establishment of the Panel. (See Panel Report, paras. 7.297 and 7.314) The United States has not challenged
this finding on appeal.
1411Panel Report, para. 7.335.
1412Panel Report, para. 7.497.
BCI deleted, as indicated [***] WT/DS316/AB/R

the A300 or the A310
1414; (ii) no German, Spanish, or UK Government LA/MSF was requested for
the A330-200 1415; (iii) no German Government LA /MSF was requested to develop the
A340-500/6001416; and (iv) the UK Government did not conclude a LA/MSF contract with British
Aerospace for the purpose of developing the A340-500/600, even though British Aerospace had
initially requested LA/MSF from the UK Government.1417
589. The challenged LA/MSF measures, as well as approximate amounts, are set out in Table 1.
Table 1. Alleged LA/MSF
Alleged amount (millions)
Aircraft model France Germany Spain United Kingdom
A300 FF 3,012 Ptas 3,829 -
A310 FF 3,180
DM 2,400
Ptas 7,808 -
A320 FF 4,133 DM 1,330 Ptas 10,800 £250
A330/A340 FF 7,800 DM 2,930 Ptas 29,400 £447
A330-200 FF 330 - - -
A340-500/600 FF 2,110 - Ptas 11,348 -
A380 [***] [***] [***] [***]
Source: Panel Report, para. 7.380.

2. The Contractual Framework for LA/MSF
590. The contractual framework of each of the ch allenged LA/MSF measures usually takes one of
two forms: (i) general agreemen ts between participating member State governments, implemented at
the national level through separate contracts betw een each participating member State government
and the Airbus entity located within its territory; or (ii) individual contracts between each relevant
member State government and the Airbus entity located in its territory.
591. Participating member State governments contracted funding for Airbus' first LCA models (the
A300 and A310) through a series of agreem ents at the intergovernmental level. 1418 These agreements
expressed the relevant member State's commitment to fund the development of the A300 and A310;
they also set out, to varying degrees, some of the key terms and conditions attached to the provision of

1414See Panel Report, para. 7.369 and footnote 2431 thereto; see also para. 7.1975 and footnote 2810 to
para. 7.526.
1415Panel Report, para. 7.526.
1416Panel Report, para. 7.526.
1417Panel Report, para. 7.527.
1418These are the "1969 A300 Agreem ent" (Panel Exhibit US-11), infra, footnote 1421; the "1971
A300 Agreement" (Panel Exhibit EC-992 (BCI)), infra, footnote 1427; and the "1981 A310 Agreement" (Panel
Exhibit EC-942 (BCI)), infra, footnote 1429.
WT/DS316/AB/R BCI deleted, as indicated [***]

financing, such as the schedules for specific amount s of funds to be disbursed and the mode of
repayment.
1419 Separate contracts implementing the inter governmental agreements, in the context of
one or more different aspects or phases of the first two Airbus LCA projects, were entered into at the
national level between each financing member Stat e government and the Airbus entity located within
its territory.1420
592. The "1969 A300 Agreement" 1421 envisaged in general terms that the French and German
Governments would provide a spec ified amount of funding for the development of the A300 in the
form of loans to be repaid through a series of gra duated levies on the sale of each aircraft, the value of
which was expressly identified. 1422 Both the development and production of the A300 were to be
divided between the two "Associated Manufacturers" 1423 involved, in proportion to each government's
respective contribution to development costs of that model. 1424 However, the costs of production of
the A300 series were not financed under the 1969 A 300 Agreement, which explicitly provided that
these costs would be the responsibility of each of the Associated Manufacturers.1425
593. The 1969 A300 Agreement was extended to th e Government of the Netherlands on
28 December 1970 (the "1970 A300 Agreement" 1426), and to the Government of Spain on
23 December 1971 (the "1971 A300 Agreement" 1427). In terms of substance, the 1971 A300
Agreement declared, inter alia, CASA to be an Associated Manufacturer, and conferred upon it a
portion of A300 series production.1428

1419Panel Report, para. 7.370.
1420Panel Report, para. 7.370.
1421Agreement (of 29 May 1969) between the Government of the Republic of France and the
Government of the Federal Republic of Germany regarding the realization of the Airbus A-300-B (Panel Exhibit
US-11).
1422Panel Report, para. 7.534 (referring to 1969 A300 Agreement, Articles 6 and 7). The total amount
of funding identified in the Agreement was set on the basis of conditions de prix (price conditions) existing on
1 January 1968, and was subject to revision in the light of any evolution in the conditions économiques
générales (general economic conditions) since 1 January 1968. ( Ibid. (referring to 1969 A300 Agreement,
Article 6))
1423The two "Associated Manufacturers" were Sud-Aviation and Deutsche Airbus GmbH. (Panel
Report, para. 7.534; 1969 A300 Agreement, preamble)
1424Panel Report, para. 7.534 (referring to 1969 A300 Agreement, Articles 3.1 and 4.2).
1425Panel Report, para. 7.534 (referring to 1969 A300 Agreement, Article 9).
1426Agreement between the Governments of the Kingdom of the Netherlands, the Federal Republic of
Germany, and the French Republic concerning the realization of the Airbus A-300 B (1970). The parties did not
submit a copy of this Agreement to the Panel.
1427Agreement (of 23 December 1971) between the Governments of the French Republic, the Federal
Republic of Germany, the Kingdom of the Netherlands and the Spanish State regarding the realization of the
Airbus A-300 B (Panel Exhibit EC-992 (BCI)).
1428Panel Report, para. 7.537.
BCI deleted, as indicated [***] WT/DS316/AB/R

594. By virtue of the "1981 A310 Agreement"
1429, the Governments of France, Germany, Spain,
and the United Kingdom extended some key principles of the 1969, 1970, and 1971 A300
Agreements to the development of the A310. 1430 The 1981 A310 Agreement addressed matters
similar to those contained in the 1969 A300 Agreem ent. As with the financing provided for the
development of the A300, the 1981 A310 Agreement envisaged that certain specified amounts of
funding would be made available for the development of the A310 in the form of loans to be repaid
through a series of graduated levies on sales of each aircraft, the value of which was expressly
identified.
1431 It also provided that a specified amount of the development costs of the A310 would be
assumed by the Governments of Belgium and the Neth erlands (for development work to be carried
out respectively by Belairbus and Fokker), and th at an agreement would be signed with the two
governments in due course. 1432 An agreement was concluded with the Governments of Belgium and
the Netherlands in 1982.1433
595. Development work was divided in proportion to each government's respective contribution to
development costs through avances remboursables (repayable advances). 1434 The Associated
Manufacturers (which now included British Aerospace 1435) were given responsibility for series
production of the elements of the A310 each had developed. 1436 However, again, the costs of
production of the A310 series were not financed unde r the Agreement, which explicitly provided that
these costs would be the responsibility of each of the Associated Manufacturers.1437
596. The contractual framework for the A320 and A330/A340 projects contained elements similar
to those of the A300 and A310 projects: funding w as agreed between the part icipating member State
governments, and implemented at th e national level through specific c ontracts between each relevant
member State government and the Airbus entity located within its territory. However, compared to
the intergovernmental agreements for the A300 and A310, the intergovernmental agreements for the

1429Agreement (of 28 September 1981) between the Governments of the Federal Republic of Germany,
the French Republic, the United Kingdom of Great Britain and Northern Ireland, and Spain concerning the
Airbus programme (Panel Exhibit EC-942 (BCI)).
1430Panel Report, para. 7.538.
1431Panel Report, para. 7.538 (referring to 1981 A310 Agreement, Articles 8-10).
1432Panel Report, para. 7.538 (referring to 1981 A310 Agreement, Article 8.6).
1433Agreement between the Governments of the Kingdom of Belgium, the Federal Republic of Germany,
Spain, the French Republic, the Kingdom of the Neth erlands, and the United Kingdom of Great Britain and
Northern Ireland concerning the programme Airbus (1982) ). See Panel Report, para. 7.538. The parties have
not submitted a copy of this agreement.
1434Panel Report, para. 7.539 (referring to 1981 A310 Agreement, Article 8.2).
1435Panel Report, para. 7.539 (referring to 1981 A310 Agreement, preamble).
1436Panel Report, para. 7.539 (referring to 1981 A310 Agreement, Article 5.1).
1437Panel Report, para. 7.539 (referring to 1981 A310 Agreement, Article 10.1).
WT/DS316/AB/R BCI deleted, as indicated [***]

A320 and A330/A340 were less precise. For instan ce, they did not specify the repayment terms,
leaving these to be determined through the individual contracts negotiated at the national level.
1438
597. The "1991 A320 Agreement" 1439 was concluded between the Governments of France,
Germany, Spain, the United Kingdom, and Belgiu m. Each government's expected financial
contribution to the Associated Manuf acturers (which now included Belairbus 1440) for the purpose of
developing the A320 was identified, and it was pr escribed that repayments would be made from
aircraft sales revenues. 1441 However, unlike the previous ag reements, the 1991 A320 Agreement did
not specify the form or value of such repayments.
598. Development work and production was divided between the five national actors, in proportion
with the work undertaken in each territory and each government's respective contribution to
development costs.1442 However, again, the costs of production of the A320 were not financed under
the agreement, but left to the Associated Manufacturers.1443
599. The Belgian, French, German, Spanish, and UK Governments subsequently concluded the
"1994 A330/A340 Agreement"1444 concerning the development, production, and sales financing of the
A330/A340 LCA models. It stipulated that repaym ents of the amounts advanced by the governments
would be made from aircraft sales revenues.1445 However, it did not specify the form, value, or timing
of such repayments.
600. Production was divided between the five national industries, to the extent possible, in
proportion with each government's respective contribution to development costs. 1446 However, as in
the case of the other agreements, the costs of production of the A330/A340 were not financed under
the agreement, but left to the Associated Manufacturers. 1447 The 1994 A330/A340 Agreement also

1438Panel Report, para. 7.370.
1439Agreement (of 6 February 1991) between the Governments of the French Republic, the Federal
Republic of Germany, the United Kingdom of Great Britain and Northern Ireland, the Kingdom of Spain and
the Kingdom of Belgium, concerning the Airbus A320 programme (Panel Exhibit US-16). See Panel Report,
footnote 2867 to para. 7.542.
1440Panel Report, para. 7.542 (referring to 1991 A320 Agreement, preamble).
1441Panel Report, para. 7.542 (referring to 1991 A320 Agreement, Article 8).
1442Panel Report, para. 7.543 (referring to 1991 A320 Agreement, Article 5.2, 5.3, and 11).
1443Panel Report, para. 7.543 (referring to 1991 A320 Agreement, Article 12).
1444Agreement (of 25/26 April 1994) between the Governments of the French Republic, the Federal
Republic of Germany, the United Kingdom of Great Britain and Northern Ireland, the Kingdom of Spain and
the Kingdom of Belgium concerning the Airbus A330/A340 programme (Panel Exhibit US-28)). See Panel
Report, para. 7.546.
14451994 A330/A340 Agreement, Article 8: "The respective national contributions to development
costs shall be reimbursed by Airbus Industrie from aircraft sales revenues". (Panel Report, footnote 2888 to
para. 7.546)
1446Panel Report, para. 7.547 (referring to 1994 A330/A340 Agreement, Article 10).
1447Panel Report, para. 7.547 (referring to 1994 A330/A340 Agreement, Article 11).
BCI deleted, as indicated [***] WT/DS316/AB/R

provided that the Governments of France, German y, Spain, and the United Kingdom would support
A330/A340 export financing (the Sp anish Government's obligation being limited to purchases made
by Spanish airlines).
1448 The Agreement explained that consulta tions would be undertaken to decide
the modalities for extending its provisions to variants of the A330/A340.1449
601. In June 2003, the Governments of France, Ge rmany, Spain, and the United Kingdom entered
into the "2003 Agreement" 1450 with Airbus SAS setting out certain principles and obligations
applicable to the four governments' continued support for Airbus LCA programmes. The 2003
Agreement does not concern any particular Airbus LCA development project.1451 Its main focus is the
A380, but other unspecified projects launched on or after the date of the agreement and their
derivatives are also covered.1452
602. No intergovernmental agreemen ts were concluded with rega rd to the LA/MSF provided by
the Governments of France and Spain for the A330-200 and A340-500/600 projects. Nor was any
such agreement (expressing a commitment to provide funding) concluded with respect to the A380.
Instead, for these projects, the member State gove rnments entered into separate national-level
contracts, setting forth various relevant terms and conditions, with the French aerospace manufacturer,
Aérospatiale, and the Spanish aerospace manufact urer, CASA (in respect of the A330-200 and
A340-500/600 projects), and with Airbus France, Air bus Deutschland GmbH, EADS Airbus SL
(Spain), BAE Systems (Operations) Ltd, and British Aerospace PLC (in respect of the A380).1453
603. The legal instruments making up the contract ual framework of the challenged LA/MSF
measures are described in Table 2.1454

1448Panel Report, para. 7.547 (referring to 1994 A330/A340 Agreement, Article 12).
1449Panel Report, para. 7.547 (referring to 1994 A330/A340 Agreement, Article 13).
1450Agreement (of 16 June 2003) signed at Paris-Le Bourget between the Ministers of the Four
Principal Airbus Countries and Airbus (Panel Exhibit US-122 (BCI))). See Panel Report, para. 7.549.
1451Panel Report, para. 7.551.
1452Panel Report, para. 7.551.
1453Panel Report, para. 7.371.
1454See also Panel Report, paras. 7.549-7.551.
WT/DS316/AB/R BCI deleted, as indicated [***]

Contractual Framework
Aircraft model France Germany Spain United Kingdom
1969 and 1971 A300 Agreements
A300
launched
in 1969
29 separate
agreements,
protocols and
conventions between
the French
Government and
Aérospatiale*
"Model contract"
representing
LA/MSF contracts
between the German
Government and
Deutsche Airbus for
the A300*
16 separate contracts
and amendments
thereto, between the
Spanish Government
and CASA*
None
1981 Airbus A310 Agreement
A310
launched
in 1978
10 separate protocols
and conventions
between the French
Government and
Aérospatiale**
"Model contract"
representing German
LA/MSF contracts
for the A300**
8 separate contracts
and amendments
thereto, between the
Spanish Government
and CASA**
None
1991 A320 Agreement A320
launched
in 1984
French A320
contract
German A320
contract
Spanish 1992 A320
 contract***
UK A320 contract
1995 A330/A340 Agreement A330/A340
launched
in 1987
French A330/A340
contract
German A330/A340
contract¬
Spanish 1988
A330/A340
 contract¬¬
UK A330/A340
contract
A330-200
launched
in 1995
French A330-200
 contract

None None None
A340-500/600
launched
in 1997
French
A340-500/600
 convention

None Spanish
A340-500/600
contract
None
A380
launched
in 2000
French A380
contract
German A380
contract
Spanish A380
contract
UK A380
contract
* See Panel Report, footnote 2247 to para. 7.290.
** See Panel Report, footnote 2248 to para. 7.290.
*** Final contract (of 1 September 1992) for the termination and liquidation of the cooperation agreements between the
Ministry of Industry, Trade and Tourism and Construcciones Aeronáuticas SA relating to the provision of repayable funds
for the financing of development costs for the Airbus A320 . One of several earlier contracts entered into for the same
purpose was the Spanish 1984 A320 contract. (See Panel Report, footnote 2249 to para. 7.290)
¬ The Panel noted that, although asked to provide a copy of the German LA/MSF contr act for the A330/A340, the
European Communities did not do so. The European Communiti es instead referred the Panel to another document, Panel
Exhibit EC-887 (HSBI), which it asserted incorporated the same "repayment provisions" as the requested contract. Thus, for
the Panel, the European Communities did "not contest" that th e German Government entered into a LA/MSF contract with
Deutsche Airbus GmbH for the A330/A340. (See Panel Report, footnote 2257 to para. 7.290)
¬¬ Cooperation Agreement (of 1 June 1988) between the Ministry of Industry and C onstrucciones Aeronáuticas SA, relating
to the provision of a repayable, interest-free advance for the financing of development costs for the Airbus A330/A340 . This
contract was supplemented by th e Spanish 1990 A330/A340 contract, Agreement (of 30 July 1990) between the Ministry of
Industry and Energy and Construcciones Aeronáuticas SA, for the provision of a refundable deposit without interest,
intended to finance development costs for the Airbus A330/A340. (See Panel Report, footnote 2254 to para. 7.290)
 The Panel also noted the existence of the Memorandum of Understanding (of 23 December 1996) between the State and
Aérospatiale relating to the Airbus A330-200 programme (Panel Exhibit EC-90). (See Panel Report, footnote 2258 to
para. 7.290)
 The Panel also noted the existence of the Agreement (of 29 December 1998) betw een the signatory authority of the
agreement on behalf and for the account of the State, on the one hand, and Aérospa tiale, on the other hand, concerning the
development of the Airbus A340-500 and A340-600 (the "French A340-500/600 contract") (Panel Exhibit US-36 (BCI)).
(See Panel Report, footnote 2259 to para. 7.290) See also supra, footnote 1112.
BCI deleted, as indicated [***] WT/DS316/AB/R

3. The Features of Individual LA/MSF Contracts

604. The Panel noted that the terms and conditions of each of the legal instruments making up the
contractual framework of the challenged LA/MSF measures could "vary significantly". 1455
Nonetheless, the Panel considered that "numerous similarities" 1456 in the type and form of financing
could be found. The Panel referred to the Unite d States' characterization of the challenged LA/MSF
contracts "as unsecured loans granted to Airbus on back-loaded and success-dependent repayment
terms, at below-market interest rates, for the purpose of developing various new models of LCA." 1457
We set out below certain elements of individual LA/MSF contracts, which exemplify key features of
these contracts. After highlighting the relative proportion of development costs associated with
particular aircraft projects, and the manner of disbursement of LA/MSF funds, we identify key
features of the repayment terms (including paymen t structure, conditions of repayment, royalties,
interest rates, guarantees, etc.).
605. The proportion of development costs financed through LA/MSF contracts has diminished
over time. For the earlier projects (the A300 and A310), close to 100% of the development costs were
financed through LA/MSF. 1458 More specifically, the French and Spanish Governments funded
approximately 100%, and the Germ an Government 90%, of the development costs of the A300 and
A310 (basic versions). 1459 The same three governments funded between 64% and 85% of the
development costs of the derivatives of the basic versions of the A300/A310. 1460 For LCA projects
financed after the entry into force of the "1992 Agreement" 1461 (the A330-200, A340-500/600, and
A380), the proportion of LA/MSF has represented a maximum of 33% of total development costs.1462
606. In terms of the disbursement of funds, some LA/MSF contracts provide for a disbursement
mechanism whereby funds are tran sferred in advance of actual development costs being incurred,
usually on the basis of projected expenditure. Sub sequently, when costs are actually incurred, they
are reviewed by the governments, and the funding am ounts adjusted to ensure that total borrowing

1455Panel Report, para. 7.372.
1456Panel Report, para. 7.372.
1457Panel Report, para. 7.525.
1458See Panel Report, footnote 2432 to para. 7.369 (referring to French A330-200 contract, Article 3;
French A340-500/600 contract, Article 3; French A380 contract, Article 3; German A380 contract, Article 5.3;
Spanish A340-500/600 contract, preamble, recital 9, clause 2; Spanish A380 contract, preamble, recital 4,
clause 2; and UK A380 contract, Article 5.6).
1459Panel Report, footnote 2431 to para. 7.369.
1460Panel Report, footnote 2431 to para. 7.369.
1461Supra, footnote 28.
1462Panel Report, para. 7.369.
WT/DS316/AB/R BCI deleted, as indicated [***]

does not exceed the level of development costs it was agreed would be financed.
1463 Other LA/MSF
contracts provide for a somewhat different dis bursement mechanism whereby payments up to the
agreed amounts are made only after actual costs have been incurred. 1464 In at least one case, it would
seem that funding was provided to Airbus for work before the relevant model was actually launched
and prior to the conclusion of the relevant intergovernmental agreement.
1465
607. In terms of repayment, most LA/MSF contr acts require that Airbus reimburse all funding
contributions, plus any interest at the agreed ra te, exclusively from revenues generated by deliveries
of the LCA model that is financed. 1466 Such repayments are made in the form of per-aircraft levies
and follow a pre-established repayment schedule. Repa yments may start with the delivery of the first
aircraft. In other instances, repayment begins onl y after Airbus has made a specified number of
aircraft deliveries. Once repayment begins, it is generally graduated on varying ascending scales,
meaning that repayments on the first aircraft deliveries are lower than repayments on later
deliveries.1467 Accelerated repayment provisions are expressly provided for under the German,
Spanish, and UK A380 LA/MSF contracts and the Spanish A340-500/600 LA/MSF contract. 1468
While most of the LA/MSF contracts require th e payment of royalties on revenues generated from
LCA deliveries made in excess of the number needed to secure repayment, some do not. When
royalties are called for, they are envisaged in diffe rent forms and over varyi ng periods of time. For
example, one LA/MSF contract calls for graduall y increasing royalty payments on deliveries made

1463See Panel Report, para. 7.373 and footnote 2445 thereto. The Panel refers, in particular, to the
French A380 contract, Article 3 and Annex 4; German A380 contract, Articles 4.2, 4.3, and 5.3; Spanish A380
contract, 3rd and 4th clauses; French A340-500/600 contract, Article 4 and Annex 4; Spanish A340-500/600
contract, 2nd and 3rd clauses; French A330-200 contract, Article 4 and Annex 4; French A330/A340 contract,
Article 4; Spanish 1988 A330/A340 contract, clause 4; French A320 contract, Article 3; and Spanish 1992
A320 contract, 1st clause. The Panel further noted the European Communities' assertion that the same
disbursement mechanism was applied in respect of the French A300 and A310 contr acts; German A330/A340,
A320, A310, and A300 contracts; and Spanish A300 and A310 contracts.
1464See Panel Report, para. 7.373 and footnote 2446 thereto. The Panel referred to the UK A380
contract, Article 5; UK A330/A340 contract, Article 2.2; and UK A320 contract, Article 2.2.
1465Panel Report, footnote 2439 to para. 7.370 (referring to French LA/MSF for the A320).
1466Panel Report, para. 7.374 and footnote 2448 thereto. The Panel also referred to the French A380
contract, Annex 2, Article 6; Spanish A380 contract, 7th clause; UK A380 contract, Article 8, Schedule 3;
French A340-500/600 contract, Article 6; Spanish A340-500/600 contract, 5th clause; French A330-200
contract, Article 6; 1994 A330/A340 Agreement, Article 8; 1991 A320 Agreement, Article 8; 1981 A310
Agreement, Article 9; and 1969 A300 Agreement, Article 7.
1467See Panel Report, para. 7.374 and footnote 2451 thereto. The Panel referred to the French A380
contract, Annex 2, Article 6; Spanish A380 contract, 7th clause; UK A380 contract, Schedule 3; French A340-
500/600 contract, Article 6; French A330-200 contract, Article 6; French A330/A340 contract, Article 6;
UK A330/A340 contract, Article 2.4; French A320 contract, Article 5; German A320 contract, Article 18;
1981 A310 Agreement, Article 9; and 1969 A300 Agr eement, Article 7. The European Communities asserted
that a similar graduated repayment structure was applied in respect of the Spanish A340-500/600, A330/A340,
and A320 LA/MSF contracts.
1468Panel Report, para. 7.667 (referring to German A380 contract (Panel Exhibit US-72 (BCI)),
section 8; Spanish A380 contract (Panel Exhibit US-73 (BCI)), 7th clause; UK A380 contract (Panel Exhibit
US-79 (BCI)), Article 5.9; and Spanish A340-500/600 contract (Panel Exhibit US-37 (BCI)), 5th clause).
BCI deleted, as indicated [***] WT/DS316/AB/R

after a certain number of sales. Another contract calls for royalty payments of a specified percentage
of the price of the aircraft sold on deliveries after a certain number.
608. Some LA/MSF contributions were provided to Airbus at no interest cost. In other cases,
LA/MSF contracts required the payment of interest. These were set at different levels, at times
through the application of different formulas.
1469
609. Before the Panel, the United States also challenged what it referred to as a "Launch Aid
Programme" as a "measure" distinct from individual grants of LA/MSF. The United States described
the content of the alleged LA/MSF Programme as cons isting of "the consistent, up-front provision by
the Airbus governments of a significant portion of the capital that Airbus needs to develop each new
LCA model through loans that are (a) unsecured, (b) repayable on a success-dependent basis (i.e.,
through per sale levies), (c) with the levy amounts gr eater for later sales than earlier sales (i.e., back-
loaded), and (d) with interest accruing at rat es below what the market would demand for the
assumption of similar risk." 1470 For the United States, differences in the elements contained in one
LA/MSF contract from another do not prevent the "Launch Aid Programme" from being sufficiently
precise to constitute a measure in its own right.1471
D. The EIB Loans
610. The United States challenged 12 loans provided by the EIB. These measures consisted of:
(i) a 2002 loan to EADS for research and development activities related to the A380; (ii) three loans
to Aérospatiale for the production of the Super Tr ansporteurs (1993), and for facilities and equipment
related to the A330/A340 (1988 and 1992); (iii) four loans to British Aerospace and/or BAE Systems
for the design, development, and manufacture of wing boxes for the A330/A340 (1990 and 1991), and
for the design and development of wings for the A320 (1988 and 1989); (iv) three loans to CASA for
the design and productions of various parts of th e A320 and A330/A340 (one in 1989, and two in
1990); and (v) a 1990 loan to Airbus GIE for research, design, and development of the A321.1472

1469Panel Report, para. 7.525.
1470Panel Report, para. 7.501 (referring to United States' response to Panel Question 3).
1471Panel Report, para. 7.501.
1472Panel Report, para. 7.717.
WT/DS316/AB/R BCI deleted, as indicated [***]

E. Research and Technological Development Funding
611. The United States challenged numerous instances of research and technological development
("R&TD") funding provided or committed to Airb us by: the European Communities (under the
Second, Third, Fourth, Fifth, and Sixth EC Fr amework Programmes); the French Government
(between 1986 and 2005); the German Government (under the Luftfahrtforschungsprogramm
(Aviation Research Programme) ("LuFo programme ")); the Spanish Government (under the Plan
Tecnológico Aeronáutico (Technological Plan for Aviation) ("PTA programme") and the Programa
de Fomento de la Investigación Técnica (Funding Programme for Technological Research) ("PROFIT
programme")); the UK Government (under the Civil Aircraft Research and Development Program
("CARAD programme"), which was later renamed the Aeronautics Research Programme ("ARP
programme"), and subsequently the Technology Pr ogramme); and three programmes run by the
Bavarian, Bremen, and Hamburg authorities. In most cases, the challenged funding measures took the
form of grants. However, in respect of the funding provided by the Spanish Government, the
challenged measures consisted of loans.
1473
1. The EC Framework Programmes
612. The relevant measures challenged by the United States consist of grants issued under five
successive programmes for R&TD funding by the European Communities, covering specific
four-year periods as follows: the Second EC Framework Programme (1987-1991); the Third
EC Framework Programme (1990-1994); the F ourth EC Framework Programme (1994-1998); the
Fifth EC Framework Programme (1998-2002); and the Sixth EC Framework Programme (2002-
2006). In respect of these Framework Programmes, th e Panel reviewed a series of Decisions of the
European Parliament and/or the Council of the European Union (previously, the Council of the
European Communities) ("EC Decisions"). The EC Decision establishing each Framework
Programme set out the programme's objectives but di d not indicate how funds authorized under the
programme could be accessed by individual applican ts. Instead, for each EC Framework Programme,
the detailed rules and methodologies for the distri bution of funds were left to the "specific
programmes" that were to be adopted for the purpo se of implementation. The "specific programmes"
under each Framework Programme were established through separate EC Decisions.1474

1473Panel Report, para. 7.1415.
1474Panel Report, paras. 7.1517-7-1519, 7.1526-7 .1528, 7.1536-7.1538, 7.1546-7.1548, and 7.1557-
7.1559.
BCI deleted, as indicated [***] WT/DS316/AB/R

613. The Second EC Framework Programme w as established by the Council of the
European Communities through EC Decision 87/ 516/Euratom EEC, dated 28 September 1987.
1475
The "specific programme" at issue—the BRITE /EURAM programme—was established by the
Council of the European Communities throug h EC Decision 89/237/EEC of 14 March 1989. 1476 This
EC Decision sets out in Annex IV an "indicative internal allocation" of nearly ECU 500 million
across five "Areas" of research, 7% of which w as allocated for the resear ch area entitled "Specific
activities relating to aeronautics". Annex I stipulat es that the type of research that would fall under
this heading consists of "pre-competitive resear ch in technological areas which are of primary
relevance to aeronautics (in particular aeroplanes a nd helicopters) and are not yet covered in other
programme areas". Annex I also identifies the followi ng four fields of focus in respect of aeronautics
research: "Aerodynamics"; "Acoustics"; "Airbor ne systems and equipment"; and "Propulsion
systems".1477
614. The Third EC Framework Programme wa s established by the Council of the
European Communities through EC Decision 90/221/Euratom EEC, dated 23 April 1990. 1478 T h e
"specific programme" at issue—the specific programme for Research and Technological
Development in the Field of Industrial and Ma terials Technologies (the "IMT 1991 programme")—
was established by the Council of the European Communities through EC Decision 91/506/EEC of
9 September 1991. 1479 This EC Decision sets out in Annex II an "indicative allocation" of over
ECU 663 million across three "Areas" of research, one of which is entitled "Aeronautics research"
(for which ECU 53 million is allocated). Annex I iden tifies six fields of focus: "Environment related
technologies"; "Technologies of aircraft opera tion"; "Aerodynamics and aerothermodynamics";
"Aeronautical structures and manufacturing technologies"; "Avionic system technologies"; and
"Mechanical, utility and actuation technologies". A nnex I also explains that "the aeronautical
technologies research that began with the BRITE/ EURAM programme will be continued taking
account of harmonization, standardization, safet y and environmental aspects". Additionally, the

1475Council Decision 87/516/Euratom EEC of 28 September 1987 concerning the framework
programme for Community activities in the field of research and technological development (1987 to 1991),
Official Journal of the European Communities, L Series, No. 302 (24 October 1987) 1 (Panel Exhibit EC-200).
1476Council Decision 89/237/EEC of 14 March 1989 on a specific research and technological
development programme in the field of industrial manufacturing technologies and advanced materials
applications (Brite/Euram) (1989 to 1992), Official Journal of the European Communities , L Series, No. 98
(11 April 1989) 18 (Panel Exhibit EC-195).
1477Panel Report, paras. 7.1518 and 7.1519.
1478Council Decision 90/221/Euratom EEC of 23 April 1990 concerning the framework programme for
Community activities in the field of research an d technological development (1990 to 1994), Official Journal of
the European Communities, L Series, No. 117 (8 May 1990) 28 (Panel Exhibit EC-201).
1479Council Decision 91/506/EEC of 9 September 1991 adopting a specific programme of research and
technological development in the field of industrial and materials technologies (1990 to 1994), Official Journal
of the European Communities, L Series, No. 269 (25 September 1991) 30 (Panel Exhibit EC-196).
WT/DS316/AB/R BCI deleted, as indicated [***]

programme is intended to support only "specific aer onautical research and applications"; general
aeronautics research will be covered by other research areas.
1480
615. The Fourth EC Framework Programme was estab lished by the European Parliament and the
Council of the European Union through EC Decision 1110/94/EC, dated 26 April 1994. 1481 T h e
"specific programme" at issue—the specific programme for Research and Technological
Development, including Demonstration, in the Fiel d of Industrial and Materials Technologies (the
"IMT 1994 programme")—was established by the Council of the European Union through
EC Decision 94/571/EC of 27 July 1994.
1482 This EC Decision sets out in Annex II an "indicative
breakdown" of ECU 1.617 billion across three "A reas" of research, one of which is entitled
"Technologies for transport means". Annex II also stipulates that 50% of the amount allocated to the
"Technologies for transport means"—ECU 230.5 million—is for the aeronautics sector. This is the
only sector to have been allocated a specific amount . Annex I explains that, "where the aircraft
industry is concerned, research will concern advanc ed technologies, in particular for environmental
protection, to reduce both noise and polluting emis sions, and as regards design, to reduce overall
energy consumption". Annex I also states that th e activities aim to improve safety, increase capacity
and cost-effectiveness of the air transport system, and facilitate production, operation, reliability, and
maintenance of future generations of aircraft and equipment.
1483
616. The Fifth EC Framework Programme was establis hed by the European Parliament and the
Council of the European Union through EC Decision 182/1999/EC, dated 22 December 1998.1484 The
"specific programme" at issue—the specific progr amme for Research, Technological Development
and Demonstration on Competitive and Sustaina ble Growth (the "CSG programme")—was
established by the Council of the European Union through EC Decision 1999/169/EC of
25 January 1999.
1485 This EC Decision sets out in Annex I an "indicative internal allocation" of

1480Panel Report, paras. 7.1527-7.1529.
1481Council Decision 1110/94/EC of 26 April 1994 concerning the fourth framework programme of the
European Community activities in the field of research and technological development and demonstration
(1994-1998), Official Journal of the European Communities , L Series, No. 126 (18 May 1994) 1 (Panel Exhibit
EC-202).
1482Council Decision 94/571/EC of 27 July 1994 adopting a specific programme for research and
technological development, including demonstration, in the field of industrial and materials technologies (1994-
1998), Official Journal of the European Communities , L Series, No. 222 (26 August 1994) 19 (Panel Exhibit
EC-197).
1483Panel Report, paras. 7.1537-7.1539.
1484Council Decision 182/1999/EC of 22 December 1998 concerning the fifth framework programme of
the European Community for research, technological de velopment and demonstration activities (1998 to 2002),
Official Journal of the European Communities, L Series, No. 26 (1 February 1999) 1 (Panel Exhibit EC-203).
1485Council Decision 1999/169/EC of 25 January 1999 adopting a specific programme for research,
technological development and demonstration on co mpetitive and sustainable growth (1998 to 2002), Official
Journal of the European Communities, L Series, No. 64 (12 March 1999) 40 (Panel Exhibit EC-198).
BCI deleted, as indicated [***] WT/DS316/AB/R

ECU 2.705 billion across three "Areas" of research, one of which is entitled "Key actions". Annex II
identifies four types of activities and associated budgets for the "Key actions" area, including
ECU 700 million for "New perspectives for aeronautics", which in turn identifies three fields of focus:
"Acquisition of critical technologies"; "Technology integration for new-generation aircraft"; and
"Operational efficiency and safety". Annex II al so explains that the overall goal of the "New
perspectives for aeronautics" research activity is to facilitate the development of aircraft and their
subsystems and components in order to foster the competitiveness of the European industry, including
small and medium enterprises ("SMEs"), while assuring the sustainable growth of air
transportation.
1486
617. The Sixth EC Framework Programme was established by the European Parliament and the
Council of the European Union through EC Decision 1513/2002/EC, dated 27 June 2002.1487 Annex I
describes a number of covered activities, most of which are of a general horizontal nature, but some of
which concern particular economic sectors—for example, "Aeronautics and Space". Annex II
provides that €1.075 billion is to be allocated to "Aeronautics and Space". Article 5 of the Decision
specifies that the Sixth Framework Programme is to be implemented through "specific programmes"
that "shall establish precise objectives and the de tailed rules for implementation". The "specific
programme" at issue—the specific programme for Integrating and Strengthening the
European Research Area (the "ISERA progra mme")—was established by the Council of the
European Union through EC Decision 2002/834/EC of 30 September 2002. 1488 Annex I provides an
explanation of four research priorities that may qu alify for funding through the "Aeronautics" element
of the "Aeronautics and Space" activity: "S trengthening Competitiveness"; "Improving
Environmental Impact with regard to Emissions"; "Improving Aircraft Safety"; and "Increasing
Operational Capacity and Safety of the Air Tran sport System". Annex II of the ISERA programme
also allocates as part of the "indicative breakdow n" an amount of €1.075 billion for projects falling
within the scope of the "Aeronautics and Space" activity.1489

1486Panel Report, paras. 7.1547-7.1549.
1487Council Decision 1513/2002/EC of 27 June 2002 concerning the sixth framework programme of the
European Community for research, technological developm ent and demonstration activities, contributing to the
creation of the European Research Ar ea and to innovation (2002 to 2006), Official Journal of the European
Communities, L Series, No. 232 (29 August 2002) 1 (Panel Exhibit EC-204).
1488Council Decision 2002/834/EC of 30 September 2002 adopting a specific programme for research,
technological development and demonstration: "Integra ting and strengthening the European Research Area"
(2002-2006) Official Journal of the European Communities , L Series, No. 294 (29 October 2002) 1 (Panel
Exhibit EC-199).
1489Panel Report, paras. 7.1558 and 7.1559.
WT/DS316/AB/R BCI deleted, as indicated [***]

2. R&TD Funding by the French Government

618. The United States challenged over €1.2 billion of grants budgeted by the French Government
between 1986 and 2005 for civil aeronautics R&TD ac tivities. Relying on extracts of seven French
Senate reports, the United States contended that French authorities budgeted €391 million in R&TD
funding to the French civil aeronautics sectors fo r the period 1986 to 1993, and €809 million for the
period 1994 to 2005. In evaluating these figures, the Panel relied in part on a document by the
Direction des Programmes Aérona utiques et de la Coopération (the "DPAC")—the authority that
administered the French Government funding programmes—and which provided a project-by-project
breakdown of French Government R&TD fundi ng to all recipients during this period. 1490 T h e
European Communities explained that the challe nged R&TD programmes were financed by the
Ministry of Transport, and administered by the DPAC.1491
3. R&TD Funding by German Authorities
619. The United States presented claims against R&TD measures of both federal and sub-federal
authorities in Germany. In respect of German fe deral authorities, the United States claimed that the
German Government provided €217 million to Airbus for civil aeronautics r esearch under the LuFo I
(1995-1998), LuFo II (1998-2002), and LuFo III (2003-2007) programmes.1492 The United States also
challenged grants from three German sub-federal authorities for LCA-related R&TD projects in
which Airbus participated. The Bavarian Govern ment has, since 1990, provided Airbus with R&TD
grants under various civil aeronautics programmes, including the Offensive Zukunft Bayern I
(Offensive Future Bavaria I) (established in 1995), the Offensive Zukunft Bayern II (Offensive Future
Bavaria II) (established in 1996), and the Bayerisches Luftfahrtforschungsprogramm
(Bavarian Aviation Research Programme) (established in 2000).
1493 In Bremen, the regional
government provided a total of €11 million in grants to Airbus for aeronautics-specific research under
the Airbus Materials and System Technology I and II Programmes. 1494 The government of Hamburg
provided Airbus with aeronautics- specific R&TD grants under the Hamburger
Luftfahrtforschungsprogramm (Aviation Research Programme).1495

1490Panel Report, paras. 7.1467-7.1473.
1491European Communities' first written submission to the Panel, para. 1277.
1493Panel Report, para. 7.1459.
1494Panel Report, para. 7.1461.
1495Panel Report, para. 7.1465.
BCI deleted, as indicated [***] WT/DS316/AB/R

4. R&TD Funding by the Spanish Government

620. The United States challenged R&TD funding under two Spanish Government loan
programmes. The United States asserted that, between 1993 and 2003, the Spanish Government
provided Airbus with R&TD loans under two phas es of the PTA programme: covering the period
1993 to 1998 (PTA I); and th e period 1999 to 2003 (PTA II).1496 The United States also asserted that
the Spanish Government provided Airbus with R&TD loans amounting to over €60 million under two
phases of the PROFIT programme, first established in 2000. 1497 The European Communities
explained that the PROFIT programme was managed by the Ministry for Education and Science and
the Ministry for Industry, Tourism and Trade, a nd is implemented under an umbrella programme,
known as the Plan Nacional de Investigación Científica, Desarrollo e Innovación Tecnológica.1498
5. R&TD Funding by the UK Government
621. The United States also challenged LCA-related research grants that, between 1992 and 2005,
the UK Department of Trade and Industry agreed to provide to Airbus under the CARAD programme,
and subsequently the ARP and Technology programmes.1499
F. Infrastructure and Infrastructure-Related Grants
622. The United States challenged infrastructure and in frastructure-related grants provided by the
Governments of France, Germany, Spain, and the United Kingdom. The United States brought claims
against the provision of certain infrastructure, cons isting of: the Mühlenberger Loch industrial site
near Hamburg; the lengthened runway at the Br emen airport and related noise-reduction measures;
and the provision of the Aéroconstellation industrial site in Toulouse and associated facilities and road
improvements related to the site. The United States also challenged a series of infrastructure-related
regional grants in Germany, Spain, and Wales.
1. The Mühlenberger Loch Industrial Site
623. In 2000, the City of Hamburg, Germany, unde rtook to turn wetlands in the Mühlenberger
Loch and Rüschkanal, adjacent to Airbus' existing f acilities in Finkenwerder, into usable land. Work
on draining and filling the land bega n in February 2001, and was carried out in stages. The City of
Hamburg built new dykes and upgraded the height of dykes around the existing Airbus facility to

1496Panel Report, para. 7.1474.
1497Panel Report, para. 7.1476.
1498European Communities' first written submission to the Panel, paras. 1317 and 1319.
1499Panel Report, para. 7.1481.
WT/DS316/AB/R BCI deleted, as indicated [***]

provide flood protection for the reclaimed land. Hamburg also constructed special purpose facilities
on the reclaimed land, consisting of: (i) a quay fac ility; (ii) a sluice and pump building; (iii) a
drainage ditch; (iv) a roll-on-roll-off facility; a nd (v) a sternfender. The United States submitted, on
the basis of publicly available information, that the Hamburg authorities invested €751 million in the
creation and development of the site, including the land reclamation, dykes, and special purpose
facilities. The European Communities argued th at the aggregate cost of these measures was
approximately €694 million, asserting that the figure cited by the United States for this work was an
outdated estimate.
1500
624. The City of Hamburg—through Projektierungs gesellschaft Finkenwerder GmbH & Co. KG
("ProFi")1501—leases the reclaimed land and special purpose facilities to Airbus Germany. The lease
agreement established an annual rent of €3.60 per s quare meter, to be adjusted annually on the basis
of changes in the German consumer price index. As the reclaimed land was subject to settling, and
thus was not immediately fully usable by Airbus Ge rmany, an initial reduction in the rent was agreed,
with the rent to be increased to the full am ount of €5,156,588 per a nnum once the land fully
settled.1502 The City of Hamburg—again through ProF i—and Airbus Germany also concluded four
lease agreements for the special purpose facilities with a term of 20 years. According to the
European Communities, the amount of rent was set to provide the City of Hamburg with a return of
6.5% on its investment in each of the facilities. The annual rent over the 20-year period for the
special purpose facilities was €5,619,200, also to be adjusted in line with inflation.
1503
2. The Bremen Airport Runway Extension
625. The European Communities maintained that Germ an authorities require a safety margin of
300 meters at both ends of commerc ial runways. At the Bremen airport, this requirement was
implemented by shortening the usable length of th e runway. In May 1988, the City of Bremen
authorized an extension of the runway by 300 mete rs at either end. Between 1989 and 1990, the City
of Bremen extended the airport runway as authori zed—from its then existing length of 2,034 meters,
to 2,634 meters—such that only 2,034 meters of the runway is available for general aviation use. The
City of Bremen also undertook certain noise-reducti on measures. With the exception of emergencies,

1500Panel Report, para. 7.1051.
1501The City of Hamburg set up a company, Realisierungsgesellschaft GmbH, for the management of
the land reclamation project and the special purpose facilities. On completion of the project, Hamburg
transferred ownership of the land and facilities to Pr oFi, a government-owned en tity and titleholder of the
properties. ProFi and Airbus Germany entered into a se ries of lease agreements for the land and the special
1502Panel Report, para. 7.1052.
1503Panel Report, para. 7.1053.
BCI deleted, as indicated [***] WT/DS316/AB/R

use of the entire length of the airport runway, in cluding the 600 meters by which the runway was
extended, is permitted only for flights transporting Airbus wings from Bremen.
1504 The cost of the
runway extension and noise-reduction measures was borne by the City of Bremen. The United States
asserted that the City of Bremen paid DM 40 million to extend the runway and a further
DM 10 million for noise-reduction measures, both figur es of which were disputed by the European
Communities.1505
3. The Aéroconstellation Industrial Site
626. In 1999, French Government authorities authoriz ed the development of an industrial site
adjacent to the Toulouse-Blagnac airport dedicated to aeronautical activities. This site, known as the
Aéroconstellation industrial s ite, was established as a " zone d'aménagement concertée " ("ZAC"), a
zoning designation under French law pursuant to wh ich public authorities buy, improve, and sell land
for economic development. The development of th e Aéroconstellation site required the conversion of
agricultural land to industrial use, consisting of the creation of drainage, sewage, and water circulation
systems, along with fencing, fire protection, landscaping, and lighting. In addition, certain specialized
facilities—known as " équipement d'intérêt général " ("EIG") facilities—particularly suited for
aeronautical activities were created, consisting of ta xiways and roads on the site, aircraft parking
areas, underground technical galleries, and service areas.1506
627. After the Aéroconstellation site was prepared, the government-established company charged
with implementing the project—the Société d'équipement Toulouse Midi Pyrénées ("SETOMIP")—
sold all but 11 hectares of the land to different companies involved in the aeronautical industry,
including those involved with the development and production of the A380 aircraft. Purchasers of the
land included Airbus France, Air France Industri es, Société industrielle aéronautique du Midi
("SIDMI"), CUS-Elyo, Exxon Mobil, and STTS. All the purchasers are involved with different
aspects of the construction, assembly, testing, and ma intenance of aircraft, and all paid the same price
per square meter for the differently sized plots pur chased. In addition, an association of users was
created—the Association foncière urbaine libre ("AFUL")—comprising all the companies that bought
land at the Aéroconstellation site. The EIG facili ties were leased by Toulouse authorities to the
AFUL. Only AFUL members have access to the EI G facilities, and each member of the AFUL pays
rent for the EIG facilities on the basis of its use ther eof. During this time, French authorities also
undertook the improvement of several roads around the Aéroconstellation site that link the site to the

1504Panel Report, para. 7.1100.
1505Panel Report, para. 7.1101.
1506Panel Report, paras. 7.1137 and 7.1138.
WT/DS316/AB/R BCI deleted, as indicated [***]

itinéraire à grand gabarit ("IGG"), an extra-wide highway that enables Airbus to transport A380
components manufactured elsewhere from the French coast to Toulouse.
1507
4. Regional Infrastructure-Related Grants
628. The United States also challenged a series of regional infrastructure-related grants in
Germany, Spain, and Wales. These consist of a grant by the German Land of Lower Saxony for the
expansion of Airbus' Nordenham facility; a gran t by the Welsh Government for Airbus' Broughton,
Wales site; and grants by Spanish local and regi onal authorities for the expansion and modernization
of the Airbus and EADS plants in Puerto de Santa Maria, Illescas, Puerto Real, Sevilla, and
La Rinconada.1508
G. German and French Restructuring Measures
629. The United States challenged before the Panel certain restructuring measures by the German
and French Governments. Concerning the restructuring of Deutsche Airbus, the United States
challenged the acquisition by the German Govern ment, through the govern ment development bank
Kreditanstalt für Wiederaufbau (Credit Agency fo r Reconstruction) ("KfW"), of the 20% equity
interest in Deutsche Airbus in 1989, and the s ubsequent sale of that interest to Messerschmitt-
Bölkow-Blohm GmbH ("MBB") in 1992. The Un ited States also challenged a 1998 agreement in
which the German Government agreed to accept a payment of DM 1.75 billion from Deutsche Airbus
to settle certain outstanding claims following the r estructuring of Deutsche Airbus. The United States
argued that the total accumulated principal amount of debt that Deutsche Airbus owed the German
Government at the time of the 1998 transaction was at least DM 9.4 billion, and that the 1998
transaction should therefore be characterized as "debt forgiveness" in the amount of DM 7.7
billion.
1509
630. The United States also challenged certain equity infusions made by the French Government in
Aérospatiale, including four capital investment s between 1987 and 1994. In 1987, the French
Government made a capital investment in the amount of FF 1.25 billion to Aérospatiale. The French
Government made a further capital investment of FF 1.25 billion to Aérospatiale in 1988. In 1992,
Crédit Lyonnais, which was at that time controlled by the French Government, acquired a 20% equity
interest in Aérospatiale. Crédit Lyonnais subscribed to FF 1.4 billion in newly issued Aérospatiale
shares, as well as acquired existing Aérospatiale sh ares from the French Government, in exchange for

1507Panel Report, paras. 7.1139 and 7.1140.
1508Panel Report, para. 7.1010.
1509Panel Report, paras. 7.1304-7.1308.
BCI deleted, as indicated [***] WT/DS316/AB/R

the issuance to the French Government of appr oximately 2% of Crédit Lyonnais' share capital.
In 1994, the French Government made a further capital investment of FF 2 billion to Aérospatiale.
1510
631. In addition, the United States argued that the 1998 transfer by the French Government of its
45.76% equity interest in Dassault Aviation to Aérospatiale was a specific subsidy within the meaning
of Articles 1 and 2 of the SCM Agreement. In 1978, the French Government acquired a 45.76%
equity interest in Dassault Aviation, a previously privately held manufacturer of military, regional,
and business jets. The French Government also acquired the right to exercise 55% of the voting rights
of the company by virtue of double voting rights that attached to certain of its shares. On
30 December 1998, the French Government transfer red its 45.76% interest in Dassault Aviation to
Aérospatiale in exchange for new shares of Aérospatiale to be issu ed at a later date following the
fixing of an exchange ratio by a panel of independe nt experts. That panel delivered its report on 19
March 1999, approving the contribution of the Dassau lt Aviation shares to Aérospatiale at an amount
equal to their net book value of FF 2.658 billion. On the basis of this report, on 6 May 1999,
Aérospatiale issued 9,267,094 new shares to the Fren ch Government (based on an exchange ratio of
two Aérospatiale shares for each Dassault Aviation share).
1511 When the French Government
transferred its 45.76% interest in Dassault Aviati on to Aérospatiale, it relinquished its double voting
rights that had attached to certain of its shares in Dassault Aviation.1512
632. The French Government's transfer of its inter est in Dassault Aviation to Aérospatiale was a
preliminary step in the planned consolidation of the French aeronautical, defence, and space industries
through the combination of Aérospatiale and MHT. Following the creation of the newly combined
entity, Aérospatiale-Matra, the French Government sold a portion of its shares in this entity in a
public offering such that, following the offering, it held approximately 48% of the shares in
Aérospatiale-Matra.
1513 A private company, Lagardère SCA, held 33% of Aérospatiale-Matra and
exercised control over Aérospatiale-Matra jointly with the French Government. The remaining shares
were held by the public and Aérospatiale-Matra employees.1514

1510Panel Report, para. 7.1324.
1511Panel Report, para. 7.1382.
1512Panel Report, para. 7.1384.
1513Panel Report, para. 7.1383.
1514Panel Report, footnote 4551 to para. 7.1383.
WT/DS316/AB/R BCI deleted, as indicated [***]

V. Preliminary Issues
A. The Panel's Terms of Reference
633. We begin by examining the European Union's appeal of the Panel's findings that two sets of
R&TD measures were within the Panel's terms of reference.
1515 The European Union objects to the
United States' claim that it had challenged, in sec tion (6)(d) of its request for the establishment of a
panel1516, certain loans provided pursuant to a programme of the Spanish Government running
between 2000 and 2007, known as the PROFIT programme. Section (6)(d) expressly refers to "loans
and other financial support provided under the Plan Tecnológico Aeronáutico I and the Plan
Tecnológico Aeronáutico II" (together, the "PTA programme"), but does not refer to the PROFIT
programme by name. The European Union also objects to the United States' claim that it had
challenged, in section (6)(e) of its panel request , certain R&TD grants provided by the French
Government between 1986 and 2005.
1. The Panel's Findings
634. In a request for preliminary rulings from the Panel, the European Communities maintained
that the United States' challenge to certain French R&TD grants was outside the Panel's terms of
reference because the measures were not adequately identified in the United States' panel request, in
accordance with Article 6.2 of the DSU. 1517 The European Communities argued that the reference, in
section 6(e) of the United States' panel request, to funding since 1986 could relate to any funding
provided by French authorities over a 20-year pe riod, and that the reference to the "French
government, including regional and local authoriti es", could cover any of the hundreds, if not
thousands, of authorities in France.1518
635. The Panel considered that the language of th e United States' panel request could not be
construed as broadly as the European Communities clai med, especially when considered in the light
of certain circumstances raised by the United Stat es. The Panel thus concluded that section (6)(e)
"considered as a whole and in light of attendant ci rcumstances, identifies the measures at issue in a

1515The United States challenged a series of what it termed "research, development, and demonstration"
or "R&D" measures. (Request for the Establishment of a Panel by the United States, WT/DS316/2, section (6))
The Panel employed the term "research and technological development" or "R&TD" measures. We also use the
latter term in this Report.
1516WT/DS316/2.
1517Panel Report, para. 7.138.
1518Panel Report, para. 7.147.
BCI deleted, as indicated [***] WT/DS316/AB/R

manner sufficient to present the problem clearly"
1519, and accordingly rejected the
European Communities' request for a preliminary ruling in respect of this issue.1520
636. In its first written submission to the Panel, the European Communiti es submitted that the
United States' challenge against the Spanish Gove rnment loans provided pursuant to the PROFIT
programme was also outside the Panel's terms of reference because the measures at issue were not
adequately identified in the United States' panel request, in accordance with Article 6.2 of the
DSU.1521 The Panel considered that section (6)(d) of the United States' panel request indicated "the
provider ('the Spanish government, including regiona l and local authorities'); the timing ('since
1993'); the purpose ('for civil aeronautics-related R&D projects'); and the subject ('in which Airbus
participated'), of the funding at issue."
1522 The Panel remarked that the focus of section (6)(d) of the
United States' complaint was therefore not all Spanish Government funding to Airbus for LCA-related
activities, but rather only that funding which wa s provided "since 1993" and "for civil aeronautics-
related R&D projects". The Panel also considered it clear from the use of the word "including" that
the United States' challenge was not limited to loans under the progra mmes referred to in
section (6)(d) of its panel request.1523
637. The Panel also took note of events that transpir ed after the United States' panel request. The
Panel noted that the European Communities had rece ived questions from the United States in respect
of loans under the PROFIT programme during the Annex V process. The Panel further noted that,
when the European Communities submitted its request for preliminary rulings, the
European Communities did not object to the United States' challenge against the PROFIT programme
measures. The Panel found that, "when consider ed as a whole and in light of the attendant
circumstances, ... Section (6)(d) of the United Stat es panel request presents the United States' claim
against the PROFIT loans in a manner that is sufficiently clear to meet the standards of Article 6.2 of
the DSU."
1524

1519Panel Report, para. 7.150.
1520Panel Report, para. 7.158.
1521Panel Report, para. 7.1418.
1522Panel Report, para. 7.1420.
1523Panel Report, para. 7.1420.
1524Panel Report, para. 7.1422.
WT/DS316/AB/R BCI deleted, as indicated [***]

2. The Panel's Assessment of the Panel Request

638. Article 6.2 of the DSU provides, in relevant part:
The request for the establishment of a panel shall be made in writing.
It shall indicate whether 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.
639. Two requirements under Article 6.2 are central to establishing a panel's jurisdiction—namely
the identification of the specific measures at issue, and the provision of a brief summary of the legal
basis of the complaint sufficient to present the problem clearly. Together these elements comprise the
"matter referred to the DSB", whic h forms the basis for a panel's te rms of reference under Article 7.1
of the DSU.
1525 The Appellate Body has previously noted that the panel request serves two essential
purposes. First, it defines the scope of the dispute. Second, it serves the due process objective of
notifying the respondent and third parties of the nature of the complainant's case.1526
640. In our view, the requirement that a complain ant identify in its panel request the specific
measures at issue thus assists in determining the sc ope of the dispute in respect of those measures,
and, consequently, establishes and delimits the jurisdiction of the panel. In so doing, the panel request
fulfils the objective of providing no tice to the respondent and the third parties regarding the nature of
the dispute. This due process objective is not c onstitutive of, but rather follows from, the proper
establishment of a panel's jurisdicti on. The principal task of the adjudicator is therefore to assess
what the panel's terms of reference encompass, and whether a particular measure or claim falls within
the panel's remit.
641. As the Appellate Body has stated, determini ng whether a panel request is "sufficiently
precise"1527 so as to conform to Article 6.2 requires a panel to scrutinize caref ully the panel request,
read as a whole, and on the basis of the language used. 1528 An assessment of whether a complaining
party has identified the specific measures at issue may depend on the particular context in which those

1525See Appellate Body Report, Guatemala – Cement I, paras. 72 and 73; Appellate Body Report, US –
Carbon Steel, para. 125; Appellate Body Report, US – Continued Zeroing, para. 160; Appellate Body Report,
US – Zeroing (Japan) (Article 21.5 – Japan) , para. 107; and Appellate Body Report, Australia – Apples ,
para. 416.
1526See Appellate Body Report, US – Carbon Steel , para. 126 (referring to Appellate Body Report,
Brazil – Desiccated Coconut, p. 22, DSR 1997:I, 167, at 186). See also Appellate Body Report, EC – Chicken
Cuts, para. 155; and Appellate Body Report, US – Zeroing (Japan) (Article 21.5 – Japan), para. 108.
1527Appellate Body Report, EC – Bananas III , para. 142; Appellate Body Report, US – Zeroing
(Japan) (Article 21.5 – Japan), para. 108.
1528Appellate Body Report, US – Carbon Steel , para. 127; Appellate Body Report, US – Oil Country
Tubular Goods Sunset Reviews , paras. 164 and 169; Appellate Body Report, US – Continued Zeroing ,
BCI deleted, as indicated [***] WT/DS316/AB/R

measures exist and operate. Such an exercise invol ves, by necessity, a case-by -case analysis since it
may require examining the extent to which those measures are capable of being precisely identified.
642. The Appellate Body has also stated that a party's submissions during panel proceedings
cannot cure a defect in a panel request.
1529 We consider this principle paramount in the assessment of
a panel's jurisdiction. Although subsequent events in panel proceedings, including submissions by a
party, may be of some assistance in confirming th e meaning of the words used in the panel request,
those events cannot have the effect of curing the failings of a deficient panel request. In every
dispute, the panel's terms of re ference must be objectively determined on the basis of the panel
request as it existed at the time of filing.
643. Bearing this in mind, we turn to examine the participants' arguments concerning the Panel's
terms of reference in this dispute. Section (6) of the United States' panel request, in its entirety, reads
as follows:
The provision by the EC and the member States of financial
contributions for aeronautics-related research, development, and
demonstration ("R&D"), undertaken by Airbus, whether alone or
with others, or in any other way to the benefit of Airbus, including:
(a) EC funding for civil aeronautics-related R&D projects under
the Second (1987-1991), Third (1990-1994), Fourth (1994-1998),
Fifth (1998-2002) and Sixth (200 2-2006) EC Framework Programs
in which Airbus participated.
(b) Funding from the German federal government and sub-
federal entities for civil aeronautics-related R&D projects in which
Airbus participated, including:
(i) federal government funding as set forth in the
most updated version of the government's Förderkatalog
database, including funding unde r the federal aeronautics
research programs Luftfahrtforschungsprogramm 1 (1995-
1998), Luftfahrtforschungsprogramm 2 (1998-2002), and
Luftfahrtforschungsprogramm 3 (2003-2007);
(ii) the regional Bremen Airbus Materials & System
Technology Centre Bremen (AMST) (2000-2002) and the
Airbus Materials & System Technology Centre Bremen II
(AMST) (2002-2006);
(iii) the regional Bavaria "Hightechoffensive Bayern"
program (1999-2003); and

1529Appellate Body Report, EC – Bananas III , para. 143; Appellate Body Report, US – Carbon Steel ,
para. 127.
WT/DS316/AB/R BCI deleted, as indicated [***]

(iv) the regional Hamburg Luftfahrtforschungsprogramm
(2001-2005).
(c) Funding from the government of the United Kingdom since
1992 for civil aeronautics-related R&D projects in which Airbus
participated, including funding under the Civil Aircraft Research and
Development Program (CARAD) and the Technology & Strategy
Program.
(d) Funding from the Spanish government, including regional
and local authorities, since 1993 for civil aeronautics-related R&D
projects in which Airbus participated, including loans and other
financial support provided under the Plan Tecnológico Aeronáutico I
and the Plan Tecnológico Aeronáutico II.
(e) Funding from the French government, including regional and
local authorities, since 1986 for civil aeronautics-related R&D
projects in which Airbus participated.
(f) The provision by government-controlled and financed
research institutions of civil aeronautics R&D-related goods or
services to Airbus and/or funding for civil aeronautics-related R&D
projects in which Airbus participated, including by the German
Deutsches Zentrum für Luft- und Raumfahrt ("DLR"), by the UK
Defence Evaluation and Research Agency ("DERA") and its
successor Qinetiq, and by the Fren ch Office National des Études et
Recherche Scientifique ("CNRS"), and the Centre National de la
Recherche Technologique ("CNRT").
644. At the oral hearing, the participants expressed their agreement that the challenged Spanish
and French R&TD measures fall within the general descriptions set out in sections (6)(d) and (6)(e),
respectively, but differed as to whether the descrip tion in each of these subparagraphs is sufficiently
precise to identify the specific measures at issu e, as required by Article 6.2 of the DSU.
Sections (6)(b) through (6)(e) describe R&TD f unding that was provided by each of the member
States involved in this dispute—France, Germany, Spain, and the United Kingdom.
1530 I n e a c h
subparagraph, the United States set out a genera l description of the R&TD funding it sought to
challenge by identifying the member State and leve l(s) of authority, the relevant time periods over
which the challenged funding was provided, and that the funding was for "civil aeronautics-related
R&D projects in which Airbus participated". We also note that, for three of these subparagraphs, the
general description of funding provided by each member State is accompanied by names of the

1530We note that section (6)(a) refers to R& TD funding provided pursuant to the European
Communities-wide EC Framework Programmes. The European Union's appeal in respect of these measures is
addressed in Part VII.A of this Report. Section (6)(f) identifies R&TD funding from research institutions that
are government controlled and financed, but a claim in respect of that funding was not pursued by the
United States before the Panel in this dispute.
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particular programmes pursuant to which the challe nged R&TD was provided. Thus, for example,
section (6)(b) states that the general description for German R&TD funding includes funding granted
pursuant to three successive programmes of the federal Luftfahrtforschungsprogramm, as well as
named programmes by regional authorities in Bava ria, Bremen, and Hamburg. Section (6)(c)
identifies that the general description for UK R&TD funding includes funding under the Civil Aircraft
Research and Development Program and the Technology & Strategy Program. As we have already
noted above, section (6)(d) expressly indicates that the general description of Spanish R&TD funding
includes loans provided under the PTA programme. Section (6)(e), relating to the French R&TD
measures, does not list any names of particular funding programmes.
645. As we have noted, the question of whether a panel request is "sufficiently precise" in
identifying the specific measures at issue is to be objectively determ ined through careful scrutiny of
the panel request and consideration of the particular context in which such measures exist. We note
that, in the circumstances of this case, we are presented with the particular question of whether a more
general description of measures in the United States ' panel request is nevertheless sufficiently precise
as to the particular measu res the United States sought to challenge. Ordinarily, a general description
akin to that set out in sections (6)(d) and (6)(e) w ould suggest a lack of specificity in identifying the
measures subject to challenge (apart from th e R&TD loans provided pursuant to the PTA
programme). In these circumstances, however, we mu st give further consideration to the context in
which the United States specified, and was capable of specifying, information identifying these
measures. Reading together the subparagraphs of section (6) set out above, we understand the terms
of the panel request to indicate that, where a part icular programme could be identified pursuant to
which the challenged R&TD funding was granted, that information was included in the United States'
panel request. We therefore consider that, in the circumstances of this case, where the United States
framed its panel request by describing in genera l terms certain R&TD funding and by naming the
particular programmes under which R&TD grants or loans by particular member States were
provided, scrutiny of the United States' panel request must take into account the extent to which the
relevant funding programmes were capable of be ing identified by name or by other specifying
information.
646. We do not consider that the United States' panel request can be understood as having
identified loans provided pursuant to the Spanish PROFIT programme. Section (6)(d) contains a
description of R&TD funding from the Spanish G overnment since 1993 for civil aeronautics-related
projects in which Airbus participated, coupled with the identification of a specific funding programme
in the form of the PTA programme. Like the PTA programme, the PROFIT programme was
WT/DS316/AB/R BCI deleted, as indicated [***]

authorized through official decrees of the Spanish Government.
1531 The PROFIT programme was first
established in 2000 by a Spanish Government decree, which identified the PROFIT programme in its
title and expressly referred in the text of the decree to funding for aeronautics research. 1532 However,
although information concerning the PROFIT progra mme was readily available in the public domain
at the time of the panel request, the United States made no mention of the programme in its request.
We do not consider that subsequent reference by the United States to the PROFIT programme during
the Annex V process, or in its written submissions befo re the Panel, cures the lack of specification in
the panel request. It follows also that, by reason of the lack of specification of the PROFIT
programme by name, the European Communities and the third parties were consequently not on
notice that the programme was part of the compla inant's case. On the basis of the above, we
determine that the PROFIT programme was outside the Panel's terms of reference.
647. With respect to the French R&TD funding me asures, we note that section (6)(e) identified
R&TD funding from the French Government, includi ng regional and local authorities, since 1986 for
civil aeronautics-related R&TD projects in which Air bus participated. In other words, these funding
measures are identified by references to the fundin g authority, time period, and area of support.
Given the specific circumstances of these measures, we do not consider that the United States could
have provided additional specifying information concerning the name of the funding programme, as it
had in sections (6)(b), (6)(c), and (6)(d) of its panel request. Both participants refer on appeal to the
public information contained in a series of Fr ench Senate reports summarizing R&TD funding
provided to aeronautics research between 1986 and 2 005—reports that were listed in the Statement of
Available Evidence attached to the Un ited States' request for consultations
1533, and to which the Panel
referred to establish the existence and amounts of the French R&TD funding challenged by the
United States.1534 Although these reports indicate an allocation of funding to aeronautics research
pursuant to France's budgetary process, both particip ants acknowledge that they do not identify the
name of a particular funding programme. 1535 At the oral hearing, the European Union referred to

1531Panel Report, para. 7.1479.
incluido en el Plan Nacional de Investigación Científica, Desarrollo e Innovación Tecnológica (2000-2003) ,
Boletín Oficial del Estado , No. 59 (9 March 2000) 9855 (Panel Exhibit US-349). See also United States' first
written submission to the Panel, para. 697.
1533WT/DS316/1.
1534Panel Report, para. 7.1471.
1535European Union's appellant's submission, para. 1230: "The listed documents are budgetary reports
by the French Senate, which do not specify measures either by reference to a programme or to an entity
providing funding"; United States' appellee's submission, para. 481: The French Senate reports "established
that the French government subsidized Airbus research … {but} did not indicate how, under what program, or
by whom".
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several documents containing general information a bout French funding for civil aviation research,
but it was not able to identify in these or other documents the name of the funding programme.
1536
648. Whether a measure can be identified in conformity with the requirements of Article 6.2 may,
as is the case here, depend on the extent to which th at measure is specified in the public domain. We
do not understand Article 6.2 to impose a standard that renders it more difficult to challenge a
measure simply because information in the public domain concerning that measure is of a general
character. Additionally, the lack of specification in the public domain should not shield this particular
measure from challenge simply because greater detail in the form of, for example, an identifiable
programme name was publicly available in respect of the other measures specified in sections (6)(b),
(6)(c), and (6)(d). We note that, even after revi ewing the Panel record in this case, and questioning
the participants at the oral hearing, it is still not cl ear to us what additional degree of specificity could
reasonably have been expected regarding the iden tification of R&TD funding allocated through the
French Government's budgetary process. Taking in to account the public information that existed
regarding the French R&TD funding at the time of the United States' panel request, we consider that
the description set out in section (6)(e) was suffici ently precise to establish that the French R&TD
funding challenged by the United States was within the Panel's terms of reference.
649. For the foregoing reasons, we reverse the Panel's finding, in paragraph 7.1422 of the Panel
Report, that the R&TD loans provided pursuant to the Spanish PROFIT programme were within the
Panel's terms of reference, and we uphold the Panel's finding, in paragr aph 7.158 of the Panel Report,
that the French R&TD grants were within the Panel's terms of reference.
B. The Temporal Scope of Article 5 of the SCM Agreement
650. Before the Panel, the European Communiti es argued that the temporal scope of the
SCM Agreement must be determined in accordance with Article 28 of the Vienna Convention, which
sets out the general rule that treaty provisions do not apply retroactively. 1537 According to the
European Communities, consistent with the princi ple of non-retroactivity embodied in Article 28 of
the Vienna Convention, Article 5 of the SCM Agreement applies to subsidies that were granted after
1 January 1995, while subsidies granted prior to 1 January 1995 fall outside the temporal scope of

1536The European Union provided, for example, a 2003 WTO notification submitted by the
European Communities pursuant to Article XVI:1 of the GATT 1994 and Article 25 of the SCM Agreement
(G/SCM/N/95/EEC/Add.5, 15 December 2003). That doc ument listed France's Annual Finance Law, and the
Arrangement approved by the European Commission (No. 53/96), but did not identify a name for the funding
programme or the French agency or agencies that administered the programme.
1537Panel Report, para. 7.19 (referring to European Communities' updated Request for Preliminary
Rulings, paras. 10-13).
WT/DS316/AB/R BCI deleted, as indicated [***]

Article 5.
1538 On this basis, the European Communities requested that the Panel find that "all ...
actionable subsidies granted by the European Co mmunities before 1 January 1995 are excluded from
the temporal scope of the proceedings".1539
651. In a communication to the parties and the third parties dated 22 December 2006, the Panel
explained that it was "not convinced" that "subsidies granted" or "brought into existence" prior to
1 January 1995 cannot fall within the scope of Article 5 of the SCM Agreement.1540 Therefore, the
Panel requested the parties and third parties "to pr oceed on the understanding that all of the alleged
measures challenged by the United States continue to fall within the scope of {the Panel}
proceeding."1541 Subsequently, on 11 July 2007, the Panel issued a preliminary ruling in which it
rejected the European Communities' request. 1542 The Panel explained that, inter alia , "Article 5
imposes an obligation on Members not to cause adve rse effects to the interests of other Members
through the use of subsidies as defined in Article 1" 1543, and characterized this as "an obligation not to
cause certain results through a speci fic causal pathway, rather than an obligation not to engage in
certain conduct."1544 According to the Panel, it was the obligation not to cause, through the use of any
subsidy referred to in paragraphs 1 and 2 of Article 1, adverse effects to the interests of other
Members that was to be interprete d consistently with the principle of non-retroactivity reflected in
Article 28 of the Vienna Convention.1545 Based on its review of dictionary definitions for the terms
"act" and "situation", and noting that the Appellate Body has described the concept of "situation" in
Article 28 as suggesting "something that subsists and continues over time" 1546, the Panel considered
that "Article 5 addresses a set of circumstances or state of affairs (i.e., a 'situation') rather than specific
acts of a Member." 1547 In addition, the Panel found that "there are significant contex tual factors that

1538Panel Report, para. 7.19. In particular, the European Communities argued that the following groups
of measures fall outside the temporal scope of the SCM Agreement: (i) LA/MSF committed and paid prior to
1 January 1995; (ii) EIB loans to EADS and the Airbus companies that were provided in full prior to
1 January 1995; (iii) the extension of the runway at the Bremen Airport, which occurred in 1988 and 1989; and
(iv) share transfers and equity infusions that took place before I January 1995. In addition, in relation to R&TD
funding, the European Communities argued "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 grants or
disbursements made prior to 1 January 1995 are outside the temporal scope of Article 5 and should be excluded
from these proceedings." (Ibid., footnote 1776 to para. 7.19 (original underlining))
1539Panel Report, para. 7.15(a).
1540Panel Report, para. 7.16 (quoting communication fr om the Panel to the parties dated 22 December
2006).
1541Panel Report, para. 7.16 (quoting communication fr om the Panel to the parties dated 22 December
2006).
1542Panel Report, para. 1.11. The content of the Panel' s preliminary ruling is set out in section VII.C of
the Panel Report, paras. 7.9-7.65.
1543Panel Report, para. 7.46.
1544Panel Report, para. 7.46.
1545Panel Report, para. 7.46.
1547Panel Report, para. 7.52.
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militate against the interpretation of Article 5 advocated by the European Communities."
1548 In
particular, the Panel considered that "paragraph 7 of Annex IV to the SCM Agreement indicates that
the drafters did not regard the temporal scope of Part III of the SCM Agreement as confined to
financial contributions made, or subsidies otherw ise brought into existence, after 1 January 1995." 1549
For purposes of the application of Article 28 of the Vienna Convention, the Panel described Article 5
"as addressing a 'situation'; namely, causing adverse effects through the use of subsidies." 1550 The
Panel further found that "Article 5 applies to any su ch 'situation' which exists as of the effective date
of the SCM Agreement, even if that situation arose as a result of the granting of a subsidy prior to that
date."1551 Therefore, the Panel rejected the European Communities' request for a preliminary ruling
"that all alleged prohibited and ac tionable subsidies granted by the European Communities prior to
1 January 1995 be excluded from the temporal scope of {the Panel} proceedings."1552
652. The European Union challenges these findings on appeal. The European Union argues that,
since the pre-1995 subsidies challenged by the United States were "fully granted, disbursed or brought
into existence and ended before 1995", they amount to "completed acts" or "completed situations"
and, thus, are outside the temporal scope of application of the SCM Agreement, even if the "effects" of
such subsidies may continue to be felt subsequently. 1553 The European Union further argues that the
Panel erred in its examination of the text , context, and object and purpose of the SCM Agreement
when characterizing the obligation contained in Ar ticle 5 as referring to "continuing situations",
including pre-1995 measures with post-1995 effects. According to the European Union, there was no
intention to cover subsidies granted before 1995 wh ose effects are felt after 1995 in Article 5 of the
SCM Agreement.1554
653. The United States counters that the approach by the European Union is inconsistent with both
the text of Article 5 of the SCM Agreement itself, and the international legal principle of
non-retroactivity on which the European Union purports to rely. The United States emphasizes that
the obligation contained in Article 5 is not limited to the act of providing actionable subsidies.
Rather, the causing of adverse effects through the use of subsidies, as the Panel found, falls within the
ordinary meaning of "situation" as used in Article 28 of the Vienna Convention, and is thus among the
types of conditions that a treaty may address without making special provision for retroactivity.

1548Panel Report, para. 7.57.
1549Panel Report, para. 7.57.
1550Panel Report, para. 7.64.
1551Panel Report, para. 7.64.
1552Panel Report, para. 7.65.
1553European Union's appellant's submission, paras. 77 and 122.
1554European Union's appellant's submission, paras. 78 and 79.
WT/DS316/AB/R BCI deleted, as indicated [***]

654. We begin our analysis by reviewing the principl e of non-retroactivity of treaties as reflected
in Article 28 of the Vienna Convention.
1. Article 28 of the Vienna Convention

655. Article 28 of the Vienna Convention establishes a presumption against the retroactive effect of
treaties in the following terms:
Unless a different intention appears from the treaty or is otherwise
established, its provisions do not bind a party in relation to any act or
fact which took place or any situation which ceased to exist before
the date of the entry into force of the treaty with respect to that party.
656. In order to determine the temporal scope of a particular treaty provision, regard must be had
to the text of the treaty at issue, the subject matter of the treaty in question, and to the nature of the
treaty obligations undertaken. We therefore turn to consider the text of Article 5 of the
SCM Agreement, read in its context, in order to determ ine whether it indicates the intention of WTO
Members with respect to its temporal scope.
2. Whether Article 5 of the SCM Agreement Applies to Pre-1995 Measures

657. Article 5 provides, in relevant part:
No Member should cause, through the use of any subsidy referred to
in paragraphs 1 and 2 of Article 1, adverse effects to the interests of
other Members ... .
658. By its terms, Article 5 of the SCM Agreement addresses the causing of adverse effects
through the use of subsidies. In particular, it stipulates that Members should not "cause" adverse
effects to the interests of other Members "through th e use of" subsidies as defined in Article 1 of the
SCM Agreement. The dictionary meaning of the noun "use" is the "act of using, fact of being used;
the action of using something; the fact or state of being used; application or conversion to some
purpose".
1555 The word "through" is defined in the dictionary as "by means of, via". 1556 I n t h e
specific context of Article 5, we understand the subordinate clause "through the use of any subsidy" to
describe the manner in which a Member should not cause adverse effects. As we see it, this language
clarifies that Article 5 is addressed to the causing of certain results in a particular manner—that is, by

1555Shorter Oxford English Dictionary, 5th edn, W.R. Trumble, A. Stevenson (eds) (Oxford University
Press, 2002), Vol. 2, p. 3489.
1556Shorter Oxford English Dictionary, 5th edn, W.R. Trumble, A. Stevenson (eds) (Oxford University
Press, 2002), Vol. 2, p. 3255.
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means of the use of any subsidy. The positioning of the phrase "through the use of any subsidy"
following the verb "cause" accords with the focus of Article 5, which is the causing of adverse effects.
659. WTO Members undertook the obligation contained in Article 5 of the SCM Agreement as of
1 January 1995. In other words, as of that date, WTO Members have been under an obligation not to
"cause, through the use of any subsidy", adverse effects to the interests of other Members.
660. The European Union argues that, "when examining the SCM Agreement as a whole, it
becomes evident that there was no intention to include subsidies which were granted before 1995 with
effects after 1995", and, thus, the Panel erred in its interpretation of Article 5 of the
SCM Agreement.
1557 In support of its arguments, the European Union refers to various provisions of
the SCM Agreement, which we examine below.
661. The European Union contends, in particular, that "the formulation of the obligation in
Articles 3 and 5 and the scope of the remedy in dicate that both provisions refer to the same
government conduct: granting or maintaining subsidies." 1558 Regarding actionable subsidies, the
European Union submits that Article 7 also conf irms that the relevant government conduct for the
purpose of Article 5 is "granting or maintaining a subsidy".1559 The European Union also points to the
grammatical structure of Article 5 itself to illustrat e that the phrase "through the use of {a} subsidy"
refers to the government conduct of granting or maintaining subsidies.1560
662. The text of Article 5 does not provide an agent for the noun "use", suggesting that it may
address the "use of any subsidy" by either the governme nt granting the subsidy, or the recipient of the
subsidy.1561 We recognize that a government could "use" subsidies, in the sense that it employs

1557European Union's appellant's submission, para. 79.
1558European Union's appellant's submission, para. 84.
1559European Union's appellant's submission, paras. 84 and 88.
1560European Union's appellant's submission, paras. 94 and 95.
1561The French and Spanish versions of Article 5 do not limit the "use of any subsidy" to use by a
government. Nor do they indicate clearly that the "use of" subsidies includes use by private firms. Although the
French version might suggest that the using is by the Member, the Spanish version fails—like the English
version—to specify the subject of the use. The French version reads: " Aucun Membre ne devrait causer, en
recourant à l'une quelconque des subventions visées aux paragraphes 1 et 2 de l'Article premier, d'effets
défavorables pour les intérêts d'autres Membres ... ." The Spanish version does not specify who the use is by:
WT/DS316/AB/R BCI deleted, as indicated [***]

subsidies for a stated purpose.
1562 However, contrary to what the European Union suggests, the
reference to the "use of any subsidy" in Article 5 refers to more than merely the "granting" or
"maintaining" of a subsidy by a government. 1563 In particular, we note that Article 6.3 defines serious
prejudice to which Article 5 refers, inter alia, in terms of "significant price undercutting", "lost sales",
"price depression", and "price suppression". Sales and the pricing of goods, in a market economy, are
activities usually engaged in by the recipient of a subsidy rather than by the grantor. Such actions of a
recipient of a subsidy are clearly relevant for purposes of assessing whether a WTO Member, as the
grantor, has complied with its obligation "not to cause, through the use of any subsidy, adverse effects
to the interests of other Members."
663. Article 3 provides that a Member "shall neither grant nor maintain" prohibited subsidies,
focusing on the act of granting or maintaining export subsidies. By contrast, Article 5 is concerned
with the adverse effects caused by the use of subsidies by a Member and does not prohibit the
granting or maintaining of subsidies per se .
1564 It is true that the granting of a subsidy by a
government may cause, through the use of the subsi dy, adverse effects and may, as a consequence,
trigger the obligation under Article 7.8 for the s ubsidizing Member to "take appropriate steps to
remove the adverse effects" or "withdraw the subsidy". This does not mean, however, that the
conduct covered by Article 5 is limit ed to subsidies granted by a government after the date of entry
into force of the SCM Agreement.
664. The European Union considers that the Panel e rred in finding that Article 28.1 "was not of
contextual assistance in deciding whether subsidies gr anted prior to 1 January 1995 may be subject to
the obligations of Article 5." 1565 Specifically, the European Un ion contends that Article 28.1
"addresses subsidy programmes, as opposed to individual subsidies", and that "{t}he fact that the Part

1562The "use" by governments is referred to often in the Tokyo Round Subsidies Code, the precursor to
the SCM Agreement. In the Preamble, the signatory Contr acting Parties recognized that "subsidies are used by
governments to promote important objectives of national policy". (emphasis added) Article 8.1 provides further
that "signatories recognize that subsidies are used by governments to promote important objectives of social and
economic policy." (emphasis added) Article 11.1 states that "signatories recognize that subsidies other than
export subsidies are widely used as important instruments for the promotion of social and economic policy
objectives and do not intend to restrict the right of signatories to use such subsidies to achieve these and other
important policy objectives which they consider desirable." (emphasis added)
1563It would appear that the "grant" and/ or "maintenance" of a subsidy by a Member, as used in the
SCM Agreement , is distinct from the "use" of a subsidy. See, for instance, Articles 2.1(c), 3.1, 4.3, 7.1, 7.3,
and 7.8 of the SCM Agreement, each of which refer to granting and/or maintaining subsidies.
1564See Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil) , para. 47. As the Appellate
Body stated in that case, "the granting of a subsidy is not, in and of itself, prohibited under the SCM Agreement.
Nor does granting a 'subsidy', without more, constitute an inconsistency with that Agreement. The universe of
subsidies is vast. Not all subsidies are inconsistent with the SCM Agreement."
1565European Union's appellant's submission, para. 101.
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dealing with 'Transitional Arrangeme nts' refers only to subsidy programmes indicates the intention to
exclude prior individual acts of subsidisation" from the temporal scope of Article 5.
1566
665. Article 28 indicates that "subsidy programmes" continuing in force or maintained after 1
January 1995 were generally intended to fall within the temporal scope of Part II of the
SCM Agreement (which prohibits the granting or maintaining of export and import substitution
subsidies). By its terms, Article 28 does not refer to i ndividual acts of subsidization, nor does it refer
to obligations arising under Part III of the SCM Agreement. We do not read Article 28 to indicate that
Article 5 was intended to apply only to subsidies brought into existence subsequent to 1 January 1995.
666. Our interpretation is also consistent with paragraph 7 of Annex IV to the SCM Agreement.
Annex IV sets forth the method for calculating the total ad valorem subsidization of a product for
purposes of the presumption of serious prejudice in Article 6.1(a) (an expired provision) of the
SCM Agreement. Paragraph 7 of Annex IV stipulates that "{s}ubsidies granted prior to the date of
entry into force of the WTO Agreement, the benefits of which are allocated to future production, shall
be included in the overall rate of subsidization." This suggests that "adverse effects" within the
meaning of Article 5 can be caused by subsidies gran ted prior to 1 January 1995. We agree with the
Panel that, although Article 6.1 a nd Annex IV have expired, they formed part of the original
framework for determining when a Member could be considered to have caused adverse effects, and
thus provide an important indication of the intended scope of Article 5.1567
667. The European Union argues that paragraph 7 of Annex IV merely sets out "a method to
estimate the amount of subsidies granted to a particular product in a given year." 1568 We fail to see
why the fact that paragraph 7 of Annex IV descr ibes a "method" would mean that it cannot provide
context for purposes of interpreting Article 5. Instead, as we see it, the inclusion of pre-1995
subsidies in the calculation of the amount of subs idies suggests that negotiators contemplated that
subsidies granted before the entry into force of the SCM Agreement are, as a conceptual matter,
capable of causing adverse effects.
668. The European Union further argues that paragr aph 7 of Annex IV authorizes the "exceptional
inclusion of a benefit from a pre-1995 subsidy in the calcul ation of the overall amount of
subsidisation post-1995". 1569 According to the Euro pean Union, this "indicates the intention that
WTO Members should not be allowed to shield po st-WTO subsidies of less than 5% from WTO

1566European Union's appellant's submission, para. 102. (original emphasis)
1567Panel Report, para. 7.57.
1568European Union's appellant's submission, para. 106. (original emphasis)
1569European Union's appellant's submission, para. 108.
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scrutiny, although the total amount of subsid ies benefiting current production exceeds 5%."
1570 The
European Union emphasizes that "this does not mean that the benefit of every pre-1995 subsidy is
deemed to 'continue' after 1995 for the purpose of Article 5 of the SCM Agreement or in general." 1571
We agree with the European Union that the benefi t of every subsidy granted before the entry into
force of the SCM Agreement should not be "deemed" to continue thereafter. However, as the Panel
found, "{p}aragraph 7 of Annex IV recognises that a subsidy granted prior 1 January 1995 may, in
certain circumstances (i.e., where its benefits are al located to future production) be relevant to the
serious prejudice determination in Article 5(c) and thus, may give rise to adverse effects under
Article 5."1572 Paragraph 7 of Annex IV therefore supports the proposition that subsidies granted prior
to 1 January 1995 are subject to the obligation contained in Article 5 of the SCM Agreement.
669. The European Union further argues that Artic le 32.3 supports the proposition that "actions
taken by Members before 1995, in the sense of bringi ng a subsidy into existence, insofar as they are
'completed', should be examined in view of the contemporaneous obligation at that time (i.e., the 1979
Tokyo Round Subsidies Code) and thus do not fall within the scope of Article 5 of the
SCM Agreement."1573 Article 32.3 provides in relevant part that "the provisions of this Agreement
shall apply to investigations, and reviews of exis ting measures, initiated pursuant to applications
which have been made on or after the date of entr y into force for a Member of the WTO Agreement."
We find it of little relevance to our analysis and do not consider that it sheds light on the temporal
scope of Article 5.
670. The European Union submits, moreover, that Article 32.5 of the SCM Agreement applies to
"'continuing situations' in the form of 'laws, regul ations and administrative procedures'" and "does not
refer to completed 'acts' or 'situations' su ch as individual subsidies granted before 1995". 1574 It is true
that, by its terms, Article 32.5 obligates WTO Memb ers to take all necessary steps to ensure the
conformity of its laws, regula tions, and administrative procedures with the provisions of this
Agreement. We do not consider, however, that the l ack of a reference in Article 32.5 to individual
instances of subsidization supports the proposition that no obligation arising out of Article 5 is to be
imposed on a Member in respect of subsidies granted or brought into existence prior to the entry into
force of the SCM Agreement.

1570European Union's appellant's submission, para. 108.
1571European Union's appellant's submission, para. 108.
1572Panel Report, para. 7.59.
1573European Union's appellant's submission, para. 104.
1574European Union's appellant's submission, para. 105.
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671. Our reading of Article 5 does not lead to a "retroactive" application of that provision. The
application of Article 5 to subsidies granted prior to 1995 is justified by virtue of the obligation, under
that provision, not to cause, through the use of any s ubsidy, adverse effects to the interests of other
Members. We see no indication in the text of Article 5 to suggest that the obligation set out in that
provision is limited to subsidies granted after the date of entry into force of the SCM Agreement.
3. The Interpretation of Article 5 of the SCM Agreement in the Light of the
Principle of Non-Retroactivity Reflected in Article 28 of the Vienna
Convention
672. The Appellate Body has previously confirmed that the principle of non-retroactivity under
Article 28 of the Vienna Convention is a general principle of la w, which is relevant to the
interpretation of the WTO covered agreements. 1575 The Appellate Body has described the application
of Article 28 in the following way:
Article 28 of the Vienna Convention covers not only any "act", but
also any "fact" or "situation which ceased to exist". Article 28
establishes that, in the absence of a contrary intention, treaty
provisions do not apply to 'any situation which ceased to exist' before
the treaty's entry into force for a party to the treaty. Logically, it
seems to us that Article 28 also necessarily implies that, absent a
contrary intention, treaty obligations do apply to any 'situation' which
has not ceased to exist—that is, to any s ituation that arose in the past,
but continues to exist under the new treaty.
1576 (original emphasis)
673. The European Union contends that the Panel erre d in its application of the principle of non-
retroactivity of treaties reflected in Article 28 of the Vienna Convention by wrongly focusing on the
nature of the obligation contained in Article 5 of the SCM Agreement rather than on the nature of the
measures challenged by the United States. For the Eu ropean Union, the relevant question before the
Panel was instead whether the pre-1995 measur es challenged by the United States can be
characterized as "acts" or "facts" that t ook place before the entry into force of the SCM Agreement, or
as "completed situations".1577
674. The United States counters that the Panel correc tly applied the principle of non-retroactivity
of treaties reflected in Article 28 of the Vienna Convention by focusing on the nature of the obligation
contained in Article 5 of the SCM Agreement. The United States disagrees with the European Union's
assertion "that the proper approach was 'to identify th e relevant government conduct in the first place,
characterise it as 'act' or 'situation' and examine wh ether such an 'act' or 'situation' was completed

1575See, for example, Appellate Body Report, EC – Sardines, para. 200.
1576Appellate Body Report, Canada – Patent Term, para. 72.
1577European Union's appellant's submission, para. 38. (original emphasis omitted)
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before 1995 or continued afterwards'."
1578 The United States considers that the European Union's
proposed approach "would have the Appellate Body start with the assumption that the grant of
subsidies is the relevant act, fact, or situation in relation to which Article 5 of the SCM Agreement
binds the Members." 1579 According to the United States, this approach "is essentially circular",
because "starting with the assumption that the only rele vant activity is something that occurred in the
past ... foreordains the conclusion that the provision applies to acts, facts, or situations that have
already ceased to exist." 1580 The United States further argues that "Article 28 of the Vienna
Convention frames the retroactivity analysis in terms of the acts, facts, or situations with respect to
which a treaty binds its parties", and argues that nothing in the text of Article 28 "limits those acts,
facts, or situations to governmental 'conduct' as opposed to a government obligation that continues
after particular conduct has occurred".
1581
675. As a general proposition, a treaty does not apply to acts or facts that took place, or situations
that ceased to exist, before the da te of its entry into force. As we have noted above, in order to
determine the temporal scope of Article 5 of the SCM Agreement, regard must be had to the text of the
treaty at issue and, importantly, to the subject matter of th e treaty in question and to the nature of the
treaty obligations undertaken. We therefore disagree with th e European Union to the extent that it
suggests that it is the pre-1995 measures that are to be interpreted consistently with the principle of
non-retroactivity reflected in Article 28 of the Vienna Convention. Rather, as the Panel found, it is, as
set out in Article 5, the causing through the use of any subsidy of adverse effects to the interests of
other Members that is the subject of that provision. Thus, even assuming that the European Union
was correct in its assertion that the pre-1995 measures challenged by the United States could be
properly characterized as "completed acts", this would not mean that such measures are precluded
from challenge under Article 5 of the SCM Agreement, as the European Union suggests.
676. As noted above, the European Union argues th at, since the pre-1995 subsidies challenged by
the United States were "fully granted, disbursed or brought into existence and ended before 1995",
they amount to completed "acts" or "situations" and, thus, are outside the temporal scope of
application of the SCM Agreement, even if the "economic effects" of such subsidies may continue to
be felt subsequently.1582 In reply, the United States submits that the temporal scope of Article 5 is not
limited to the act of providing actionable subsidies.

1578United States' appellee's submission, para. 20 (referring to European Union's appellant's submission,
para. 33).
1579United States' appellee's submission, para. 20. (original emphasis)
1582European Union's appellant's submission, paras. 77 and 122.
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677. In practice, it is often difficult to distinguish be tween, on the one hand, an act or fact that was
"completed" before the entry into force of the ne w treaty and, on the other hand, an act, fact, or
situation that "continues" or has "continuing effect".
1583 In order to draw the line between these
concepts, we turn to the text of Article 28 of the Vienna Convention.
678. Article 28 refers to "acts or facts which took pl ace", as well as to "situations which ceased to
exist". The Appellate Body has pr eviously described the word "act" within the meaning of Article 28
as "something that is 'done'". 1584 In assessing the temporal scope of a treaty provision that is directed
at "acts" or "facts", the relevant question is whethe r the act or fact "occurred" or "took place" prior to
the entry into force of the treaty. By contrast, with regard to treaty provisions that are directed at a
"situation", Article 28 does not ask whether the "situ ation" "took place", but rather whether it "ceased
to exist" prior to the entry into force of the treaty. As the Appellate Body found in Canada – Patent
Term, the use of the word "situation" in Article 28 "suggests something that subsists and continues
over time".1585 The reference to "ceased to exist" support s the notion that a "situation" may continue
to exist over a period of time, rather than simply oc cur at a particular instant in time, after which the
"situation" may "cease{} to exist".
679. In response to questioning at the oral heari ng, the participants agreed that, as a general
proposition, there is a certain degree of overlap between the concepts of "act", "fact", and "situation".
To us, it would appear that almost any "situation" can be said to have arisen from one or more past
"acts" or "facts", including ones that have been "completed". Moreover, it would seem that a
"situation" may consist of more than a distinct set of repeated acts, such as the use of subsidies under
a scheme.
680. The Panel expressed the view that Part III of the SCM Agreement generally is concerned with
a situation that subsists and continues over time, rather than with specific acts performed by Members.
According to the Panel:
{w}hile "cause" is used as a verb in Article 5, it does not connote
specific action on the part of a Member. Rather, it describes a
particular relationship between the antecedent conduct of a Member

1583P. Reuter, Introduction to the Law of Treaties (Kegan Paul International, 1995), p. 100.
1584Appellate Body Report, Canada – Patent Term, para. 58.
1585Appellate Body Report, Canada – Patent Term , para. 72. The panel in that dispute characterized
the protection accorded to inventions by patents granted under a pre-1989 Canadian patent regime as a "situation
which ha{d} not ceased to exist" at the date of the application of the Agreement on Trade-Related Aspects of
Intellectual Property Rights.
WT/DS316/AB/R BCI deleted, as indicated [***]

and subsequent events which ultimately are attributed to that
Member.
1586
681. We see no reason to disagree with the Panel. Article 5 reflects the notion that it is the
causing, through the use of any subsidy, of adverse eff ects, rather than the granting of the subsidy that
is the situation that is addressed by that provisi on. As we have noted above, Article 5 does not
prohibit the granting or the use of a subsidy per se. Rather, Members are permitted to grant or
maintain specific subsidies to the extent that they do not cause adve rse effects within the meaning of
Articles 5 and 6 of the SCM Agreement. The context of Article 5 also supports the notion that Part III
generally is concerned with a situation that c ontinues over time, rather than with specific acts.1587 For
instance, Article 6.4 contemplates that the disp lacement or impeding of exports, for purposes of
Article 6.3(b), shall be demonstrated based on evidence relating to " an appropriately representative
period sufficient to demonstrate clear trends in th e development of the market for the product
concerned, which, in normal circum stances, shall be at least one year." 1588 In addition, Article 6.3(d)
suggests that an increase in the worl d market share of the subsidizing Member is to be determined on
the basis of "a consistent trend over a period when subsidies have been granted."1589
682. The European Union argues that, under general public international law, the question of
whether treaty obligations apply to certain gove rnment conduct depends on the nature of the
government conduct and its timing. 1590 For the European Union, the fact that certain effects may
continue as a result of the government conduct is "entirely irrelevant". 1591 To support its position, the
European Union refers to the Commentaries 1592 of the International Law Commission (the "ILC") on
Article 28 of the Vienna Convention and on the ILC Articles on Responsibility of States for
Internationally Wrongful Acts 1593 (the "ILC Articles"). In particular, the European Union refers to
Article 14 of the ILC Articles to argue that "{a} co mpleted act occurs 'at the moment when the act is
performed', even though its effects or consequences may continue". 1594 The European Union also

1586Panel Report, para. 7.52.
1587Panel Report, para. 7.52.
1588Emphasis added.
1589Emphasis added.
1590European Union's appellant's submission, para. 43.
1591European Union's appellant's submission, para. 43.
1592Draft Articles on the Law of Treaties with commentaries , supra, footnote 105; Draft Articles on
Responsibility of States for Internationally Wrongful Acts with commentaries, supra, footnote 105.
1593ILC Articles on Responsibility of States for Internationally Wrongful Acts, supra, footnote 106.
1594European Union's appellant's submission, paras. 41 and 42 (quoting Commentary on Article 14 of
the ILC Articles, supra, footnote 105, pp. 59-60).
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refers to several rulings of the European Court of Human Rights (the "ECtHR") and the International
Court of Justice (the "ICJ") to support its argument.
1595
683. The United States counters that the ILC Articles, which the European Union cites in support
of its argument, "are not only irrelevant to the in terpretation of the {non-}retroactivity rules reflected
in Article 28 of the Vienna Convention, they also do not support the proposition for which the
European Union cites them". 1596 Where, as in the case of Article 5 of the SCM Agreement, "the
primary obligations of a treaty are concerned with causing effects through prior government action,
causing those effects itself is the 'wrongful act', a nd the conclusion as to retroactivity will 'depend' on
whether it is 'completed' or 'has a continuing character'." 1597 The United States points in this regard to
Article 14(3) of the ILC Articles, which "deals with 'an international obliga tion requiring a State to
prevent a given event'—analogous to the obligation in Article 5 of the SCM Agreement not to cause
adverse effects ... {and} provides specifically, that a breach of such an obligation 'occurs when the
event occurs and extends over the entire period duri ng which the event continues and remains not in
conformity with the obligation'." 1598 The United States further argu es that the decisions by the ICJ
and the ECtHR cited by the European Union do not support the European Union's view that
"government conduct alone, and not the effects of gove rnment conduct, is relevant to an analysis of
retroactivity, depending on the actual text of the treaty that is being interpreted".1599
684. As we have noted above, Article 5 of the SCM Agreement sets out an obligation not to cause,
through the use of any subsidy, adverse effects to th e interests of other Members. It is the "causing"
of such effects that is relevant for purposes of Ar ticle 5, and the conclusion as to retroactivity will
hinge on whether that situation continues or has b een completed, rather than on when the act of
granting a subsidy occurred.

1595European Union's appellant's submission, para. 44 (referring to ECtHR, Grand Chamber, Malhous
v. The Czech Republic , Application No. 33071/96, p. 16). The European Union also refers to ECtHR, Mayer,
Weidlich, Fullbrecht Hasenkamp, Golf, Klausner v. Germany , Application Nos. 19048/91, 19049/91, 19342/92,
18890/92, Decision and Reports 85-A, p. 5; ECtHR, Grand Chamber, Von Maltzan and others v. Germany ,
Decision to the Admissibility of Applications Nos. 71916/01, 71917/01, and 10260/02 (2 March 2005) ("land
reform" 1945-49 in the Soviet sector of Germany), paras. 82 and 83; and ICJ, Judgment on preliminary
objections, Case Concerning Certain Property (Liechtenstein v. Germany) , ICJ Reports (2005), para. 52. ( Ibid.,
paras. 44 and 45)
1596United States' appellee's submission, para. 24. (footnote omitted) The United States adds that the
ILC Articles themselves are not "covered agreements" set forth in Appendix I to the DSU, nor do they set forth
"customary rules of interpretation of public international law". The United States adds that the ILC
Articles themselves do not purport merely to set out customary international law, but rather "to formulate, by
way of codification and progressive development , the basic rules of international law concerning the
responsibility of states for their internationally wrongful acts." (Ibid., para. 25 (referring to Commentaries on the
ILC Articles, supra, footnote 105, p. 31) (emphasis added by the United States))
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685. Article 14(1) of the ILC Articles stipulates that "{t}he breach of an international obligation by
an act of a State not having a continuing character occurs at the moment when the act is performed,
even if its effects continue." In other words, Article 14(1) distinguishes between acts and the effects
of such acts. Referring to the ILC's Commentary on this provision, the European Union observes that
"{a} completed act occurs 'at the moment when th e act is performed', even though its effects or
consequences may continue."
1600 We agree with the European Union that it is important to distinguish
between an act and its effects. Article 5 of the SCM Agreement is concerned, however, with a
"situation" that continues over time, rather than with specific "acts". Thus, although the act of
granting a subsidy may have been completed prior to 1 January 1995, the situation of causing adverse
effects may continue.
686. In sum, we agree with the Panel that Article 5 addresses a "situation" that consists of causing,
through the use of any subsidy, adverse effects to the interests of another Member. It is this
"situation", which is subject to the requirements of Article 5 of the SCM Agreement, that is to be
construed consistently with the non-retroactiv ity principle reflected in Article 28 of the Vienna
Convention. The relevant question for purposes of determ ining the temporal scope of Article 5 is
whether the causing of adverse effects has "ceased to exist" or continues as a "situation". We
consequently disagree with the European Un ion that, by virtue of Article 28 of the Vienna
Convention, no obligation arising out of Article 5 of the SCM Agreement is to be imposed on a
Member in respect of subsidies granted or brought in to existence prior to the entry into force of the
SCM Agreement. This may mean that a subsidy granted prio r to 1 January 1995 falls within the scope
of Article 5 of the SCM Agreement, but this is only because of its possible nexus to the continuing
situation of causing, through the use of this subs idy, adverse effects to which Article 5 applies. 1601 In
reaching this conclusion, we are not saying that the causing of adverse effects, through the use of
pre-1995 subsidies, can necessarily be characterized as a "continuing" situation in this case. Rather,
we simply find that a challenge to pre-1995 subsidies is not precluded under the terms of the
SCM Agreement.
4. The Tokyo Round Subsidies Code
687. The European Union also contends that the Panel erred in concluding that the Tokyo Round
Subsidies Code was not relevant in the present dispute. According to the Europ ean Union, the rules
on inter-temporal application of international la w, the specific transitional rules between the Tokyo

1600European Union's appellant's submission, paras. 41 and 42 (quoting Commentary on Article 14 of
the ILC Articles, supra, footnote 105, pp. 59-60).
1601See Sir Humphrey Waldock, Sp ecial Rapporteur, Sixth Report on the Law of Treaties,
UN Document A/CN.4/186 and Add.1-7, Yearbook of the International Law Commission, 1966, Vol. II, p. 63.
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Round Subsidies Code and the SCM Agreement, and the rules on termination of international treaties,
together with the absence of any transitional peri od with respect to pre-1995 subsidies, indicate that
the pre-1995 subsidies should be assessed in the light of the Tokyo Round Subsidies Code, and not the
SCM Agreement. The United States therefore had until 1997 to challenge those subsidies. A failure
to do so, in the European Union's view, cannot lead to expanding the temporal scope of Article 5 of
the SCM Agreement.
1602
688. The United States counters that the European Union's arguments provide "no legitimate basis"
to conclude that the former applicability of the Tokyo Round Subsidies Code to the act of granting
pre-1995 subsidies precludes application of the SCM Agreement to the post-1995 adverse effects of
those subsidies.1603 The United States concludes that the Appellate Body should therefore uphold the
Panel's finding.1604
689. As we see it, the European Union's argument is based on the assumption that subsidies that
were granted or brought into existence before 1 January 1995 amount to completed "acts" or
"situations" and, thus, are outside the temporal scope of application of the SCM Agreement. We have
disagreed with that proposition above, and do not consider our approach to lead to a retroactive
application of Article 5 of the SCM Agreement. As the ILC has explained, "{t}he non-retroactivity
principle cannot be infringed by applying a treaty to ma tters that occur or exist when the treaty is in
force, even if they first began at an earlier date."1605
5. Conclusion
690. For all these reasons, we modify the Panel's interpretation of Article 5 of the SCM Agreement
and consider that the "causing, through the use of any subsidy, of adverse effects" is covered by
Article 5 even if it arises out of subsidies granted or brought into existence prior to 1 January 1995,
and that a challenge to such subsidies is not precluded under the terms of the SCM Agreement.
Accordingly, we uphold the Panel's conclusion, in paragraph 7.65 of the Panel Report, rejecting the
European Communities' request to exclude all s ubsidies granted prior to 1 January 1995 from the
temporal scope of the dispute.

1602European Union's appellant's submission, para. 121.
1605Yearbook of the International Law Commission, 1966, Vol. II, p. 212, para. 3. (emphasis added)
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C. The Life of a Subsidy and Intervening Events
691. In this section, we address the European Union' s appeal of a number of the Panel's findings
concerning the interpretation and application of Articles 1, 4.7, 5, 6, and 7.8 of the SCM Agreement.
In essence, the European Union submits that these provisions reflect an overarching principle that
when the "benefit" arising from prior subsidies dimini shes over time, or is removed, there is a change
that must be taken into account in the application of the SCM Agreement and, in particular, under an
adverse effects analysis. Moreover, the Eur opean Union contends, these provisions require a
demonstration of a "continuing" or "present" benefit during the refe rence period chosen for a serious
prejudice analysis.
692. In this dispute, the European Union refers to a number of transactions involving certain
Airbus companies
1606 that it alleges had the effect of rem oving or, in the European Union's words,
"extinguishing" and "extracting" all or part of the subsidies provided to these companies. In addition,
the European Union submits that the circumstances surrounding the corporate restructuring and legal
reorganization of a number of Airbus compan ies, as they evolved from a consortium of
European companies into the singl e corporate entity that today manufactures Airbus LCA, namely
Airbus SAS, required the United States affirmativel y to demonstrate that subsidies provided to the
Airbus Industrie consortium1607 "passed through" to Airbus SAS.
693. Our analysis proceeds as follows. First, in subsection 1, we focus on the Panel's interpretation
of Articles 1, 5, and 6 of the SCM Agreement, including its finding that these provisions do not require
a complaining party to demonstrate the existence of a "present" benefit, or a "benefit that continues"
during the reference period. In subsection 2, we a pply our interpretation of Articles 1, 5, and 6 to
transactions involving certain Airbus companies th at the European Union alleges resulted in the
"extinction" and "extraction", and consequently the "withdrawal", of subsidies within the meaning of
Articles 4.7 and 7.8 of the SCM Agreement. In this subsection, we al so consider whether, in its
treatment of the European Communities' arguments on "extinction", "extraction", and "withdrawal",
the Panel failed to make an objective assessment of the facts before it, and thereby violated Article 11
of the DSU. Finally, in subsection 3, we turn to the European Union's appeal of the Panel's finding
that the United States was not required to demonstrat e that subsidies provided to the Airbus Industrie
consortium "passed through" to Airbus SAS, the current producer of Airbus LCA.

1606See the definition of Airbus companies at section IV.B of this Report.
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1. Continuity of Benefit – The Panel's Inte rpretation of Articles 1, 5, and 6 of
the SCM Agreement
(a) The Panel's findings
694. The Panel began its interpretation of Articles 1, 5, and 6 of the SCM Agreement by recalling
the European Communities' argument that, as a resu lt of a series of transactions involving Airbus
predecessor companies that had allegedly received s ubsidies, Airbus SAS—the current producer of
Airbus LCA—"does not currently enjoy subsidies that could cause the adverse effects alleged by the
United States."1608 For the Panel, this argument raised a "t hreshold question" as to "whether a subsidy
which is found to exist must add itionally be found to confer a presen t, or continuing, benefit on the
recipient firm producing the subsidized product in or der for that subsidy to be potentially capable of
causing adverse effects for purposes of Article 5 of the SCM Agreement."1609
695. The Panel rejected the proposition that a subs idy "can only cause adverse effects pursuant to
Article 5 if it can be shown to presently confer a 'benefit' on a recipient."1610 The Panel noted that one
element of a complaining Member's adverse effe cts claim under Article 5 will be to establish the
existence of a "subsidy referred to in pa ragraphs 1 and 2 of Article 1" of the SCM Agreement.1611 The
Panel found that the grammatical construction of Article 1.1 and the use of "thereby" in Article 1.1(b)
suggest that the financial contribution and the be nefit "come into existence at the same time". 1612 The
Panel further recalled the A ppellate Body's finding in Canada – Aircraft that the focus of the inquiry
into the existence of a "benefit" pursuant to Article 1.1(b) is whether the financial contribution places
the recipient in a more advantageous position than would have been the case but for the financial
contribution. On this basis, the Panel found it difficult to understand the "coherence of a concept such
as 'continuing benefit' within the legal framework of Article 1 of the SCM Agreement."1613 Instead, to
the extent that such a concept relates to how the effect of a subsidy is to be analyzed over time, the
Panel considered this to be an aspect of the causati on analysis to be undertaken pursuant to Articles 5
and 6 of the SCM Agreement and part of the assessment of the "effects" of a subsidy under those
provisions.1614 The Panel further considered that the Eu ropean Communities' concept of "continuing

1608Panel Report, para. 7.214 (quoti ng European Communities' second written submission to the Panel,
para. 90). (emphasis added by the Panel)
1609Panel Report, para. 7.214.
1610Panel Report, paras. 7.216 and 7.217. (original emphasis)
1611Panel Report, para. 7.217.
1612Panel Report, para. 7.218. The Panel substantiated this argument by noting that the ordinary
meaning of the adverb "thereby" is "by that means" ( Ibid., and footnote 2128 thereto (referring to The New
Shorter Oxford English Dictionary (Oxford University Press, 1999), Vol. 2, p. 3275; and Black's Law
Dictionary, 6th edn (West Publishing Co., 1990), p. 1478)).
1613Panel Report, para. 7.218.
1614Panel Report, para. 7.218.
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benefit" appeared 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 the time
when the subsidy was granted."
1615 The Panel emphasized that it was not suggesting that, under
Article 5 of the SCM Agreement, "it is unnecessary to link a subsidy provided to a recipient to a
particular product or products in order to demonstr ate that a Member has ca used, through the use of
that subsidy, the asserted adverse effects to the interests of the complaining Member." 1616 The Panel
explained, however, that "this does not mean that a complaining Member is required to establish that
the 'benefit' to the recipient is 'current' or 'conti nuing' in order to establish that link and demonstrate
that use of that subsidy has caused adverse e ffects to the complaining Member's interests." 1617 The
Panel noted that "{t}here may well be circumstance s where, given the nature of the subsidy, the
passage of time between its receipt and the alleged adverse effects, the recipient's position in the
market and exogenous market considerations, it is difficult to demonstrate more than a tenuous causal
link between the subsidy and the alleged adverse effects." 1618 For the Panel, however, this was "an
inherent part of the causation analysis to be unde rtaken pursuant to Articles 5 and 6, and {did} not
entail an obligation to demonstrate the 'continuity of benefit' of a previously granted subsidy."1619
696. For these reasons, the Panel concluded that:
... provided the United States, as the complaining Member,
establishes (i) the provision of a financial contribution in accordance
with Article 1.1(a)(1); (ii) which thereby confers a benefit, within the
meaning of Article 1.1(b) and (iii) specificity, in accordance with
Article 2, a subsidy that is actionable under Part III of the
SCM Agreement will be "deemed to exist", and the United States
will successfully make out a claim under Article 5; provided it is able
to demonstrate that the European Communities and certain member
States have caused, through the use of that subsidy, adverse effects to
the interests of the United States.
1620
697. On the basis of this reasoning, the Panel dismissed as "unfounded" the
European Communities' argument that particular s ubsidies had been "extinguished" through a series
of arm's-length, fair market value transactions, w ith the result that Airbus SAS does not currently
enjoy subsidies that could cause the adve rse effects alleged by the United States. 1621 O n t h e s a m e

1615Panel Report, para. 7.219. The Panel referred, in support, to Panel Report, US – Upland Cotton ,
para. 7.1179.
1616Panel Report, para. 7.221.
1617Panel Report, para. 7.221.
1618Panel Report, para. 7.221.
1619Panel Report, para. 7.221.
1620Panel Report, para. 7.222.
1621Panel Report, para. 7.223.
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basis, the Panel also rejected the European Communities' argument that the removal of cash—referred
to as "cash extractions"—from two Airbus compani es had the effect of extinguishing a portion of
benefits to them.
1622 The Panel explained that these argumen ts rested on the European Communities'
"flawed interpretation" of Article 5 of the SCM Agreement, including its assumption that, in order for
a subsidy to be potentially capable of causing adver se effects within the meaning of that provision, a
complainant must demonstrate that a subsidy that is found to exist additionally confers a "present" or
"continuing" benefit on a recipient.1623
(b) Do Articles 1, 5, and 6 of the SCM Agreement require the
demonstration of a "continuing benefit"?
698. The European Union requests the Appellate B ody to find that the Panel erred in the
interpretation and application of Articles 1, 5, and 6 of the SCM Agreement.1624 According to the
European Union, the Panel ignored the "legal prin ciple" reflected in these provisions that, when a
benefit to a recipient arising from prior subsidies diminishes over time or is removed or is taken away,
there is a "significant change" that must be taken into account in the application of the
SCM Agreement and, in particular, in the examination of the causal link between the granting of the
subsidy and the alleged adverse effects. 1625 According to the European Union, the determination that
a subsidy exists or has been granted does not precl ude the possibility of using amortization rules to
allocate the amount of benefit over time to determin e whether such subsidy s till confers, or no longer
confers, a benefit. In the European Union's view, this is particularly relevant in the causation analysis,
since a subsidy that can be considered fully amor tized before the referen ce period cannot be found to
cause present adverse effects.1626
699. The European Union argues that the text of Articles 1, 5, and 6 of the SCM Agreement
support the notion of a "continuing benefit". First, Article 1 defines the conditions under which a
subsidy "shall be deemed to exist". The use of the word "exist", in the present tense, demonstrates
that the SCM Agreement is not concerned with subsidies that no longer exist and that are not capable
of causing adverse effects.1627 Further, once a financial contribution is granted, the only element under
Article 1 that can "cease to exist" or be discontinue d over time if there is a significant change, either
through the passage of time or any other "inter vening event" or action, is the "benefit". 1628 Second,

1622See Panel Report, para. 7.266.
1623See Panel Report, paras. 7.222, 7.223, and 7.266.
1624European Union's appellant's submission, para. 198.
1626European Union's appellant's submission, para. 223.
1627European Union's appellant's submission, para. 204.
1628European Union's appellant's submission, para. 205.
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the European Union submits that the wording of Ar ticles 5 and 6, and particularly the use of the
present tense in these provisions, supports the view th at subsidies that have been withdrawn, have
ceased to exist, or whose effects have diminished with the passage of time, cannot currently "cause"
present adverse effects.
1629
700. The United States requests the Appellate Body to uphold the Panel's finding that, on a proper
interpretation of Articles 1, 5, and 6 of the SCM Agreement, there is no requirement to demonstrate a
"continuing benefit" for purposes of an adverse effe cts analysis. The United States contends that the
phrase "shall be deemed to exist" in Article 1 of the SCM Agreement indicates that anyone applying
the definition must consider a subsidy to exist, at the time of analysis, if it meets the listed criteria in
Article 1—namely that "there is" a financial c ontribution and a benefit "is" thereby conferred.
1630 The
United States supports the Panel's finding that th e use of the present tense with respect to the
"financial contribution" and "benefit", and the use of the term "thereby" to indicate the relationship
between them, indicate that they exist at the same time. 1631 Finally, the United States does not agree
that the text of Articles 5 and 6 indicates anythi ng about the time at which the causing of adverse
effects must occur; nor do they support a re quirement to demonstrate a "continuing benefit". 1632
While the United States recognizes that a complaining party may have more trouble establishing a
causal link between subsidies and alleged current a dverse effects where an extended period of time
has passed or market conditions have changed, the Un ited States considers that this "is a question for
the adverse effects analysis, and not a matter to resolve through a presumption as to what a subsidy
with a diminished benefit can do."1633
701. As the participants disagree on whether and, if so, how an assessment of the benefit conferred
under Article 1.1(b) of the SCM Agreement relates to the adverse effects analysis that must be
conducted by a panel pursuant to Articles 5 and 6, we begin by setting out our interpretation of these
provisions. Thereafter, we address the European Union's specific argument that Articles 5 and 6
impose an obligation on a complaining party to demonstrate the existence of a "present" or
"continuing" benefit at the time when adverse effects are alleged to occur.

1629European Union's appellant's submission, paras. 207 and 208.
1632United States' appellee's submission, paras. 99 and 100.
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702. Article 1.1 of the SCM Agreement provides that a subsidy "shall be deemed to exist" where
two elements are demonstrated: (i) there is a "financial contribution by a government or any public
body within the territory of a Member"; a nd (ii) "a benefit is thereby conferred".
1634 The Appellate
Body has clarified the dual elements inherent in the definition of a "subsidy" in Article 1.1 in
Canada – Aircraft:
The first element of this definiti on is concerned with whether the
government made a "financial contri bution", as that term is defined
in Article 1.1(a). The focus of the first element is on the action of the
government in making the "financial contribution". That being so, it
seems to us logical that the second element in Article 1.1 is
concerned with the "benefit… conferred" on the recipient by that
governmental action. Thus, subparagr aphs (a) and (b) of Article 1.1
define a "subsidy" by reference, first, to the action of the granting
authority and, second, to what was conferred on the recipient.
1635
The definition of a subsidy is therefore met when a "financial contribution" and the "benefit ...
conferred" by the financial contribution co-exist.1636
703. Article 1.1(a)(1)(i)-(iv) lists the types of g overnment action that qualify as "financial
contribution{s}". The SCM Agreement does not define what constitu tes a "benefit" for purposes of
Article 1.1(b), and the meaning of that term has in stead been elucidated through panel and Appellate
Body jurisprudence. In its interpretation of Artic le 1.1(b), the Appellate Body has derived important
contextual support from Article 14 of the SCM Agreement, even though the opening clause of
Article 14 limits the scope of application of that provision to Part V of the SCM Agreement, which is
concerned with countervailing measures.1637

1634We note that, pursuant to Articles 1.1(a)(2) and 1.1(b), a subsidy shall also be deemed to exist if
"there is any form of income or price support in the sense of Article XVI of the GATT 1994" and "a benefit is
thereby conferred".
1636Both the European Union and the United States seem to interpret Article 1.1 of the SCM Agreement
to mean that the financial contribution and benefit come into existence simultaneously. (See European Union's
appellant's submission, para. 223; and United States' appellee's submission, paras. 89 and 90)
1637In Canada – Aircraft, the Appellate Body noted that:
{a}lthough the opening words of Article 14 state that the guidelines it
establishes apply "{f}or the purposes of Part V" of the SCM Agreement,
which relates to "countervailing measures"', our view is that Article 14,
nonetheless, constitutes relevant context for the interpretation of 'benefit' in
Article 1.1(b).
(Appellate Body Report, Canada – Aircraft, para. 155)
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704. In Canada – Aircraft , the Appellate Body clarified what must be demonstrated in order to
establish that a "benefit is ... conferred" within the me aning of Article 1.1(b). First, a benefit must be
shown to have been conferred on a "recipient".
1638 In support, the Appellate Body referred to
Article 14, which requires the calculation of a subsidy in terms of the "benefit to the recipient".1639 As
the Appellate Body explained:
A "benefit" does not exist in the abstract, but must be received and
enjoyed by a beneficiary or a recipient. Logically, a "benefit" can be
said to arise only if a person, natural or legal, or a group of persons,
has in fact received something.
1640
705. Second, whether a "benefit" has been "conferre d" requires a panel to determine whether the
recipient has been made "better o ff" than it would have been absent the financial contribution. In
Canada – Aircraft, the Appellate Body stated that the "marketplace provides an appropriate basis for
comparison in determining whether a 'benefit' ha s been 'conferred', because the trade-distorting
potential of a 'financial contribution' can be id entified by determining whether the recipient has
received a 'financial contribution' on terms more favour able than those available to the recipient in the
market."1641
706. The context provided by Article 14 of the SCM Agreement confirms that the marketplace is
the appropriate basis for comparison. Article 14(a)-(d) sets out various guidelines and benchmarks for
determining whether a "benefit" arises from a govern ment's provision of equity capital, loans, loan
guarantees, goods or services, and its purchase of goods. Under a "benefit" analysis, a comparison is
made between the terms and conditions of the financia l contribution when it is granted with the terms
and conditions that would have been offered on the market at that time . For instance, Article 14(a),
which deals with the provision of equity capital, focuses on whether the investment decision comports
with "the usual investment practice … of private i nvestors". Article 14(b) calls for a comparison of
the "amount that the firm receiving the loan pays on the government loan" with "the amount the firm
would pay on a comparable commercial loan which the firm could actually obtain in the market".
Article 14(c) requires a comparison between "the amount that the firm receiving the guarantee pays
on a loan guaranteed by the government" with "the amount the firm would pay on a comparable
commercial loan absent the government guarantee". These provisions support the view that a panel's

1638See Appellate Body Report, Canada – Aircraft, paras. 155 and 156. The Appellate Body has stated
that the SCM Agreement does not provide a specific definition of a "recipient" of a benefit, but uses several
terms throughout the SCM Agreement to refer to a "recipient". (See Appellate Body Report, US –
Countervailing Measures on Certain EC Products, para. 112)
1639Appellate Body Report, Canada – Aircraft, para. 155. (original emphasis)
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assessment of benefit should focus on the relevant market benchmark at the time the financial
contribution is granted to the recipient. That be nchmark entails a consideration of what a market
participant would have been able to secure on the market at that time. The market benchmark is
predicated upon a projection as to the anticipated flow of returns that are expected to accrue as a result
of the financial contribution. Consequently, the de termination of benefit unde r Article 1.1(b) of the
SCM Agreement is an ex ante analysis that does not depend on how the particular financial
contribution actually performed after it was granted.
707. The ordinary meaning of Article 1.1, read in the light of Article 14 of the SCM Agreement,
confirms, therefore, that a benefit analysis un der Article 1.1(b) is forward-looking and focuses on
future projections.
1642 The nature, amount, and projected u se of the challenged subsidy may be
relevant factors to consider in an assessment of the period over which th e benefit from a financial
contribution might be expected to flow. A panel may consider, for example, as part of its ex ante
analysis of benefit, whether the subsidy is allocat ed to purchase inputs or fixed assets; the useful life
of these inputs or assets; whether the subsidy is la rge or small; and the period of time over which the
subsidy is expected to be used for future production.
708. As we have explained above, "a subsidy shall be deemed to ex ist" for purposes of Article 1.1
of the SCM Agreement if there is a "financial contribution by a government" and "a benefit is thereby
conferred." The word "thereby" indicates that it is the financial contribution th at confers the benefit.
A subsidy therefore comes into existence when a government provides a financial contribution that
confers a benefit. However, the fact that a subsidy is "deemed to exist" under Article 1.1 once there is
a financial contribution that confers a benefit does not mean that a subsidy does not continue to exist
after the act of granting the financial contribution. This is confirmed, for example, by the text of
Articles 4.7 and 7.8 of the SCM Agreement. The reference in those provisions to "withdrawing" the
subsidy would be rendered meaningles s if a subsidy did not continue to exist after its conferral on a
recipient.1643
709. We understand the participants to agree with the basic proposition that a subsidy has a life,
which may come to an end, either through the removal of the financial contribution and/or the
expiration of the benefit. In the pa rticular context of Part III of the SCM Agreement, a panel is called
upon to determine whether the complainant has dem onstrated that the responding party is causing,

1642We discuss this issue in more detail in section VI.B of this Report.
 1643We also note that, in a Part V context, the Appellate Body has found that an investigating authority
may presume, for purposes of an administrative review under Article 21.2 of the SCM Agreement , "that a
'benefit' continues to flow from an untied, non-recurring 'financial contribution'", although this presumption is
not irrebuttable. (Appellate Body Report, US – Lead and Bismuth II, para. 62; see also Appellate Body Report,
US – Countervailing Measures on Certain EC Products, para. 84)
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through the use of any subsidy, adverse effects. The fact that Article 5 of the SCM Agreement speaks
of "any subsidy referred to in pa ragraphs 1 and 2 of Article 1", wh ich in turn sets out the conditions
under which a subsidy is "deemed to exist", does not mean that the subsidy remains unchanged over
time. At the time of the grant of a subsidy, the s ubsidy will necessarily be projected to have a finite
life and to be utilized over that finite period. In order properly to assess a complaint under Article 5
that a subsidy causes adverse effects, a panel must take into account that a subsidy provided accrues
and diminishes over time, and will have a finite life. The adverse effects analysis under Article 5 is
distinct from the "benefit" analysis under Article 1.1(b) of the SCM Agreement and there is
consequently no need to re-evaluate under Article 5 the amount of the benefit conferred pursuant to
Article 1.1(b). Rather, an adverse effects analysis under Article 5 must consider the trajectory of the
subsidy as it was projected to materialize over a certa in period at the time of the grant. Separately,
where it is so argued, a panel must assess whether there are "intervening events" that occurred after
the grant of the subsidy that may affect the proj ected value of the subsidy as determined under the
ex ante analysis. Such events may be relevant to an adverse effects analysis because they may affect
the link that a complaining party is seeking to establish between the subsidy and its alleged effects.
710. In sum, a panel's analysis of the adverse effects must take into account how the subsidy has
materialized over time. As part of this analysis, a panel must assess how the subsidy is affected, both
by the depreciation of the subsidy that was projected ex ante and the "intervening events" referred to
by a party that may have occurred following its grant.
1644
711. With these considerations in mind, we turn no w to the European Union's contention that a
complaining party must demonstrate the existen ce of a "continuing benefit" during the reference
period in order to show that a subsidy is capable of causing present adverse effects. The
European Union supports its argument by referring to the text of Articles 5 and 6.3 of the
SCM Agreement. In its view, the use of the present ten se in Article 5 (no Member should "cause"
adverse effects) illustrates that subsidies that ha ve been withdrawn or have ceased to exist cannot
"currently cause" adverse effects. Moreover, the use of the present tense in subparagraphs (a)-(d) of
Article 6.3, each of which refer to what the "effect of the subsidy is"
1645, also suggests that subsidies
that have been withdrawn or have ceased to exist cannot trigger the types of effects enumerated in

1644For this reason, we disagree with the Panel, at paragraphs 7.224, 7.225, and 7.266 of the Panel
Report, insofar as it suggests that a consideration of "intervening events", such as the "extinction" and
"extraction" of subsidies, are not relevant under an adverse effects analysis. See paras. 725 and 745 of this
Report.
1645European Union's appellant's submission, para. 208. (emphasis added)
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Article 6.3.
1646 In the European Union's view, "{i}t is not conceivable how a Member through
granting or maintaining a subsidy that is later on withdrawn or otherwise discontinued or diminished
to a negligible amount can cause present adverse effects." 1647 Moreover, "{i}ndirect effects resulting
from subsidies that have ceased to exist cannot be sufficient. If such a historic subsidy 'caused'
something to happen many years ago, the continuing existence of what was caused and the fact that
that effect may have continuing effects today cannot be considered to satisfy the test of Article 5 of
the SCM Agreement."1648 In the European Union's view, "{s} uch an interpretation would overstretch
the concept of adverse effects caused by a subsidy and, thereby, make it meaningless."1649
712. The text of Articles 5 and 6 of the SCM Agreement, and in particular the use of the present
tense in these provisions, does not support the proposi tion that there must be "present benefit" during
the reference period. In its argumentation, the European Union conflates present adverse effects,
which must be demonstrated under Article 6.3, with present subsidization, which need not. It is not
disputed that Article 6.3 is concerned with present adverse effects. 1650 However, the requirement that
the effects of subsidies be felt in the reference period, does not mean that the subsidies, and in
particular the benefit conferred, must also be present during that period. In focusing on the causing of
adverse effects through the use of any subsidy, Artic le 5 envisages that the use of the subsidy and the
adverse effects may not be contemporaneous. This is supported by the Appellate Body's finding in
US – Upland Cotton, that the provision of subsidies and their effects need not coincide temporally and
that there may be a time lag. 1651 There, the Appellate Body referred to Article 6.2 of the
SCM Agreement, which precludes a finding of serious prejudice if the subsidizing Member
demonstrates that "the subsidy in question has not resulted in any of the effects enumerated in

1646European Union's appellant's submission, para. 208. At the oral hearing, the European Union
argued that the reference in Article 6.3(c) and (d) to a "subsidized" product reinforces its view that the product
at issue must be "currently subsidized" at the time that adverse effects are alleged to be present.
1647European Union's appellant's submission, para. 207.
1648European Union's appellant's submission, para. 207.
1649European Union's appellant's submission, para. 207.
1650Elsewhere in its Report, the Panel explained why adverse effects had to be shown to be "present".
The Panel noted, for instance, that subparagraphs (a), (b), and (c) of Article 6.3 are plainly drafted with
reference to the present, as each be gins "the effect of the subsidy is …". (Panel Report, footnote 5140 to
para. 7.1694 (original boldface))
1651One of the issues in US – Upland Cotton was whether the subsidy benefit had to be allocated to the
year when it was paid or whether that could be done over a longer period. Speci fically, the Appellate Body
explored whether in the context of a significant price suppression analysis under Article 6.3(c) of the
SCM Agreement the effect of a subsidy could be found to continue beyond the year in which it is paid. In
distinguishing between the grant of a subsidy and its effects, the Appellate Body explained that whether the
effect of a subsidy begins and expires in the year in wh ich it is paid, or in subseque nt years, are fact-specific
questions, and would depend on the nature of the subsidy and the product at issue. The Appellate Body found
that nothing in that provision a priori excluded that the effect of the "recurring" subsid y at issue in that case
could continue after the year in which it was paid. (Appellate Body Report, US – Upland Cotton , paras. 476,
482, and 484)
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{Article 6.3}".
1652 Moreover, Article 7.8 of the SCM Agreement refers to a subsidy that "has resulted"
in the adverse effects referred to in Article 5. By its terms, Article 5 of the SCM Agreement imposes
an obligation on Members not to cause adverse effe cts to the interests of other Members through the
use of any subsidy as defined in Article 1. We disagree with the proposition that this obligation does
not arise in respect of subsidies that have come to an end by the time of the reference period. In fact,
we do not exclude that, under certain circumstances, a past subsidy that no longer exists may be found
to cause or have caused adverse effects that continue to be present during the reference period.
713. For these reasons, we agree with the Panel that the United States was not required, under
Article 5 of the SCM Agreement, to establish "that all or part of the 'benefit' found to have been
conferred by the provision of a financial contri bution continues to exist, or presently exists" 1653 during
the reference period. We wish to emphasize, how ever, that effects of a subsidy will ordinarily
dissipate over time and will end at some point after the subsidy has expired. Indeed, as with a subsidy
that has a finite life and materializes over time, so too do the effects of a subsidy accrue and diminish
over time.
714. The Panel was of the view that the concept of "continuing benefit" may be relevant for
purposes of assessing how the effect of a subsidy is to be analyzed over time, and considered this to be
an aspect of the causation analysis to be und ertaken pursuant to Articles 5 and 6 of the
SCM Agreement and part of an assessment of the "effects" of a subsidy under these provisions. 1654 It
is relevant, in our view, to examine the trajectory of the life of a subsidy in order to determine whether
a Member is causing, through the use of any subsid y, adverse effects to the interests of another
Member within the meaning of Article 5 of the SCM Agreement. Moreover, a panel should consider,
where relevant for the adverse eff ects analysis, that the effects of a subsidy will ordinarily dissipate
over time and will come to an end.
715. In sum, therefore, we modify the Panel's interpretation, but uphold the Panel's ultimate
finding, in paragraphs 7.222 and 7.287 of the Panel Report, that Articles 5 and 6 of the
SCM Agreement do not require that a complainant demonstr ate that a benefit "continues" or is
"present" during the reference period for purposes of an adverse effects analysis.

1652Appellate Body Report, US – Upland Cotton , para. 477. According to the Appellate Body, the
word "resulted" in this sentence highlights the temporal relationship between the subsidy and the effect, in that
one might expect a time lag between the provision of the subsidy and the resulting effect. In addition, the
Appellate Body has considered that the use of the present perfect tense in this provision implies that some time
may have passed between the granting of the subsidy and the demonstration of the absence of its effects. (Ibid.)
1653Panel Report, para. 7.222.
1654Panel Report, para. 7.218.
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2. Analysis of "Extinction", "Extraction", and "Pass-Through" of Subsidies

716. We have found in the previous section that a subsidy materializes over time and has a finite
life and that this may be relevant to a panel' s adverse effects analysis under Part III of the
SCM Agreement. As we have also mentioned, quite ap art from the passage of time, there may be
events occurring after the grant of the subsidy that diminish it or bring it to an end. In this dispute, the
European Union refers to a number of "intervening ev ents" that it submits reduce, or bring to an end,
all or part of the subsidies provided to Airbus co mpanies and therefore should have been taken into
account by the Panel as part of its adverse effects analysis. 1655 The European Union identifies the
following "intervening events":
(a) shares in an enterprise that has previously received subsidies are subsequently bought
by new private owners in sales transacti ons conducted at arm's length and for fair
market value, resulting in the "extinction" of subsidies;
(b) a parent company removes cash or cash e quivalents from a wholly owned subsidiary
that has previously received subsidies, resulting in the "extraction" of subsidies; and
(c) a company that has previously received subsidies is restructured and legally
reorganized to form a new company, resulting in a situation in which the subsidies do
not "pass through" to the new company.1656
717. In the subsections that follow, we apply our interp retation of Articles 1, 5, and 6, first, to the
European Union's arguments on "extinction" and "extraction" of subsidies, and then to its argument
on the "pass-through" of subsidies. As these argu ments are premised on factual events concerning
Airbus companies, we refer to section IV.B of th is Report, where we have traced the evolution of
Airbus companies and, in particular, the devel opment of the European aircraft industry from its
origins as a partnership among four individual European companies to the current single corporate

1655We recall that the Panel considered the Europ ean Communities' arguments on "extinction" and
"extraction" on an alternative basis, that is, in the event that the Appellate Body reversed its finding that
Article 5 does not require a showing, by the complainant, of a "continuing benefit" during the reference period.
Although, for the reasons provided above, we have upheld the Panel's finding that Articles 5 and 6 do not
require such a showing, in the light of our finding in paragraphs 709 and 710 that "intervening events" are
relevant under an adverse effects analysis, we pro ceed to consider the European Union's arguments on
"extinction" and "extraction" of subsidies.
1656Unlike the two previous situations concerning the "extinction" and "extraction" of subsidies that the
European Union alleges resulted in the diminution of pa st subsidies, the European Union argues that this
situation requires that a complaining party demonstrate the "pass-through" of the subsidy to the current producer
of the alleged subsidized product.
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entity, Airbus SAS. Where necessary, we provide further details below with respect to the specific
Airbus companies and transactions implicated in the European Union's arguments.
(a) Extinction of subsidies
718. The European Union argues that certain transactions involving sales of shares in
Aérospatiale-Matra, EADS, and Airbus SAS
1657 were conducted at "arm's length" and for "fair market
value" and therefore "extinguished", in full or in part, alleged subsidies remaining in those companies.
These transactions consist of the following: (i ) the French Government's sale of shares in
Aérospatiale-Matra in 2000; (ii) the combinati on of the LCA-related assets and activities of the
Airbus partners to form EADS and the public offe ring of EADS shares in 2000; (iii) sales of EADS
shares by various shareholders between 2001 and 2006, including sales by the French Government
and Lagardère in 2001 (0.93% and 2.07%, respectivel y), a sale by DaimlerChrysler in 2004 (2.75%),
and sales by DaimlerChrysler and La gardère in 2006 (totalling 15%); and (iv) the exercise of a "put
option" and sale by BAE Systems of its 20% interest in Airbus SAS to EADS in 2006.
1658
719. We recall that, having found that Article 5 of the SCM Agreement did not require the
United States to demonstrate the existence of a "c ontinuing benefit", the Panel proceeded to consider,
in the alternative, whether, as the European Communities had argued, "in the context of a claim under
Part III of the SCM Agreement, the existence of a benefit conferred by a financial contribution
provided to a recipient is presumptively extinguished by the subsequent sale of the recipient to an
arm's-length purchaser for fair market value." 1659 In support of its position, the
European Communities referred to the reasonings and findings of the panels and the Appellate Body
in US – Lead and Bismuth II and US – Countervailing Measures on Certain EC Products (the
"privatization cases"), arguing that they established the existence of a "principle" that "the sale of a
producer at arm's-length and for fair market valu e presumptively extinguishes the 'benefit' conferred
by any financial contributions previously provided to that producer." 1660 Noting, inter alia, that the
Appellate Body indicated in US – Countervailing Measures on Certain EC Products that the findings
of the panel in that dispute should be confined to the "very precise set of facts and circumstances" of

1657For a fuller description of these Airbus companies, see supra, paras. 578-582.
1658See Panel Report, para. 7.204 and accompanying table compiled on the basis of information
provided by the European Communities in its response to Panel Question 111, para. 316.
1659Panel Report, para. 7.224.
1660Panel Report, para. 7.239.
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that case, the Panel did not consider that it w ould be appropriate to r ecognize a "principle" of
extinction as argued by the European Communities.
1661 The Panel concluded that:
… to the extent that prior reports of the Appellate Body support the
conclusion that, in a dispute under Part III of the SCM Agreement,
changes in the ownership of a subsidized producer give rise to a
rebuttable presumption that the benefit conferred by prior subsidies is
extinguished ... this would only be where (i) benefits resulting from a
prior nonrecurring financial contribution, (ii) are bestowed on a state-
owned enterprise, and (iii) following a privatization at arm's length
and for fair market value, (iv) the government transfers all or
substantially all the property and re tains no controlling interest in the
privatized producer.
1662
For the Panel, however, the European Communities had not demonstrated that the sales transactions at
issue in this case "fulfil{led} all of the above criteria".1663
720. The European Union challenges the Panel's fi ndings on appeal, arguing, as it did before the
Panel, that the Appellate Body in US – Lead and Bismuth II and US – Countervailing Measures on
Certain EC Products established a "principle" that the sale of a subsidized company at arm's length
and for fair market value removes or "extinguishes" the benefit of prior subsidies to the buyer. Such a
"principle", the European Union submits, is equally applicable to full and partial privatizations, as
well as to sales between private entities. 1664 The United States counters that the Panel properly relied
on the Appellate Body's reasoning in US – Countervailing Measures on Certain EC Products to reject
the European Communities' attempt to extend the ruling in that case to partial privatizations and sales
between private entities. For the Un ited States, therefore, any "princip le" of extinction is applicable
exclusively to situations involving full privatiza tions accompanied by full relinquishment of control
by the government.1665
721. It is clear that the participants draw di vergent inferences from the Appellate Body's
conclusions in its privatization case law and disagr ee as to the circumstances that give rise to a
presumption of the "extinction" of benefits. Therefor e, we find it useful to begin by restating the core
findings of the Appellate Body in the privatization cases.

1661Panel Report, para. 7.239 (referring to Appellate Body Report, US – Countervailing Measures on
Certain EC Products, para. 117).
1662Panel Report, para. 7.248.
1663Panel Report, para. 7.249.
1664European Union's appellant's submission, para. 226.
WT/DS316/AB/R BCI deleted, as indicated [***]

722. The disputes in US – Lead and Bismuth II and US – Countervailing Measures on Certain EC
Products arose in the context of Part V of the SCM Agreement.
1666 In particular, they involved an
examination of USDOC methodologies for levying countervailing duties on imports of firms whose
ownership had changed through privatizati on, and the application of these methodologies. 1667 In both
privatization cases, former state-owned companies were privatized through transactions at arm's
length and for fair market value resulting in the co mplete transfer of ownership and control of the
state-owned firms from the government to new private owners.1668
723. The Appellate Body found in both cases that an investigating authority could treat benefits
provided to the state-owned firm as having been "e xtinguished", and therefore not passed to the new
private owners, following the privatization of the firm through transactions conducted at arm's length
and for fair market value. 1669 I n US – Countervailing Measures on Certain EC Products , the
Appellate Body stated that "{p}rivatizations at arm's length and for fair market value may result in
extinguishing the benefit" and that "there is a re buttable presumption that a benefit ceases to exist
after such a privatization." 1670 Significantly, however, the Appella te Body emphasized that there is
"no inflexible rule requiring that investigating authorities, in future cases, automatically determine

1666We recall that, in a Part V context, countervailing duties are "specific to individual companies" and
require a more precise quantification of subsidization, as opposed to a Part III context, where the remedy
"targets the effects of the subsidy more generally". (Appellate Body Report, US – Upland Cotton, para. 464)
1667In US – Lead and Bismuth II , the European Communities brought a complaint against the
United States for levying countervailing duties on imports of certain leaded bars from privatized UK companies
following administrative reviews in 1995, 1996, and 1997. Between 1977 and 1986, the companies were state-
owned and received subsidies that were used to develop capacity for producing leaded bars. In US –
Countervailing Measures on Certain EC Products , the European Communities challenged 12 countervailing
duty determinations by the USDOC on imports of certain steel products originating in the
European Communities. The European Communities challenged the application by the USDOC of the
"gamma" method and the "same person" method to determine whether non-recurring subsidies granted to
state-owned recipients prior to th eir full privatization at arm's lengt h and for fair market value where
government sold all, or substantially all, their ownershi p interests and no longer had any controlling interests in
the privatized producers, remained countervailable.
1668Appellate Body Report, US – Countervailing Measures on Certain EC Products, para. 2; Appellate
Body Report, US – Lead and Bismuth II, para. 2.
1669In US – Lead and Bismuth II, the Appellate Body found that:
{t}he question whether a "financial contribution" confers a "benefit"
depends ... on whether the recipient ha s received a "financial contribution"
on terms more favourable than those available to the recipient in the market.
In the present case, the Panel made f actual findings that {the new producers
of imported leaded bars} UES and BSplc/BSES paid fair market value for
all the productive assets, goodwill, et c., they acquired from {the state-
owned} BSC and subsequently used in the production of leaded bars
imported into the United States in 1994, 1995 and 1996. We, therefore, see
no error in the Panel's conclusion that , in the specific circumstances of this
case, the "financial contributions" bestowed on BSC between 1977 and 1986
could not be deemed to confer a "benefit" on UES and BSplc/BSES.
(Appellate Body Report, US – Lead and Bismuth II, para. 68)
1670Appellate Body Report, US – Countervailing Measures on Certain EC Products , para. 127.
(original emphasis)
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that a 'benefit' derived from pre-privatization financ ial contributions expires following privatization at
arm's length and for fair-market value."
1671 Rather, as the Appellate Body stated, "{i}t depends on the
facts of each case."1672
724. In the present case, we are not in a Part V contex t where the question arises as to the rate of
subsidization present in the product that is being c ountervailed. Nor do any of the sales transactions
in this dispute amount to a full privatization of a previously state-owned company. Instead, the issue
is whether, as alleged by the European Union, sales of shares between private entities, and sales
conducted in the context of partial pr ivatizations, eliminate all or part of past subsidies, and whether
this, in turn, results in a change that should be taken into account in assessing whether past subsidies
are causing present adverse effects under Article 5 of the SCM Agreement.
725. Neither of the participants question that the past rulings in the privatization cases stand for the
proposition that a presumption of extinction arises where there is a full privatization. We recall that,
in both cases, the full privatizations involved sales at fair market value and at arm's length, and that
there was a complete transfer of ownership and control. In a partial privatization as well as in private-
to-private sales, not all of the elements of a full pr ivatization are present. Therefore, consistent with
the Appellate Body's guidance, a fact-intensive inquiry into the circumstances surrounding the
changes in ownership would be required in order to determine the extent to which there are sales at
fair market value and at arm's length, accompanie d by transfers of ownership and control, and
whether a prior subsidy could be deemed to have co me to an end. Moreover, a panel assessing claims
under Part III of the SCM Agreement would have to examine whether th e transactions are of a nature,
kind, and amount so as to affect an adverse effe cts analysis and attenuate the link sought to be
established by the complaining party under Articles 5 and 6 of the SCM Agreement between the
alleged subsidies and their alleged effects.
726. Although the Members of this Division discussed at length the issue of extinction of subsidies
in the context of partial privatizations and pr ivate-to-private sales, no common view emerged.
Without prejudice to the further considerations and findings set out below, each Member of the
Division wishes to set out separate views on this issue:
(a) Noting that the Appellate Body has previous ly ruled in privatization cases that a full
privatization, conducted at arm's length and for fair market value involving a
complete or substantial transfer of ow nership and control, "extinguishes" prior

1671Appellate Body Report, US – Countervailing Measures on Certain EC Products , para. 127.
(original emphasis)
1672Appellate Body Report, US – Countervailing Measures on Certain EC Products, para. 127.
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subsidies, one Member is of the view th at this rule does not apply to partial
privatizations or to private-to-private sales.
(b) One Member noted that, as discussed above, the Appellate Body ruled in US –
Countervailing Measures on Certain EC Products that, in the context of Part V of the
SCM Agreement, full privatization at arm's length and for fair market value may result
in extinguishing the benefit received from the non-recurring financial contribution
bestowed upon a state-owned firm.
1673 In response to an argument made by the
United States in that case, the Appellate Body observed that privatization at arm's
length and for fair market value does not remove the equipment that a state-owned
enterprise may have acquired with the fina ncial contribution and that, consequently,
the same firm may continue to make the sa me products with the same equipment.
The Appellate Body agreed with the United States that the utility value of equipment
acquired as a result of the financial contri bution is not extinguished as a result of a
privatization at arm's length and for fair market value. However, as the Appellate
Body explained, the utility value of such e quipment to the newly privatized firm is
legally irrelevant for purposes of determini ng the continued existence of a "benefit"
under the SCM Agreement .
1674 The Appellate Body recalled that it had found in
Canada – Aircraft that the value of the benefit under the SCM Agreement is to be
assessed using the marketplace as the basis for co mparison. It follows, therefore, that
once a fair market price is paid for the equipment, or more broadly the assets of a
company, their market value is redeemed, regardless of the utility value a firm may
derive therefrom. In response to the argument by the United States that nothing about
the company changes as a result of the priva tization, the Appellate Body agreed with
the panel in US – Countervailing Measures on Certain EC Products that the new
private owners are "profit-maximizers " who will seek to "recoup{} through the
privatized company … a market return on the full amount of their investment." 1675
Therefore, the new private owners may no longer benefit from any subsidies received
by the company before its privatization. This Member considers the rationale
underlying the Appellate Body's case law on full privatization in the context of Part V
of the SCM Agreement equally to apply in situations of partial privatization and
private-to-private transactions and in the context of Part III of the SCM Agreement.

1673Appellate Body Report, US – Countervailing Measures on Certain EC Products, para. 127.
1674Appellate Body Report, US – Countervailing Measures on Certain EC Products, para. 102.
1675Appellate Body Report, US – Countervailing Measures on Certain EC Products , para. 103
(referring to Panel Report, US – Countervailing Measures on Certain EC Products, para. 7.60).
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However, this Member also notes that , as the Appellate Body emphasized in US –
Countervailing Measures on Certain EC Products , there is "no inflexible rule" that a
"benefit" derived from pre-privatization fi nancial contributions expires following
privatization at arm's length and for fair-market value.
1676 Rather, as the
Appellate Body stated, "{i}t depends on the facts of each case." 1677 An important
question in this context is to what extent th e partial privatization or private-to-private
transactions resulted in a transfer of cont rol to new owners who paid fair market
value for shares in the company.
(c) One Member of the Division, though affirmi ng the general test that an extinction of
benefit is to be determined upon a considera tion of all relevant facts, entertains no
small measure of doubt that an acquisition of shares, concluded at arm's length and
for fair market value, constitutes releva nt circumstances warranting the conclusion
that an extinction of benefit has taken place. A subsidy granted to a recipient
company contributes to the net asset value of that company. The value of that asset
permits the recipient to enjoy an enhanced stream of future earnings over the life of
the asset. The asset is the property of the recipient. The recipient's shareholders
enjoy the right to the dividends that may be declared by the recipient and to any
capital gains that arise from the enhanced earnings attributable to the recipient. When
shares change hands on an arm's-length basis and for fair market value, the buyer
pays a price that, in the estimation of th e buyer, places a proper value on the future
earnings of the recipient. Those earnings de rive from all the assets of the recipient,
including the benefit of any subsidy paid to the recipient. One shareholder may not
accurately value or properly manage the assets of the recipient. Precisely for this
reason, sales of shares take place: the buyer believes that the assets, properly
managed, will be worth more over time than the price paid, and the seller believes the
opposite. Time will tell who is correct. The central point is that a sale of shares,
whether or not it conveys control, transfers rights in the shares to a new owner. The
assets of the company, to which the shares att ach, do not change at all. Nor could it
be otherwise, because the buyer would then not acquire the full benefit of the bargain:
the buyer would pay for an asset (the subsidy) that had in the very sales transaction
been "extinguished". Shares in listed comp anies are traded on st ock exchanges with
great frequency and without any fear that sales on the market diminish the underlying

1676Appellate Body Report, US – Countervailing Measures on Certain EC Products, para. 127.
1677Appellate Body Report, US – Countervailing Measures on Certain EC Products, para. 127.
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value of the assets owned by these companies. The changing price of listed securities
reflects the different valuations that buyers and sellers place upon companies and
their underlying assets. However, nothing about these trades extracts the value of any
asset, including the benefit of any subsidy gran ted. That subsidy continues to benefit
the recipient, even if the ownership of th e recipient's shares changes from one day to
another. Given that the Appellate Body in this case does not need to come to any
final view on the issue of extinction in the context of a partial privatization or private-
to-private sales, these matters do not require more definitive determination.
727. To support its position that an extinction "princip le" applies equally to partial privatizations,
and that "a partial change of ownership leads to a partial removal of th e subsidy and a partial
discontinuation of benefit"
1678, the European Union refers to the compliance panel's ruling in US –
Countervailing Measures on Certain EC Products (Article 21.5 – EC) . In particular, the
European Union argues that the panel in thos e proceedings was required to determine the
WTO-consistency of the USDOC's revised privati zation methodology and its application to three
sunset review re-determinations. One of the priv atizations at issue was the French Government's
privatization of Usinor, which occurred in increm ental stages over a three-year period through four
types of share offerings to four different classes of purchasers. Rather than considering the company
as a whole, the USDOC had separately considered the sales transactions pertaining to the four
different categories of share offerings and applied its revised privatization methodology to each of the
four categories of share offerings in order to eval uate whether the sales transactions in each share
offering occurred at arm's length and for fair market value. 1679 The compliance panel found that,
"given the complexity of the privatization pr ocess, ... the USDOC's segmented analysis of the
conditions of Usinor's privatization {was} not unreasonable and was applied in a transparent
manner."1680 As the European Union points out, the compliance panel thereby upheld an approach in
which the sale at fair market value and at arm's length of three of the four share offerings (that is, all,
save for the 5.16% share offerings to current an d qualifying former employees) were deemed to
"extinguish" pre-privatization subsidies. 1681 However, as the United States also notes, "{e}ven if the
employee share purchases led to the conclusion that the privatization did not cover 100 percent of the

1678European Union's appellant's submission, para. 260.
1679The compliance panel in US – Countervailing Measures on Certain EC Products (Article 21.5 –
EC) found that there was nothing in the original panel report in that dispute that would require an investigating
authority to examine the conditions of a privatization by looking at the company as a whole. (See Panel Report,
US – Countervailing Measures on Certain EC Products (Article 21.5 – EC), paras. 7.117 and 7.118)
1680Panel Report, US – Countervailing Measures on Certain EC Products (Article 21.5 – EC) ,
para. 7.122.
1681See, for instance, Panel Report, US – Countervailing Measures on Certain EC Products
(Article 21.5 – EC), paras. 7.93 and 7.108.
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shares, the sale of the remaining 94.84 percent of sh ares, in the context of transfer to the public of
100 percent of the shares and complete surrender of government control, would meet the criterion of
transferring 'substantially all of the property'."
1682
728. The European Union also supports its argumen t that the subsidies can be "extinguished"
through "private-to-private" sales by referri ng to the Appellate Body's statement in US –
Countervailing Measures on Certain EC Products that "{t}he ... absolute rule {by the panel in US –
Countervailing Measures on Certain EC Products } of 'no benefit' may be defensible in the context of
transactions between private parties taki ng place in reasonably competitive markets". 1683 T h e
Appellate Body made this observation in seeking to distinguish sales between private entities, which
might be presumed to be at "fair market value", from those in which governments were involved,
including privatizations, which might not.
1684 Although the Appellate Body thereby suggested that
sales between private entities in the marketplace w ould more likely be at fair market value, a
comprehensive assessment would nonetheless be requi red in order to determine to what extent a
change in ownership and control would result from the private-to-private sales transactions in
question.
729. The Panel's approach to the European Comm unities' arguments concerning "extinction"
consisted essentially of examining whether the tran sactions at issue involved changes in ownership
where (i) benefits resulting from a prior non-recurri ng financial contribution (ii) are bestowed on a
state-owned enterprise (iii) following a privatization at arm's length and for fair market value, and (iv)
the government transfers all or substantially all th e property and retains no controlling interest in the
privatized producer.1685 Since the Panel was of the view that none of the transactions identified by the
European Communities met all of th ese criteria for full privatization, it did not find that the sales
transactions at issue "extinguished" prior benefits. Specifically, the Panel stated that:
{t}he European Communities does not argue that the transactions
that it alleges have resulted in the "extinction" of subsidies bestowed
on Airbus SAS fulfil all of the above criteria. For example, the
European Communities does not argue, much less demonstrate, that
the transactions in question (with the exception of the stock exchange
sales of EADS shares) were on arm's length terms.{*} More
significantly, none of the transactions in question involved transfers
by a government of all or substan tially all of a state-owned producer,

1682United States' appellee's submission, footnote 202 to para. 128.
1683European Union's appellant's submission, para. 253 (referring to Appellate Body Report, US –
Countervailing Measures on Certain EC Products, para. 124).
1684As the Appellate Body explained, "governments have the ability, by designing economic and other
policies, to influence the circumstances and the conditions of the sale so as to obtain a certain market valuation
of the enterprise." (Appellate Body Report, US – Countervailing Measures on Certain EC Products, para. 124)
1685Panel Report, para. 7.248.
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including a complete relinquishment of control. It is clear that the
public offerings of shares in Aéro spatiale-Matra and EADS were not
transactions in which the governments in question retained "no
controlling interest in the privatized producer."{**}
1686
{*original footnote 2175}The concept of "arm's length" is not defined in the
SCM Agreement. However, the compliance panel in US – Countervailing
Measures on Certain EC Products (Article 21.5 – EC) considered various
dictionary definitions of the term, all of which highlighted the independence
of parties in arm's length transactions; paras. 7.133-7.134. We are not
persuaded, on the basis of the evidence presented to us, that any of the
transactions to which the European Communities refers in paragraph 7.204
(other than the stock exchange sales of EADS shares) were "arm's length"
transactions.
{**original footnote 2176}Although the French government sold a portion
of its shares in Aérospatiale-Matra to the public in 1999, it retained (directly
or indirectly) a shareholding of approximately 48 percent. Moreover, the
French government exerci sed control over Aérospatiale-Matra through a
shareholders' agreement with Lagardère (which held 33 percent of the shares
of Aérospatiale-Matra immediately after the public offering) in addition to
holding a so-called "Golden Share" (action spécifique) giving it special veto
rights. Similarly, the French government and DaimlerChrysler continued to
control the operations of Airbus Industrie following the public offering of
shares in the newly formed EADS in 2000. Immediately following the
public offering of shares in EADS, 60 percent of the share capital of EADS
was held in equal proportions by SOGEADE (in which the French state held
a 50 percent interest) and DaimlerChrysler, which jointly controlled EADS
through a contractual partnership, in which the Spanish government
(through SEPI) also exercised voting rights; EADS Offering Memorandum,
Exhibit EC-24, p. 132.

730. We have a number of concerns about the manner in which the Panel approached this issue.
First, and contrary to the statement by the Panel, the European Communities did in fact argue that
each of the transactions at issue were on arm's-length terms. 1687 The European Communities also
argued that some of the transactions were for "fair ma rket value", a fact not mentioned by the Panel in
its findings. 1688 Second, in concluding that some of the transactions—that is, "the stock exchange
sales of EADS shares"—were indeed at arm's lengt h, the Panel failed to explain or provide any
citations as to precisely which of the sales transactions were on the stock exchange. Therefore, we
consider that the Panel failed sufficiently to explor e these issues, with the c onsequence that there is

1686Panel Report, para. 7.249 and footnotes 2175 and 2176 thereto.
1687Even though it may not have used these exact words, the European Communities did make
arguments before the Panel that a number of the sales had been conducted through transactions that were at
arm's length. (See, for instance, European Communities' first written submission to the Panel, paras. 232-242,
248-257, 262, 270, and 278) The European Union argues separately that the Panel's statement that it did not
make arguments that the sales transactions were at arm's length constitutes a violation of Article 11 of the DSU.
(See European Union's appellant's submission, para. 279) We consider the European Union's claims of error
under Article 11 of the DSU below at paragraphs 760-762.
1688See European Communities' first written submission to the Panel, paras. 232-242, 248-257, 262,
270, and 278.
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considerable uncertainty as to which of the sales transactions were at arm's length and whether any of
the sales transactions were for fair market value.
731. On the issue of change of control, we recall that the Panel found that the public offerings of
shares in Aérospatiale-Matra and EADS were not transactions in which the governments in question
retained "no controlling interest in the privatized producer."
1689 The Panel therefore confined its
findings to the sales transactions involving transfers of control by a government to private owners and
did not even consider the sales between private enti ties. Although, with respect to the transactions
involving Aérospatiale-Matra and EADS, the Panel concluded that government s retained controlling
interests in the privatized owners, it recognized nevertheless that there was some transfer of
ownership to new private owners. Yet the Panel doe s not appear to have sufficiently explored what
legal implications, if any, arose with respect to the control of Aérospatiale-Matra and EADS as a
result of these changes in the ownership.
732. The participants canvass different arguments as to how control might be relevant to the
analysis of extinction. For instance, the European Union argues that the degree of common control of
buyer and seller is an important factor in an extinc tion analysis and should be taken into account in
deciding whether "the benefit of a subsidy co uld still be used for its original purpose". 1690 T h e
United States submits that the size of the ownership interest transferred as well as the ability to control
assets of the firm are important factors to be taken into account in determining whether a firm and its
owners are to be treated as distinct. 1691 In its analysis, the Panel failed to provide reasoning as to why
and how a transfer of control might have been relevant for its analysis of extinction.
733. For these reasons, we do not consider the Panel to have sufficiently examined the
circumstances surrounding the partial privatizations a nd private-to-private sales transactions at issue.
In order properly to address the relevance of th ese transactions for purposes of the United States'
claims of adverse effects under Article 5, the Pa nel should have assessed whether each of the sales
was on arm's-length terms and for fair market value, and to what extent they involved a transfer in
ownership and control to new owners. Accordingly, we reverse the Panel's reasoning and findings
concerning this issue.1692

1689Panel Report, para. 7.249.
1690European Union's oral statement at the first session of the oral hearing, para. 20.
1692Panel Report, paras. 7.248, 7.255, and 7.288.
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734. We note finally that, as it did before the Panel, the European Union has clarified that it was
not alleging that every sale of shares in Airbus companies conducted for fair market value and at arm's
length extinguished the residual va lue of benefits to these compani es. Rather, the European Union
has explained that it had limited its claims of extin ction to transactions involving "significant" sales
by government, industry, or institutional shareholders.
1693 The European Union describes these as
transactions "in the assets of an enterprise by strategic shareholders rather than sales of shares held as
investments", and argued that they "realise for th e seller the underlying enterprise value rather than
the investment value of the shares."1694 In the United States' view, however, the European Union does
not explain how the "enterprise value" differs from "investment value" or why one triggers extinction
under the SCM Agreement and the other does not. 1695 While the European Union alleges that the
nature of the transactions at issue in this disput e were "significant" enough to "extinguish" past
subsidies—and were therefore distinct from the da ily trading of shares on the stock exchange—it does
not explain the basis of this distinction.1696
735. In concluding, we recall that the Panel failed to make sufficient factual findings with respect
to whether all the sales transactions at issue referr ed to by the European Communities were at arm's
length and for fair market value, and that where it addressed the issue, it did not precisely clarify the
transactions to which it was referring. Moreover, the Panel did not make su fficient findings on the
extent to which the change in ownership transferre d the control in the companies concerned. In these
circumstances, and noting the complexities underlying the partial privatizations and private-to-private
sales referred to by the European Union, we are not in a position to assess further whether, and to
what extent, the sales transactions referred to by the European Union eliminated a portion of past
subsidies to the relevant Airbus companies and how this would be relevant for purposes of an adverse
effects analysis under Part III of the SCM Agreement.
736. For the above reasons, we reverse the Panel's finding, at paragraphs 7.248, 7.255, and 7.288
of the Panel Report, that these sales transaction did not "extinguish" a portion of past subsidies, but
find that there are insufficient factual findings by th e Panel or undisputed facts on the Panel record to

1693See also European Union's appellant's submission, para. 263.
1694European Union's appellant's submission, para. 263.
1696We note that, in rejecting a similar argument by the European Communities, the Panel found that
there was "no meaningful basis for distinguishing" those sales that the European Communities alleged to have
"resulted in the extinction of a portion of the benefit conferred by financial contributions provided to the various
Airbus-related entities in this dispute, on the one hand, fro m daily trading in shares of a subsidized producer, on
the other." For the Panel, the European Communities' approach would "potentially eviscerate the subsidies
disciplines" of the SCM Agreement, especially where the subsidized produ cer is a corporation whose shares are
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complete the legal analysis and determine whether these sales transactions "extinguished" a portion of
past subsidies.
(b) Extraction of subsidies
737. The second category of "intervening events" that the European Union submits should have
been taken into account by the Panel under its adve rse effects analysis con cern the removal of cash
from two Airbus GIE partners—Dasa and CASA—prior to their contribution to EADS in 2000. As it
did before the Panel, the European Union argues th at these transactions—which it refers to as "cash
extractions"—had the effect of "extracting" or taki ng away all or part of the "incremental value"
created by prior subsidies provided to Dasa and CASA.
738. We recall that, consistent with its approach to the European Communities' arguments on
"extinction", the Panel considered the European Communities' arguments on "cash extractions" on an
alternative basis since it had already found that Article 5 did not require a complaining party to
establish that a financial contribution conf ers a "continuing" or "present" benefit.
1697 B y w a y o f
explanation, the Panel noted that the specific tran sactions referred to as "cash extractions" comprised
(i) the retention by DaimlerChrysler, as shareholder of Dasa, of cash and cash equivalents
immediately prior to the transfer by Dasa of its LCA-related assets and activities to EADS; and
(ii) the retention by SEPI (as the shareholder of CASA) of cash and cash equivalents immediately
prior to CASA's contribution to EADS.
1698 The transactions formed part of a series of events leading
to the combination of Aérospatiale-Matra, Dasa , and CASA in 2000 to form EADS and were a
consequence of the Airbus partners' agreement th at the activities of Aérospatiale-Matra, Dasa, and
CASA in the aeronautics, space, and defence sector s would be contributed to EADS in return for
shares representing agreed proportions of interests in EADS. 1699 The transactions occurred because
the "value" of Dasa's LCA-related assets and activities, and of CASA, each as contributed to EADS,
needed to reflect the corresponding percentage in terests that DaimlerChr ysler and the Spanish
Government were to hold in EADS.
1700 As a result, DaimlerChrysler (as the shareholder of Dasa) and
SEPI (as the shareholder of CASA) retained cash and cash equivalent s of Dasa and CASA,
respectively, so that the adjusted values of the Dasa and CASA contributions to EADS reflected the

1697Panel Report, paras. 7.266 and 7.267.
1698Panel Report, para. 7.258.
1699Panel Report, para. 7.258 and footnote 2187 thereto (referring to Panel Report, section VII.E.1
(attachment)).
1700Panel Report, para. 7.258 (referring to European Communities' first written submission to the Panel,
paras. 253 and 254).
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respective proportionate interests of DaimlerChrysle r and the Spanish Government in EADS (that is,
37.3% and 6.2%) that had been agreed upon by the Airbus partners.
1701
739. Although the parties contested the exact amount of cash or cash equivalents "extracted" by
DaimlerChrysler from Dasa's LCA-related assets prio r to their contribution to EADS, the Panel did
not make factual findings on this issue. The Eu ropean Communities referred to a sum of €3.133
billion that remained on the books of DaimlerChrysler as part of the "excluded assets" not transferred
to EADS. 1702 Although the United States did not contest that cash and cash equivalents had been
retained by DaimlerChrysler following the contribution of Dasa's LCA-related assets to EADS, it
estimated the cash value at €1.749 billion.
1703 With respect to CASA, it was uncontested between the
parties that approximately €342 million was removed from CASA, of which €340 million was
retained by SEPI "by way of distribution of reser ves and reduction of capital". The remaining €2.45
million was distributed to Dasa, which at the time retained a shareholding of 0.71% in CASA.1704
740. In addressing the European Communities' argume nts that the "cash extractions" removed or
took away the value of subsidies to Dasa and CASA , the Panel noted that the European Communities
had not claimed that, "every time" cash leaves a co mpany for reasons other than expenditure on
production, it would be appropriate to consider the benefit of prior financial contributions to that
company to have been correspondingly reduced. 1705 Rather, the Panel understood the
European Communities to argue that, in order for a cash disbursement to be capable of removing or
reducing the benefit of prior financial contributions to a company, two requirements would have to be
met: "(i) there must be a causal relationship of some sort between the cash 'extraction' and the

1701Panel Report, para. 7.258.
1702The Panel noted the reference made in EADS' Offering Memorandum to one group of excluded
assets (that is, assets retained by Dasa) was a "cash am ount of {€}3.133 million". (Panel Report, footnote 2185
to para. 7.258 (referring to EADS' Offering Memorandum, supra, footnote 163, p. 142))
1703See United States' comments on the European Co mmunities' responses to the second set of Panel
Questions, para. 207. The United States' amount is based on a statement appended to the combined financial
statements from December 1997 to December 1999 in EADS' Offering Me morandum where it was stated that
"Dasa cash and cash equivalents of €1,749 million shall be retained by DaimlerChrysler". (EADS' Offering
Memorandum, supra, footnote 163, p. F-79) Pursuant to the agr eement to transfer Dasa's LCA-related assets to
EADS, in addition to the €1.749 billion, a further €280 million of DaimlerChrysler's liability was to be assumed
by EADS. (Ibid., p. F-12, section G) However, it is not clear from EADS' Offering Memorandum whether and
how this amount relates to the cash "extracted" from Dasa's LCA-related assets.
1704See Panel Report, footnote 2186 to para. 7. 258 (referring to EADS' Offering Memorandum, supra,
footnote 163, p. 143). See also EADS' Offering Memorandum, supra, footnote 163, p. 142.
1705Panel Report, para. 7.269. The European Comm unities accepted that there are circumstances in
which a cash disbursement would not remove the benefit of a subsidy: for instance, where the cash distribution
would have occurred in the absence of the subsidy (for example, through payments of dividends to
shareholders), or where the distribution constitutes not hing more than a transfer of resources between a
company and its sole owner, forming an economic entity. ( Ibid. (referring to European Communities' response
to Panel Question 198, para. 236))
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subsidy and (ii) the 'extraction' must effectivel y move the money beyond the reach of the 'company-
shareholder unit'."
1706
741. Although the Panel had "difficulty accepting the proposition that a cash disbursement by a
company reduces the benefit conferred by prior fi nancial contributions to that company in the
circumstances described by the European Communities" 1707, it nonetheless proceeded to consider the
specific arguments of the European Communities on an " arguendo" basis. Even on this basis, the
Panel did not consider that the European Commun ities had succeeded in meeting either of the two
criteria it had itself proposed. With respect to th e first, that is, the establishment of a causal
relationship between the cash extracted and the subsidy, the Panel found that the
European Communities had not "provided any evid ence to substantiate its assertion that the
incremental value of Dasa and CASA could not have been extracted in th e absence of the alleged
subsidies."1708 The Panel was unconvinced that the paymen ts necessarily removed any value from the
company that it would have otherwise enjoyed si nce, as the United States had observed, that
reasoning assumed that the "extracted" cash represented subsidies provided to Dasa and CASA.1709
742. With respect to the second criterion, the Panel al so rejected, as a factual matter, that the "cash
extractions" by DaimlerChrysler and the Spanish Government moved the extracted cash out of the
"company-shareholder unit".1710 The Panel engaged with the European Communities' contention that,
as "minority shareholders" of the newly created EADS to which the LCA-related assets of Dasa and
CASA were contributed, both DaimlerChrysler and SEPI (with their respective 30% and 5.5% EADS'
shareholdings) had a "strong disincentive to re-inject the extracted cash into EADS".
1711 The Panel
noted that, although the legal ownership of the aeronautics-related assets and activities belonging to

1706Panel Report, para. 7.271 (referring to Europe an Communities' response to Panel Question 199,
para. 241). Applied to the facts of the case, the Panel noted that:
... in accordance with the two requirem ents {the European Communities}
posits as relevant to determining when subsidy benefits will be extinguished
by cash "extractions" that: (i) the incremental value of Dasa and CASA
depended on the alleged subsidies (and could not have been extracted in the
absence of those alleged subsidies); an d (ii) the cash was removed from the
company-shareholder unit in both cas es because the interests of both
DaimlerChrysler and the Spanish government in EADS following the
combination were as minority shareholders in a larger entity (in which they
could be presumed to have a "strong di sincentive" to re-inject the extracted
cash).
(Ibid., para. 7.272)
1707Panel Report, para. 7.271.
1708Panel Report, para. 7.273.
1709Panel Report, para. 7.273 (referring to United States' second written submission to the Panel,
para. 542).
1710Panel Report, para. 7. 275.
1711Panel Report, para. 7.274 (refer ring to European Communities' response to Panel Question 199,
para. 243).
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Dasa and CASA had changed, EADS had been stru ctured to "maintain the overall interests of
DaimlerChrysler and th e Spanish government in Airbus Industrie as a whole ."
1712 The Panel
explained that, instead of holding and exercising their membership interests in Airbus Industrie
directly through Dasa and CASA, DaimlerChrysler a nd the Spanish Government (through SEPI) were
members of a Contractual Partnership that exercised voting rights in respect of 65.48% of the
outstanding shares of EADS. In practice, the Panel found, the nature of cont rol that DaimlerChrysler
and the Spanish Government exercised over th e LCA activities of Airbus through EADS was
substantially the same as the control that they had previously exercised over the LCA activities of
Airbus as members of the Airbus Industrie consortium.
1713
743. Having found that the European Communities faile d to meet either requirement under its own
two-part "extraction" test, the Panel did not find it necessary to decide the issue of whether, and on
what basis, prior financial contributions provide d to a subsidized producer could be reduced or
eliminated by "extracting" cash from that producer.1714
744. Unlike the Panel, we do not a priori exclude the possibility that all or part of a subsidy may
be removed from a firm by the removal of cash or cash equivalents. Indeed, the United States does
not preclude that "there are circumstances in which a Member may remove cash from a subsidized
company in a way that 'withdraws' the subsidy." 1715 This does not amount to saying, as the
European Communities acknowledged before the Pane l, that every time cash leaves a company the
benefit of prior financial contributio ns would be correspondingly diminished. 1716 R a t h e r , a
consideration of whether the cash removed from a company eliminates past subsidies is a fact-specific
inquiry that must be assessed based on the circum stances of the case. That inquiry would consider
matters such as whether the cash "extracted" was in the form of dividends representing the profits of a
company, which both participants accept would not normally amount to an "extraction" of past
subsidies.

1712Panel Report, para. 7. 275. (original emphasis)
1713Panel Report, footnote 2218 to para. 7.275.
1714Panel Report, para. 7.277. In any event, the Panel found it "difficult to see how a firm could
eliminate a subsidy simply by transferring funds to its owners" given the finding by the Appellate Body in US –
Countervailing Measures on Certain EC Products that a financial contribution to the owners of a firm could
confer a benefit upon the manufacture, production, or export of any merchandise, as provided for in Article VI:3
of the GATT 1994. (Panel Report, para. 7.277 (referring to Appellate Body Report, US – Countervailing
Measures on Certain EC Products, para. 115))
1715United States' appellee's submission, para. 137; United States' response to questioning at the oral
hearing.
1716Panel Report, para. 7.269. Before the Panel, the European Communities itself was against laying
down "universal rules on extraction" and argued that establishing any extractions would require an examination
of the facts of each case. (European Communities' response to Panel Question 198, para. 238)
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745. As noted above, an adverse effects analysis un der Article 5 requires a panel to take into
account "intervening events" that may bring a subsidy to an end. The Panel in this case was therefore
required to ascertain whether the "cash extractions" referred to by the European Communities were of
such a nature, kind, and amount as to be relevant to its adverse effects analysis. In this regard, we
find the two requirements of the "extraction" test proposed by the European Communities to the Panel
to be a useful point of departure in examining the European Union's arguments on "extraction". With
respect to the first criterion, we note that on app eal the European Union argues, as it did before the
Panel, that there must be a relationship between the subsidy and the cash "extracted". For the
European Union, any alleged "benefits" from prio r subsidies granted by the Spanish and German
Governments would have enhanced CASA's and Dasa's balance sheets and therefore their value
1717
and, consequently, the removal of cash had th e effect of reducing these companies' value and
extracting any "incremental value" created by prior subsidies. 1718 According to the European Union,
the "value of the reduction is fixed, immutable and certain, since the extractions were made in cash, a
perfect measure of wealth not subject to the typ es of estimates often made in discounted cash flow
analyses."1719 The United States responds that a number of factors can cause an "incremental"
increase or decrease in a company's value, and there is no reason to believe that any cash transferred
from a company to one of its owners (whether a go vernment entity or a private entity) amounts to a
reduction of benefit rather than a reduction in one of the other elements that adds value to the
company.1720
746. We are not persuaded by the arguments advan ced by the European Union under the first
ground of its "extraction" theory. The European Union seems to suggest that, because a subsidy
would be reflected in a company's balance sheet, a nd cash is fungible, once cash is removed there is
an adequate link established between the subsid ies provided and the cash extracted. Beyond its
general assertions, the European Union provides no persuasive evidence as to how the specific
subsidies provided to Dasa and CASA increased the "incremental value" of those companies, and
therefore how the cash "removed" could be deemed to remove that value. Although we do not mean
to suggest that a "euro-for-euro" link between th e subsidies and the cash extracted is necessary to
prevail on an argument on "extraction", we do consider that, at a minimum , the
European Communities was required to explain how the specific subsidies received by Dasa and
CASA were reflected in the balance sheets of those companies, and how the cash removed or
"extracted" represented the remaining or unused value of these subsidies. Th e mere assertion by the

1717European Union's appellant's submission, para. 172.
1718European Union's appellant's submission, para. 173.
1719European Union's appellant's submission, para. 173.
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European Communities, without more, that subsidies to Dasa and CASA increased the value of those
companies and that therefore any cash taken out represents the subsidy or its "incremental value",
does not in our view satisfy the requirement of establishing a "causal relationship" between the "cash
extraction" and the subsidy, as argued by the European Communities before the Panel.
747. With respect to the second criterion—that is, whether it had been demonstrated that the
extracted cash permanently left or moved beyond the reach of the "company-shareholder unit"—the
European Union rejects the Panel's finding that th e cash extracted from CASA and Dasa was not truly
removed because the Spanish Gove rnment and DaimlerChrysler, in combination with the French
Government and Lagardère, collectively "control{led}" EADS
1721 and therefore they did not have a
disincentive to re-inject the extract ed cash in EADS and LCA operations. 1722 According to the
European Union, the Contractual Partnership had no impact on whether cash could be considered to
be permanently "withdrawn" from CASA, Dasa, or th eir successors, since that partnership affects the
exercise of voting rights but does " nothing whatsoever" to reduce the economic disincentive for the
Spanish Government and DaimlerChrysler against re -injection of the cash given their limited claim to
EADS' earnings and net assets. 1723 In response, the United States c ounters that, with respect to the
DaimlerChrysler-Dasa "cash extraction", the Eu ropean Union's argument focuses on the wrong
corporate relationship, because DaimlerChrysler's incentives to return mone y to Dasa following the
transaction were unchanged as it still owned 100% of Dasa. 1724 In any event, the United States
supports that Panel's finding that the Airbus crea tion process "was structured so as to maintain the
overall interests of DaimlerChrys ler and the Spanish government in Airbus Industrie as a whole ."1725
In the United States' view, evidence as to ongoing cont rol is important to an inquiry into whether the
"cash extractions" "removed the incremental contri bution of alleged prior subsidies" and whether
"anything had in fact left the recipient".1726
748. Given that the link between the subsidies and th e cash "extracted" has not been sufficiently
demonstrated by the European Union, we need not consider the European Union's further argument
that the Panel improperly relied on the "joint control" exercised through the Contractual Partnership to
which both DaimlerChrysler and SEPI belonged in rejecting the European Communities' argument

1721European Union's appellant's submission, para. 185 (referring to Panel Report, paras. 7.283, 7.285,
7.275 and footnote 2218 thereto).
1722European Union's appellant's submission, para. 185.
1723European Union's appellant's submission, paras. 186 and 189. (original emphasis)
1724United States' appellee's submission, para. 143 (referring to Panel Report, section VII.E.1
(attachment), footnote 2241 to para. 4).
emphasis)).
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that there was a strong disincentive to reinvest the extracted cash into EADS and that, therefore, the
cash left the "company-shareholder unit".
1727
749. In the light of the foregoing, although we do not a priori exclude the possibility that all or part
of a subsidy may be "extracted" by the re moval of cash or cash equivalents, we uphold the ultimate
finding by the Panel, in paragraphs 7.276 and 7.28 8 of the Panel Report, that the "cash extractions"
from Dasa and CASA did not remove a portion of past subsidies.
(c) "Withdrawal" of subsidies within the Meaning of Articles 4.7 and 7.8
of the SCM Agreement
750. We turn next to consider whether, as argued by the European Union, the "cash extractions"
from Dasa and CASA, as well as the sales transactions referred to above in paragraph 718, constitute
"withdrawals" of subsidies within the meaning of Articles 4.7 and 7.8 of the SCM Agreement.
751. We recall that the Panel engaged in a separate and brief examination of whether the "cash
extractions" could be characterized as "wit hdrawals" under Articles 4.7 and 7.8 of the
SCM Agreement. As the European Union points out on appeal, the Panel did not consider its
arguments that the sales transactions also resulted in the "withdrawal" of subsidies within the meaning
of these provisions.1728
752. The Panel began its assessment by noting that "withdrawal" of a subsidy is the remedy
envisaged by Article 4.7 (for prohibited subsidies) and an alternative remedy in the context of
Article 7.8 (for actionable subsidies). It highlighted that the compliance panel in Australia –
Automotive Leather II (Article 21.5 – US) had found that the recommendation to "withdraw the
subsidy" provided for in Article 4.7 of the SCM Agreement is not limited to prospective action, and
may encompass repayment of the prohibited subsidy. 1729 The Panel however, rejected the

1727For the same reason, we need not address the Euro pean Union's argument that the Panel erred in
finding that the value of prior subsidies had not been "withdrawn" or removed because "something of equal
value" was provided by the Spanish Government (through SEPI) in exchange for the cash from CASA, namely
the reduction of capital in its subsidiary CASA. (European Union's appellant's submission, paras. 183 and 184
(referring to Panel Report, para. 7.285)) The Panel made this finding when addressing the European
Communities' argument that the "cash extraction" from CA SA resulted in the "withdraw al" of subsidies, within
the meaning of Articles 4.7 and 7.8 of the SCM Agreement. The Panel did not discuss this issue and made no
such finding with respect to Dasa. (See Panel Report, paras. 7.284 and 7.285)
1728The European Union alleges that such a failure by the Panel constitutes a denial of its claim, and
should be reversed both as "legal error" under Articles 4.7 and 7.8 of the SCM Agreement and as a failure to
fulfil its obligation under Article 11 of the DSU. (See European Union's appellant's submission, paras. 193
and 278 respectively) For the reasons explained below, we do not consider it necessary to make separate
findings on this argument of the European Union.
1729Panel Report, para. 7.281 (referring to Panel Report, Australia – Automotive Leather II (Article 21.5 –
US), para. 6.39).
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European Communities' arguments regarding "withdrawal" and merely repeated its earlier findings
with respect to the "cash extractions", namely th at neither the CASA nor Dasa transactions had
removed the value of prior subsidies.
1730 In response to specific arguments made by the
European Communities, the Panel also found that the "cash extraction" of €340 million by SEPI did
not result in "withdrawal" because it was made in retu rn for a reduction in the equity or capital in
CASA, and that therefore CASA had "provided something of equal value" to SEPI.1731
753. In this appeal, the European Union argues th at the Panel erred in its interpretation and
application of the term "withdraw " in Articles 4.7 and 7.8 of the SCM Agreement. The
European Union submits that both the "cash extractions" and the sales transactions meet the definition
of "withdrawal" of subsidies espoused by the Appellate Body in Brazil – Aircraft (Article 21.5 –
Canada) and should have been treated as such by the Panel. 1732 Moreover, the European Union
argues that, to the extent that it has already "w ithdraw{n}" the subsidies by virtue of these
transactions, the Panel erred in recommending that it do so. 1733 By contrast, the United States submits
that Articles 4.7 and 7.8 of the SCM Agreement do not create a "separate and independent"
requirement to evaluate, for each transaction, whet her the subsidizing Member has "withdrawn" or
"extracted" a subsidy.1734 Moreover, the United States observes, these provisions create an obligation
on the Member, or in the case of Article 7.8 give the Member an option, to withdraw the subsidy. 1735
According to the United States, it is the Member that must do something affirmative to "remove" or
"take away" the subsidy.1736 The United States does not consider a transfer of funds or other assets by
the subsidy recipient to an entity other than the gove rnment to be action by the "Member" to remove
or take away the subsidies, as required under Articles 4.7 and 7.8 of the SCM Agreement.
754. We note that both Article 4.7 and Article 7.8 of the SCM Agreement provide a remedy of
"withdrawal" following a panel's determination that a subsidy is "prohibited" or "actionable". In
Brazil – Aircraft (Article 21.5 – Canada) , the Appellate Body defined the term "withdraw" as to

1730Panel Report, paras. 7.283-7.285.
1731Panel Report, para. 7.285.
1732European Union's appellant's submission, paras. 170 and 171 (quoting Appellate Body Report,
1733European Union's appellant's submission, para. 171.
1734United States' appellee's submission, Part III.C.1.
1736United States' appellee's submission, para. 13 5 (referring to Appellate Body Report, Brazil –
Aircraft (Article 21.5 – Canada) , para. 45; Appellate Body Report, US – FSC (Article 21.5 – EC) , paras. 226
and 227; and Panel Report, Australia – Automotive Leather II (Article 21.5 – US) , para. 6.27). (original
emphasis)
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"remove" or "take away" and "to take away what has been enjoyed; to take from."
1737 As the
Appellate Body highlighted in that dispute, the "with drawal" of a subsidy, under Article 4.7, refers to
the "removal" or "taking away" of that subsidy. 1738 Based on this definition, the European Union
submits that the sales transactions and the "cash extractions" from Dasa and CASA qualify as
"withdrawals" within the meaning of Articles 4.7 and 7.8 of the SCM Agreement.
1739 As we have not
made affirmative findings that the sales transactions and "cash extractions" resulted respectively in the
"extinction" or "extraction" of subsidies, we ne ed not decide whether the subsidies alleged by the
European Union to have been extinguished or extracted were thereby also "withdrawn".
755. Even if the European Union had been succe ssful in its arguments on "extinction" and
"extraction", we do not consider that the sales tr ansactions and "cash extractions" resulted in the
"withdrawal" of subsidies within the meaning of Articles 4.7 and 7.8 of the SCM Agreement.
756. First, we recall that the drafters of Articles 4.7 and 7.8 contemplated that the remedy of
"withdrawal" would be available only after a panel and the Appellate Body have determined, in
original proceedings, that subsidies are prohibite d and/or actionable and causing adverse effects.
Article 4.7 provides that, "{i}f the measure in ques tion is found to be a prohi bited subsidy, the panel
shall recommend that the subsidizing Member wit hdraw the subsidy without delay." Likewise,
Article 7.8 reads that, "{w}here a panel report or an Appellate Body report is adopted in which it is
determined that any subsidy has resulted in adverse effects to the interests of another Member within
the meaning of Article 5, the Member granting or maintaining such subsidy shall take appropriate
steps to remove the adverse effects or shall withdraw the subsidy." 1740 Therefore, a recommendation
to "withdraw" subsidies pursuant to Article 4.7 is di rected at subsidies that have been found to be
prohibited; under Article 7.8, a recommendation to "withdraw" subsidies or remove their adverse
effects is directed at actionable subsidies that ha ve been found to cause adve rse effects. We recall
that, in this dispute, at the time the sales transactions and "cash extractions" took place, there had been
no findings by a panel or the Appellate Body that al leged subsidies were either prohibited subsidies or
actionable subsidies causing adverse effects. Therefore, we do not consider that the sales transactions
and "cash extractions" resulted in the "withdrawal" of subsidies, within the meaning of Articles 4.7
and 7.8 of the SCM Agreement.

1737Appellate Body Report, Brazil – Aircraft (Article 21.5 – Canada), para. 45 (referring respectively to
Concise Oxford English Dictionary (Clarendon Press, 1995), p. 1609; and Black's Law Dictionary , 6th edn
(West Publishing, 1990), p. 1602).
1738Appellate Body Report, Brazil – Aircraft (Article 21.5 – Canada), para. 45.
1739See European Union's appellant's submission, paras. 171 and 194 respectively.
1740Although there is no sp ecific provision in the SCM Agreement requiring a panel to make a
recommendation of withdrawal with respect to actionable subsidies, a panel may do so pursuant to the general
rule in Article 19.1 of the DSU.
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757. Moreover, we understand the reco mmendations made by the Panel to be collective, in the
sense that they concern all those subsidies ultimatel y found to be prohibited subsidies or actionable
subsidies causing adverse effects. They do not co ncern subsidies that have been "extinguished" or
"extracted". Such recommendations request the Eur opean Union to withdraw those subsidies and/or
remove adverse effects; panels or the Appella te Body are not required to make recommendations
pursuant to Articles 4.7 and 7.8 with respect to s ubsidy measures that are found to be "extinguished"
or "extracted".
758. Finally, a determination as to whether any action taken to implement the recommendations
made has actually resulted in the "withdrawal" of subsidies and has brought about a Member's
compliance with the SCM Agreement, is, if contested, best left to a compliance panel whose principal
task is to assess whether a Member's implemen tation measures bring it into compliance with its
obligations under the SCM Agreement.
759. Accordingly, we uphold the Panel's ultimate finding, in paragraphs 7.283, 7.284, and 7.289 of
the Panel Report, that the "cash extractions" did not result in the "withdrawal" of subsidies, within the
meaning of Articles 4.7 and 7.8 of the SCM Agreement. With respect to the sales transactions at
issue, we have no basis to make a finding that they resulted in "withdrawal" of subsidies as we have
not completed the analysis to determine whether th ey "extinguished" prior subsidies. Moreover, we
do not consider that the Panel erred in making a collective recommendation to the
European Communities to withdraw subsidies that have resulted in adverse effects or to take
appropriate steps to remove these effects.
1741
(d) Claims under Article 11 of the DSU
760. The European Union submits that, in addition to committing errors in its interpretation and
application of Articles 1, 4.7, 5, 6, and 7.8 of the SCM Agreement, the Panel failed to make an
objective assessment of the matter before it, and ther eby acted inconsistently with Article 11 of the
DSU, when considering the European Commun ities' arguments regarding the "extinction",
"extraction", and "withdrawal" of subsidies. In pa rticular, the European Union claims that the Panel
acted inconsistently with Article 11 of the DSU by failing to: (i) provide a reasoned and adequate
explanation for its finding that the Spanish Govern ment "provided something of equal value" for the
"cash extraction" from CASA, namely a "reduction of capital or equity in CASA"; (ii) provide a
reasoned and adequate explanation and have a suffi cient evidentiary basis for its finding that the

1741Panel Report, paras. 8.6 and 8.7. We note, howeve r, that in this Report, we reverse the Panel's
recommendation, at paragraph 8.6 of the Panel Report, that the subsidies found by the Panel to be prohibited be
withdrawn. (See footnote 2437 of this Report)
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Contractual Partnership assigning the voting rights to DaimlerChrysler and the Spanish Government
meant that these entities had no "disincentive to reinv est" the "extracted" cash and therefore had not
"withdrawn" subsidies; (iii) make "internally consistent" findings as between its finding that the
Spanish Government's "cash extraction" from CASA did not constitute a "withdrawal" within the
meaning of Articles 4.7 and 7.8 of the SCM Agreement and its conclusion elsewhere that the French
Government's contributions to Aérospatiale cons tituted "financial contributions"; (iv) assess and
provide a reasoned and adequate explanation as to why the sales transactions did not result in the
"withdrawal" of subsidies within the meaning of Articles 4.7 and 7.8 of the SCM Agreement; and
finally, (v) properly reflect the European Communiti es' arguments that each of the sales transactions
was at "arm's length", and provide a reasoned and adequate explanati on for its finding that they were
not.
1742
761. In alleging that the Panel acted inconsis tently with Article 11 of the DSU, the
European Union relies on many of the arguments that it made in respect of its appeal of the Panel's
interpretation and application of Artic les 1, 4.7, 5, 6, and 7.8 of the SCM Agreement. As the
Appellate Body has previously found, a claim unde r Article 11 of the DSU "must stand by itself and
should not be made merely as a subsidiary argument or claim in support of a claim that a panel failed
to apply correctly a provision of the covered agreements". 1743 Even where the European Union's
arguments differ, in the light of our findings rega rding the proper interpretation and application of
Articles 1, 4.7, 5, 6, and 7.8 of the SCM Agreement, we need not address the European Union's claims
under Article 11 of the DSU. At the oral heari ng, the European Union confirmed that where its
claims under Article 11 of the DSU were dealt with by virtue of our findings regarding the proper
interpretation and application of Artic les 1, 4.7, 5, 6, and 7.8 of the SCM Agreement, we need not
make separate findings under Article 11 of the DSU.
762. Accordingly, we decline to make additiona l findings as to whether the Panel acted
inconsistently with Article 11 of the DSU in its treatment of the European Communities' arguments
concerning the "extinction", "extraction", and "withdrawal" of subsidies.

1742See European Union's appellant's submission, paras. 273-281.
1743Appellate Body Report, Chile – Price Band System (Article 21.5 – Argentina) , para. 238 (referring
to Appellate Body Report, US – Steel Safeguards , para. 498). See also, Appellate Body Report, China –
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3. The "Pass-Through" of Subsidies

763. In this final subsection, we address the Europ ean Union's request for reversal of the Panel's
finding that the United States was not required, in order to make a prima facie case under Articles 5
and 6 of the SCM Agreement, to demonstrate that the benefits of subsidies provided to the Airbus
Industrie consortium1744 "passed through" to Airbus SAS, the current producer of Airbus LCA. In this
regard, we refer once more to the factual overvie w of the evolution of Airbus SAS from Airbus
predecessor companies.1745
764. The European Communities argued before the Pane l that the United States had failed to show
that alleged subsidies provided to the Airbus LCA op erations of certain Airbus partners or to Airbus
GIE prior to 2001, "passed through" to Airbus SAS when the Airbus partners restructured their
internal relationships and created Airbus SAS in 2001. 1746 According to the European Communities,
since Airbus SAS came into existence only in 2001, any subsidies granted prior to that date cannot
possibly have been granted to Airbus SAS. 1747 Therefore, the United States had the burden of
establishing that the alleged subsidies "currently be nefit Airbus SAS or have {a} causal connection to
the adverse effects alleged by the United States."1748
765. The Panel began its analysis by focusing on th e identity of the "producer" and the "subsidized
product" raised in the United States' claims. Ba sed on the language used by the United States in its
panel request and in its written submissions to the Panel, the Panel observed that the United States'
challenge in this dispute related to specific measu res provided "to the Airbus companies", comprising
"not only Airbus SAS, but also 'its predecessor Airbus GIE and current and predecessor affiliated

1744We note that the European Communities listed the companies to which its claims of "pass-through"
applied. (See Panel Report, para. 7.185) In its discussion of the "pass-through" claims, however, the Panel made
generic references to Airbus "predecessor" companie s, Airbus "affiliated" comp anies, Airbus "related"
companies, and/or the Airbus Indu strie consortium. (See for instance, ibid., paras. 7.185, 7.191-7.193, 7.199,
7.200, and 7.286) We note that, in its ultimate conc lusion as to whether the United States was required to
demonstrate the "pass-through" of subsidies to Airbus SAS, the Panel's findings were directed at Airbus
Industrie, which it defined as including Airbus partners and Airbus GIE as well as their "affiliates". ( Ibid.,
para. 7.286) This description is slightly at variance with the Panel's earlier explanation that the Airbus Industrie
consortium, as it operated between 1970 and 2001, included the four Airbus partners and Airbus GIE. ( Ibid.,
para. 7.184)
1745See section IV.B of this Report.
1746Panel Report, para. 7.185.
1747Panel Report, para. 7.185.
1748Panel Report, para. 7.186 (referring to European Communities' first written submission to the Panel,
para. 194; and European Communities' second written submission to the Panel, para. 89).
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companies' of both Airbus SAS and Airbus GIE."
1749 Next, the Panel noted that the United States had
presented its claims on the basis that the "subsidized product" at issue is the entire family of Airbus
LCA.1750 The Panel considered that the "producer" of Airbus LCA, the subsidized product, in the
pre-2001 period was "the consortiu m Airbus Industrie; i.e., each of the Airbus partners and their
respective affiliates, and Airbus GIE".1751 Consequently, the Panel concluded that, for purposes of its
analysis of the United States' claims in this disput e, "a financial contribution provided to any Airbus
partner or affiliated entity, or to Airbus GIE, in relation to the development and/or production of an
Airbus LCA, potentially confers a benefit on the Ai rbus Industrie consortium, as the 'producer' of
Airbus LCA."1752
766. The Panel then considered whether, as conte nded by the European Communities, the facts of
the present dispute required the United States to dem onstrate the "pass-through" of the benefit. The
Panel observed that the question of whether it is necessary to conduct a "pass-through" analysis in
WTO law had previously arisen in the context of Part V of the SCM Agreement in situations where a
financial contribution was provided to an entity in respect of a product but the "benefit" was alleged to
be conferred on an unrelated entity producing a different product. 1753 On the question of whether the
"pass-through" concept is applicable in a Part III cont ext, the Panel noted that the Appellate Body in
US – Upland Cotton had found that a "pass-through" analysis is "not critical for an assessment of
significant price suppression under Article 6.3(c) in Part III of the SCM Agreement", but that,
nevertheless, "the 'subsidized prod uct' must be properly identified for purposes of significant price
suppression under Article 6.3(c) of the SCM Agreement." 1754 The Panel understood the Appellate
Body to mean that a showing of causation under Article 6.3(c) of the SCM Agreement requires only
that a link be demonstrated between the subsidy and the product alleged to be involved in causing
serious prejudice.1755

1749Panel Report, para. 7.191 (quoting, in relevant part, Request for the Establishment of a Panel by the
United States, WT/DS316/2). We recall that, in its pane l request, the United States stated that the "Airbus
companies" included "Airbus SAS, its predecessor Airbus GIE and current and predecessor affiliated
companies, including each person or entity that is or was under common control with Airbus SAS or Airbus
GIE, such as parent companies, sibling companies and subsidiaries, including Airbus Deutschland GmbH,
Airbus España SL, Airbus France S.A.S., Airbus UK Limited, European De fence and Space Company
('EADS'), and BAE Systems."
1750Panel Report, para. 7.192.
1751Panel Report, para. 7.192. (original emphasis)
1752Panel Report, para. 7.192.
1753Panel Report, paras. 7.194 and 7.195 (referring to Appellate Body Report, US – Softwood
1755Panel Report, para. 7.197.
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767. Finally, the Panel found that, although as a matte r of corporate law there had been a legal
reorganization of the producer of Airbus LCA, from a groupement d'intérêt économique (GIE) to a
société par actions simplifiée (SAS), the "economic realities" of production of Airbus LCA illustrated
that the Airbus Industrie consortium (that is, each of the Airbus partners, th eir respective affiliates,
and Airbus GIE) was the same producer of Airbus LCA as Airbus SAS.
1756 Moreover, the Panel
noted that the European Commission had itself expr essed the view that there was no indication that
the combination of the Airbus partners Aérospa tiale-Matra, Dasa, and CASA to form EADS would
affect the quality or nature of control of Airbus Industrie, nor would it have any impact on the work
share distribution between the Airbus partners.1757
768. For these reasons, the Panel considered that , for purposes of assessing the United States'
claims under Articles 5 and 6 of the SCM Agreement, the changes to the corporate structure of the
producer of Airbus LCA did not require that the United States demonstrate, as part of its prima facie
case, the "pass-through" to the entity Airbus SAS of be nefits conferred by financial contributions that
had been provided to the Airbus Industrie consortium.1758
(i) Was a "pass-through" analysis required?
769. The European Union argues in this appeal that the Panel erred in finding that the
United States was not required to demonstrate the "p ass-through" of subsidies, and that this error is
premised on a flawed interpretation and app lication of Articles 1, 5, and 6 of the SCM Agreement,
which require a showing of "continuing benefit". 1759 The European Union rejects the Panel's finding
that a "pass-through" analysis should be confined to a Part V context and is inapplicable to Part III of
the SCM Agreement. The European Union notes that there is a common definition of subsidy under
Article 1, which applies to both Parts III and V. 1760 In this regard, the European Union refers to the
finding by the Appellate Body in Canada – Aircraft that a benefit arises only if a person, natural or
legal, or a group of persons has, in fact, received something. 1761 According to the European Union,
this suggests that the United States had the burden of proving that alleged subsidies to recipients other
than the current producer of LCA, Airbus SAS, cu rrently benefit Airbus SAS. The adverse effects
under Articles 5 and 6 of the SCM Agreement are defined as particular types of competitive harm that

1756Panel Report, para. 7.199.
1757Panel Report, para. 7.199 and footnote 2097 thereto (referring to European Commission, Merger
Procedure Article 6(2) Decision, Case No. COMP/M.1745 – EADS (11 May 2000) (Panel Exhibit US-479),
para. 16).
1758Panel Report, para. 7.200.
1759European Union's appellant's submission, para. 269.
1760European Union's appellant's submission, para. 270.
1761European Union's appellant's submission, para. 271 (referring to Appellate Body Report, Canada –
Aircraft, para. 154).
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are the "effect of the subsidy", which are transm itted through a recipient company's products. The
European Union recalls that the Appellate Body in US – Upland Cotton found that a prerequisite to a
finding of causation is that the challenged subsidy does in fact benefit the subsidized product.
1762
770. The United States responds that, as the complain ing party, its only burden was to establish
that the subsidies at issue caused adverse effects to the United States' inte rests, which it did by
demonstrating that the member States made financ ial contributions, that each conferred a benefit on
producers of LCA, and that these subsidies caused adve rse effects to the United States. To the extent
that the Appellate Body considers that the United States bore some further burden, the United States
argues that it satisfied that burden by establishing that the corporate predecessors were all producers
of LCA and that, as the Panel found, there was no indication that the reorganization among the Airbus
entities to create Airbus SAS had any impact on the "qua lity or nature of control" of Airbus Industrie
or the work share distribution between the Airbus partners.
1763
771. We begin by noting that the European Union's arguments are premised on its earlier
arguments that, for purposes of a serious prejudice analysis under Article 5 of the SCM Agreement, a
complainant must demonstrate the existence of a "con tinuing benefit" that is enjoyed by the recipient
during the reference period . For the reasons given in paragraph 712 above, we disagree with the
proposition that subsidies are capable of causing ad verse effects during the reference period only to
the extent that the complaining party has demonstr ated the existence of a continuing benefit during
that period. Accordingly, we disagree with the European Union that the United States was required in
this case to demonstrate the existence of a "conti nuing benefit" to Airbus SAS during the reference
period.
772. In addition, like the Panel, we note that the United States' claims were not limited to adverse
effects caused by subsidies provided to the current producer of LCA or to the current LCA models
produced by Airbus SAS. 1764 Rather, the United States also challenged subsidies provided to
"predecessor Airbus GIE companies" and "predecessor affiliated companies" of both Airbus GIE and
Airbus SAS.1765 As we explained above, and as the Appella te Body has previously found, subsidies

1762European Union's appellant's submission, para. 271 (referring to Appellate Body Report, US –
Upland Cotton, para. 472).
1764Panel Report, paras. 7.190-7.192.
1765See Panel Report, para. 7.191.
WT/DS316/AB/R BCI deleted, as indicated [***]

provided in the past can continue to have adverse effects at a later point in time.
1766 We therefore fail
to see why, as the European Uni on argues, the United States would have been required also to
demonstrate that past subsidies "passed through" from one company to another, in addition to showing
that the European Union was in breach of its obliga tion not to cause, through the use of any subsidy,
adverse effects to the interests of the United States.
773. The European Communities argued before the Panel that, to the extent that subsidies provided
to Airbus predecessor companies and their related companies were alleged to continue to benefit
Airbus SAS, this would have to be affirmativel y demonstrated by the United States because "Airbus
partners restructured their relationship" to one another when they formed Airbus SAS in 2001. 1767
Before addressing this argument, we recall, as the Panel did, the specific circumstances in which a
"pass-through" analysis has been required in WTO disputes under the SCM Agreement. We recall that
the Appellate Body pronounced on the requi rements for a "pass-through" analysis in US – Softwood
Lumber IV. That dispute concerned countervailing duties levied by the United States on imports of
softwood lumber, including remanufactured lumber, from Canada to offset subsidies granted to timber
harvesters in relation to the harvesting of timber (that is, the input into the production of softwood
lumber). The Appellate Body upheld th e panel's findings that Article 10 of the SCM Agreement and
Article VI:3 of the GATT 1994 required the US DOC to conduct a "pass-through" analysis in
circumstances where a subsidy is received by th e producer of an input product and the imported
product subject to the countervailing duty inve stigation is a different, downstream product
manufactured by an unrelated producer operating at arm's length from the recipient of the subsidy.
774. The issue of "pass-through" also arose in US – Upland Cotton in legally and factually
different circumstances than in US – Softwood Lumber IV . Similar to this dispute, US – Upland
Cotton involved claims of serious prejudice under Part III of the SCM Agreement. In that case, the
Appellate Body found that a "pass-through" analys is was "not critical" for an assessment of price
suppression under Article 6.3(c) of the SCM Agreement, in part due to the differing contexts and

1766The Appellate Body in US – Upland Cotton explained that:
Whether the effect of a subsidy begins and expires in the year in which it is
paid or begins in one year and continues in any subsequent year, and how
long a subsidy can be regarded as having effects, are fact-specific questions.
The answers to these questions may depend on the nature of the subsidy and
the product in question. We see nothing in the text of Article 6.3(c) that
excludes a priori the possibility that the effect of a "recurring" subsidy may
continue after the year in which it is paid. Article 6.3(c) deals with the
"effect" of a subsidy, and not with th e financial accounting of the amount of
the subsidy.
(Appellate Body Report, US – Upland Cotton, para. 476)
1767Panel Report, para. 7.185.
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rationales of Part III and Part V of the SCM Agreement.
1768 As the Appellate Body explained, Part III
of the SCM Agreement requires only proof that the subsidy causes "adverse effects" and does not
require a precise quantification of the subsidies since, inter alia, the remedy for a finding of adverse
effects "targets the effects of the subsidy ... generally".1769
775. Based on these considerations, we do not consider that, as alleged by the European Union, the
facts of this case give rise to a requirement to conduc t an analysis of whether the benefit of subsidies
provided to the Airbus Industrie consortium "passed through" to Airbus SAS. First, there is no
suggestion here that subsidies were provided to a different "input product" that was separate or
distinct from a downstream "subsidized product", as was the case in US – Softwood Lumber IV .
Second, although we do not exclude that there may be other circumstances, including ones involving
the restructuring of companies in which the rece ipt of a subsidy by a predecessor company may not
mean that it is enjoyed by a successor company, we recall the Panel's finding that, despite the changes
to their "legal organization", the "economic realiti es" of production of Airbus LCA demonstrated that
the Airbus Industrie consortium (that is, each of th e Airbus partners, their respective affiliates and
Airbus GIE) and Airbus SAS we re the "same producer" of LCA. 1770 The Panel explained that "all of
the LCA operating assets and all of the LCA design, manufacturing and marketing activities of the

1768The Appellate Body has stated:
{T}he requirement in Article VI:3 of the GATT 1994 and Article 19.4 of the
SCM Agreement that countervailing duties on a product be limited to the
amount of the subsidy accruing to that product finds no parallel in the
provisions on actionable subsidies and pertinent remedies under Part III of
the SCM Agreement . Therefore, the need for a "pass-through" analysis
under Part V of the SCM Agreement is not critical for an assessment of
significant price suppression under Article 6.3(c) in Part III of the
SCM Agreement. Nevertheless, we acknowledge that the "subsidized
product" must be properly identified for purposes of significant price
suppression under Article 6.3(c) of the SCM Agreement . And if the
challenged payments do not, in fact, subsidize that product, this may
undermine the conclusion that the e ffect of the subsidy is significant
suppression of prices of that product in the relevant market.
(Appellate Body Report, US – Upland Cotton, para. 472)
1769The Appellate Body explained the differing rationales of Parts III and V of the SCM Agreement as
follows:
We note that the apparent rationale for Part III differs from that for Part V of
the SCM Agreement. Under Part V, the amount of the subsidy must be
calculated because, under Article 19.4 of the SCM Agreement and
Article VI:3 of the GATT 1994, countervailing duties cannot be levied in
excess of that amount. In contrast, under Part III, the remedy envisaged
under Article 7.8 of the SCM Agreement is the withdrawal of the subsidy or
the removal of the adverse effects. This remedy is not specific to individual
companies. Rather, it targets the eff ects of the subsidy more generally.
Article 6.3(c) thus goes in the same vein and does not require a precise
quantification of the subsidies at issue.
(Appellate Body Report, US – Upland Cotton, para. 464)
1770Panel Report, para. 7.199. (emphasis omitted)
WT/DS316/AB/R BCI deleted, as indicated [***]

former Airbus partners and Airbus GIE were groupe d in Airbus SAS and its subsidiaries" and, as the
European Commission had stated in a document gran ting merger clearance for the creation of EADS,
"there was no indication" that as a result of the formation of EADS "the quality or nature of control of
Airbus Industrie" or the "impact on the work share distribution between the Airbus partners" would be
affected.
1771 At the oral hearing, we engaged the par ticipants in some discussion as to whether the
restructuring of predecessor companies to form EADS , and thereafter Airbus SAS, involved a change
in LCA productive activities and corporate contract ual relationships. The European Union did not
contest the United States' assertion that Airbus' ope rations or production activities did not change as a
result of the restructuring.
776. Finally, we do not consider that the rela tionship between the predecessor companies and
Airbus SAS is one that can be characterized as a relationship between unrelated companies operating
at "arm's length". Instead, the companies and Airbus SAS were related, at least to some extent,
through common ownership. We c onclude, therefore, that we are not faced with a situation where
predecessor and successor companies are unrelated and operate at arm's length and where a "pass-
through" analysis might therefore be required.
777. For the foregoing reasons, we uphold the Panel's finding, in paragraphs 7.200 and 7.286 of
the Panel Report, that the United States was not required to demonstrate, as part of its prima facie
case under Article 5 of the SCM Agreement, that subsidies provided to the Airbus Industrie
consortium "passed through" to the current producer of Airbus LCA, Airbus SAS.
VI. Launch Aid/Member State Financing
778. Before the Panel, the United States alleged that the Governments of France, Germany, Spain,
and the United Kingdom have maintained a "formal and institutionalized industrial policy" towards
Airbus and that a "central part" of this policy h as been the "systematic and coordinated" provision of
LA/MSF subsidies to assist Airbus in developing a family of LCA. 1772 This record of support, the
United States argued, "evidences the existence of a LA/MSF Programme … as a distinct measure,
separate from the individual grants of LA/MSF".
1773 In reply, the European Communities contested
the existence of an LA/MSF "Programme", arguing that "{n}o overarching measure" stipulates the

1771Panel Report, para. 7.199. (original emphasis)
1772Panel Report, para. 7.498 (referring to United States' first written submission to the Panel,
paras. 85-89).
1773Panel Report, para. 7.498 (referring to United Stat es' oral statement at the second Panel meeting,
paras. 34 and 36).
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provision of LA/MSF to Airbus and that "{t}he United States can point to no rule or norm that would
transform a series of separate financing measures made for separate aircraft programmes by separate
countries into an all-encompassing measure."
1774
779. The Panel found that "{i}ndividually, no piece or category of evidence relied upon by the
United States positively demonstrates the existence of the alleged unwritten LA/MSF Programme."1775
The Panel noted, for instance, that, "while the facts surrounding the development of Airbus LCA
show a history and general policy to support Air bus through LA/MSF, this support has not always
been expressed by the same four EC memb er States or for the same LCA projects." 1776 Moreover,
"the institutions created under the first inter-gove rnmental agreements to manage the different
Members' participation in various Airbus LCA projects have at different times involved fewer or more
countries than the four EC member States the United States asserts systematically operated the
unwritten LA/MSF Programme."1777 The Panel added that "the func tions of these institutions evolved
over the years, becoming more limited by the time of the A380", and that "{a}pparently the
institutions were not used at all to manage LA/MSF provided for the A330-200 and A340-500/600
projects."1778 The Panel also recalled its earlier finding th at the evidence and arguments advanced by
the parties did not lead it "to conclude that LA/MSF, by definition, involves below-market financing"
and that, therefore, "any LA/MSF granted in the future will involve non-commercial interest rates."1779
For all these reasons, the Panel concluded that the United States had failed to demonstrate the
existence of the alleged unwritten LA/MSF Programme. 1780 The Panel added that its conclusion
would be the same even if it had found that the Un ited States did not have to establish the general and
prospective application of the alleged unwritten LA/MSF Programme. The Panel explained that, "in
general terms, a 'programme' may be described as a planned series of events." 1781 The Panel queried
"whether a 'programme' of any kind can exist wit hout having general and prospective application."1782
For the Panel, it was "not entirely clear" what th e United States meant when it argued that "the
evidence it has adduced supports th e existence of an unwritten LA/MSF Programme that is not of

1774European Communities' first written submission to the Panel, para. 342.
1775Panel Report, para. 7.577.
1776Panel Report, para. 7.577.
1777Panel Report, para. 7.577.
1778Panel Report, para. 7.577.
1779Panel Report, para. 7.578.
1780Panel Report, para. 7.579.
1781Panel Report, para. 7.580.
1782Panel Report, para. 7.580.
WT/DS316/AB/R BCI deleted, as indicated [***]

general and prospective application."
1783 To the extent that the focu s of the United States' position
was the "repetition of the same government action over a limited period of time"—that is, provision
by the member States of LA/MSF to Airbus "whene ver sought, on the same four core terms between
1969 and 2002"—the Panel recalled its view that "mer e repetition of the same government action over
time does not necessarily demonstrate that the govern ment acted pursuant to a rule that applied
generally over that same period."1784 Moreover, the Panel considered that there was evidence pointing
to "the non-existence of any such unwritten LA/M SF Programme, including: the fact that between
1969 and 2002 the same four member States did not always participate, or participated with other
EC member States, in Airbus LCA projects funded through LA/MSF; the evolving role and function
of the inter-governmental institutions; and the fact that the latter were not apparently used for the
purpose of the LA/MSF provided for the A330-200 and A340-500/600."
1785
1. Arguments on Appeal
780. On appeal, the United States argues that the Pa nel erred in finding that the United States had
failed to demonstrate the existence of the alle ged unwritten LA/MSF Programme. The United States
requests the Appellate Body to reverse the Pa nel's finding and find that the alleged LA/MSF
Programme "constitutes a specific subsidy, provided by France, Germany, Spain and the United
Kingdom to Airbus, that causes adverse effects to the interests of the United States."
1786
781. The United States describes the alleged LA /MSF Programme as "ongoing conduct" or
"repeated provision of {LA/MSF} to each and ever y major Airbus model, under the same four core
conditions and benefiting the same subsidized product".1787 The United States further explains that its
challenge before the Panel "was based on a demonstr ation that over the past four decades (since
1969), the Airbus governments have consistently s ubsidized Airbus, in the form of {LA/MSF}, by
underwriting the costs of developing each and every single model through long-term unsecured loans
at zero or below-market rates of interest, with b ack-loaded repayment schedules that allow Airbus to
repay the loans through a levy on each delivery of the financed aircraft."
1788 According to the

1783Panel Report, para. 7.580. The United States described the "precise content" of the alleged
LA/MSF Programme as consisting of "the consistent, up-front provision by the Airbus governments of a
significant portion of the capital th at Airbus needs to develop each new LCA model through loans that are:
(a) unsecured; (b) repayable on a success-dependent basis (i.e., through per sale levies); (c) with the levy
amounts greater for later sales than earlier sales (i.e., back-loaded); and (d) with interest accruing at rates below
what the market would demand for the assumption of similar risk." Accord ing to the United States, "each and
every LA/MSF contract has featured these core characteristics". (Ibid., para. 7.501)
1784Panel Report, para. 7.580.
1785Panel Report, para. 7.580.
1786United States' other appellant's submission, paras. 82 and 83(e).
1787United States' other appellant's submission, para. 61.
1788United States' other appellant's submission, para. 60.
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United States, the Panel's factual findings, viewed in the light of the Appellate Body's analysis in US –
Continued Zeroing , demonstrate the existence of the LA/MSF Programme "as a measure subject to
challenge in WTO dispute settlement proceedings".
1789 The United States further contends that the
Panel's findings and analysis, regarding the cumulative effect of each individual instance of LA/MSF,
provide the factual and legal basis for the Appe llate Body to find that the LA/MSF Programme
"caused serious prejudice to the interests of th e United States in the form of displacement of
United States' LCA from the EC and certain third country markets and the significant lost sales during
the period 2001-2006 found by the Panel with respect to individual instances of {LA/MSF}."
1790
782. By contrast, the European Union supports the Panel's finding that the United States failed to
establish the existence of the alleged LA/MSF Programme. The European Union argues that,
inter alia, the United States has now changed the descrip tion of the measure it challenges on appeal,
simply combining into a single measure all instance s of past LA/MSF loans. Under the United States'
approach, the European Union argues, "the whole is not greater than the sum of its constituent
parts."1791 The European Union adds that, while it ass erts that the alleged LA/MSF Programme is a
"broader scheme" than, and "separate from", th e individual instances of LA/MSF loans, "the
United States fails to cite to any evidence other than that relating to the individual MSF loans for the
proposition that the alleged programme constitu tes a subsidy and causes adverse effects." 1792 T h e
European Union also emphasizes that the presen t challenge against the alleged LA/MSF Programme
is "markedly different than a challenge that the Un ited States could have attempted to lodge, but did
not—i.e., an 'as such' challenge to an MSF pr ogramme, as a whole, where the programme was
demonstrated to satisfy the characteristics of an ongoing programme."1793
783. Even if the Appellate Body were to complete the analysis pursuant to the legal framework set
out in US – Continued Zeroing, the European Union argues that the alleged LA/MSF Programme does
not involve conduct that can be attributed to Fran ce, Germany, Spain, and the United Kingdom. Nor
is there a clear definition of what the conduct entails. In this regard, the European Union refers to the
Panel's finding, that the "vast majority of te rms and conditions" in each LA/MSF contract are
"different", to argue that the "four core terms" that the United States alludes to "are neither very
specific, nor well defined, nor monolithic or automatic as was the zeroing methodology at issue in
US – Continued Zeroing."1794 Rather, according to the European Union, such "core terms" "constitute

1789United States' other appellant's submission, para. 64.
1790United States' other appellant's submission, para. 81.
1791European Union's appellee's submission, para. 209. (original emphasis)
1792European Union's appellee's submission, footnote 233 to para. 209.
1793European Union's appellee's submission, para. 210.
1794European Union's appellee's submission, para. 303 (referring to Panel Report, para. 7.525).
WT/DS316/AB/R BCI deleted, as indicated [***]

generic descriptions of features in a financing agreement, and mask the significant differences
between the various, individually negotiated MSF lo ans that the Panel pointed out in its factual
findings".
1795
2. Analysis
784. Before turning to the specific issues raised on a ppeal, we review, briefly, the applicable rules
governing a panel's terms of reference.
785. Article 6.2 of the DSU provides, in relevant part:
The request for the establishment of a panel shall be made in writing.
It shall indicate whether 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.
786. As discussed above, two requirements under Article 6.2 of the DSU are central to establishing
a panel's jurisdiction—namely the identification of the specific measures at issue, and the provision of
a brief summary of the legal basis of the complaint. Together, specific measures and claims comprise
the "matter referred to the DSB", which forms th e basis for a panel's te rms of reference under
Article 7.1 of the DSU.
1796 The panel request thus functions to establish and delimit the jurisdiction of
the panel in a dispute and it serves the due process objective of notifying the respondent and third
parties of the nature of the dispute. The clear identification of the specific measures in the panel
request is therefore central to define the scope of the dispute to be addressed by a panel.
787. In considering whether the United States' request for the establishment of a panel identified an
LA/MSF Programme as a "specific measure at issue", we first recall that the requirements of
Article 6.2 must be established on the basis of the language in the panel request, read "as a whole".
1797
A party's subsequent submissions during the pane l proceedings cannot cure a defect in a panel
request.1798 Rather, the panel's terms of reference must be objectively determined on the basis of the

1795European Union's appellee's submission, para. 303.
1796See Appellate Body Report, Guatemala – Cement I, paras. 72 and 73; Appellate Body Report, US –
Carbon Steel , para. 125; Appellate Body Report, US – Continued Zeroing , para. 160; and Appellate Body
Report, US – Zeroing (Japan) (Article 21.5 – Japan), para. 107.
1797See Appellate Body Report, US – Carbon Steel , para. 127; Appellate Body Report, US – Oil
Country Tubular Goods Sunset Reviews, paras. 164 and 169; Appellate Body Report, US – Continued Zeroing,
para. 161; and Appellate Body Report, US – Zeroing (Japan) (Article 21.5 – Japan), para. 108.
1798See Appellate Body Report, EC – Bananas III , para. 143; and Appellate Body Report, US –
Carbon Steel, para. 127.
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panel request as it existed at the time of the filing. With these principles in mind, we turn to review
the United States' panel request.
1799
788. With respect to the measures at issue, the panel request reads, in relevant part:
(1) The provision by the member States of financing for large
civil aircraft design and development to the Airbus companies 1
(hereinafter "launch aid"). 2 This financing provi des benefits to the
recipient companies including financing for projects that would
otherwise not be commercially feasible. The non-commercial terms
of the financing may include no inter est or interest at below-market
rates and a repayment obligation that is tied to sales. If the aircraft is
not successful, some or all of the financing need not be repaid.
Specific examples of the financing at issue include:
(a) French financing for the Airbus A300, A310, A320,
A330/340, A330-200, A340-500/600, A380, and A350;
(b) German financing for the Airbus A300, A310, A320,
A330/340, A380, and A350;
(c) United Kingdom financing for the Airbus A300, A310,
A320, A330/340, A340-500/600, A380, and A350; and
(d) Spanish financing for the Airbus A300, A310, A320,
A330/340, A340-500/600, A380, and A350.
1The Airbus companies, as referenced throughout this request, include
Airbus SAS, its predecessor Airbus GIE and current and predecessor
affiliated companies, including each person or entity that directly, or
indirectly through one or more intermed iaries or relationships, controls or
controlled, is or was controlled by, or is or was under common control with
Airbus SAS or Airbus GIE, such as parent companies, sibling companies
and subsidiaries, including Airbus Deutschland GmbH, Airbus España SL,
Airbus France S.A.S., Airbus UK Limited, European Defence and Space
Company ("EADS"), and BAE Systems.
2The EC and the member States use diffe rent terms to describe the type of
financing at issue, such as launch aid, launch investment, avances
remboursables, Rückzahlbare Zuwe ndungen, Entwicklungsbeihilfen,
Zuschüsse zur Entwicklung von zivilen Flugzeugen, anticipo reembolsable,
and prestamo reembolsable. Althou gh the United States will hereinafter
refer to the financing as "launch aid," th e U.S. request is with respect to all
such types of financing, regardless of the specific term or terms that the
entity providing the financing uses.
789. The United States' panel request expressly refers to the "provision by the member States of
financing for large civil aircraft design and develo pment to the Airbus companies" and describes this
financing as "launch aid". In addition, it states that the "EC and the member States use different terms
to describe the type of financing at issue", and sp ecifies that the United States' complaint is "with

1799WT/DS316/2.
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respect to all such types of financing, regardless of the specific term or terms that the entity providing
the financing uses." The request goes on to list specific "examples of the financing at issue".
790. It is uncontested that these references in the Un ited States' panel request can be read to refer
to individual provisions of LA/MSF. However, we do not believe the same references can be read
simultaneously to refer to a distinct measure, consisting of an unwritten LA/MSF Programme or
indeed "a concerted and coherent approach ... desi gned to contribute to the long-term competitiveness
of Airbus".
1800 It is well established that, where a panel request fails to identify a particular measure
or fails to specify a particular claim, such a measu re or claim will not form part of the matter covered
by the panel's terms of reference. 1801 Moreover, as noted above, a complainant's submission during
the panel proceedings cannot cure a defect in a panel request.1802
791. Although the European Union did not raise pr ocedural objections, under Article 6.2 of the
DSU, against the United States' challenge to an unwritten LA/MSF Programme before the Panel or in
its appellee's submission, "certain issues going to the jurisdiction of a panel are so fundamental that
they may be considered at any stage in a proceeding."1803 In this case, we have deemed it necessary to
consider these issues on our own motion.
792. When a challenge is brought against an unwritten measure, the very existence and the precise
contours of the alleged measure may be uncertain. We would therefore expect complaining parties to
identify such measures in their panel requests as cl early as possible. We would also expect that
complaining parties state unambiguously the legal basi s for the allegation that those measures are not
consistent with particular provisions of the covered agreements. Pa nel requests should give
respondents and third parties sufficient notice of the specific measures that the complainant intends to
challenge in WTO dispute settlement proceedings.
793. The United States' failure to identify clearly the alleged unwritten LA/MSF Programme in its
panel request appears to have had implications on the Panel's ability properly to understand the
substance of the United States' challenge. As th e Panel found, the United States initially argued that
"the evidence before the Panel clearly demonstrat ed that the unwritten measure it was challenging
unavoidably necessitated certain future conduct" 1804 and characterized the alleged LA/MSF

1800United States' other appellant's submission, para. 70.
1801See Appellate Body Report, Australia – Apples, para. 416.
1802See Appellate Body Report, EC – Bananas III , para. 143; and Appellate Body Report, US –
Carbon Steel, para. 127.
1803See Appellate Body Report, US – Carbon Steel, para. 123. (original emphasis)
1804Panel Report, para. 6.95.
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Programme as a measure that has "normative value".
1805 Subsequently, the United States clarified that
it was not challenging the alleged LA/MSF Programme "as such", explaining that the focus of its
claim was not "on something about a measure that mandates or necessarily results in a breach each
time the measure is applied, which is the essence of an 'as such' claim".1806 In the United States' view,
it is not necessary to show that the challenged measu re possessed "normative value" in order to show
it existed as a "measure". 1807 On appeal, the United States argues that the provision of LA/MSF
"reflected a concerted and coherent approach—t hat is, a 'program' or 'ongoing conduct'—designed to
contribute to the long-term competitiveness of Airbus in the only way possible: through the
production of a range of aircraft covering the varying needs of LCA customers and with commonality
of features to retain those customers." 1808 According to the United States, "each individual grant of
{LA/MSF} effectuated the broader scheme that the Airbus governments maintain to ensure that at
least one of the world's LCA producers will be European." 1809 The United States further describes the
measure it was challenging as "a repeated course of action by responding Members". 1810 At the oral
hearing, the United States added that there could be different implementation actions that might have
to be taken by the European Union in respect of a recommendation directed at such a measure.
794. The Appellate Body has addressed, in several cases, the scope of "measures" that may
properly form the subject of WTO dispute settlement. In US – Corrosion-Resistant Steel Sunset
Review, the Appellate Body found that, "{i}n principle, any act or omission attributable to a WTO
Member can be a measure of that Member for purposes of dispute settlement proceedings." 1811 The
scope of measures that can be challenged in WTO dis pute settlement is therefore broad. As a general
proposition, we do not exclude the possibility that c oncerted action or practice could be susceptible to
challenge in WTO dispute settlement. Nor do we c onsider that a complainant would necessarily be
required to demonstrate the existence of a rule or no rm of general and prospective application in order
to show that such a measure exists. In the pr esent case, however, we are unable to discern in the
United States' panel request a challenge to an alleged LA/MSF Programme as a specific measure

1805Panel Report, para. 6.95.
1806Panel Report, para. 7.513 (quoting United States' oral statement at the second Panel meeting,
para. 37).
1807Panel Report, para. 6.95.
1808United States' other appellant's submission, para. 70. (original emphasis)
1809United States' other appellant's submission, para. 71.
1810United States' other appellant's submission, para. 71.
1811Appellate Body Report, US – Corrosion-Resistant Steel Sunset Review, para. 81. See also Appellate
Body Report, US – Softwood Lumber IV (Article 21.5 – Canada), para. 67.
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"separate from the individual instances of {LA/MSF}"
1812, and, as noted, a complainant's subsequent
submissions during panel proceedings cannot cure such a defect in a panel request.1813
795. In the light of the above, we find that the alleged LA/MSF Programme was not within the
Panel's terms of reference because it was not identifie d in the request for the establishment of a panel,
as required by Article 6.2 of the DSU.
796. Having found that the alleged unwritten LA /MSF Programme was not within the Panel's
terms of reference, we have no basis further to c onsider the arguments raised by the participants
regarding the alleged LA/MSF Programme. Nor do we have a basis further to examine the Panel's
finding that no such scheme or programme exists. 1814 Accordingly, we declare moot and of no legal
effect the Panel's finding, in paragraphs 7.579, 7.5 80, and 8.3(a)(iv) of the Panel Report, that the
United States failed to establish the existen ce of an unwritten LA/MSF Programme measure
constituting a specific subsidy within the meaning of Articles 1 and 2 of the SCM Agreement.
B. LA/MSF Benefit
797. We turn now to the European Union's app eal of the Panel's findings concerning the
assessment of whether the challenged LA/MSF measu res confer a benefit within the meaning of
Article 1.1(b) of the SCM Agreement. The Panel's findings are summarized in subsection 1. This is
followed in subsection 2 by a brief description of the LA/MSF measures before we proceed, in
subsection 3, to review the Panel's assessment of whether those measures confer a benefit within the
meaning of Article 1.1(b) of the SCM Agreement. Finally, subsection 4 deals with a residual issue
concerning the Panel's statement that "the number of sales over which full repayment is expected says
little, if anything, about the appropriateness of the rate of return that will be achieved by that
lender".1815
1. The Panel's Findings
798. Before the Panel, the United States argued that "each of the 'financial contributions' made
available through the challenged LA/MSF measures conf ers a 'benefit' on Airbus, within the meaning
of Article 1.1(b) of the SCM Agreement, because each was provided on interest rate terms that are

1812United States' other appellant's submission, para. 71.
1813Appellate Body Report, EC – Bananas III , para. 143; Appellate Body Report, US – Carbon Steel ,
para. 127.
1814Panel Report, paras. 7.576-7.580.
1815Panel Report, para. 7.397.
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more advantageous than would otherwise be the ca se if financing on the same or similar terms and
conditions had been sought by Airbus from a market lender."
1816
799. The European Communities made several arguments in response. First, the
European Communities asserted that Article 4 of the 1992 Agreement sets out the appropriate
benchmark to determine whether LA/MSF granted af ter 1992 conferred a "benefit" to Airbus. The
Panel noted that, "{a}lthough the European Commun ities argues that Article 4 serves as relevant
context for the interpretation of the notion of 'benefit', it has not explained exactly how it informs the
meaning that must be given to this term." 1817 The Panel further explained that Article 4 of the 1992
Agreement "contains no definition of a 'subsidy' nor does it make any reference to the notion of
'benefit'" and, consequently, the Panel did not see anything "in the language of Article 4 to suggest
that it informs the meaning of Article 1.1(b) of the SCM Agreement." 1818 Therefore, the Panel
concluded that "even assuming that the 1992 Agreement were an instrument containing relevant rules
of international law applicable between the parti es, within the meaning of Article 31(3)(c) of the
{Vienna Convention } (... we emphasize that on this questi on, we express no view), we are not
convinced that Article 4 of that Agreement provide s any guidance on how to interpret the concept of
'benefit' under Article 1.1(b) of the SCM Agreement."1819
800. Next, the Panel addressed the European Communitie s' argument that "the 'decisive factor' for
determining whether LA/MSF measures ... confer a benefit is the reasonableness of the repayment
forecasts."1820 The Panel first considered the relevance of footnote 16 of the SCM Agreement.
Footnote 16 is attached to subparagr aph (d) of Article 6.1, which states that serious prejudice shall be
deemed to exist in the case of direct forgiveness of debt, that is, forgiveness of government-held debt,
and grants to cover debt repayment. Footnot e 16 clarifies that "Members recognize that where
royalty-based financing for a civil aircraft programme is not being fully repaid due to the level of
actual sales falling below the level of forecast sales, this does not in itself constitute serious prejudice
for the purposes of this subparagraph."

1816Panel Report, para. 7.383.
1817Panel Report, para. 7.388. (original emphasis)
1818Panel Report, para. 7.389.
1819Panel Report, para. 7.389. (footnote omitted)
1820Panel Report, para. 7.390. The European Communities had initially advanced this argument in
respect of only the LA/MSF measures for the A330-200, A340-500/600, and the A380, but subsequently
declared that it could be of equal relevance to certain pre-1995 LA/MSF measures (specifically, the A320 and
A330/A340 contracts) if the Panel were to reject its sp ecific defences advanced in relation to these measures
based on the temporal scope of the SCM Agreement and the relevance of the Tokyo Round Subsidies Code .
Because the Panel had dismissed these two defences, the Pa nel said that its evaluation should be understood as
addressing the European Communities' arguments as they relate to all of these measures, namely LA/MSF for
the A320, A330/A340, A330-200, A340-500/600, and the A380. (Ibid.)
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801. The Panel observed that, "{t}o the extent that th e effect of footnote 16 is expressly limited to
the purposes of Article 6.1(d)—that is, determining wh ether direct debt forgiveness can be deemed to
cause serious prejudice—it is clear that it was not intended to inform the meaning of 'benefit' under
Article 1.1(b)."
1821 The Panel then analyzed whethe r a reasonableness benchmark would be
appropriate irrespective of the legal relevance of footnote 16. In this regard, the Panel stated:
In our view, a reasonable repayment forecast, in the terms advanced
by the European Communities—i.e., a reasonable number of sales
over which a market lender could expect full repayment of loaned
principal plus interest—cannot alone be determinative of whether a
royalty-based financing instrument (in this case LA/MSF) confers a
benefit for the purpose of the SCM Agreement. While we can accept
that an unreasonable repayment forecast may signal that a loan
confers a benefit, we do not belie ve the opposite will necessarily be
the case when LA/MSF is gr ounded on a reasonable repayment
forecast. This is because the number of sales over which full
repayment is expected says little, if anything, about the
appropriateness of the rate of return that will be achieved by the
lender.
1822 (original emphasis; footnotes omitted)
802. Having rejected the "reasonableness" benchmark proposed by the European Communities, the
Panel laid out its own views as to what it consider ed to be the proper benchmark under Article 1.1(b)
of the SCM Agreement:
Bearing in mind that it is now well established that the question of
benefit under Article 1.1(b) of the SCM Agreement should be
resolved by comparing the situation of the recipient of a financial
contribution with and without that contribution, we believe that it
makes sense to focus the assessme nt of whether LA/MSF confers a
benefit on whether the rate of return of the challenged measures is
lower than the rate of return that would be sought by a market lender
for financing on the same or simila r terms and conditions, taking into
account a comparable schedule of repayment.
1823 (footnote omitted)

1821Panel Report, para. 7.396.
1822Panel Report, para. 7.397. We note that the Panel used the term "royalties" in two different ways.
In the broader sense, it refers generally to payments to the member State governments under the LA/MSF
measures. This is the way the term is used in the 1992 Agreement. However, the Panel here seems to be using
it in a narrower sense to refer to payments made to the member State governments after the LA/MSF has been
fully repaid.
1823Panel Report, para. 7.398.
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803. Before proceeding to make the comparison, the Panel addressed the European Communities'
argument that "reliance on a 'perfect market' be nchmark ... would be inappropriate because of the
heavy government intervention and internati onal regulation it alleges is found in the LCA
industry".
1824 The Panel rejected the European Communities' argument because the
European Communities "provided no evidence or explanation of how alleged government
intervention in the LCA industry distorts the behaviou r of market lenders such that it renders the rate
of return they would ask for financing compar able to LA/MSF an inappropriate benchmark upon
which to base a benefit analysis."1825 The Panel further explained:
While we recognize that the LCA industry has particular features that
set{} it apart from many other industrial sectors, in the absence of
clear arguments and evidence of government action distorting
non-governmental loan markets, we cannot accept the European
Communities' assertion that the "reasonableness of repayment
forecasts" used to construct LA/MSF contracts is the "'decisive
factor" for determining whether a LA/MSF contract confers a benefit
and constitutes a subsidy under the SCM Agreement.
1826 (footnotes
omitted)
804. The Panel turned to the first element of th e comparison, that is, the calculation of the
LA/MSF rates of return. The United States and the European Communities submitted their own
calculations of the rates of return of the LA/MSF measures. The Panel opted to proceed on the basis
of the methodology used by the European Commun ities, because the United States did not seem to
contest this methodology in general:

1824Panel Report, para. 7.399. (footnote omitted) The European Communities submitted that its
position was supported by certain observations made by the Appellate Body in US – Countervailing Measures
on Certain EC Products , which the European Communities argued stands for the proposition that "fair" market
transactions may not always be the most appropriate benchmarks for the purpose of establishing the existence of
subsidies under the SCM Agreement, particularly where the market for those transactions has been distorted by
government action. The Panel observed that the "core legal question" before the panel in US – Countervailing
Measures on Certain EC Products was whether the benefit resulting from a prior non-recurring financial
contribution bestowed on a state-owned enterprise continued to exist following its privatization at arm's length
and at fair market value, the government having tran sferred all or substantially all property and controlling
interest. In the light of this "very narrow set of facts and circumstances", the Panel did not consider it apparent
that the guidance of the Appellate Body, upon which the European Communities relied, "is as directly relevant
to the question we are faced with u nder the present set of arguments (i.e ., whether the rate of return for
comparable market financing is an appropriate benchmark for determining whether LA/MSF confers a benefit)
as the European Communities contends". ( Ibid., para. 7.399 and footnote 2513 thereto (referring to Appellate
Body Report, US – Countervailing Measures on Certain EC Products, paras. 117, 123, and 124))
1825Panel Report, para. 7.400.
1826Panel Report, para. 7.400.
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Although the United States contests the European Communities' view
that the rates of return by member States from each of the challenged
LA/MSF measures must be determined taking into account the
IRR{—internal rate of return—
1827}for each LA/MSF contract, we do
not understand the United States to contest the general NPV{—net
present value—}of cash-flows methodology applied by the
European Communities to determine these IRRs. Indeed, where it
had access to information on LA/MSF disbursements and
repayments, the United States appears to have relied upon a similar
methodology to derive the values of the interest rates it submits were
actually charged by the EC member States for LA/MSF.
1828 (original
footnotes omitted)
The Panel noted, however, that the United States contested two aspects of the European Communities'
calculation: (i) the reliance on projected aircraft deliveries, as opposed to actual deliveries, in order to
establish the amount and timing of LA/MSF repayments; and (ii) the inclusion of royalty payments in
the calculation.
1829
805. Regarding the use of projections, the Panel observed:
To the extent that the IRRs determined by the European
Communities are based on the number, timing and (for some
contracts) the forecast prices of deliveries projected in the relevant
Airbus business case, they are entirely dependent upon the credibility
of the Airbus business plan, and therefore inherently contain an
element of speculation. Thus, as the United States appears to note,
the IRRs calculated by the European Communities do not result from
an absolute legal obligation on Air bus to make repayments over a set
period of time at a given interest rate. Rather, they are based on a
repayment obligation that is conditional upon Airbus' business plan
actually being met.
1830 (footnote omitted)
806. Turning to the issue of royalties, the Panel stat ed that "the fact that such payments were
expressly provided for in these contracts indicates that the EC member State governments to some
degree anticipated they could enhance the rate of return that would otherwise be achieved on their
LA/MSF investment."1831 At the same time, the Panel noted that "exactly how much the EC member
State governments expected their returns to improve depends upon the number and timing of aircraft

1827The "internal rate of return" ("IRR") is the "rate of interest which you would have to use in
discounting the flow over time of net revenue generated by an investment such that the present value of the net
revenue flows is equal to the capital sum invested. The inte rnal rate of return, therefore, is the discount rate at
which the net present value of a project is zero." ( Dictionary of Economics, G. Bannock, R.E. Baxter, E. Davis
(eds) (Profile Books Ltd, 1999), p. 214)
1828Panel Report, para. 7.407.
1829Panel Report, para. 7.407. (footnote omitted)
1830Panel Report, para. 7.408.
1831Panel Report, para. 7.410.
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deliveries they anticipated would attr act the specified royalty payments."
1832 Therefore, the Panel
concluded that "the IRRs established by the European Communities, taking royalty payments into
account, could only represent, at most, the outer limit of what the EC member State governments
could have reasonably expected at the time of concluding the contracts."1833
807. The Panel, however, rejected the internal ra tes of return ("IRR"s) calculated by the
European Communities for the French A330/A340 contract and the Spanish A340-500/600 contract.
The Panel rejected the European Communities' IRR for the French A330/A340 contract because it had
been calculated on the basis of provisional repayment terms. 1834 In particular, the Panel noted that the
"schedule of repayment that was finally agreed involved an initial repayment levy that was about 50%
lower than the one used by the European Communities in its calculations." 1835 As for the Spanish
A340-500/600 contract, the Panel rejected the I RR submitted by the European Communities because
it had not been calculated "by identifying the IRR that set the NPV of anticipated LA/MSF inflows
and outflows at zero, but rather it was calculated on the basis of an interest rate formula which the
European Communities asserts was applied in the contract".1836
808. The European Communities also argued that th e effects of taxation on LA/MSF contributions
and repayments should be taken into account in calculating the IRR of the measures preceding the
A380, because the member States clas sified LA/MSF as taxable income. 1837 The Panel declined to
consider the effects of taxation for three reasons. Firs t, it noted that "there is little, if any, evidence"
demonstrating that "the EC member State governme nts (and Airbus) knew at the time they entered
into the LA/MSF contracts that part of the disbursed principal would be returned to the governments
through taxation, thereby effectively diminish ing the amount of funds available to Airbus." 1838
Second, the Panel did not consider that the Eur opean Communities "substantiated its assertion that the
relevant tax rates were applied directly to the amounts of LA/MSF at issue , and that Airbus made a
corresponding tax payment."1839 Third, the Panel stated that "the re is no basis in the SCM Agreement

1832Panel Report, para. 7.410. The Panel explained that, "although ostensibly required by the terms of
the LA/MSF agreements, royalty payments may never be made if attached to a number of aircraft sales, which
although identified in the business pl an that formed the basis of the par ties' expectations on concluding the
LA/MSF contracts, cannot realistically ever be achieved." (Ibid., para. 7.412 (footnote omitted))
1833Panel Report, para. 7.414.
1834Panel Report, para. 7.422.
1835Panel Report, para. 7.422.
1836Panel Report, para. 7.423.
1837Panel Report, para. 7.425.
1838Panel Report, para. 7.427.
1839Panel Report, para. 7.428. (original emphasis) The European Communities provided the taxation
rates allegedly applied in the relevant member States at the time of the relevant contracts and a statement from
an Airbus executive responsible for taxation matters conf irming that Airbus paid all corporate taxes "that were
due" in the relevant tax periods. (Ibid.)
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to support the view that the amount of a financia l contribution may be reduced for any tax payments
made to the government on income generated fro m economic activity that is facilitated by that
financial contribution."
1840 Consequently, the Panel rejected the "tax-adjusted 'implicit rates of return'
determined by the European Communities".1841
809. In Table 5 at paragraph 7.431 of the Panel Re port, the Panel set out the LA/MSF rates it
would consider in the remainder of its analysis and which it believed could serve as "reasonable
proxies for the maximum rates of return that the EC member State governments could have reasonably
anticipated when entering into the LA/MSF agreements".1842
810. Having determined the rates of return of the LA /MSF measures, the Panel turned to the other
element of the comparison, that is, the rates of re turn of comparable market-based financing. The
Panel noted that both parties had submitted their own estimates of the rates of return they considered
that a market lender would have required. The Unite d States submitted that comparable rate of return
could be constructed on the basis of the following th ree elements: "(i) ten-year long-term government
borrowing rates (representing the general risk-free co st of capital); (ii) ten-year company-specific
general borrowing rates (representing the general level of risk associated with lending to Airbus); and
(iii) a project-specific risk premium (representing the risk profile of LCA development and the
features of LA/MSF)."1843
811. The European Communities put forward its own pr oject-specific risk premium. According to
the Panel, the European Communities did not reject the United States' "construction of the proposed
interest rate benchmarks " and applied "the same general government and corporate borrowing rates
used in the United States' calculations when de riving its own proposed market-based rates of
return."1844 However, the European Communities disagr eed with the project-specific risk premium
proposed by the United States, arguing that "it is ove rstated because ... it is based on the returns that
would be expected from equity-based financing". 1845 As an alternative, the European Communities
proposed that the project-specific risk premium be based on the returns expected by risk-sharing
suppliers participating in the A380 project, which it considered more appropriate because "it more
closely reflects the debt-like characteristics of LA/MSF."1846

1840Panel Report, para. 7.429.
1841Panel Report, para. 7.430.
1842Panel Report, para. 7.431. (original emphasis)
1843Panel Report, para. 7.432. (footnote omitted)
1844Panel Report, para. 7.433. (footnote omitted)
1845Panel Report, para. 7.433.
1846Panel Report, para. 7.433.
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812. After analyzing the calculations made by the United States and the European Communities,
and the opinions given by their respective experts, the Panel found that the United States "probably
overstates the appropriate level of project-specifi c risk that may be reasonably associated with
LA/MSF provided for at least a number of the challenged Airbus LCA projects".
1847 The Panel gave
the following reasons for considering that the project-specific risk premium proposed by the
United States overestimates the level of risk: (i) while LA/MSF is unsecured and success-dependent,
the level of risk associated with venture capital fina ncing is typically higher; (ii) venture capital is
usually provided to firms that are typically "small and young, plagued with high levels of
uncertainty", while Airbus has developed into a "r elatively large firm with over 30 years experience,
substantial capital assets and revenue and a track r ecord of successful LCA development"; (iii) it was
unclear that the figure of 700 basis points "captures only the risk associated with venture capital"; and
(iv) it was not persuaded that the same risk premiu m should apply to all models of LCA developed by
Airbus.1848
813. At the same time, the Panel found that th e European Communities "under-estimates the
appropriate level of project-specific risk that may be reasonably associated with LA/MSF for all of the
challenged measures." 1849 The reasons given by the Panel for finding that the project-specific risk
premium proposed by the European Communities underestimated the level of risk were:
(i) the risk premium was calculated using a sma ll sample of risk-sharing suppliers; (ii) the
European Communities did not provide sufficient information; (iii) one risk-sharing supplier contract
showed major difference in repayment terms compared to LA/MSF contracts; (iv) the risk-sharing
suppliers had incentives to lower thei r expected rates of return; (v) LA/MSF reduced the level of risk
associated with risk-sharing supplier financing; a nd (vi) risk-sharing supplie rs may have themselves
been subsidized.

1847Panel Report, para. 7.461.
1848Panel Report, paras. 7.463 and 7.464.
1849Panel Report, para. 7.479.
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814. As regards the A300 and A310, the Panel summarized its findings as follows:
{A}s far as the cost of market financing comparable to LA/MSF is
concerned, we have found that neither of the proposals made by the
parties on the appropriate project-specific risk premium can be
reasonably applied as the perfect standard against which to measure
whether all of the challenged LA/MSF contracts confer a benefit.
Starting with LA/MSF provided fo r the A300 and A310, we have
found that the project-specific risk premium advanced by the
United States represents a reasonable proxy for the minimum project-
specific risk premium that it would be appropriate to associate with
market financing comparable to LA/MSF. We recall that the
European Communities has not adva nced any alternative project-
specific risk premium for these Airbus LCA models. It follows that
the appropriate market interest rate for determining whether the
French, German and Spanish go vernment LA/MSF contracts for
these Airbus LCA models confer a benefit is the market interest rate
benchmark advanced by the Unite d States, which we view as
representing a reasonable estimate of the lowest interest rate that a
commercial lender would have demande d in return for financing the
same LCA projects on comparable terms and conditions to
LA/MSF.
1850 (original emphasis)
815. In connection with the A320, A330/A340, A330-200, and A340-500/600 LCA projects, the
Panel found:
In terms of the models of LCA developed between the A310 and the
A380, our findings on the appropria te project-specific risk premium
lead us to conclude that the most appropriate market interest rate
benchmarks against which to measure whether the challenged
LA/MSF measures conferred a benefit lie in the range of interest
rates advanced by both of the parti es—that is, above the interest rate
benchmarks proposed by the European Communities but below the
benchmark levels submitted by the United States.
1851

1850Panel Report, para. 7.485.
1851Panel Report, para. 7.486.
BCI deleted, as indicated [***] WT/DS316/AB/R

816. And with respect to the A380, the Panel concluded:
Finally, we recall that we have found the United States' project-
specific risk premium for the A380 could be reasonably accepted to
represent the outer limit of the risk premium that a market lender
would ask Airbus to pay for financing comparable with LA/MSF;
whereas, we consider the project-s pecific risk premium advanced by
the European Communities to understate the appropriate level of risk
associated with financing such a project on terms and conditions
comparable with LA/MSF. Accord ingly, we find that the most
appropriate market interest rate benchmarks against which to
measure whether the challenged A380 LA/MSF contracts conferred a
benefit lie in the range of interest rates above those submitted by the
European Communities and up to the values advanced by the
United States.
1852
More detailed information about the project-specifi c risk premia proposed by the United States and
the European Communities, and the Panel's assessm ent of them, is provided in subsections 3(d)
and 3(e) below.
817. The Panel's findings concerning the rates of return of each LA/MSF measure, the comparable
market rates of return, and any difference betwee n the two, are summarized in Table 7 (and footnotes
2719-2726 thereto) of the Panel Report, which is reproduced below. The Panel noted that some of the
LA/MSF was provided at no interest cost, while th e same financing could have been obtained from
the market only at positive rates of interest. 1853 Accordingly, the Panel found that that "the financial
contributions made available through the A300 and A310 agreements, and the Spanish A320 and
A330/A340 contracts, conferred a benefit upon Airbus and therefore constitute subsidies within the
meaning of Article 1.1 of the SCM Agreement." 1854 The Panel arrived at the same conclusion with
respect to the other LA/MSF measures 1855, explaining that "even relying on the
European Communities' own estimates of the rates of re turn and market interest rate benchmarks, it is
clear that the financial contributions provided in the form of LA/MSF conferred a benefit on
Airbus."1856

1852Panel Report, para. 7.487.
1853Panel Report, para. 7.489. The Panel did not consider it necessary to decide whether the
United States was correct in arguing that a contribution at a zero rate of interest necessarily confers a benefit.
The Panel did state that a situation where market-based financing would be provided at zero interest would be
"extraordinary" and "highly unlikely". (Ibid., footnote 2728)
1854Panel Report, para. 7.489.
1855The measures are: the French LA/MSF for the A330/A340, A330-200, A340-500/600, and A380;
the German LA/MSF for the A320, A330/A340, and A380; the Spanish LA/MSF for the A340-500/600 and
A380; and the UK LA/MSF for the A320, A330/A340, and A380.
1856Panel Report, para. 7.490. (footnote omitted) Th e Panel added that the same result would have
been obtained had it not rejected the taxation-adjusted LA/MSF rates of return advanced by the
European Communities, with the exception of the French A330-200 contract.
WT/DS316/AB/R BCI deleted, as indicated [***]

Panel Table 7 – LA/MSF Rates of Return Compared with Market Rates of Return
 LA/MSF
Contract
LA/MSF Rate
of Return2719 Market Rate of Return2720 Differential
A300 0% at least 16.52% at least 16.52%
A310 0% at least 18.88% at least 18.88%
A320 [***%] above 13.49%2721
but less than 20.49%
more than [***%] + [[HSBI]]2722 but
less than [***%]
A330/A340 [[HSBI]] above 10.86%2722
but less than 17.86%
more than [[HSBI]]2723
but less than [[HSBI]]2724
A330-200 [***%] above 9.2%2722
but less than 17.22%
more than [[HSBI]]2725
but less than [***%]
A340-500/600 [***%] above 7.47%2722
but less than 14.47%
more than [***%] + [[HSBI]]2723 but
less than [***%]
FRANCE
A380 [***%] more than 6.89%2722
and up to 13.89%
from ([***] + [[HSBI]]2723)
to [***%]
A300 0% at least 15.18% at least 15.18%
A310 0% at least 13.99% at least 13.99%
A320 [***%] more than 8.95%2722
but less than 15.95%
more than ([***%] + [[HSBI]]2723)
but less than [***%]
A330/A340 [***%] more than 7.52%2722
but less than 14.52%
more than ([***%] + [[HSBI]]2723)
but less than [***%]
GERMANY
A380 [***%] more than 6.75%2722
and up to 13.75%
from ([***] + [[HSBI]]2723)
to [***%]
A300 0% at least 16.60% at least 16.60%
A310 0% at least 18.88% at least 18.88%
A320 [***%] more than 17.52%2722
but less than 24.52%
more than ([***%] + [[HSBI]]2723)
but less than [***%]
A330/A340 [***%] more than 14.19%2722 but
less than 21.19%
more than ([***%] + [[HSBI]]2723)
but less than [***%]
A340-500/600 [***%] more than 8.29%2722
but less than 15.29%
more than ([***%] + [[HSBI]]2723)
but less than [***%]
SPAIN
A380 [***%] more than 7.07%2722
and up to 14.07%
from ([***%] + [[HSBI]]2723)
to [***%]
A320 [***%] more than 12.59%2722
but less than 19.59%
more than ([***%] + [[HSBI]]2723)
but less than [***%]
A330/A340 [***%] more than 10.97%2722
but less than 17.97%
more than ([***%] + [[HSBI]]2723)
but less than [***%]
UK
A380 [***%] more than 6.54%2722
and up to 13.54%
from [[HSBI]]2726 to [***%]
2719 See above, Table 5.
2720 All figures that are not marked with a 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 Communitie s has designated its market interest ra te benchmarks HSBI, they cannot be
revealed in the text of our Report. In or der to disclose an approximate measure of th e relevant range of market interest rate
benchmarks, we have substituted the EC market interest ra te benchmark based on HSBI with the "Market based General
Corporate Borrowing Rates for the Airbus Companies" identified in Exhibit 6 of the Ellis Report (which we note were relied
upon by the European Communities in establishing its benchmar ks). See, e.g., Whitelaw Re port, Exhibit EC-11 (BCI),
para. 40. In all cases, the actual market interest rate benchmark advanced by the European Communities is less than [***] of
700 basis points greater than the relevant value taken from the "Market based Ge neral Corporate Borrowing Rates for the
Airbus Companies" identified in Exhibit 6 of the Ellis Report.
2722 This HSBI figure is the project-specif ic risk premium calculated by the Euro pean Communities, which can be found in
Exhibits 2 and 3 of the Whitelaw Report, Exhibit EC-11 (HSBI).
BCI deleted, as indicated [***] WT/DS316/AB/R

2723 10.86% plus the European Communities' proposed project-speci fic risk premium, minus the [[HSBI]] rate of return
shown in the second column.
2724 17.86% minus the [[HSBI]] rate of return shown in the second column.
2725 9.2% plus the European Communities' proposed project-specific risk premium, minus [***%].
27266.54% plus the European Communities' proposed project-specific risk premium, minus [***%].

818. The Panel next addressed the European Communities' arguments that "the fact that the
interest rates associated with the challenged LA/MSF measures might be less than those that would be
attached to comparable market-based financing in struments does not automatically imply that they
confer a benefit", because "the public policy obligati ons attached to 'most' of the relevant contracts
must also be taken into account." 1857 The Panel dismissed the European Communities' argument. 1858
First, the Panel found that the European Communities had failed to substantiate its argument:
{E}ven assuming that we were to ac cept the premise that any public
policy obligations contained in the challenged LA/MSF contracts
should be taken into account when considering the question of
benefit (a premise upon which we ma ke no ruling), we find that the
European Communities has failed to adduce sufficient factual
arguments to persuade us that it has reasonably substantiated its
assertion.1859 (footnote omitted)
819. Second, the Panel questioned the continued releva nce of this argument given that the Panel
had already rejected the European Communities' reliance on taxation-adjusted rates of return:
In any case, we note that the Eur opean Communities raises the costs
of public policy obligations as a fa ctor that may alter the benefit
analysis solely in the context of the (tax adjusted) LA/MSF rates of
return it has relied upon. Because we have rejected these rates, we
question the continued relevance of the European Communities'
argument.
1860
820. Finally, the Panel agreed with the United States th at "if our benefit analysis were to take the
costs associated with public policy obligations into account, we would also need to consider whether
to factor costs that are unique to market-based financing into our determination."1861

1857Panel Report, para. 7.491. (footnote omitted)
1858Panel Report, para. 7.496.
1859Panel Report, para. 7.494. See also United States' first written submission to the Panel, paras. 186-
188, 206-210, 229-233, 251, 258, 271, 280, 288, and 297.
1860Panel Report, para. 7.495.
1861Panel Report, para. 7.495. The United States was referring to bank fees, regulatory and credit
agency fees, and costs associated with employees engaged on an ongoing basis in financing-related activities.
(See Panel Report, para. 7.492 (referring to United States' response to Panel Question 140; and United States'
comments on European Communities' response to Panel Question 170))
WT/DS316/AB/R BCI deleted, as indicated [***]

2. The Measures at Issue

821. The European Union's appeal concerns the indi vidual instances in which France, Germany,
Spain, and the United Kingdom provided LA/MSF for the development of specific types of aircraft by
Airbus. These measures are identified in Table 7 of the Panel Report (which was reproduced above),
with an indication of the member State providing the LA/MSF and the LCA project for which it was
provided.
822. The LA/MSF measures are described in more de tail in section IV.C of this Report. For
convenience, we recall that the contractual frame work of each of the challenged LA/MSF measures
usually took one of two forms: (i) general ag reements between participating member State
governments, implemented at the national level thr ough separate contracts between each participating
member State government and the Airbus entity locat ed within its territory; or (ii) individual
contracts between each relevant member State go vernment and the Airbus entity located in its
territory. Funding for Airbus' first LCA project s (the A300 and A310) was contracted at the
intergovernmental level through a series of ag reements between participating member State
governments.
1862 These agreements expressed the releva nt member State's commitment to fund the
development of the A300 and A310; they also set out to varying degrees some of the key terms and
conditions attached to the provision of financing, such as the schedules for specific amounts of funds
to be disbursed and the mode of repayment.
1863 Separate contracts implementing the
intergovernmental agreements, in the context of one or more different aspects or phases of the first
two Airbus LCA projects, were entered into at the national level between each financing member
State government and the Airbus entity located within its territory. 1864 The contractual framework for
the A320 and A330/A340 projects contained elements similar to those of the A300 and A310 projects:
funding was agreed between the participating gove rnments, and implemented at the national level
through specific contracts between each relevant member State government and the Airbus entity
located within its territory. No intergovernmental agreements were concluded in the context of the
LA/MSF provided by the Governments of France and Spain for the A330-200 and A340-500/600
projects. Nor was such an agreement (expressing a commitment to provide funding) concluded with
respect to the A380. Instead, for these projects, the member State governments entered into separate
national-level contracts, setting forth various relevant terms and conditions, with the French aerospace
manufacturer, Aérospatiale, and the Spanish aerospace manufacturer, CASA (in respect of the
A330-200 and A340-500/600 projects) and with Airbus France, Airbus Deutschland GmbH, EADS

18621969 A300 Agreement (P anel Exhibit US-11); 1971 A300 Agreement (Panel Exhibit EC-992
(BCI)); 1981 A310 Agreement (Panel Exhibit EC-942 (BCI)).
1863Panel Report, para. 7.370.
1864Panel Report, para. 7.370.
BCI deleted, as indicated [***] WT/DS316/AB/R

Airbus SL (Spain), BAE Systems (Operations) Lt d, and British Aerospace PLC (in respect of the
A380).
1865
823. The funds provided under the LA/MSF measures are "in many cases … transferred in
advance of actual development costs being incurred, usually on the basis of projected expenditure", in
which case the "costs actually incurred may be subse quently audited or reviewed by the governments
and the funding amounts adjusted to ensure th at total borrowing does not exceed the level of
development costs it was agreed would be financed." 1866 In other cases, "disbursements up to the
agreed amounts may be made after actual costs have been incurred."1867
824. Regarding repayment, the Panel explained that "{i}n almost all cases, Airbus is required to
reimburse all funding contributions, plus any inter est at the agreed rate, exclusively from revenues
generated by deliveries of the LCA model that is financed." 1868 Repayment takes place through
"per-aircraft levies and follow a pre-established repayment schedule". 1869 The Panel noted that
repayments "{u}sually ... start with the delivery of the first aircraft", but "in some instances,
repayment begins only after Airbus has made a specified number of aircraft deliveries."1870 The Panel
further observed that repayment "appears in all cases to be graduated, such that repayment amounts at
the beginning of the repayment period are lower than at the end." 1871 It additionally pointed out that
in some of the contracts, "royalty payments on a pe r-aircraft basis are called for on deliveries made in
excess of the number needed to secure repayment of the disbursed principal plus any interest."1872
825. The Panel described the LA/MSF measures as "unsecured", because "LA/MSF is provided
without any guarantee of repayment in the event that Airbus fails to make the number of deliveries
needed to reimburse the full amount of financ ing obtained from the EC member States." 1873
According to the Panel, "the scheduled repaymen ts are not secured by any lien on Airbus assets nor
are they guaranteed by any third party." 1874 The Panel observed that the European Communities had
asserted "that the governments' claims on revenues ge nerated from the delivery of LCA are, in some
cases, guaranteed by one of the companies forming part of the Airbus economic entity." 1875 T h e

1865Panel Report, paras. 7.370 and 7.371.
1866Panel Report, para. 7.373. (footnote omitted)
1867Panel Report, para. 7.373. (footnote omitted)
1868Panel Report, para. 7.374. (footnote omitted)
1869Panel Report, para. 7.374. (footnote omitted)
1870Panel Report, para. 7.374. (footnote omitted)
1871Panel Report, para. 7.374. (footnote omitted)
1872Panel Report, para. 7.374. (footnote omitted)
1873Panel Report, para. 7.375. "Unsecured debt" is "{a} debt not supported by collateral or other
security". (Black's Law Dictionary, 7th edn, B.A. Garner (ed.) (West Group, 1999), p. 411)
1874Panel Report, para. 7.375.
1875Panel Report, para. 7.375. (footnote omitted)
WT/DS316/AB/R BCI deleted, as indicated [***]

Panel, however, was not persuaded that this gua rantee changed the "unsecured" nature of the
measures, observing that "there is no obligation on Airbus (or any company forming part of the
Airbus economic entity) to fully (a nd sometimes even partially) repa y LA/MSF in the event that the
delivery targets stipulated in the contr actual repayment schedules are not achieved."
1876
Consequently, the Panel agreed with the United States "that Airbus' obligation to fully repay the loans
provided under the challenged LA/MSF measures is entirely dependent upon the success of the
particular LCA project." 1877 The Panel added that "{t}he fact that it is possible, under certain
contracts, for Airbus to make voluntary repaymen ts notwithstanding the number of sales achieved,
does not, in our view, alter this conclusion."1878
826. In laying out its initial complaint, the United States repeatedly char acterized the LA/MSF
measures as "loans". For example, the United St ates asserted in its first written submission to the
Panel: "All of the Launch Aid that the Airbus gove rnments have provided to Airbus has taken the
same form: long-term unsecured loans at zero or below-market rates of interest, with back-loaded
repayment schedules that allow Airbus to repay the loans through a levy on each delivery of the
financed aircraft." 1879 Dr. Ellis, the United States' expert, also described the LA/MSF measures as
loans in the report in which he developed the benc hmark proposed by the United States to determine
whether the LA/MSF measures confer a benefit. 1880 The United States, however, departed from this
initial characterization after the European Communities' expert criticized the benchmark developed by
Dr. Ellis because it was based on returns of equity, and particularly venture capital. 1881 In its second
written submission to the Panel, the United Stat es argued that LA/MSF is a "hybrid form of
financing" and explained that it "has a number of features that would make it inappropriate to treat it
as pure debt."
1882
827. The Panel acknowledged that "LA/MSF may be considered to have some equity-like
qualities, such as the fact that lender governments have no recourse in the event of non-repayment",
but observed that "LA/MSF contracts are generall y conceived as amortizing loans repaid out of
project revenue."1883 We share the Panel's view that the LA/MSF measures have particular features
that distinguish them from a conventional loan. The ex tent to which risk is transferred from Airbus to

1876Panel Report, para. 7.375. (footnote omitted)
1877Panel Report, para. 7.375.
1878Panel Report, para. 7.375. (footnote omitted)
1879United States' first written submission to the Panel, para. 87. (footnote omitted; emphasis added)
1880See, for example, Ellis Report, supra, footnote 760, p. 3: "Launch aid loans only have to be repaid
if the specific projects for which they are made are successful".
1881See Robert Whitelaw, Economic Assessment of Member State Financing (3 February 2007) (Panel
Exhibit EC-11 (BCI/HSBI) (hereinafter the "Whitelaw Report"), para. 11.
1882United States' second written submission to the Panel, subtitle before para. 83, and para. 84.
1883Panel Report, para. 7.462.
BCI deleted, as indicated [***] WT/DS316/AB/R

the member State governments suggests an arrangement approaching what one finds in some equity
instruments. Nonetheless, we are not called upon here to review this aspect of the Panel's analysis as
the United States has not appealed the Panel's characterization of LA/MSF measures as "loans". We
will thus treat the LA/MSF measures as loans in our review of the Panel's assessment of benefit.
3. Did the Panel Err in Concluding that the Challenged LA/MSF Measures
Confer a Benefit?
(a) The determination of benefit under Article 1.1(b) of the
SCM Agreement
828. Article 1.1 of the SCM Agreement defines what a "subsidy" is for purposes of that Agreement.
It reads:
For the purpose of this Agreement, a subsidy shall be deemed to exist
if:
(a)(1) there is a financial contribution by a government or any public
body within the territory of a Memb er (referred to in this Agreement
as "government"), i.e. where:
(i) a government practice involves a direct transfer of funds (e.g.
grants, loans, and equity infusion), potential direct transfers of funds
or liabilities (e.g. loan guarantees);
(ii) government revenue that is otherwise due is foregone or not
collected (e.g. fiscal 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;
or
(a)(2) there is any form of income or price support in the sense of
Article XVI of GATT 1994;
and
(b) a benefit is thereby conferred. (footnote omitted)
829. The first requirement of the definition of "s ubsidy" is the existence of a "financial
contribution". The United States argued before th e Panel that "each of the challenged LA/MSF
WT/DS316/AB/R BCI deleted, as indicated [***]

measures involves a 'financial contribution' in the fo rm of either a direct transfer of funds or both
direct and potential direct transfers of funds, with in the meaning of Article 1.1(a)(1)(i) of the SCM
Agreement".
1884 The Panel agreed with the United Stat es' characterization of the LA/MSF with
respect to the measures for which the funds had al ready been fully disbursed. The Panel found that
the funds had been fully disbursed under all th e LA/MSF measures except fo r the French, German,
and Spanish A380 contracts.1885 The Panel concluded:
To this extent, we believe there is no doubt that, as the United States
argues, these measures involved direct transfers of funds, and
therefore, the provision of a "financial contribution by a government
or any public body", within the meaning of Article 1.1(a)(1)(i) of the
SCM Agreement.
1886 (original emphasis)
830. As regards the three A380 LA/MSF contracts for which the funds had not been fully
disbursed, the Panel disagreed with the United Stat es' characterization of the undisbursed amounts as
involving "potential direct transfers of funds". 1887 Instead, the Panel considered that it was more
appropriate to characterize these measures as "loans " within the meaning of Article 1.1(a)(1)(i)". 1888
The Panel thus found that:
… irrespective of whether all of the funds committed under the
French, German and Spanish A380 cont racts have been paid out, it is
in our view clear from the particular facts that are before us that each
of the LA/MSF contracts evidences the existence of a "government
practice {that} involves a direct transfer of funds" in amounts and at
moments agreed and planned at th e conclusion of each contract.
Therefore, we find that the French, German and Spanish A380
contracts are "financial contributions", within the meaning of
Article 1.1(a)(1)(i) of the SCM Agreement.
1889 (footnote omitted)
831. The European Union has not challenged on a ppeal the Panel's finding that the LA/MSF
measures constitute "financial contributions".
832. Under Article 1.1(b) of the SCM Agreement, the financial contribution must confer a "benefit"
in order to constitute a subsidy. The term "benefit" is not defined in the SCM Agreement. In
Canada – Aircraft, the Appellate Body interpreted the term as follows:

1884Panel Report, para. 7.376.
1885Panel Report, para. 7.378.
1886Panel Report, para. 7.377.
1887Panel Report, para. 7.379. (emphasis omitted)
1888Panel Report, para. 7.379.
1889Panel Report, para. 7.379.
BCI deleted, as indicated [***] WT/DS316/AB/R

We also believe that the word "ben efit", as used in Article 1.1(b),
implies some kind of comparison. This must be so, for there can be
no "benefit" to the recipient unless the "financial contribution" makes
the recipient "better off" than it would otherwise have been, absent
that contribution. In our view, the marketplace provides an
appropriate basis for comparison in determining whether a "benefit"
has been "conferred", because the trade-distorting potential of a
"financial contribution" can be identified by determining whether the
recipient has received a "financial contribution" on terms more
favourable than those available to the recipient in the market.
1890
833. Article 1.1(b) of the SCM Agreement does not set out a particular methodology to be used to
determine whether a financial contribution has confe rred a benefit. The calculation of benefit is
addressed in Article 14 of the SCM Agreement, which provides in relevant part:
Article 14
Calculation of the Amount of a Subsidy in Terms
of the Benefit to the Recipient
For the purpose of Part V, any me thod used by the investigating
authority to calculate the benefit to the recipient conferred pursuant
to paragraph 1 of Article 1 sha ll be provided for in the national
legislation or implementing regula tions of the Member concerned
and its application to each particular case shall be transparent and
adequately explained. Furthermore, any such method shall be
consistent with the following guidelines: ... .
The opening clause of Article 14 limits the scope of application of this provision to Part V of the
SCM Agreement, which is about countervailing measures. Ne vertheless, we consider that Article 14
provides useful context in the interpretation of th e "benefit" requirement in Article 1.1(b) of the
SCM Agreement.
1891
834. We noted earlier that the Panel characterized the LA/MSF measures as "unsecured loans" 1892
and that neither participant has challenged this ch aracterization on appeal. Accordingly, the most
relevant "guideline" of Article 14 of the SCM Agreement is that provided in subparagraph (b):

1890Appellate Body Report, Canada – Aircraft, para. 157. The Appellate Body also explained that:
{a} "benefit" does not exist in the abstract, but must be received and
enjoyed by a beneficiary or a recipient. Logically, a "benefit" can be said to
arise only if a person, natural or legal, or a group of persons, has in fact
received something. The term "benefit" , therefore, implies that there must
be a recipient.
(Ibid., para. 154)
1892Panel Report, para. 7.525.
WT/DS316/AB/R BCI deleted, as indicated [***]

{A} loan by a government shall not be considered as conferring a
benefit, unless there is a difference between the amount that the firm
receiving the loan pays on the government loan and the amount the
firm would pay on a comparable commercial loan which the firm
could actually obtain on the market. In this case the benefit shall be
the difference between these two amounts{.}
A panel relying on Article 14(b) would thus ex amine whether there is a difference between the
amount that the recipient pays on the government loan and the amount the recipient would pay on a
comparable commercial loan, which the recipient could have actually obtained on the market.
1893
There is a benefit—and therefore a subsidy—wh ere the amount that the recipient pays on the
government loan is less than what the recipient would have paid on a comparable commercial loan
that the recipient could have obtained on the market. There is no benefit—and therefore no subsidy—
if what the recipient pays on the government loan is equal to or higher than what it would have paid
on a comparable commercial loan. The amount the recipient would have paid on a commercial loan is
a function of the size of the loan, the interest ra te, the duration, and othe r relevant terms of the
transaction. The participants agreed at the oral hearing that Article 14(b) of the SCM Agreement
provides useful guidance for purposes of the assessme nt of whether the LA/MSF measures confer a
benefit.
835. Article 14(b) of the SCM Agreement calls for a comparison of the "amount the firm receiving
the loan pays on the government loan" with "the amount the firm would pay on a comparable
commercial loan which the firm could actually obtain in the market". As we have already discussed
in general terms above, we read th is as suggesting that the comparison is to be performed as though
the loans were obtained at the same time. In other words, the comparable commercial loan is one that
would have been available to the recipient firm at the time it received the government loan.
836. Because the assessment focuses on the moment in time when the lender and borrower commit
to the transaction, it must look at how the loan is st ructured and how risk is factored in, rather than

1893Article 14(b) of the SCM Agreement says that the comparison should be to a comparable
commercial loan that the recipient "could actually obtain on the market." This suggests that where the recipient
could not have obtained a commercial loan, then the granting of a loan by the government would be deemed to
confer a benefit irrespective of the terms of that loan. As the European Union underscored at the oral hearing,
the United States did not argue before the Panel that Airbus would have been unable to obtain a commercial
loan. Instead, the United States premised its case on Airbus having to pay less for the LA/MSF than it would
have paid for a commercial loan.
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looking at how the loan actually performs over time.
1894 S u c h ex ante analysis of financial
transactions is commonly used and appropriate fi nancial models have be en developed for these
purposes. The analysis from a financial persp ective proceeds as follows. The investor commits
resources to an investment in the expectation of a future stream of earnings that will provide a positive
return on the investment made. In deciding whethe r to commit resources to a particular investment,
the investor will consider alternative investment oppor tunities. The investor will make its decision to
invest on the basis of information available at the time the decision is made about market conditions
and projections about how those economic conditions are likely to develop (future demand and price
for the product, future costs, etc.). The information available will be, in most cases, imperfect. The
investor does not have perfect foresight and thus ther e is always some likelihood, in some instances a
sizeable one, that the investor's projections will de viate significantly from what actually transpires.
Hence, determining whether the investment was comme rcially rational is to be ascertained based on
the information that was available to the investor at the time the decision to invest was made. 1895 The
commercial rationality of an investment cannot be a scertained on the basis of how the investment in
fact performed because such an analysis has not hing useful to say about the basis upon which the
investment was made. The investment could have ea rned a rate of return th at exceeded, or was less
than, the going market rate, but it was not predetermined to do so.
837. We note, moreover, that from a practical perspective, a requirement to look at the actual
performance of a loan would mean that such measu res could not be challenged until performance is
fully completed. In the case of long-term loans, this would mean that any challenge of such measures
would have to be deferred for years. Requiring a WTO Member to wait so long to mount a challenge
would limit the effectiveness of Part II and Part III of the SCM Agreement also in the light of the
prospective nature of WTO remedies.1896
838. Therefore, in our view, the assessment of bene fit must examine the terms and conditions of a
loan at the time it is made and compare them to the terms and conditions that would have been offered

1894We recognize that, in US – Upland Cotton (Article 21.5 – Brazil) , the Appellate Body said that an
assessment of whether guarantees under an export cr edit guarantee programme constituted export subsidies,
under item (j) of the Illustrative List of Export Subsidies in Annex I to the SCM Agreement, could "examine
both retrospective data relating to a programme's historical performance and projections of its future
performance". (Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 278) That particular
dispute concerned item (j) of the Illustrative List of Export Subsidies pursuant to which export credit guarantees
will be deemed to be subsidies if they are provided at premium rates which are "inadequate to cover the long-
term operating costs and losses" of the programmes.
1895Such an ex ante approach is wholly consistent with the manner in which financial methods have
been developed to test projections through sensitivity analysis and scenario building.
1896It may also affect the ability of Members to apply countervailing measures under Part V of the
SCM Agreement.
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by the market at that time. The European Union a nd the United States agreed at the oral hearing with
this approach.
(b) The relevance of the 1992 Agreement
839. On appeal, the European Union asserts that Artic le 4 of the 1992 Agreement is a "relevant
rule{} of international law applicable in the rela tions between the parties" within the meaning of
Article 31(3)(c) of the Vienna Convention, which should be taken into account in determining whether
"benefits" were conferred, within the meaning of Article 1.1(b) of the SCM Agreement, through the
provision of LA/MSF to the A330-200, A340-500/600, and A380.
1897 According to the
European Union, Article 4 of the 1992 Agreement is relevant to the interpretation of "benefit" under
Article 1.1(b) of the SCM Agreement in two main ways: (i) it is concerned with development
"support" for LCA and establishes two "thresholds" for the provision of that support, namely a
maximum ceiling in terms of the amount of support th at may be provided and a minimum interest rate
at which it may be provided 1898; and (ii) it is the "understood benchmark" between the United States
and the European Communities for purposes of de termining whether the LA/MSF measures at issue
confer a "benefit". 1899 Alternatively, the European Union s ubmits that the Panel should have taken
into account the existence and opera tion of Article 4 of the 1992 Agreem ent "as part of the facts" to
establish the relevant market benchmark at the time the LA/MSF measures were granted.1900
840. The United States responds that the 1992 Agreement does not qualify under Article 31(3)(c)
of the Vienna Convention because the reference to "the parties" is to all the parties to the treaty being
interpreted1901, meaning all WTO Members. The United States disagrees that Article 4 of the 1992
Agreement is relevant to an interpretation of "benefit" under Article 1.1(b) of the SCM Agreement.
According to the United States, the references to "sup port" and the thresholds in Article 4 of the 1992
Agreement, as well as in the SCM Agreement, do not create a link that is relevant to the interpretation
of the SCM Agreement.1902 For the United States, the 1992 Agreement was aimed at placing
constraints on the amount and terms of LA/MSF and not, as the European Union suggests, at putting
in place a new "benchmark" for what would constitute a "benefit" under the SCM Agreement.1903 The

1897See European Union's appellant's submission, paras. 696 and 701-718. The European Union also
raises the 1992 Agreement in the context of its claims of error with respect to the Panel's findings on export
subsidies and adverse effects.
1898European Union's appellant's submission, paras. 719-723.
1899European Union's appellant's submission, paras. 724-729.
1900European Union's appellant's submission, paras. 730-732.
1901United States' appellee's submission, para. 244. See generally, United States' appellee's submission,
paras. 242-261.
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United States also disagrees that Article 4 of the 1992 Agreement is a "fact" that the Panel was
required to "take into account" in establishing the benchmark for LA/MSF.
1904 Finally, the
United States refers to the fifth recital of the pr eamble of the 1992 Agreement that states that the
parties to the Agreement were acting "without prejudice to their rights and obligations under the
GATT and under other multilateral agreements negotiated under the auspices of the GATT". The
United States refers to the Panel's finding elsew here in its Report that the "other multilateral
agreements negotiated under the auspices of the GATT" referred to in the fifth recital would include
the SCM Agreement.
1905
841. Turning first to the preliminary issue of whether the 1992 Agreement qualifies under
Article 31(3)(c), we note that Article 31 of the Vienna Convention is entitled "General rule of
interpretation".1906 Article 31(3)(c) provides that, when interpreting a treaty:
{t}here shall be taken into account, together with the context:

(c) any relevant rules of interna tional law applicable in the relations
between the parties.
To qualify under Article 31(3)(c), the 1992 Agreemen t would therefore have to be a "rule{} of
international law", which is "relevant" and "app licable in the relations between the parties".
Moreover, even assuming the 1992 Agreement were to fulfil these conditions, the chapeau to
Article 31(3)(c) specifies the normative weight to be ascribed to the 1992 Agreement, namely that it is
to be "taken into account" in interpreting the SCM Agreement.
842. In this appeal, the European Union and the Un ited States have focused their arguments on the
proper meaning to be ascribed to the term "the pa rties" in Article 31(3)(c). They disagree as to
whether the reference is to all the parties to the treat y being interpreted, or a smaller sub-set of parties
including, for instance, the parties to the disput e in which the interpretative issue arises. The
European Union argues that the definition of "party" in Article 2(1)(g) of the Vienna Convention as
referring to "a State which has consented to be bound by the treaty and for which the treaty is in
force" is neutral and could "apply equally to the parties to the SCM Agreement or to the parties to the

1906Pursuant to Article 3.2 of the DSU, WTO adjudicating bodies must interpret the WTO agreements
"in accordance with customary rules of interpretation of public international law". Previous Appellate Body
case law has established that the principles codified in Articles 31 and 32 of the Vienna Convention are such
customary rules. (See, for instance, Appellate Body Report, US – Carbon Steel, para. 61)
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1992 Agreement ".
1907 According to the European Union, the context provided by Articles 31(2)
and 31(3)(a) and (b), as well as the object and purpo se of Article 31(3)(c), support its view that the
reference to "the parties" in Article 31(3)(c) is not to "all the parties" to the treaty being
interpreted.1908 Moreover, the European Union refers to a WTO panel report, which it argues suggests
that a relevant rule of international law within the meaning of Article 31(3)(c) need only be binding
on the parties to the dispute.1909
843. In contrast, the United States argues that, ta king account of the definition of "party" in
Article 2(1)(g) of the Vienna Convention , as well as the context of Article 31(3)(c), the term "the
parties" as used in Article 31(3)(c) refers to "Sta tes which have consented to be bound by the treaty
subject to interpretation and for which that treaty is in force". 1910 The United States considers that
Article 31(2)(a) and (b), as well as Article 31(3)(a) and (b) of the Vienna Convention , provide
contextual support for its interpretati on of "the parties" to mean "all the parties" to the treaty being
interpreted.1911 In support, the United States refers to an unappealed report of a WTO panel that
interpreted Article 31(3)(c) to mean that the rules of international law to be taken into account in
interpreting the WTO agreements at issue in that dispute were those applicable between all WTO
Members.1912
844. We note that the meaning of the term "the parties" in Article 31(3)(c) of the Vienna
Convention has in recent years been the subject of mu ch academic debate and has been addressed by
the ILC. 1913 While the participants refer to WTO panels that have addressed its meaning 1914, the
Appellate Body has made no statement as to whether th e term "the parties" in Article 31(3)(c) refers
to all WTO Members, or rather to a subset of Members, such as the parties to the dispute.
845. An interpretation of "the parties" in Article 31(3)(c) should be guided by the Appellate Body's
statement that "the purpose of treaty interpretation is to establish the common intention of the parties
to the treaty." 1915 This suggests that one must exercise caution in drawing from an international

1907European Union's appellant's submission, para. 703.
1908European Union's appellant's submission, paras. 704-709.
1909European Union's appellant's submission, para. 710 (referring to Panel Report, US – Shrimp
(Article 21.5 – Malaysia), para. 5.57).
1910Emphasis added. See United States' appellee's submission, paras. 244 and 245.
1911United States' appellee's submission, paras. 247 and 248.
1912United States' appellee's submission, para. 253 (referring to Panel Report, EC – Approval and
1913See ILC Report on Fragmentation, supra, footnote 205, paras. 410-480.
1914See Panel Report, EC – Approval and Marketing of Biotech Products , paras. 7.65-7.89; and Panel
Report, US – Shrimp (Article 21.5 – Malaysia), para. 5.57.
1915Appellate Body Report, EC – Computer Equipment, para. 93. (original emphasis)
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agreement to which not all WTO Members are party.
1916 At the same time, we recognize that a proper
interpretation of the term "the parties" must also take account of the fact that Article 31(3)(c) of the
Vienna Convention is considered an expression of the "principle of systemic integration" 1917 which, in
the words of the ILC, seeks to ensure that "inter national obligations are inte rpreted by reference to
their normative environment" 1918 in a manner that gives "coherence and meaningfulness" 1919 to the
process of legal interpretation. In a multilateral c ontext such as the WTO, when recourse is had to a
non-WTO rule for the purposes of interpreting provis ions of the WTO agreements, a delicate balance
must be struck between, on the one hand, taki ng due account of an individual WTO Member's
international obligations and, on the other hand, ensuring a consistent and harmonious approach to the
interpretation of WTO law among all WTO Members.
846. In this dispute, the resolution of the Eur opean Union's arguments regarding the 1992
Agreement need not turn on the proper meaning to be ascribed to the term "the parties". Even
accepting the European Union's argument that the 1992 Agreement is "applicable in the relations
between the parties", we recall that for the 1992 Agreement to qualify under Article 31(3)(c) of the
Vienna Convention, it must be shown to be "relevant". A rule is "relevant" if it concerns the subject
matter of the provision at issue. 1920 In this dispute, the essence of the European Union's claim is that
Article 4 of the 1992 Agreement is relevant to the inte rpretation of the term "benefit" in Article 1.1(b)
of the SCM Agreement.
847. We observe that the subject matter of the 1992 Agreement relates closely to issues germane to
this dispute and, in particular, the measures take n by the European Communiti es in the area of civil
aircraft that the United States challenges under the SCM Agreement. Prior to the negotiation of the
1992 Agreement, a plurilateral Agreement on Trade in Civil Aircraft concluded in 1979 under the

1916We note that Article 31(3)(b) requires a treaty interpreter to take into account, together with context,
"any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding
its interpretation". (emphasis added) According to the Appellate Body in EC – Chicken Cuts , Article 31(3)(b)
requires the agreement, whether expr ess or tacit, of all WTO Members fo r a practice to qualify under that
provision. The Appellate Body recognized that the ag reement of the parties regarding a treaty's interpretation
may be deduced, not only from the actions of those actuall y engaged in the relevant practice, but also from the
acceptance of other parties to the tr eaty through their affirmative reacti ons, or depending on the attendant
circumstances, their silence. (See Appellate Body Report, EC – Chicken Cuts, paras. 255-273)
1917ILC Report on Fragmentation, supra, footnote 205, para. 413, and footnote 569 thereto (referring to
J. Combacau and S. Sur, "P rincipe d'intégration", in Droit international public (Paris: Montchrestien 2004),
p. 175; and C. McLachlan, "The Principle of Systemic Integration and Article 31(3)(c) of the Vienna
Convention" (2005) 54 International and Comparative Law Quarterly 279)
1918See ILC Report on Fragmentation, supra, footnote 205, para. 413.
1919See ILC Report on Fragmentation, supra, footnote 205, para. 419.
1920See, for instance, M.E. Villiger, Commentary on the 1969 Vienna Convention on the Law of
Treaties (Martinus Nijhoff, 2009), p. 433.
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aegis of the GATT (the "1979 Agreement")
1921 established rules on trade in civil aircraft. The
1992 Agreement, which was signed in July 1992 between the then European Economic Community
and the United States in furtherance of the 1979 Ag reement, was negotiated against a background of
differences between these two parties over support me asures to their respective large civil aircraft
industries.1922 One area which the parties sought to re gulate was the provision of government support
to the large civil aircraft sector, as reflected in two of the recitals in the Agreement's preamble 1923, as
well as in Article 3 (Production support), Article 4 (Development support), and Article 5 (Indirect
government support).1924
848. Article 4 of the 1992 Agreement is the provision identified by the European Union as being
relevant to our interpretation of Article 1.1(b) of the SCM Agreement. Article 4 of the 1992
Agreement reads in full:
Article 4
Development support
4.1. Governments shall provide support for the development of a
new large civil aircraft programme only where a critical project
appraisal, based on conservative assumptions, has established that
there is a reasonable expectation of recoupment, within 17 years from
the date of first disbursement of su ch support, of all costs as defined
in Article 6(2) of the Aircraft Agreement, including repayment of
government supports on the terms and conditions specified below.
4.2. As of entry into force of this Agreement, direct government
support committed by a Party for the development of a new large
civil aircraft programme or derivative shall not exceed:

1921Agreement on Trade in Civil Aircraft , done at Geneva on 12 April 1979 (BISD 26S/162), as
subsequently modified, rectified, or amended (attached as Annex 4(a) to the WTO Agreement). The original
parties to the 1979 Agreement were: Austria; Cana da; the member States of the European Economic
Community (at the time Belgium, Denmark, France, the Federal Republic of Germany, Ireland, Italy,
Luxembourg, the Netherlands, and the United Kingdom); the European Economic Community; Japan;
Norway; Sweden; Switzerland; and the United States . (See GATT, Multilateral Trade Negotiations, Status of
Acceptances of Protocols, Agreements and Arrangements, L/4914/Rev.1 (1 April 1980), pp. 8-9)
1922Panel Report, para. 7.67.
1923Recitals two and four of the 1992 Agreement state:
RECOGNIZING that the disciplines in the GATT Agreement on Trade in
Civil Aircraft should be strengthened with a view to progressively reducing
the role of government support,

IN PURSUIT OF their common goal of preventing trade distortions
resulting from direct or indirect government support for the development
and production of large civil aircraft and of introducing greater disciplines
on such support and of encouraging the adoption of such disciplines
multilaterally within the GATT{.}
1924Article 2 of the 1992 Agreement excludes from these disciplines government support that was
committed prior to the date the Agreement entered into force.
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(a) 25% of that programme's total development cost as estimated
at the time of commitment (or of actual development costs,
whichever is lower); royalty payments on this tranche shall be set at
the time of commitment of the de velopment support so as to repay
this support at an interest rate no le ss than the cost of borrowing to
the government within no more than 17 years from first
disbursement; plus
(b) 8% of that programme's total development cost as estimated
at the time of commitment (or of actual development costs,
whichever is lower); royalty payments on this tranche shall be set at
the time of commitment of the de velopment support so as to repay
such support at an interest rate no less than the cost of borrowing to
the government plus 1% within no more than 17 years from first
disbursement.
 These calculations shall be made on the basis of the forecast
of aircraft deliveries in the critical project appraisal.
4.3. Royalty payments per aircraft shall be calculated at the time
of commitment of the development support to be repaid on the
following basis:
(a) 20% of aggregate payments calculated in accordance with
Article 4.2 is payable on the basis of the delivery of a number of
aircraft corresponding to 40% of forecast deliveries;
(b) 70% of aggregate payments calculated in accordance with
Article 4.2 is payable on the basis of the delivery of a number of
aircraft corresponding to 85% of forecast deliveries.
The LA/MSF measures at i ssue in this dispute consist of govern ment support for the development of
LCA projects. In other words, the LA/MSF measur es fall within the category of government support
to which Article 4 is addressed. The European Un ion has pointed out that the repayment provisions
of many of the LA/MSF contracts at issue in this dispute reflect the terms set out in Article 4.
1925
849. While the 1992 Agreement obviously relates to support for the development of LCA, the
specific question raised by the European Union's a ppeal is whether Article 4 is "relevant" to the
determination of "benefit" under Article 1.1(b) of the SCM Agreement. In Canada – Aircraft , the
Appellate Body explained that th e determination of "benefit" requires an assessment of whether the
financial contribution gives the recipient an advantag e as compared to what c ould have been obtained
in the market.1926 The notion of "benefit" as defined by th e Appellate Body therefore encompasses a
comparison with the marketplace, measured from the perspective of a recipient.

1925European Union's appellant's submission, para. 733 and footnote 909 thereto.
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850. We note that the European Union is not arguing that the 1992 Agreement modifies the general
standard for the assessment of benefit that was set out by the Appellate Body in Canada – Aircraft .
Instead, the European Union argues that "the refe rence to 'support' and the thresholds ('shall not
exceed' and 'no less than') in Article 4 of the 1992 Agreement ... speak to the existence of 'benefit' and
thus to the existence of a subsidy and the obliga tion for the government conduct (i.e. not to exceed
such a ceiling when providing development support)."
1927 The European Union further submits that
"{i}n this sense, Article 4 of the 1992 Agreement informs the meaning of the term 'benefit' in
Article 1.1(b) of the SCM Agreement as well as the benefit analysis under that provision".1928
851. The limitation imposed by Article 4 of th e 1992 Agreement on the amount of government
support that may be provided by the parties for the development of new LCA programmes is
concerned with the financial contri bution component of the definition of subsidy in Article 1.1 of the
SCM Agreement. The SCM Agreement does not limit the amount of financial contribution that a
government may provide. Instead, by imposing the re quirement that the financial contribution confer
a benefit, the SCM Agreement qualifies as subsidies only those contributions that make the recipient
"better off". Article 4 of the 1992 Agreement also sets out a minimum interest rate and a maximum
term for repayment of this government support. However, Article 4 does not distinguish between
government support that places the recipient in a more advantageous position and government support
that is neutral in the sense that the recipient could have obtained similar terms on the market.
Therefore, the maximum ceiling on the development support that may be provided, the minimum
interest rate, and the maximum term for repaymen t set out in Article 4 of the 1992 Agreement cannot
be said to speak to the market-based concept of "benefit" as reflected in Article 1.1(b) of the
SCM Agreement and the market-based benchmark reflected in Article 14(b). 1929 For this reason, we
do not consider Article 4 of the 1992 Agreement to be relevant to the specific question that must be
examined under Article 1.1(b) of the SCM Agreement, that is, whether the amount to be paid by the
recipient of the government loan is lower than the amount that would be paid for a comparable
commercial loan.

1927European Union's appellant's submission, para. 723. The European Union refers to a number of
provisions of the WTO agreements that contain refere nces to "support", including Article 1.1(a)(2) of the
SCM Agreement, Article XVI of the GATT 1994, and Article 3.2 of the Agreement on Agriculture . The
European Union refers to other provisions of the SCM Agreement that it says were "drafted having in mind the
idea of a threshold". Specifically, the European Union refers to footnote 1, Article 14(d) and items (g), (h), (i),
and (k) of the Illustrative List of Export Subsidies in Annex I to the SCM Agreement. (Ibid., paras. 721 and 722)
1928European Union's appellant's submission, para. 723.
1929As the United States notes, the fact that both the SCM Agreement and Article 4 of the 1992
Agreement may use "thresholds" "does not make the indi vidual thresholds applicable from one ... agreement to
another". (United States' appellee's submission, para. 234)
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852. In the alternative, the European Union argues that the "existence and operation of Article 4 …
{are} part of the facts to establish the relevant market benchmark at the time the {LA/}MSF was
granted".
1930 The European Union emphasizes, in this rega rd, that "the existence of benefit requires
an examination of the specific market conditions existing at the time the financial contribution is
granted."1931
853. The Appellate Body has noted that "one accepte d definition of 'market' is 'the area of
economic activity in which buyers and sellers come together and the forces of supply and demand
affect prices'".1932 We do not see how Article 4 of the 1992 Agreement is a "fact" that affected the
market benchmark for assessing benefit at the time the LA/MSF was granted. Article 4 of the 1992
Agreement may have influenced the relationship between the member States and Airbus, because it
determined how much support was provided by the member States and how Airbus was expected to
pay it back. However, Article 4 has no direct bearing on the financial market that is meant to be used
as the benchmark to determine benef it. This financial market is de fined by the interaction between
the economic agents that are willing to provide fund s and those that seek to obtain funds. We do not
see how this interaction would have been affected by the existence and operation of Article 4 of the
1992 Agreement. Consequently, we are not persuade d that the "existence and operation" of Article 4
is relevant "as part of the facts to establish th e relevant market benchmark at the time {LA/}MSF was
granted".1933
854. Finally, the United States refers to the fifth recital of the Preamble of the 1992 Agreement,
which states that, upon entering into the 1992 Agreement, the European Economic Community and
the United States intended to act "without prejudice to their rights and obligations under the GATT
and under other multilateral agreemen ts negotiated under the auspices of the GATT". This recital
reflects an understanding that neither party intended the 1992 Agreement to modify or impair their
rights and obligations under the GATT or under the agreements negotiated under the "auspices of the
GATT". As we have explained above, the 1992 Ag reement was negotiated against a background of
differences on how to discipline subsid ies to the aircraft sector. Accounts of the state of play of the
Uruguay Round negotiations around 1992 suggest that the issue of disciplining such subsidies was
one of the more difficult subjects dividing the Euro pean Communities and the United States, and that
the relationship between the new SCM Agreement and the 1992 Agreement was contentious and

1930European Union's appellant's submission, para. 730.
1931European Union's appellant's submission, para. 731.
1932Appellate Body Report, US – Upland Cotton, para. 408 (quoting Panel Report, US – Upland Cotton,
para. 7.1236, in turn quoting Merriam-Webster Dictionary online, available at <http://www.merriam-
webster.com>).
1933European Union's appellant's submission, para. 730.
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ultimately remained unresolved.
1934 It was agreed in Article 12 of the 1992 Agreement to negotiate a
multilateral agreement on trade in civil aircraft. 1935 T h e SCM Agreement itself reflects that, at the
time of its conclusion, negotiations on multilateral ru les on trade in the civil aircraft sector were
anticipated.1936 However, we note that no such multilate ral rules were ever agreed, except for the
incorporation of the 1979 Agreement as a plurilateral agreement in Annex 4 to the WTO Agreement.
The fifth recital of the preamble of the 1992 Agreement expresses the intention of the
European Economic Community and the United States that this Agreement be "without prejudice" to
their rights and obligations under the GATT and ot her multilateral agreements negotiated under its
auspices. This indicates that they did not intend th at their rights and obligati ons under Article 1.1(b)
of the SCM Agreement would be affected or modified by the 1992 Agreement.
855. For the foregoing reasons, we find that Article 4 of the 1992 Ag reement is not a "relevant"
rule of international law applicable in the rela tions between the parties, within the meaning of
Article 31(3)(c) of the Vienna Convention, that informs the meaning of "benefit" under Article 1.1(b)
of the SCM Agreement, and that Article does not form "part of the facts to establish the relevant
market benchmark".
(c) The Panel's approach to the determination of benefit
856. Having disposed of the European Union's claims relating to Article 4 of the 1992 Agreement,
we turn our attention next to the Panel's assessme nt of benefit. Althoug h the Panel did not refer
expressly to Article 14(b) of the SCM Agreement, the approach of the Panel generally reflects the
guideline in that provision. At the outset of its analysis, the Panel quoted the Appellate Body's
interpretation of benefit in Canada – Aircraft, which was reproduced above.
1937 It later elaborated on
how it would approach the question of benefit, explaining:
{W}e believe that it is appropriate to resolve the question whether
LA/MSF confers a benefit by examining whether the cost of the
challenged LA/MSF contracts to Airbus is less than the cost that

1934See, for instance, Minutes of the GATT Committee on Trade in Civil Aircraft meeting held on
16 July 1992, AIR/M/32, and meeting held on 8 October 1992, AIR/M/33.
1935Article 12.2 of the 1992 Agreement provides that "{t}he Parties shall make their utmost efforts to
ensure that these or similar discip lines are incorporated in to the Aircraft Agreement or adopted by key
signatories at the earliest possible date". Article 12.3 anticipates that "{i}f multilateralization has not been
achieved in one year, the Parties shall review the ques tion of the continued application of this bilateral
Agreement."
1936Footnote 15 to (now expired) Article 6.1(a) of the SCM Agreement states that, "{s}ince it is
anticipated that civil aircraft will be subject to specific multilateral rules, the threshold in this subparagraph does
not apply to civil aircraft." Moreover, footno te 24 to (now expired) Article 8.2(a) of the SCM Agreement
provides that "{s}ince it is anticipated that civil aircraft will be subject to specific multilateral rules, the
provisions of this subparagraph do not apply to that product."
1937Panel Report, para. 7.382.
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Airbus would be faced with if it sought financing on the same or
similar terms and conditions as LA/MSF from the market. We
therefore begin our benefit analysis by examining whether the rate of
return obtained by the relevant EC member State governments when
providing LA/MSF is less than the rate of return that would be asked
by a market-based lender for financing on the same or similar terms
and conditions as each provision of LA/MSF.
1938
857. The first sentence quoted above correctly re flects the focus of the requirement in
Article 1.1(b), as interpreted by th e Appellate Body, on the recipient of the benefit. It is also
consistent with the guideline set out in Article 14(b) of the SCM Agreement, which calls for a
comparison of what the recipient pays for the govern ment loan with what it would have paid for a
commercial loan. As discussed in section VII.B.3 be low, the calculation of benefit in relation to
prevailing market conditions demands an examination of behaviour on both sides of a transaction, and
in particular of the conditions of supply and demand as they apply to that market. The market rate of
return on a commercial loan results from the disciplin e enforced by the market, which is reflective of
the supply and demand of borrowers and lenders. In the second sentence of the excerpt quoted above,
the Panel shifts focus from the recipient (Airbus) to the member State governments. At first sight, this
seems incompatible with the Appellate Body's inte rpretation that benefit must be assessed from the
perspective of the recipient. 1939 Nonetheless, in this case there is no substantive error in the Panel's
approach.1940 When referring to the rate of return of the member State governments, the Panel was
referring to how much Airbus would pay on each LA/MSF measure and hence how much the member
States would receive from Airbus. 1941 Thus, the Panel is actually considering how much Airbus had
to pay for the LA/MSF financing. We further note th at neither participant has asserted on appeal that
the Panel's general approach departed from the guid eline in Article 14(b) or is inconsistent with
Article 1.1(b) of the SCM Agreement.1942

1938Panel Report, para. 7.401.
1940The European Union has not raised an allegation of error in this respect. In fact, in challenging
other findings of the Panel, the European Union states:
The return to a government is a relevant measure for assessing "benefit"
only where a financial contribution under Ar ticle 1.1(a)(1)(i) is involved. ...
Articles 14(a)-(c) provide specific guida nce for assessing against a market
benchmark the government return involved in an equity infusion, a loan and
a loan guarantee, respectively.
(European Union's appellant's submission, para. 1067)
1941In the analysis of an earlier issue, for example, the Panel observed th at "the rate of return earned on
each LA/MSF contract represents not only the envisaged financial gain fo r the lender (the EC member State
governments), but also the apparent financial cost for Airbus." (Panel Report, para. 7.398)
1942European Union's and United States' responses to questioning at the oral hearing.
WT/DS316/AB/R BCI deleted, as indicated [***]

858. In order to make the comparison required by Article 1.1(b), the Panel first determined the IRR
of each of the LA/MSF measures.
1943 As already noted above, neither the European Union nor the
United States has questioned on appeal the Panel's determination of the maximum returns obtained by
the member States on the LA/MSF, which are set out in Table 5 of the Panel Report.
859. Also as already noted above, the European Un ion's appeal focuses exclusively on the second
element of the Panel's comparison, that is, the rates of return that a market lender would have required
to provide financing to Airbus. As we explai n further below, both the United States and the
European Communities sought to develop a proxy that , in their view, most accurately reflected the
rate of return that would have been demanded by a market lender. This proxy, and particularly one of
its components, is at the heart of the European Un ion's appeal. We discuss the alternative proxies
developed by the United States and the European Communities in the subsection that follows.
(d) Alternative market benchmarks de veloped by the United States and
the European Communities
860. The United States put forward a proxy develo ped by its expert, Dr. Ellis, which was
calculated by adding three components. The first component stood for the government borrowing rate
for each member State that provided LA/MSF. 1944 The second component was intended to reflect the
general corporate risk of Airbus, which was understo od as "the risk of default of the Airbus company
carrying the launch aid repayment obligation". 1945 Finally, the third variable was intended to reflect
the project-specific risk. 1946 This was defined as the "risk that the particular project will fail to
perform as originally forecast and, therefore, that re payments, if any, will be insufficient to cover the
full investment and interest".1947 The calculation performed by Dr. Ellis can be illustrated as follows:

1943We note that there are limitations to the IRR method and there may be reasons to prefer a method
that focuses on the net present value (" NPV") of a project. Nonetheless, this aspect of the Panel's analysis has
not been challenged on appeal by either participant.
1944These government borrowing rates are sometimes referred to as "risk-free" rates. See, for example,
Panel Report, para. 7.432; and Ellis Report, supra, footnote 760, p. 1.
1945Ellis Report, supra, footnote 760, p. 6.
1946Ellis Report, supra, footnote 760, p. 6.
1947Ellis Report, supra, footnote 760, p. 6.
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mrr = gr + cr + pr
where:
mrr is the rate of return that would be demanded by a market lender;
gr is the government borrowing rate;
cr is the general corporate risk premium, i.e., the difference between the rate of
return on a corporate bond and the government borrowing rate; and
pr is the project-specific risk premium.

861. Dr. Ellis derived the project-specific risk prem ium from the results of a 2004 empirical study
of venture capital investments undertaken by Kerins, Smith, and Smith (the "KSS Study"). 1948
Dr. Ellis explained before the Panel that "the K SS Study found returns on venture capital investments
to range from 16.7% to 57.5%, depending on the diversification of the investor." 1949 He indicated that
he arrived at a project-specific risk premium of 700 basis points (or 7%) from the lowest return in this
range (that is, 16.7%), which was said to represent th e return obtained by a "well diversified investor
in both venture capital projects and other, less risky, equity investments represented by a stock market
index".1950 Before the Panel, the United States characterized this project-specific risk premium "as the
opportunity cost of capital for a well-diversified portfolio of venture capital investments including
both debt and equity instruments."1951
862. The European Communities put forward an alte rnative proxy calculated by its own expert,
Professor Whitelaw. In constructing this alterna tive proxy, Professor Whitelaw accepted the general
framework developed by Dr. Ellis. He also accep ted Dr. Ellis' determinations as to the first two
components of the calculation, that is, the government borrowing rate and the general corporate risk.
However, Professor Whitelaw contested the manne r in which Dr. Ellis calculated the third
component: the project-specific risk premium. Professor Whitelaw put forward an alternative project-
specific risk premium calculated "based on the antic ipated returns of risk-sharing suppliers that
contributed to the development of the A380 on terms similar to those agreed to by the participating
member States".1952 However, Professor Whitelaw did not question the appropriateness of adding a
premium for project-specific risk.

1948F. Kerins, J.K. Smith, and R. Smith, "Opportunity Cost of Capital for Venture Capital Investors and
Entrepreneurs" (June 2004) 39(2) Journal of Financial and Quantitative Analysis 385 (Panel Exhibit US-470
(BCI)).
1949Panel Report, para. 7.437.
1950Panel Report, para. 7.437 (referring to Response to Whitelaw Report, supra, foonote 787, p. 7).
1951United States' responses to Panel Questions 8 and 9.
1952Whitelaw Report, supra, footnote 1881, p. 10.
WT/DS316/AB/R BCI deleted, as indicated [***]

863. To derive the project-specific risk premium, Professor Whitelaw first calculated the return
anticipated by each supplier as an IRR using the forecast component delivery schedule for the
supplier, the agreed reimbursable cost, and the agr eed repayment per aircraft. He then calculated the
weighted average return of the suppliers a rriving at "a single benchmark for the A380".
1953 N e x t ,
Professor Whitelaw took this "single benchmark" and deducted from it the government borrowing rate
and general corporate risk premium calculated by Dr. Ellis for 2001. At this point, Professor
Whitelaw arrived at what he described as the "corrected project-specific risk premium". 1954 Finally,
Professor Whitelaw added this corrected project-sp ecific risk premium to the government borrowing
rates and general corporate risk premia calculated by Dr. Ellis for the launch years of the LCA
projects in question. Professor Whitelaw expl ained that the "only difference between the
{European Communities'} benchmark and the Ellis be nchmark is the use of a defensible project-
specific risk premium that reflects the risk of the aircraft programmes in exce ss of general corporate
risk".
1955
864. Dr. Ellis applied a constant project-specific ri sk premium of 7% to all of the LCA projects
challenged by the United States. He nevertheless recognized that the risk could vary between LCA
projects, noting that "a 40% risk premium or someth ing of that order of magnitude would probably be
quite appropriate for the earlier years of Airbus' existence given the high-risk of launch aid and the
project-specific repayment during the early life of the company." 1956 Professor Whitelaw derived a
constant project risk premium from the risk-sharing suppliers of the A380, a nd applied this constant
project risk premium also to the A320, A330/A340, A330-200, and the A340-500/600
programmes.1957 The European Communities explained that it did so for "administrative
convenience" and that, "{b}ecause the A320, A330 /A340, A330-200, and A340-500/600 programmes
carried less risk than the A380, this assumption actu ally overstates the risk premium that would have
applied to these earlier programmes, and illu strates the conservative nature of the
{European Communities'} methodology."1958
(e) Overview of the Panel's assessment of the Ellis and Whitelaw
project-specific risk premia
865. The Panel examined the project-specific risk premia put forward by both parties and had
misgivings about both. As regards the project-specific risk premium put forward by the United States,

1953Whitelaw Report, supra, footnote 1881, p. 11.
1954Whitelaw Report, supra, footnote 1881, p. 11.
1955Whitelaw Report, supra, footnote 1881, p. 11.
1956Ellis Report, supra, footnote 760, footnote 28, p. 20.
1957European Communities' response to Panel Question 64, footnote 40 to para. 71.
1958European Communities' response to Panel Question 64, footnote 40 to para. 71.
BCI deleted, as indicated [***] WT/DS316/AB/R

the Panel considered that it had "a number of defici encies" which, in its view, "imply that it probably
overstates the appropriate level of project-specifi c risk that may be reasonably associated with
LA/MSF provided for at least a number of the challenged Airbus LCA projects."
1959 As will be
explained further below, the Panel also found that the benchmark proposed by the
European Communities "under-estimate{d} the appropria te level of project-specific risk that may be
reasonably associated with LA/MSF for all of the challenged measures."1960
866. The Panel described the United States' proposed risk premium as being "{i}n essence ... based
on the alleged risk associated with holding a divers ified portfolio of venture capital investments." 1961
It went on to explain that "{w}hile it would not be inaccurate to characterize LA/MSF, because of its
unsecured, success-dependent and gr aduated repayment terms, as a form of financing that is
inherently speculative", it did "not consider {that} this renders it entirely comparable with venture
capital investments."
1962 According to the Panel, "{t}here are sev eral reasons to believe that the level
of risk associated with venture capital financing is typically higher than th e risk associated with
LA/MSF."1963 Referring to economic literature, the Panel further reasoned that "{v}enture capital
organizations finance these high-risk, potentially hi gh-reward projects, purchasing equity or equity-
linked stakes while the firms are still privately held". 1964 The Panel also noted that the economic
literature described firms that receive venture capita l as "typically small and young, plagued by high
levels of uncertainty and large differences between what entrepreneurs and investors know" and as
firms that "typically possess few tangible assets and ope rate in markets that change very rapidly". 1965
The Panel contrasted this with the fact that "b y the time of the launch of the A380, Airbus had
developed into a relatively large firm with over 30 years experience, substantial capital assets and
revenues, and a track record of successful LCA deve lopment, sometimes even exceeding expectations
(although it is equally apparent that it is not entirely clear yet whether several of the Airbus LCA
models developed immediately prior to the A 380 will be as successful as initially expected)."
1966 In
response to the United States' argument that its project-specific risk premium was "conservative"
because it reflected the "the risk associated with holding a well-diversified venture capital portfolio as
opposed to the risk associated with financing indi vidual venture capital projects", the Panel reiterated

1959Panel Report, para. 7.461.
1960Panel Report, para. 7.479.
1961Panel Report, para. 7.462.
1962Panel Report, para. 7.462. (original emphasis)
1963Panel Report, para. 7.462.
1964Panel Report, para. 7.463 (referring to P. Gompers and J. Lerner, "The Venture Capital Revolution"
(2001) 15(2) Journal of Economic Perspectives 145 (Panel Exhibit EC-677), quoted in Robert Whitelaw
Rebuttal Report (24 May 2007) (Panel Exhibit EC-656 (BCI)), para. 18).
1965Panel Report, para. 7.463 (quoting Gompers and Lerner, supra, footnote 1964, quoted in Whitelaw
1966Panel Report, para. 7.463. (footnotes omitted)
WT/DS316/AB/R BCI deleted, as indicated [***]

its view that "there are reasons to believe that venture capital financi ng is inherently more risky than
LA/MSF, even when considered in the form of a portfolio."
1967
867. Another concern that the Panel expressed was that the United States sought "to apply one and
the same project-specific risk premium to construct the market interest rate benchmarks associated
with all models of LCA developed by Airbus." 1968 The Panel acknowledged that the
European Communities had not disputed "this aspect of the Ellis Report project-specific risk
premia".1969 Nevertheless, the Panel said it was "not convinced that it is the best approach to
identifying the most appropriate project-specific risk premium for each of the challenged LA/MSF
contracts."1970 The Panel explained:
Various pieces of evidence and arguments presented by the parties
indicate that the risk associated with LCA development will vary
over time depending upon a variety of factors. These factors include
the conditions of competition in the aircraft industry and differences
in the levels of technology associ ated with developing different
models of LCA. In our view, a project-specific risk premium may
even vary over time because of the levels of risk that the finance
industry is willing to accept at different moments in its own
economic cycle. Moreover, if the project-specific risk premium is
intended to relate to the risk of default attached to LA/MSF for a
particular LCA development project, it would seem to follow that, all
things being equal, it should be greater for earlier LCA development
projects, when Airbus had relatively less experience—or conversely,
the risk premium associated with development of a later model of
LCA should be lower in the light of successful prior experience.
1971
(footnote omitted)
The Panel observed that the Ellis Report appeared to recognize that the risk premium could vary by
project.1972 The Panel concluded:
All of the above considerations lead us to conclude that the
United States' proposed project-speci fic risk premium may not be an
appropriate proxy for the project-specific risk premium that a market
lender would ask Airbus to pay in return for financing on the same or
similar terms and conditions as LA/MSF for all of the challenged
LA/MSF contracts. In our view, in order to evaluate the suitability of
the United States' proposed project-specific risk premium, it is
important to bear in mind the nature of and circumstances
surrounding each of the different LCA development projects financed
under the challenged LA/MSF measures. Thus, in respect of the

1967Panel Report, para. 7.464.
1968Panel Report, para. 7.468.
1969Panel Report, para. 7.468.
1970Panel Report, para. 7.468. (original emphasis)
1971Panel Report, para. 7.468.
1972Panel Report, para. 7.469 (referring to Ellis Report, supra, footnote 760, footnote 28, p. 20).
BCI deleted, as indicated [***] WT/DS316/AB/R

earliest models of Airbus LCA, namely, the A300 and A310, when
Airbus was in its very early stages of existence, a project-specific risk
premium derived from the risk associated with investing in a well-
diversified portfolio of venture capital investments, appeals to us as a
reasonable proxy for the minimum project-specific risk premium that
it would be appropriate to associate with market financing
comparable with LA/MSF. However, for subsequent models of
Airbus LCA, and in particular, the A320, A330/A340, A330-200 and
A340-500/600, the project-specific risk premium proposed by the
United States' probably overstates the maximum that we believe the
evidence before us suggests would be appropriate; whereas, because
of the acknowledged technological challenges associated with the
A380 project, our sense is that the Un ited States' project-specific risk
premium could be reasonably accepted to represent the outer limit of
the risk premium that a market lender would ask Airbus to pay for
financing on the same or similar terms and conditions as the A380
LA/MSF contracts.
1973 (original emphasis)
868. Having assessed the project-specific risk premium put forward by the United States, the Panel
turned to the alternative risk premium advanced by the European Communities. Initially, the Panel
expressed some sympathy for the approach of the Eu ropean Communities, noting that "{i}n principle,
we agree with the view that the returns associated with market financing actually provided to Airbus
for the same project as LA/MSF would serve as an appropriate basis from which to derive the relevant
project-specific risk premium."1974 The Panel added that "such an approach would be preferable to the
one used by the United States to calculate its own proposed project-specific risk premium." 1975 Yet,
ultimately, the Panel was "not persuaded that the project-specific risk premium advanced by the
European Communities is derived from data having these characteristics." 1976 Presumably, the
"characteristics" that the Panel was referring to were those of "market financing actually provided to
Airbus for the same project as LA/MSF". The Panel gave the following reasons for its view:
In the first instance, we not e that Professor Whitelaw used
information from only a sample of the risk-sharing supplier contracts
to construct the proposed project-specific risk premium. Although
Professor Whitelaw asserts that the contracts used amounted to 100%
of those for which an {IRR} could be calculated, we have no way of
verifying this assertion because the European Communities has
submitted little if any of the underlying data used in Professor
Whitelaw's calculations. Specifi cally, the European Communities
has provided a table summarizing various pieces of information that
appear to be taken and derive d from the sampled risk-sharing
supplier contracts, and five pages of one of those contracts. Even on
the basis of only the number of risk-sharing supplier contracts

1973Panel Report, para. 7.469.
1974Panel Report, para. 7.480.
1975Panel Report, para. 7.480.
1976Panel Report, para. 7.480.
WT/DS316/AB/R BCI deleted, as indicated [***]

actually sampled we find this to be clearly insufficient to substantiate
the European Communities' assertions in respect of the appropriate
project-specific risk premium. Moreover, we note that the one
contract that the European Communities has submitted shows that
there is at least one major difference between the repayment terms
under this contract and LA/MSF which we believe reduces its
relative level of risk. We are also of the view that there is some
logical merit to the United States' arguments suggesting that the risk-
sharing suppliers had incentives to lower their expected rates of
return. We furthermore agree with the view expressed by Brazil and
the United States that government support for the A380 in the form
of LA/MSF reduces the level of risk associated with risk-sharing
supplier financing, thereby limiting its comparability with LA/MSF.
Moreover, there is information contained in the Airbus A380
business case which suggests that the risk-sharing participants'
involvement in the A380 project may not have been on strictly
market terms for all participants.
1977 (footnotes omitted)
869. The Panel concluded that "notwithstanding its potential, the shortcomings in the evidence
relied upon by Professor Whitelaw to derive the European Communities proposed project-specific
risk premium and the notable differences between th e risks assumed by the risk-sharing suppliers
compared with the EC member State governments, lead us to conclude that the
European Communities' project-specific risk prem ium for the A380 is unreliable and understates the
risk premium that a market operator would have reasonably demanded Airbus pay for financing on
the same or similar terms as LA/MSF for this particular model of LCA".
1978 The Panel additionally
noted that "as with the United States, the Eur opean Communities seeks to apply one and the same
project-specific risk premium to construct the mark et interest rate benchmarks associated with all
models of LCA developed by Airbus". 1979 Recalling its earlier views, the Panel said it was "not
convinced that this is the best approach to identifying the most appropriate project-specific risk
premium for each of the challenged LA/MSF contracts" . It explained that, "in order to assess the
suitability of a project-specific risk premium for market financing comparable to LA/MSF, it is
important to bear in mind the nature of and ci rcumstances surrounding each of the different LCA
development projects financed under the challenged LA/MSF measures."1980 The Panel found that the
project-specific risk premium advanced by th e European Communities for the A320, A330/A340,
A330-200 and A340-500/600 "underestimates the reasonable project-specific risk premium that a
market lender would have asked Airbus to pay for financing on the same or similar terms and
conditions as LA/MSF for all of these models of LCA, as well as the A380."1981

1977Panel Report, para. 7.480.
1978Panel Report, para. 7.481.
1979Panel Report, para. 7.481.
1980Panel Report, para. 7.481. (footnote omitted)
1981Panel Report, para. 7.481.
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870. It is evident from the discussion summarized above that the Panel was not satisfied with either
alternative put forward by the parties. The Panel had two major concerns with respect to both proxies.
First, the Panel criticized both the United Stat es and the European Comm unities for applying a
constant risk premium to all LCA projects and in stead expressed a preference for a variable risk
premium that took into account the particularities of the specific LCA projects. Second, the Panel
considered that the project-specific risk premia proposed by the United States and the
European Communities did not accurately reflect th e risk of the LCA project because the former
generally overstated the level of risk, while the latter underestimated it.
(f) Do the European Union's allegations concern errors of application or
errors under Article 11 of the DSU?
871. For each aspect of the Panel's assessment that it challenges, the European Union has made
parallel claims under Article 1.1(b) of the SCM Agreement, alleging an error of application, and under
Article 11 of the DSU, alleging a failure by the Panel to make an objective assessment of the facts. At
the oral hearing, the European Un ion suggested that an appellant was entitled to make parallel claims
and that it would be for the Appellate Body to determine which was the proper characterization of
those claims.
872. The Appellate Body has noted that "an appellant is free to determine how to characterize its
claims on appeal".
1982 Furthermore, we recognize that it is often difficult to distinguish clearly
between issues that are purely legal or purely factual, or are mixed issues of law and fact. We also
recognize that a failure to make a claim under Artic le 11 of the DSU on an issue that the Appellate
Body determines to concern a factual assessment may have serious consequences for the appellant.1983
An appellant may thus feel safer putting forward both a claim that the Panel erred in the application of
a legal provision and a claim that the Panel failed to make an objective assessment of the facts under
Article 11 of the DSU. In most cases, however, an issue will either be one of application of the law to
the facts or an issue of the objective assessment of facts, and not both.
873. In order to determine whether the issues rai sed by the European Union are more properly
characterized as one of application of law to facts or one of objective assessment of the facts, it is first
necessary to recall the requirements of Article 1.1(b) of the SCM Agreement before we explain our
reasoning. Article 1.1(b) requires that a financial contribution confer a "benefit" in order for such
financial contribution to constitute a subsidy. Article 1.1(b) does not provide a particular

1982Appellate Body Report, Canada – Wheat Exports and Grain Imports , para. 177 (referring to
Appellate Body Report, Japan – Apples, para. 136).
1983See Appellate Body Report, Mexico – Anti-Dumping Measures on Rice, para. 274.
WT/DS316/AB/R BCI deleted, as indicated [***]

methodology to determine whether a benefit is confe rred. The Appellate Body has determined that
the assessment of benefit involves a comparison w ith the marketplace and that such assessment is
intended to identify whether the reci pient of the financial contribution is "better off" than it would
otherwise have been, absent the financial contribution.
1984 Article 14 of the SCM Agreement provides
certain guidelines applicable to the calculation of benefit in countervailing duty investigations, but
which may also be of contextual assistance to WTO pa nels confronted with subsidy claims. The most
relevant guideline in this particular case, given the Panel's characterization of the LA/MSF as loans, is
Article 14(b), which provides that "a loan by a gove rnment shall not be considered as conferring a
benefit, unless there is a difference between the am ount that the firm receiving the loan pays on the
government loan and the amount the firm would pay on a comparable commercial loan which the firm
could actually obtain on the market".
874. In its appeal, the European Union is not alle ging that the Panel incorrectly interpreted
Articles 1.1(b) or 14(b) of the SCM Agreement. On the contrary, the European Union accepts that the
assessment of benefit in this case called for a comparison of the rates of return of the LA/MSF
measures with the rates of return that would have been demanded by a market lender. Furthermore,
the European Union does not challenge the fact that the Panel relied on a constructed proxy to
determine those rates of return. 1985 The European Union also accepts, in principle, the formula used
by the Panel and acknowledges that this formula is capable of yielding a market proxy that can
properly be used to make an assessment of benefit that is consistent with Article 1.1(b) of the
SCM Agreement.1986 The European Union even accepts the amounts determined by the Panel for two
of the three components of the formula. The distinc tive target of the European Union's appeal is the
third component of the Panel's formula, that is, the project-specific risk premium. The
European Union accepts that it was appropriate for th e Panel to have included a project-specific risk
premium as part of the formula for constructi ng the proxy. It disagrees, however, with the
quantification made by the Panel of the project ri sk specific to each LCA project, with the manner in
which the Panel chose relevant f actors and applied them in making this quantitative assessment, and
with the reasons given by the Panel to justify applying a particular level of project risk to the various
LCA projects.
875. The European Union first complains that "alt hough the Panel finds that the project-specific
risk premium should vary from product to produc t, it considered jointly, and made findings
collectively, for (i) the A300 and the A310 project s, and (ii) the A320, A330/A340, A330-200 and

1985European Union's response to questioning at the oral hearing.
1986European Union's response to questioning at the oral hearing.
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A340-500/600 projects."
1987 On appeal, the European Union do es not question the Panel's use of a
variable project risk premium. 1988 Instead, the European Union ch allenges the Panel's reasoning as
internally inconsistent because, having opted for a variable project risk premium, the Panel then
applied the same project risk premium within the two groupings of LCA projects mentioned above.
Implicit in the European Union's argument is the proposition that the quantum of risk of the LCA
projects within each grouping is different.
876. Second, the European Union criticizes the Panel for failing to take into account two factors
that the Panel had "found to aff ect the level of project risk" 1989, namely (i) changes in the "conditions
of competition in the aircraft industry" and (ii) changes in "the level of risk that the finance industry is
willing to accept at different moments of its own economic cycle". 1990 The European Union does not
call into question that the Panel was permitted to examine these two factors as relevant to an
assessment of benefit under Article 1.1(b) of the SCM Agreement.1991 Rather, the European Union is
again identifying an apparent incoherence and a lack of explanation in the Panel's reasoning. It argues
that the Panel identified the two factors as relevant to the assessment of the level of risk, but
nevertheless failed to examine those factors in respect of certain models or groupings. The
implication is that consideration of the two factors would have influenced the quantum of project risk.
877. Third, the European Union makes several alle gations concerning the manner in which the
Panel applied the relative experience of Airbus a nd the technological challenges of the LCA projects
as factors relevant to the assessment of the level of risk. The European Union argues that the Panel
applied relative experience only to the A300 and A310 and the technological challenges factor only to
the A380.
1992 It complains that the Panel did not take into account the relative experience of Airbus
when it assessed the level of risk of the A380. 1993 These allegations also concern an apparent
contradiction in the Panel's reasoning that affects the quantum of risk assigned by the Panel to the
projects. They also concern an alleged lack of even-handedness by the Panel in the application of

1987European Union's appellant's submission, para. 760. (footnote omitted)
1988European Union's appellant's submission, footnote 969 to para. 759.
1989European Union's appellant's submission, para. 761.
1990European Union's appellant's submission, para. 761.
1991We note that the situation concerning the relevant risk factors for the quantif ication of risk differs
from the examination of the criteria set out in GATT and WTO case law for determining likeness under
Article III of the GATT 1994. The Appellate Body has noted that the "determination of whether imported and
domestic products are 'like products' is a process by which legal rules have to be applied to facts". (Appellate
Body Report, Canada – Periodicals , p. 22, DSR 1997:I, 449, at 468) "Like products" is a legal category
established under the GATT 1994. By contrast, as we e xplained earlier, calculation of the project-specific risk
premium is not expressly required under Articles 1.1(b) or 14(b) of the SCM Agreement, but is rather a function
of the particular methodology chosen by the parties in this case to calculate the amount that Airbus would have
paid for a comparable commercial loan.
1992European Union's appellant's submission, para. 763.
1993European Union's appellant's submission, para. 770.
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certain factors when making this quantitative assess ment because they were relied upon only when
they led to an increase in the level of risk, and not when their application would have resulted in a
decrease in the risk.
878. Fourth, the European Union alleg es that the Panel erred in applying the same level of risk to
the A320 and A330/A340 LCA projects, on the one hand, and to the A330-200 and A340-500/600, on
the other hand, despite the latter being derivatives with lower developments costs.
1994
879. Finally, the European Union complains that the Panel applied the project-specific risk
premium proposed by the United States to the A300 and A310 and to the A380, even though the Panel
had said that that the premium proposed by the United States was based on venture capital financing
that is "inherently more risky than LA/MSF, even when considered in the form of a portfolio".
1995
Like the others, these claims concern an alleged contradiction, lack of even-handedness, and the
absence of sufficient explanation in the Panel's reasoning 1996 and, therefore, the failure to consider in
an internally consistent manner the relevant factors in the quantification of the risk of particular LCA
projects.
880. In sum, we view the European Union's challenge of the quantification of the level of project
risk, the choice of relevant factors for quantificati on, and the reasoning of the Panel as relating to the
objectivity of the Panel's assessment of factual dete rminations within the meaning Article 11 of the
DSU.1997 The European Union's allegations concern ho w the Panel reasoned over disputed facts.
These allegations appear to us to be claims about the objectivity of the Panel's assessment of the facts
and thus are more in the nature of claims made under Article 11 of the DSU.
881. Pursuant to Article 11 of the DSU, "a panel is charged with the mandate to determine the facts
of the case and to arrive at factual findings". 1998 The Appellate Body has repeatedly stated that it will
not "interfere lightly" with the panel's fact-finding authority 1999, and has also emphasized that it
"cannot base a finding of inconsistency under Article 11 simply on the conclusion that {it} might have

1994European Union's appellant's submission, para. 766-769.
1995European Union's appellant's submission, paras. 772-775.
1996See Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), paras. 292 and. 294.
1997Our conclusion applies also to the European Union's appeal in relation to the French LA/MSF for
the A330-200. We recall that the European Union requests us "to reverse each of the Panel's findings on the
project-specific risk premium", yet concedes that "{o}th er than {the French LA/MSF} for the A330-200, such
reversal would not, however, constitute a reversal of the Panel's finding that the {LA/}MSF loans at issue confer
a benefit, within the meanin g of Article 1.1(b) of the SCM Agreement , and thus constitute subsidies".
(European Union's appellant's submission, paras. 788 and 790 (referring to Panel Report, paras. 7.489
and 7.490))
1999See, for example, Appellate Body Report, US – Wheat Gluten , para. 151; Appellate Body Report,
EC – Sardines, para.. 299; and Appellate Body Report, US – Carbon Steel, para. 142.
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reached a different factual finding from the one the panel reached".
2000 Instead, for a claim under
Article 11 to succeed, we must be satisfied that th e panel has exceeded its authority as the trier of
facts.2001 As an initial trier of facts, a panel must provide a "reasoned and adequate" explanation for
its findings2002 and coherent reasoning. 2003 It has to base its findings on a sufficient evidentiary basis
on the record2004, may not apply a double standard of proof2005, and a panel's treatment of the evidence
must not lack "even-handedness".2006
(g) The Panel's assessment of the project-specific risk premium proposed
by the United States
882. As noted earlier, the Panel divided the LCA projects into three groups, each of which
comprised the following LCA projects: (i) the A300 and A310; (ii) the A320, A330/A340,
A330-200, and A340-500/600; and (iii) the A380. 2007 The Panel determined ranges for the risk
premium applicable to each group of LCA projects that it had identified. 2008 These ranges can be
summarized as follows, where "pr" is the project-specific risk premium, 7% is the project-specific risk
premium put forward by the United States, and "W" is the project-specific risk premium put forward
by the European Communities, the exact figure being HSBI:
Group Range
A300 and A310 7% < pr
A320, A330/A340, A330-200, and
A340-500/600
W < pr < 7%
A380 W < pr < 7%

883. Before turning to the Panel's assessment of the project-specific risk premium proposed by the
United States, we note that we do not consider that it was inappropriate per se for the Panel to have
arranged the LCA projects into groups and to have determined a range for the project-specific risk
premium applicable to the LCA projects within each group. As we explained earlier, under
Article 1.1(b) of the SCM Agreement, panels have a degree of discre tion in selecting the appropriate

2000Appellate Body Report, US – Wheat Gluten, para. 151.
2001Appellate Body Report, US – Wheat Gluten, para. 151.
2002See Appellate Body Report, US – Softwood Lumber VI (Article 21.5 – Canada), para. 97.
2003See Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 293 and footnote 618
thereto, and para. 294.
2004See Appellate Body Report, US – Continued Zeroing, para. 338.
2005See Appellate Body Report, Korea – Dairy, para. 137.
2006See Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 292.
2007See, for example, Panel Report, paras. 7.469, 7.481, and 7.485-7.487.
2008Panel Report, para. 7.488, Table 7.
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methodology to determine "benefit" provided the me thodology is not inconsistent with the guideline
in Article 14(b). Pursuant to Article 11 of th e DSU, the Panel had a duty to "make an objective
assessment of the matter before it, including an ob jective assessment of the facts of the case". This
means that the Panel was not under an obligation to accept the parties' approach of calculating a
constant risk premium for all LCA projects. On the contrary, it was the Panel's duty to assess, based
on the evidence on record, whether the application of a constant project risk premium was the most
appropriate approach and, to the extent that it was not, to consider alternative approaches. Thus, it
was not impermissible for the Panel to have attempted to assemble the various LCA projects into
various groupings according to the projects' level of risk.
2009
884. However, we have serious concerns about the Panel's assessment of the project-specific risk
premium proposed by the United States. Our main concern is that the Panel relied on the project-
specific risk premium proposed by the United States as a boundary for the range that it established for
the risk premium of each of the three groupings, despite having expressed strong reservations about
the extent to which it reflected the level of risk of the LCA projects that received LA/MSF.
885. The Panel identified several aspects of the pr oject-specific risk premium proposed by the
United States that, in the Panel's view, limited its su itability as a proxy reflecting the level of risk of
the LCA projects financed with LA/MSF. First, the Panel highlighted differences between the
features of the LA/MSF and those of venture capita l financing—the type of financing from which
Dr. Ellis derived the project-specific risk premiu m proposed by the United States—that impact on the
level of risk of each type of financing. The Pane l noted that "{w}hile it would not be inaccurate to
characterize LA/MSF, because of its unsecured, su ccess-dependent and graduated repayment terms,
as a form of financing that is inherently sp eculative, we do not consider this renders it entirely
comparable with venture capital investments." 2010 The Panel further observed that "{t}here are
several reasons to believe that the level of risk associated with venture capital financing is typically
higher than the risk associated with LA/MSF." 2011 The Panel also explained that, "while
LA/MSF may be considered to have some equity -like qualities, such as the fact that lender
governments have no recourse in the event of non-repayment, LA/MSF contracts are generally
conceived as amortizing loans repaid out of project revenue." 2012 Second, the Panel referred to a
journal article that described firms that receive ve nture capital as "typically small and young, plagued
by high levels of uncertainty and large differen ces between what entrepreneurs and investors know"

2009Panel Report, para. 7.468.
2010Panel Report, para. 7.462. (original emphasis)
2011Panel Report, para. 7.462.
2012Panel Report, para. 7.462.
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and as firms that "typically possess few tangible assets and operate in markets that change very
rapidly".
2013 Third, the Panel was not persuaded by the United States' assertion that the project-
specific risk premium that it proposed was "conserva tive" because it reflected "the risk associated
with holding a well-diversified venture capital portfolio as opposed to the risk associated with
financing individual venture capital projects." 2014 The Panel responded to this assertion stating that
"there are reasons to believe that venture capital financing is inherently more risky than LA/MSF,
even when considered in the form of a portfolio." 2015 Finally, the Panel expressed concerns that the
700 basis points figure that the United States had put forward as the project-specific risk premium
could also improperly include management fees.
2016
886. Notwithstanding these reservations, which call into question the appropriateness of using the
rates of return of venture capital financing as a proxy to derive the risk premium of the projects
financed by LA/MSF, the Panel used the project-sp ecific risk premium proposed by the United States
as a boundary in each of the ranges it established for the three groupings of LCA projects.
887. We recognize that some of the Panel's statemen ts leave some room for the application of the
United States' proposed project-specific risk pr emium. For example, the Panel said that the
United States' proposed project-specific risk premiu m "probably overstates the appropriate level of
project-specific risk that may be reasonably associated with LA/MSF provided for at least a number
of the challenged Airbus LCA projects".
2017 It concluded that the "United States' proposed project-
specific risk premium may not be an appropriate proxy for the project-specific risk premium that a
market lender would ask Airbus to pay in return for financing on the same or similar terms and
conditions as LA/MSF for all of the challenged LA/MSF contracts". 2018 The Panel specifically found
that "in respect of the earliest models of Airbus LCA, namely, the A300 and A310, when Airbus was
in its very early stages of existence, a project-sp ecific risk premium derived from the risk associated
with investing in a well-diversif ied portfolio of venture capital investments, appeals to us as a
reasonable proxy for the minimum project-specific risk premium that it would be appropriate to
associate with market financing comparable with LA/MSF."
2019

2013Gompers and Lerner, supra, footnote 1964, quoted in Whitelaw Rebuttal Report, supra, footnote
1964, para. 18.
2014Panel Report, para. 7.464.
2015Panel Report, para. 7.464.
2016Panel Report, para. 7.464.
2017Panel Report; para. 7.461.
2018Panel Report, para. 7.469. (original italics; unde rlining added) Additional examples include the
statements "we do not consider this renders it entirely comparable with venture capital investments" and "the
level of risk associated with venture capital financing is typically higher than the risk associated with LA/MSF."
(Panel Report, para. 7.462 (original italics; underlining added))
2019Panel Report, para. 7.469.
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888. Arguably, at the time Airbus launched the A 300, its first LCA project, Airbus would have
been most similar to the "small and young" firms that are "plagued by high levels of uncertainty" that
the Panel noted were the type of firms that t ypically obtain venture capital financing. The
European Communities raised the issue of the previous experience of the firms that formed the Airbus
consortium, an issue that the Panel did not explicitly address in its Report. Yet, ultimately, the Panel's
use of the United States' proposed project-speci fic risk premium as the minimum boundary of the
range established for the A300 project cannot be reconciled with statements by the Panel that
generally call into question the suitability of vent ure capital financing as a source from which the risk
of the projects financed by LA/MSF could be derive d. In particular, we see a clear inconsistency
between the Panel's reliance on the project-specifi c risk premium proposed by the United States and
the Panel's statement that "venture capital financin g is inherently more risky than LA/MSF, even
when considered in the form of a portfolio".
2020 The latter statement can only be understood as a
rejection of venture capital financing as a basis from which to derive a proxy for the risk of the
projects that received LA/MSF. The inconsistency also applies to the Panel's assessment of the risk of
the A310 project. Airbus was less inexperienced at the time it launched the A310 in 1978, given that
this project followed the launch of the A300. Moreover, the A310 was a derivative of the A300 2021,
and the Panel found that launching derivative models was less risky than developing a new
aircraft.2022 Thus, the Panel's use of the United States' proposed project-specific risk premium, which
was based on venture capital financing, as a minimum risk premium for the A300 and A310 cannot be
reconciled with its view that venture capital financing is inherently riskier than LA/MSF.
889. There is a further difficulty with the range for the project-specific risk premium that the Panel
established for the A300 and A310 LCA projects. We recall that this range was composed of the
United States' proposed project-specific risk premiu m as a lower boundary, while the Panel left the
maximum level of risk unbound. The absence of an upper limit means that the risk premium for the
A300 and A310 projects could potentially be very high. It could even be higher than the rates of
return for venture capital financing indicated in the KSS Study on which Dr. Ellis relied to derive the
project-specific risk premium proposed by the United States. The fact that, under the range

2020Panel Report, para. 7.464.
2021Panel Report, footnote 5657 to para. 7.1940.
2022In footnote 5657 to paragraph 7.1940 of its Report, the Panel quotes a study by G. Klepper "Entry
into the Market for Large Transport Aircraft" (1990) 34 European Economic Review 775 (Panel Exhibit
US-377), submitted by the United States, which states:
{S}ome production stages are not specific to a particular type of aircraft,
such that learning effects which are realized in the production of a generic
aircraft can influence marginal cost of producing another generic aircraft.
Referring to this study, the Panel explained that "{t} he fact that such cross e ffects are strong for updated
versions of an aircraft, the so-called derivatives, is illustrated for the Airbus A300 and its derivative the A310 in
Klepper, Exhibit US-377, p. 778."
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established by the Panel, the risk premium for th e A300 and A310 projects can exceed the level of
return of venture capital financing is clearly at odds with the Panel's statem ent that venture capital
financing is "inherently more risky than LA/MSF".
890. The use of the project-specific risk premium proposed by the United States as a boundary for
the range established for the second grouping is also problematic. As with the A300 and A310, there
is a contradiction between the Panel's statement th at venture capital is "inherently more risky than
LA/MSF" and its use of the project-specific ri sk premium proposed by the United States as a
maximum boundary, even if it was an external one. Also, the differences between Airbus and firms
that typically receive venture capital financing b ecome sharper with respect to the LCA projects
launched subsequent to the A310. There is a 13- year difference between the launch of the A320 and
the launch of the A340-500/600. When Airbus launched the A320 in 1984 it had previously
developed two LCA projects (A 300 and A310), while when it la unched the A340-500/600 it had
developed five LCA projects (A300, A310, A320, A330/A340, and A330-200). There is no
explanation in the Panel Report as to how the Pane l accounted for the experience acquired by Airbus
with each successive launch. Moreover, as the European Union emphasizes, the second grouping
includes both projects that involved the developmen t of new aircraft and projects that involved
derivative models, which the Panel recognized were less risky. The Panel stated in this regard that the
A330-200 and the A340-500/600 "were derivative airc raft which entailed much smaller development
costs and a much lower level of risk to Airbus' overall operations."
2023 There is an inconsistency
between the Panel's recognition that the project risk is reduced as a firm gains experience and its
acknowledgement that derivate LCA projects have a lower risk, on the one hand, and its use of the
project-specific risk premium derived from vent ure capital financing as the upper boundary for the
range it established for the second grouping.
891. There are inconsistencies in the Panel's reasoni ng with respect to the project-specific risk
premium for the A380 as well. The Panel included the project-specific risk premium proposed by the
United States as the internal upper limit of the range for the risk premium that it determined for the
A380 project. The Panel did so despite having said earlier that "the level of risk associated with

2023Panel Report, para. 7.1947; see also paras. 7.1940 and 7.1941. In paragraph 7.1940, the Panel
stated:
… LCA have a complex production technology which results in strong
learning effects. Knowledge and expe rience gained in the development and
production of one model of aircraft will lower the costs of development and
production of subsequent aircraft launches. This is particularly true for
derivative aircraft, where the subsequently launched model is a variant of an
existing model, as is the case with these LCA models. (footnote omitted)
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venture capital financing is typically higher than the risk associated with LA/MSF".
2024 T h e
inconsistencies in the Panel's reasoning are par ticularly stark in the case of the A380 because the
Panel made a point of contrasting the situation of a typical firm that receives venture capital and the
situation of Airbus at the time it launched the A380. Quoting from an article in an economic journal,
the Panel said—as already noted above—that "venture capital is provided to firms that are 'typically
small and young, plagued by high levels of uncertainty and la rge differences between what
entrepreneurs and investors know. ... {T}hese firms typically possess few tangible assets and operate
in markets that change very rapidly.'"2025 The Panel then contrasted this with the situation of Airbus at
the time it launched the A380, noting that Airbus had by then "developed into a relatively large firm
with over 30 years experience, substantial capital assets and revenues, and a track record of successful
LCA development, sometimes even exceeding expectations". 2026 Having identified the differences in
the levels of risk of venture cap ital financing and LA/MSF, and between a typical firm that receives
venture capital financing and Airbus at the time it launched the A380 project, it is difficult to see on
what basis the Panel could rely, without further ex planation, on the project-specific risk premium
proposed by the United States as the internal upper bo undary of the range for the risk premium that it
determined for the A380 project.
892. The Panel treated the A380 differently to ho w it treated the LCA projects in the second
grouping because of the "acknowledged technologi cal challenges associated with the A380
project".
2027 Yet, the Panel did not explain or provide evidentiary support for its statement about the
"acknowledged technological challenges associated with the A380 project". 2028 Admittedly, the A380
project was a very large project, and there is some support on the Panel record for the Panel's
statement that it was technologically challenging. 2029 However, there are also statements on the
record contradicting the notion that the A380 proj ect was more technologically advanced than some

2024Panel Report, para. 7.462.
2025Panel Report, para. 7.463 (quoting from P. Gompers and J. Lerner, "The venture capital revolution",
(2001) 15(2) Journal of Economic Perspectives 145 (Panel Exhibit EC-677), quoted in Whitelaw Rebuttal
Report, supra, footnote 1964, para. 18).
2026Panel Report, para. 7.463.
2027Panel Report, para. 7.469.
2028Panel Report, para. 7.469.
2029For example, in a press article submitted to the Panel by the European Union, an executive of
Airbus is quoted as saying: "The A380 is the first fundamentally new Airbus to be developed since the A320".
The press article goes on to describe the A380 as the "biggest technology leap" in the history of Airbus. (Airbus,
Aircraft Families/Product Viewer, A340-300, A340-500, A340-600 (Panel Exhibit EC-372), p. 12) A report by
Morgan Stanley refers to the "wake vortex" problem, which has to do with the distance required between
airplanes and which some feared would affect the attractiveness of using th e A380 in certain airports. (Morgan
Stanley, "EADS, The A380 Debate" (5 September 2006) (Panel Exhibit EC-409), p. 15) The critical project
appraisal of the A380 performed by the UK Department of Trade and Industry refers to two technological
challenges. This information, however, is HSBI.
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of the prior LCA projects.
2030 We presume the Panel gave more weight to some of the statements than
to others. This was within the Panel's authority as the trier of facts. 2031 However, the Panel could
have provided more explanation a nd identified the evidence on the Pa nel record that supported its
statement.
893. Finally, there is an inconsistency between th e project-specific risk premium proposed by the
United States—and used by the Panel as a boundary fo r the ranges for the project-specific risk premia
that it determined—and the discount rate used by Dr. Gary Dorman in a report submitted by the
United States for purposes of its claims of seri ous prejudice. As described more fully in
section IX.D.1 of this Report, Dr. Dorman conducte d a simulation of "the cash flows generated by a
high-volume wide-body airplane program under a variety of circumstances". 2032 In this simulation,
Dr. Dorman used an annual discount rate of 10%. 2033 The European Communities had alerted the
Panel to the fact that the project-specific risk premium proposed by the United States was higher than
that reflected in the discount ra te used by Dr. Dorman. This was because deducting the government
borrowing rate and corporate risk premium used by Dr. Ellis for 2000—the year used by Dr. Dorman
as his temporal baseline—from the 10% discount ra te applied by Dr. Dorman yielded a project-
specific risk premium lower than the 7% proposed by the United States. As the European Union
points out2034, the Panel noted the European Communities' argument in the section of the Panel Report
that summarizes the parties' arguments, but did not address it in the assessment of project-specific risk
premium proposed by the United States. Although pa nels are not required to address every argument
made by a party, given the centrality of the proj ect-specific risk premium for the disposition of the
benefit issue before it, we believe it was important in this case for the Panel to have addressed the
apparent contradiction between the figure calculated by Dr. Ellis and the figure used by
Dr. Dorman.
2035
894. In sum, the Panel's reasoning in relation to the United States' proposed project-specific risk
premium is internally inconsistent. The Panel dismissed venture capital financing as a source from
which to derive the project risk of the projects financed with LA/MSF because it considered venture
capital financing to be "inherently more risky than LA/MSF". At the same time, the Panel used the

2030The same Morgan Stanley report explains that th e A380 is not as technologically innovative in the
use of materials, being constructed mostly of trad itional metal and not using as much composites as the
Boeing 787 and the planned A350XWB. (Panel Exhibit EC-409, supra, footnote 2029, p. 24)
2031See, for example, Appellate Body Report, EC – Hormones, para. 132; and Appellate Body Report,
Korea – Alcoholic Beverages, para. 161.
2032Dorman Report, supra, footnote 1042, p. 3. (footnote omitted)
2033The discount rate is the rate of interest used to determine the present value of future cash flows or
revenues, that is, the interest rate that makes future cash flows or revenues comparable to today's values.
2034European Union's additional memorandum following the first session of the oral hearing, para. 72.
2035Appellate Body Report, Dominican Republic – Import and Sales of Cigarettes, para. 125.
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project-specific risk premium proposed by the Un ited States—which had been derived by Dr. Ellis
from the returns of venture capital financing—as a boundary for the ranges of project-specific risk
premia that it established for the three groupings of LCA projects. The Panel's error is compounded
in the case of the A300 and A310 because it left th e upper limit of the range of the project-specific
risk premium unbounded, thus potentially going beyond the level of the risk premium associated with
venture capital financing. In the case of the sec ond grouping, the Panel determined the same upper
boundary for a diverse set of LCA projects, some of which were new aircraft, while others were
derivatives. It also included projects launched in a time span of 13 years, during which Airbus had
different levels of experience. And for the A380, the Panel used the United States' proposed project-
specific risk premium as an inner boundary desp ite recognizing that, by the time the A380 was
launched, Airbus was a very different company from the typical firm that receives venture capital.
There are thus clear inconsistencies in the Panel's reasoning. This type of internally inconsistent
reasoning cannot be reconciled with the Panel's dut y to make an objective assessment of the facts
under Article 11 of the DSU.
2036 The Panel also failed to comply with its duties under Article 11 of
the DSU by not engaging with the European Commu nities' argument as to the inconsistency between
the project-specific risk premium proposed by the United States and the discount rate used in the
Dorman Report.
895. Consequently, we reverse the Panel's findings, in paragra phs 7.481 and 7.488 of the Panel
Report, that the United States' proposed project-ri sk premium constituted the minimum project risk
for the A300 and A310, the exterior upper boundar y of the range of project risk for the A320,
A330/A340, A330-200, and A340-50 0/600, and the internal upper boundary of the range of project
risk for the A380.
(h) The Panel's assessment of the project-specific risk premium proposed
by the European Communities
896. The European Union also requests us to review the Panel's finding that "the
European Communities' project-specific risk prem ium for the A380 is unreliable and understates the
risk premium that a market operator would have reasonably demanded Airbus pay for financing on
the same or similar terms as LA/MSF for this particular model of LCA". 2037 The European Union
challenges each of the reasons given by the Panel in support of its finding.

2036Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), paras. 292 and 295.
2037Panel Report, para. 7.481.
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897. We recall that the European Communities pr oposed a project-specific risk premium
"constructed by Professor Whitelaw on the basis of the returns the Airbus 'risk-sharing suppliers'
expected to achieve on the financing they prov ided for the purpose of developing the A380."
2038 The
term "risk-sharing suppliers" refers to certain suppliers of Airbus that "agreed to perform development
work on the A380, with repayment of devel opment costs upon delivery of the component for
inclusion in an A380 aircraft".2039
898. With the exception of two narrow issues in which it alleges the Panel erred in the
interpretation and application of Article 1.1(b) of the SCM Agreement, the European Union's appeal of
the Panel's assessment of the European Communitie s' proposed project-specific risk premium is
premised on Article 11 of the DSU. As noted ear lier, under Article 11 of the DSU, the Appellate
Body will not interfere lightly with a panel's assessment of the facts.
899. We begin with the Panel's finding "that govern ment support for the A380 in the form of
LA/MSF reduces the level of risk associated with ri sk-sharing supplier financing, thereby limiting its
comparability with LA/MSF." 2040 We understand the Panel to ha ve been concerned about how the
LA/MSF influences the perception of risk of Airbus ' suppliers. From an ec onomic perspective, the
problem can be explained as follows. Risk sharing suppliers are rational, that is, profit-maximizing,
entities.2041 The terms that these suppliers negotiate with Airbus depend on how risky they perceive
the specific project being undertaken to be—this is why they are called "risk-sharing" suppliers in the
first place. LA/MSF reduces the risk that the project will fail (by, for example, reducing the risk that
it will run into financial difficulties) and that it will not generate the revenues necessary to pay
suppliers.
2042 Thus, it was reasonable from an economic pers pective to consider that, all things being

2038Panel Report, para. 7.470.
2039Whitelaw Report, supra, footnote 787, para. 36. Professor Whitelaw explained that, while member
States are repaid on delivery of an airc raft, the risk-sharing suppliers are repa id on delivery of a part, system or
component. He asserted that, "although there is a small difference in timing of repayment, there is no difference
in risk as both the member States' and the risk suppliers ' repayment is contingent on the ultimate sale of an
aircraft". (Ibid., footnote 29)
2040Panel Report, para. 7.480.
2041For purposes of this illustration, we are assuming that the risk-sharing suppliers have not themselves
received LA/MSF.
2042The European Communities explained that risk-s haring suppliers will not be repaid for any
non-recurring costs if Airbus fails to meet its delivery fo recast. Risk-sharing suppliers "cannot institute 'default'
proceedings if a shortfall in deliveries preclud es full recovery of principal and interest".
(European Communities' response to Panel Question 171, para. 15)
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equal, the risk sharing suppliers will require a lower rate of return to participate in a project that
receives LA/MSF compared to a project that does not receive LA/MSF.
2043
900. The Appellate Body has said that the confe rral of a "benefit", within the meaning of
Article 1.1(b) of the SCM Agreement, means that "the 'financial contribution' makes the recipient
'better off' than it would otherwise have been, absent the contribution". 2044 For such a comparison to
be meaningful, the benchmark that is used to determ ine whether the recipient is "better off" must not
itself be distorted by the financial contribution. Rather, the benchmark must reflect conditions in the
market "absent the contribution". Otherwise, it would not be possible to determine whether the
financial contribution placed the recipient in an advantageous position, because the benchmark used
in the comparison itself reflects the financial contribution. Given that the LA/MSF affects the terms
on which the suppliers participate in the Airbus project , the suppliers' rate of return cannot be used to
determine whether Airbus is "better off" than it w ould have been absent the financial contribution as
required under the SCM Agreement.

901. The European Union asserts that "neither the United States and Brazil nor the Panel explain
the linkage between the receipt of {LA/}MSF for the A380 and an alleged reduction in the risk that
risk-sharing suppliers actually faced for the A380, or that such reduction, in fact, affected returns". 2045
Thus the European Union complains that the Panel provided " no analysis of {Brazil's and the
United States'} arguments, and no explanation , whether reasoned and adequate or otherwise, of its
evidentiary basis."2046
902. Since the project-specific risk premium derive d from risk-sharing suppliers was put forward
by the European Communities, the latter had so me burden to persuade the Panel about its
appropriateness. Moreover, as we explained above, it was reasonable for the Panel to consider that
the risk equation of Airbus' suppliers is likely to be affected by the LA/MSF. While the Panel
expressed its agreement with Brazil and the United States very succinctly, we understand the Panel to

2043The United States provides a similar explanation in its appellee's submission:
... the Panel's finding in this regard is reasonable and uncontroversial—it
found elsewhere that LA/MSF reduced the risk associated with development
of large civil aircraft, and that risk would obviously affect the company's
ability to pay other debt, including risk-sharing supplier financing. Thus,
the risk faced by risk-sharing suppliers financing Airbus would differ
substantially from the risk faced by the governments providing LA/MSF to
Airbus, preventing the use of one as a valid benchmark for the other.
(United States' appellee's submission, para. 222)
2045European Union's appellant's submission, para. 825.
2046European Union's appellant's submission, para. 826. (original emphasis; footnote omitted)
BCI deleted, as indicated [***] WT/DS316/AB/R

have made its assessment on that basis.
2047 The United States made a similar point before the Panel,
arguing that:
{t}his is a logical proposition wh ich the Panel should take into
account in its consideration of the RSS{—risk sharing suppliers—}
benchmark. Contrary to the {European Communities'} suggestion,
the strength of that proposition does not depend on evidence of the
internal decision-making processes of particular suppliers.
2048
903. The European Union points out that Professor Whitelaw responded to Brazil's and the
United States' allegations by pointing out that s uppliers "do not know whether or on what terms"
Airbus will receive the LA/MSF. 2049 In addition, the European Unio n argued that "to the extent that
{risk-sharing suppliers} relied on publicly-available evidence, these suppliers probably shared the
commonly-held view that the subsidy associated with {LA/}MSF loans is de minimis or zero."2050 We
do not consider that this provides a sufficient basis to disturb the Panel's finding. It is implausible that
risk-sharing suppliers were not aware of the possi bility that Airbus would receive LA/MSF given the
publicity surrounding the launch of the A380 project, and considering the evidence on record that
some of the risk-sharing suppliers may have themselves received LA/MSF. 2051 Furthermore, it is not
necessary for the risk-sharing suppliers to have kno wn the exact terms of the LA/MSF or to have
considered the subsidy component of the LA/MSF to be significant. How much of the details the
suppliers knew could be relevant if one wanted to calculate the exact amount by which the LA/MSF
altered the suppliers' risk perception of the A380 project. However, the general expectation that
Airbus would receive LA/MSF for the A380 would have meant that the risk-sharing suppliers
considered the project less risky than it would have been without the LA/MSF.

2047Panel Report, para. 7.480.
2048United States' comments on the European Communities' response to Panel Question 174, para. 45.
2049European Union's appellant's submission, para. 824 (quoting Professor Whitelaw in
European Communities' oral statement at the second Panel meeting (BCI), para. 92).
2050European Communities' response Panel Question 174, para. 67. To support its contention that this
was a "commonly-held view", the European Communities pointed to a single document, a Citigroup report that
speculated about the United States' WTO complaint and obs erved that "we find it hard to see launch aid as a
significant subsidy". The Citigroup re port also said some companies had ma de little use of launch aid in recent
years because of its costs and described German launch aid as not being "generous". ("EADS – Off we go to the
WTO", Citigroup Report (6 October 2004) (Panel Exhibit EC-875), p. 3)
2051Panel Report, para. 7.480.
WT/DS316/AB/R BCI deleted, as indicated [***]

904. At the oral hearing, the European Union emph asized that LA/MSF operates to shift risk from
Airbus to the member State governments, but does not affect the level of overall risk of the project.
As a consequence, the European Union asserts that LA/MSF cannot have altered the risk perception
of risk-sharing suppliers.
2052
905. We are not persuaded by the European Union's ar gument. First, we note that the premise of
the European Union's argument is that LA/MSF does not affect the development and marketing risks
of the LCA project. 2053 Yet, the very purpose of LA/MSF is to provide funding for the development
of an LCA model. 2054 The European Communities pointed out before the Panel that one of the
"outstanding features" of the LCA industry is its "enormous start-up costs for new LCA models" and
emphasized that "{t}he development costs are high and have to be invested a long time before
revenue is generated."2055 LA/MSF provided the financial means to undertake the development of an
LCA project. By providing funding for a significant share of the development costs, LA/MSF makes
it more likely that the project will be developed, and the successful development of a project means
that there will be an LCA to sell, thereby reducin g the marketing risk of the project. Indeed, the
European Communities expressly acknowledged before the Panel that the nature of LA/MSF is to
reduce development and marketing risk.2056
906. Moreover, contrary to what the Europ ean Union argues, LA/MSF does more than
"{a}meliorat{e} the pain of failure for any single participant". 2057 In its argumentation, the
European Union appears to be assuming that de velopment costs funded by the LA/MSF could be
financed by Airbus and thus it is merely a questio n of whether the additiona l financial burden is on
Airbus or on the member State governments. Howe ver, this assumption is contradicted by factual
findings of the Panel. The Panel found that "because of the significant amount of debt that developing
its previous models of LCA would have generated, we consider Ai rbus would not have been in a

2052See also European Union's additional memorandum fo llowing the first session of the oral hearing,
paras. 91 ff.
2053European Union's additional memorandum following the first session of the oral hearing, para. 91.
2054See Panel Report, paras. 7.367 and 7.369.
2055European Communities' first written submission to the Panel, para. 27.
2056European Communities' comments to the United States' response to Panel Question 162, para. 222:
"Nature: Although {LA/}MSF loans reduce development and market risk, the amount of this risk is limited."
2057European Union's additional memorandum following the first session of the oral hearing, para. 96.
BCI deleted, as indicated [***] WT/DS316/AB/R

position to obtain market financing for the A380, had it not financed the development of its earlier
model LCA in significant part through LA/MSF."
2058
907. Therefore, we consider that the Panel had a pr oper basis to conclude that that the rate of
return demanded by the risk-sharing suppliers fo r the A380 was not an appropriate benchmark for
purposes of determining benefit in this case. We agree with the Panel that LA/MSF provided to
Airbus results in a rate of return of the risk-sha ring suppliers that understates the level of risk that
would be factored in by a market lender in the absence of LA/MSF.
908. Another reason that the Panel gave for re jecting the European Communities' proposed
project-specific risk premium concerned the sampling technique used by Professor Whitelaw to derive
it. The European Union criticiz es the Panel for having "failed to consider Professor Whitelaw's
evidence that the sample met the sta ndard statistical tests for adequacy". 2059 We note that the Panel
explained that it was unable to verify Professor Whitelaw's assertion concerning the sample used
"because the European Communities has submitted little if any of the underlying data used in
Professor Whitelaw's calculations."2060 On appeal, the European Union did not refute this, although it
also appears that the Panel did not specifically ask for the data. Yet, the European Union seems to
have expected the Panel to have taken Professor White law's testimony at face value. In our view, the
Panel's expressed preference for verifying the sample was consistent with its duty under Article 11 of
the DSU to make an objective assessment of the facts.
909. Nevertheless, there are other aspects of the Pane l's analysis that are troubling. The Panel
gives no indication as to why it cons idered that the sample size for calculating the rate of return of the
risk sharing suppliers was too small. The size of a sample does not necessarily disqualify it, provided
that the data used in the sample are well chosen . Moreover, as the European Union underscores,
Professor Whitelaw provided explanations to the Pane l on the robustness of the sample. He specified
the number of suppliers included in the sample, and explained that the rate of return could not be
calculated for the rest of the risk-sharing supp liers. Professor Whitelaw added that the sample
represented 42.09% of the value of non-recurring cost s of all A380 risk-sharing supplier contracts.

2058Panel Report, para. 7.1948. The European Union also distinguishes between the launch of an LCA
project and its subsequent development. Based on this distinction, the European Union argues that the LA/MSF
affects the decision to launch an LCA, but does not alter the risks at the development stage. (European Union's
additional memorandum following the first session of the or al hearing, paras. 91 and 99) However, before the
Panel, the European Communities asserted that through the provision of LA/MSF the member State
governments "agree to fund a portion of the development cost of an aircraft that has been launched and is being
actively marketed." It further stated that "{g}overnments generally do not provide this financing until after the
commercial launch of a new aircraft." (European Communitie s' first written submission to the Panel, paras. 302
and 305 (original emphasis))
2059European Union's appellant's submission, para. 798.
2060Panel Report, para. 7.480.
WT/DS316/AB/R BCI deleted, as indicated [***]

He further stated that the standard erro r was 0.87% for a 90% confidence interval.
2061 The Panel
should have, at the very least, provided reasons why it was not persuaded by Professor Whitelaw's
explanations. After questioning the appropriateness of the size of the sample, the Panel went on to
say that "{e}ven on the basis of only the number of risk-sharing supplier contracts actually sampled
we find this to be clearly insufficient to substan tiate the European Communities' assertions in respect
of the appropriate project-specific risk premium." 2062 The Panel provides no explanation for its
conclusion.
910. An additional reason given by the Panel to re ject the European Communities' project-specific
risk premium was that it saw "some logical merit to the United States' arguments suggesting that the
risk-sharing suppliers had incentives to lo wer their expected rates of return". 2063 The European Union
submits that the Panel's statement about suppliers having an incentive to lower their expected rates of
return "appears to be premised on a suggestion that the actions of a market actor that has an existing
business relationship with a company that is alle gedly subsidised cannot serve as a benchmark
because they would somehow be tainted." 2064 Referring to the Appellate Body report in Japan –
DRAMs (Korea) 2065, the European Union contends that, for "risk-sharing supplier agreements
negotiated at arm's length, there is simply no jus tification to conclude that the agreed rates do not
reflect the market." 2066 Thus, the European Union alleges that the "Panel's criticism amounts to an
error in the interpretation and application of Article 1.1(b) of the SCM Agreement."2067

2061See European Communities' oral statement at the second Panel meeting (BCI), paras. 84-88.
2062Panel Report, para. 7.480.
2063Panel Report, para. 7.480.
2064European Union's appellant's submission, para. 811.
2065In particular, the European Union refers to the Appellate Body's statement that: "{w}e also do not
consider that there are different stan dards applicable to inside and to outside investors. There is but one
standard—the market standard—according to which rational investors act". (Appellate Body Report, Japan –
DRAMs (Korea), para. 172)
2066European Union's appellant's submission, para. 811 (referring to Whitelaw Rebuttal Report, supra,
footnote 1964, para. 34; and European Communities' second written submission to the Panel (HSBI Appendix),
paras. 23-25).
2067European Union's appellant's submission, para. 811.
BCI deleted, as indicated [***] WT/DS316/AB/R

911. In addressing the question of whether the risk-s haring suppliers had incentives to lower their
expected rates of return, the Panel summarized the United States' argument as follows:
The Ellis Report also argues that for various reasons, the {IRRs} on
the supplier contracts are typically lo wer than the true expected rates
of return to the suppliers. The Ellis Report bases this view on the
assertion that the expected return on a manufacturing project
typically includes a number of potential sources of return, such as
future business opportunities that incr ease the expected return of the
project above the calculated {IRR} and reduce its risk. Firms also
engage in bidding strategies such th at the price bid for a particular
contract may reflect other opportunities with the same customer.
Also, unlike the capital provided by banks or financial institutions, a
supplier's capital is tied up to the input that the supplier is
manufacturing. Because suppliers have a narrower range of choices
than investors, their required rate of return will be lower than that of
investors.
2068 (footnote omitted)
912. We do not agree with the European Union that the Panel based its conclusion on a distinction
between inside and outside investors, contra ry to the Appellate Body's statement in Japan – DRAMs
(Korea) that such distinction was not "helpful". 2069 Rather, we understand the Panel to have referred
to broader aspects of the relationship between the risk-sharing suppliers a nd Airbus and strategic
considerations that could influence the rate of retu rn of the risk-sharing suppliers. Having said that,
we agree with the European Union that the Panel's an alysis of this particular issue is lacking. The
Panel summarized the United States' argument and o ffers a conclusory statement agreeing with the
United States' position. The Panel, however, provides no explanation for its conclusion and no
indication that it independently assessed th e evidence submitted by the United States. 2070 Nor does
the Panel Report indicate that the Panel considered the rebuttal of the Eur opean Communities or how
the Panel reconciled its conclusion with that evidence. We observe, in this regard, that before the
Panel, the European Communities rejected the proposition that "risk-sharing suppliers are not
fully-fledged market actors". The European Comm unities also rejected the relevance of whether
risk-sharing suppliers "have fewer options for their investment capital than investors such as banks

2068Panel Report, para. 7.476. In a footnote to the Panel statement challenged by the European Union,
the Panel referred to the United States' comments on the European Communities' response to Panel
Question 174. (Ibid., footnote 2712 to para. 7.480) The Panel may have inadvertently placed this footnote at the
end of the wrong sentence. The United States' comments refe rred to the argument that the risk of suppliers was
altered by the LA/MSF given to Airbus.
2069Appellate Body Report, Japan – DRAMs (Korea), para. 172.
2070According to the European Union, "the United States offered no evidence that the sampled risk-
sharing suppliers had actually lowered their returns; it me rely asserted that there were reasons why risk-sharing
suppliers might have reduced their required returns". (European Union's appellant's submission, para. 812.
(original emphasis))
WT/DS316/AB/R BCI deleted, as indicated [***]

and pension funds"
2071 It further argued that there is no "r eason to believe that the prospect of
obtaining future contracts with Airbus would have affected the terms of the supply agreements".2072
913. The United States suggests that the Panel may have found it difficult to explain its assessment
because "most of the relevant information in this respect" was HSBI and "most of the more detailed
discussions between the parties took the form of HSBI". 2073 We have sympathy for the challenges
posed by the HSBI. Yet, the fact that some of the information was designated as HSBI did not
prevent the Panel from summarizing the arguments of the parties. Thus, we are not persuaded that the
HSBI character of the information precluded the Panel from providing an explanation of its
assessment of the arguments and evidence submitted by the parties.
914. A further reason given by the Panel for re jecting the European Communities' proposed
benchmark was that "there is information contai ned in the Airbus A380 business case which suggests
that the risk-sharing participants' involvement in the A380 project may not have been on strictly
market terms for all participants."
2074 In a footnote, the Panel refers to Exhibit EC-362, which is
HSBI, and to Dr. Ellis' assertion that "a number of the suppliers used in the Whitelaw analysis

2071Panel Report, para. 7.478.
2072Panel Report, para. 7.478. The European Communities explained to the Panel that "Airbus SAS
conducts a separate bidding and evaluation process for each {risk-sharing supplier} contract; there are no
'package deals'". It further alleged that risk-sharing suppliers have two additional sources of uncertainty: (i) no
guarantee of being selected for that work package and (ii) no guarantee of obtaining work on future LCA
programmes. Thus, the European Communities asserted that "{t}he notion that a supplier would accept a
below-market return on a long-term contract, in the fain t hope of obtaining work on future contracts (for which
it has no guarantee of selection), is unsupported and speculative." (European Communities' comments on the
United States' response to Panel Question 215, para. 356) Professor Whitelaw, the European Communities'
expert, also testified before the Panel that " there is no aftermarket for the aerostructures developed by the risk-
sharing suppliers whose returns inform the {European Communities'} benchmark. ... {T}hese suppliers develop
products ... that are rarely, if ever, replaced. The risk-sharing suppliers ... are not producing consumables such
as tires and engines, which regularly wear out and gene rate substantial aftermarket sales over the life of an
aircraft." He added that "Airbus risk-sharing suppliers do not have an incentive to reduce their {non-recurring
costs} returns to gain recurring cost ... work or afterm arket sales. To the contrary, .... suppliers have an
incentive to increase their return on {non-recurring costs} at the expense of recurring cost work or aftermarket
sales". (European Communities' oral statement at the second Panel meeting (BCI), para. 97 (original emphasis))
2073United States' appellee's submission, para. 219. Th e United States also argues that its own "ability
to offer any additional evidence demonstrating reduce d risk was of course a result of the European
{Communities'} failure to provide the full information necessary for it do so" and asserts that "{n}either the
Panel nor the United States can be faulted for that". ( Ibid., para. 220) We agree w ith the United States that
neither the Panel nor the United States should be blamed for any failure by the European Communities to
provide information. That is not, however, our concern with the Panel's assessment. Our concern is that there is
no indication that the Panel independently engaged with the information that was submitted by the
European Communities.
2074Panel Report, para. 7.480.
BCI deleted, as indicated [***] WT/DS316/AB/R

received 'launch aid-like financing or other governme nt subsidies which reduces their cost of capital
and therefore the returns required on contracts with Airbus'."
2075
915. On appeal, the European Union asserts that "t here was no evidence that any {LA/}MSF, to
the extent it was, in fact, received {by the risk-sharing suppliers}, was provided on terms that
constitute subsidies".
2076 It further argues that "even if risk-sharing suppliers received {LA/}MSF on
subsidised terms, they had little or no in centive to share any benefit with Airbus". 2077 Referring to the
testimony of Professor Whitelaw, the European Union adds that "even if the entirety of any benefit to
risk-sharing suppliers would be passed through to Airbus, the effect on the expected return was small"
and "below the US project-specific risk premium". 2078 The actual estimate calculated by Professor
Whitelaw is HSBI.
916. The European Union does not contest that some risk-sharing suppliers received LA/MSF.
Instead, the European Union cha llenges the Panel's conclusion as to the impact that the LA/MSF
provided to risk-sharing suppliers has on the rate of return those suppliers demanded to participate in
the A380 project. The European Union is correct that, from an economic perspective, any subsidies
that the risk-sharing suppliers may have received need not have been necessarily passed on to Airbus
in the form of a lower rate of return. Whether any subsidy given to the risk-sharing suppliers passed
through to Airbus would have depended on Airbus' market power or negotiating leverage. The
European Communities' expert, Professor Whitelaw, ra ised this issue before the Panel and asserted
that the risk-sharing suppliers had considerable negotiating power because of their proprietary
technologies and limited number. 2079 Furthermore, Professor Whitelaw provided calculations that
sought to show that any subsidy passed through to Airbus would be very small. There is no indication
that the Panel engaged with this evidence. The Panel summarized the testimony of Professor
Whitelaw, but then agreed with the United Stat es without explaining why it was not persuaded by
Professor Whitelaw's testimony. In our view, the Panel had a duty to explain why it was not
persuaded or how it otherwise re conciled its conclusion with the rebuttal argumentation submitted by
the European Communities.

2075Panel Report, footnote 2713 to para. 7.480 (quoting Response to Whitelaw Report, supra,
footnote 787, p. 24).
2076European Union's appellant's submission, para. 831.
2077European Union's appellant's submission, para. 831.
2078European Union's appellant's submission, para. 831. (original emphasis)
2079At the first meeting with the Panel, the European Communities observed that "the bargaining power
could well lie with the suppliers—not Airbus" and that "many of these suppliers possess unique technology that
makes them the only viable source for certain contracts". (European Communities' closing statement at the first
Panel meeting (BCI), para. 17)
WT/DS316/AB/R BCI deleted, as indicated [***]

917. Finally, the European Union questions the Panel' s statement that the "one contract that the
European Communities has submitted shows that there is at least one major difference between the
repayment terms under this contract and LA/MSF wh ich we believe reduces its relative level of
risk."
2080 The Panel was referring to the Risk-Sharing Supplier Contract Re A380, Exhibit EC-117,
which is HSBI. The main point made by the European Union on appeal is that it provided testimony
by Professor Whitelaw rebutting the notion that any difference in the terms of the contracts would
have resulted in a lower risk for the risk-sharing s uppliers. Like it did for other evidence provided by
the European Communities, the Panel summarized Professor Whitelaw's testimony, but never
engaged with it. We recognize that the HSBI natu re of the evidence would have made it difficult for
the Panel to have provided a full exposition of its r easoning on this point. However, we note that the
Panel also had an obligation to do more than to simply summarize Prof essor Whitelaw's testimony
and refer to the contract in a footnote. The Panel was under an obligation to engage with the evidence
provided by Professor Whitelaw, which was clearly of central importance, and explain why it did not
consider that evidence persuasive, even if it only referred to this evidence in abstract terms.
918. We have identified several flaws in the Panel's analysis of the project-specific risk premium
proposed by the European Communitie s. These flaws concern all but one of the Panel's criticisms of
the European Communities' proposed proxy, namely, the finding that "government support for the
A380 in the form of LA/MSF reduces the level of risk associated with risk-sharing supplier financing,
thereby limiting its comparability with LA/MSF".
2081 The Panel's other criticisms—that is, the
sampling technique used by Professor Whitelaw, the contract submitted by the
European Communities, the risk-sharing suppliers' in centives to lower their exp ected rates of return,
and the impact of any LA/MSF given to the risk-s haring suppliers themselves—do not indicate that
the Panel made an objective assessment of the arguments and evidence submitted by the
European Communities. The Panel summarized th e European Communities' rebuttal arguments and
evidence, but did not engage with them. Nor di d the Panel explain how it reconciled its conclusion
with the rebuttal arguments and evidence. This type of reasoning is not cons istent with the Panel's
duty to make an objective assessment of the facts under Article 11 of the DSU.2082
919. The United States has noted that "a panel is under no obligation—under Article 11 of the
DSU or anywhere else—to discuss in its report each and every argument presented by the parties or,
for that matter, each and every fact to which the parties refer, whether relevant or not". 2083 To support

2080Panel Report, para. 7.480. (footnote omitted)
2081Panel Report, para. 7.480.
2082Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 292.
BCI deleted, as indicated [***] WT/DS316/AB/R

its argument, the United States referred to the following ruling by the Appellate Body in EC –
Poultry:
Just as a panel has the discretion to address only those claims which
must be addressed in order to dispose of the matter at issue in a
dispute, so too does a panel have the discretion to address only those
arguments it deems necessary to resolve a particular claim. So long
as it is clear in a panel report that a panel has reasonably considered a
claim, the fact that a particular argument relating to that claim is not
specifically addressed in the "Findings" section of a panel report will
not, in and of itself, lead to the conclusion that that panel has failed to
make the "objective assessment of th e matter before it" required by
Article 11 of the DSU.
2084 (original emphasis)
920. The problem in this case is that the Panel simply summarized the rebuttal testimony submitted
by the European Communities and did not engage w ith it. The Panel reached conclusions without
explaining how it had taken into account the rebuttal testimony submitted by the
European Communities. There is therefore no indi cation of how the Panel reconciled its conclusion
with the submissions made by the European Communities. Thus, the situation in this case is different
from the situation examined by the Appellate Body in EC – Poultry.
921. The errors that we have identified, however , do not invalidate the Panel's overall conclusion
about the reliability of the project-specific risk pr emium proposed by the European Communities. It
was reasonable for the Panel to conclude that LA /MSF reduces the level of risk of an LCA project
perceived by the risk-sharing suppliers. As a resu lt, risk-sharing suppliers would be expected to
demand a lower rate of return on their participat ion in an LCA project than they would have
demanded in the absence of LA/MSF. Therefore, in our view, deriving the project risk from the rate
of return of the risk-sharing suppliers will under estimate the project risk premium that would be
demanded by a market lender in the absence of LA/M SF. Under Article 1.1(b), interpreted in the
light of Article 14(b) of the SCM Agreement, a benefit is conferred where the amount paid by the
recipient for the government loan is less than what the recipient would have paid on a comparable
commercial loan that it could have actually obtained on the market. Because the rate of return of the
risk-sharing suppliers is distorted by the LA/MSF r eceived by Airbus, it cannot be used to derive a
benchmark that reflects the terms of a comparable commercial lo an that Airbus could have actually
obtained on the market. The rate of return of th e risk-sharing suppliers, and thus the project risk
derived from it, will be lower than that demanded by a market lender in the absence of LA/MSF.

WT/DS316/AB/R BCI deleted, as indicated [***]

922. Accordingly, we reject this aspect of the European Union's appeal and we do not consider that
our concerns with certain aspects of the Panel's reasoning warrant disturbing the Panel's finding that
the project-specific risk premium proposed by the European Union underestimates the appropriate
level of project-specific risk associated with the challenged LA/MSF measures.
2085
(i) Conclusion on the Panel's finding of benefit
923. In subsection (g) above, we ha ve found that the Panel did not make an objective assessment
of the facts under Article 11 of the DSU when it de termined that the project-specific risk premium
proposed by the United States constituted the mini mum project-specific risk premium for the A300
and A310 projects, the external upper boundary of the range for the project-specific risk premium for
the A320, A330/A340, A330-200, and A340-500/600 pr ojects, and the internal upper boundary of the
range for the project-specific risk premium determined for the A380 project. We have also found, in
subsection (h), aspects of the Panel's reasoning concerning the project-specific risk premium proposed
by the European Communities to be inconsistent wi th Article 11 of the DSU. However, we upheld
the Panel's conclusion that the European Commu nities' proposed project-specific risk premium
understates the risk premium that a market operato r would have reasonably demanded Airbus pay for
financing on the same or similar terms as LA/MSF for the A380. 2086 The question that arises is: how
do our findings affect the Panel's ultimate conclu sion that the LA/MSF measures confer a benefit
within the meaning of Article 1.1(b) of the SCM Agreement?
924. As described earlier, the Europ ean Communities did not contest before the Panel the first two
components of the formula used by Dr. Ellis to cal culate the proxy put forward by the United States
—that is, the government borrowing rate and the genera l corporate risk premium. We note that, even
leaving aside the project-specific risk premium, the rates of return obtained by the member States on
all but two of the challenged LA/MSF measures ar e below a benchmark composed of only these two
components.2087 In other words, there is a positive spread, and consequently a benefit, with respect to
all but two of the challenged LA/MSF measures even if the project-specific risk premium is set at
zero. This is illustrated in Table 3, which shows the rates of return of each of the challenged LA/MSF
measures as determined by the Pa nel (column 1), the market benchmark that would result by adding
the corporate risk premium to the government borrowing rates (column 2), and the difference between

2085Panel Report, para. 7.479.
2086Panel Report, paras. 7.479 and 7.481.
2087We also recall the Panel's finding that, "even re lying on the European Communities' own estimates
of the rates of return and market interest rate benchmarks , it is clear that the financial contributions provided in
the form of LA/MSF conferred a benefit on Airbus." (Panel Report, para. 7.490 (footnote omitted))
Furthermore, we note that the European Union did not submit an alternative project risk premium for the A300
and A310 projects during the Panel proceedings. (Ibid., para. 7.485)
BCI deleted, as indicated [***] WT/DS316/AB/R

the two figures (column 3 = column 2 – column 1). With two exceptions, column 3 shows that the
market benchmark (even excluding the project-specifi c risk premium) would have been higher than
the rates of return obtained by the member State governments.
Table 3. LA/MSF rates of return
1 2 3

LA/MSF contract
LA/MSF
rate of return
Market benchmark
(gr + cr)
pr = 0
Spread
(positive = benefit)
A300 0% n/a > 0
A310 0% n/a > 0
A320 [***%] [***%] [***%]
A330/A340 [[HSBI]] [***%] > 0
A330-200 [***%] [***%] [***%]
A340-500/600 [***%] [***%] [***%]
FRANCE
A380 [***%] [***%] [***%]
A300 0% n/a > 0
A310 0% n/a > 0
A320 [***%] [***%] [***%]
A330/A340 [***%] [***%] [***%]
GERMANY
A380 [***%] [***%] [***%]
A300 0% n/a > 0
A310 0% n/a > 0
A320 [***%] [***%] [***%]
A330/A340 [***%] [***%] [***%]
A340-500/600 [***%] [***%] [***%]
SPAIN
A380 [***%] [***%] [***%]
A320 [***%] [***%] [***%]
A330/A340 [***%] [***%] [***%]
UK
A380 [***%] [***%] [***%]
Source: Panel Report (BCI), para. 7.488, Table 7; Panel Exhib it EC-597 (HSBI) "Measurement of Internal Rates of Return
on MSF Agreements" (chart); Panel Exhibit EC-11 (HSBI/BCI) "Economic Assessment of Member State Financing" Expert
statement of Robert Whitelaw, NYU-STERN.

925. As for the two LA/MSF measures for which the ra tes of return obtained by the Member state
governments are higher than the government borrowing rate plus the general corporate risk (namely
the French LA/MSF for the A330-200 and the UK LA/MSF for the A380), they yield a positive
spread2088 once the project-specific risk premium proposed by the European Communities is

2088By "spread", we refer to the difference between the market benchmark and the rate of return of the
member State governments.
WT/DS316/AB/R BCI deleted, as indicated [***]

considered. Put differently, the rates of retu rn obtained on these two LA/MSF measures are lower
than a benchmark calculated using the project-sp ecific risk premium derived by Professor Whitelaw
and submitted by the European Communities to the Panel as an appropriate proxy for the project-
specific risk premium for the A320, A330/A340, A330-200, A340-500/600, and A380 projects. We
further note that the Panel made the alternative finding that "even relying on the
European Communities' own estimates of the rates of re turn and market interest rate benchmarks, it is
clear that the financial contributions provided in the form of LA/MSF conferred a benefit on
Airbus."
2089
926. At the oral hearing, the European Union seeme d to step back from its position taken before
the Panel2090 that the project-specific risk premium deri ved by its expert, Professor Whitelaw, applied
not only to the A380 project, but also to th e A320, A330/A340, A330-200, and A340-500/600 LCA
projects.2091 The European Union suggest ed that the risk premium for these LCA projects could be
lower than the risk premium calculated by Prof essor Whitelaw. This also represented a departure
from the European Union's position in its appellant's submission, wh ich only called into question the
benefit finding for the French LA/MSF for the A330-200. 2092 A claim under Article 11 is concerned
with a panel's reasoning based on the record as it st ands. The Appellate Body examines the issues of
law raised by an appellant in the light of the ev identiary record of the panel proceedings and the
factual findings of the Panel. New assertions of fa ct or expert opinion cannot be introduced at the
appellate stage. Even if it were permissible to raise new facts, we do not see on what basis the prior
factual statements by the European Communities woul d no longer hold true. The evidentiary record
in this case indicates that the Eu ropean Communities agreed that a market lender would have
demanded a rate of return for the A320, A330/A 340, A330-200, and A340-500/600 LCA projects that
was not lower than the rate calculated by Pr ofessor Whitelaw on the basis of the risk-sharing
suppliers. We reiterate that the Panel found that the rate of return expected by the member State
governments under the LA/MSF measures provided to the A320, A330/A340, A330-200, and
A340-500/600 LCA projects are in all cases lower than the benchmark calculated by Professor
Whitelaw.2093

2089Panel Report, para. 7.490.
2090In Whitelaw Report, supra, footnote 1881, paras. 39 and 40 and Exhibit 3 thereto.
2091The European Union stood by the project-specific risk premium ca lculated by Professor Whitelaw
in relation to the assessment of benefit for the LA/MSF provided to the A380.
2092European Union's appellant's submission, para. 790 (referring to Panel Report, paras. 7.489
and 7.490).
2093We further note that Table 7 of the Panel Re port shows that, except for two of the LA/MSF
measures, the rate of return obtained by the member State governments was lower than the rate of return that
would have been demanded by a market lender even with the project-specific risk set at zero.
BCI deleted, as indicated [***] WT/DS316/AB/R

927. In addition, we recall that, although we have found several flaws in the Panel's analysis of
Professor Whitelaw's project-specific risk premium, we have upheld the Panel's conclusion that this
risk premium underestimates the level of risk. Thus, the appropriate level of risk premium for these
projects is somewhere above the level calculated by Professor Whitelaw. Since the appropriate
project-specific risk premia—and consequently the rate of return that would have been demanded by a
market lender—are higher than the level calcula ted by Professor Whitelaw and submitted by the
European Communities, it necessarily follows that the LA/MSF measures were provided at a rate of
return that was below the market benchmark and, consequently, conferred a benefit.
928. Finally, we note that in its appellant's subm ission, the European Union conceded that other
than the French LA/MSF for the A330-200, reversal of the Panel's assessment "would not, however,
constitute a reversal of the Panel's finding that the {LA/}MSF loans at issue confer a benefit, within
the meaning of Article 1.1(b) of the SCM Agreement, and thus constitute subsidies".
2094 As indicated
above, the Panel found with regard to the French LA/MSF for the A330-200 that the rate of return
obtained by the French government is below a be nchmark calculated using the project-specific risk
premium derived by Professor Whitelaw and whic h the European Communities argued before the
Panel was appropriate for purposes of the assessment of benefit of that LCA project. We have
explained above why it would be improper for us to undertake our assessment on a different basis.2095
Consequently, there is no reason for us to interfere with the Panel's finding that the French LA/MSF
provided to the A330-200 conferre d a benefit within the meaning of Article 1.1(b) of the
SCM Agreement.
929. For these reasons, we uphold the Panel's findings, in paragra phs 7.489 and 7.490 of the Panel
Report, that the challenged LA/MSF measures confer a benefit within the meaning of Article 1.1(b) of
the SCM Agreement. As the European Union has not challe nged on appeal the Panel's findings that
these measures constitute financial contributions unde r Article 1.1(a) or the Panel's analysis of
specificity under Article 2, the Panel's conclusi on that "each of the ch allenged LA/MSF measures
constitutes a specific subsidy within the meaning of Articles 1 and 2 of the SCM Agreement"
stands.
2096

2094European Union's appellant's submission, para. 790 (referring to Panel Report, paras. 7.489
and 7.490).
2095See supra, para. 926.
2096Panel Report, para. 8.1(a)(i).
WT/DS316/AB/R BCI deleted, as indicated [***]

4. The Panel's Statement about the Relevance of the Number of Sales over
which Full Repayment is Expected
930. The Panel stated, in paragraph 7.397 of its Re port, that "the number of sales over which full
repayment is expected says little, if anything, about th e appropriateness of the rate of return that will
be achieved by the lender". 2097 To the extent that the Appellate Body considers this statement a
finding, the European Union seeks its review by th e Appellate Body. The European Union submits
that the Panel's statement "flies in the face of ec onomic logic" because "it is inconceivable that the
number of sales for repayment does not affect the risk of non-repayment of the {LA/}MSF loan in
question."2098 In addition, the European Union asserts that the Panel's statement "is in contradiction
with the Panel's earlier conclusion ... when it accepts that an unreasonable repayment forecast may
signal that a loan confers a benefit." 2099 The European Union further argues that the Panel's approach
is "contradicted by its approach to other arguments concerning {LA/}MSF". 2100 Moreover, the
European Union notes that the Panel accepted "that many sorts of circumstances external to the
provisions of an {LA/}MSF contract will have an imp act on the appropriateness of the rate of return",
yet as regards the level of the sales forecast for re payment, which the European Union describes as
"one of the key elements of the terms and condition{s} of the {LA/}MSF contract itself for determining
the level of risk", the Panel concluded that it "will have little, if any, impact on the appropriateness of
the rate of return".2101
931. The United States does not consider that the Panel erred in making the statement challenged
by the European Union. According to the United States, the Panel was "correct in finding that a
reasonable payment forecast sheds little li ght on the appropriate rate of return". 2102 The United States
explains that "a reasonable forecast in no way eliminates the risk implicit in long-term, extraordinarily
costly financing".2103
932. The statement that the European Union is challenging was made by the Panel in the context of
examining the European Communities' argument that the "reasonableness of the repayment forecasts"

2097European Union's appellant's submission, para. 842. The European Union "acknowledges that the
Panel's consideration of this issue did not affect the Panel's conclusion since it aimed to compare {LA/}MSF
with loans having the same or similar conditions, including a comparable schedule of repayment". ( Ibid.,
para. 841)
2098European Union's appellant's submission, para. 843.
2099European Union's appellant's submission, para. 844. (original emphasis)
2100European Union's appellant's submission, para. 845.
2101European Union's appellant's submission, para. 846. (original emphasis)
2103United States' appellee's submission, para. 225. (emphasis omitted)
BCI deleted, as indicated [***] WT/DS316/AB/R

is the "decisive factor" for determining whether certain LA/MSF measures conferred a benefit.
2104
The European Communities had argue d before the Panel that footnote 16, which is attached to
Article 6.1(d) of the SCM Agreement, supports the view that "the drafters of the SCM Agreement
looked at the level of forecast sales as the d ecisive factor of royalty-based financing." 2105
Article 6.1(d) and footnote 16 provide:
Serious prejudice in the sense of pa ragraph (c) of Article 5 shall be
deemed to exist in the case of: ...
(d) direct forgiveness of debt, i.e. forgiveness of government-
held debt, and grants to cover debt repayment.16
16Members recognize that where royalty-b ased financing for a civil aircraft
programme is not being fully repaid due to the level of actual sales falling
below the level of forecast sales, this does not in itself constitute serious
prejudice for the purposes of this subparagraph.
933. The full paragraph of the Panel Report wh ich includes the statement with which the
European Union takes issue is reproduced below:
At most, we consider that the language of footnote 16 may be read to
imply that when actual aircraft sales do not fall below the level of
forecast sales under a royalty-based financing instrument (i.e., the
situation the European Communities suggests evidences the existence
of a "reasonable repayment forecast"), it would be inaccurate to
characterise that instrument as pr oviding for direct forgiveness of
debt. However, this is not the same as saying that all instances of
royalty-based financing granted on the basis of a "reasonable
repayment forecast" do not confer a benefit within the meaning of

2104Panel Report, para. 7.390. The European Communities explained the logic of its position as
follows:
Reasonable forecasts inform the analys is whether the repayment provisions
confer a benefit on the recipient or no t. If repayment provisions are based
on reasonable forecasts, they ensure a high probability that {LA/}MSF loans
are fully paid back, thereby reducing the element of risk to be factored into
the terms and conditions of the contract, including the rate of return.
(European Communities' response to Panel Question 62, para. 45)
 The "reasonableness" standard put forward by the European Communities is tied to the 1992
Agreement, which states in Article 4(1):
Governments shall provide support for the development of a new large civil
aircraft programme only where a criti cal project appraisal, based on
conservative assumptions, has establis hed that there is a reasonable
expectation of recoupment, within 17 years from the date of first
disbursement of such support, of all costs as defined in Article 6(2) of the
Aircraft Agreement, including repayment of government supports on the
terms and conditions specified below.
2105European Communities' first written submission to the Panel, para. 455. The
European Communities acknowledged that footnote 16 "is not directly linked to the determination of a subsidy
under Article 1" but considered that it nevertheless "indirectly supports the view that the forecast and repayment
mechanism of this instrument is at the heart of any legal assessment under the SCM Agreement ".
(European Communities' response to Panel Question 63, para. 55 (original underlining))
WT/DS316/AB/R BCI deleted, as indicated [***]

Article 1.1(b) of the SCM Agreement. In our view, a reasonable
repayment forecast, in the terms advanced by the
European Communities—i.e., a reasonable number of sales over
which a market lender could expect full repayment of loaned
principal plus interest – cannot al one be determinative of whether a
royalty-based financing instrument (in this case LA/MSF) confers a
benefit for the purpose of the SCM Agreement. While we can accept
that an unreasonable repayment forecast may signal that a loan
confers a benefit, we do not belie ve the opposite will necessarily be
the case when LA/MSF is gr ounded on a reasonable repayment
forecast. This is because the number of sales over which full
repayment is expected says little, if anything, about the
appropriateness of the rate of return that will be achieved by the
lender.
2106 (original emphasis; footnote omitted)
934. The European Union has not appealed the Pa nel's findings concerning the relevance of
footnote 16, nor does it seek review of the Panel's rejection of the reasonableness of the forecast as the
"decisive factor" for the determin ation of benefit. The European Union's request is focused
exclusively on the last sentence in the paragraph reproduced above.
935. In subsection 3(a) above, we observed that the assessment of benefit under Article 1.1(b) of
the SCM Agreement calls for a comparison of the terms and conditions of the LA/MSF measures with
the terms and conditions that would have been of fered on the market at that time the challenged
2107 Where, as in the case of the LA/MSF measures, the re-payment
of a loan depends on the number of sales, the expected number of sales will be a fundamental element
in the computation of the rate of return of the loan. This is because the rate of return is a function of
the number of sales that are forecast. Although th e Panel's reasoning is not altogether clear, we
understand the Panel to have taken an ex ante approach to the calculation of the rates of return of the
member State governments, that is, the Panel calculated the rates of re turn expected at the time the
LA/MSF measures were provided. The European Uni on and the United States confirmed at the oral
hearing that they too understand the Panel as having taken an ex ante approach.
936. The Panel did not explain why it considered that "the number of sales over which full
repayment is expected says little, if anything, about th e appropriateness of the rate of return that will
be achieved by the lender". It may be that what the Panel meant is that the number of sales over
which repayment is expected is not dispositive of the question of whether the rate of return
demonstrates that the loan confers a benefit. Unde rstood in this way, the statement would be correct
given that the assessment of benefit would require a comparison with the rate of return that would

2106Panel Report, para. 7.397.
2107The European Union and the United States agreed w ith this approach at the first session of the
substantive oral hearing.
BCI deleted, as indicated [***] WT/DS316/AB/R

have been demanded by a market lender.
2108 The Panel's statement, however, can also be understood
to suggest that the number of sales is irrelevant to the calculation of the rate of return of the member
State governments. As we explained above, this would be incorrect. Given the potential that the
Panel's statement could be misused in the future, we reverse this statement.
A. The EC Framework Programmes
937. We now turn to the European Union's appeal of the Panel's finding that certain R&TD grants
provided to Airbus pursuant to the Second (1987-1991), Third (1990-1994), Fourth (1994-1998), Fifth
(1998-2002), and Sixth (2002-2006) EC Framework Pr ogrammes were "specific" within the meaning
of Article 2.1(a) of the SCM Agreement. We first provide a summary of the Panel's findings in
respect of these measures before assessing the European Union's claims on appeal.
2109
1. The Panel's Findings
938. The Panel explained at the outset that it was focusing its evaluation on the United States'
claims that the challenged grants were specific with in the meaning of subparagraph (a) of Article 2.1
of the SCM Agreement. According to the Panel, a finding of sp ecificity under Article 2.1(a) "requires
the establishment of the existence of a limitation that expressly and unambiguously restricts the
availability of a subsidy to 'certain enterprises', and thereby does not make the subsidy 'sufficiently

2108The European Communities acknowledged before the Panel that "reas onable forecasts alone do not
make an {LA}/MSF loan subsidy-free". Instead, the European Communities explained the relevance of the
forecasts as follows:
However—and this is our point—where forecasts are reasonable, the risk
for a government not to recoup its capital is significantly lower. That again
reduces the need to ask for a high risk-premium. If they get this element of
an {LA/}MSF loan right, governments will eliminate a good deal of risk at
the outset and be well on the way to ensuring full repayment of {LA/}MSF.
Let me explain this point in more detail.
The European Communities has never pretended that the fact that the
repayment target for sales is set at a conservative level is by itself sufficient
demonstration of the absence of a subsidy. Clearly, there has to be an
adequate return for the government which covers the cost of raising the
money plus a reasonable premium for the risk of non-repayment. ...
However, the European Communities insists that if the repayment target is
set for a sufficiently low number of sales, thus removing most of the risk of
non-repayment, then the government, as a responsible investor, is entitled to
take its own view of the remaining risk and to set the interest rate
accordingly.
(European Communities' oral statement at the second Panel meeting, paras. 83-85 (original italics and
boldface))
2109Although relevant details concerning the EC Fram ework Programmes are set out in this section of
our Report, we note that Part IV contains a more detailed description of the challenged measures.
WT/DS316/AB/R BCI deleted, as indicated [***]

broadly available throughout an economy'."
2110 The Panel examined the EC Decisions that
established each of the EC Framework Programmes and each of the "specific programmes" 2111
adopted for the purposes of implementation. The Pa nel found that these EC Decisions constituted the
"legal regime" for the granting of R&TD funding under the EC Framework Programmes. 2112 T h e
Panel observed that the EC Decision establishi ng each EC Framework Programme set out overall
guidelines, but did not indicate how funds aut horized under the programme could be accessed by
individual applicants; rather, the Panel found th at the detailed rules and methodologies for the
distribution of funds were set out in the EC Decisions concerning the "specific programmes". 2113
Thus, although the Panel found that the overall aims of each EC Framework Programme "were
expressed in terms of advancing EC R&TD activities in general", the Panel considered that "the legal
regimes giving effect to these objectives did so, at least partly, by channelling dedicated amounts of
funding to sector-specific research areas that were implemented in accordance with specific work
programmes".2114
939. In respect of the challenged grants, the Panel noted that an amount of funding dedicated to
research for "aeronautics" or "aeronautics and sp ace" was provided for under each of the relevant
EC Framework Programmes. 2115 The Panel stated that the effect of creating such allocations was
"equivalent to setting aside a portion of a budget that is ostensibly intended to fund research activities
in all sectors of the economy for the sole purpose of the research efforts of enterprises or industries
active in the aeronautics sector". 2116 In doing so, the Panel added, "the legal regimes under which the
European Commission operated, explicitly limited acces s to a dedicated portion of the subsidy grants
made available under the Framework Programmes to only those enterprises or industries undertaking
research in the field of aeronautics." 2117 This, the Panel maintained, created "a closed system of
subsidization that focused on 'aeronautics' or 'aeronautics and space'".2118
940. The Panel considered that "the allocation of funds to certain exclusive research activities
under an umbrella subsidy programme is not incomp atible with Article 2.1(a), provided that
the availability of those funds is not e xplicitly limited to certain enterprises." 2119 T h e P a n e l
concluded, however, that the evidence before it indicated that "amounts of subsidization were

2110Panel Report, para. 7.1512. (footnote omitted)
2111Panel Report, paras. 7.1517, 7.1526, 7.1536, 7.1546, 7.1547, and 7.1557.
2112Panel Report, para. 7.1562.
2113Panel Report, paras. 7.1517, 7.1526, 7.1536, 7.1546, 7.1547, and 7.1557.
2114Panel Report, para. 7.1563 (referring to paras. 7.1518, 7.1527, 7.1537, 7.1547, and 7.1558).
2115Panel Report, para. 7.1563 (referring to paras. 7.1519, 7.1528, 7.1538, 7.1548, and 7.1559).
2116Panel Report, para. 7.1563.
2117Panel Report, para. 7.1563.
2118Panel Report, para. 7.1563.
2119Panel Report, para. 7.1566. (emphasis omitted)
BCI deleted, as indicated [***] WT/DS316/AB/R

explicitly set aside under each of the relevant Fr amework Programmes for the research efforts of
'certain enterprises'."
2120 The Panel therefore found that R&TD subsidies granted to Airbus under
each of the Framework Programmes were specific within the meaning of Article 2.1(a) of the
SCM Agreement.
2. The Interpretation of Specificity under Article 2.1 of the SCM Agreement
941. We begin our analysis by examining Article 2.1 of the SCM Agreement, which sets out the
core requirements for specificity:
2.1 In order to determine whether a subsidy, as defined in
paragraph 1 of Article 1, is specific to an enterprise or industry or
group of enterprises or industries (referred to in this Agreement as
"certain enterprises") within the jurisdiction of the granting authority,
the following principles shall apply:
(a) Where the granting authority, or the legislation pursuant to
which the granting authority opera tes, explicitly limits access to a
subsidy to certain enterprises, such subsidy shall be specific.
(b) Where the granting authority, or the legislation pursuant to
which the granting authority operates, establishes objective criteria or
conditions
2 governing the eligibility for, and the amount of, a
subsidy, specificity shall not exist, provided that the eligibility is
automatic and that such criteria and conditions are strictly adhered to.
The criteria or conditions must be clearly spelled out in law,
regulation, or other official document, so as to be capable of
verification.
(c) If, notwithstanding any appearance of non-specificity
resulting from the application of the principles laid down in
subparagraphs (a) and (b), there are reasons to believe that the
subsidy may in fact be specific, other factors may be considered.
Such factors are: use of a subsidy programme by a limited number of
certain enterprises, predominant use by certain enterprises, the
granting of disproportionately large amounts of subsidy to certain
enterprises, and the manner in which discretion has been exercised by
the granting authority in the decision to grant a subsidy.
3 In applying
this subparagraph, account shall be taken of the extent of
diversification of economic activiti es within the jurisdiction of the
granting authority, as well as of the length of time during which the
subsidy programme has been in operation.
2Objective criteria or conditions, as used herein, mean criteria or conditions
which are neutral, which do not favour certain enterprises over others, and
which are economic in nature and horizontal in application, such as number
of employees or size of enterprise.

2120Panel Report, para. 7.1566.
WT/DS316/AB/R BCI deleted, as indicated [***]

3In this regard, in particular, information on the frequency with which
applications for a subsidy are refused or approved and the reasons for such
decisions shall be considered.
942. The Appellate Body recently addressed certain relevant issues regarding the interpretation of
Article 2.1 of the SCM Agreement in US – Anti-Dumping and Countervailing Duties (China). It noted
that the chapeau of Article 2.1 frames the central i nquiry as a determination as to whether a subsidy is
specific to "certain enterprises" w ithin the jurisdiction of the granti ng authority, and that "certain
enterprises" refers to a single enterprise or industr y or a class of enterprises or industries that are
known and particularized. 2121 The Appellate Body further noted that the use of the term "principles"
in the chapeau—instead of, for in stance, "rules"—suggests that subparagraphs (a) through (c) are to
be considered within an analy tical framework that recognizes and accords appropriate weight to each
principle. As a result, the application of one of the subparagraphs of Article 2.1 may not by itself be
determinative in arriving at a conclusion that a particular subsidy is or is not specific.2122
943. The Appellate Body also observed that subpara graphs (a) and (b) of Article 2.1 set out
indicators as to whether the conduct or instrument s of the granting authority discriminate or not.
Subparagraph (a) identifies circumstances in wh ich a subsidy is specific because it describes
limitations on eligibility that favour certain en terprises; whereas subparagraph (b) establishes
circumstances in which a subsidy shall be regard ed as non-specific because it describes criteria or
conditions that guard against selective eligibility. 2123 At the same time, subparagraphs (a) and (b)
identify certain common elements in the analysis of the specificity of a subs idy. For instance, the
reference in both provisions to "the granting auth ority, or the legislation pursuant to which the
granting authority operates" was viewed as critical because it situates the analysis for assessing any
limitations on eligibility in the particular legal instrument or government conduct effecting such
limitations. This also suggests a focus on whether ce rtain enterprises are eligible for the subsidy, not
on whether they in fact receive it. 2124 In addition, because both provisions turn on indicators of
eligibility for a subsidy, there may be situations in which assessing the eligibility for a subsidy will
give rise to indications of specificity and non-specific ity as a result of the application of Article 2.1(a)
and (b).2125

2121Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), paras. 366 and 373.
2122Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 366.
2123Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 367.
2124Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 368.
2125Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 369.
BCI deleted, as indicated [***] WT/DS316/AB/R

944. As the Appellate Body further noted, subpara graph (c) of Article 2.1 provides that,
"notwithstanding any appearance of non-specificity resulting from the application of the principles
laid down in subparagraphs (a) a nd (b)", other factors may be considered if there are reasons to
believe that a subsidy may, in fact, be specific in a particular case. The reference in Article 2.1(c) to
"any appearance of non-specificity" supports the view that the conduct or instruments of a granting
authority may not clearly satisfy the eligibility requirements of Article 2.1(a) or (b), but may
nevertheless give rise to specificity in fact. Since an "appearance of non-specificity" under
Article 2.1(a) and (b) may still result in specificity in fact under Article 2.1(c), this reinforces the view
that the principles in Article 2.1 are to be interpreted together.
2126
945. The Appellate Body concluded in US – Anti-Dumping and Countervailing Duties (China) that
a proper understanding of specificity under Article 2. 1 must allow for the concurrent application of
the principles set out in that Article to the various legal and factual aspects of a subsidy in any given
case. While there may be instances in which the evidence under consideration unequivocally
indicates specificity or non-specificity under one of the subparagraphs of Artic le 2.1, the Appellate
Body cautioned against examining specificity on th e basis of the application of a particular
subparagraph of Article 2.1, when the potential for application of other subparagraphs is warranted in
the light of the nature and content of measures challenged in a particular case.2127
3. The Panel's Assessment under Article 2.1 of the SCM Agreement
946. The European Union maintains on appeal th at, because the reference to "subsidy" in
Article 2.1(a) must mean the subsidy programme as a whole, the Panel was required to rely on each
EC Framework Programme as a whole as the be nchmark for determining the existence of

2126Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 370.
2127Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China) , para. 371. We
consider that a failure properly to interpret Article 2.1 creates the potential fo r aberrant results. The
European Union warns that the term "subsidy" in Article 2.1(a) must refer to the entire programme pursuant to
which a subsidy is granted, and that conducting the sp ecificity analysis "below the level of the subsidy
programme as a whole will, at a certain level, inevita bly indicate specificity". (European Union's appellant's
submission, para. 1188) The European Union adds that it is pointless to refer to the individual subsidy
transaction as a benchmark since each individual grant is , by definition, limited to a single recipient. The
European Union also posits the scenario in which a subs idy programme would escape a finding of specificity if
it allocated funding to generic research "even if the granting government decided (but did not make public) that
100% of the funding of such an ap parent generic research would benefit aeronautics and space, and this turns
out to be the case". (Ibid., para. 1192) We do not consider that either result follows from a proper understanding
of Article 2.1. Any grant, even at the level of the individual subsidy transaction, may be found not to be specific
if administered in accordance with objective criteria or conditions within the meaning of Article 2.1(b).
Likewise, even where there is an appearance of non-sp ecificity, subsidies benefiting certain enterprises by
means of non-transparent government conduct could still properly be found to be specific in fact by virtue of the
"other factors" prescribed by Article 2.1(c).
WT/DS316/AB/R BCI deleted, as indicated [***]

specificity.
2128 The European Union thus considers that specificity does not result from the allocation
of funding to aeronautics-related research becau se each EC Framework Programme as a whole
establishes "a broad-based allocation that ensures equal access to a wide range of sectors and
enterprises".2129 As the European Union explains:
While it is true that the funding amounts so allocated could not be
accessed by entities seeking support for types of R&TD projects
other than those concerning aeronautics, it is equally true that entities
involved in aeronautics-related R&TD projects could not access
funds under the remainder (and therefore the great majority) of the
Framework Programme budgets.
2130
947. The United States disagrees with the European Union's contention that, because support to
Airbus is organized under the EC Framework Programme s, the analysis of specificity must occur at
that level. The United States argues that, under such an approach, "the bureaucratic organization of
subsidy programs, rather than the substance of how they limit funding, dictates whether they are
specific."2131 The United States further maintains that the facts do not support, and the Panel findings
contradict, the European Union's contention "t hat the Framework Programmes were non-specific
because companies in all sectors, including the aerosp ace sector, faced the same situation of access to
sector-specific funds but exclusion from other funds".2132
948. We do not consider that the European Uni on's characterization of the EC Framework
Programmes is supported by the Panel's findings. As the Panel stated, each of the EC Framework
Programmes appears to divide up funding into those research areas that are sector-specific—such as
the allocations to "aeronautics" and "aeronau tics and space"—and those that are "of a general
horizontal nature, potentially cutting acr oss a variety of business segments". 2133 Thus, each
EC Framework Programme targets funding to economic activities "at both horizontal and sector-
specific levels".
2134 In the light of these findings, we do not find support for the contention that
entities involved in aeronautics-related R&TD coul d not access funding under the remainder of the
EC Framework Programme budgets , and therefore do not consider that the EC Framework
Programmes ensured "equal access" to funding.2135

2128European Union's appellant's submission, paras. 1185-1187.
2129European Union's appellant's submission, para. 1189.
2130European Union's appellant's submission, para. 1189.
2133Panel Report, paras. 7.1515, 7.1524, 7.1534, 7,1544, and 7.1554.
2134Panel Report, paras. 7.1517, 7.1526, 7.1536, 7,1546, and 7.1557.
2135European Union's appellant's submission, para. 1189.
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949. Moreover, we do not consider that explicit lim itations on access to a subsidy to entities active
in one sector of the economy will produce a different result under Article 2.1(a) by virtue of the fact
that separate groupings of entiti es have access to other pools of funding under that programme.
Certainly, if access to the same subsidy is limited to some grouping of enterprises or industries, an
investigating authority or panel would be required to assess whether the eligible recipients can be
collectively defined as "certain enterprises". Where access to certain funding under a subsidy
programme is explicitly limited to a grouping of enterprises or industries that qualify as "certain
enterprises", this in our view leads to a provisiona l indication of specificity within the meaning of
Article 2.1(a), irrespective of how other fundi ng under that programme is distributed. The
European Union does not challenge the Panel's conc lusion that the entities eligible for R&TD grants
in the aeronautics sector may be consider ed to constitute "certain enterprises".
2136 We also consider
that, on the basis of the evidence before it, the Pane l could properly have concluded that those eligible
to receive funding allocated to research in the aeronautics sector qualified as "certain enterprises". 2137
For these reasons, we see no grounds to disturb th e Panel's conclusion that the evidence before it
"indicate{d} that amounts of subsidization were explicitly set aside under each of the relevant
Framework Programmes for the research efforts of 'certain enterprises'."2138
950. It may be that a provisional indication in r espect of specificity within the meaning of
Article 2.1(a) will require further analysis under Ar ticle 2.1(b). As the Appellate Body stated in US –
Anti-Dumping and Countervailing Duties (China) , "an initial indication of specificity under
Article 2.1(a) may need to be considered further if additional evidence demonstrates that the subsidy
in question is available on the basis of objectiv e criteria or conditions within the meaning of
Article 2.1(b)."2139 We note that, in this case, neither party advanced arguments before the Panel
concerning the applicability of Article 2.1(b) to the EC Framework Programmes.2140
951. We do not consider that the Panel record calls for a review of objective criteria or conditions
within the meaning of Article 2.1(b). The funding at issue in this dispute was granted pursuant to a

2136At the oral hearing, the European Union acknowledged its argument before the Panel that some of
the funding for aeronautics-related research activities went to research institutes an d universities. (See Panel
Report, para. 7.1511) The European Union did not, however, provide a basis for distinguishing between those
recipients and aeronautics co mpanies, or identify other recipients th at were not aeronautics companies, in a
manner that would support the argument that those eligible for such research funding did not qualify as "certain
enterprises".
2137This finding of the Panel is to be contrasted with its assessment of loans provided by the EIB, where
the Panel found that "the wide array of economic sectors covered by the EIB's explicit lending objectives means
that its operations are expressly intended to benefit recipients well beyond a particular enterprise or industry or
group of enterprises or industries." (Panel Report, para. 7.931)
2138Panel Report, para. 7.1566.
2139Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 369.
2140Panel Report, paras. 7.1505-7.1511.
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legal regime consisting of at least four layers of authorizing documents. As the Panel explained, for
each EC Framework Programme there is an EC Decision setting out the overall guidelines for the
programme, as well as separate EC Decisions establishing the "specific programmes" that implement
each EC Framework Programme. In addition, the Pa nel noted that funding allocated to aeronautics
research is also implemented in accordance with sp ecific "work programmes", and that certain work
programmes were administered through project-specific "calls for proposals".
2141 During the oral
hearing, the participants confirmed that the Pane l record did not contain any documents setting out
criteria and conditions for eligibility for aeronautics research funding. In the absence of arguments or
evidence reflecting the existence of objective criteri a or conditions in respect of R&TD grants for
aeronautics research, we do not see that application of Article 2.1(b) to the challenged measures alters
the analysis in respect of specificity. Finally, b ecause the foregoing analysis does not give rise to an
"appearance of non-specificity", we do not consider that further analysis under Article 2.1(c) is
warranted.
952. For these reasons, we do not consider that th e Panel erred in applying the principle under
Article 2.1(a) to determine that the allocation of R&TD subsidies to the aeronautics sector was
specific. Accordingly, we uphold the Panel's finding, in paragraph 7.1566 of the Panel Report, that
the R&TD subsidies granted to Airbus under each of the EC Framework Programmes were "specific"
within the meaning of Article 2.1(a) of the SCM Agreement.
B. Infrastructure Measures
953. We now turn to the European Union's appeal of the Panel's finding that certain infrastructure
measures constituted subsidies within the meaning of Article 1 of the SCM Agreement. These
measures related to the Mühlenberger Loch industria l site in Hamburg, the extension of the airport
runway in Bremen, and the Aéroconstellation industr ial site in Toulouse. Below we summarize the
findings of the Panel in respect of each set of infrastructure measures before assessing the
European Union's claims on appeal.2142

2141Panel Report, paras. 7.1520, 7.1530, 7.1540, 7.1 550, 7.1560, and 7.1563. However, the only such
evidence before the Panel consisted of examples of the work programmes for the Fifth and Sixth EC Framework
2142Although relevant details concerning the infrastructure measures are set out in this section of our
Report, we note that Part IV contains a more detailed description of the challenged measures.
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1. The Panel's Findings

(a) The Mühlenberger Loch industrial site
954. In evaluating whether the infrast ructure at the Mühlenberger Loch industrial site constitutes a
financial contribution, the Panel considered the European Communities' argument that the project
consisted of three distinct elements: (i) the co nversion of wetlands into usable land; (ii) the
construction of certain flood protec tion measures; and (iii) the build ing of special purpose facilities.
The Panel stated that there was no requirement th at it separate these elements in its analysis, and
found that the land reclamation was "part of an integr ated project to provide a site adjacent to Airbus'
existing Finkenwerder site for expansion of its facilities". 2143 The Panel therefore proceeded to
analyze the entire project as a single measure. In doing so, the Panel further found that "the
reclamation of the wetlands adjacent to the existing Airbus facility in Finkenwerder was undertaken
not merely in the awareness that Airbus w ould be the 'first user', as argued by the
European Communities, but specifically in order to enable Airbus to expand its existing facilities in a
way it could not do without the creation of the new land." 2144 The Panel added that there was "simply
no evidence to suggest that any of this development would have been undertaken at the time were it
not necessary in order to enable Airbus to expand its existing facilities to allow for assembly of the
A380 at that site".2145 In the Panel's view, the Mühlenberger Loch industrial site "was tailor-made for
Airbus"2146, and the Panel therefore found that the creation and provision of that site was not a
provision of general infrastructure, but rath er constituted a financial contribution, under
Article 1.1(a)(1)(iii) of the SCM Agreement, in the form of the provision of goods or services other
than general infrastructure.
955. The Panel recalled that a "benefit" will be cons idered to have been conferred pursuant to
Article 1.1(b) of the SCM Agreement "whenever a financial contributio n is granted to a recipient on
terms more favourable than those available to the recipient in the market".2147 In determining whether
a financial contribution in the form of goods or services other than general infrastructure had
conferred a benefit, the Panel considered that th e appropriate question was "whether a market actor
would have provided the good or service to the recipient at the time, on the same terms and conditions
as the government provision at issue". 2148 The Panel maintained that the parties agreed that no
commercial investor would have undertaken the pr oject, and that they were in general agreement

2143Panel Report, para. 7.1078.
2144Panel Report, para. 7.1080. (footnote omitted)
2145Panel Report, para. 7.1080.
2146Panel Report, para. 7.1084.
2147Panel Report, para. 7.1091.
2148Panel Report, para. 7.1091.
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regarding the market value of industrial land in Hamburg and the value of the Mühlenberger Loch
land. The Panel considered that a market-based re ntal of industrial land in Hamburg was "necessarily
far less than would be a market based rental on an investment in land worth {€}750 million".
2149 In
the Panel's view, "a market actor who invested {€ }750 million in land, whether by purchasing it or by
creating it through reclamation, would, in renting the property, seek a return on that investment."2150
956. The Panel regarded as irrelevant the European Communities' contention that Airbus pays
market rates for the land and special purpose facilities. The Panel stated that it was clear that the rent
paid by Airbus did not provide a market rate of return on the investment by the Hamburg authorities
to create the Mühlenberger Loch site. Accordingly, the Panel considered that the Mühlenberger Loch
site conferred a benefit on Airbus "in an amount equivalent to the extent of the difference between the
actual rent paid by Airbus for the land and facilities in question, and a reasonable rate of return on the
investment of the Hamburg authorities in creating that land and those facilities". 2151 The Panel
concluded that the investment by Hamburg authori ties "was many times greater" than the value of the
site reflected in the rental amounts paid by Airbus , and that the provision of the Mühlenberger Loch
site thus "conferred a very large benefit to Airbus".2152
(b) The Bremen airport runway extension
957. In evaluating whether the extension of th e Bremen airport runway was a financial
contribution, the Panel first addressed the European Communities' argument that the extension of the
runway and the noise-reduction measures had to be considered separately in determining whether they
constitute general infrastructure. The Panel found that "the noise reduction measures were considered
only as a result of the decision to extend the runway, and even in th at context were not considered
necessary, but were undertaken as a matter of c hoice in connection with the runway project" 2153, and
therefore considered the runway extension and associated noise-reduction measures together in its
analysis. The Panel further found that these measures "were undertaken by the Bremen city
authorities specifically for Airbus' needs", and that "use of the full length of the extended runway is
limited to Airbus by regulation". 2154 The Panel therefore concluded, on the basis of "the specific
limitations on access to, i.e., use of the extended r unway, and the clear evidence demonstrating that
the runway extension was undertaken for the use of Airbus", that the runway extension and associated

2149Panel Report, para. 7.1094.
2150Panel Report, para. 7.1094.
2151Panel Report, para. 7.1096.
2152Panel Report, para. 7.1096.
2153Panel Report, para. 7.1114. (footnote omitted)
2154Panel Report, paras. 7.1116 and 7.1118. (footnote omitted)
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noise reduction measures constituted a financial cont ribution, under Article 1.1(a)(1)(iii) of the
SCM Agreement, in the form of the provision of goods or services other than general infrastructure.
2155
958. In its analysis of "benefit", the Panel a ddressed the European Communities' argument that
Airbus paid for runway use in accordance with th e general fee schedule applicable at the Bremen
airport, and that Airbus' right to use the extended runway was not on more favourable terms than
those in the market. Because the Panel considered that the financial contribution at issue was not
limited to the use of the extended runway, but rather encompassed the entire investment by the City of
Bremen in extending the runway and the associated noise-reduction measures, the Panel stated that it
did not consider that an evaluation of the fees paid by Airbus for runway use at the Bremen airport
affected its assessment of benefit. The Panel neve rtheless found that it was "undisputed that Airbus
pays runway fees in accordance with the regular fee schedule, applicable to all users of the airport,
with no additional charges for the use of the runw ay extensions, which only Airbus is permitted to
use, and only for certain flights".
2156 The Panel thus concluded that "there is no return to the City of
Bremen on its investment in the runway extensio n and noise reduction measures", and that a benefit
was thereby conferred on Airbus.2157
(c) The Aéroconstellation industrial site
959. In evaluating whether the infrastructure at th e Aéroconstellation industr ial site constituted a
financial contribution, the Panel first addressed the European Communities' argument that certain
facilities—known as " équipement d'intérêt général" (EIG) facilities—should be considered separately
from the land provided at the Aéroconstellation s ite. Noting that the European Communities' own
arguments indicated that the EIG facilities were a necessary part of the development of the industrial
site, the Panel found that "the EIG facilities constitute an integral part of the Aéroconstellation site",
and therefore considered them together in its analysis. 2158 The Panel further found, on the basis of the
evidence before it, that development of the site "was undertaken specifically to enable Airbus to
situate an A380 final assembly line in an advantage ous location, in France", and that the site was
"from the outset, uniquely adapted to Airbus' needs, from its situation next to and connection to the
Toulouse-Blagnac airport, to the highly specific EIG facilities". 2159 The Panel accordingly found that
the creation and provision of the ZAC Aéroconstella tion site, including the EIG facilities, constituted

2155Panel Report, para. 7.1121.
2156Panel Report, para. 7.1133.
2157Panel Report, para. 7.1133.
2158Panel Report, para. 7.1175.
2159Panel Report, para. 7.1177. (footnote omitted)
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a financial contribution, under Article 1.1(a)(1)(iii) of the SCM Agreement, in the form of the
provision of goods or services other than general infrastructure.
2160
960. In respect of whether a benefit was conferred, the Panel considered that the sales price for
land at the Aéroconstellation site w ould not have provided an adequate return to cover the investment
in developing the land for industrial use, and t hus "a commercial land de veloper would not have
undertaken the project". 2161 The Panel stated that it was clear, and uncontested by the
European Communities, that the price paid by Airbus did not provide a market rate of return on the
investment by French authorities to develop th e site, including the EIG facilities. The Panel
concluded that, even if the lease for the EIG facilitie s is commensurate with a market benchmark, this
would not "save the provision of the site, including the EIG facilities, from conferring a substantial
benefit on Airbus".2162
2. The Panel's Assessment under Article 1.1(a)(1)(iii) of the SCM Agreement
961. The Panel stated that the disagreement between the parties focused on the "central question"
of whether the challenged infrastructure constitutes the provision of "other than general infrastructure"
within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.2163 On appeal, however, the
European Union directs its challenge to a different issue. Stating that the Panel posed the "wrong
question"2164 by asking whether the challenged infrastru cture measures constituted the provision of
"other than general infrastructure" , the European Union maintains that the Panel ignored its argument
"that a distinction must be made between, on the one hand, the creation of infrastructure and, on the
other hand, the provision of infrastructure to the recipient." 2165 The European Union thus submits that
the Panel erred in its interpretation and application of Article 1.1(a)(1)(iii) by failing to recognize that
the relevant transaction for purposes of its analysis under Article 1.1(a)(1)(iii) was the provision of
goods or services in the form of infrastructure to Airbus Deutschland and Airbus France, not the
creation of that infrastructure.
2166

2160Panel Report, para. 7.1179.
2161Panel Report, para. 7.1188.
2162Panel Report, para. 7.1190.
2163Panel Report, para. 7.1035.
2164European Union's appellant's submission, para. 1025.
2165European Union's appellant's submission, para. 1026.
2166European Union's appellant's submission, para. 1007.
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962. Article 1.1(a)(1)(iii) of the SCM Agreement provides as follows:
1.1 For the purpose of this Ag reement, a subsidy shall be
deemed to exist if:
(a)(1) there is a financial contribution by a government or any
public body within the territory of a Member (referred to in this
Agreement as "government"), i.e. where:

(iii) a government provides goods or services other than general
infrastructure, or purchases goods;
963. Article 1.1(a)(1)(iii) thus stipulates that a fi nancial contribution exists where a government
provides goods or services other than general infr astructure. The ordinary meaning of the verb
"provide" is to "{s}upply or furnish for use; make available".
2167 The reference to "goods or services
other than general infrastructure" indicates that the term "goods or services" encompasses certain
types of infrastructure. Infrastructure that is "oth er than general" is covered by the definition of a
financial contribution in Article 1.1(a)(1)(iii), whereas infrastructure that is "general" is not.
964. The European Union submits that government conduct in creating infrastructure is not
disciplined by the SCM Agreement. Specifically, the European Union contends that government
creation of infrastructure—"such as the development of agricultural land into urban or industrial land,
the creation of natural parks, the creation or improve ment of infrastructures, such as roads, railways,
land"—does not qualify as a "financial contribution". 2168 T h e creation of infrastructure, the
European Union explains, benefits society as a whole and therefore reflects legitimate economic
development policies with which, so long as the infrastructure is not provided to a recipient, the
SCM Agreement does not interfere. In the European Union's view, "{o}nly the provision to an
economic operator (as opposed to creation) of infrast ructures 'other than general infrastructures' is
captured by the notion of financial contribution sin ce this government action is capable of distorting
trade."2169 We agree that, when a good or service has not been provided by a government, there
cannot be a financial contribution cognizable under Article 1.1(a)(1)(iii).
965. This proposition, however, differs in our view from the European Union's corollary argument
that focusing on a government's provision of goods or services necessarily excludes considerations in
respect of their creation. As the European Union argues, "actions taken by the government prior to

2167Shorter Oxford English Dictionary, 6th edn, W.R. Trumble, A. Stevenson (eds) (Oxford University
Press, 2007), Vol. 2, p. 2383.
2168European Union's appellant's submission, para. 1029.
2169European Union's appellant's submission, para. 1030. (original emphasis)
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the provision of the good or service in question are not relevant for the notion of 'financial
contribution' in Article 1.1(a)(1)(iii)."
2170 While government action concerning the creation of a good
or service may not be relevant if that good or service is not ultimately provided to a recipient, we do
not understand on what basis such actions would necessarily be excluded in assessing what has been
provided. Recalling the meaning of the term "p rovide" set out above—supply or furnish for use;
make available—we consider that this term permits taking into account what was involved in
supplying or furnishing that infrastructure. The creation of infrastructure is a precondition, and thus
necessary, for the provision of that infrastructure. We therefore do not view the use of the term
"provision" in Article 1.1(a)(1)(iii) as excluding th e possibility that circumstances of the creation of
infrastructure may be relevant to a proper characterization of what it is that is provided.
966. On the basis of this understanding of Article 1. 1(a)(1)(iii), we do not agree with the Panel's
characterization of the financial contributions at issu e. We note, for instance, that the Panel described
the financial contribution in Hamburg as cons isting of "the creation and provision of the
Mühlenberger Loch industrial site".2171 Airbus was provided the Mühlenberger Loch site by means of
a leasing arrangement. 2172 Although circumstances in respect of the creation of the Mühlenberger
Loch site may be relevant to a proper understanding of the lease provided to Airbus, we consider it
inconsistent with Article 1.1(a)(1)(iii) to ch aracterize what was provided as consisting of the
"creation" of the Mühlenberger Loch site. For th is reason, we deem simi larly over-inclusive the
Panel's characterization of the financial contribu tion in Toulouse as consisting of "the creation and
provision of the ZAC Aéroconstellation site and EIG facilities". 2173 There, Airbus was provided land
at the Aéroconstellation site and a lease of the EIG facilities. 2174 It is therefore similarly inconsistent
with Article 1.1(a)(1)(iii) to characterize the fina ncial contribution that was provided as consisting of
the "creation" of that infrastructure. Regardi ng the measures at the Bremen airport, the Panel
concluded that the financial cont ribution consisted of "the entire project, extending the runway, the

2170European Union's appellant's submission, para. 1031. (original emphasis)
2171Panel Report, para. 7.1084. In paragraph 8.1(b)(i) of its Report, the Panel concluded that "the
provision of the Mühlenberger Loch site constitutes a specific subsidy within the meaning of Articles 1 and 2 of
the SCM Agreement". We understand this conclusion in the light of the Panel's analysis and findings in
paragraphs 7.1072-7.1097 of its Report.
2172Panel Report, para. 7.1049.
2173Panel Report, para. 7.1179. In paragraph 8.1(b)(iii) of its Report, the Panel concluded that "the
provision of the ZAC Aéroconstellation site and associ ated EIG facilities constitutes a specific subsidy within
the meaning of Articles 1 and 2 of the SCM Agreement". We understand this conclusion in the light of the
Panel's analysis and findings in paragraphs 7.1172-7.1191 of its Report.
2174Panel Report, para. 7.1139.
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associated noise reduction measures, and the right of exclusive use".
2175 What was actually provided
to Airbus, however, consisted of the right to excl usive use of the extended runway in exchange for
certain fees.2176 However, because the Panel's description id entifies features of the infrastructure that
were not provided to Airbus—for instance, the cr eation of the runway extension and related noise
reduction measures—we also consider that this description is inconsistent with the focus of
Article 1.1(a)(1)(iii) on what a government actually provides.
967. For these reasons, we modify the Panel's characterization, in paragraphs 7.1084, 7.1121,
and 7.1179 of the Panel Report, of the infrastru cture measures constituting a financial contribution
under Article 1.1(a)(1)(iii) of the SCM Agreement. On the basis of our review of the Panel record, we
consider that a proper characterization of the financial contributions provided to Airbus consists of the
following: (i) the lease of land and special purpose f acilities at the Mühlenberger Loch industrial site;
(ii) the right to exclusive use of the extended runway at the Bremen airport; and (iii) the sale of land
and the lease of facilities at the Aéroconstellation industrial site.
968. The European Union requests, if we were to reverse the Panel's findings that the challenged
infrastructure as characterized by the Panel constitute d financial contributions within the meaning of
Article 1.1(a)(1)(iii) of the SCM Agreement, that we also reverse, and declare moot and of no legal
effect, the reasoning set out in paragra phs 7.1034 to 7.1044 of the Panel Report. 2177 Because we have
decided only to modify the Panel's findings, we express no view on the reasoning contained in the
referenced paragraphs.
3. The Panel's Assessment under Article 1.1(b) of the SCM Agreement
969. The Panel found that the provision of infrastructure relating to the Mühlenberger Loch
industrial site in Hamburg, the airport runway in Bremen, and the Aéroconste llation industrial site in
Toulouse, conferred a benefit on Airbus because eac h government's investment in that infrastructure
exceeded its return on that investment.2178
970. The European Union argues on appeal that the Panel erred in its interpretation and application
of the term "benefit", within the meaning of Article 1.1(b) of the SCM Agreement, because it assessed
the existence of a benefit on the basis of whether costs incurred by the gove rnment were in excess of

2175Panel Report, para. 7.1121. In paragraph 8.1(b)(ii) of its Report, the Panel concluded that "the
provision of the lengthened Bremen Airport Runway constitutes a specific subsidy within the meaning of
Articles 1 and 2 of the SCM Agreement". We understand this conclusion in the light of the Panel's analysis and
findings in paragraphs 7.1113 to 7.1134 of its Report.
2176Panel Report, paras. 7.1100 and 7.1133.
2177European Union's appellant's submission, para. 1037.
2178Panel Report, paras. 7.1096, 7.1133, and 7.1190.
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the returns generated by Airbus' purchase and/or lease payments.
2179 Specifically, the
European Union contends, the Panel asked "whether the returns enjoyed by the granting governments
were sufficient, relative not to the market value of the land or facilities sold or leased or the exclusive
right of use provided, but to the returns a market investor creating that land or facilities would have
sought."
2180 Thus, central to the European Union's app eal is its contention that the Panel erred in
relying on a "return-to-government" standard, which the European Union considers to be equivalent to
the "cost-to-government" standard re jected by the Appellate Body in Canada – Aircraft . As the
European Union explains, "{w}hether that standard is characterised as a 'cost' or, instead, a 'return' to
the government is immaterial. A cost to th e government is simply a negative return." 2181 T h e
European Union additionally maintains that this error apparently resulted from the Panel's
consideration of the government as an investor, in stead of, as required by Article 1.1(a)(1)(iii), as a
provider of a good or service. The European Union argues that the use of the term "provides" in
Article 1.1(a)(1)(iii) requires that any benefit "be measured against the market value of that good or
service provided, not the cost of creating it". 2182 Moreover, where the financial contribution consists
of a government-provided good or service, the Eur opean Union adds that Article 14(d) of the
SCM Agreement supports assessing the "benefit" based on mark et value and price, rather than the
return earned.2183
971. The United States contends that the Panel did not apply a "cost-to-government" standard. In
the United States' view, the Panel "simply ask{ed} what 'price' a commercial real estate developer,
under the same circumstances would have demande d to provide a tailor-made site, a runway
extension, or facilities exclusively fo r a certain company or companies." 2184 The United States adds
that the best proxy for that market price is what a commercial investor would have sought as a return
on that investment, namely recovery of its cost plus a certain profit. The United States thus maintains
that the cost to the government of de veloping the infrastructure involved "was a factor in determining
whether Airbus would have had to pay more on the market to receive the same thing it actually
received from the governments. It was not itself the standard against which the Panel determined the
existence of a benefit."
2185 The United States also considers that the standard under Article 14(d) is
not generalized market value, but the adequacy of the remuneration received by the government that

2179European Union's appellant's submission, para. 1063.
2180European Union's appellant's submission, para. 1067.
2181European Union's appellant's submission, footnote 1426 to para. 1063.
2182European Union's appellant's submission, para. 1067.
2183European Union's appellant's submission, para. 1067.
2185United States' appellee's submission, para. 383. (original emphasis; footnote omitted)
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provided the infrastructure. The United States adds that, "{b}y examining what a commercial
investor would expect, the Panel satisfied that standard."
2186
972. We begin by considering the issue of "benefit" under Article 1.1(b) of the SCM Agreement,
and the guidance offered by Article 14(d) of the SCM Agreement concerning the provision of goods or
services by a government. In order for a subsidy to be found to exist, Article 1.1(b) requires the
conferral of a "benefit". We recall that, although Article 14 relates to the calculation of benefit for
purposes of Part V of the SCM Agreement, it nevertheless provides relevant context for the
interpretation of "benefit" in Article 1.1(b). 2187 Article 14(d), which concerns the calculation of
benefit in respect of government-provided goods or services, states as follows:
{T}he provision of goods or services or purchase of goods by a
government shall not be considered as conferring a benefit unless the
provision is made for less than adequate remuneration, or the
purchase is made for more than adequate remuneration. The
adequacy of remuneration shall be determined in relation to
prevailing market conditions for the good or service in question in
the country of provision or purchase (including price, quality,
availability, marketability, transportation and other conditions of
purchase or sale).
973. In Canada – Aircraft , the Appellate Body addressed Canada's contention that a "benefit"
cannot exist unless the granting of a financial contribution imposes a net cost on the government.
Examining Articles 1.1(b) and 14, the Appellate Body considered that the i nquiry should be focused
on the benefit to the recipient, and not on the cost to government.
2188 The Appellate Body further
considered that the term "benefit" implies a comp arison. As the Appellate Body explained, the
question of whether a benefit has been conferred is thus a comparative exercise requiring a panel to
determine whether the recipient of the financial contribution has been advantaged or made "better off"
than it would otherwise have been absent that contri bution. The Appellate Body considered that "the
marketplace provides an appropriate basis for compar ison in determining whether a 'benefit' has been
'conferred'."2189 The Appellate Body also found relevant cont ext for its view in Article 14, noting that
a "benefit" arises under each of the guidelines set out in that provision if the recipient has received a
financial contribution on terms more favourable than those available to the recipient on the market.2190

2188Appellate Body Report, Canada – Aircraft, paras. 154-156.
WT/DS316/AB/R BCI deleted, as indicated [***]

974. The Appellate Body Report in Canada – Aircraft thus stands for the proposition that a
"benefit" is to be determined, not by reference to whether the transaction imposes a net cost on the
government, but rather by reference to whether th e terms of the financial contribution are more
favourable to what is available to the recipient on the market. The manner in which an investigating
authority or panel evaluates market evidence will be a function of the particular context of each case,
and of what information is adduced by the parties to a dispute. In every instance, however, that
analysis remains focused on locating a proper comparator in the market. In Japan – DRAMs (Korea),
the Appellate Body stated the following in assessing whether a challenged government investment
conferred a benefit under Articles 1.1(b) and 14 of the SCM Agreement:
The terms of a financial transaction must be assessed against the
terms that would result from unconstr ained exchange in the relevant
market. The relevant market may be more or less developed; it may
be made up of many or few participants. ... In some instances, the
market may be more rudimentary. In other instances, it may be
difficult to establish the relevant market and its results. But these
informational constraints do not alter the basic framework from
which the analysis should proceed. ... There is but one standard—the
market standard—according to which rational investors act.
2191
975. We find instructive the Appellate Body's consid eration of Articles 1.1(b) and 14 because it
underscores that every benefit determination requi res a comparison of the terms of a financial
contribution to a market benchmark. Article 14(d) s tipulates that a benefit is not conferred so long as
the good or service is provided for "adequate remunera tion". It moreover provides that the adequacy
of remuneration is to be determin ed "in relation to prevailing mark et conditions", and lists a number
of such market conditions, including "price, quality , availability, marketability, transportation and
other conditions of purchase or sale". This langua ge highlights that a proper market benchmark is
derived from an examination of the conditions pursuant to which the goods or services at issue would,
under market conditions, be exchanged.
976. There is no disagreement between the participants that the market is the appropriate
benchmark in determining benefit within the meaning of Artic le 1.1(b), and that Article 14(d)
confirms the importance of examining the value of the financial contribution in relation to "prevailing
market conditions". The principal question is whet her, having nominally endorsed a market standard,
the Panel nevertheless erred in failing to determine benefit in conformity with that standard.

2191Appellate Body Report, Japan – DRAMs (Korea), para. 172.
BCI deleted, as indicated [***] WT/DS316/AB/R

977. In respect of each of the three infrastructure me asures at issue on appeal, the Panel found that
the costs of the government in providing the infr astructure exceeded the amounts the government
received in return for that investment. For the Mü hlenberger Loch site, the Panel thus found that a
benefit was conferred in an amount equal to "the di fference between the actual rent paid by Airbus for
the land and facilities in question, and a reasonable ra te of return on the investment of the Hamburg
authorities in creating that land and those facilities."
2192 For the Bremen airport runway extension, the
Panel found that a benefit was conferred because "the re is no return to the City of Bremen on its
investment in the runway extension and noise reduction measures". 2193 And for the Aéroconstellation
site, the Panel found that a benefit was conferre d because the amounts paid by Airbus "{did} not
provide a market rate of return on the investme nt by the French authorities to develop the site,
including the EIG facilities".2194
978. In arriving at its findings, the Panel rejected the European Communities' arguments that it was
resorting to a "cost-to-government" standard. Referr ing to the Mühlenberger Loch site, for instance,
the Panel asserted that the investment by Hamburg in the project was relevant in the Panel's
assessment of whether a benefit was conferred. Th e Panel maintained that this therefore did not
constitute, as the European Communities argued, a determination of the amount of benefit on the basis
of the cost to government. Rather, the Panel expl ained, it simply reflected "the basis on which a
market actor would determine the amount of rent to be charged for that particular parcel of land, and
thus the appropriate 'market' benchmark".
2195 The Panel made a similar assertion in respect of the
Aéroconstellation site.2196
979. We consider that the Panel's assertions that it was not relying on the costs to the government
to determine benefit are belied by its analysis. The Panel stated that, in respect of the Mühlenberger
Loch site, the benefit was equivalent to the diffe rence between the amount Airbus paid for the land
and facilities and a reasonable return on the investment of the Hamburg authorities in creating that
land and those facilities. 2197 For the Panel, the investment by Hamburg authorities consisted of the

2192Panel Report, para. 7.1096.
2193Panel Report, para. 7.1133.
2194Panel Report, para. 7.1190.
 2195Panel Report, para. 7.1093.
2196In respect of the Aéroconstellation site, the Panel made the following statement at paragraph 7.1188
of its Report:
As previously discussed, this does not constitute, as argued by the
European Communities, a determinati on of the amount of benefit on the
basis of cost to the government. Rather, it is simply a reflection, in the
particular circumstances of this case, of the basis on which a market actor
would determine the price to be charged for the land to be sold, and thus the
appropriate "market" benchmark.
2197Panel Report, para. 7.1096.
WT/DS316/AB/R BCI deleted, as indicated [***]

costs of the development of the Mühlenberger Loch site in the amount of approximately €750
million.
2198 As the Panel explained, "a market actor w ho invested {€}750 million in land, whether by
purchasing it or by creating it through reclamation, would, in renting the property, seek a return on
that investment." 2199 In respect of the Bremen airport r unway extension, the task was somewhat
simpler under the Panel's logic because it found that, notwithstanding Airbus' right to exclusive use of
the extended runway, Airbus did not pay higher airport fees for use of the extended runway.
Accordingly, the Panel found that there was "no return to the City of Bremen on its investment in the
runway extension and noise reduction measures". 2200 In respect of the Aéroconstellation site, the
Panel noted the United States' assertion that French authorities invested €158 million in the
preparation of the site. 2201 Although the Panel did not make a finding as to the amount of the
investment by French authorities, it found that th e amount paid by Airbus for the land and facilities
"{did} not provide a market rate of return on the investment by the French authorities to develop the
site, including the EIG facilities".2202
980. We acknowledge that, in certain circumstances, a seller's costs may be a relevant factor to
consider in assessing whether goods or services were provided for less than adequate
remuneration.2203 As we see it, however, the difficulty with the Panel's analysis is not that it referred
to these costs as a factor in its analysis, but rather as the sole basis for its fi ndings. Indeed, the Panel
stated that a government's investment costs are the basis on which a market actor would determine the
price, or the amount of rent, to be charged. 2204 We see no indication that the Panel relied on any
considerations other than investment costs, a nd the Panel points to none, in arriving at its
determination of a market benchmark. We therefor e consider that, in its analysis, the Panel equated
the government's investment costs with market va lue. We moreover cons ider that the Panel's
conclusion that the relevant authorities did not recoup their investment is equivalent to stating that
those investments conferred a benefit because they resulted in a net cost to the government. We reject
this reasoning for the reasons expressed by the Appellate Body in Canada – Aircraft.2205

2198Panel Report, para. 7.1089.
2199Panel Report, para. 7.1094.
2200Panel Report, para. 7.1133.
2201Panel Report, para. 7.1186.
2202Panel Report, para. 7.1190.
2203In US – Softwood Lumber IV , the Appellate Body explained that "alternative methods for
determining the adequacy of remune ration could include ... proxies constr ucted on the basis of production
costs". (Appellate Body Report, US – Softwood Lumber IV, para. 106)
2204Panel Report, paras. 7.1093 and 7.1188.
2205Appellate Body Report, Canada – Aircraft, paras. 149-161. See supra, paras. 973 and 974.
BCI deleted, as indicated [***] WT/DS316/AB/R

981. Moreover, we are concerned that the Panel's de termination of the value of the infrastructure
measures on the market was made wholly in refe rence to, in this case, the perspective of the
government as a seller or lessor. The market place to which the Appellate Body referred in Canada –
Aircraft reflects a sphere in whic h goods and services are excha nged between willing buyers and
sellers. A calculation of benefit in relation to prevailing market conditions thus demands an
examination of behaviour on both sides of a transacti on, and in particular in relation to the conditions
of supply and demand as they apply to that market . A market price is not determined solely by
reference to either supply-side or demand-side cons iderations without reference to the other. Even
where a market is limited for a particular good or servi ce, that market price is not dictated solely by
the price a seller wishes to charge, or by what a b uyer wishes to pay. Rather, the equilibrium price
established in the market results from the discipline en forced by an exchange that is reflective of the
supply and demand of both sellers and buyers in that market. The costs to the government of an
investment in creating a particular good or service cannot itself determine the market price because
actual expenditures by the government may not necess arily be redeemed, or be redeemable, on the
market.
982. The Panel's analysis does not adhere to this mark et logic. For example, the Panel stated in
respect of the Mühlenberger Loch site that, "i n {its} view, a market actor who invested {€}750
million in land, whether by purchasing it or by creating it through reclamation, would, in renting the
property, seek a return on that investment ".
2206 The fact that a market actor would seek a return on its
investment does not mean that it could necessarily obtai n that return on the market. Indeed, the rent a
market actor can charge will be constrained by market conditions even if the rent does not cover its
costs. Accordingly, we do not consider that it is c onsistent with Articles 1.1(b) and 14(d) to establish
a market benchmark for a good or service by referring to the demands or expectations only of a seller
or lessor, or, alternatively, only of a buyer or lessee. The price of a good or service must reflect the
interaction between the supply-side and demand- side considerations under prevailing market
conditions.
983. For the foregoing reasons, we consider that the investment costs borne by the relevant
authorities in these circumstances are an insufficient basis upon which to establish the market value of
the sale or lease of the infrastructure at issue, and that the Panel committed error in relying
exclusively on those costs to estab lish the existence and amount of benefit. Whether characterized as
a "return to government" or a "cost to government", the Panel established that a benefit had been
conferred because the government did not recover its costs in providing the infrastructure in question.

2206Panel Report, para. 7.1094. (emphasis added)
WT/DS316/AB/R BCI deleted, as indicated [***]

This approach fails to comport with the requirement that a "benefit" be determined by reference to
whether a financial contribution has been provided on terms more favourable than those available on
the market. Accordingly, we reverse the Panel's findings, in paragra phs 7.1096, 7.1133, and 7.1190
of the Panel Report, that the infrastructure measures at issue conferred a benefit on Airbus within the
meaning of Article 1.1(b) of the SCM Agreement.
4. Completion of the Analysis

984. Having reversed the Panel's findings in respect of benefit, we turn to consider whether we can
complete the analysis and find that the infrastructur e measures at issue conferred a benefit within the
meaning of Article 1.1(b) of the SCM Agreement. In previous disputes, the Appellate Body has
emphasized that it can complete the analysis "only if the factual findings by the panel, or the
undisputed facts in the panel record" provide a su fficient basis for the Appellate Body to do so.
2207
Where this has not been the case, the Appellate Body has declined to complete the analysis.2208
985. Regarding the Mühlenberger Loch industrial s ite, the Panel determined that "the City of
Hamburg undertook to turn 20 percent of the wetlands in the Mühlenberger Loch and Rüschkanal,
adjacent to Airbus' existing facilities in Finkenwerder, into usable land." 2209 The Panel further
considered it "clear" from the evidence that the land reclamation "was undertaken in order to make
possible the expansion of Airbus' existing facilities, and not for any independent purpose. Thus, it is
part of an integrated project to provide a site adjacent to Airbus' existing Finkenwerder site for
expansion of its facilities." 2210 These statements support the Pane l's finding that the Mühlenberger
Loch industrial site was "tailor-made for Airbus" 2211, and that it was provided adjacent to Airbus'
facility in Finkenwerder and for the purpose of expa nding those existing facilities. We consider these
critical elements in assessing the market value of th e lease of the relevant infrastructure. As we
understand it, Airbus was not leasing a tract of land available anywhere in Hamburg, but was seeking
the lease of the very site contiguous to its exis ting facilities that would enable it to engage in the

2207Appellate Body Report, US – Hot-Rolled Steel , para. 235. See also Appellate Body Report, EC –
Hormones, paras. 222 ff; Appellate Body Report, EC – Poultry , paras. 156 ff; Appellate Body Report,
Australia – Salmon, paras. 117 ff and 193 ff; Appellate Body Report, US – Shrimp, paras. 123 ff; Appellate
Body Report, Japan – Agricultural Products II , paras. 112 ff; and Appellate Body Report, EC – Asbestos ,
paras. 133 ff.
2208See Appellate Body Report, Australia – Salmon , paras. 209 ff, 241 ff, and 255; Appellate Body
Report, Korea – Dairy , paras. 91 ff and 102 ff; Appellate Body Report, Canada – Autos , paras. 133 ff
and 144 ff; Appellate Body Report, Korea – Various Measures on Beef , paras. 128 ff; Appellate Body Report,
EC – Asbestos, paras. 78 ff; and Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and US),
paras. 98 ff.
2209Panel Report, para. 7.1049.
2210Panel Report, para. 7.1078.
2211Panel Report, para. 7.1084.
BCI deleted, as indicated [***] WT/DS316/AB/R

production of the A380 aircraft. We consider that the lease of infrastructure that is prepared to meet
the demands of a particular customer, and built adj acent to that customer's existing operations, would
command a certain premium in the market.
986. In respect of the value of the Mühlenberger Loch land, the Panel stated:
The parties are in general agreem ent as to the market value of
industrial land in Hamburg, and the value of the Mühlenberger Loch
land—between {€}71,600,000 and {€}85,900,000, according to the
United States, or approximately [***], according to the EC.
2212
(footnotes omitted)
987. The United States' figure is based on a repor t by a German real estate surveyor that
determined the market value of land in the vicinity of the Hamburg site. 2213 On the basis of
benchmark land values in the Finkenwerder district of Hamburg, the report stated that "the City of
Hamburg could have expected to raise approximately €50 to €60 per square meter had it sold the site
created in the Mühlenberger Loch to a third part y as industrial … or other commercial … land at fair
market value in 2000."2214 For its part, the figure advanced by the European Communities reflected a
valuation set out in a report by the Committee of Experts for Property Values in Hamburg for
comparable industrial land in the vicinity of the Mühlenberger Loch site. 2215 It was on the basis of
this valuation that the report established that the c ontractually agreed lease payments made by Airbus
were consistent with the market rent.2216
988. The difficulty with these valuations, as we see it, is that they are based on the value of
generally available industrial land in Hamburg. An appropriate benchmark for the Mühlenberger
Loch site, however, is not the value of a lease for industrial land situated anywhere in Hamburg or in
the vicinity of the Mühlenberger Loch site, but th e market lease value for land adjacent to existing
property of a particular commercial user that is prepar ed for the particular needs of that user. Airbus
did not seek any industrial land in Hamburg, because such land would not have enabled it to expand

2212Panel Report, para. 7.1094.
2213United States' first written submission to the Panel, para. 432.
2214Dr.-Ing. Keunecke and Dipl.-Ing. Stoehr, Expert Opinion No. 27649/06, "Benchmarks for Land
Values concerning Hamburg Airbus Site 'Mühlenberger Loch', Kreetslag 10, 21129 Hamburg-Finkenwerder"
(9 October 2006) (Panel Exhibit US-189), p. 5.
2215Committee of Experts for Property Values in Hamburg, Expert Opinion No. G 03.0058 M21,
"Report relating to the Mühlenberger Loch and Rüsch Peninsula Airbus extension land, located at Kreetslag 79,
Hamburg-Finkenwerder" (Panel Exhibit EC-563 (BCI)), pp. 4-5. See also European Communities' first written
submission to the Panel, para. 801. Although we do not identify the precise amounts of the valuations set out in
the Panel record, which have been designated BCI, we not e that the Panel considered the United States and the
European Communities to be in "general agreement" regarding the land valuations. (Panel Report, para. 7.1094)
2216Report of the Committee of Experts for Property Values, supra, footnote 2215, pp. 6-7. The Panel
determined that the full rent paid by Airbus for the land at the Mühlenberger Loch site was €5,619,588 per year.
(Panel Report, para. 7.1089)
WT/DS316/AB/R BCI deleted, as indicated [***]

its existing facilities as was necessary for the production of the A380. Rather, it sought a particular
piece of land contiguous to its existing facilities that wa s prepared to its specifications. The lease of
land that is suited to the particular needs of a particular commercial customer will, under prevailing
market conditions, be worth more to that user than the value that attaches to the lease of industrial
land that is generally available in that area. We do not see in the property valuations on the Panel
record that account was taken of any premium in the lease price associated with these features.
989. We consider that the findings of the Panel est ablish a sufficient foundation for us to complete
the analysis and determine that a benefit was c onferred, even though we are not in a position to
quantify that benefit. As noted, in order for the infrastructure associated with the Mühlenberger Loch
site to have been provided for adequate remuneration, the value of a lease of that site to Airbus should
have reflected the market value of the rental of comparable industrial land in Hamburg, plus a
premium due to the contiguity and customization of that land for Airbus. However, because the Panel
erroneously sought to assess the value of industrial land in Hamburg based on the amount the City of
Hamburg invested in the development of the Mühle nberger Loch site, the Panel did not quantify that
premium. We nevertheless conclude, on the basis of the Panel's findings regarding the value of
generally available industrial land in Hamburg a nd the location and customized features of the
Mühlenberger Loch industrial site, that there was a certain premium that was not included in the rent
that Airbus actually paid to lease industrial land at that site.
990. The European Union argues that, even if the market would have dictated a higher value for
the lease of the land at the Mühlenberger Loch site , such a transaction would never have taken place
because Airbus would instead have consolidated the entire A380 final assembly line in Toulouse.
2217
However, we note that the Panel's factual findings do not support the European Union's argument, and
we therefore do not consider that this alters our analysis. 2218 Accordingly, we find that the provision
of the lease of the land at the Mühlenberger Loch industrial site conferred a benefit on Airbus within
the meaning of Article 1.1(b) of the SCM Agreement. Because there is not a sufficient basis on the

2217European Union's appellant's submission, para. 1078.
2218The Panel stated that the fact that Airbus had other options but chose to expand its existing facilities
in Hamburg supported its view "that the financial contribution of the Hamburg authorities in reclaiming the land
and building special purpose facilities for Airbus' us e conferred a benefit on Airbus". (Panel Report,
para. 7.1095) The Panel added in footnote 4008 thereto:
Moreover, not only did the Hamburg authorities have incentive to keep
Airbus active at its existing facility, which might not have been the case had
the expansion for purposes of the A380 project not been possible, but
Airbus had incentive to site A380 production operations at the site, in order
to ensure that it obtained LA/MSF from the German government.
In the light of the Panel's finding that Airbus had certain incentives to expand its facilities in Hamburg unrelated
to the price of the lease of the land, we are not convinced by the European Union's assertion that Airbus would
not have leased the Mühlenberger Loch site had the price of that lease been higher.
BCI deleted, as indicated [***] WT/DS316/AB/R

Panel record for us properly to compare the mark et value of the special purpose facilities with the
amounts paid for those facilities, we are unable to complete the analysis in respect of whether the
lease of those facilities conferred a benefit on Airbus.
991. In respect of Airbus' right to use the extende d runway at the Bremen airport, the Panel
considered the European Communities' arguments th at Airbus paid higher runway fees commensurate
with its use of the extended runway, and therefore di d not receive a benefit. The Panel stated that,
based on the arguments and evidence advanced by the European Communities, there was "no factual
basis on which {it} could conclude that Airbus pa {id} a higher fee for use of the extended runway
than other users pa{id} for the use of the non-extended runway".
2219 The Panel stated:
It is undisputed that Airbus pays runway fees in accordance with the
regular fee schedule, applicable to all users of the airport, with no
additional charges for the use of th e runway extensions, which only
Airbus is permitted to use, and only for certain flights. Airbus pays
no other fees or charges in connection with the extended runway.
Thus, it is clear that there is no return to the City of Bremen on its
investment in the runway extension and noise reduction measures,
and a benefit to Airbus conferred by the provision of that extension
and noise reduction measures.
2220
992. Although the Panel did not consider that Airbus ' payment of airport runway fees was relevant
to its benefit analysis 2221, it nevertheless concluded that Airbus paid no additional charges for its use
of the extended runway, and that Airbus was therefore provided the right to exclusive use of the
runway extension for no additional re muneration. As was the case in respect of the infrastructure at
the Mühlenberger Loch site, the Panel did not c onsider it necessary to quantify the amount by which
the market value for the use of the runway extension exceeded the fees paid by Airbus for that use.
We nevertheless conclude, on the basis of the Panel' s finding that Airbus did not pay additional fees
for its use of the extended runway, that Airbus was provided the right to exclusive use of the extended
runway for which it paid no additiona l remuneration. Accordingly, we find that the provision of the
right to exclusive use of the extended runway at the Bremen airport conferred a benefit on Airbus
within the meaning of Article 1.1(b) of the SCM Agreement.
993. In respect of the Aéroconstellation industrial site , the Panel concluded that it was "clear" that
the amounts paid by Airbus for the purchase of land and the lease of the EIG facilities did not
"provide a market rate of return on the investme nt by the French authorities to develop the site,

2219Panel Report, para. 7.1132.
2220Panel Report, para. 7.1133.
2221See supra, para. 958.
WT/DS316/AB/R BCI deleted, as indicated [***]

including the EIG facilities".
2222 However, because the European Communities did not contest that
the amounts paid by Airbus did not enable French authorities to recover th eir investment in the
development of the site, the Panel did not ma ke findings in respect of the amounts paid. 2223 We have
rejected above the Panel's reliance on the government 's costs and return on investment to determine
the existence of a benefit. Moreover, we do not find that there is a sufficient basis on the Panel record
to make an assessment of the market value of the land at the Aéroconstellation site, and the lease of
the EIG facilities, in relation to prevailing market c onditions for the infrastructure provided to Airbus.
Accordingly, without a proper basis to compare Ai rbus' payments with the market value for the
purchased land and leased facilities, we are unable to complete the analysis in respect of the
infrastructure provided to Airbus at the Aéroconstellation industrial site.
C. Equity Infusions
994. We now turn to the European Union's appeal of the Panel's finding that certain equity
infusions in Aérospatiale by the French Govern ment—consisting of four capital investments in
Aérospatiale between 1987 and 1994, and a 1998 transf er by the French Government of its stake in
Dassault Aviation to Aérospatiale—confer a benefit within the meaning of Article 1.1(b) of the
SCM Agreement.2224
1. Capital Investments
995. We begin by evaluating the European Union's a ppeal that the Panel committed legal error in
finding that four capital investments conferred a benefit within the meaning of Article 1.1(b) of the
SCM Agreement. These capital investments consist of thr ee investments in Aérospatiale by the
French Government in 1987 (FF 1.25 billion), 1988 (FF 1.25 billion), and 1994 (FF 2 billion), and
one investment in Aérospatiale of FF 1.4 billion in 1992 by Crédit Lyonnais, which at the time was
controlled by the French Government. 2225 We first provide a summary of the Panel's findings in
respect of these measures before assessing the European Union's claims on appeal.

2222Panel Report, para. 7.1190.
2223Panel Report, para. 7.1190.
2224Although relevant details concerning the equity infu sions are set out in this section of our Report,
we note that Part IV contains a more detailed description of the challenged measures.
2225The Panel noted that Crédit Lyonnais acquired a 20 % equity interest in Aérospatiale—consisting of
FF 1.4 billion in newly issued Aérospatiale shares as well as existing Aérospatiale shares from the French
Government—in exchange for the issuance to the French Government of approximately 2% of Crédit Lyonnais'
BCI deleted, as indicated [***] WT/DS316/AB/R

(a) The Panel's findings
996. The Panel considered that, in order to determ ine whether the capital investments made by the
French Government conferred a benefit on Aérosp atiale, it had to "evaluate whether the terms on
which those capital contributions were provided to Aé rospatiale were more favourable than those that
would have been available to Aérospatia le on the market at the relevant times."
2226 The Panel stated
that its approach to the issue of benefit was "to ask whether the United States ha{d} demonstrated
that a private investor would not have made the capital investments in question based on the
information available at that time". 2227 The Panel evaluated the evid ence produced by the parties in
support of their arguments. The Panel noted th at the United States had submitted evidence of
Aérospatiale's financial performance, in the form of financial ratios duri ng the relevant periods,
compared to the financial performance of certa in peer group companies in France over the same
periods. For the Panel, this evidence indicated th at, between 1985 and 1994, Aé rospatiale's financial
ratios "were uniformly and, in many cases, significantly inferior to the corresponding average ratios of
its peer group of companies". 2228 The Panel acknowledged that investors employ a variety of
methodologies to estimate the expected rate of return from a potential investment, and that there are
many different ways of measuring a firm's fina ncial performance. The Panel stated that it was
"reluctant to place undue reliance on a single meas ure of financial performance in isolation".
2229 The
Panel noted, however, that the European Communities had not challenged the relevance, accuracy, or
appropriateness of evaluating Aérospatiale's financia l performance on the basis of the financial ratios
selected by the United States, nor had it suggested any alternative basis for evaluating Aérospatiale's
financial performance in comparison to its peer group of companies. On this basis, the Panel stated
that it regarded indicators of Aérospatiale's fina ncial performance in relation to the performance of
other firms operating in the same industries as "particularly probative of the question whether a
private investor would have chosen to make the cap ital investments in Aérospa tiale at issue in this
dispute".
2230
997. The Panel also examined the European Commun ities' evidence that, at the time the capital
investments were made, "Aérospatiale had positive fu ture prospects which, when coupled with the
company's commitment to invest in product devel opment, justified the commitment of expansion
capital".2231 The European Communities' evidence cons isted of: (i) statements in various

2226Panel Report, para. 7.1354.
2227Panel Report, para. 7.1358.
2228Panel Report, para. 7.1360.
2229Panel Report, para. 7.1360.
2230Panel Report, para. 7.1360.
2231Panel Report, para. 7.1361.
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Aérospatiale annual reports as to the status of aircra ft deliveries, orders and backlog, revenue, profits
and turnover; (ii) market and business forecast reports prepared by Airbus GIE predicting increases in
demand for LCA and increases in Airbus GIE's market share; and (iii) Boeing market forecasts and a
US Government publication predicting increased long -term growth for the LCA industry. The Panel
considered that the evidence in the latter two cat egories "generally relate{d} to overall market
conditions and contain{ed} very little explanation of the basis for the assumptions and forecasts", and
that it was not indicative of the range of prospect s for all of Aérospatiale's business divisions, which
would also have been "relevant to an investor contemplating an investment in the company as a
whole".
2232 The Panel stated that it attributed "relativ ely less weight" to this evidence because it did
not regard it as "particularly probative of the ques tion whether a private investor contemplating a
capital investment in Aérospatiale at the relevant time could have expected to achieve a reasonable
rate of return on its investment".2233
(b) The Panel's assessment under Article 1.1(b) of the SCM Agreement
998. We have set out in section V.C of this Repor t the concept and standard for assessing "benefit"
under Article 1.1(b) of the SCM Agreement as elaborated in jurisprudence by panels and the Appellate
Body. That standard requires that the assessment of whether a benefit has been conferred is to be
made by reference to whether the terms of th e financial investment by a government are more
favourable than those available on the market. We have also discussed in that section of our Report
the guidance offered by Article 14 of the SCM Agreement. Article 14(a), which relates to the
provision of equity capital, provides:
{G}overnment provision of equity capital shall not be considered as
conferring a benefit, unless the investment decision can be regarded
as inconsistent with the usual inv estment practice (including for the
provision of risk capital) of private investors in the territory of that
Member.
999. Article 14(a) states that equity capital provided by a government shall not be considered to
confer a benefit unless it is inconsistent with what is termed the "usual investment practice" of private
investors in the territory of that Member. The two words "usual" and "practice" are in a sense
reinforcing, with the former signifying "{c}ommonly or customarily observed or practised"
2234 and
the latter "usual or customary action or performance". 2235 Thus, we understand the term "usual

2232Panel Report, paras. 7.1366 and 7.1370 (footnote omitted); see also para. 7.1374.
2233Panel Report, paras. 7.1366, 7.1370, and 7.1374.
2234Shorter Oxford English Dictionary, 6th edn, W.R. Trumble, A. Stevenson (eds) (Oxford University
Press, 2007), Vol. 2, p. 3485.
2235Shorter Oxford English Dictionary, 6th edn, W.R. Trumble, A. Stevenson (eds) (Oxford University
Press, 2007), Vol. 2, p. 2311.
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practice" to describe common or customary conduc t of private investors in respect of equity
investment. We also observe that Article 14(a) focuses the inquiry on the "investment decision".
This reflects an ex ante approach to assessing the equity invest ment by comparing the decision, based
on the costs and expected returns of the transactio n, to the usual investment practice of private
investors at the moment the deci sion to invest is undertaken.
2236 The focus in Article 14(a) on the
"investment decision" is thus critical, in our view, because it identifies what is to be compared to a
market benchmark, and when that comparison is to be situated. With this understanding in mind, we
turn to consider whether the Panel set out th e proper standard under Article 1.1(b) of the
SCM Agreement.
1000. The European Union submits that the Panel correctly noted that the question posed by
Article 1.1(b) of the SCM Agreement is whether the terms of the inv estment are more favourable than
those that would have been available on the market. 2237 The European Union also does not take issue
with the Panel's statement that, in the context of the French Government's capital investments in
Aérospatiale, the United States was required to dem onstrate "that a private investor would not have
made the capital investments in question based on the information available at that time." 2238 T h e
European Union argues, however, that "immediately following this statement" the Panel reframed the
standard to pose the question of whether the Fren ch Government "could have expected to achieve
a reasonable rate of return on its investment".2239 The European Union contends that this amounts to
the "wrong legal standard" under Article 1.1(b) of the SCM Agreement.2240
1001. The Panel first referred to a "reasonable rate of return" in the following passage:
Our approach to the issue of benefit in the context of the French
government's capital investments in Aérospatiale is to ask whether
the United States has demonstrated that a private investor would not
have made the capital investme nts in question based on the
information available at that time. In this regard, we note that a
private investor evaluating an equity investment in an enterprise will
be seeking to achieve a reasonable rate of return on its investment.
Information relevant to such an evaluation would include current and
past indicators of an enterprise's financial performance (including
rates of return on equity) calculated from the enterprise's financial
statements and accounts, informati on as to the future financial
prospects of the enterprise, including market studies, economic

2236See Part VI.B of this Report, where we ha ve similarly emphasized the importance of an ex ante
perspective in assessing the conferral of a benefit through government loans.
2237European Union's appellant's submission, para. 1101 (referring to Panel Report, para. 7.1354).
2239European Union's appellant's submission, para. 1104 (quoting Panel Report, paras. 7.1364, 7.1366,
7.1370, and 7.1374). (emphasis added by the European Union)
2240European Union's appellant's submission, para. 1105.
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forecasts and project appraisals, equ ity investment in the enterprise
by other private investors, and marketplace prospects for the products
produced by the enterprise.
2241 (emphasis added)
1002. This language does not support the view that the Panel set out a distinct standard requiring the
establishment of a "reasonable rate of return". The first sentence is uncontested as a proper
articulation of the benefit inquiry, focusing on whet her it was consistent with the usual investment
practice to undertake the challenged investments. The second sentence begins with the phrase "in this
regard", which indicates that it is intended as an e xpression of what precedes it. What follows in the
final sentence is an illustrative list of information that the Panel considered relevant to such an
inquiry, including the type of information relating to financial performance and future prospects of
Aérospatiale that the Panel considered in its analysis . We read the reference to a "reasonable rate of
return" as a reflection of what a private investor contemplating an investment would customarily take
into account, and we do not see any indication in s ubsequent paragraphs of the Panel Report referring
to a reasonable rate of return that suggests otherwise. 2242 We take note of the European Union's
concern that the Panel did not provide further clarif ication as to what it meant in saying that a private
investor would be seeking to achieve a reasonable ra te of return on its investment. We agree that
additional explanation by the Panel may have been he lpful in clarifying its reasoning to the parties.
However, after reviewing these statements by the Panel in the context of its analysis, we do not
consider that the Panel viewed a "reasonable rate of return" as connoting a different test than the
"usual investment practice" standard. We theref ore dismiss the European Union's claim of error
regarding the Panel's interpretation of "benefit" within the meaning of Article 1.1(b) of the
SCM Agreement.
1003. The European Union also alleg es that the Panel's failure "to identify, much less assess, any
evidence concerning what a private investor would have considered to be a 'reasonable rate of return'"
constitutes legal error in the application of Ar ticle 1.1(b), and under Article 11 of the DSU.
2243 The
European Union states that these claims arise "to th e extent that the Panel based its conclusion ... on
the French State's failure to seek a 'reasonable rate of return'." 2244 Given that we do not believe that
the Panel's statements regarding a reasonable rate of return reflected a legal standard different from
the usual investment practice standard the Panel sought to apply, our disposition of the question of the
relevance of a "reasonable rate of return" to the in terpretation of Article 1.1(b) also disposes of these
derivative claims. Accordingly, we also dismiss th e European Union's claims that the Panel erred in

2241Panel Report, para. 7.1358.
2242See Panel Report, paras. 7.1364, 7.1366, 7.1370, and 7.1374.
2243European Union's appellant's submission, paras. 1106 (original emphasis) and 1107.
2244European Union's appellant's submission, para. 1106.
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the application of Article 1.1(b), or failed to pr ovide an objective assessment under Article 11 of the
DSU, by not properly applying a "reasonable rate of return" standard.
(c) The Panel's treatment of the Boeing evidence
1004. The European Union also contends that the Panel's failure to apply a market benchmark based
on the behaviour of Boeing investors constitutes erro r in the application of the standard for assessing
benefit under Article 1.1(b) of the SCM Agreement, and under Article 11 of the DSU. We have noted
in Part VI.B of this Report, parallel arguments of the European Union regarding claims of error in the
application of the "benefit" standard, and under Artic le 11 of the DSU. We have also noted that,
when faced with such overlapping claims, we have to determine first whether to consider such claims
as errors in legal application, or as errors under Article 11.
1005. Pivotal to the European Union's claim is its contention that the Panel failed to apply as a
market benchmark certain evidence submitted by th e European Communities relating to Boeing. For
the European Union, this eviden ce demonstrates that private investors were willing to sustain and
increase investment in LCA product development, "even during periods of weak demand and poor
financial performance, in light of positive future prospects".
2245 Accordingly, the European Union
argues, the evidence shows "that investments in product developmen t by Aérospatiale's principal
investor, the French State, were consistent with the usual investment practice of private investors". 2246
We consider the European Union's arguments to re flect its view that the Panel attributed too little
weight to, or disregarded altogether, the Boeing ev idence it adduced before the Panel. This goes to
the Panel's weighing and appreciation of the evidence, ra ther than to an error in the application of the
legal standard of "benefit" under Article 1.1(b) of the SCM Agreement. We therefore consider it
appropriate to assess the European Union's arguments under Article 11 of the DSU.
1006. In Part VI.B of this Report, we have discussed the standard of review under Article 11 of the
DSU. The Appellate Body has rep eatedly stated that it will not "interfere lightly" with the panel's
fact-finding authority 2247, and has also emphasized that it "cannot base a finding of inconsistency
under Article 11 simply on the conclusion that {it} might have reached a different factual finding

2245European Union's appellant's submission, para. 1114.
2246European Union's appellant's submission, para. 1114.
2247See, for example, Appellate Body Report, US – Wheat Gluten , para. 151; Appellate Body Report,
EC – Sardines, para. 299; and Appellate Body Report, US – Carbon Steel, para. 142.
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from the one the panel reached".
2248 Instead, for a claim under Article 11 to succeed, we must be
satisfied that the panel has exceeded its authority as the trier of facts.2249
1007. We begin by examining the European Union's c ontention that the Panel failed to apply as a
market benchmark certain evidence submitted by th e European Communities relating to Boeing. As
we noted, the Panel considered a range of evidence consisting of information relating to the financial
performance of Aérospatiale and a group of companies in the French defence and aerospace
industries, as well as the future prospects of Aérosp atiale, Airbus GIE, and Boeing. In addressing
evidence offered by the European Communities consisting of Boeing market outlook forecasts, the
Panel stated that it was "inclined to accord the ev idence ... relatively less weight" than evidence of
Aérospatiale's past financial performance in comp arison to that of its peers, together with
management statements as to expectations and prospects contained in Aérospatiale's annual
reports.2250 Similarly, when undertaking its analysis of the individual capital investments, the Panel
repeated that in its assessment it would "attribute re latively less weight to the evidence contained in ...
market outlook forecasts for Boeing".2251 This indicates that the Panel found it appropriate to consider
this Boeing evidence as part of its assessment of us ual investment practice, but decided to ascribe it
less evidentiary value than that given to the i ndicators of the financial performance of the peer
companies, coupled with evidence from Aérospatiale annual reports regarding the company's future
prospects. We also take note of, and consider im portant, the Panel's repeated statements that it
evaluated "all of the evidence in its totality".2252
1008. The European Union may well consider that the Panel should have attached greater
significance to the Boeing evidence that was before it . However, we see no i ndication that the Panel
disregarded this evidence altogether. Rather, it attri buted to that evidence "relatively less weight". In
considering the evidence of Airbus GIE and Boeing market outlook forecasts, for instance, the Panel
identified two concerns supporting its decision to accord such evidence "relatively less weight". 2253
First, the Panel explained that this evidence ge nerally relates to overall market conditions, and
contains very little explanation of the basis for the assumptions and forecasts. Second, the Panel
considered that these forecasts were potentially releva nt to the prospects of Aérospatiale's aircraft
division, but not indicative of the prospects reflected by the range of Aérospatiale's other divisions not
involved in LCA production. Although the European Union contends that the failure to apply the

2248Appellate Body Report, US – Wheat Gluten, para. 151.
2249See Appellate Body Report, US – Wheat Gluten, para. 151.
2250Panel Report, para. 7.1361.
2251Panel Report, paras. 7.1366, 7.1370, and 7.1374.
2252Panel Report, paras. 7.1367, 7.1371, and 7.1375.
2253Panel Report, paras. 7.1366, 7.1370, and 7.1374.
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Boeing evidence as a benchmark was not justified since Boeing was "Aérospatiale's closest peer"
2254,
we consider that the Panel identified plausible gr ounds on which to disagree. As the United States
argues, "during the relevant time period Aérospa tiale was, in much more substantial part, a
European defense company". 2255 Statements by the European Un ion would also seem to call into
question the contention that Boeing was Aérospatiale's closest peer. The European Union itself notes,
for instance, that "Boeing was even more heavily in vested in the LCA sector than Aérospatiale, which
enjoyed greater diversification in the aerospace and defence sector than did Boeing, until its 1997
acquisition of McDonnell Douglas".2256 Taking these considerations into account, we believe that the
Panel had a reasonable basis to differentiate between the business profiles of Boeing and Aérospatiale,
and to attribute relatively less weight to evidence of the future prospects of Boeing.
1009. The European Union stated at the oral hearing that its claim concerning the Panel's treatment
of the Boeing evidence is not limited to the Pane l's consideration of the Boeing market forecast
information. The European Union referred in par ticular to other documents on the Panel record that
purportedly demonstrate the commitment by Boeing and its investors during this period to continue to
invest in LCA production despite poor financial performance. 2257 After reviewing the evidence
referred to by the European Union, we note that market forecasts of growth in the LCA sector, and the
reaction by Boeing or its investors to that prospe ctive growth, would seem to relate to the same
central proposition advanced by the European Communities before the Panel, and by the
European Union on appeal, that Boeing's "positiv e prospects outweighed poor past performance". 2258
In our view, the rationale for according less weight to the evidence of future prospects of a company
such as Boeing, because its business profile differs fr om that of Aérospatiale, could apply equally to
purported evidence of Boeing investor behaviour, a nd we therefore do not consider that the Panel
exceeded its margin of discretion as the trier of facts.
1010. Additionally, the European Union alleges that the Panel's analysis lacks coherence because it
disregarded the Boeing evidence, while accepting evid ence relating to Aérospatiale's peer companies
in France. The European Union explains that the Panel's treatment of the Boeing evidence was
"surprising"2259 given that the Panel elsewhere consider ed that evidence concerning other firms
operating in the same industries was "particularly pr obative of the question whether a private investor

2254European Union's appellant's submission, para. 1113. (original emphasis)
2255United States' appellee's submission, para. 419. (original emphasis)
2256European Union's appellant's submission, para. 1113. The European Union also notes that Boeing's
LCA revenue at the time accounted for approximately 80% of the company's overall revenue. (Ibid., para. 1115)
2257See also European Union's appellant's submission, paras. 1115-1117.
2258European Union's appellant's submission, para. 1118.
2259European Union's appellant's submission, para. 1121.
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would have chosen to make the capital investment s in Aérospatiale at issue in this dispute".
2260 The
European Union considers that the Panel's "var iable treatment of the same class of evidence is
internally incoherent, and contrary to its obligati on to provide coherent reas oning, under Article 11 of
the DSU". 2261 The Panel examined evidence introduced by the United States to show the financial
performance of a peer group of French companies, including Aviation Latécoère, Dassault Aviation,
SAFRAN, Thales, and Zodiac. 2262 These peer group companies, the United States maintains,
consisted of French defence and aerospace companies. 2263 The Panel described these companies as
"firms operating in the same industries, presumably subject to similar business risks and cycles as
Aérospatiale".2264 It is not clear whether the business profile of these companies could also be
considered to reflect only a portion of Aérospatiale 's business activities. When asked at the oral
hearing whether this was the case, the European Union explained that it was not challenging the
Panel's reliance on the French peer group companies per se , but rather pointing to the Panel's
treatment of this evidence to highlight the incohe rence in the Panel's analysis. The United States
responded at the oral hearing that the Panel w ould have had good reasons to favour evidence in
respect of companies that, like Aérospatiale, were located in France and operated in the defence and
aerospace industries, as opposed to a company like Boeing that operated in a different country and
was primarily oriented towards LCA production. Th e United States further argued that Boeing at the
time was in much better financial health than Aérospatiale, and that, even if the Boeing evidence were
attributed more weight, the European Union had not explained how this would have changed the
outcome of the Panel's analysis.2265
1011. After reviewing the Panel record, and mindful of the standard of review applicable under
Article 11 of the DSU, we consider that the Pa nel did not err in finding that, because the Boeing
evidence did not reflect the same range of business activities as those of Aérospatiale, the Panel could
attribute the Boeing evidence less weight than other evidence more indicative of Aérospatiale's future
prospects. We take note of the European Union' s concern that the Panel did not provide further
clarification as to why it was according less weight to the Boeing evidence th an evidence relating to
the French companies with potentially similar busines s profiles. Additional explanation by the Panel
may have been helpful in clarifying its reasoning to th e parties. However, we consider that the Panel,
in deciding to accord relatively more weight to ev idence of the financial performance of a group of
peer French companies in the defence and aerospace industries than to evidence of Boeing's prospects

2260Panel Report, para. 7.1360.
2261European Union's appellant's submission, para. 1125. (footnote omitted)
2262Panel Report, footnote 4454 to para. 7.1330.
2263United States' appellee's submission, footnote 698 to para. 419.
2264Panel Report, para. 7.1360.
2265See United States' appellee's submission, paras. 416 and 422.
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for future LCA production, did not exceed its margin of discretion under Article 11. We therefore
dismiss the European Union's claim that the Pane l's treatment of the evidence relating to Boeing
violated Article 11 of the DSU.
1012. For the foregoing reasons, we uphold the Panel's findings, in paragraphs 7.1367, 7.1371,
and 7.1375 of the Panel Report, that the four cha llenged capital investments were inconsistent with
the usual investment practice of private investors in France and conferred a benefit on Aérospatiale
within the meaning of Article 1.1(b) of the SCM Agreement.
2. Share Transfer

1013. We now address the European Union's appeal of the Panel's finding that the 1998 transfer by
the French Government of its 45.76% interest in Dassault Aviation to Aérospatiale conferred a benefit
within the meaning of Article 1.1(b) of the SCM Agreement. In December 1998, the French
Government transferred its 45.76% interest in Das sault Aviation to Aérospatiale in exchange for new
shares of Aérospatiale that were to be issued at a later date following a report by a panel of
independent experts, the Commissaires aux apports (the "Commissaires' report").2266 In March 1999,
the Commissaires' report set a net book value for the Dassault Aviation shares and, in May 1999,
Aérospatiale issued new shares to the French Gove rnment on the basis of an exchange ratio of two
Aérospatiale shares for each Dassault Aviation share. 2267 Prior to the transfer of its 45.76% interest in
Dassault Aviation to Aérospatiale, the French Gove rnment held control rights in Dassault Aviation by
virtue of certain double voting shares. Upon the tran sfer of the French Government's interest, these
double voting rights were cancelled. 2268 The French Government's transfer of its holdings in Dassault
Aviation was a preliminary step in the planned cons olidation of the French aeronautic, defence, and
space industries through the combination of Aérospatia le and MHT, and the s ubsequent partial public
offering of shares in the combin ed Aérospatiale-Matra entity. 2269 Below we summarize the findings
of the Panel concerning the share transfer before assessing the European Union's claims on appeal.
(a) The Panel's findings
1014. The Panel stated that its approach to the issue of benefit was "to ask whether the United States
ha{d} demonstrated that a private investor would not have made the equity investment in question
based on the information available at the time." 2270 The United States argued that a private investor

2266Supra, footnote 445.
2267Panel Report, para. 7.1382.
2268Panel Report, para. 7.1384.
2269Panel Report, para. 7.1383.
2270Panel Report, para. 7.1407.
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would not have made an equity infusion because Aé rospatiale was in dire financial circumstances at
the time, the transaction involved considerable co sts associated with ceding control of Dassault
Aviation, and there was nothing to suggest that tho se costs were outweighed by gains that could have
been expected from the subsequent sal e of shares of Aérospatiale-Matra.
2271 The Panel did not regard
the fact that Aérospatiale was undercapitalized by the French Government, as its sole shareholder,
necessarily to mean that a private investor would not have provided capital to the company. 2272 The
Panel further found that, although Aérospatiale's debt-to-equity ratios an d debt coverage ratios
continued to be inferior to the average ratios of its peer group of companies, Aérospatiale's return on
equity in 1996 and 1997 exceeded the average return on equity for its peer group of companies. The
Panel concluded that the evidence demonstrated "tha t Aérospatiale's financial condition and prospects
in 1996 and 1997 had impr oved over prior periods".2273 The Panel went on to observe, however, that,
despite this improvement, Aérospa tiale's capitalization brought a bout by the share transfer was
necessary in order to increase the chances that the pl anned privatization of Aé rospatiale could occur
as soon as possible, and that this "was regarded as necessary to improve the French government's
position in its negotiations with ot her Airbus governments over the term s of the consolidation of the
European aerospace industry". 2274 For these reasons, the Panel c onsidered that Aérospatiale's
financial position and prospects immediately prior to the French Government's transfer of its 45.76%
interest in Dassault Aviation, while improved, "were not improved to a degree that would have
enabled Aérospatiale, absent the addition of th e 45.76 percent interest in Dassault Aviation
(representing a 20 percent increase in its total consolidated capital), to attract private capital."
2275
1015. The Panel then turned to consid er the European Communities' ar gument that, for this type of
transaction, the proper question is whether it is cons istent with the usual investment practice for a
private owner of wholly owned investments to conso lidate those assets in advance of their sale. The
Panel considered that a party may successfully re but a claim that an equity infusion conferred a
benefit "by showing that the transaction in question w as a preliminary step in, or otherwise part of, a
restructuring or consolidation project and that, considered in the context of the overall returns
expected to be generated from that restructuring or consolidation project, the equity investment was
consistent with the usual investment practice of a private investor."
2276 The Panel considered,
however, that the European Communities had presented no evidence to persuade it that, at the time of
the share transfer, the French Government had a rational basis for believing that the overall returns

2271Panel Report, para. 7.1407.
2272Panel Report, para. 7.1408.
2273Panel Report, para. 7.1408. (footnote omitted)
2274Panel Report, para. 7.1409. (footnote omitted)
2275Panel Report, para. 7.1409.
2276Panel Report, para. 7.1411.
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from a public offering of shares in an entity that combined the French Government's interests in
Dassault Aviation with Aérospatiale exceeded the returns it could exp ect from separately retaining its
equity interests in Aérospatiale and Dassault Aviation.
2277
1016. The European Communities subm itted evidence showing that the Dassault Aviation stake
received by Aérospatiale had been valued separately from Aérospatiale in the context of calculating a
public offering price for Aérospatiale-Matra. The Panel observed, however, that the valuations put
forward by the European Communities were all made after the French Government had decided to
transfer its 45.76% interest in Dassault Aviation to Aé rospatiale. Moreover, the Panel considered that
these valuations did not include an assessment of the relative merits of retaining separate holdings of
Dassault Aviation and Aérospatiale, versus combin ing those holdings and merging them with MHT
with a view to conducting a public offering of the merg ed entity. Rather, they reflected valuations of
Aérospatiale and MHT and estimates of the synergies that could be expected from the combination of
these two entities.2278
1017. The Panel therefore concluded that the French Government's transfer of its 45.76% equity
interest in Dassault Aviation in exchange for newly issued shares in Aérospatiale was inconsistent
with the usual investment practice of a private inv estor in France, and that the transaction therefore
conferred a benefit on Aérospatiale within the meaning of Article 1.1(b) of the SCM Agreement.2279
(b) The Panel's assessment under Article 1.1(b) of the SCM Agreement
1018. The European Union argues that the Panel co mmitted errors in both the interpretation and
application of the "benefit" standard set out in Article 1.1(b) of the SCM Agreement. The
European Union considers that the Panel's interpretative error is re flected in its rejection of the
Commissaires' report as a benchmark in assessing benefit under Article 1.1(b). 2280 Alternatively, the
European Union argues that the Panel improperly app lied the legal standard under Article 1.1(b) by
excluding the relevance of the Commissaires' report and certain investme nt bank valuations in its
appraisal of whether a benefit was conferred.2281 The European Union further maintains that the Panel
did not identify "any affirmative evidence" de monstrating that the anticipated returns from
consolidating the Aérospatiale and Dassault Aviation holdings were less than the returns expected

2277Panel Report, para. 7.1411.
2278Panel Report, para. 7.1412.
2279Panel Report, para. 7.1412.
2280European Union's appellant's submission, para. 1144.
2281European Union's appellant's submission, paras. 1150 and 1151.
WT/DS316/AB/R BCI deleted, as indicated [***]

from maintaining those stakes separately.
2282 In our view, although the European Union styles its
claims as distinct legal errors of interpretation and application, they address the same underlying
contention that the Panel failed to recognize the valu e of evidence showing that the shares had been
transferred on market terms. In the European Union's view, that error results from either a
misapprehension of the legal standard, or a failure to apply that legal standard to the facts of the case.
To address these claims of the European Union, we th erefore turn to consider the Panel's analysis of
the share transfer.
1019. As we have previously noted, Article 14(a) of the SCM Agreement focuses the inquiry on the
"investment decision". 2283 This reflects an ex ante assessment of the equity investment, taking into
account the costs and expected returns of the trans action as compared to the usual investment practice
of private investors at the moment the decision to invest is undertaken. As we stated, the focus of
Article 14(a) on the "investment decision" is a cr itical step in the analysis because it identifies what is
to be compared to the market benchmark, and when that comparison is to be situated. Thus, in
assessing the European Union's claims on appeal, we first seek to identify the "investment decision"
that the Panel was to compare against the market benchmark consisting of the usual investment
practice.
1020. The United States argued before the Panel that the proper question was whether a private
investor would undertake an equity investment in a financially distressed Aérospatiale, with the
knowledge that the transaction involved costs associ ated with ceding control of Dassault Aviation,
and that there was no evidence th at those costs would be outweighed by gains expected from the
subsequent sale of shares of Aérospatiale-Matra. 2284 For its part, the European Communities
characterized the question as whether a private inv estor would have consolidated its wholly owned
investments in Aérospatiale and Dassault Aviation prior to the sale of those assets. 2285 Thus, both
parties maintained before the Panel that the tran saction was undertaken in the expectation of returns
from a process of consolidation and subsequent pub lic offering of shares. Regarding the costs and
returns associated with relinquishing control in Dassault Aviation, the European Communities argued
that the double voting shares had no market value b ecause they could not legally be transferred, and

2282European Union's appellant's submission, para. 1152. The European Union stated in a footnote that
the Appellate Body could also consider this as an error under Article 11 of the DSU to the extent that the Panel
lacked a sufficient evidentiary basis for its finding. ( Ibid., footnote 1575 to para. 1152 (referring to Appellate
2283See supra, para. 999.
2284Panel Report, para. 7.1407.
2285Panel Report, para. 7.1410.
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that any purported loss would, in any event, ha ve been outweighed by the synergies resulting from
consolidating Aérospatiale and Dassault Aviation.
2286
1021. We consider that there is basic agreement be tween the participants that the "investment
decision" at issue was whether to transfer shares in Dassault Aviation to Aérospatiale in anticipation
of returns from the consolidation and subsequent public offering of shares. As part of that transaction,
neither participant disputes that the French Gove rnment relinquished control over Dassault Aviation
by virtue of the share transfer that effected that consolidation. Rather, they disagree over the value to
be associated with that loss of control, and the value of the returns generated as a result of the
consolidation and eventual privatization.
1022. In its analysis of benefit, the Panel consid ered that the fact that Aérospatiale was
undercapitalized did not necessarily mean that a priv ate investor would not have provided capital to
the company.2287 The Panel proceeded to examine Aérospa tiale's financial ratios during this period
and concluded that, in the years leading up to the sh are transfer, Aérospatiale's financial condition had
improved over prior periods.2288 The Panel further considered that the share transfer was necessary in
order to improve (i) the chances that the planned privatization would occur as soon as possible and
(ii) the French Government's position in negotiations with other Airbus governments over the terms of
the consolidation of the European aerospace industry. 2289 Following this reasoning, the Panel
concluded that Aérospatiale's financial position and prospects immediately prior to the French
Government's transfer of its 45.76% interest in Dassault Aviation, while improved, "were not
improved to a degree that would have enabled Aéro spatiale, absent the addition of the 45.76 percent
interest in Dassault Aviation (representing a 20 percen t increase in its total consolidated capital), to
attract private capital."2290
1023. In our view, the Panel's analysis reveals a failu re to identify the correct "investment decision"
to be assessed in relation to the usual investment practice, and therefore an error in the Panel's
application of the legal standard under Articles 1.1(b) and 14(a) to the facts of this case. As we have
noted, both parties maintained before the Panel that the "investment decision" was made in
anticipation of the returns from the transfer of sh ares in Dassault Aviation to Aérospatiale and the
further consolidation and subsequent public offering of shares. In particular, the United States alleged
not only that Aérospatiale continued to be in poor financial condition, but also that the costs

2286Panel Report, paras. 7.1393 and 7.1394. See also European Union's appellant's submission,
2287Panel Report, para. 7.1408.
2288Panel Report, para. 7.1408.
2289Panel Report, para. 7.1409.
2290Panel Report, para. 7.1409.
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associated with the investment—including the relin quishing of control of Dassault Aviation—were
not outweighed by the expected return from the eventual public offering of Aérospatiale-Matra shares.
The Panel, however, does not appear to have made any affirmative findings either in respect of the
costs of the transaction, including the value of the loss of control of Dassault Aviation, or in respect of
the expected returns from the consolidation and s ubsequent public offering of shares. Rather, the
Panel found simply that Aérospatiale was not able "to attract private capital".
1024. It was not sufficient for the Panel to examine whether a company is in a position to attract
private capital without reference to the prope r investment decision at issue, because the
"attractiveness" of an investment will be determin ed by the particular costs and expected returns
associated with that decision. A distressed company can be revived through a restructuring in the
form of an equity infusion if the reconstituted compa ny is expected to generate sufficient synergies or
profits to secure a market return. The Panel, howev er, appears to have limited its conclusion to an
assessment of the financial health of Aérospatiale immediately prior to the share transfer. As we have
noted, although the Panel referred to the prospectiv e consolidation and privatization of the French
Government's holdings in Aérospatiale and Dassault Aviation, it did so only to conclude that there
were strategic interests associated with accelera ting the process of privatization to strengthen the
French Government's position in th e overall consolidation of the European aerospace industry. This,
however, failed to engage the central question of whether the anticipated returns of the equity
investment were sufficient to jus tify the costs, including the loss of control of Dassault Aviation, of
transferring the French Government's stake in Dassault Aviation to Aérospatiale.
1025. The fact that the Panel failed to identify the co rrect "investment decision" is confirmed by its
insistence that it was for the Eur opean Communities to demonstrate on rebuttal that the transaction in
question was consistent with the usual investment practice because it was part of a restructuring or
consolidation project that was expected to generate sufficient returns. As we have explained, in the
light of the parties' arguments and evidence concer ning the value of the loss of control over Dassault
Aviation, and the extent of the expected returns created through consolidation and privatization, it was
precisely this investment decision that the Panel was tasked with assessing for consistency with the
usual investment practice. We do not see that the Panel ever reached an affirmative conclusion that
the decision to combine the French Government's holdings in Aérospatiale and Dassault Aviation,
given the investment costs and expected returns associated with that transaction, was inconsistent with
the usual investment practice, and therefore conferre d a benefit, within the meaning of Articles 1.1(b)
and 14(a) of the SCM Agreement. Accordingly, we consider that th e Panel erred in its application of
the legal standard to the facts of this case.
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1026. For the foregoing reasons, we reverse the Panel's finding, in paragraph 7.1412 of the Panel
Report, that the French Government's transfer of shares of Dassault Aviation to Aérospatiale
conferred a benefit on Aérospatiale within the meaning of Article 1.1(b) of the SCM Agreement.
1027. As we have observed, the Panel did not make affirmative findings regarding either the costs
of the transaction, including the value of the loss of control of Dassault Aviation, or the expected
returns from the consolidation and subsequent public offering of shares. We further note that the
evidence submitted by the parties to the Panel in respect of these valuations is contested.
Accordingly, we are unable to complete the analys is to determine whether a benefit was conferred
within the meaning of Article 1.1(b) of the SCM Agreement.
VIII. Export Subsidies
A. Introduction
1028. The European Union alleges that the Panel e rred in its interpretation and application of
Article 3.1(a) and footnote 4 of the SCM Agreement in finding that the subsidies granted under the
German, Spanish, and UK LA/MSF contracts for th e A380 were "in fact tied to … anticipated
exportation" within the meaning of footnote 4, and were thus continge nt in fact upon export
performance.
2291 The United States submits that the Pa nel also misapplied the standard for de facto
export contingency under Article 3.1(a) and footnote 4 of the SCM Agreement in finding that the
United States had failed to show that the subsidies granted under the French LA/MSF contracts for the
A380, A340-500/600, and A330-200, and the Span ish LA/MSF contract for the A340-500/600 were
contingent in fact upon export performance. 2292 To address the issues rai sed by the European Union's
and the United States' appeals, we begin with a br ief summary of the Panel's findings regarding the
alleged export-contingent subsidies. We then consider the proper interpretation of the legal standard
for de facto export contingency under Article 3.1(a) and footnote 4 of the SCM Agreement. Finally,
we examine whether the Panel misinterpreted or misapplied that standard in reaching its findings
concerning the seven LA/MSF measures at issue.

2291Panel Report, para. 7.689.
2292Panel Report, para. 7.689.
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B. The Panel's Findings
1029. At the outset, the Panel noted that, although the United States made claims regarding both in
law and in fact export contingency, it described its complaint as "principally a claim of de facto
contingency".
2293 Therefore, the Panel began its evaluation with the United States' claim that the
LA/MSF for the A380, A340-500/600, and A330-200 constituted subsidies that are contingent in fact
upon export performance.
1030. The Panel observed that the ordinary meaning of the word "contingent" in Article 3.1(a) of
the SCM Agreement is "conditional" or "dependent" 2294, and, as held by the Appellate Body in
previous disputes, contingency requires a demons tration of "a relationship of conditionality or
dependence".2295 The Panel also recalled the three elemen ts identified by the Appellate Body in
Canada – Aircraft, which must be shown in order to establis h contingency in fact within the meaning
of footnote 4 of the SCM Agreement2296, namely that (i) the granting of a subsidy (ii) is tied to (iii)
actual or anticipated exportation or export earnings. 2297 The Panel found that "'anticipated'
exportation may be understood to be exportation that a granting authority considers, expects or
foresees will occur after it has granted a subsidy."2298 According to the Panel, this does not mean that
the contingency relationship between the granting of a subsidy and anticipated exportation could be
demonstrated "by merely showing that a granting authority anticipated export performance." 2299
Rather, in the Panel's view:
... in order to qualify as a prohibited export subsidy, the grant of the
subsidy must be conditional or dependent upon actual or anticipated
export performance; or as we put it above, a subsidy must be granted
because of actual or anticipated export performance. 2300 (original
emphasis)

2293Panel Report, para. 7.628 (quoting United States' response to Panel Question 10).
2294Panel Report, para. 7.634.
Article 3.1(a) of the SCM Agreement prohibits "subsidies contingent, in law or in fact, whether solely or as one
of several other conditions, upon export performance, including those illustrated in Annex I".
2296Footnote 4 of the SCM Agreement, which specifies certain requirem ents for contingency "in fact",
states:
This standard is met when the facts dem onstrate that the granting of a subsidy,
without having been made legally contingent upon export performance, is in fact tied
to actual or anticipated exportation or export earnings. The mere fact that a subsidy
is granted to enterprises which export shall not for that reason alone be considered to
be an export subsidy within the meaning of this provision.
2298Panel Report, para. 7.641. (original emphasis)
2299Panel Report, para. 7.644.
2300Panel Report, para. 7.648.
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1031. The Panel also recalled the Appellate Body's finding that contingency in fact must be
"inferred from the total configuration of facts cons tituting and surrounding the granting of the
subsidy, none of which is likely to be decisive in any given case".
2301 Thus, "the mere fact that an
enterprise exports cannot, alone, be used to establish the required contingency."2302
1032. The Panel next turned to review the evidence in order to dete rmine whether the United States
had established that the LA/MSF subsidies at issue were contingent in fact upon anticipated export
performance. The Panel found that the United Stat es had submitted sufficien t evidence to establish
that, at the time the relevant member State govern ments concluded the LA/MSF contracts, they were
fully aware that Airbus was a global company operating in a global market, and that the A380,
A340-500/600, and A330-200 projects would involve Airbus selling most, if not all, of its production
in export markets.
2303 The Panel then examined the eviden ce submitted by the United States on the
contingent relationship between the subsidies at issue and anticipated export performance. In the
Panel's view, it was clear from the repayment provisions of the contracts, the market forecasts, as well
as certain HSBI (including Airbus' business case for the A380 and French and UK Governments'
critical project appraisals)2304, that achieving the level of sales n eeded fully to repay each loan would
require Airbus to make a s ubstantial amount of exports. 2305 Moreover, the Panel noted that, as the
European Communities had explained, the member States expected that the loans granted under the
LA/MSF would be fully repaid. 2306 Thus, the Panel concluded that the governments of these member
States, in granting the loans, must have counted on Airbus selling a sufficient number of LCA so as to
repay the loans and that such sales necessarily included a substantial number of exports. 2307 On this
basis, the Panel found that:

emphasis)).
2302Panel Report, para. 7.648. The Panel noted, howev er, that the fact that a company is export-
oriented "may be taken into account as a relevant fact, provided that it is one of several facts which are
considered and is not the only fact suppor ting a finding" of export contingency. ( Ibid. (quoting Appellate Body
Report, Canada – Aircraft (Article 21.5 – Brazil) , para. 48, in turn quoting Appellate Body Report, Canada –
Aircraft, para. 173 (original emphasis) (underlining added by the Panel omitted))
2303Panel Report, paras. 7.652, 7.656, and 7.659.
2304Panel Report, para. 7.678 (referring to Airbus 2000 GMF (Panel Exhibit US-358); French A380
contract (Panel Exhibit US-365 (BCI)); German A380 contract (Panel Exhibit US-72 (BCI)); Spanish A380
contract (Panel Exhibit US-73 (BCI)); UK A380 contract (Panel Exhibit US-79 (BCI)); French A340-500/600
contract (Panel Exhibit US-36 (BCI)); Spanish A340-500/600 contract (Panel Exhibits US-37 (BCI)); French
A330-200 contract (Panel Ex hibit US-78 (BCI)); United States' first written submission to the Panel (HSBI),
paras. 39-42, 50-53, and 57-60; United States' oral statement at the second Panel meeting (HSBI), paras. 2-7;
and Panel Exhibit DS316-EC-HSBI-0001143)
2305Panel Report, para. 7.678.
2306Panel Report, para. 7.678 (referring to European Communities' first written submission to the Panel,
para. 638).
2307Panel Report, para. 7.678.
WT/DS316/AB/R BCI deleted, as indicated [***]

... without being decisive, this evidence supports the view that the
provision of LA/MSF on sales-depend ent repayment terms was, at
least in part, "conditional" or "dep endent for its existence" upon the
EC member States' anticipated exportation or export earnings.
2308
1033. The Panel then turned to examine the additi onal evidence advanced by the United States in
order to determine whether that evidence "corroborat e{d}" the alleged tie between the granting of the
subsidies and anticipated exportation. 2309 Such additional evidence included other provisions in the
LA/MSF contracts, representations made by Air bus in its application for the German LA/MSF
measure, statements by government officials of the United Kingdom and France, as well as
information from the French Government's critical pr oject appraisals. On this basis, the Panel found
that, with respect to the LA/MSF contracts fo r the A380 by Germany, Spain, and the United
Kingdom, the relevant evidence demonstrated that the granting of the subsidies under these contracts
was contingent in fact upon anticipated export performance.2310 In contrast, with respect to the French
LA/MSF contracts for the A380, A340-500/600, and A330-200 and the Spanish LA/MSF contract for
the A340-500/600, the Panel found that the additi onal evidence did not add any support to the
United States' claim beyond what was alr eady indicated by the repayment provisions. 2311 Thus, the
Panel concluded that the United States failed to est ablish that the granting of subsidies pursuant to
these LA/MSF contracts was contingent in fact upon anticipated export performance.2312
1034. Turning to the United States' claim that the same LA/MSF measures are subsidies contingent,
in law, on export performance 2313, the Panel noted the United Stat es' argument that the terms and
conditions of each of the challenged LA/MSF contract s, when considered in the light of the sales
projection in Airbus' Global Market Forecast ("GMF") and project appraisals made by the member
State governments, gave rise to the necessary im plication that the provision of LA/MSF was
contingent in law on anticipated export performance. In the Panel's view, "by relying upon such facts,
the United States' claim stray{ed } from a complaint about what {could} be understood from the legal
obligations written into the LA/MSF contracts, to a complaint about how those legal obligations

2308Panel Report, para. 7.678.
2309Panel Report, para. 7.679.
2310Panel Report, paras. 7.679-7.683.
2311The Panel reviewed the Critical Project Appraisals by the French Government but did not discuss
them in the Panel Report, as they were designated by the European Communities as HSBI.
2312Panel Report, paras. 7.684-7.688.
2313At the outset, the Panel addressed the "threshold question" of "whether Article 3.1(a) and footnote 4
envisage the possibility of bringing a claim of subsidization contingent in law upon anticipated export
performance". (Panel Report, para. 7.695) The Panel considered it "appropriate to read footnote 4 as informing
the meaning of 'export performance' for the purpose of in law contingency subsidy claims under Article 3.1(a)"
and, consequently, the Panel saw "no obstacle to the United States" raising a complaint that the LA/MSF at
issue was contingent, in law, upon anticipated export performance. (Ibid., para. 7.701) The European Union and
the United States have not appealed these Panel findings. Therefore, we need not explore the relevance of
footnote 4 to the interpretation of Article 3.1(a) with respect to de jure export contingency.
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{could} be understood in the light of relevant facts and circumstances ."
2314 Accordingly, the Panel
"agree{d} with the European Communities that the United States' claims of in law export contingency
against the challenged LA/MSF measures {were} improperly constituted." 2315 For this reason, the
Panel "dismiss{ed} the United States' claim that the provision of LA/MSF for the A380,
A340-500/600 and A330-200 was contingent in law upon anticipated export performance, within the
meaning of Article 3.1(a) and footnote 4 of the SCM Agreement."2316
1035. Having dismissed the United States' claim, the Panel nevertheless went on to consider
whether it would have arrived at a different c onclusion had it taken into account the evidence
submitted by the United States extraneous to the LA/MSF contracts. 2317 The Panel found that, based
on the evidence submitted by the United States, "as a matter of law, the EC member States provided
the LA/MSF on the basis of their expectation (but not the condition) that Airbus would export." 2318
The Panel thus concluded that, even assuming th at the United States could rely upon evidence
extraneous to the LA/MSF, the United States would have failed to demonstrate that the LA/MSF was
contingent, in law, upon anticipated export performance.2319
C. The Interpretation of Article 3.1(a) and Footnote 4 of the SCM Agreement
1036. Article 3.1(a) of the SCM Agreement prohibits "subsidies contingent, in law or in fact,
whether solely or as one of several other conditions, upon export performance, including those
illustrated in Annex I". Footnote 4 of that provi sion, which elaborates on the standard for export
contingency "in fact", states:
This standard is met when the 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.
1037. The Appellate Body explained in Canada – Aircraft that the word "contingent" means
"conditional" or "dependent for its existence on something else"
2320, and that the legal standard for
export contingency expressed in Article 3.1(a) is the same for both de jure and de facto

2314Panel Report, para. 7.713. (original emphasis)
2315Panel Report, para. 7.713.
2316Panel Report, para. 7.713. (original emphasis)
2317Panel Report, para. 7.714.
2318Panel Report, para. 7.716.
2319Panel Report, para. 7.716.
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contingency.
2321 With regard to the standard for de facto export contingency set out in footnote 4, the
Appellate Body noted that the ordinary meaning of the word "tie" in the first sentence of the footnote
is to "limit or restrict as to ... conditions". 2322 The Appellate Body thus found that to satisfy the
standard for de facto export contingency "a relationship of conditionality or dependence" must be
demonstrated between the subsidy and "actual or anticipated exportation or export earnings". 2323 The
Appellate Body further observed that the meaning of the word "anticipated" under footnote 4 is
"expected", and that "{w}hether exports were antic ipated or 'expected' is to be gleaned from an
examination of objective evidence." 2324 The Appellate Body stressed, however, that the use of this
word does not transform the standard for "contingent … in fact" into a standard that is satisfied by
merely ascertaining "expectations" of exports on the part of th e granting authority.2325 The Appellate
Body explained that, although a subsidy "may we ll be granted in the knowledge, or with the
anticipation, that exports will result", "that alone is not sufficient, because that alone is not proof that
the granting of the subsidy is tied to the anticipation of exportation."2326
1038. The Appellate Body found that the evidence that may demonstrate de jure export contingency
is different from evidence that may reveal de facto export contingency. De jure contingency "can be
demonstrated on the basis of the very words of th e relevant legislation, regulation or other legal
instrument constituting the measure."2327 Nonetheless, de jure export contingency does not have to be
set out expressly, but can also be derived by "necessary implication" from the wording of a legal
instrument.2328 By contrast, the evidence needed to establish de facto export contingency goes beyond
a legal instrument and includes a variety of factual elements concerning the granting of the subsidy in
a specific case. In this respect, the Appellate Body stated that:
{p}roving de facto export contingency is a much more difficult task.
There is no single legal document which will demonstrate, on its
face, that a subsidy is "contingent … in fact … upon export
performance". Instead, the existe nce of this relationship of
contingency, between the subsidy and export performance, must be
inferred from the total configuration of the facts constituting and

2323Appellate Body Report, Canada – Aircraft, para. 171. Similarly, in Canada – Autos, the Appellate
Body noted that footnote 4 to Article 3.1(a) uses the words "tied to" as a synonym for "contingent" or
"conditional" and that, consequently, a "tie", amounting to the relationship of contingency, between the granting
of the subsidy and actual or anticipated exportation meets the legal standard of "contingent" in Article 3.1(a) of
the SCM Agreement. (Appellate Body Report, Canada – Autos, para. 107)
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surrounding the granting of the subsidy, none of which on its own is
likely to be decisive in any given case.
2329 (original emphasis)
1039. Moreover, the Appellate Body emphasized th at, under the second sentence of footnote 4,
"merely knowing that a recipient's sales are export-oriented does not demonstrate, without more, that
the granting of a subsidy is tied to actual or anticipated exports."
2330 Rather, "the export orientation of
a recipient may be taken into account as a relevant fact, provided that it is one of several facts which
are considered and is not the only fact supporting a finding."2331
1040. Having reviewed the relevant jurisprudence under Article 3.1(a) and footnote 4 of the
SCM Agreement, we turn to examine the specific interpre tative question before us. On appeal, the
European Union submits that the Panel erroneously found that the standard for de facto export
contingency could be met when it is demonstrated that "there is the anticipating of exports by the
granting authority, and that because of such anticipating of exports a subsidy is granted". 2332 The
European Union notes that the Panel expressed this standard in terms of a "motivation"2333 upon which
the granting of subsidy is " dependent".2334 The European Union thus characterizes the legal standard
set out by the Panel as the "dependent motivation" standard. 2335 In the European Union's view, the
standard for de facto export contingency cannot be equated with motivation. Rather, in order to show
that a subsidy is contingent upon export performance, the obligation to grant the subsidy and the right
to receive it has to be limited by the condition of export.2336
1041. The United States responds that the Panel correc tly concluded that "anticipated" exportation
means exportation that a granting authority consid ers, expects or foresees will occur after it has
granted a subsidy. 2337 Moreover, the United States maintains that the Panel properly found that the
legal standard for de facto export contingency focuses on whethe r a relationship of conditionality

2330Appellate Body Report, Canada – Aircraft, para. 173. To recall, the second sentence provides that
"{t}he mere fact that a subsidy is granted to enterp rises which export shall not for that reason alone be
considered to be an export subsidy within the meaning of {Article 3.1 of the SCM Agreement}".
2331Appellate Body Report, Canada – Aircraft, para. 173. (original emphasis)
2332European Union's appellant's submission, para. 1282 (referring to Panel Report, paras. 7.636,
second sentence; 7.644, fourth sentence; 7.648, third sentence; 7.680, final sentence; 7.681, final sentence;
and 7.683, final sentence (original emphasis)).
2333European Union's appellant's submission, para. 1282 (quoting Panel Report, paras. 7.675, first and
second sentences; 7.676, first sentence; 7.677, first sentence; and 7.690, final sentence). (emphasis added by
the European Union)
2334European Union's appellant's submission, para. 1282 (quoting Panel Report, paras. 7.634, first
sentence; 7.636, second sentence; 7.642, first sentence ; 7.648, third sentence; 7.678; and 7.715, final
sentence). (emphasis added by the European Union)
2335European Union's appellant's submission, para. 1278.
2336European Union's appellant's submission, para. 1311.
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existed between anticipated exportation and the granting of the subsidy.
2338 In the United States' view,
in reaching its finding that the subsidies gr anted under the German, Spanish, and UK LA/MSF
contracts for the A380 were contingent in fact upon export performance, the Panel "accurately
articulated the standard for 'in fact' contingency upon anticipated exportation or export earnings."2339
1042. Thus, while both the European Union and the Un ited States agree that the legal standard of
de facto export contingency requires a relationship of conditionality between the subsidies and
exportation, they disagree as to the precise content of the legal standard for subsidies contingent in
fact on anticipated exportation. The inte rpretative issue before us, therefore, is what must be
demonstrated in order to establish that a subsidy is " in fact tied to ... anticipated exportation " within
the meaning of footnote 4 of the SCM Agreement.
1043. We recall the Appellate Body's finding that the word "anticipat ed" means "expected". 2340
Therefore, whereas "actual exportation" in footnote 4 refers to exportation that has occurred at the
time a subsidy is granted, "anticipated exportation" means exportation that is expected to occur in the
future. We also note that, in contrast to the term "actual exportation", the term "anticipated
exportation" inherently contains an element of uncerta inty, in that an exportation expected to occur in
the future may, or may not, actually occur. By referring to the "granting of a subsidy" that is tied to
"anticipated" exportation, footnote 4 describes the situation that exists at the time a subsidy is granted,
but does not require that the anticipated exportati on be realized after the subsidy is granted.
Moreover, the term "anticipat ed exportation", read in isolation, does not indicate by whom the
exportation is anticipated. However, as the Appella te Body noted, by using the phrase "the granting
of a subsidy", the inquiry under footnote 4 must focus on "whether the granting authority imposed a
condition based on export performan ce in providing the subsidy." 2341 Consistent with this
understanding, it is the granting authority that "a nticipates" that exportation will occur after the
granting of the subsidy, and that grants a subsidy on the condition of such anticipated exportation.

2338United States' appellee's submission, para. 293. In its other appeal, the United States argues that the
Panel erred in its application of the standard for de facto export contingency by "effectively" requiring evidence
of the governments' motivation in granting the LA/MSF at issue. (United States' other appellant's submission,
para. 12) Nonetheless, the United States argues that, "apart from its decision to mandate an additional
requirement of 'subjective motivation'", the Panel articula ted the correct legal standard. (United States'
appellee's submission, para. 270 (original emphasis))
2341Appellate Body Report, Canada – Aircraft , para. 170. (original emphasis) The Appellate Body
therefore rejected the view that an analysis of "contingent … in fact … upon export performance" should focus
on the reasonable knowledge of the recipient.
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1044. Because anticipated exportation "alone is not proof that the granting of the subsidy is tied to
the anticipation of exportation"
2342, the legal standard for de facto export contingency under
Article 3.1(a) and footnote 4 of the SCM Agreement further requires that there exists a relationship of
conditionality between the granting of the subsidy a nd anticipated exportation. Where a subsidy is
alleged to be "in fact tied to … anticipated exporta tion", the relationship of conditionality is, unlike in
the case of de jure export contingency, not expressly or by necessary implication provided in the
terms of the relevant legal instrument granting the subsidy. Under such circumstances, we consider
that the factual equivalent of such conditionality can be established by recourse to the following test:
is the granting of the subsidy geared to induce the promotion of future export performance by the
recipient?
1045. In reaching this interpretation of the standard for de facto export contingency under
Article 3.1(a) and footnote 4 of the SCM Agreement, we do not suggest that the standard is met
merely because the granting of the subsidy is designed to increase a recipient's production, even if the
increased production is exported in whole. We also do not suggest that the fact that the granting of
the subsidy may, in addition to increasing exports, also increase the recipient's domestic sales would
prevent a finding of de facto export contingency. Rather, we consider that the standard for de facto
export contingency under Article 3.1(a) and footnote 4 of the SCM Agreement would be met when the
subsidy is granted so as to provide an incentive to the recipient to export in a way that is not simply
reflective of the conditions of supply and demand in the domestic and export markets undistorted by
the granting of the subsidy.
1046. The existence of de facto export contingency, as set out above, "must be inferred from the
total configuration of the facts constituting and surrounding the granting of the subsidy" 2343, which
may include the following factors: (i) the design a nd structure of the measure granting the subsidy;
(ii) the modalities of operation set out in such a meas ure; and (iii) the relevant factual circumstances
surrounding the granting of the subsidy that provide the context for understanding the measure's
design, structure, and modalities of operation.
1047. Moreover, where relevant evidence exists, th e assessment could be based on a comparison
between, on the one hand, the ratio of anticipated export and domestic sales of the subsidized product
that would come about in consequence of the gran ting of the subsidy, and, on the other hand, the
situation in the absence of the subsidy. The situation in the absence of the subsidy may be understood
on the basis of historical sales of the same product by the recipient in the domestic and export markets

2342Appellate Body Report, Canada – Aircraft, para. 172. (original emphasis)
2343Appellate Body Report, Canada – Aircraft, para. 167. (original emphasis)
WT/DS316/AB/R BCI deleted, as indicated [***]

before the subsidy was granted. In the event that th ere are no historical data untainted by the subsidy,
or the subsidized product is a new product for which no historical data exists, the comparison could be
made with the performance that a profit-maximizing firm would hypothetically be expected to achieve
in the export and domestic markets in the absence of the subsidy. Where the evidence shows, all
other things being equal, that the granting of th e subsidy provides an incen tive to skew anticipated
sales towards exports, in comparison with the hi storical performance of the recipient or the
hypothetical performance of a profit-maximizing firm in the absence of the subsidy, this would be an
indication that the granting of the subsidy is in f act tied to anticipated exportation within the meaning
of Article 3.1(a) and footnote 4 of the SCM Agreement.
1048. The following numerical examples illustrate when the granting of a subsidy may, or may not,
be geared to induce promotion of future export perfo rmance by a recipient. Assume that a subsidy is
designed to allow a recipient to in crease its future production by five units. Assume further that the
existing ratio of the recipient's export sales to domestic sal es, at the time the subsidy is granted, is 2:3.
The granting of the subsidy will not be tied to anticipated exportation if, all other things being equal,
the anticipated ratio of export sales to domestic sales is not greater than the existing ratio. In other
words, if, under the measure granting the subsidy, th e recipient would not be expected to export more
than two of the additional five units to be produced, th en this is indicative of the absence of a tie. By
contrast, the granting of the subsidy would be tied to anticipated exportation if, all other things equal,
the recipient is expected to export at least three of the five additional units to be produced. In other
words, the subsidy is designed in such a way that it is expected to skew the recipient's future sales in
favour of export sales, even though the recipient may also be expected to increase its domestic sales.
1049. In setting out this test, we do not suggest that the issue as to whether the granting of a subsidy
is in fact tied to anticipated exportation could be based on an assessment of th e actual effects of that
subsidy. Rather, we emphasize that it must be asse ssed on the basis of the information available to
the granting authority at the time the subsidy is granted.
1050. The standard for determining whether the gr anting of a subsidy is "in fact tied to …
anticipated exportation" is an objective standard , to be established on the basis of the total
configuration of facts constituting and surrounding th e granting of the subsidy, including the design,
structure, and modalities of operation of the measur e granting the subsidy. Indeed, the conditional
relationship between the granting of the subsid y and export performance must be objectively
observable on the basis of such evidence in order for the subsidy to be geared to induce the promotion
of future export performance by the recipient. The standard for de facto export contingency is
therefore not satisfied by the subjective motivation of the granting government to promote the future
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export performance of the recipient. In this respect, we note that the Appellate Body and panels have,
on several occasions, cautioned against undue relia nce on the intent of a government behind a
measure to determine the WTO- consistency of that measure.
2344 The Appellate Body has found that
"the intent, stated or otherwise, of the legislators is not conclusive " as to whether a measure is
consistent with the covered agreement.2345 In our view, the same understanding applies in the context
of a determination on export contingency, where the requisite conditionality between the subsidy and
anticipated exportation under Article 3.1(a) and footnote 4 of the SCM Agreement must be established
on the basis of objective evidence, rather than subj ective intent. We note, however, that while the
standard for de facto export contingency cannot be satisfied by the subjective motivation of the
granting government, objectively reviewable expr essions of a government's policy objectives for
granting a subsidy may, however, c onstitute relevant evidence in an inquiry into whether a subsidy is
geared to induce the promotion of future export performance by the recipient.
1051. Similarly, the standard does not require a panel to ascertain a government's reason(s) for
granting a subsidy. The government's reason for granting a subsidy only explains why the subsidy is
granted. It does not necessarily answer the question as to what the government did, in terms of the
design, structure, and modalities of operation of th e subsidy, in order to induce the promotion of
future export performance by the recipient. 2346 Indeed, whether the granting of a subsidy is
conditional on future export performan ce must be determined by assessing the subsidy itself , in the
light of the relevant factual circumstances, rather than by reference to the granting authority's reasons
for the measure. This is not to say, however, that evidence regarding the policy reasons of a subsidy
is necessarily excluded from the inquiry into whether a subsidy is geared to induce the promotion of
future export performance by the recipient.

2344For example, in the context of a discrimination claim under Article III of the GATT 1994, the
Appellate Body found that "{i}t is not necessary for a panel to sort through the many reasons legislators and
regulators often have for what they do and weigh th e relative significance of th ose reasons to establish
legislative or regulatory intent." (Appellate Body Report, Japan – Alcoholic Beverages II , p. 27, DSR 1996:I,
97, at 119) Moreover, "there may well be a certain degree of speculation in seeking to establish the intent of a
government in the abstract." (Panel Report, Japan – DRAMs (Korea), para. 7.104)
2345Appellate Body Report, US – Offset Act (Byrd Amendment) , para. 259. (emphasis added) See also
Appellate Body Report, China – Auto Parts, para. 178, where the Appellate Body found that the intent, stated or
otherwise, of the legislators is not conclusive as to the characterization of a measure.
2346We recall that, for purposes of determining whether internal taxes or other internal charges are
applied "so as to afford protection" under Article III:2, second sentence, of the GATT 1994, read in conjunction
with Article III:1 thereof, the Appellate Body has found that an "examination of the design, architecture and
structure of a tax measure" can "perm it identification of a measure's objec tives or purposes as revealed or
objectified in the measure itself." (Appellate Body Report, Chile – Alcoholic Beverages, para. 71)
WT/DS316/AB/R BCI deleted, as indicated [***]

1052. Our interpretation of the terms "tied to … antic ipated exportation" is supported by the context
provided by the second sentence of footnote 4. This sentence states that "{ t}he mere fact that a
subsidy is granted to enterprises which export shall not for that reason alone be considered to be an
export subsidy within the meani ng of {Article 3.1(a) of the SCM Agreement}". As the Appellate
Body found in Canada – Aircraft , "merely knowing that a recipient's sales are export-oriented does
not demonstrate, without more, that the granting of a subsidy is tied to actual or anticipated
exports."
2347 Moreover, "under the second sentence of footnote 4, the export orientation of a recipient
may be taken into account as a relevant fact, provided that it is one of several facts which are
considered and is not the only fact supporting a finding." 2348 The second sentence of footnote 4, as
interpreted by the Appellate Body, thus precludes a finding of de facto export contingency for the sole
reason that the sales of the recipient of a subsid y involve export sales. Rather, where a subsidy is
granted to a recipient that is expected to export, this fact must be considered together with other
relevant factors, including the design, structure, and modalities of operation of the subsidy, as well as
other relevant factual circumstances surrounding the granting of the subsidy, in order to determine
whether the granting of subsidy is, as explained above, geared to induce the promotion of future
export performance by the recipient, and therefore "in fact tied to … anticipated exportation".
1053. We further recall that Article 3.1(a) of the SCM Agreement states that subsidies contingent
upon export performance "includ{e} those illustrated in Annex I". A common feature of the examples
provided in items (b) to (l)
2349 of the Illustrative List of Export Subsidies in Annex I to the
SCM Agreement is that the subsidy gives certain a dvantages to exported products and favours
exported products over products d estined for domestic consumption. 2350 Export-contingent subsidies
will indeed favour a recipient's export sales over its domestic sales. Nonetheless, as discussed above,
the fact that the granting of the subsidy may also increase the recipient's domestic sales would not

2347Appellate Body Report, Canada – Aircraft, para. 173. In the subsequent Article 21.5 proceedings,
the Appellate Body further found that "the fact that an industrial sector has a high export-orientation is not, by
itself, sufficient to preclude that sector from being expressly identified as an eligible or privileged recipient of
subsidies." (Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil), para. 49)
2348Appellate Body Report, Canada – Aircraft, para. 173. (original emphasis)
2349Item (a) of the Illustrative List of Export Subsidies in Annex I to the SCM Agreement refers to
"{t}he provision by governments of direct subsidies to a firm or an industry contingent upon export
performance."
2350For example, item (b) refers to currency reten tion schemes "which involve a bonus on exports".
Items (c) and (d) list, respectively, internal transport and freight charges, and government provision of goods
and services, for exported products "on terms or condi tions more favourable than" those with respect to
domestic products. Item (f) concerns allowance of speci al deductions related to exports "over and above those
granted in respect to production for domestic consumption". Item (h) covers exemption, remission, or deferral
of indirect taxes on goods and services used in the production of exported product "in excess of" the exemption,
remission or deferral of indirect taxes on goods and services used in the production of like products when sold
for domestic consumption. Other items, such as items (e), (j), and (k), concern subsidies provided exclusively to
exports.
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necessarily prevent a finding of de facto export contingency, so long as the measure is geared to
induce a recipient to export in a way that is not simply reflective of the conditions of supply and
demand in the domestic and export markets undistorted by the granting of the subsidy.
1054. The above interpretation of Article 3.1(a) and footnote 4 of the SCM Agreement is also
supported by the overall design and structure of th at Agreement, which distinguishes between two
kinds of subsidies: prohibited subsidies dealt with in Part II of the SCM Agreement, and actionable
subsidies dealt with in Part III of the SCM Agreement. Only those subsidies that are conditioned on
export performance or on impor t substitution are prohibited per se under Article 3 of Part II of the
SCM Agreement. In contrast, all other subsidies are allowed under the SCM Agreement, albeit a
Member granting such subsidies should not cause, th rough the use of the subsidies, adverse effects
within the meaning of Article 5 of Part III, in wh ich case it must remove the adverse effects or must
withdraw the subsidies themselves. Among the latt er category of subsidies—that is, the actionable
subsidies—are those granted to an export-oriente d recipient, without being contingent upon export
performance. The mere fact that such subsidi es may increase the company's production sold in the
export market does not bring them under the discipline of Part II of the SCM Agreement. Otherwise,
the line drawn by the Agreement between prohibited export subsidies and actionable production
subsidies would be blurred, contrary to the overa ll design and structure of the Agreement. Although
subsidies that are granted to an export-oriented company without being conditioned on export
performance are not prohibited under Part II of the SCM Agreement, they can nonetheless be subject
to challenge under Part III of the SCM Agreement if they cause adverse effects within the meaning of
Article 5.
2351
1055. Finally, the above interpretation is also cons istent with the relevant jurisprudence under
Article 3.1(a) and footnote 4 of the SCM Agreement . Specifically, in Canada – Aircraft , the panel
examined several pieces of evidence before dete rmining that the subsidies granted to certain
companies in the Canadian aerospace sector under the measure at issue—the Technology Partnerships
Canada ("TPC") programme—were in f act tied to anticipated exportation.2352 For example, the Terms
and Conditions of the programme required that funding decisions be based on, inter alia, whether the

2351Moreover, both prohibited subsidies and subsidies causing adverse effects could of course be
subject to countervailing duties imposed consistently with Part V of the SCM Agreement.
2352The evidence included: "TPC's stat ement of its overall objectives; types of information called for
in applications for TPC funding; the considerations, or eligibility criteria, employed by TPC in deciding
whether to grant assistance; factors to be identified by TPC officials in making recommendations about
applications for funding; TPC's record of funding in the export field, generally, and in the aerospace and
defence sector, in particular; the nearness-to-the-export-market of the projects funded; the importance of
projected export sales by applicants to TPC's funding decisions; and the export orientation of the firms or the
industry supported." (Appellate Body Report, Canada – Aircraft, para. 175)
WT/DS316/AB/R BCI deleted, as indicated [***]

funded projects would generate export sales and in crease the international competitiveness of the
funded companies. Moreover, applicants were requi red to indicate whether the project to be funded
would increase exports, and to distinguish between domestic and export sales when reporting actual
and future sales.
2353 In our view, the design and structur e of the TPC programme, as evidenced by
various documents relating to the TPC programme, as well as the high export potential of the funded
projects, demonstrated that the granting of s ubsidies under the programme was geared to induce
applicants for funding to increase exports and, consequently, to promote export performance by
Canadian companies. In the subsequent Article 21.5 proceedings, the revised TPC programme, which
removed the selection criteria relating to exportati on as a basis for funding decisions, as well as the
stated objectives of the programme to enhance ex portation, was found not to constitute an export-
contingent subsidy.2354 In other words, the relevant evidence did not indicate that the revised measure
was geared to induce the promotion of future export performance by the recipients.
1056. In sum, it is clear that a subsidy that is neut ral on its face, or by necessary implication, and
does not differentiate between a recipient's expor ts and domestic sales ca nnot be found to be
contingent, in law, on export performance w ithin the meaning of Article 3.1(a) of the
SCM Agreement. Such a subsidy may nonetheless constitute a subsidy contingent in fact upon export
performance within the meaning of the same provision if it is "in fact tied to actual or anticipated
exportation or export earnings" in accordance with footnote 4 of the SCM Agreement . The
interpretation set out above indicates that the gran ting of the subsidy may be tied to anticipated
exportation, and thus contingent in fact upon ex port performance under Article 3.1 and footnote 4 of
the SCM Agreement if it is geared to induce the promotion of future export performance by the
recipient. The issue of whether this standard is met must be assessed on the basis of an examination
of the measure granting the subsidy and the facts surrounding the granting of the subsidy, including
the design, structure, and modalities of operation of the measure. Finally, the fact alone that the
recipient of a subsidy exports is insufficient for a finding of de facto export contingency. Rather, this
fact must be considered together with all othe r relevant evidence relating to the granting of the
subsidy for purposes of determining whether the subsidy is contingent in fact upon export
performance.

2354Panel Report, Canada – Aircraft (Article 21.5 – Brazil) , paras. 5.29, 5.33, and 5.34. In order to
implement the DSB's recommendations and rulings, Canada also: (i) cancelled funding under five TPC
transactions, (ii) withdrew approvals-in-principle for two new TPC funding projects; and (iii) closed all TPC
files in the regional aircraft sector. (See ibid., para. 5.3)
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D. Whether the Panel Erred in Its Interpretation of Article 3.1(a) and Footnote 4
1057. We turn now to consider two questions concerni ng the Panel's interpretation of Article 3.1(a)
and footnote 4 of the SCM Agreement. We begin first with the questi on of whether the Panel erred in
its interpretation of "anticipated exportation" within the meaning of footnote 4. We then consider
whether the Panel adopted a "reasons for" standard for assessing de facto export contingency and, if
so, whether that is at variance with the required standard under Article 3.1(a) and footnote 4.
1. Whether the Panel Erred in Its Interpretation of "Anticipated Exportation"

1058. The European Union submits that the erroneous interpretation "underpin{ning}" 2355 the
Panel's reasoning is the assumption that the term "actual exportation" refers to an export that
"actually"2356 takes place in the past or in the future. Consequently, the Panel erroneously understood
the term "anticipated exportation" to mean "the notional state of mind of the granting authority." 2357
The European Union contends that, contrary to th e Panel's findings, the word "actual" refers to
"an export that exists (that is, has already taken place) at the moment when the measure is enacted and
a subsidy is deemed to exist within the meaning of Article 1", while the term "anticipated", which is
"juxtaposed to the meaning of the term 'actual' … means an export in the future." 2358
1059. We recall the Appellate Body's finding, in Canada – Aircraft, that "{t}he dictionary meaning
of the word 'anticip ated' is 'expected'." 2359 In our discussion above, we find that "actual exportation"
in footnote 4 refers to exportation that has occurr ed at the time a subsidy is granted, whereas
"anticipated exportation" means exportation that is e xpected to occur in the future. We further recall
the Panel's finding that "'anticipated' exportation ma y be understood to be exportation that a granting
authority considers, expects or foresees will occur after it has granted a subsidy." 2360 We see no
contradiction between the Panel's finding and the way in which the Appellate Body has interpreted the
word "anticipated". In our view, therefore, th e Panel's interpretation of the term "anticipated

2355European Union's appellant's submission, para. 1325.
2357European Union's appellant's submission, para. 1325.
2358European Union's appellant's submission, para. 1324.
2359Appellate Body Report, Canada – Aircraft, para. 172 (referring to The New Shorter Oxford English
Dictionary, 4th edn, L. Brown (ed.) (Clarendon Press, 1993), Vol. 1, p. 88; and The Concise Oxford Dictionary,
9th edn, D. Thompson (ed.) (Clarendon Press, 1995), p. 53).
2360Panel Report, para. 7.641. (original emphasis)
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exportation" is consistent with the ordinary meani ng of the term, as interpreted by the Appellate Body
in previous disputes.
2361
2. Whether the Panel Imposed a Correct Standard for De Facto Export
Contingency
1060. The European Union contends that, "{b}y reasoning that the required condition is the
'anticipating of' exports{,} the Panel finds that the requirement of contingency/conditionality that is at
the heart of the provision can be replaced by mere 'dependent motivation'". 2362 T o r e c a l l , t h e
European Union uses the term "dependent motivation" to refer to the standard imposed by the Panel
whereby export contingency could be established when it is demonstrated that "there is the
anticipating of exports by the granting authority, and that, ' because' of such anticipating of exports a
subsidy is granted."2363
1061. As set out above, "anticipated exportation", w ithin the meaning of footnote 4, is to be
demonstrated by way of objective evidence, such as the fact that a government is in possession of a
company's sales forecasts showing significant export sales. It does not entail a determination of what
the government's motivation is, but simply whether th e prospect of future exports exists and whether
the government is aware of that prospect. We do not consider, therefore, that the Panel's
interpretation—that "anticipated exportation" is exportation that a granting authority expects will
occur in the future—leads to a st andard that replaces "contingency" with "dependent motivation".
1062. Nonetheless, we note that certain language used by the Panel shows that the standard it
adopted deviates from what is required under Article 3.1(a) and footnote 4. Specifically, the Panel
stated:
In concluding that the reference to "anticipated exportation or export
earnings" in footnote 4 means to cons ider that exports will take place
before they actually do, or to envisage that exports may take place in
the future, we are not saying that the required contingency between
the granting of a subsidy and an ticipated exportation or export
earnings may be demonstrated by merely showing that a granting
authority anticipated export performance. Rather, we are saying that

2361See Appellate Body Report, Canada – Aircraft , para. 172. Moreover, we are not convinced by the
European Union's argument that th e alleged error in the Panel's interpretation stems from the Panel's
"assumption" regarding the meaning of "actual" in footnote 4. (European Union's appellant's submission,
paras. 1325 and 1352) The sentence the European Union re fers to, in which the Panel used the word "actually",
merely contained the Panel's description of what it considered to be the European Communities' interpretation of
2362European Union's appellant's submission, para. 1331.
2363European Union's appellant's submission, para. 1282 (quoting Panel Report, paras. 7.636, second
sentence; 7.644, fourth sentence; 7.648, third senten ce; 7.680, final sentence; 7.681, final sentence; and
7.683, final sentence (original emphasis)).
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the required contingency may be demonstrated where the subsidy
was granted because the granting authority anticipated export
performance.2364 (original italics; underlining added)
1063. By using the word "because", the Panel equated the standard of export contingency with the
reason(s) for granting a subsidy. The Panel's findi ngs indicate a standard that requires anticipated
exportation to be the reason for the granting of a subs idy. We have explained above that the standard
for finding that the granting of a subsidy is in fact tied to anticipated exportation is not met simply by
showing that anticipated exportation is the reason fo r granting the subsidy. The test is whether the
granting of the subsidy is geared to induce the promotion of future export performance by the
recipient. The authority's reasons for the granting of the subsidy may provide some evidence to meet
the correct standard, but it is not to be equated w ith that standard. The reason for granting the subsidy
is not the same thing as whether the granting of th e subsidy is geared to induce the promotion of
future export performance by the recipient.
1064. We note that there might, or might not, be some overlap between the concept of the reasons
for granting a subsidy and that of the motivation for granting a subsidy. As we find above, the
standard for de facto export contingency is not met simply by showing that anticipated exportation is
the reason for granting the subsidy. We also find that the standard for de facto export contingency is
not satisfied by the subjective motivation of the granting government to promote the future export
performance of the recipient. Having found that the Panel deviated from the correct standard under
Article 3.1(a) and footnote 4 by equating the standa rd of export contingency with the reason(s) for
granting a subsidy, we need not further address the issue of whether the Panel also erred in imposing a
standard based on motivation.
1065. We note that the Panel quoted the Appellate Body 's finding that the word "contingent" means
"conditional" or "dependent for its existence on something else".
2365 It seems, therefore, that the Panel
recognized that the standard under Article 3.1( a) and footnote 4 requires a demonstration of a
conditional relationship between th e subsidy and export performance. This recognition, however, is
formulated at the highest level of generality. Th e manner in which the Panel sought to render more
concrete the standard was to use the concept of "reasons". Thus, throughout its findings, the Panel
referred to the words "because" and "reasons", in addition to the words "conditional on" and

2364Panel Report, para. 7.644.
WT/DS316/AB/R BCI deleted, as indicated [***]

"conditions", when articulating the standard under Article 3.1(a) and footnote 4.
2366 For example, the
Panel stated:
{I}n order to qualify as a prohibited export subsidy, the grant of the
subsidy must be conditional or dependent upon actual or anticipated
export performance; or as we have put it above, a subsidy must be
granted because of actual or anticipated export performance. 2367
(original emphasis)
The Panel further stated:
{A} finding of export contingenc y … could be inferred from the
"total configuration of the facts" that at least one of the conditions or
reasons for the provision of LA/MSF was the anticipation of export
performance.2368 (emphasis added)
1066. Reading the Panel's findings in their entirety, we consider that the Panel equated the reasons
for granting a subsidy with the notion of export contingency, and thus erroneously interpreted
Article 3.1(a). The reasons for granting a subsidy may be evidence of de facto export contingency,
but do not constitute such contingency.
3. Conclusion
1067. In sum, we do not consider that the Panel erred in its interpretation of "anticipated
exportation" under footnote 4 of the SCM Agreement. We also do not consider that the Panel's
interpretation of the term "anticipated exportation" led to the imposition of an erroneous "dependent
motivation" standard. However, the Panel erroneously interpreted Article 3.1(a) and footnote 4 of the
SCM Agreement by equating the standard for finding that the granting of a subsidy is in fact "tied to"
anticipated exportation with a standard based on the reasons for granting a subsidy. As we set out
above in section C, to determine whether the granti ng of a subsidy is in fact tied to anticipated
exportation, recourse may be had to the following test: Is the granting of the subsidy geared to induce
the promotion of future export performance by the r ecipient? The Panel's interpretation of the term
"in fact tied to" under Article 3.1(a) and footnote 4 of the SCM Agreement is not consistent with this
interpretation we set out above. We therefore reverse the Panel's interpretation that, in order to find
that the granting of a subsidy is in fact tied to anticipated exportation, a subsidy must be granted
because of anticipated export performance.2369

2366See Panel Report, paras. 7.648, 7.677, 7.680, 7.681, 7.683, 7.685, and 7.688.
2367Panel Report, para. 7.648.
2368Panel Report, para. 7.677.
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E. The Application of the Standard for De Facto Export Contingency to the Facts
1068. In section D above, we have found that the Panel correctly interpreted the term "anticipated
exportation" in footnote 4 of the SCM Agreement. In this section, we turn to review whether the Panel
properly applied its interpretation in finding that export performance by Airbus was anticipated when
the French, German, Spanish, and UK Governments granted the LA/MSF subsidies at issue.
1069. In addition, in section D, we have found that the Panel erroneously interpreted the standard
under Article 3.1(a) and footnote 4 of the SCM Agreement for determining whether the granting of a
subsidy is "in fact tied to" anticip ated exportation. In this sectio n, we examine whether the Panel
applied its erroneous standard in reaching its final conclusions and, if so, whether there are sufficient
factual findings by the Panel or undisputed facts on the record that would allow us to determine
whether the granting of the subsidies under the French, German, Spanish, and UK LA/MSF contracts
for the A380, the French LA/MSF contracts for the A340-500/600 and A330-200, and the Spanish
LA/MSF contract for the A340-500/600 was in fact tied to anticipated exportation within the meaning
of Article 3.1(a) and footnote 4 of the SCM Agreement.
1. The Panel's Finding on "Anticipated Exportation"

1070. The European Union claims that, "{f}or the r easons already indicated, … the Panel's findings
that the Member States anticipated exports should be reversed." 2370 The European Union's claim rests
primarily on its argument that the Panel erred in the interpretation of the term "anticipated
exportation". Specifically, the European Union submits that "the concept of 'anticipation' assessed by
the Panel is irrelevant to the single standard set out in Article 3.1(a) and footnote 4." 2371 In section D
above, we have concluded that the Panel properly interpreted the con cept of "anticipated exportation"
as exportation that a granting authority expects to occur after the granting of a subsidy.
1071. The European Union further contends that "the evidence adduced by the United States at most
speaks to the question of performance, not export performance." 2372 The European Union thus also
challenges the Panel's application of the legal sta ndard for "anticipated e xportation" to the evidence
submitted in this dispute.

2370European Union's appellant's submission, para. 1492.
2371European Union's appellant's submission, para. 1492.
2372European Union's appellant's submission, para. 1492.
WT/DS316/AB/R BCI deleted, as indicated [***]

1072. We turn now to review the evidence submitted by the United States and relied on by the Panel
regarding "anticipated exportation" in order to determine whether the Panel based its finding on "an
examination of objective evidence"
2373, and whether it properly found that, at the time the LA/MSF
contracts were entered into, exportation by Airbus was "expected"2374 to occur after the granting of the
subsidies.
1073. With respect to the French, German, Spanis h, and UK LA/MSF for the A380, the Panel
examined the following evidence: (i) Airbus GMF 2375 issued in 1999 and 2000, predicting that
demand in Europe for the A380 would account fo r 23% and 20%, respectively, of total demand 2376;
(ii) Airbus 1999 third quarter briefing on the A3XX 2377, predicting that airlines in the Asia-Pacific
region would represent more than 75% of demand; (iii) Critical Project Appraisals 2378 by France and
the United Kingdom, and the A380 LA/MSF application by Deutsche Airbus 2379; (iv) repayment
provisions in the LA/MSF contracts, predicting sales that would greatly exceed demand in Europe 2380;
(v) evidence showing the governments' awareness of the global nature of the A380 project, including
language to that effect in the Spanish LA/MSF c ontract, media reports concerning a press release by
the UK Department of Trade and Industry, and a statement by British Prime Minister Tony Blair 2381;
(vi) media reports concerning Airbus Vice President Leahy's statement on export earnings made at the
time when Airbus was seeking LA/MSF 2382; and (vii) the fact that the A380 is an export-oriented

2375According to the United States, each year, Airbus is sues a "Global Market Forecast" that seeks to
forecast the evolution of large civil ai rcraft fleets worldwide over the next 20 years, and the basic assumptions
that Airbus uses in preparing the forecast "are both realistic and consistent with historical and currently
foreseeable trends." (United States' first written submi ssion to the Panel, footnote 393 to para. 346 (quoting
Airbus GMF for 1999 (Panel Exhibit US-356), p. 8))
2376Panel Report, para. 7.651 (referring to Airbus 1999 GMF (Panel Exhibit US-356); and Airbus 2000
GMF (Panel Exhibit US-358)).
2377Panel Report, para. 7.651 (referring to Airbus Indu strie, A3XX 3rd Quarter Briefing (1999) (Panel
Exhibit US-359). We note that Airbus originally designated the A380 as the A3XX; it changed the designation
to A380 when it formally launched the project. (United States' first written submission to the Panel, footnote
399 to para. 346)
2378According to the European Communities, govern ments participating in the LA/MSF critically
evaluate each aspect of a request to ensure that the governments will be able to recover their investment.
(European Communities' first written submission to the Panel, para. 313) The European Communities
designated all Critical Project Appraisals as HSBI.
2379Panel Report, para. 7.651 (referring to United Stat es' first written submission to the Panel, paras. 34
and 36 (HSBI); and Appendix 1 to the German A380 contract (Panel Exhibit US-357 (BCI)). The
European Communities designated the LA/MSF application as BCI.
2380Panel Report, para. 7.651 (referring to Spanish A380 contract (Panel Exhibit US-73 (BCI)); and
Appendix 1 to the German A380 contract (Panel Exhibit US-357 (BCI)).
2381Panel Report, para. 7.651 (referring to Spanish A 380 contract (Panel Exhibit US-73 (BCI)); Panel
Exhibit US-360, supra, footnote 354; and Panel Exhibit US-361, supra, footnote 352).
2382Panel Report, para. 7.651 (referring to Aviation Now, "Airbus Launches A3XX Program, Sees
Strong Demand in Asia" (available at <ww.aviationnow.com>, 24 February 2000) (Panel Exhibit US-362); and
"Airbus Bets the Company", The Economist, 16 March 2000 (Panel Exhibit US-363)).
BCI deleted, as indicated [***] WT/DS316/AB/R

project and that Airbus is an export-oriented company, with 84% of total sales between 1992 and
2005 being exports.
2383
1074. With respect to the French and Spanish LA /MSF for the A340-500/600, the Panel reviewed
the following evidence: (i) the LA/MSF contract between Airbus and the Government of Spain 2384;
(ii) Critical Project Appraisals by France 2385; (iii) 1997 and 1998 GMFs showing European airlines
accounting for, respectively, 25-29% of Airbus' to tal orders during the period 1997 to 2016, and
25-28% of Airbus' total orders during the period 1997 to 2017 2386; (iv) the fact that, when the
LA/MSF contracts were signed, almost half of the orders for the A340-500/600 were export sales 2387;
(v) a state aid decision by the European Commission regarding LA/MSF for the A340-500/600, which
allegedly shows the French Government's expect ation that the development of the A340-500/600
would allow Airbus to compete for sales throughout the world
2388; and (vi) the fact that Airbus is an
export-oriented company, with 86% of total sal es between 1992 and 1997 (the period predating the
LA/MSF for the A340-500/600) being exports.2389
1075. With respect to the French LA/MSF for the A330-200, the Panel reviewed the following
evidence: (i) Critical Project Appraisals by France 2390; (ii) 1995 GMF predicting that 28% of orders
for all types of aircraft between 1995-2014 would come from European airlines 2391; (iii) the fact that
all orders that had been received when the LA /MSF contract was signed were export sales; and
(iv) the fact that Airbus is an export-oriented company, with 84% of total sales between 1992 and
2005 being exports.2392

2383Panel Report, para. 7.651 (referring to United States' first written submission to the Panel, para. 350,
in turn referring to information derived from Airclaims CASE database).
2384Panel Report, para. 7.655 (referring to Spanish A340-500/600 contract (Panel Exhibit US-37
(BCI)).
2385Panel Report, para. 7.655 (referring to United States' first written submission to the Panel, para. 365,
in turn referring to Panel Exhibit DS316-EC-HSBI-0001143).
2386Panel Report, para. 7.655 (referring to Airbus 1997-2016 GMF (Panel Exhibit US-366); and Airbus
1998-2017 GMF (Panel Exhibit US-367)).
2387Panel Report, para. 7.655 (referring to United States' first written submission to the Panel, para. 367,
in turn referring to US-368; and United States' first written submission to the Panel, para. 48 (HSBI)).
2388Panel Report, para. 7.655 (referring to United States' first written submission to the Panel, para. 368,
in turn referring to letter dated 26 January 1999 from Karel Van Miert to Hubert Vedrine, "Reimbursable
Advance to Aérospatiale for the Airbus A340-500/600 Program", Aid No. N369/98 (Panel Exhibit US-3)).
2389Panel Report, para. 7.655 (referring to United States' first written submission to the Panel, para. 369,
in turn referring to information derived from Airclaims CASE database).
2390Panel Report, para. 7.658 (referring to United Stat es' first written submission to the Panel, paras. 55
and 56 (HSBI), and para. 379)).
2391Panel Report, para. 7.658 (referring to United States' first written submission to the Panel, para. 380,
in turn referring to Airbus 1995-2014 GMF (Panel Exhibit US-369)).
2392Panel Report, para. 7.658 (referring to United States' first written submission to the Panel, para. 378,
in turn referring to information derived from Airclaims CASE database).
WT/DS316/AB/R BCI deleted, as indicated [***]

1076. After reviewing the above evidence, the Panel found that the United States submitted
sufficient evidence to establish that the governments of the above me mber States, when granting the
LA/MSF, were fully aware that the A380 project would involve selling much if not most of the
production in export markets.
2393 Similarly, the Panel found that the United States provided sufficient
evidence showing that the governments of the above member States expected that export sales would
result from the development of the A340-500/600 and A330-200.2394
1077. The European Communities noted that the A380 LA/MSF contracts contained no obligation
on Airbus to make export sales, or any sales at all, and that it was impossible to infer from the
evidence that the terms of the LA/MSF measures vari ed in any way as a function of whether a sale is
destined for the European Commun ities or elsewhere. The Panel did not find this line of argument
germane to whether the relevant member State gover nments "anticipated exportation", but rather to
whether the subsidy granted under those contracts were contingent on that anticipation.
2395 The
European Communities also argued that the United States had not shown that the number of deliveries
required to repay fully LA/MSF loans exceeded proj ections of demand in the European Communities
for the A340-500/600 and the A330-200. The Panel found that even though the United States had not
advanced such information, the evidence submitted demonstrates that the member State governments
"anticipated exportation or export earnings".2396
1078. The above review of the Panel's findings show that the Panel examined and relied on various
pieces of objective evidence, including the LA/MSF c ontracts, market forecasts of Airbus' sales
contained in publicly-available documents issued by Airbus, governments' appraisals of the financed
projects, a state aid decision by the European Co mmission, as well as the orders received at the time
certain contracts were entered into. The Panel th erefore "gleaned" its findings regarding anticipated
exportation "from an examination of objective evidence".2397
1079. Moreover, in our view, the evid ence examined by the Panel show s that, at the time the seven
LA/MSF subsidies at issue were granted, the rele vant member State governme nts anticipated that a
significant amount of export sales by Airbus would occur as a result of the projects financed by these

2393Panel Report, paras. 7.652-7.654. Before the Panel, the European Communities argued that the
Airbus GMF 2000 "carrie{d} no probative weight" because it was dated after conclusion of the UK A380
contract. (European Communities' first written submission to the Panel, para. 618; see also Panel Report,
para. 7.654) Furthermore, the Eur opean Communities contested the accuracy of the media reports. (See Panel
Report, para. 7.654) According to the Panel, however, the evidence submitted by the United States sufficiently
supported its findings, even if th e evidence contested by the European Communities were excluded from
consideration. (Ibid.) The European Union does not contest these findings on appeal.
2394Panel Report, paras. 7.656-7.659.
2395Panel Report, para. 7.653.
2396Panel Report, paras. 7.657-7.660.
BCI deleted, as indicated [***] WT/DS316/AB/R

measures. According to the GMFs for the y ears 1995 and 1997-2000, which are public documents
available around the time that the LA/MSF contract s were negotiated, the demand for the A380,
A340-500/600, and A330-200 in the following 10 to 20 years from European airlines would represent
no more than 30% of the total demand. The mark et forecasts were specifically referenced in the
French and UK Governments' Critical Project Appraisals and the A380 LA/MSF application by
Deutsche Airbus. In addition, the fact that half of the orders for the A340-500/600 and all of the
orders for the A330-200 received when the subsidies were granted, were export sales, confirms that
the governments were aware of the prospect that a significant amount of the aircraft developed with
LA/MSF subsidies would be sold to airlines based outsi de the European Union. Finally, the fact that
more than 80% of Airbus' sales in the preceding decade were export sales further supports the view
that future export sales were anticipated to occur.
1080. On this basis, we consider that the Panel properly found, with regard to "anticipated
exportation", that at the time that Airbus and the LA/MSF governments concluded the LA/MSF
contracts for the A380, the A340-500/600, and the A 330-200, the latter were fully aware that Airbus
was a global company operating in a global market , and that these projects would involve Airbus
selling much if not most of its production in export markets.
2398 For these reasons, we concur with the
Panel's conclusion that:
... at the time each of the {A380, A340-500/600, A330-200}
LA/MSF contracts was entered into, each of the {relevant} EC
member State{} governments "anticipated exportation or export
earnings", within the meaning of footnote 4 of the SCM Agreement,
in the sense that they expected or considered that exportation or
export earnings would result from the development of the {A380,
A340-500/600 and A330-200}.
2399
2. Whether the Granting of the Seven LA/MSF Subsidies was In Fact Tied to
Anticipated Exportation
1081. In our analysis in section D, we have found that the Panel equated the standard for de facto
export contingency with a standard based on the reas ons for granting a subsidy and that, in so doing,
the Panel erroneously interpreted Ar ticle 3.1(a) and footnote 4 of the SCM Agreement. Moreover, as
we have set out above in section C, the test for determining whether the granting of a subsidy is in fact
tied to anticipated exportation is whether the granting of the subsidy is geared to induce the promotion
of future export performance by the recipient. Beca use the Panel's interpretati on of the term "in fact
tied to" under Article 3.1(a) and footnote 4 of the SCM Agreement is not consistent with the correct

2398Panel Report, paras. 7.652, 7.656, and 7.659.
2399Panel Report, paras. 7.654, 7.657, and 7.660.
WT/DS316/AB/R BCI deleted, as indicated [***]

interpretation we set out above, we have reversed the Panel's interpretation that, in order to find that
the granting of a subsidy is in fact tied to an ticipated exportation, a subsidy must be granted because
of anticipated export performance.
2400
1082. We note that the Panel applied its erroneous inte rpretation of Article 3.1(a) and footnote 4 in
reaching its final conclusions regarding the United States' claims on the de facto export-contingent
subsidies. Specifically, the Panel found that the evidence advanced by the United States concerning
the exchange of commitments, together with the additional evidence submitted by the United States to
corroborate the alleged "tie" between the granting of the subsidies and anticipated exportation,
demonstrated that the granting of the German, Spanish, and UK A380 LA/MSF contracts "was, in
fact, concluded at least in part on the condition or because of the {respective} government's
anticipation of exportation".2401 At the same time, the Panel f ound that the evidence submitted by the
United States did not demonstrate that the granting of the French A380, A340-500/600 and A330-200
contracts and the Spanish A340-500/600 contract was "even in part, on the condition or because of
the {respective government's} anticipation of exportation."2402
1083. Thus, because the Panel applied an interpretati on that we found to be erroneous in reaching
these findings, we reverse the Panel's consequent conclusions, in paragraph 7.689 of the Panel Report,
that "the United States has demonstrated that the German, Spanish and UK A380 contracts amount to
prohibited export subsidies within the meani ng of Article 3.1(a) and footnote 4 of the
SCM Agreement"2403, and "that the United States has not shown that the granting of the other
challenged LA/MSF subsidies {under the French A380, A340-500/600 and A330-200 contracts and
the Spanish A340-500/600 contract} was contingent in fact upon anticipated export performance,
within the meaning of the same provisions."
1084. We recall that, in its other appeal, the United States requests the Appellate Body to reverse
the Panel's above conclusion regarding the Fren ch A380, A340-500/600 and A330-200 contracts and
the Spanish A340-500/600 contract. 2404 The United States claims that the Panel, in reaching this
conclusion, "effectively and erroneously applied a standard, not found in the text of the SCM
Agreement, that requires evidence of specific member Stat e 'motivation' to find export

2401Panel Report, paras. 7.680, 7.681, and 7.683. (original emphasis)
2402Panel Report, paras. 7.685, 7.686, 7.687, and 7.688. (original emphasis)
2403Upon reversing this conclusion of the Panel, we find it unnecessary to further address the
European Union's claims that, in reaching this conclusion, the Panel also erred under Articles 7.2, 11, and 12.7
of the DSU. In addition, we find it unnecessary to address the European Union's argument that the Panel erred
in its application of Article 3.1(a) and footnote 4 of the SCM Agreement by failing to take into account the 1992
Agreement.
2404United States' other appellant's submission, para. 24.
BCI deleted, as indicated [***] WT/DS316/AB/R

subsidization."
2405 Because we reverse this conclusion of the Panel, on the basis that the Panel applied
an erroneous legal interpretation, it is not necessa ry for us to further address the United States'
arguments in support of its appeal.
1085. The United States also requests that the Appellate Body complete the analysis and find that
the granting of the French A380, A340-500/ 600, and A330-200 contracts and the Spanish
A340-500/600 contract was contingent in fact upon export performance within the meaning of
Article 3.1(a) and footnote 4 of the SCM Agreement.2406 In the light of the United States' request for
reversal of the Panel's erroneous interpretation and application of Article 3.1(a) and footnote 4, as well
as the legal interpretation we have set out in secti on C, we turn now to review whether there are
"sufficient factual findings by the Panel and/or undisputed facts in the Panel record" 2407 that would
allow us to complete the analysis with respect to all of the seven LA/MSF measures at issue pursuant
to the legal interpretation we set out above.
1086. We recall that, as stated in section C, the factual equivalent of de jure conditionality between
the granting of a subsidy and anticipated exporta tion can be established where the granting of the
subsidy is geared to induce the promotion of future export performance by the recipient. The standard
for de facto export contingency under Article 3.1(a) and footnote 4 of the SCM Agreement would be
met when the subsidy is granted so as to provide an incentive to the recipient to export in a way that is
not simply reflective of the conditions of suppl y and demand in the domestic and export markets
undistorted by the granting of the subsidy.
1087. The Panel reviewed various pieces of eviden ce submitted by the United States concerning the
exchange of commitments between the granting au thorities and Airbus under the LA/MSF contracts,
including relevant global market forecasts, the repayment schedules under the LA/MSF contracts, and
the French Government's Critical Project Appraisals. Specifically, the Panel noted that, in its GMF in
2000, Airbus forecast a market size of 247 aircraft "with more than 400 seats" in Europe, including
the A380, the A340-600, and the Boeing 747 and 777-300. 2408 Turning to the repayment provisions
under the LA/MSF contracts, the Panel noted that the Spanish A340-500/600 contract 2409 requires
Airbus to make repayments of the loan through per-aircraft levies, and that the preamble of the
contract refers to the number of potential sales that Airbus could achieve with respect to the

2405United States' other appellant's submission, para. 12. (original emphasis)
2406United States' other appellant's submission, para. 34.
2407See Appellate Body Report, Australia – Salmon, para. 118.
2408Panel Report, para. 7.661.
2409We will first examine the Panel's finding rela ting to the repayment terms under the Spanish
A340-500/600 contract and, subsequently, the Panel's findings relating to the repayment terms under the French,
German, Spanish, and UK A380 contracts and the French A340-500/600 and A330-200 contracts.
WT/DS316/AB/R BCI deleted, as indicated [***]

A340-500/600.
2410 As the United States noted before th e Panel, however, all of the numbers on
aircraft deliveries in the repayment schedule were redacted.2411 In the light of the missing information
on repayment terms, the United States requested the Panel to either use its authority under Article 13
of the DSU to request the Eur opean Communities and Spain to pr ovide the necessary information or
else draw an adverse inference. 2412 The Panel did not state whether it requested the information or
drew such an inference.2413
1088. With regard to the French, German, Spanish, and UK LA/MSF contracts for the A380, the
Panel found that, under the repayment provisions, Air bus was required to repay the loans over a level
of sales that exceeded the European sales projected for aircraft with more than 400 seats, and that,
consequently, the numbers of sales contemplated to repay the loans under these contracts could not be
achieved without substantial exports.2414 Similarly, with regard to LA/MSF for the A340-500/600 and
the A330-200, the Panel found that the repaymen t provisions under the French LA/MSF contracts
require Airbus to make repayments of the loan s through per-aircraft levies on a level which, as

2410Panel Report, para. 7.661, at pp. 510-511 (referring to Spanish A340-500/600 contract (Panel
Exhibits US-37 (BCI)). More specifically, the preamble states that [***]. This paragraph also states that [***].
(See Spanish A340-500/600 contract (Panel Exhibit US-37 (BCI), pp. 1 and 2)
2411See Panel Report, para. 7.661, pp. 510-511.
2412Panel Report, footnote 3180 to para. 7.661. Specifically, the United States requested the Panel to
draw the adverse inference that Airbus must repay the loan over [***] sales.
2413On appeal, the United States submits that, "{i}n light of the European Union's refusal to provide the
actual information from the repayment schedule, a reason able inference that may be drawn is that Airbus
repayment commitment is tied to {[***]} sales." (United States' additional memorandum following the first
session of the oral hearing, para. 70) The United States further submits that it discusses evidence of contingency
in the HSBI appendix attached to that memorandum. ( Ibid.) In the HSBI appendix, the United States describes
the evidence the Panel relied on in finding that the re payment provisions under th e French, German, Spanish,
and UK A380 contracts and the French A340-500/600 and A330-200 contracts specify a level of sales
exceeding domestic demand. No such information regarding the Spanish A340-500/600 contract is contained in
the HSBI appendix.
2414See Panel Report, para. 7.678. For example, with respect to LA/MSF for the A380, the Panel noted
the United States' submission that both the French and German contracts require Airbus to make repayments
through per-aircraft levies on the [***] sales. (See Panel Report, para. 7.661) See also Memorandum of
understanding between the French State and Airbus France relating to the Airbus A380 programme (Panel
Exhibit US-365 (BCI)) and Loan Contract between the Federal Republic of Germany and Airbus Deutschland
GmbH on the grant of an interest-bearing, conditionally repayable loan for the partial financing of the
developments costs for the Airbus A380 (Panel Exhibit US-72 (BCI)). The Panel also noted that, as the evidence
submitted by the United States showed, the UK contract requires Airbus to make repayments through per-
aircraft levies on the [***]. (See Panel Report, para. 7.661) See also Agreement (of 12 March 2000) between
UK Secretary of State for Trade and Industry, BAE Systems (Operations ) Ltd, and British Aerospace PLC,
concerning the development and financing of the Airbus A3XX (Panel Exhibit US-79 (BCI)). Similarly, the
Spanish contract requires Airbus to make repayments through per-aircraft levies on the [***]. (See Panel
Report, para. 7.661) See also Agreement (of 27 December 2001) between the Ministry of Science and
Technology (MCYT) and the company EADS Airbus SL, con cerning the financing of the participation of said
company in the development of the Airbus A-380 aircraft family programme (Panel Exhibit US-73 (BCI)).
BCI deleted, as indicated [***] WT/DS316/AB/R

evidenced by the French Government's Critical Project Appraisals, cannot be achieved without export
sales.
2415
1089. The evidence reviewed by the Panel shows that , with regard to the Spanish A340-500/600
contract, even though Airbus undertook the obligation to repay the loan on a per-sale basis, the
specific number of sales needed to repay fully the lo an under this contract was redacted and thus not
before the Panel. Moreover, the Panel did not stat e in its Report whether it used its authority under
Article 13 of the DSU to seek information or whet her it drew the adverse inference requested by the
United States. Therefore, there is insufficient info rmation on the record for us to decide whether the
LA/MSF under the Spanish A340-500/600 contract was granted so as to provide an incentive to the
Airbus to export in a way that is not simply refl ective of the conditions of supply and demand in the
domestic and export markets undistorted by the granting of the subsidy.
1090. With respect to the French, German, Spanis h, and UK A380 contracts and the French
A340-500/600 and A330-200 contracts, the evidence examined by the Panel, including the market
forecasts and the repayment schedules under these LA/MSF contracts, indicates the following: (i) the
financing under the LA/MSF contracts is provided in exchange for the condition that it be repaid;
(ii) pursuant to the repayment terms under the contra cts, Airbus undertook the obligation to repay the
loans, on a per-sale basis, over a specified number of sales of the subsidized aircraft; and (iii) the
number of sales contemplated under the repayment provisions of the contracts involves a significant
amount of export sales. The Panel concluded that "it is clear from various pie ces of information that
achieving the level of sales needed to fully re pay each loan would require Airbus to make a
substantial number of exports."
2416 On this basis, as well as the re levant market forecasts, the Panel
found that "the EC member States, fully expecting to be repaid, must have held a high degree of
certainty that the provision of LA/MSF would result in Airbus making those export sales."2417
1091. The Panel's above findings thus establish th at, at the time the LA/MSF subsidies were
granted, the relevant member State governments an ticipated a substantial number of export sales by
Airbus in order to repay the LA/MSF subsidies granted under the French, German, Spanish, and UK
A380 contracts and the French A340-500/600 and A330-200 contracts. These findings merely

2415The Panel found that the Fren ch LA/MSF contracts for the A3 40-500/600 and the A330-200
required repayment over, respectively, the [***] sale s and the first [***] sales. Moreover, the French
Government's project appraisals for both types of aircraft make clear that [***]. (Panel Report, para. 7.661) See
also French A340-500/600 contract (Panel Exhibit US-36 (BCI)); French A330-200 contract (Panel Exhibit US-
78 (BCI)); United States' first written submission to the Panel (HSBI), paras. 50-53 (r eferring to Panel Exhibit
DS316-EC-HSBI-0001143), para. 384 (referring to French A330-200 contract (Panel Exhibit US-78 (BCI)), and
paras. 57-60; and United States' oral statement at the second Panel meeting (BCI/HSBI), paras. 2-7)
2416Panel Report, para. 7.678.
2417Panel Report, para. 7.678.
WT/DS316/AB/R BCI deleted, as indicated [***]

establish "anticipated exportation" within the meaning of footnote 4 of the SCM Agreement. In order
to demonstrate in addition that the granting of the subsidies under the LA/MSF contracts in question
is "in fact tied", within the meaning of that footnote, to such anticipated exportation, it must also be
shown that the granting of the LA/MSF subsidies is geared to induce the recipient to export in a way
that is not simply reflective of the conditions of supply and demand in the domestic and export
markets undistorted by the granting of these subsidies. Yet the Panel's findings do not shed light on
the question as to whether the fact that Airbus w as anticipated to make a significant number of export
sales under the LA/MSF contracts is not simply reflective of conditions of supply and demand
undistorted by the granting of the subsidies.
1092. In this respect, we recall that, in Airbus' GMFs reviewed by the Panel, the market forecasts
for aircraft deliveries were based on an estimate of fleet development of airlines around the world
2418,
or of the regional distribution of global aircraft demand. 2419 For example, the GMFs issued in 1999
and 2000 predict, respectively, that demand by European airlines would represent 23% of total
demand by airlines worldwide by 2018 2420, and that, by 2019, demand by European airlines for
"aircraft with more than 400 seats" would be 247 aircraft, or 20% of the worldwide demand. 2421 Such
evidence, therefore, relates to only the existing c ondition of worldwide demand by airlines that was
forecast at a level of 1,235 "aircraft with more than 400 seats". The fact that demand by non-
European airlines was projected at 988 aircraft and demand by European airlines at 247 aircraft
simply shows that Airbus is an export-oriented company. However, pursuant to the second sentence
of footnote 4, the fact that a company exports, alone, is not a sufficient basis for finding de facto
export contingency. Moreover, the evidence does not clearly indicate the proportion of export and
domestic sales Airbus would be expected to make under the LA/MSF contracts in question. Thus, the
evidence does not give an indication as to the proportion of its production that Airbus would be
expected to sell in the domestic and export ma rkets undistorted by the granting of the LA/MSF
subsidies at issue. The evidence therefore does not help to show whether the LA/MSF subsidies were
granted so as to give Airbus an incentive to skew its fu ture sales in favour of export sales. Thus, the
evidence concerning global market forecasts does not provide a basis for determining whether the
LA/MSF subsidies provide Airbus with an incentive to export in a way that is not reflective of the
conditions of supply and demand in the domestic and export markets undistorted by the granting of
these subsidies.

2418See Airbus 1997 GMF (Panel Exhibit US-366), p. 19; and Airbus 1998 GMF (Panel Exhibit
US-367), p. 36.
2419See Airbus 2000 GMF (Panel Exhibit US-358), pp. 27-37; Airbus 1999 GMF (Panel Exhibit
US-356), pp. 28-30 and 41-42; and Airbus 1995 GMF (Panel Exhibit US-369), p. 18.
2420Panel Report, para. 7.651. See also Airbus 1999 GMF (Panel Exhibit US-356), p. 41.
2421Panel Report, paras. 7.651 and 7.661. See also Airbus 2000 GMF (Panel Exhibit US-358), p. 37.
BCI deleted, as indicated [***] WT/DS316/AB/R

1093. Furthermore, the Panel relied on the repaym ent terms of the LA/MSF contracts—which
require Airbus to repay the loans on a per-sale ba sis over a specified number of sales that cannot be
fulfilled without exports—in reaching its finding that Airbus must export a significant number of its
future production in order to repay the loans. Ye t the evidence examined by the Panel does not make
it clear whether, given the existing supply and dema nd conditions in the aircraft sector, Airbus would
not also be expected to make a significant number of export sales, even in the absence of such
repayment terms. The fact that a significant portio n of the demand lies outside Europe suggests that a
large part of the sales that Airbus has to make in order to repay the loans would necessarily be export
sales. Thus, the evidence examined by the Panel suggests that the fact that Airbus must make a
substantial number of export sales in order to repay the LA/MSF loans may be due to the global
dimension of the LCA market and the global nature of demand for LCA; and it is not necessarily due
to, or reflective of, the way in which LA/MSF subsidies are designed and structured.
1094. The United States points out that, if Airbus had been required to repay over a lower level of
deliveries, for example, lower than the projected 247 aircraft with more than 400 seats demanded by
European airlines, export sales might not be necessary in order to fully repay the loan.
2422 Yet, in our
view, it is likely that, among the aircraft sales projected for the European market, Boeing would
supply a portion of that demand. 2423 Moreover, as noted above, the GMF forecast of 1,235 sales
globally and 247 sales in "Europe" is reflective of conditions of supply and demand in an industry that
is highly export-oriented. Consequently, even under repayment terms that require Airbus to repay the
LA/MSF over a considerably lower number of sales than 247 (because part of these sales will go to
Boeing), Airbus would be expected to export a large part of its future production and would
necessarily remain an export-oriented company. It is conceivable that existing conditions of supply
and demand would lead to a higher proportion of do mestic sales when production decreases or to a
higher proportion of export sales when production in creases. Yet nothing in the Panel's findings or
undisputed facts on record show the level at which Airbus would be expected to sell in the domestic
and export markets under a repayment term that requi res it to repay the loans over a smaller number
of sales. Thus, the Panel's factual findings and r ecord evidence do not indicate to us whether the
granting of LA/MSF subsidies is designed so as to give Airbus an incentive to skew its future sales in
favour of export sales, thereby inducing the promotion of Airbus' future export performance.

2422See United States' other appellant's submission, para. 31.
2423Indeed, we recall that Airbus GMF 2000 defines "aircraft with more than 400 seats" as including the
A380, the A340-600, and the Boeing 747 and 777-300. (See Panel Report, para. 7.661)
WT/DS316/AB/R BCI deleted, as indicated [***]

1095. Furthermore, we recall that the Panel examin ed certain additional evidence submitted by the
United States to corroborate the alleged tie betw een the granting of the subsidies and anticipated
exportation. Specifically, with respect to the German
2424 and Spanish 2425 A380 contracts, the
additional evidence examined by th e Panel included preambles and other relevant provisions of the
contracts, and a statement in the LA/MSF applica tion by Deutsche Airbus. With regard to the UK
A380 contract, the Panel reviewed a statement by British Prime Minister Tony Blair and a press
release by the UK Department of Trade and Industry 2426, as well as the representation and warranty
made by BAE Systems in Article 3 of the contract. 2427 To the Panel, the above evidence, together
with the evidence concerning the exchange of commi tments, demonstrated that the granting of the
LA/MSF subsidies under the German, Spanish, and UK A380 contracts was at least in part "on the
condition or because of" the governments' anticipation of exportation.
2428
1096. Concerning the Spanish A340-500/600 contract , the additional evidence examined by the
Panel included preambles and other relevant provisions of the contract. 2429 As for the French A380
contract2430, the Panel reviewed other relevant provisions and a statement reportedly made by French
Prime Minister Lionel Jospin. 2431 Finally, regarding the French A340-500/600 and A330-200
contracts, the Panel reviewed other relevant provisions of the contracts referred to by the

2424With respect to the German A380 contract, the Panel began by noting that the preamble to the
contract shows that the German Government was [***]. The Panel further noted that section 2.5 of the A380
contract obligates Airbus Deutschland [***]. In addition, the Panel found that section 12 of the LA/MSF
contract provides that the German Government would be entitled to [***], and that [***]. Another provision
referred to by the Panel was section 12 of the German A380 contract, which states that the German Government
may [***] (Panel Report, para. 7.680 (quoting Panel Exhibit US-72 (BCI), supra, footnote 2414 (emphasis
added by the Panel))
2425With regard to the Spanish A380 contract, the Panel noted two paragraphs from the preamble of the
contract. Paragraph 6 of the preamble states that the Spanish Government's support for the A380 project is
[***]. Paragraph 7 states that the [***]. (Panel Report, para. 7.681 (quoting Panel Exhibit US-73 (BCI), supra,
footnote 2414))
2426See Panel Report, para. 7.682. Specifically, Prime Mi nister Blair stated, at the public unveiling of
the A380, that "{t}he export gains will run into the billions of pounds". ( Ibid. (referring to Panel Exhibit
US-361, supra, footnote 352)) The press release by the UK De partment of Trade and Industry stated that
"{w}ithin 25 years Airbus has grown to take 55% of the civil aircraft production market and contributes
GBP 1 billion to the UK's trade balance". (Ibid. (referring to Panel Exhibit US-360, supra, footnote 354)
2427Article 3 states that [***]. (Panel Report, para. 7.683 (quoting Panel Exhibit US-79 (BCI), supra,
footnote 2414))
2428Panel Report, paras. 7.680, 7.681, and 7.683. (original emphasis)
2429For the relevant content of the preamble, see supra, footnote 2410. See also Panel Report,
para. 7.687. The Panel further found that Article 1 of the contract repeats Airbus' obligation [***]. (Ibid.)
2430The Panel found that the relevant provisions in the French A380 contract [***], require Airbus to
[***], [***], and give the government the right to [***] if Airbus breaches its obligations. (See Panel Report,
para. 7.684)
2431See Panel Report, para. 7.685. According to th e statement, "Jospin and his government and its
European partners had made a commitment to build a strong European aerospace industry". ( Ibid. (referring to
"Jospin pledges to aid Airbus in fight against Boeing", Reuters, 8 March 2000 (Panel Exhibit US-1))
BCI deleted, as indicated [***] WT/DS316/AB/R

United States.
2432 To the Panel, the additional evidence si mply repeated the repayment obligations,
and did not show the governments' "justification" for granting the subsidies.2433
1097. In sum, the Panel's findings on the basis of th e additional evidence showed the reasons for the
granting of the subsidies under the German, Spanis h, and UK A380 contracts. However, as noted
above, the standard for finding that the granting of a subsidy is in fact tied to anticipated exportation is
not met simply by showing that anticipated exportatio n is the reason for granting the subsidy. As we
have found above, the reason for granting the subsidy is not the same thing as whether the granting of
the subsidy is geared to induce the promotion of future export performance by the recipient.
1098. Therefore, all of the above factual findings, taken together, still leave the following question
unanswered: At what level would Airbus be antic ipated to sell in the domestic and export markets
undistorted by the granting of the subsidies under the LA/MSF contracts in question? Among the
evidence examined by the Panel, the only piece th at shows market conditions undistorted by the
granting of the subsidies under the LA/MSF contracts at issue relates to the demand side, namely the
projected demand for LCA by airlines worldwide. Such evidence gives no indications as to whether
or how LA/MSF subsidies give an incentive to Air bus to skew its future sales towards exports.
Although the evidence concerning repayment terms and relevant market forecasts gives some
indication of the extent to which Airbus may be expected to export
2434, it does not show the extent to
which Airbus would be expected to export in the absence of the granting of these LA/MSF subsidies.
Without such evidence, it is impossible to determ ine whether the LA/MSF subsidies were granted so
as to induce Airbus to export a higher proportion of its production than it would otherwise, thereby
giving Airbus an incentive to skew its future sal es in favour of export sales. The Panel's factual
findings and undisputed facts on the record, therefore, do not provide a sufficient basis for
determining whether the LA/MSF subsidies under these contracts were granted so as to provide an
incentive to the recipient to export in a way that is not simply reflective of the conditions of supply
and demand in the domestic and export markets undistorted by the granting of these subsidies.
1099. We recall our finding that, where such evidence exists, the assessment of whether the granting
of a subsidy provides such an incentive could be made on the basis of a comparison between, on the
one hand, the ratio of anticipated export and domestic sales of the subsidized product that would come
about in consequence of the granting of the subsidy at issue, and, on the other hand, the situation in

2432The Panel found that the relevant provisions in the French A340-500/600 and A330-200 contracts
[***], [***], and give the government the right to [***] if Airbus breaches its obligations. (See Panel Report,
paras. 7.686 and 7.688)
2433Panel Report, para. 7.687. (emphasis omitted)
2434With the exception of the Spanish A340-500/600 contract.
WT/DS316/AB/R BCI deleted, as indicated [***]

the absence of the subsidy. The situation in the absence of the subsidy may be understood on the
basis of historical sales of the same product by the recipient in the domestic and export markets
untainted by the subsidy. In this dispute, however, the LA/MSF subsidies under the contracts at issue
were granted specifically for launching certain typ es of LCA. Although each model of the aircraft
built on Airbus' experience with a previous model
2435, we note that each subsidized LCA model was
nevertheless new, distinct and developed under a diff erent project. Moreover, even if historical data
regarding previous models of ai rcraft were relevant, we recall that LA/MSF subsidies have been
granted to Airbus since the development of th e first Airbus LCA model, the A300, in 1969. 2436
Therefore, no historical data of the same LCA model, in the absence of the granting of these particular
types of LA/MSF subsidies, are available that could provide a basis for comparison.
1100. We also recall our finding that , in the absence of historical data, the comparison could be
made with the performance that a profit-maximizing firm would hypothetically be expected to achieve
in the export and domestic markets in the absence of the granting of the subsidy in question. Where
the evidence shows, all other things being equal, that the granting of the subsidy provides an incentive
to skew anticipated sales toward s exports, in comparison with the hypothetical performance of a
profit-maximizing firm in the absence of the granting of the subsidy, this would be an indication that
the granting of the subsidy is in fact tied to anticipated exportation within the meaning of
Article 3.1(a) and footnote 4 of the SCM Agreement.
1101. However, there is not a sufficient evidentiary basis on the record, nor are there relevant
factual findings by the Panel, that would enab le us to conduct an examination regarding the
hypothetical performance of a profit-maximizing firm in the absence of the granting of the subsidy.
Hence, in the absence of sufficient factual findings by the Panel and undisputed facts on the record,
we are not in a position to apply the test enunciate d in section C above and complete the analysis.
Under such circumstances, it is not possible fo r us to determine whether the LA/MSF subsidies
provide an incentive for Airbus to export in a way that is not simply reflective of the conditions of
supply and demand in the domestic and export markets undistorted by the granting of the LA/MSF
subsidies under the contracts at issue.

2435This does not apply to the first model developed by Airbus, the A300.
2436See Panel Report, paras. 7.367-7.375.
BCI deleted, as indicated [***] WT/DS316/AB/R

F. Conclusion
1102. We find that the factual equivalent of de jure conditionality between the granting of a subsidy
and anticipated exportation can be established where th e granting of the subsidy is geared to induce
the promotion of future export performance of the recipient. The standard for de facto export
contingency under Article 3.1(a) and footnote 4 of the SCM Agreement would be met when the
subsidy is granted so as to provide an incentive to the recipient to export in a way that is not simply
reflective of the conditions of supply and demand in the domestic and export markets undistorted by
the granting of the subsidy.
1103. We further find that the Panel equated the standard for de facto export contingency with a
standard based on the reasons for granting a subs idy and that, in so doing, the Panel erroneously
interpreted Article 3.1(a) and footnote 4 of the SCM Agreement. Because the Panel applied this
erroneous standard in reaching its fi nal conclusions, we therefore also reverse the Panel's conclusion,
in paragraph 7.689 of its Report, that "the Unite d States has demonstrated that the German, Spanish
and UK A380 contracts amount to prohibited export s ubsidies within the meaning of Article 3.1(a)
and footnote 4 of the SCM Agreement", and that "t he United States has not shown that the granting of
the … LA/MSF subsidies" by France for the A380, A340-500/600, and A330-200, and by Spain for
the A340-500/600 "was contingent in fact upon antic ipated export performance", within the meaning
of Article 3.1(a) and footnote 4 of the SCM Agreement.
1104. However, the Panel's factual findings and undi sputed facts on the record do not provide a
sufficient basis for us to determine whether the LA/MSF subsidies under the contracts at issue are
granted so as to provide an incentive to Airbus to export in a way that is not simply reflective of the
conditions of supply and demand in the domestic and export markets undistorted by the granting of
these subsidies. We are thus not able to comple te the analysis and determine whether the LA/MSF
subsidies under the contracts at issue are geared to induce the promotion of future export performance
by Airbus. Therefore, we are unable to make a finding as to whether the granting of the LA/MSF
subsidies under these contracts is in fact tied to anticipated exportation within the meaning of
Article 3.1(a) and footnote 4 of the SCM Agreement. Consequently, the Panel's recommendation
under Article 4.7 of the SCM Agreement, that "the subsidizing Member granting each subsidy found
to be prohibited withdraw it ... within 90 days", must be reversed.
2437

2437See Panel Report, para. 8.6.
WT/DS316/AB/R BCI deleted, as indicated [***]

IX. Serious Prejudice
A. General Approach to the Assessment of Serious Prejudice
1105. We now turn to the European Union's appeal concerning the Panel's assessment of serious
prejudice. We begin with some briefs remarks about the Panel's general approach.
1106. The Panel in this dispute chose to analyze the United States' claims, that the effect of the
challenged subsidies was displacement and lost sales, on the basis of a two-step approach that it
described as follows:
{I}n evaluating the United States' claims, we will first consider
whether the particular phenomena id entified in Article 6.3(a), (b)
and (c) of the SCM Agreement can be observed as a matter of
fact.
2438
{I}n undertaking this first step of the analysis, we will not be
addressing the question whether any particular phenomenon that can
be observed is actually caused by the subsidies we have found were
provided to Airbus. This question of causation will be examined in
the final section of our serious prejudice findings, where we will
review the parties' theories of causation and related arguments and
evidence.
2439
1107. The Appellate Body has found that panels may undertake an analysis of serious prejudice
under either a unitary or two-step approach. 2440 Under a unitary approach, the analysis of the
particular market phenomena identified in the subparagraphs of Article 6.3 of the SCM Agreement is
not conducted separately from the analysis of whet her there is a causal relationship between those
market phenomena and the challenged subsidies. By contrast, under a two-step approach like the one
adopted by the Panel, the analysis first seeks to identify the market phenomena and then, as a second
step, examines whether there is a causal relationship. The Appellate Body has indicated a preference
for the unitary approach, observing that such approach "has a sound conceptual foundation" 2441 and

2438Panel Report, para. 7.1731.
2439Panel Report, para. 7.1732.
2440See Appellate Body Report, US – Upland Cotton , para. 431; and Appellate Body Report, US –
2441Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 354.
BCI deleted, as indicated [***] WT/DS316/AB/R

explaining that it may be difficult to ascertain the existence of some of the market phenomena in
Article 6.3 without considering the effect of the subsidy at issue.
2442
1108. In this case, the Panel justified its choice of a two-step approach by stating that "the
arguments and evidence advanced by the United St ates (including in respect of price suppression)
renders a two-step approach entirely appropriate to assessing its claims under Articles 6.3(a), (b)
and (c) in the present controversy." 2443 There is no further explanation by the Panel as to why such a
two-step approach was "entirely appropriate". 2444 The Panel acknowledged the reservations
concerning a two-step approach expressed by the Appellate Body in US – Upland Cotton , but the
Panel did not indicate why it considered that those reservations were not relevant.2445
1109. Our view remains that a unitary approach that uses a counterfactual will generally be the more
appropriate approach to undertaking the assessment required under Article 6.3 of the SCM Agreement.
As we further explain in section C below, it is difficult to understand the market phenomena described
in the various subparagraphs of Article 6.3 in isolation from the challenge d subsidies. Rather,
consideration of the effects of the challenged subsidies is intrinsic to the identification of those market
phenomena. Any attempt to identify one of the market phenomena in Article 6.3 without considering
the subsidies at issue can only be preliminary in nature since Article 6.3 requires that the market
phenomenon be the effect of the challenged subsidy. 2446 This also means that a two-step approach
simply defers the core of the analysis to the sec ond step. In other cases, the problem might be the
opposite. By artificially leaving aside the question of whether the market phenomenon is the effect of
the subsidy, one could overlook market phenomena that are in fact occurring.
1110. The use of a counterfactual analysis provides an adjudicator with a useful analytical
framework to isolate and properly identify the effects of the challenged subsidi es. In general terms,
the counterfactual analysis entails comparing the actua l market situation that is before the adjudicator
with the market situation that would have existed in the absence of the challenged subsidies. This

2442The Appellate Body made that statement in a case involving a claim of price suppression under
Article 6.3(c) of the SCM Agreement. The Appellate Body also suggested that the same difficulty could apply to
claims of displacement or impedance under Articles 6.3(a) and (b) of the SCM Agreement:
Similarly, it might be difficult to ascertain whether imports or exports are
"displace{d}" or "impede{d}" under paragr aphs (a) or (b) of Article 6.3 of
the SCM Agreement without considering the effect of the challenged
subsidy.
(Appellate Body Report, US – Upland Cotton, footnote 521 to para. 433)
2443Panel Report, para. 7.1731.
2444Although the Panel suggested that this would "be explained in the sections that follow" (see Panel
Report, para. 7.1731), we have been unable to locate this explanation in the Panel Report.
2445Panel Report, para. 7.1731.
2446The Panel recognized the preliminary nature of its findings of the "existence" of displacement and
lost sales. (See Panel Report, paras. 7.1732, 7.1758, and 7.1792)
WT/DS316/AB/R BCI deleted, as indicated [***]

requires the adjudicator to undertake a modelling exercise as to what the market would look like in the
absence of the subsidies. Such an exercise is a necessary part of the counterfactual approach. As with
other factual assessments, panels clearly have a ma rgin of discretion in conducting the counterfactual
analysis.
2447
1111. Having said that, we recall that it is permissi ble for a panel to undertake the assessment of
serious prejudice on the basis of a two-step appro ach. Neither participant has challenged on appeal
the Panel's choice of a two-step approach. Thus, we will proceed with our review of the Panel's
analysis on the basis of the two-step approach adopted by the Panel and accepted by the participants.
B. The Subsidized Product and Product Market
1112. We turn next to address the European Union's app eal as it relates to the Panel's analysis of the
United States' claims of displacement u nder Articles 6.3(a) and 6.3(b) of the SCM Agreement. In
particular, we examine whether the Panel erred in its interpretation and application of the term
"market" in Articles 6.3(a) and 6.3(b), and whether the Panel acted inconsistently with Article 11 of
the DSU when assessing "displacement" on the basi s of a single subsidized product and a single
product market for LCA.
1. Whether the Panel Erred in Assessing Displacement on the Basis of a Single
Subsidized Product and a Single Product Market
1113. On appeal, the European Union argues that the Panel erred in its interpretation of
Articles 6.3(a) and 6.3(b) of the SCM Agreement, and in its application of this interpretation to the
facts, by "finding that there is only a single product market in which all Boeing and Airbus LCA
compete."2448 According to the European Union, the "concepts of 'markets' and 'competition'—as well
as 'subsidized' and 'like' products—are inseparable concepts that play a crucial role in assessing
serious prejudice under Article 6.3 of the SCM Agreement."2449 Referring to the report of the
Appellate Body in US – Upland Cotton, the European Union maintains th at "two products are in the
same market if they are in 'actual or potential competition' and there exists 'homogeneity of the
conditions of competition' in a market." 2450 According to the European Union, a panel must therefore
"objectively assess whether the product market(s) asser ted by the complaining Member exist and can
serve as a proper basis for analysing the complaining Member's adverse effects claims." 2451 T h i s

2447See Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 357.
2448European Union's appellant's submission, para. 340.
2449European Union's appellant's submission, para. 341.
2450European Union's appellant's submission, para. 343 (referring to Appellate Body Report, US –
Upland Cotton, para. 408).
2451European Union's appellant's submission, para. 307.
BCI deleted, as indicated [***] WT/DS316/AB/R

analysis "must start with an assessment of the co mplaining Member's definition of the 'subsidized
product'."
2452 Based on the nature and extent of actual or potential competition in the LCA market,
the European Communities argued before the Panel th at physically distinct Airbus LCA families
should not "be combined into a single allegedly subsidized product" 2453 and that, instead, the Panel
should find that there are, in fact, four separate allegedly subsidized Airbus LCA families and that,
with respect to three of these Ai rbus LCA families, there are corre sponding "like" families of Boeing
LCA.2454 According to the European Union, by fa iling to assess independently and objectively the
scope of the product definition proposed by the United States, the Panel acted inconsistently with its
obligations under Article 11 of the DSU.2455
1114. The United States counters that the European Un ion's attempt to use the notion of "product
markets" as a means of "restructuring the displaceme nt analysis" has no basis in, and is contradicted
by, the SCM Agreement and the facts of this case. 2456 For the United States, "{i}t is the definition of
the subsidized product and the like product that se ts the product framework for the displacement
analysis, while the references to 'market' in Articles 6.3(a) and (b) define the geographic scope of that
analysis."2457 The United States submits that the Panel' s decision, after evaluating all the facts
presented, to assess the United States' claims of di splacement on the basis of a single "subsidized
product" rather than five separat e "products" was "a reasonable one". 2458 The United States considers
that, in declining to "reformulate" the United States' claim in the manner requested by the
European Communities, the Panel acted consistently with its obligations under Article 11 of the
DSU.2459 The United States adds that, "even if th e SCM Agreement called for a separate 'product
market' analysis under Article{} 6.3(a)-(d), there is evidence of {a} 'product market' in which all
Airbus LCA compete against all Boeing LC A under homogenous conditions of competition
irrespective of the European {Communities'} propo sed 'product markets,' and there is uncontested
evidence of LCA competition outside the {European Communities'} proposed 'product markets'."2460
1115. This is the first time that the Appellate Body examines claims of displacement under
subparagraphs (a) or (b) of Article 6.3 of the SCM Agreement. We begin by examining whether the
Panel erred in its interpretation of the requirements set out in those provisions. Thereafter, we review

2452European Union's appellant's submission, para. 307.
2453European Communities' first written submission to the Panel, para. 1565.
2454See Panel Report, paras. 7.1634 and 7.1638.
2455European Union's appellant's submission, paras. 301 and 302.
2459See United States' appellee's submission, para. 520.
2460United States' appellee's submission, para. 554 (referring to Panel Report, paras. 7.1725
and 7.1668).
WT/DS316/AB/R BCI deleted, as indicated [***]

the scope of a panel's adjudicatory powers and du ties in assessing claims of serious prejudice under
Articles 5 and 6 of the SCM Agreement that flow from the proper interpretation of those provisions.
This will assist us in ascertaining whether the Pane l complied with its obligations under Article 11 of
the DSU. Before embarking on our analysis, we wi sh to emphasize that our discussion is limited to
the United States' claims of di splacement under Part III of the SCM Agreement, and that the Panel's
findings on alleged injury to the United States ' industry producing LCA within the meaning of
Article 5(a) and Part V of the SCM Agreement are not before us in this appeal.
2461
1116. Turning first to the text of the SCM Agreement, we observe that the chapeau of Article 6.3
provides that "{s}erious prejudice in the sense of paragraph (c) of Article 5 may arise in any case
where one or several of the following apply". Ar ticle 6.3 comprises four subparagraphs describing
certain adverse effects.
1117. Subparagraph (a) of Article 6.3 refers to the situ ation where "the effect of the subsidy is to
displace or impede the imports of a like product of a nother Member into the market of the subsidizing
Member". Subparagraph (b) refers to the situation wh ere "the effect of the subsidy is to displace or
impede the exports of a like product of anot her Member from a third country market".
Subparagraphs (a) and (b) each concerns the effect of a subsidy in a particular "market". They refer
respectively to: "the market of the subsidizing Me mber"; and "a third country market". A plain
reading of Articles 6.3(a) and 6.3(b) therefore rev eals that an analysis of displacement or impedance
under those provisions is limited to the territory of the "subsidizing Member" or the territory of any
third country at issue. The manner in which the ge ographic dimension of a mark et is determined will
depend on a number of factors: in some cases, the geographic market may extend to cover the entire
country concerned; in others, an analysis of th e conditions of competition for sales of the product in
question may provide an appropriate foundation fo r a finding that a geographic market exists within
that area, for example, a region. There may al so be cases where the geographic dimension of a
particular market exceeds national boundaries or could be the world market, even though
Articles 6.3(a) and 6.3(b) would focus the analysis of displacement and impedance on the territory of
the subsidizing Member or third countries involved.
2462

2461Panel Report, paras. 7.2029 ff. We emphasize that, in assessing the existence of injury to the
domestic industry under Article 5(a) of the SCM Agreement, the focus is on the impact of subsidized imports on
the domestic industry of another Memb er, rather than on the effects in a "market". As we see it, this has
implications on how to delineate the proper scope of th e subsidized product when assessing such a claim, in
particular, in cases where the domestic industry consists of only one manufacturer that produces a range of
product types.
2462We note that, in terms of the geographic dimension of markets under Article 6.3(c) of the
SCM Agreement, it may be appropriate to examine the "world market" and the conditions of competition as they
exist in that market. By contrast, Article 6.3(d) requires an assessment of shares on the world market.
BCI deleted, as indicated [***] WT/DS316/AB/R

1118. The word "market" in Article 6.3 must be read together with the concept of "like product".
Articles 6.3(a) and 6.3(b) both refer to imports an d exports of a "like product". This reference
indicates the need to identify a "subsidized product" that is "like" the product the importation or
exportation of which is being displaced or impeded in a particular market.
2463 The term "like product"
is defined in footnote 46 of the SCM Agreement to mean "a product which is identical, i.e. alike in all
respects to the product under consideration, or in the absence of such a product, another product
which, although not alike in all respects, has char acteristics closely resembling those of the product
under consideration." This suggests that identity or close resemblance of characteristics are one factor
to consider in assessing whether products are in the same market.2464
1119. As we see it, displacement is a situation where imports or exports of a like product are
replaced by the sales of the subsidized product. The mechanism by which displacement operates is, in
our view, essentially an economic mechanism, the existence of which is to be assessed by reference to
events that occur in the relevant product market. We construe the concept of displacement as relating
to, and arising out of, competitive enga gement between products in a market. 2465 Aggressive pricing
of certain products may, for example, lead to disp lacement of exports or imports in a particular
market. This, however, can only be the case if t hose products compete in the same market. An
examination of the competitive relationship between pr oducts is therefore required so as to determine
whether such products form part of the same market . We conclude therefore that a "market", within
the meaning of Articles 6.3(a) and 6.3(b) of the SCM Agreement, is a set of products in a particular
geographical area that are in actual or potential co mpetition with each other. An assessment of the
competitive relationship between products in the market is required in order to determine whether and
to what extent one product may displace another. Thus, while a complaining Member may identify a
subsidized product and the like product by referen ce to footnote 46, the products thereby identified
must be analyzed under the discipline of the product market so as to be able to determine whether
displacement is occurring. Ordinarily, the subsidi zed product and the like product will form part of a
larger product market. But it may be the case that a complainant chooses to define the subsidized and
like products so broadly that it is necessary to an alyze these products in different product markets.

2463Like the Panel, we consider this to be self-evident. (See Panel Report, para. 7.1653)
2464In Indonesia – Autos, the panel set out certain legal criteria for evaluating whether two products are
"like" in the context of claims brought under Articles 5 and 6 of the SCM Agreement . (See Panel Report,
Indonesia – Autos, paras. 14.172 and 14.173)
2465A similar argument can be made for the concept of impedance, which also presupposes the
existence of an economic mechanism by which a subsidized product hinders, obstructs, or holds back sales of a
like product in the relevant product market.
WT/DS316/AB/R BCI deleted, as indicated [***]

This will be necessary so as to anal yze further the real competitive interactions that are taking place,
and thereby determine whether displacement is occurring.
2466
1120. Our interpretation is consistent with the fundamental economic proposition that a market
comprises only those products that exercise competitive constraint on each other. 2467 This is the case
when the relevant products are substitutable. 2468 Although physical characteristics, end-uses, and
consumer preferences may assist in deciding whet her two products are in the same market, they
should not be treated as the exclusive factors to c onsider in deciding whether those products are
sufficiently substitutable so as to create competitive constraints on each other. Indeed, whether two
products compete in the same market is not de termined simply by assessing whether they share
particular physical characteristics or have the same ge neral uses; it may also be relevant to consider
whether customers demand a range of products or wh ether they are interested in only a particular
product type. In the former case, when customers pr ocure a range of products to satisfy their needs,
this may give an indication that all such products could be competing in the same market.

2466A similar argument can be made with respect to impedance.
2467The term "market" has been defined as "{g}enera lly, any context in which the sale and purchase of
goods and services takes place." (Macmillan Dictionary of Modern Economics, 4th edn, D.W. Pearce, J. Cairns,
R. Elliot, I. McAvinchey, R. Shaw (eds) (Palgrave McM illan, 1992), p. 266) Another definition of the term
"market" is "{a} collection of homogenous transactions. A market is created whenever potential sellers of a
product are brought into contact with potential buyers and a means of exchange." ( Dictionary of Economics ,
2nd edn, G. Bannock, R.E. Baxter, E. Davis (eds) (The Economist Books, 1999), p. 262) See also
European Court of Justice, Judgment, Case 27/76, United Brands Company and United Brands Continental BV
v. Commission [1978] ECR 207; and US Supreme Court, Brown Shoe Co., Inc. v. United States , 370 US 294
(1962). The recently revised merger guidelines issued by the US Depa rtment of Justice and the Federal Trade
Commission also provide a useful reference for understanding the word "market". (See US Department of
Justice and the Federal Trade Commission, Horizontal Merger Guidelines, 19 August 2010) The term "market"
has also been defined for purposes of EU competition law. (See European Commission Notice on the definition
of relevant market for the purposes of Community competition law, p ublished in the Official Journal of the
European Communities , C Series, No. 372 (9 December 1997)) One commentator submits that a market
definition, both from a product and geographical point of view, "is not of interest by itself, but only as a
preliminary step towards the objective of assessing the market power of the firms under analysis." (M. Motta,
Competition Policy: Theory and Practice , p. 101) Thus, since a market definition "is instrumental only to the
assessment of market power, the relevant market should not be a set of products, which 'resemble' each other on
the basis of some characteristics, but rather the set of products (and ge ographical areas) that exercise some
competitive constraint on each other." (Ibid., p. 102)
2468Motta, supra, footnote 2467, p. 103. A test that is commonly used to ascertain whether two
products exercise competitive constraint on each other, and thus "should guide the analysis of market definition
in both the product and the geographic dimension", is the so-called "Small but Significant Non-Transitory
Increase in Prices" test ("SSNIP", also described as the "hypothetical monopolist" test). ( Ibid., p. 102) Put
simply, this test asks whether or not a hypothetical seller of a certain product would find it profitable to raise the
price of that product by a certain amount. If the price increase is found to be profitable, this would generally
indicate that the product does not face significant compe titive constraint from other products, and that it should
therefore be considered to be in a separate market. Conversely, if the increase in price is found not to be
profitable, this indicates that the product should not be considered to be in a separate market, as there exist other
products that exercise competitive constraint on the seller. The test should, in such cases, continue to consider a
wider market until a profitable hypothetical price increase is found, thus indicating the scope of the relevant
market. (Ibid., p. 105)
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1121. Demand-side substitutability—that is, when tw o products are considered substitutable by
consumers—is an indispensable, but not the only re levant, criterion to consider when assessing
whether two products are in a single market. Ra ther, a consideration of substitutability on the
supply-side may also be required. For exampl e, evidence on whether a supplier can switch its
production at limited or prohibitive cost from one product to another in a short period of time may
also inform the question of whether two products are in a single market.
1122. Our analysis is supported by Appellate Body jurisprudence. In US – Upland Cotton , the
Appellate Body defined a "market" as "the area of economic activity in which buyers and sellers come
together and the forces of supply and demand affect prices", and considered that "two products would
be in the same market if they were engaged in actual or potential competition in that market".
2469 The
Appellate Body also agreed with th e panel in that case that "the scope of the 'market', for determining
the area of competition between two products, may depend on several factors such as the nature of the
product, the homogeneity of the conditions of competition, and transport costs." 2470 While the
Appellate Body was, in that case, considering a cl aim of price suppression under Article 6.3(c) of the
SCM Agreement, we believe that similar considerations w ould also be relevant in assessing claims of
serious prejudice brought under the remainder of Article 6.3, including Articles 6.3(a) and 6.3(b).
This is consistent with the fact that each of th e subparagraphs of Article 6.3 is concerned with the
effects of a subsidy in a market. In the absen ce of actual or potential competition between two
products in the marketplace, we fail to see how the effect of a subsidy provided to one of those
products could be found to be the displacement of the other product.
1123. In sum, we conclude, therefore, that the sc ope of the "market" to be examined for the
purposes of Articles 6.3(a) and 6.3(b) of the SCM Agreement is likely to vary from case to case
depending upon the particular factual circumstances, including the nature of the products at issue, as
well as demand-side and supply-side factors. It shou ld be emphasized that the scope of the relevant
product market in any given case will depend on th e nature and degree of competition between the
products of the complaining Member and the alle gedly subsidized products of the responding
Member. In some cases, the entire product range offered by the complainant may compete with the
range of products of the respondent that is allegedly subsidized. In other cases, an assessment of the
conditions of competition may reveal the existence of multiple product markets in which particular
products of the complaining Member compete with pa rticular subsidized products of the respondent.
However, it is important to note that whether or no t a broad or narrow range of products benefit from
subsidization says little about whether all these pr oducts compete in the same market. Indeed,

2469Appellate Body Report, US – Upland Cotton, para. 408.
2470Appellate Body Report, US – Upland Cotton, para. 408.
WT/DS316/AB/R BCI deleted, as indicated [***]

products benefiting from subsidies may compete in ve ry different markets. A panel is therefore
required to make an objective assessment of the co mpetitive relationship between specific products in
the marketplace and to define the relevant product ma rket in order to determine whether particular
products can be treated as forming part of a si ngle product market or several product markets for
purposes of an analysis of displacement under Articles 6.3(a) and 6.3(b).
1124. Turning to the specifics of this dispute, as we see it, the decision by the Panel to assess the
existence of displacement on th e basis of a "single product market" appears to have been a
consequence of its earlier finding that it did not ha ve the authority, and that it was therefore not
required, to make an independent and objective assessment of the complaining Member's definition of
the "subsidized product". Indeed, the Panel stated at the outset of its evaluation that "there is no legal
requirement in the SCM Agreement for a panel to make a determination regarding the 'subsidized
product' independent of the complaining Member's allegations."
2471
1125. The Panel explained that it was for the compla ining party to define the "subsidized product",
and saw nothing in the SCM Agreement that required it "to make an i ndependent determination of the
'subsidized product', as opposed to relying on the complaining Member's identification of that
product."2472 The Panel reasoned that the fact that "the effects of a subsidy must be evaluated with
respect to market share and prices in particular markets does not entail that a panel must make an
independent assessment of the subsidized product that is at issue." 2473 The Panel added that, if it were
to "conclude that there are multiple subsidized produ cts at issue in this case, and proceed to evaluate
the United States' claims on {that} basis, {it} would, in effect, be reformulating the United States'
complaint."2474 For the Panel, there was "no basis in the text of the SCM Agreement that would allow
{it}, much less require {it}, to reformulate the United States' claims based on what might be {its} own
view of what should constitute the 'subsidized product' as opposed to that of the complaining Member,
the United States."2475 According to the Panel, "it is unlikely that the drafters of the SCM Agreement
intended panels to make independent, fact-based determinations of the appropriate subsidized
product", but chose to provide no criteria for such a determination. 2476 In the absence of any guidance
in the text of the SCM Agreement, the Panel said it was "reluctant to undertake the task of developing
relevant criteria and applying them to the facts of this case".2477

2471Panel Report, para. 7.1650.
2472Panel Report, para. 7.1653.
2473Panel Report, para. 7.1653.
2474Panel Report, para. 7.1654.
2475Panel Report, para. 7.1654.
2476Panel Report, para. 7.1656.
2477Panel Report, para. 7.1656.
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1126. On appeal, the European Union challenges these a ssertions by the Panel, arguing that they are
based on an erroneous interpretation of Articles 5 and 6 of the SCM Agreement.
2478 T h e
European Union submits that, contrary to what the Panel assumed, the text and context of Article 6.3
of the SCM Agreement provide guidance for an assessment of the term "subsidized product". The
European Union also argues that the standard articulat ed by the Panel is inconsistent with the duty of
a panel to make an objective assessment of the ma tter before it, as required under Article 11 of the
DSU. The European Union explains, in particular, that nothing in the DSU justifies giving a
complaining Member absolute "discretion to manipulate the manner in which a panel assesses a
dispute—particularly where a manipulative selection of an unreasonable and incoherent 'subsidized
product' might drive the outcome of a dispute."
2479
1127. The United States counters that the Panel prope rly assessed the United States' adverse effects
claims on the basis presented by the United States, including the United States' identification of "all
Airbus LCA" as the subsidized product. The Unite d States argues that the Panel correctly recognized
that a complainant has the right to structure its own complaint as it chooses, and confirmed the
reasonableness of the United States' subsidized produ ct and like product definitions in the light of the
evidence before it.
2480 The United States further rejects th e European Union's contention that the
Panel failed to comply with its obligations under Article 11 of the DSU.2481
1128. As we see it, the Panel committed legal e rror by failing to adjudicate properly the
United States' subsidized product allegations and re fusing to make its own independent assessment of
whether all Airbus LCA compete in the same market or not. As noted above, the United States'
claims of serious prejudice were premised on its asse rtion that there is only one subsidized product at
issue in this dispute, consisting of all models of Airbus LCA. The European Communities objected to
the United States' definition of the "subsidized produ ct", arguing that the Panel was required to make
its own assessment of whether the "identified unive rse of allegedly subsidized products should be
treated as a single subsidized product, or multiple subsidized products." 2482 However, in its analysis,
the Panel deferred to the United States' subsidized product allegations rather than making its own
independent assessment of whether all Airbus LCA should be treated as a single subsidized product.
In so doing, the Panel failed to make an obj ective assessment of the matter, including the
"applicability of and conformity with the relevant covered agreements", as required under Article 11

2478European Union's appellant's submission, paras. 298 and 301.
2479European Union's appellant's submission, para. 303. (footnote omitted)
2480See United States' appellee's submission, para. 491.
2481See United States' appellee's submission, paras. 499 and 503.
2482Panel Report, para. 7.1632 (referring to Europ ean Communities' first written submission to the
Panel, para. 1512). (emphasis added)
WT/DS316/AB/R BCI deleted, as indicated [***]

of the DSU. We wish to emphasize that the Pane l's failure to comply with its duties under Article 11
appears to flow directly from its erroneous inte rpretation of the requirements of Articles 6.3(a)
and 6.3(b) of the SCM Agreement, which led it to believe that it lacked the power and was under no
obligation to assess independently the "subsidized pr oduct" and the relevant product market. In the
absence of such a determination, the Panel did not have a proper basis for assessing whether the
alleged subsidized and like products compete in the same market or multiple markets, which is a
prerequisite for assessing whether displacement within the meaning of Articles 6.3(a) and 6.3(b) could
be found to exist as alleged by the United States.
1129. The Panel stated, correctly in our view, that, "i f a complaining Member were to put forward a
proposed 'subsidized product' that does not benef it from the alleged subsidies in dispute, a panel
would have to address whether that product is, in fact, a relevant subsidized product."
2483 However, as
explained above, an analysis of the nature and extent of actual or potential competition between
different models of Airbus LCA is a prerequisite for determining whether they compete in the same
product market or different product markets for pur poses of a displacement analysis under Articles 5
and 6 of the SCM Agreement. We therefore consider that the Pa nel erred by deferring, first, to the
United States' "subsidized product" definition and then determining a "like product" simply by
reference to the previously identified "subsidized pr oduct". The identification of a subsidized product
and a like product cannot determine whether such pr oducts compete in the same market. Rather, a
careful scrutiny of the competitive conditions of the market is required in order to draw conclusions as
to whether the effect of the subsidy is displacement of competing products in a particular market.
1130. We recognize that the United States challenges s ubsidies provided to all models of Airbus
LCA claiming that they are causing adverse effects to its interests. In other words, the United States
does not contend that subsidies provided to a singl e model of Airbus LCA are causing adverse effects
only to the corresponding or most "closely resembling" model of Boeing LCA. We agree with the
Panel that Members of the WTO have the sovereign ri ght to structure their complaints as they choose.
It is important, however, to bear in mind the difference between a WTO Member's freedom to
formulate its complaint and the duty of a panel to scrutinize whether the comp laint, so formulated,
holds true and is a proper account of the phenomenon in question, be it displacement, impedance, or
any other effect of a subsidy.
1131. Clearly, there is no inhibition on how a compla inant may choose to formulate its claim as to
the scope of the "subsidized product"; it can do so as it thinks best comports with the adverse effects
it seeks to challenge. This does not mean, howev er, that a panel has no duty to review the

2483Panel Report, 7.1655.
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complainant's formulation of the scope of the "subs idized product". Rather, the panel has a duty to
ascertain the relevant product market or markets in which the complainant's and respondent's products
compete. The notion of "subsidized product" and "l ike product" is, in each case, to be analyzed as an
integral part of a panel's duty objectively to assess a particular claim of serious prejudice and its
obligation to assess the relevant market under Articles 6.3(a) and 6.3(b). In the present case, the Panel
was therefore required to make an independent and objective assessment of the serious prejudice
claims put forward by the United States, including whether it was appropriate to examine all Airbus
LCA as a single "subsidized product" and all Boeing LCA as a single "like product" for purposes of
its adverse effects inquiry. The Panel was al so required to assess the European Communities'
allegation that there are, in fact, five distinct product markets of Airbus and Boeing LCA, and should
have reached a conclusion as to whether any of the parties' or a different "product market" definition
was appropriate for purposes of its displacement analysis.
1132. To support its decision to defer to the United States' identification of all LCA as a single
product, the Panel relied on, inter alia, two previous panel reports involving cases decided under the
Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994
(the "Anti-Dumping Agreement
 ")—that is, EC – Salmon (Norway) and US – Softwood Lumber V .2484
In the former case, the European Communities' i nvestigating authority had identified the product
concerned as "farmed (other than wild) salmon, wh ether or not filleted, fresh, chilled or frozen ...
exclud{ing} other similar farmed fish products such as large (salmon) trout, biomass (live salmon) as
well as wild salmon and further processed types such as smoked salmon". 2485 The panel rejected
Norway's argument that the investigating authority was required to ensure that, where the product
under consideration is made up of categories of products, all such categories of products must
individually be "like" each other, thereby constituting a single homogenous "product under
consideration".2486 In the latter case, the panel rejected Canada's argument that, "rather than
comparing the overall scope of the product under consideration with the overall scope of the like
product", the investigating authority was required to ensure that "each individual item within the 'like
product' must be 'like' each individual ite m within the 'product under consideration'." 2487 F o r t h e
panel, this would have meant "in effect ... that th ere must be 'likeness' within both the product under
consideration and within the like product."2488

2484Panel Report, paras. 7.1657-7.1661.
2486Panel Report, EC – Salmon (Norway), paras. 7.47 and 7.68.
2487Panel Report, US – Softwood Lumber V, para. 7.157.
2488Panel Report, US – Softwood Lumber V, para. 7.157.
WT/DS316/AB/R BCI deleted, as indicated [***]

1133. We note first that the above-mentioned findings by the panels in EC – Salmon (Norway) and
US – Softwood Lumber V were not appealed and therefore have not been reviewed by the Appellate
Body. Moreover, both cases concern the imposition of anti-dumping duties under the Anti-Dumping
Agreement. In this context, as in the context of Part V of the SCM Agreement, domestic investigating
authorities are required to determine the existence of injury to the domestic industry that may consist
of one or more manufacturers producing a broad or narrow range of products. Questions relating to
the scope of dumped, subsidized, and like products only arise for a panel in a review of determinations
already made by a domestic investigating authority. Indeed, domestic investigating authorities would
already have undertaken a review of the product under investigation on a case-by-case basis and in the
light of the product coverage proposed by the petition ers. Domestic authorities may have decided to
assess injury to the domestic indus try on the basis of an aggregat ed or disaggregated analysis.
Significantly, in reviewing a determination of an i nvestigating authority, a panel may not engage in a
de novo review and may not substitute its views for those of the investigating authority. By contrast,
a panel's mandate in assessing adverse e ffects claims brought under Part III of the SCM Agreement is
different, in that a panel conducting an analysis under Article 6.3 of the SCM Agreement "is the first
trier of facts, rather than a reviewer of factua l determinations made by a domestic investigating
authority."
2489 The reasons for applying some degree of deference to the product definition resulting
from adjudication by a neutral and objective inv estigating authority in the context of the
Anti-Dumping Agreement or Part V of the SCM Agreement do not, in our view, apply to the product
and market definition that a complainant propo ses before a panel examining claims brought under
Part III of the SCM Agreement. We therefore do not consider these previous panel findings reviewing
determinations of domestic investigating authorities to be instructive in this case where the Panel was
tasked with making its own first-hand assessment of a serious prejudice claim by a complaining party
including a determination of the relevant market.
1134. We also do not consider it was sufficient that th e Panel proceeded, in the alternative, to assess
whether the United States had made a "reasonable" allegation regarding the "subsidized product". 2490
As noted above, the range of products that bene fit from subsidies says little about whether these
products compete in a single product market or several product markets. On the contrary, for
purposes of assessing the serious prejudice claims befo re it, the Panel had the duty to define, in the
light of the United States' complaint, the relevant product market and the scope of the respondent's
subsidized product that is in competition with the complainant's like product. It is not the scope of the
product that allegedly benefits from subsidies that defines the degree of competition on the relevant

2489Appellate Body Report, US – Upland Cotton, para. 458.
2490Panel Report, para. 7.1663.
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product market or markets between the complainant' s products and the allege dly subsidized products
of the respondent. Although some of the factors me ntioned by the Panel in its alternative reasoning
may be relevant for purposes of unde rstanding the relevant product ma rket, the Panel did not engage
in a full and objective assessment of the question of the relevant product market, and in particular
whether all Airbus LCA should be treated as a single subsidized product competing in a single
product market for purposes of the United States' clai ms of serious prejudice. For example, although
certain findings made by the Panel suggest that ther e might be some supply-side substitutability in the
LCA industry—for instance, the Panel observed that "the production and sales of one model of LCA
support the development, production and sales of other LCA models"
2491—an examination of this
factor does not justify the Panel's failure to cons ider properly demand-side substitutability, which it
barely alluded to in its "alternative" analysis. Factors such as product homogeneity, flight ranges,
seating capacities, prices, fuel efficiency, and othe r performance characteristics could have been
relevant to such an analysis. However, the Panel looked at such factors only to ascertain which "like"
product competed with the subsidized product, as defined by the United States, and thus assumed—
but did not establish—that all LCA models compete in the same market. We consider this to be
particularly problematic given that a consideration of demand-side substitutability is critical in order
to assess properly the scope of the relevant market and products that compete in that market.
Specifically, if two products are not substitutable on the demand side, this suggests that the relevant
products are likely to compete in two distinct market s, rather than in a single market. We note also
that the Panel failed to test, in any way, the scope of the market in particular countries by, for
example, analyzing cross-price elasticity. 2492 Such an analysis would have assisted the Panel in
reaching more solid conclusions as to the extent of the relevant market in this case.
1135. Indeed, the Panel found, as a factual matter, that "it may well be true that direct head-to-head
competition between aircraft models at the ends of the range of models offered by each manufacturer
may be limited or non-existent". 2493 The Panel also recognized that a "differentiated analysis" of
alleged effects of subsidies may be relevant, for instance, when conducting an examination of whether
the effect of a subsidy is significant price undercutting, price suppression, price depression, or lost

2491Panel Report, para. 7.1666.
2492The examination of cross-price elasticities can help one to understand the competitive constraints
exercised by other products on the product (or group of products) under examination for market definition
purposes. Motta states that "{t}he cross-price elasticity between products A and B is defined as the percentage
change in the demand for product B when there is a one-percent in crease in the price of product A." (Motta,
supra, footnote 2467, p. 107) This is one of the tools that can be of help when implementing the SSNIP test and
attempting to identify exactly which product constitutes the closest substitute. Another often mentioned
example of tools used to implement the SSNIP test are the price correlation tests favoured by Stigler and
Sherwin. (G.J. Stigler and R.A. Sherwin, The Extent of the Market (1985) 28 Journal of Law and Economics
555)
2493Panel Report, para. 7.1668.
WT/DS316/AB/R BCI deleted, as indicated [***]

sales.
2494 This acknowledgement is difficult to reconcile with the fact that the Panel nevertheless
conducted its assessment of displacement on the basis of aggregate data alone without assessing the
nature and extent of competition in the LCA industry on the basis of data for particular LCA models.
1136. In cases where, as here, an analysis of the cond itions of competition reveals that all products
are not engaged in direct competition for the same sales or orders—or where the competitive
relationship between such products is, at most, i ndirect or remote—this must be properly accounted
for in order to reach a meaningful finding of displ acement. An analysis of the specific circumstances
and dynamics of competition occurring in the relevant geographic market and the demands of
customers in that market is therefore required when assessing claims under Articles 6.3(a) and 6.3(b)
of the SCM Agreement.
1137. In the light of the above, we find that the Panel erred in its interpretation of the term "market"
in Articles 6.3(a) and 6.3(b) of the SCM Agreement and acted inconsistently with Article 11 of the
DSU. It did so by failing to make an objective assessment of the "applicability of and conformity
with the relevant covered agreemen ts", in particular by concluding that it was not required "to make
an independent determination of the 'subsidized pr oduct', as opposed to relying on the complainant's
identification of the product." 2495 The Panel's failure to comply with its obligations under Article 11
of the DSU appears to flow directly from the Pa nel's erroneous interpretation of Articles 6.3(a)
and 6.3(b) in this case. Consequently, the Panel erred when it stated that, "so long as the subsidized
product {the United States} has identified, Airbus larg e civil aircraft, does in fact benefit from the
subsidies in dispute, we will not intervene to a lter its identification of the subsidized product." 2496 In
the absence of an objective determination of the rele vant product market by the Panel, its conclusion
that "there is a single subsidized product and a single corresponding like product" 2497 cannot stand.
Consequently, we reverse the Panel's finding of displacement on the basis of a single subsidized
product and a single like product.
1138. As a separate matter, we note that the European Union has made an additional claim that the
Panel failed to comply with its obligations unde r Article 11 of the DSU by disregarding certain
evidence and by failing to provide adequate explan ations, including coherent reasoning in addressing
the evidence before it. 2498 Having found that the Panel failed to comply with its obligations under
Article 11 of the DSU because it did not undertake an objective assessment of the relevant market in

2494Panel Report, para. 7.1679.
2495Panel Report, para. 7.1653.
2496Panel Report, para. 7.1662.
2497Panel Report, para. 7.1679.
2498European Union's appellant's submission, paras. 340 and 359.
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which the subsidized and like products compete, and having consequently reversed the Panel's
conclusion that there is a single subsidized product and a single corresponding like product, we do not
consider it necessary to rule on this additional claim.
2. Completing the Analysis

1139. As discussed above, the European Union argues that the Panel erred in assessing
displacement on the basis of a single product mark et, and it requests that we reverse the Panel's
"single product market" finding. On the basis of the reasons set out above, we have reversed the
Panel's "single product market" finding.
1140. We note that the Appellate Body has exercised r estraint in deciding whether to complete the
legal analysis in past disputes. The Appellate B ody has emphasized that it can complete the analysis
only if the factual findings by the panel, or the undisputed facts on the panel record, provide a
sufficient basis for the Appellate Body to do so. Where this has not been the case, the Appellate Body
has declined to complete the analysis.
2499
1141. In assessing the nature of competition in the LC A market, the Panel noted that a customer's
decision as to which LCA to purchase depends on a number of factors:
Customers choose among the various LCA models available those
they deem most suitable for their needs at the time of ordering. In
making their purchase decisions, customers will consider such
matters as the route structure to be served by the aircraft, the
structure of the existing fleet, and operating costs, with a view to
minimizing costs and maximizing revenues. Some airlines purchase
a mix of LCA models to serve a va riety of needs, while others may
limit themselves to one LCA model because of the efficiencies
generated by the operation of a single aircraft type. Once an airline
orders any particular LCA model from a given manufacturer,
efficiencies in operating a fleet of similar aircraft (including those
related to spare parts, maintenance and training) favour follow-on
orders of the same models, as well as orders of other aircraft models
from the same manufacturer, in order to take advantage of
commonalities across an LCA fleet.
2500
1142. Thus, while certain customers may purchase only certain LCA models—such as single-aisle
LCA—to meet their needs, others base their purchase decisions on the manufacturer's ability to offer a
full range of LCA comprising various models to serve a variety of needs. The Panel found in this
respect that both "Airbus and Boeing now produce a fu ll range of different models of LCA and sell to

2499See, for example, Appellate Body Report, US – Continued Zeroing, para. 349.
2500Panel Report, para. 7.1720.
WT/DS316/AB/R BCI deleted, as indicated [***]

the full range of customers"
2501; and noted that the European Communities recognized the importance
of offering a full range of LCA "whose commonality keep operating costs down for customer airlines
across the fleet but which can perform the various missions dictated by an airline's route structure".2502
Regarding elasticity of supply, the Panel furthe r found, for example, that "{e}conomies of scale
arising from the huge sunk development cost gi ve incumbent firms a considerable competitive
advantage"; "{e}conomies of scope make it di fficult to enter one market segment only";
"{s}witching costs ... make it more difficult for new producers to enter … {and} airlines prefer fleet
commonality."2503 We see each of these factors as relevant in assessing the conditions of competition
in the LCA market. However, other than giving a na rrative of general considerations relating to these
factors, it is not apparent from its Report that the Panel engaged with relevant evidence in a thorough
and meaningful manner. Nor did the Panel provide an independent and objective assessment of the
factors in a way that would allow us to make conclusions as to the proper scope of the relevant
product market.
1143. During the oral hearing, we engaged the partic ipants in a discussion as to whether the Panel
findings or uncontested evidence on the Panel record would enable us to find that there is a single
LCA market, or that there is a separate single-aisle LCA market, and possibly multiple wide-body
LCA markets, such as a twin-aisle LCA market and a Very Large Aircraft2504 market.
1144. The United States argues that the evidence be fore the Panel showed "a number of actual,
'head-to-head' campaigns in which Boeing and Airbus offere d LCA across every adjacent 'product
market' identified by the European Union."2505 Pointing to a table it compiled using information from
Panel Exhibits EC-322 and EC-323, the United States argues that " none of the 'product markets'
identified by the European Union is a self-contai ned segment, capturing the full scope of competition
for the models within it" and that, "{i}n fact, LCA from each 'product market' have competed head-to-
head against LCA from other 'product markets'." 2506 The United States submits, in particular, that
"Exhibit EC-322 shows the Boeing 777 as having competed against the A330" and that there were a
number of competitions between the Boeing 747 and the A380. 2507 For its part, the European Union
argues that, in every sales campaign Airbus won with its single-aisle A320 family LCA, it competed

2501Panel Report, para. 7.1718.
2502Panel Report, para. 7.1665.
2503Panel Report, para. 7.1981.
2504The European Union refers to "400-500 seat" LC A and "500+ seat" LCA together as "Very Large
Aircraft". (See European Union's appellant's submission, Annex II (Product Markets Annex) (BCI); see also
European Union's appellant's submission, para. 375 and footnote 431 thereto, and Annex III (Displacement
Annex), paras. 2 and 5)
2505United States' appellee's submission, para. 557. (original emphasis)
2506United States' appellee's submission, para. 558. (original emphasis)
BCI deleted, as indicated [***] WT/DS316/AB/R

against the Boeing single-aisle family LCA
2508; and there were also " no sales campaigns in which
Boeing single-aisle LCA competed against Airbus A330, A340 or A380 family LCA."2509
1145. Although competition appears to be particularly intense between certain LCA models, the
Panel record contains evidence suggesting that a number of large airlines base their purchase
decisions on a consideration of the overall product o ffering of both Airbus and Boeing, rather than
simply comparing physical and performance characteristics of similar specific LCA models of both
manufacturers.2510 Such airlines are likely to operate a full range of different LCA in their fleet to
satisfy their route structures and customer demand. A consideration of data presented on a cumulative
basis for all Airbus LCA may be particularly instructive when assessing the behaviour of such buyers
in a particular geographic market and the specific c onditions of the relevant market. By contrast, as
the European Union observes, a considerable numbe r of small airlines purchase and fly only LCA of
one size. The ability of these airlines to fly multiple and different types of routes may be either non-
existent or constrained.2511 For such airlines, the ability of a manufacturer to offer a full range of LCA
may be of limited relevance in the decision of whether to purchase a particular LCA or not.
1146. Before the Panel, the United States referred to evidence of sales campaigns in which multiple,
different Airbus and Boeing LCA models were sold at the same time to the same customers. The
United States refers to these as "bundled" sales or "package" deals 2512, and argues that this evidence
supports a finding as to the existence of a single product market comprising all LCA. We note,
however, that only few sales campaigns appear to ha ve involved sales of different LCA models sold
together as part of a "package deal".
2513 Moreover, it is not clear to us whether the existence of such
campaigns simply suggests that certain large air lines may have required multiple, different types of
LCA at the same time, rather than suggesting th at all types of LCA are in actual or potential
competition in a single product market. We therefore do not consider this evidence to be particularly
probative.

2508European Union's appellant's submission, para. 363.
2509European Union's appellant's submission, para. 372. (original emphasis)
2510See Panel Report, para. 7.1665. See also Euro pean Communities' second written submission to the
Panel, paras. 712-714; and Airclaims CASE database (Panel Exhibit EC-21).
2511European Union's response to questioning at the oral hearing (referring to the European
Communities' second written submission to the Panel, para. 725).
2512Panel Report, para. 7.1655. The United States described "bundled" to mean instances in which
airlines ordered multiple LCA models from the same manufacturer at the same time. (United States' response to
Panel Question 131, paras. 422 and 423) See also United States' appellee's submission, para. 566.
2513The European Union argues that "{o}nly 30 of the 520 sales transactions made in the 2004-2006
period were 'bundled' orders for LCA across different LCA markets." (European Union's appellant's submission,
footnote 409 to para. 366 (referring to European Communities' second written submission to the Panel,
para. 721; and Airclaims CASE database (Panel Exhibit EC-642))
WT/DS316/AB/R BCI deleted, as indicated [***]

1147. With all these considerations in mind, we fi nd that we are unable to complete the legal
analysis to find that there are one or more LCA product markets.
C. Displacement and Lost Sales
1. Displacement

1148. We turn next to the Panel's assessment of disp lacement. The European Union asserts that the
errors in the Panel's approach with regard to th e product market "undermine" the Panel's findings of
displacement.2514 Nonetheless, the European Union states th at it does not request us to "reverse the
displacement findings in their entirety". 2515 The reason for this is that the European Union accepts
that the uncontested data show displacement occurring in some of the country markets for some of the
product markets. In its appellant's submission, th e European Union "accepts that any displacement
found under either of the two multiple product-market approaches would constitute properly observed
displacement."2516 The European Union submitted data fo r three product markets for each of the
geographic markets at issue. These data are derived from data on the Panel record. 2517 While the
United States maintains that there is a single LCA product market, it confirmed at the oral hearing that
the disaggregated data submitted by the European Un ion are derived from data that was before the
Panel and made it clear that it did not have any objections with respect to this data as such.
Furthermore, the European Union accepts that there is competitive interaction between similar models
of LCA manufactured by Airbus and Boeing. The United States agrees. 2518 The disagreement
between the European Union and the United States is limited to the degree of competition across
models and also as between the extremes of Boeing's and Airbus' product ranges. In these
circumstances, we will assess below to what extent the United States' claims of displacement can be
upheld on the basis of the uncontested evidence on th e Panel record and the ev idence of displacement
in those country markets in wh ich the European Union acknowledges that there is a competitive
interaction between model types of Airbus and Boeing LCA.

2514European Union's appellant's submission, para. 376.
2515European Union's appellant's submission, para. 376.
2516European Union's appellant's submission, Annex III (Displacement Annex), para. 6. We also note
that the European Union expressly s eeks completion of the analysis in re spect of displacement in particular
product markets. ( Ibid., para. 392) Specifically, in the event of a reversal of the Panel's single product market
finding, the European Union requests the Appellate Body to complete the analysis and find that there is a
separate single-aisle LCA market. With respect to the markets for wide-body LCA, the European Union
recognized that "the evidence is less clear and might support the existence of four or two wide-body LCA
product markets." Thus, in framing its request for reve rsal, the European Union accepts some displacement in
these markets. (Ibid., para. 392)
2517European Union's appellant's submission, Annex III (Displacement Annex), para. 4.
2518The United States contends that there is competition not only between similar models of LCA
manufactured by Airbus and Boeing but between all models of LCA manufactured by Airbus and Boeing.
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1149. One Member on the Division wishes to set out a separate view on the issue of whether the
Appellate Body can complete the legal analysis on the United States' claims of displacement. While
recognizing the particular circumstances in this case, this Member is of the opinion that the Appellate
Body cannot complete the legal analysis on displacem ent. This Member recalls that we have found
above that the Panel failed to comply with its ob ligations under Article 11 of the DSU because it did
not undertake an objective assessment of the rele vant market in which the subsidized and like
products compete; and that, in the absence of an objective determination of the product market by the
Panel, its conclusion that "there is a singl e subsidized product and a single corresponding like
product" cannot stand. Consequently, we have reve rsed above the Panel's finding of displacement on
the basis of a single subsidized product and a single like product. Moreover, after a review of the
relevant factual findings of the Panel and the undisputed evidence on the Panel record, we have
concluded above that we are unable to complete the analysis to find that there are one or more LCA
product markets. As we have pointed out, our ma ndate under Article 17.6 of the DSU does not allow
us to conduct the type of factual assessment that would be required properly to define the product
market(s) in this case. We are thus unable to ma ke our own determination of what is (or are) the
relevant product market(s). This Member is of the view that a finding on displacement requires a
determination of the relevant pr oduct market(s). Therefore, this Member considers that, in the
absence of such a determination, the Appellate Body cannot complete the analysis on displacement.
According to this Member, this is so even in the particular circumst ances of this case set out above
and explained in more detail below. While this Me mber disagrees with the completion of the analysis
on displacement, this Member agrees with the in terpretation of the concept of displacement in
Article 6.3(a) and (b) of the SCM Agreement, as set out in subsection (b) below.
1150. The European Union's appeal challenges the Pa nel's findings of displacement under the first
step of the Panel's two-step approach.
2519 The Panel's findings are summarized in subsection (a).
In subsection (b) we examine the meaning of di splacement under Article 6.3(a) and (b) of the
SCM Agreement. We assess the European Union's allegations of error in subsection (c).
(a) The Panel's findings
1151. At the outset, the Panel addressed the appr opriate reference peri od against which the
United States' adverse effects claims under Article 5( a) and (c) and Article 6.3(a), (b), and (c) should
be assessed. The United States originally presen ted data and arguments covering the period 2001

2519The Panel's two-step approach is described in section IX.A of this Report.
WT/DS316/AB/R BCI deleted, as indicated [***]

through 2005, and subsequently presented additional data for the calendar year 2006.
2520 T h e
European Communities argued that the appropriate re ference period in which to examine whether the
subsidies presently caused adverse effects should include data from 2004 to 2006 and, where available
and reliable, 2007. 2521 The Panel observed that the provisions at issue did not provide any specific
guidance as to the appropriate length of the referenc e period, and that Article 6.4 only established a
minimum reference period of one year to be consid ered in normal circumstances. In the absence of
any specific guidance on the appropriate reference period, the Panel found it "should avoid making an
a priori choice of reference period."2522 Rather, the Panel found that its duties under Article 11 of the
DSU required it to examine the evidence put forward by the United States, and the rebuttal evidence
presented by the European Communities, includi ng recent information "where relevant and
reliable".2523
1152. Turning to the United States' claims under Article 6.3(a) and (b) of the SCM Agreement, the
Panel agreed with the panel in Indonesia – Autos that displacement "relates to a situation where sales
volume has declined, while impedance relates to a situation where sales which otherwise would have
occurred were impeded." 2524 Like the panel in Indonesia – Autos , the Panel in this case focused on
market share data when analyzing th e United States' displacement claims. 2525 However, the Panel
emphasized that data showing a decline in Boeing's sh are of the markets at issue, while sufficient to
demonstrate "displacement", would not be sufficient to establish "impedance". In order to conclude
that imports or exports of Boeing LCA were impe ded over the relevant refe rence period, the Panel
said it would have to be satisfied that those sales would have "actually taken place".2526
1153. The Panel next recalled its earlier rejecti on of the European Communities' objections
regarding the subsidized and like products, the appr opriate reference period, and the use of delivery
data rather than orders.2527 The Panel then turned to the United States' claim of displacement from the
market of the subsidizing Member under Article 6.3(a), focusing on the data submitted by the
United States concerning LCA deliveries in the European Communities.2528 After reviewing the data,

2520Panel Report, para. 7.1681 (referring to United States' second written submission to the Panel,
paras. 698, 701, 703, 731, and 734; Panel Exhibit US-616 (BCI), containing US LCA market information on
the Boeing 737NG family; and United States' response to Panel Question 238).
2521Panel Report, para. 7.1686.
2522Panel Report, para. 7.1694.
2523Panel Report, para. 7.1694.
2525Panel Report, para. 7.1739.
2526Panel Report, para. 7.1739.
2527Panel Report, paras. 7.1742-7.1745, 7.1774, and 7.1777.
2528The Panel did "not consider the data presented by the European Communities on LCA deliveries to
the EC market to be accurate or relia ble for the purpose of evaluating the Un ited States' claims of displacement
and impedance under Article 6.3(a) of the SCM Agreement." (Panel Report, para. 7.1756)
BCI deleted, as indicated [***] WT/DS316/AB/R

the Panel concluded that it was "clear that Boeing's share of LCA deliveries to the EC market declined
over the period, while Airbus' share of that market increased."
2529 The Panel added that, "{a}s the
only other competitor in the market was Airbus, it follows that the evidence we have reviewed
demonstrates that imports of United States' LCA into the EC market were displaced by Airbus LCA
over the relevant period."
2530
1154. As regards the claim of present displacement from certain third country markets raised by the
United States under Article 6.3(b) of the SCM Agreement, the Panel began its evaluation with the
Australian market.2531 On the basis of the United States' data, the Panel observed that Airbus' market
share in Australia increased 18% between 2001 and 2005, while Boeing's market share declined by
the same amount. 2532 A similar pattern emerged from the Unite d States' data for the LCA market in
China, where Airbus' market share increased 25% between 2001 and 2006, while Boeing's market
share declined by the same amount.2533
1155. With respect to the United States' claim allegi ng threat of displacement from the LCA market
in India, the United States did not present data on deliveries, but the Panel considered that the
United States' data on orders were an "indicator of likely future deliveries" and thus a relevant
indicator of "threat of future displacement or impedance of exports" from that market. 2534 The Panel
considered that order data for the 2001-2005 period sugg ested that Airbus won most of the orders in
the Indian market. In particular, the Panel found th at Airbus' 225 orders (compared to Boeing's 98) in
2005 represented a "massive increase" 2535 of Airbus orders in the Indian market. For the Panel, this
indicated that, as deliveries for such LCA take place, it is likely that Airbus will have a "significantly
greater share" of the Indian market than Boeing.2536
1156. In relation to the other individual third c ountry markets, the Panel observed that the
United States' annual delivery data for 2001 to 2005 showed increases in Ai rbus' market share in
Brazil (from 50 to 86%), Korea (from 17 to 44%), Mexico (from 29 to 50%), Singapore (from 11 to

2529Panel Report, para. 7.1758. The Panel also noted that, "{d}espite the different values reflected, the
data presented by the European Communities, when aggreg ated, supports the same conclusion, although, as we
have explained, the {European Communities'} data is not a reliable basis for our evaluation." (Ibid.)
2530Panel Report, para. 7.1758.
2531The Panel also noted that the European Communities' third country markets data could not be
deemed to be "accurate or reliable". (Panel Report, para. 7.1779)
2532Panel Report, para. 7.1780. The Panel also noted that the European Communities' aggregated data,
though inaccurate and unreliable, revealed a similar pattern. (Ibid.)
2533Panel Report, para. 7.1781. The Panel also noted that the European Communities' aggregated data,
though inaccurate and unreliable, revealed a similar trend. (Ibid.)
2534Panel Report, para. 7.1783.
2535Panel Report, para. 7.1784.
2536The Panel found that a similar pattern emerged from the European Communities' aggregated data,
though it did not consider these data "accurate" or "reliable". (Panel Report, para. 7.1784)
WT/DS316/AB/R BCI deleted, as indicated [***]

73%), and Chinese Taipei (from 38 to 56%).
2537 The European Communities submitted data on the
number of LCA delivered to each relevant third country market between 2001 and 2006.
1157. The Panel concluded that the evidence demons trated that Boeing exports of LCA were
displaced from the markets of Australia and China by sales of Airbus LCA over the period examined,
and that there was a likelihood of future displacement of Boeing LCA by Airbus LCA from the Indian
market.2538 The Panel regarded the evidence concerni ng the markets of Brazil, Korea, Mexico,
Singapore, and Chinese Taipei "less compelling" 2539, because sporadic sales and relatively small
volumes in those markets made the identification of trends more difficult. Nevertheless, the Panel
reasoned that, as Airbus was the only other compe titor in these markets during the relevant period,
any market share achieved by Airbus in those market s was at the expense of Boeing. On this basis,
the Panel concluded that Boeing LCA exports were also displaced from these markets by sales of
Airbus LCA over the period under review.
2540
1158. The Panel further declined the United States' requ est to make a finding in relation to all third
country markets "as a whole". 2541 The Panel reasoned that, insofa r as Article 6.3(b) referred to
"a third country market", it had "serious doubts" as to whether it would be permissible to assess
displacement from all third country markets under Artic le 6.3(b), and in any event was not required to
resolve that question in this case.2542
(b) The meaning of "displacement" under Article 6.3(a) and (b) of the
SCM Agreement
1159. Subparagraphs (a) and (b) of Article 6.3 of the SCM Agreement provide:
Serious prejudice in the sense of pa ragraph (c) of Article 5 may arise
in any case where one or several of the following apply:
(a) the effect of the subsidy is to displace or impede the imports
of a like product of another Memb er into the market of the
subsidizing Member;
(b) the effect of the subsidy is to displace or impede the exports
of a like product of another Member from a third country market;

2537Panel Report, para. 7.1785.
2538Panel Report, para. 7.1790.
2539Panel Report, para. 7.1791.
2540Panel Report, para. 7.1791. Later in its analysis, the Panel found that the United States had failed to
substantiate its claims of impedance of Boeing LCA exports from third country markets. (See ibid.,
para. 7.2027)
2541Panel Report, para. 7.1789.
2542Panel Report, para. 7.1789.
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1160. As noted above
2543, this is the first time that the Appellate Body examines claims of
displacement under subparagraphs (a ) or (b) of Article 6.3 of the SCM Agreement.2544 W e h a v e
analyzed the concept of substitutability in th e section "Subsidized Product and Product Market"
above.2545 For the reasons set out there, we understand the term displacement to connote that there is
a substitution effect between the subsidized product and the like product of the complaining
Member.2546 This means that displacement arises unde r subparagraph (a) of Article 6.3 where the
effect of the subsidy is that imports of a like product of the complaining Member are substituted by
the subsidized product in the market of the subsid izing Member. Similarly, under subparagraph (b),
displacement arises where exports of the like produc t of the complaining Member are substituted in a
third country market by exports of the subsidized product.
1161. We are not called upon in this appeal to inte rpret the term "impede" in Article 6.3.
Nevertheless, considera tion of the term can provide cont ext for a better understanding of
displacement. The term connotes a broader array of situations than the term "displace".2547 It refers to
situations where the exports or imports of the like product of the complaining Member would have
expanded had they not been "obstructe d" or "hindered" by the subsidized product. It could also refer
to a situation where the exports or imports of th e like product of the complaining Member did not
materialize at all because production was held back by the subsidized product.2548
1162. We recognize that it may be difficult to draw a clear demarcation betw een the concepts of
displacement and impedance. One possibility is to draw a distinction similar to the one drawn by the
Appellate Body in US – Upland Cotton (Article 21.5 – Brazil) between the concepts of "price

2543See supra, para. 1115.
2544The focus of the European Union's appeal is on th e term "displacement", as the Panel did not make
any affirmative findings of "impedance". (See supra, footnote 2540)
2545Section IX.B, paras. 1119-1123.
2546The term "displace" is defined as to "remove; replace with something else; take the place of,
supplant". ( The New Shorter Oxford English Dictionary , 4th edn, L. Brown (ed.) (Clarendon Press, 1993),
Vol. 1, p. 698)
2547The term "impede" is defined as to "obstruct, hinder". (The New Shorter Oxford English Dictionary,
4th edn, L. Brown (ed.) (Clarendon Press, 1993), Vol. 1, p. 1319)
2548There also could be situations where displacement and impedance overlap. However, in the light of
the principle of effective treaty interpretation, a distinc tion needs to be made as to the concepts covered by each
term. (See Appellate Body Report, US – Gasoline , p. 23, DSR 1996:I, 3, at 21; and Appellate Body Report,
Japan – Alcoholic Beverages II, p. 12, DSR 1997:I, 97, at 106)
WT/DS316/AB/R BCI deleted, as indicated [***]

depression" and "price suppression" in Article 6.3(c) of the SCM Agreement.
2549 On this approach,
evidence that actual sales have declined would be relevant for a determin ation of displacement,
whereas evidence that sales would ha ve increased more than they did, or would have declined less
than they did, would be relevant to a claim of impedance. 2550 We do not need to resolve this issue in
this appeal because the United States premised its allegations of displacement on there being an
observable decline in Boeing's market share.2551
1163. As we have explained in secti on A above, we believe that the most appropriate approach to
assess the effect of a subsidy under Article 6.3 of the SCM Agreement is through a unitary
counterfactual analysis. In the case of displacement and impedance, the counterfactual analysis would
involve estimating what the sales of the complaining Member would have been in the absence of the
challenged subsidy. The counterfactual sales of th e complaining Member would then be compared to
its actual sales. Displacement or impedance would arise where the counterfactual analysis shows that
the sales of the complaining Member would have d eclined less or would have been higher in the
absence of the challenged subsidy.
1164. The Panel in this case, however, adopted a two- step approach in its assessment of whether
displacement was the effect of the challenged subsidies. As set out above, we have reservations about
this type of two-step approach because it may not gauge the particular phenomena described under
Article 6.3(a) and (b) of the SCM Agreement as well as a unitary counterfactual analysis. We
recognize, however, that a two-step approach is a permissible approach to assess the effects of the

2549Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 351. In the original
proceedings, the panel described "price suppression" as the situation where prices "either are prevented or
inhibited from rising (i.e. they do not increase when they otherwise would have) or they do actually increase, but
the increase is less than it otherwise would have been", and defined "price depression " as the situation where
prices "are pressed down, or reduced." (Panel Report, US – Upland Cotton , para. 7.1277) The Appellate Body
recognized that situations where prices are prevented or inhibited from rising and the situation where "prices"
are pressed down, or reduced, could overlap, but it also pointed out that Article 6.3(c) mentioned price
suppression and price depression as distinct concepts.
In US – Upland Cotton (Article 21.5 – Brazil) , the Appellate Body noted that "price depression is a
directly observable phenomenon, {whereas} price suppression is not so. Falling prices can be observed; by
contrast, price suppression concerns whether prices are less than they would otherwise have been in
consequence of various factors, in th is case, the subsidies. The identific ation of price suppression, therefore,
presupposes a comparison of an observable factual situation (prices) with a counterfactual situation (what prices
would have been) where one has to determine whether, in the absence of the subsidies ..., prices would have
increased or would have increased more than they actually did. (Appellate Body Report, US – Upland Cotton
2550We note that there may be situations in which the imports or exports of the like product of the
complaining Member are declining, but are declining by more than they othe rwise would. To the extent that
there is an observable decline in the imports or exports, it could be considered a situation of displacement. At
the same time, there is an aspect of the decline that is not directly observable—the decline is sharper than it
would otherwise have been. In this respect, this situati on could be considered one of impedance. These issues,
however, are not before us given the manner in which the United States framed its case.
2551United States' response to questioning at the oral hearing.
BCI deleted, as indicated [***] WT/DS316/AB/R

challenged subsidies under Article 6.3(a) and (b) of the SCM Agreement. Nevertheless, any
conclusions under the first step of such a two-step approach are necessarily preliminary and of limited
significance in coming to a conclusion under Article 6.3( a) or (b). This is so because it is only once
the second step has been completed that it is po ssible to determine if the like product has been
displaced by the subsidized product, as an effect of the challenged subsidies. This, as explained in our
analysis of the subsidized product and product market in section IX.B of this Report, is a function of
substitutability in the relevant product market. Therefore, any definitive determination of
displacement under Article 6.3(a) and (b) must await consideration of the effect of the subsidy.
2552
1165. In this case, the Panel examined trade 2553 volumes and market share data over a reference
period.2554 In the light of the manner in which the United States presented its case and the Panel's
two-step approach, the focus on trade volumes and market shares was appropriate. This is so because
it is not sufficient to examine trade volumes to dete rmine whether the imports or exports of the like
product are being substituted by the subsidized product , in particular when total consumption in the
market increases or decreases. Therefore, it is necessary to consider the relative movement of the
volumes of the subsidized and the like product, that is , their market shares. In a duopoly situation, as
in the present case, a decrease in the market share of one competitor will be reflected in an increase in
the market share of the other comp etitor. The analysis is made mo re difficult where there are more
than two competitors in the market, as it will be nece ssary to analyze more fully the market share data
of various competitors in order to determine whether the substitution e ffect is between the subsidized
product and the like product of the complaining Member. Both participants agreed at the oral hearing
that focusing on market shares is appropriate in this case in the light of how the United States
presented its claims.2555

2552The Panel recognized the preliminary nature of its findings of the "existence" of displacement and
lost sales. (See Panel Report, paras. 7.1732, 7.1758, and 7.1792)
2553Article 6.3(a) of the SCM Agreement refers to the imports of a like product and Article 6.3(b) refers
to the exports of a like product. In this sense, Article 6.3(a) and (b) can be said to be concerned with trade
volumes. However, trade volumes are ultimately a functi on of sales. Thus, in the analysis that follows, we
focus on sales volumes.
2554The Panel noted that "{a} market share approach is consistent with previous dispute settlement
reports." (Panel Report, para. 7. 1751 (referring to Panel Report, Indonesia – Autos , para. 14.211; and Panel
2555As mentioned earlier, we note that such relative movements in market shares do not, by themselves,
establish that a decline in market sh are is the effect of the challenged su bsidies under the two-step approach
followed by the United States to show displacement w ithin the meaning of Article 6.3(a) and (b) of the SCM
Agreement.
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1166. We further note that Article 6.4 of the SCM Agreement provides that the change in relative
market shares shall be demonstrated "over an appropriately representative period sufficient to
demonstrate clear trends in the developmen t of the market for the product concerned".
2556 This view
was espoused by the Appellate Body in US – Upland Cotton , where it observed that Article 6.4
requires that "displacement or impeding of expo rts be demonstrated 'over an appropriately
representative period' … so that 'clear trends' in changes in market share can be demonstrated." 2557
For the Appellate Body, this suggested that the effect of a subsidy must be examined "over a
sufficiently long period of time and is not limited to the year in which it was paid" 2558 because
consideration of developments over a longer period "provides a more robust basis for a serious
prejudice evaluation." 2559 We further note that, in Argentina – Footwear (EC) , the Appellate Body
clarified, albeit in a safeguards context, that investigating authorities were required to consider "trends
in imports over the period of investigation (rather than just comparing the end points)"2560, as this may
mask trends developing in the intervening period. The Appellate Body concluded that "intervening
trends" had not been considered adequately because of "the sensitivity of the analysis to the particular
end points of the investigation period used." 2561 Similarly, a panel assessing a claim of displacement
would have to look at clearly discernible trends during the reference period.
1167. The identification of a trend will be more accu rate the larger the data set used in the
analysis.2562 At the same time, we recognize that too st rict a requirement concerning the size of the
data set could preclude a Member from timely challenging subsidies that cause adverse effects to its
interests. While the United States initially s ubmitted data relating to th e period 2001-2005 it had
proposed, the Panel decided to examine displacement over a reference period spanning six years, from
2001 up to and including 2006.2563 We agree with the Panel that the most recent available data should
not be excluded from consideration. However, we disagree with other aspects of the Panel's approach
because the assessment of the claims of displaceme nt put forward by the United States called for an
examination of whether there were trends in the market shares during the reference period, rather than
a mere comparison of market shares at the end points of that period.

2556Similarly, Article 6.3(d) of the SCM Agreement requires a "consistent trend" of increase in the
world market share of the subsidizing Member.
2557Appellate Body Report, US – Upland Cotton, para. 478.
2558Appellate Body Report, US – Upland Cotton, para. 478.
2559Appellate Body Report, US – Upland Cotton, para. 478 (quoting Panel Report, US – Upland Cotton,
para. 7.1199).
2560Appellate Body Report, Argentina – Footwear (EC), para. 129. (original emphasis)
2561Appellate Body Report, Argentina – Footwear (EC), para. 129.
2562There are various statistical methods available that could be used to identify whether there are
trends in the data, such as calculating weighted least squares.
2563These findings of the Panel are not appealed. (Panel Report, para. 7.1694)
BCI deleted, as indicated [***] WT/DS316/AB/R

1168. Article 6.3(a) of the SCM Agreement is concerned with displacement in "the market of the
subsidizing Member", while Article 6.3(b) refers to displacement from "a third country market". As
discussed in section B above, there is both a ge ographic and product market component to the
assessment of displacement. In the case of Article 6.3(a), the geographic market is the market of the
subsidizing Member. The reference to the "lik e product of another Member" in Article 6.3(b)
indicates that the third country referred to in that pr ovision is a market other than the market of the
complaining Member.
2564
1169. A further interpretative question that arises is whether subparagraphs (a) and (b) of Article 6.3
of the SCM Agreement contain a minimum threshold requirement for the establishment of
displacement or impedance. The Panel concl uded that Article 6.3(b) "does not contain any
requirement that the displacement or impedance of exports from a third country market rise to any
particular level or degree." 2565 We note that neither subparagraph (a) nor (b) expressly qualifies the
level or degree of displacement or impedance re quired for a finding under those provisions. By
contrast, subparagraph (c) of Article 6.3 requires th at the phenomena described in that provision be
"significant". While Article 6.3(a) and (b) does not expressly state that displacement must be
significant, we agree with the European Union that the displacement must be discernible. Otherwise,
we do not see how displacement could be clearly id entified and amount to "serious prejudice" within
the meaning of Articles 5(c) and 6.3 of the SCM Agreement.2566
1170. To summarize, where a complainant puts forward a case based on the existence of
displacement as a directly observable phenomenon a nd the panel opts to examine it under a two-step
approach, as was done in this dispute, displacement arises under Article 6.3(a) of the SCM Agreement
where imports of a like product of the complaining Member are declining in the market of the
subsidizing Member, and are be ing substituted by the subsidized product. Similarly, under
Article 6.3(b), displacement arises where exports from the like product of the complaining Member
are declining in the third country market concer ned, and are being substituted by exports of the
subsidized product. As noted above, displaceme nt must be discernible. The identification of
displacement under this approach should focus on tre nds in the markets, looking at both volumes and

2564The third country market is also different from that of the subsidizing Member, which is specifically
addressed by Article 6.3(a).
2565Panel Report, footnote 5322 to para. 7.1791. The Panel did not make a similar statement with
respect to Article 6.3(a).
2566The introductory clause to Article 6.3 provides that "{s}erious prejudice in the sense of
paragraph (c) of Article 5 may arise in any case where one or seve ral of the following apply". In US – Upland
Cotton, the Appellate Body clarified that "serious prejudice " within the meaning of Article 5(c) will not arise
where the "effect of the subsidy" is to cause small varia tions in the prices of the like product. (See Appellate
Body Report, US – Upland Cotton, para. 426 (quoting Panel Report, US – Upland Cotton, para. 7.1326))
WT/DS316/AB/R BCI deleted, as indicated [***]

market shares. The trend has to be clearly id entifiable and an assessment based on a static
comparison of the situation of the subsidized produc t and the like product at the beginning and at the
end of the reference period would be inadequate . Where a two-step approach is used under
Article 6.3(a) and (b), and displacement has been shown on a preliminary basis, the complaining
Member will have to establish, in addition, that such displacement is the effect of the challenged
subsidies.
1171. The European Union's appeal in cludes the Panel's finding of threat of displacement in the
Indian market. We note that neither subpa ragraph (a) nor (b) of Article 6.3 of the SCM Agreement
expressly refers to "threat of displacement". Neve rtheless, we recall that the introductory paragraph
of Article 6.3 states that "{s}erious prejudice in the sense of paragraph (c) of Article 5 may arise"
where there is one of the market phenomena de scribed in the subparagr aphs listed under that
provision, including (a) and (b). Footnote 13 to Article 5(c), in turn, clarifies that "{t}he term 'serious
prejudice to the interests of another Member' is used in this Agreement in the same sense as it is used
in paragraph 1 of Article XVI of {the} GATT 1994, and includes threat of serious prejudice".
Although Article 15.7 of the SCM Agreement concerns threat of material injury, we believe that it
also provides relevant guidance for understanding the concept of threat of serious prejudice under
Article 5(c). Thus, as with a determination of thr eat of material injury, we consider that it is
reasonable to require that the determination of th reat of serious prejudice "be based on facts and not
merely on allegation, conjecture or remote possibility " and that "{t}he change in circumstances" that
would create a situation in which the subsidy would cause displacement "must be clearly foreseen and
imminent."
2567
1172. With these considerations in mind, we turn to the specific allegations of the European Union.
(c) The European Union's allegations of error
1173. The European Union challenges the Panel's finding of displacement under Article 6.3(a)
and (b) of the SCM Agreement. The appeal against the finding unde r Article 6.3(a) concerns imports
of Boeing LCA into the market of the European Union. This part of the European Union's appeal is
premised on its claim that the Panel erred by assessing displacement on the basis of a single LCA
product market. The same claim is made by the European Union against the Panel's findings of
displacement under Article 6.3(b) of the SCM Agreement with respect to exports of Boeing LCA to
Australia, Brazil, China, Korea, Me xico, Singapore, and Chinese Taipei. 2568 The European Union

2567Article 15.7 of the SCM Agreement.
2568European Union's appellant's submission, para. 318.
BCI deleted, as indicated [***] WT/DS316/AB/R

makes two additional claims that are limited to a narrower group of geographic markets. Both of
these claims are made under the assumption that th e Panel did not err by assessing displacement on
the basis of a single LCA product market. First, as regards Brazil, Korea, Mexico, Singapore, and
Chinese Taipei, the European Union ar gues that the displacement finding is erroneous in the light of
the absence of a trend, and the Panel's statement that "sales were sporadic and volumes were relatively
small" such that "identification of any trend {was} more difficult."
2569 Second, the European Union
submits that the Panel erred under Articles 5(c) and 6.3(b) of the SCM Agreement in finding
displacement in Mexico and Brazil, because "in those markets there simply was not {a} drop in
market share during the reference period."
2570 In addition, the European Union challenges the Panel's
finding of threat of displacement in the Indian market. 2571 According to the Eu ropean Union, "there
was no overall threat of displacement for Boeing' s market share, based on a flawed single LCA
product market", and there is no "threat of displacement in any of the separate product markets".2572
1174. We recall that, in section B above , we have found that the Panel erred in its interpretation and
application of the term "market" in Article 6.3(a) and (b) of the SCM Agreement and acted
inconsistently with its obligations under Article 11 of the DSU by concluding that it was not required
to "make an independent determination of the 's ubsidized product', as opposed to relying on the
complaining Member's identification of that product" . We have also found that, in the absence of an
objective determination of the rele vant product market by the Panel, its conclusion that there is a
single subsidized product and a single like product ca nnot stand, and consequently we have reversed
the Panel's findings of displacement on that basis. We have explained above that we are unable to
complete the analysis regarding the existence of a single or multiple product markets. As we noted
earlier and explain more fully below, even though we are unable to complete the analysis on the
relevant product market, the particular circumstan ces in this case are such that we are able to
complete—at least to some extent—the analysis of the United States' claims of displacement.
1175. First, the European Union's appeal of the Pane l's finding of displacement is limited. The
European Union expressly states that it does not requ est us to "reverse the displacement findings in
their entirety".2573 Specifically, in the event of a reversal of the Panel's single product market finding,
the European Union requests the Appellate Body to complete the analysis and find that there is a
separate single-aisle LCA market. With resp ect to the markets for wide-body LCA, the

2570European Union's appellant's submission, para. 317.
2571European Union's appellant's submission, para. 386.
2572European Union's appellant's subm ission, para. 386 (referring to Annex III (Displacement Annex),
section 2).
2573European Union's appellant's submission, para. 376.
WT/DS316/AB/R BCI deleted, as indicated [***]

European Union recognized that "the evidence is less clear and might support the existence of four or
two wide-body LCA product markets."
2574 On this basis, the Europ ean Union further requested the
Appellate Body to reverse the Panel's findings, in paragraphs 7.1791 and 8.2(b) of its Report, that
there was displacement in the LCA markets of Brazil, Mexico, Singapore and Chinese Taipei; to
reverse the Panel's finding, in paragraphs 7.1784, 7.1790, and 8.2(c) of its Report, that there is a threat
of displacement in the LCA markets of India; to reverse the Panel's finding, in paragraphs 7.1780,
7.1790, and 8.2(b) of its Report, that there was di splacement in the LCA markets of Australia, with
the exception of the single-aisle LC A market; to reverse the Panel's findings, in paragraphs 7.1781,
7.1790, 7.1791, and 8.2(b) of its Report, that there was displacement in the LCA markets of China and
Korea, with the exception of the single-aisle and 200-300 seat LCA (or twin-aisle) markets; and to
reverse the Panel's finding, in para graphs 7.1758 and 8.2(a) of its Report, that there was displacement
in the LCA markets of the European Union, with the exception of the single-aisle, 200-300 seat and
300-400 LCA (or twin-aisle) markets. 2575 In other words, the European Union does not seek reversal
of the findings of displacement (under the first step of the Panel's two-step approach to analyzing
serious prejudice) in the single-aisle, 200-300 seat and 300-400 LCA (or twin-aisle) markets of China,
Korea and European Union, and the single-aisle LCA market of Australia. Thus, in its appeal, and
more particularly in framing its request for rever sal, the European Union ac knowledges that there is
some displacement in these markets under the first step of the Panel's two-step approach.
1176. Second, the United States and the European Un ion agree that there is competition between
similar models of LCA. Their disagreement is limited to the degree of competition across models and
also as between the extremes of Boeing's and Airbus ' product ranges. The European Union notes that
the displacement could be assessed on the basis of either three or five product markets. 2576 In its
appellant's submission, the European Union "accepts that any displacement found under either of the
two multiple product-market approaches would constitute properly observed displacement."2577
1177. Third, we have before us uncontested evidence of Airbus' and Boeing's volume of sales and
market shares for each of the geographic markets at issue. On appeal, th e European Union focused
on the aggregation of these data for three product mark ets for each of the geographic markets at issue.

2574European Union's appellant's submission, para. 392.
2575European Union's appellant's submission, para. 392.
2576European Union's appellant's submission, paras. 371-375.
2577European Union's appellant's submission, Annex III (Displacement Annex), para. 6.
BCI deleted, as indicated [***] WT/DS316/AB/R

The data are derived from data on the Panel record.
2578 While the United States maintains that there is
a single LCA product market, it confirmed at the oral hearing that the disaggregated data submitted by
the European Union are derived from data that was be fore the Panel and made it clear that it did not
have any objections with respect to the data.
1178. In these circumstances, we consider it possible and appropriate to complete the analysis and
examine the claims of displace ment on the basis of undisputed evidence regarding three product
markets: the single-aisle LCA product market; th e twin-aisle LCA product market; and the Very
Large Aircraft product market. By proceeding in this manner, we are examining the data from a
perspective proposed by the responding party and not rejected by the complaining party. While we
are mindful of the scope of our jurisdiction under Article 17.6 of the DSU, we note that one of the
functions of the WTO dispute settlement system is the "prompt settlement of situations in which a
Member considers that any benefits accruing to it di rectly or indirectly under the covered agreements
are being impaired by measures taken by another Member", as reflected in Article 3.3 of the DSU.
1179. We recall that the Panel entertained the United States' claim of displacement on the basis of
an assessment of whether there w as an observable decline in the sales of Boeing. Thus, we will limit
our assessment to the question of whether a decline in the sales of Boeing during the reference period
can be observed from the data. Th is means that there would be no displacement, under the approach
put forward by the United States before the Panel, where Boeing's sales increased during the reference
period in a particular product market, where Boeing made no sales in a product market throughout the
reference period, or where Boeing was the sole su pplier in a product market. The latter situation
occurred in every geographic market in the Ve ry Large Aircraft product market, because the
Boeing 747 was the only product in that market duri ng the reference period. Deliveries of the A380
started subsequent to the reference period.
2579 We also recall that a tre nd of declining sales must be

2578The European Union explains that "{a}ll of the information set out in this Annex is found in the
record, and is appropriately documented and cross-referenced. (European Union's appellant's submission,
Annex III (Displacement Annex), para. 4) At the oral hearing, the United Stat es agreed that the information in
the Annex is based on evidence that was on the Panel record. The European Union added that "{t}he delivery
and market share data are extracted from the Aircla ims CASE database, as submitted to the panel as
exhibit EC-21. The accuracy of the data source—Airclaims—has never been contested between the Parties.
Indeed, both parties derived their market share data from Airclaims and the Panel relied on Airclaims data in its
Report". (Ibid.)
The Appellate Body has previously found that it is not necessary that data be presented to it in
precisely the same form in which it was presented to a panel. The Appellate Body has cautioned, however, that
exhibits presenting evidence in a fo rm that differs from the way in wh ich the evidence was presented to the
panel are admissible only if: (i) the data presented can be clearly traced to data on the panel record; and (ii) the
way in which the data has been converted into the form in which it is presented on appeal can be readily
understood. (Appellate Body Report, Chile – Price Band System (Article 21.5 – Argentina), para. 13)
2579The first delivery of the A380 occurred in 2007.
WT/DS316/AB/R BCI deleted, as indicated [***]

discernable from the data and that an end point-to-end point analysis is not sufficient to make out
displacement.
(i) European Union
1180. The data presented for the three product markets in the European Union is summarized below.
Table 4.1. Volumes and market shares for three LCA product markets in the European Union:
2001-2006
2001 2002 2003 2004 2005 2006
units m/s units m/s units m/s units m/s units m/s units m/s
Single-aisle LCA
Airbus 93 62% 83 61% 84 61% 87 59% 84 66% 93 67%
Boeing 58 38% 52 39% 53 39% 60 41% 43 34% 46 33%
Twin-aisle LCA
Airbus 21 60% 31 74% 14 61% 22 63% 19 79% 23 72%
Boeing 14 40% 11 26% 9 39% 13 36% 5 21% 9 28%
Very Large Aircraft
Airbus 0 0% 0 0% 0 0% 0 0% 0 0% 0 0
Boeing 9 100% 6 100% 5 100% 4 100% 2 100% 1 100%
Source: European Union's appellant's submission, Annex III (Displacement Annex).

1181. The European Union accepts that there was disp lacement in the single-aisle and twin-aisle
LCA market during the reference period. 2580 Looking at the data above, we note that Boeing's market
share in the twin-aisle LCA product market declined between 2001 and 2006. In the single-aisle LCA
product market, Boeing's market share remained relatively stable between 2001 and 2004, but
declined in 2005 and 2006. Boeing was the sole supplier of Very Large Aircraft throughout the
reference period.
1182. Consequently, we find that there was displace ment over the reference period in the single-
aisle and twin-aisle LCA product markets in the European Union.

2580European Union's appellant's submission, para. 383 and Annex III (Displacement Annex), para. 49.
BCI deleted, as indicated [***] WT/DS316/AB/R

(ii) Australia
Table 4.2. Volumes and market shares for three LCA product markets in Australia: 2001-2006
2001 2002 2003 2004 2005 2006
units m/s units m/s units m/s units m/s units m/s units m/s
Single-aisle LCA
Airbus 0 0% 0 0% 0 0% 6 33% 9 50% 6 43%
Boeing 7 100% 27 100% 16 100% 12 67% 9 50% 8 57%
Twin-aisle LCA
Airbus 0 - 2 100% 4 100% 5 100% 3 100% 0 -
Boeing 0 - 0 0% 0 0% 0 0% 0 0% 0 -
Very Large Aircraft
Airbus 0 - 0 0% 0 0% 0 - 0 - 0 -
Boeing 0 - 3 100% 3 100% 0 - 0 - 0 -
Source: European Union's appellant's submission, Annex III (Displacement Annex).

1183. We note that the European Union does not contest on appeal that there was displacement in
the single-aisle LCA product market during the reference period. 2581 The data above show that
Boeing's dominance of the single-aisle LCA pr oduct market was eroded by Airbus during the
reference period. Although Boeing's market sh are increased slightly between 2005 and 2006 (from
50% to 57%), its market share remained far below the levels in 2001-2003. Boeing made no sales of
twin-aisle aircraft in Australia during the referenc e period. The absence of any Boeing deliveries of
twin-aisle LCA does not support the United States' case which was premised on an observable decline
in sales. Boeing was the sole supplier of Very Large Aircraft throughout the reference period.
1184. Therefore, we find that there was displacement during the reference period in the single-aisle
LCA product market in Australia.

2581European Union's appellant's submission, para. 383 and Annex III (Displacement Annex), para. 35.
WT/DS316/AB/R BCI deleted, as indicated [***]

(iii) China
Table 4.3. Volumes and market shares for three LCA product markets in China: 2001-2006
2001 2002 2003 2004 2005 2006
units m/s units m/s units m/s units m/s units m/s units m/s
Single-aisle LCA
Airbus 9 33% 7 21% 19 41% 33 63% 52 51% 60 50%
Boeing 18 67% 27 79% 27 59% 19 37% 49 49% 60 50%
Twin-aisle LCA
Airbus 0 0% 0 0% 3 100% 2 67% 4 100% 16 89%
Boeing 4 100% 2 100% 0 0% 1 33% 0 0% 2 11%
Very Large Aircraft
Airbus 0 - 0 0% 0 - 0 - 0 0% 0 0%
Boeing 0 - 2 100% 0 - 0 - 1 100% 4 100%
Source: European Union's appellant's submission, Annex III (Displacement Annex).

1185. The European Union accepts that the evidence shows displacem ent in the single-aisle and
twin-aisle LCA product markets. 2582 Indeed, the data show Boeing losing market share to Airbus in
the single-aisle and twin-aisle LCA markets. Boei ng was the sole supplier of Very Large Aircraft
throughout the reference period.
1186. Accordingly, we find that there was displace ment during the reference period in the single-
aisle and twin-aisle LCA product markets in China.
(iv) Other third country markets – Brazil, Korea, Mexico,
Singapore, and Chinese Taipei
1187. The Panel observed that in the markets of Br azil, Korea, Mexico, Singapore, and Chinese
Taipei, "sales were sporadic and volumes were re latively small, making identification of any trends
more difficult."2583 The Panel, however, stated that "as Airbus was the only other competitor in these
markets over the period we are considering, it follows that any market share achieved by Airbus was
at the expense of Boeing."2584 On this basis, the Panel conclude d "that the evidence demonstrates that
United States' exports of LCA were displaced from these markets by sales of Airbus LCA over the
period we examined as well."
2585
1188. The flaws in the Panel's assessment of displ acement in these geographic markets go beyond
the errors that resulted from its failure to objectively determine the product market. In
subsection 1(b), we have explained that, under th e Panel's two-step approach, the analysis of

2582European Union's appellant's submission, para. 383 and Annex III (Displacement Annex), para. 42.
2583Panel Report, para. 7.1791. (footnote omitted)
2584Panel Report, para. 7.1791.
2585Panel Report, para. 7.1791.
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displacement required an assessment of trends over the entire reference period. No such assessment
of trends is evident from the Panel's analysis. In fact, we do not see how the Panel could have made
an assessment of trends on the basis of only two data points, corresponding to the market share of
Airbus in 2001 and 2005, the end-points of the refe rence period proposed by the United States, also in
view of the Panel's determination that the reference period would end in 2006.
2586 For 2006, the
Panel relied on the data submitted by the European Union disaggregated into product markets and
used them in aggregated form. Moreover, having recognized in respect of the markets of Brazil,
Korea, Mexico, Singapore, and Chinese Taipei that "sales were sporadic and volumes relatively small,
making identification of any trends more difficult", th e Panel went on to state that "as Airbus was the
only other competitor in these markets over the period we are considering, it follows that any market
share achieved by Airbus was at the expense of Boeing." 2587 Such a general statement that any sale to
Airbus is at the expense of Boeing does not provide any analysis of market share developments, much
less identify clear trends over the reference period in the relevant geographic market. With the same
considerations that we outlined above 2588 in mind, we turn to examine the data for these geographic
markets, proceeding on the undisputed basis that there is competition within three product markets.
 B r a z i l

Table 4.4. Volumes and market shares for three LCA product markets in Brazil: 2001-2006
2001 2002 2003 2004 2005 2006
units m/s units m/s units m/s units m/s units m/s units m/s
Single-aisle LCA
Airbus 9 56% 16 67% 0 - 0 0% 5 100% 9 43%
Boeing 7 44% 8 33% 0 - 1 100% 0 0% 12 57%
Twin-aisle LCA
Airbus 0 0% 4 100% 0 - 0 - 1 50% 0 -
Boeing 2 100% 0 0% 0 - 0 - 1 50% 0 -
Very Large Aircraft
Airbus 0 - 0 - 0 - 0 - 0 - 0 -
Boeing 0 - 0 - 0 - 0 - 0 - 0 -
Source: European Union's appellant's submission, Annex III (Displacement Annex).

1189. We do not consider that the volume and market share data based on three product markets
sufficiently establish that Boeing's exports were displaced from the Brazilian market. Boeing's market
share in the single-aisle LCA product market decreased in 2002; there were no sales in 2003; Boeing
took the entire single-aisle market in 2004, and Airb us did the same in 2005. In 2006, Boeing's sales

2586As we observed above, an examination of data at the end points of a reference period is insufficient
for an assessment of displacement.
2587Panel Report, para. 7.1791.
2588See supra, paras. 1176 and 1179.
WT/DS316/AB/R BCI deleted, as indicated [***]

in single-aisle market increased again to 57%. The twin-aisle LCA product market shows Boeing and
Airbus each taking 100% of the market in 2001 and 2002, respectively, and then splitting it 50%-50%
in 2005, with no sales in 2003, 2004, and 2006. We do not believe that this data sufficiently show
that there is a trend of Boeing losing market shar e to Airbus in Brazil for the twin-aisle LCA product
market. There were no deliveries of Very Large Ai rcraft by either producer throughout the reference
period.
1190. Thus, we find that the data do not establish that there was displacement in the Brazilian
market during the reference period.
 K o r e a

Table 4.5. Volumes and market shares for three LCA product markets in Korea: 2001-2006
2001 2002 2003 2004 2005 2006
units m/s units m/s units m/s units m/s units m/s units m/s
Single-aisle LCA
Airbus 1 11% 3 33% 2 33% 4 50% 2 67% 3 60%
Boeing 8 89% 6 67% 4 67% 4 50% 1 33% 2 40%
Twin-aisle LCA
Airbus 2 33% 2 33% 1 50% 1 50% 2 40% 2 50%
Boeing 4 66% 4 66% 1 50% 1 50% 3 60% 2 50%
Very Large Aircraft
Airbus 0 0% 0 0% 0 0% 0 0% 0 0% 0 0%
Boeing 3 100% 3 100% 3 100% 3 100% 1 100% 3 100%
Source: European Union's appellant's submission, Annex III (Displacement Annex).

1191. The European Union concedes that the data would support a finding of displacement for
single-aisle and twin-aisle LCA product markets. 2589 The single-aisle LCA product market data show
that Boeing lost market share to Airbus through out the reference period. In the twin-aisle LCA
product market, the two-third to one-third split of th e Korean market in favour of Boeing in the initial
two years becomes a 50%-50% split of the market in 2003, 2004, and 2006. Boeing was the sole
supplier of Very Large Aircraft throughout the reference period.
1192. Therefore, we find that there was displacement during the reference period in the single-aisle
and twin-aisle LCA product markets in Korea.

2589European Union's appellant's submission, para. 383 and Annex III (Displacement Annex), para. 46.
BCI deleted, as indicated [***] WT/DS316/AB/R

 M e x i c o

Table 4.6. Volumes and market shares for three LCA product markets in Mexico: 2001-2006
2001 2002 2003 2004 2005 2006
units m/s units m/s units m/s units m/s units m/s units m/s
Single-aisle LCA
Airbus 2 29% 4 100% 4 40% 4 31% 7 50% 3 25%
Boeing 5 71% 0 0% 6 60% 9 69% 7 50% 9 75%
Twin-aisle LCA
Airbus 0 - 0 - 0 - 0 - 0 - 0 -
Boeing 0 - 0 - 0 - 0 - 0 - 2 100%
Very Large Aircraft
Airbus 0 - 0 - 0 - 0 - 0 - 0 -
Boeing 0 - 0 - 0 - 0 - 0 - 0 -
Source: European Union's appellant's submission, Annex III (Displacement Annex).

1193. The data show deliveries by Airbus only in the single-aisle LCA product market. In that
product market, however, Boeing's share remained re latively stable throughout the reference period
and, therefore, the data do not support the United States' allegation of displacement, which was based
on an observable decline in Boeing's market share. In 2006, Boeing ma de deliveries in the twin-aisle
LCA product market. There are no deliveries by either producer of Very Large Aircraft throughout
the reference period.
1194. In the light of the above, we find that the data do not establish that there was displacement in
the Mexican market during the reference period.
 Singapore

Table 4.7. Volumes and markets share for three LCA product markets in Singapore: 2001-2006
2001 2002 2003 2004 2005 2006
units m/s units m/s units m/s units m/s units m/s units m/s
Single-aisle LCA
Airbus 2 100% 1 100% 1 100% 8 100% 11 100% 6 100%
Boeing 0 0% 0 0% 0 0% 0 0% 0 0% 0 0%
Twin-aisle LCA
Airbus 0 0% 0 0% 4 31% 3 43% 0 0% 0 0%
Boeing 12 100% 12 100% 9 69% 4 57% 3 100% 6 100%
Very Large Aircraft
Airbus 0 0% 0 0% 0 0% 0 0% 0 0% 0 0%
Boeing 5 100% 1 100% 2 100% 2 100% 1 100% 1 100%
Source: European Union's appellant's submission, Annex III (Displacement Annex).

1195. The data show that there were no sales of Boeing in the single-aisle LCA product market
during the reference period. Boeing was the sole supplier in the twin-aisle LCA product market in
WT/DS316/AB/R BCI deleted, as indicated [***]

2001 and 2002. Airbus made deliveries in 2003 a nd 2004, reducing Boeing's market share during
those years to 69% and 57%. However, Boeing was again the sole supplier in 2005 and 2006 and
retained its dominance in the twin-aisle LCA produc t market. Boeing was the sole supplier of Very
Large Aircraft throughout the refe rence period. The data show that Airbus was dominant in the
single-aisle LCA product market, that Boeing was dom inant in the twin-aisle LCA and Very Large
Aircraft product markets, and that their respective shares remained stable over the reference period.
1196. Consequently, we find that the data do not establish that there was displacement in the
Singaporean market during the reference period.
 Chinese Taipei

Table 4.8. Volumes and market shares for three LCA product markets in Chinese Taipei: 2001-2006
2001 2002 2003 2004 2005 2006
units m/s units m/s units m/s units m/s units m/s units m/s
Single-aisle LCA
Airbus 0 0% 0 0% 0 - 0 - 0 - 0 -
Boeing 3 100% 2 100% 0 - 0 - 0 - 0 -
Twin-aisle LCA
Airbus 5 100% 0 - 3 100% 7 100% 9 82% 5 71%
Boeing 0 0% 0 - 0 0% 0 0% 2 18% 2 29%
Very Large Aircraft
Airbus 0 0% 0 0% 0 0% 0 0% 0 0% 0 0%
Boeing 5 100% 4 100% 3 100% 4 100% 5 100% 2 100%
Source: European Union's appellant's submission, Annex III (Displacement Annex).

1197. Boeing was the sole supplier in the single-ais le LCA product market. Airbus dominated the
twin-aisle LCA product market, making 100% of the deliveries between 2001 and 2004, when Boeing
started to penetrate that market. Boeing made 18% of deliveries in 2005 and 29% in 2006, but Airbus
retained more than two-thirds of the market in both years. Boeing was the sole supplier of Very Large
Aircraft throughout the reference period. In these circumstances, the data do not support the
United States' case of displacement, which was based on the allegation that Boeing's market share
decreased during the reference period.
1198. Accordingly, we find that the data do not establis h that there was displacement in the Chinese
Taipei market during the reference period.
BCI deleted, as indicated [***] WT/DS316/AB/R

(v) India
1199. The United States made a claim of threat of disp lacement in relation to the Indian market.
The Panel recalled its earlier observation that it did not consider orders data to be "persuasive
evidence of current displacement", but added that "o rders are an indicator of likely future deliveries,
albeit imperfect".
2590 The Panel therefore decided it would "review the {orders} information
presented as an indicator of threat of future displacement or impedance of exports from the Indian
market"
2591 and found that the data on orders fo r the period 2001 to 2005 presented by the
United States demonstrated that Airbus gained most of the orders for LCA in the Indian market during
that period.2592
Table 4.9. Volume and market sh are data based on quantity of LCA ordered for three LCA product
markets in India: 2001-2006
2001 2002 2003 2004 2005 2006 units m/s units m/s units m/s units m/s units m/s units m/s
Single-aisle LCA
Airbus 0 - 0 - 0 0% 2 100% 196 83% 56 74%
Boeing 0 - 0 - 1 100% 0 0% 39 17% 20 26%
Twin-aisle LCA
Airbus 0 - 0 - 0 - 0 - 20 25% 5 33%
Boeing 0 - 0 - 0 - 0 - 60 75% 10 66%
Very Large Aircraft
Airbus 0 - 0 0% 0 - 0 - 5 83% 0 0%
Boeing 0 - 2 100% 0 - 0 - 1 17% 4 100%
Source: European Union's appellant's submission, Annex III (Displacement Annex).

1200. Neither company won orders in the single-aisle LCA product market in 2001 and 2002.
Boeing won 100% of the market in 2003, but this w as with a single order. Airbus dominated that
product market as of 2004, capturing the orders for two aircraft placed during the period.
Nevertheless, the data do not provide a basis for the United States' case of threat of displacement
based on Boeing's declining market share given th at Boeing had one order for a single aircraft
between 2001 and 2004. If anything, Boeing was ga ining market share in 2005 and 2006 (from 0% in
2004 to 17% in 2005 and 26% in 2006). The twin-aisle LCA product market shows no orders between
2001 and 2004. Boeing captured a majority of the orders in 2005 and 2006, but its market share
declined from 75% to 66%. This decline in mark et share in a period of only two years does not
provide a sufficient basis for a finding of threat of displacement.

2590Panel Report, para. 7.1783. (footnote omitted)
2591Panel Report, para. 7.1783.
2592Panel Report, para. 7.1784.
WT/DS316/AB/R BCI deleted, as indicated [***]

1201. Because the data concern orders, the data incl ude sales by Airbus in the Very Large Aircraft
product market. Boeing had 100% of the two Very La rge Aircraft ordered in 2002. The number of
total aircraft ordered went up to six in 2005 and Airbus won 83% of these orders. However, Boeing
won 100% of the four aircraft ordered in 2006, with the highest volume of aircraft ordered it achieved
during the reference period. In th ese circumstances, the data do not support a finding of displacement
in the Very Large Aircraft product market.
1202. Therefore, we find that the uncontested evidence does not establish that there was a threat of
displacement in the Indian market during the reference period.
2593
(vi) Summary of conclusions
1203. In respect of the first step of the Panel's two-step approach 2594, we find, on the basis of
uncontested evidence on the Panel record, that there was displacement under Article 6.3(a) and under
Article 6.3(b) of the SCM Agreement during the reference period:
(a) in the single-aisle and twin-aisle LCA product markets in the European Union;
(b) in the single-aisle LCA product market in Australia;
(c) in the single-aisle and twin-aisle LCA product markets in China; and
(d) in the single-aisle and twin-aisle LCA product markets in Korea.
1204. We find that the uncontested evidence does not establish displacement over the reference
period in Brazil, Mexico, Singapore, and Chinese Taip ei. In addition, we find that the uncontested
evidence does not establish threat of displacement over the reference period in India.

2593In the light of our finding, we need not examine the European Union's claim that the Panel erred by
failing to consider delivery data for the end of 2006 or the beginning of 2007. (European Union's appellant's
submission, para. 389)
2594These findings are in paragraphs 7.1758, 7.1790, and 7.1791.
BCI deleted, as indicated [***] WT/DS316/AB/R

1205. As noted above, one Member on the Division takes the position that, in the absence of a
determination of the relevant product market(s), th e Appellate Body cannot complete the analysis on
displacement. This Member, therefore, does not agree with the above findings on displacement.
However, this Member agrees with the legal inte rpretation of the concept of displacement in
Article 6.3(a) and (b) of the SCM Agreement, as set out above in paragraphs 1159 and following of
this Report, and agrees that the analysis below rega rding the question of whether the displacement is
the effect of the challenged subsidies, as set out below in paragraphs 1229 and following of this
Report, follows logically from the view of the ot her Members on the Division with respect to the
existence of displacement.
1206. We review, in section IX.D below, the second step of the Panel's two-step analysis, that is, the
Panel's finding that the displacement is the effect of the challenged subsidies, under Article 6.3(a)
and (b) of the SCM Agreement.
2. Lost Sales

1207. We move now to the European Union's appeal of the Panel's finding of lost sales under the
first step of the Panel's two-step approach. A summary of the Panel's findings is provided in
subsection (a). We examine the European Union's allegations of error in subsection (b).
(a) The Panel's findings
1208. The United States presented "anecdotal evidence" 2595 allegedly showing that Boeing had lost
several sales campaigns to Airbus by virt ue of Airbus' aggressive pricing practices. 2596 In particular,
the United States argued that Airbus had captured sales to Air Asia, Air Berlin, Czech Airlines,
easyJet, Emirates Airlines, Iberia, Qantas, Singapore Airlines, South African Airways, and Thai
Airways.
2597 The evidence submitted by the United States to support this contention consisted

2595Panel Report, para. 7.1800.
2596The United States also provided this evidence in support of its claim of significant price
undercutting.
2597Panel Report, para. 7.1801.
WT/DS316/AB/R BCI deleted, as indicated [***]

primarily of media reports
2598, press releases 2599, and public disclosures by certain airlines 2600
allegedly suggesting that discounts offered by Airb us in competitive bids against Boeing were the
main reason why Boeing had lost those sales campaigns.
1209. The European Communities did not dispute that in the sales campaigns identified by the
United States, Boeing "lost" the sales in question, in the sense that it did not succeed in selling its
LCA to the customer in question. 2601 However, the European Communities argued that non-price
factors such as Boeing's mismanagement of customer relationships 2602, political considerations 2603,
technical specifications 2604, and fleet and route structure 2605 were responsible for Boeing's failure to

2598For example, easyJet's CEO is quoted as saying that speculation about a 60% discount over list
prices offered by Airbus "is 'a bit ambitious, but not far off'." (Panel Report, para. 7.1803 (quoting C. Baker,
"Easy does it", Airline Business, 1 December 2002 (Panel Exhibit US-408) )) Media reports al so suggested that
Airbus had trumped Boeing for the Air Berlin campaign "by offering steep discounts and other financial
guarantees that {Boeing} was unwilling to match." ( Ibid., para. 7.1807 (quoting "Airbus to Beat Boeing Once
Again", Wall Street Journal, 8 November 2004 (Panel Exhibit US-412 ))) A Czech Airlines executive is quoted
as noting that although both offers met the company's specifications, "Airbus offered the better price". ( Ibid.,
para. 7.1810 (quoting "Ceske Aeroline: Order for Jets Worth CZK10B-CZK12B", Oster Dow Jones Commodity
Wire, 15 October 2004 (Panel Exhibit US-424))) For the Air Asia campaign, the United States produced a
media report suggesting that Boeing was not prepared to match the price offered by Airbus. (See ibid.,
para. 7.1814 (quoting "Airbus to Beat Boeing Once Again", Wall Street Journal , 8 November 2004 (Panel
Exhibit US-412))) Similarly, the United States presented media reports suggesting Airbus had offered "special
price concessions", "extra credits", and payments to "pha se out" existing aircraft to win the Thai Airways bid.
(Ibid., para. 7.1825)
2599For the Iberia campaign, the United States produc ed a press release announ cing that the company
was "taking advantage of exceptional terms" offered by Airbus. (Panel Report, para. 7.1818 (quoting Iberia
press release, " Iberia opta por Airbus para la renovación de su flota B-747 ", 30 January 2003 (Panel Exhibit
US-415)))
2600The United States presented easyJet's 2005 annual report indicating a 56% discount over the A319
list prices. (See Panel Report, para. 7.1804) Similarly, the 2002 Group Audited Results of South African
Airways described the LCA bought from Airbus as "aggressively priced". ( Ibid., para. 7.1822 (quoting South
African Airways, "Group Audited Results, Year Ended 31 March 2002" (Panel Exhibit US-417)))
2601Panel Report, para. 7.1802.
2602The European Communities submitted that Air Berlin officials "were unhappy with Boeing's
business and production practices". (Panel Report, para . 7.1809 (referring to European Communities' first
written submission to the Panel, para. 1903)) Similarly, the European Communities argued that Boeing lost the
Air Asia campaign due to its "arrogant" and "inflexible" negotiating positions. ( Ibid., para. 7.1815 (quoting
"Platt: Boeing will do what it takes", Seattle Post-Intelligencer Aerospace Reporter , 15 June 2005 (Panel
Exhibit EC-464)))
2603The European Communities argued that the Czech Airlines sale was won by Airbus due to a dispute
between the Czech Government and Boeing over the state-owned company Aero Vodochody. (See Panel
Report, para. 7.1811)
2604The European Communities posited th at Emirates Airlines, Qantas , and Singapore Airlines each
ordered the A380 not because of its price, but because it offered unique advantages in seating capacity, range,
and operating economics that were not available from any competing Boeing LCA at that time. (See Panel
Report, para. 7.1829)
2605The European Communities suggested that performance advantages of the Airbus A340 at hot,
high-altitude airports were a distinct advantage in the Iberia and South African Airways campaigns. (Panel
Report, para. 7.1819 (referring to European Communities' first written submission to the Panel, para. 2095) and
para. 7.1823) The European Communities also suggested that "fleet commonality" was also perceived as an
important factor by Iberia. ( Ibid., para. 7.1819 (referring to European Communities' first written submission to
the Panel, para. 2096))
BCI deleted, as indicated [***] WT/DS316/AB/R

win those sales campaigns. It was the Europ ean Communities' contention that these factors
demonstrate that the lost sales could not be considered to be an effect of the subsidies.
2606
1210. In the Panel's view, the evidence before it su ggested that price was: "the determining
factor"2607 in the easyJet campaign; "a crucial element" 2608 for Air Berlin; "a critical
consideration"2609 for Air Asia; and "an important element" 2610 in the Iberia campaign. The Panel
also found that price played a "significant role" in the Emirates Airlines, Qantas, Singapore Airlines,
and South African Airways campaigns. 2611 Although the Panel acknowledged that Czech Airlines
"was not well inclined towards Boeing", it noted that the evidence indicated that Airbus did offer the
better price.2612 As regards the Thai Airways campaign, the Panel considered that, at the time of the
sale, the Airbus A340-500/600 was the only LCA in production that could meet Thai Airways'
operational needs.
2613
1211. The Panel expressed reservations as to whether the "anecdotal evidence" before it provided an
appropriate evidentiary basis to support a finding of significant price undercutting under Article 6.3(c)
of the SCM Agreement.2614 This is because such evidence consisted mostly of offer prices, rather than
actual prices. Moreover, while recognizing that price—in the sense of the overall value of the offer to
the customer's business—"remain{ed} one of the, if not the only, determinative factors in the
customer's decision"2615, the Panel did not consider that public statements reflecting the calculation of
the relative value of competing offers provided a sufficient basis for an actual comparison of prices.
1212. The Panel found that it could not, on the basis of the evidence before it, draw any conclusions
with respect to significant price undercutting within the meaning of Article 6.3(c). 2616 However, the
Panel observed that "this does not mean that there were not significant lost sales". 2617 The Panel went
on to state its view that "it is clear that Boeing lost sales to Airbus involving purchases by easyJet, Air
Berlin, Czech Airlines, Air Asia, Iberia, South African Airways, Thai Airways International,
Singapore Airlines, Emirates Airlines, and Qantas."
2618 The Panel then turned to the issue of

2606Panel Report, para. 7.1802.
2607Panel Report, para. 7.1806.
2608Panel Report, para. 7.1809.
2609Panel Report, para. 7.1817.
2610Panel Report, para. 7.1821.
2611Panel Report, paras. 7.1824 and 7.1832.
2612Panel Report, para. 7.1813.
2613Panel Report, para. 7.1827.
2614Panel Report, para. 7.1833.
2615Panel Report, para. 7.1839.
2616Panel Report, para. 7.1840.
2617Panel Report, para. 7.1845.
2618Panel Report, para. 7.1845.
WT/DS316/AB/R BCI deleted, as indicated [***]

significance and found that, in the light of the number of aircraft and the dollar amounts involved in
the sales, their strategic importance, the learning effects and economies of scale they generate, and the
advantages of incumbent supplier provided by the sales, these lost sales were significant.
2619
(b) Did the Panel err in finding lost sales in relation to the sale of A380
LCA to Emirates Airlines?
(i) What are "lost sales"?
1213. Article 6.3(c) of the SCM Agreement establishes that serious prejudice within the meaning of
Article 5(c) of the SCM Agreement may arise in any case where "the effect of the subsidy" is
"a significant price undercutting ... or significant price suppression, price depression or lost sales in
the same market." Similarly to displacement under Artic le 6.3(a) and (b), this is the first time that the
Appellate Body will examine claims of "lost sales" under Article 6.3(c) of the SCM Agreement.
1214. We consider that a sale that is "lost" is one that a supplier "failed to obtain".
2620 We further
understand lost sales to be a relational concept that includes consideration of the behaviour of both the
subsidized firm(s), which must have won the sales, and the competing firm(s), which allegedly lost
the sales.2621 In US – Upland Cotton , the Appellate Body held that the phrase "in the same market"
applied to all four situations set forth in Article 6.3(c), including "lost sales". 2622 According to the
Appellate Body, the subsidized product and the like product of the complaining Member will be in the
same market "if they were engaged in act ual or potential competition in that market." 2623 Thus, sales
can be lost "in the same market" within the meaning of Article 6.3(c) if the subsidized product and the
like product are competing products in the same product market.
1215. The term "significant" in the second clause of Ar ticle 6.3(c) appears before the terms "price
suppression, price depression or lost sales". 2624 We read the term "significant" as qualifying all three

2619Panel Report, para. 7.1845. (footnote omitted) The Panel had earlier concluded that the term
"significant" applies "to each of the situations" described in Article 6.3(c) of the SCM Agreement, including lost
sales. (Ibid., para. 7.1796)
2620The New Shorter Oxford English Dictionary , 4th edn, L. Brown (ed.) (Clarendon Press, 1993),
Vol. 1, p. 1632.
2621The United States asserted before the Panel that a "' lost' sale is any sale that is captured by the
subsidized product instead of the product of the complaining Member." (Panel Report, para. 7.1797 (quoting
United States' first written submission to the Panel, para. 776))
2622Appellate Body Report, US – Upland Cotton, para. 407.
2623Appellate Body Report, US – Upland Cotton, para. 408.
2624The term "significant" also appears in the first clause of Article 6.3(c), which describes "price
undercutting".
BCI deleted, as indicated [***] WT/DS316/AB/R

situations. In other words, a complaining Member invoking Article 6.3(c) must show that the alleged
"lost sales" are "significant".
2625
1216. As with the other market phenomena referred to in Article 6.3 of the SCM Agreement, the lost
sales must be the "effect" of the challenged subsid y. Thus, like the analysis of displacement under
Article 6.3(a) and (b), we believe that a useful and appropriate approach to assessing whether lost
sales are the effect of the challenged subsidy is thr ough a counterfactual analysis. This would involve
a comparison of the sales actually made by the competing firm(s) of the complaining Member with a
counterfactual scenario in which the firm(s) of th e respondent Member would not have received the
challenged subsidies. There would be lost sales wh ere the counterfactual scenario shows that sales
won by the subsidized firm(s) of the respondent Member would have been made instead by the
competing firm(s) of the complaining Member, thus re vealing the effect of the challenged subsidies.
It is not impermissible to assess lost sales under Article 6.3(c) of the SCM Agreement using a two-step
approach like the one adopted by the Panel. However, as we have discussed above 2626, any
conclusions reached under the first step are prel iminary because they will show only who lost and
who made the sales. A definitive determination that the lost sales are the ef fect of the challenged
subsidy within the meaning of Article 6.3(c) must await completion of the second step of the analysis.
1217. The United States directed its allegations of lost sales in this case against specific sales
campaigns and the Panel focused its analysis on th ose sales campaigns. The European Union has not
challenged the Panel's approach on appeal. We agre e that an assessment of lost sales focused on an
examination of specific sales campaigns may be appropriate given the particular characteristics of a
market.2627 At the same time, we note that Article 6.3(c) is concerned with lost sales "in the same
market". It will sometimes be necessary to look beyond individual sales campaigns fully to
understand the competitive dynamics that are at play in a particular market. Thus, an approach in
which sales are aggregated by supplier or by custom er, or on a country-wide or global basis, rather
than examined individually, is also permissible.
1218. We acknowledge that when looked at from this broader, market-wide perspective, there could
be some overlap between the concept of lost sales and the concepts of displacement and impedance in
Article 6.3(a) and (b) of the SCM Agreement. Although the concepts of displacement and impedance

2625At the oral hearing, both participants agreed that the lost sales, within the meaning of Article 6.3(c)
of the SCM Agreement, must be "significant".
2626See section IX.A of this Report.
2627We recognize that Article 6.3(c) of the SCM Agreement refers to "lost sales" in the plural. While
the United States' allegations of lost sales in this case related to individual sales campaigns, each of these
campaigns involved the sale of a number of LCA. We are therefore in this case not faced with the question
whether Article 6.3(c) can be invoked in relation to an allegedly lost sale of a single unit of a product.
WT/DS316/AB/R BCI deleted, as indicated [***]

are presented from the perspective of imports or exports under subparagraphs (a) and (b) of
Article 6.3, those imports or exports are a function of the firms' sales. At the same time, we see some
distinctions between the concepts. First, th e assessment of displacement or impedance under
subparagraphs (a) and (b) of Article 6.3 has a we ll-defined geographic focus. By contrast, the
reference to the "same market" in subparagraph (c) allows more flexibility in defining the relevant
market, which can include the world market.
2628 Second, the requirement in Article 6.3(c) that the lost
sales be "significant" implies th at the assessment can have quan titative and qualitative dimensions.
The assessment of displacement and impedance under Article 6.3(a) and (b) is primarily quantitative
in nature.
1219. The Panel in this case referred to several factors that it considered relevant to the question of
whether the lost sales were significant:
In our view, it is clear that Boeing lost sales to Airbus involving
purchases by easyJet, Air Berlin, Czech Airlines, Air Asia, Iberia,
South African Airways, Thai Airways International, Singapore
Airlines, Emirates Airlines, and Qantas. Moreover, it is apparent to
us that if winning a particular sale is of "strategic importance" to
Airbus, as the European Communities asserts with respect to the
easyJet campaign discussed above, the lo ss of that sale to Boeing is
similarly important, and can justifia bly be considered a significant
lost sale. In addition, lost sales ar e important to the extent that they
delay a manufacturer's ability to benefit from the important learning
effects and economies of scale in th is industry, and thus have a
significance beyond their direct revenue effects. Moreover, both
parties recognize the advantages to being the incumbent supplier with
a given customer with respect to subsequent purchases, which also
adds to the significance of lost sales. While it is true that a
manufacturer may be able to recoup some of these disadvantages by
finding another customer to take advantage of delivery slots, this
does not, in our view, detract from the significance of a lost sale.
Given the number of aircraft and the dollar amounts involved in

2628As the Appellate Body explained in US – Upland Cotton:
The only express qualification on the type of "market" referred to in
Article 6.3(c) is that it must be "the same" market. Aside from this
qualification ..., Article 6.3(c) imposes no explicit geographical limitation
on the scope of the relevant market. This contrasts with the other
paragraphs of Article 6.3... We agr ee with the Panel that this difference
may indicate that the drafters did not intend to confine, a priori, the market
examined under Article 6.3(c) to any particular area. Thus, the ordinary
meaning of the word "market" in Article 6.3(c), when read in the context of
the other paragraphs of Article 6.3, neither requires nor excludes the
possibility of a national market or a world market.
(Appellate Body Report, US – Upland Cotton, para. 406 (footnotes omitted))
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those sales, as well as the considerations just described, we conclude
that these lost sales are significant.
2629 (footnotes omitted)
Neither participant has challenged the criteria articulated by the Panel in its assessment of significance
or the way in which the Panel applied them.2630
1220. To summarize, we consider that, under Article 6. 3(c), "lost sales" are sales that suppliers of
the complaining Member "failed to obtain" and that instead were won by suppliers of the respondent
Member. It is a relational concept and its assessment requires consideration of the behaviour of both
the subsidized firm(s), which must have won the sales, and the competing firm(s), which allegedly
lost the sales. The assessment can focus on a speci fic sales campaign when such an approach is
appropriate given the particular characteristics of the market or it ma y look more broadly at aggregate
sales in the market. The complainant must show th at the lost sales are signi ficant to succeed in its
claim. Where lost sales are assessed under a two-step approach such as the one adopted by the Panel
in this case, the finding of lost sales in the first step is n ecessarily preliminary and of limited
significance in coming to a conclusion under Article 6.3(c). Similarly to the phenomena of
displacement under Article 6.3(a) and (b), a definiti ve determination under Ar ticle 6.3(c) must await
consideration of whether such lost sales are the ef fect of the challenged subsidy. While a two-step
approach to the assessment of lost sales is permissi ble, in our view, the most appropriate approach to
assess whether lost sales are the effect of the challenged subsidy is through a unitary counterfactual
analysis. This would involve a comparison of the sal es actually made by the competing firm(s) of the
complaining Member with a counterfactual scenario in which the firm(s) of the respondent Member
would not have received the challenged subsidies. There would be lost sales where the counterfactual
analysis shows that, in the absence of the challenged subsidy, sales won by the subsidized firm(s) of
the respondent Member would have been made inst ead by the competing firm(s) of the complaining
Member.
(ii) Do the sales of the A380 to Em irates Airlines constitute "lost
sales"?
1221. The European Union does not appeal the Panel's interpretation of lost sales under its two-step
approach to assessing the United States' claim under Article 6.3(c) of the SCM Agreement. Instead,
the European Union challenges the Panel's applicati on of Article 6.3(c) and the Panel's assessment of
the evidence under Article 11 of th e DSU. We turn to the speci fic allegations raised by the
European Union below. Our review proceeds on the basis of the two-step approach adopted by the

2629Panel Report, para. 7.1845.
2630European Union's and United States' responses to questioning at the oral hearing.
WT/DS316/AB/R BCI deleted, as indicated [***]

Panel under Article 6.3(c) and, at this stage, is c oncerned exclusively with the Panel's finding of lost
sales under the first step.
1222. According to the European Union, the Panel erre d in the application of Article 6.3(c) of the
SCM Agreement because it failed to "make explicit findi ngs whether Emirates would have ordered
any Boeing LCA if it had not ordered the A380 in 2000".
2631 The European Union does not contest
that Airbus won this particular sales camp aign involving the A380. The focus of the
European Union's claim is on the alleged lack of findings as to whether Boeing would have secured
the order from Emirates Airlines had the airline not purchased the A380. At the oral hearing, the
European Union asserted that Boeing failed to "tur n up" for the sales campaign and thus could not
have lost the sales.
1223. We find it difficult to reconcile the European Union's argument with the Panel's findings as to
the conditions of competition in the LCA industry. The Panel found that airlines consider the LCA of
both Airbus and Boeing, even when an airlin e does not formally request offers from both
manufacturers or where one of the two does not present an offer. It explained that:
Given the importance of LCA costs to the customers' successful
operations, we cannot accept the implication that customers
knowledgeable about the market would not consider the competitive
products available from the two producers in most cases, even if
formal offers are neither requested nor made in a particular
instance.
2632
This finding has not been appealed by the European Union. Given the conditions of competition in
the LCA industry, it was not necessary for Boeing to have made a formal offer to Emirates Airlines—
or "turn up" to use the European Union's expressi on—for the sales to qualify as sales that Boeing
"failed to obtain". As the Panel explained, ev en in the absence of a formal offer from Boeing,
Emirates could be expected to have considered the products manufactured by Boeing before making
its purchase decision. We do not understand the Eur opean Union to have argued that Boeing would
not have had the production capacity to fill the order and offer a 747.
1224. Turning to the European Union's allegation that the Panel acted inconsistently with Article 11
of the DSU, we note that the European Union fau lts the Panel for "failing to address and reasonably
explain"2633: (i) evidence that Emirates Airlines would not have purchased competing Boeing aircraft;

2631European Union's appellant's submission, para. 588. (original emphasis)
2632Panel Report, para. 7.1722.
2633European Union's appellant's submission, para. 597.
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and (ii) evidence that Boeing was not interested in launching a competitor to the A380 at the time of
the Emirates sales campaign.
2634
1225. As noted elsewhere in this Report, Article 11 of the DSU requires a panel, in the discharge of
its responsibilities under the DSU, to "make an objective assessment of the matter before it, including
an objective assessment of the facts of the case" . The duty to make an "objective assessment"
generally requires a panel to "consider all the eviden ce presented to it, assess its credibility, determine
its weight, and ensure that its factual findi ngs have a proper basis in that evidence." 2635 Within these
parameters, it is generally "within the discretion of the Panel to decide which evidence it chooses to
utilize in making findings"2636, and panels "are not required to accord to factual evidence of the parties
the same meaning and weight as do the parties".2637
1226. The European Union's claim under Article 11 of the DSU focuses on the timing of Boeing's
decision to market the 747-X. The underlying premi se of the European Union's argument is that the
A380 would only compete against the 747-X a nd not with other versions of the 747. 2638 I n o t h e r
words, the European Union's argument is predicat ed upon its position that five product markets exist
and that the A380 is not "like" and does not compet e with the other versions of the 747. As noted

2634European Union's appellant's submission, para. 597.
2635Appellate Body Report, Brazil – Retreaded Tyres , para. 185 (referring to Appellate Body Report,
EC – Hormones , paras. 132 and 133). See also Appellate Body Report, Japan – Apples , para. 221; Appellate
Body Report, Australia – Salmon , para. 266; Appellate Body Report, EC – Asbestos , para. 161; Appellate
Body Report, EC – Bed Linen (Article 21.5 – India) , paras. 170, 177, and 181; Appellate Body Report, EC –
Sardines, para. 299; Appellate Body Report, EC – Selected Customs Matters , para. 258; Appellate Body
Report, EC – Tube or Pipe Fittings , para. 125; Appellate Body Report, Japan – Agricultural Products II ,
paras. 141 and 142; Appellate Body Report, Korea – Alcoholic Beverages, paras. 161 and 162; Appellate Body
Report, Korea – Dairy , para. 138; Appellate Body Report, US – Carbon Steel , para. 142; Appellate Body
Report, US – Gambling , para. 363; and Appellate Body Report, US – Oil Country Tubular Goods Sunset
Reviews, para. 313.
2636Appellate Body Report, US – Carbon Steel , para. 142 (quoting Appellate Body Report, EC –
Hormones, para. 135).
2638The United States argues that "{f}or the European Union's argument to be relevant, however, it
would have had to demonstrate that the 747-X is the only aircraft that Emirates would have considered if the
A380 were not available". It further notes that "the Panel found that airlin es consider all available aircraft, and
the evidence shows that Emirates itself purchased other Boeing aircraft to fulfil its needs for seats, thus
demonstrat{ing} that the 747-X was not the only aircraft that Emirates would have considered if the A380 were
not available to it". (United States' appellee's submission, paras. 646 and 647) The Panel referred to a press
Article submitted by the United States that indicated that Emirates had tu rned to the Boeing 777 to replace the
delayed A380. (Panel Report, para. 7.1831 (referring to "Singapore Airlines may buy more Boeing 777s",
International Herald Tribune , 10 December 2006 (Panel Exhibit US-6 11))) The United States also argued
before the Panel that "the European Communities acknowl edge{d} that factors such as seating capacity are
routinely 'monetized' in sales campaigns and, to the extent practicable, can be offset by price concessions, with
the result that even if the A380 may be better suited to a particular airline's business plan than a smaller plane
like the 777, the two aircraft can —and do—fly the same routes." ( Ibid., para. 7.1831 (referring to United States'
second written submission to the Panel, para. 719, in turn referring to Expert statement of Christian Scherer,
Head of Future Programmes, Airbus, "Commercial Aspects of the Aircraft Business from the Perspective of a
Manufacturer" (Panel Exhibit EC-14 (BCI), para. 69))
WT/DS316/AB/R BCI deleted, as indicated [***]

above, however, although we have re versed the Panel's finding that there is a single LCA market, we
also have not endorsed the five product market a pproach proposed by the European Communities.
During these appellate proceedings, the European Union has accepted an approach based on three
product markets, in which the Boeing 747 and the Airbus A380 form part of the same product
market.
2639 This is also the position espoused in the Airbus A380 business case, which is HSBI. The
A380 business case is an internal Airbus docum ent, assessing the economic viability of the A380,
including conditions of competition in the marketpla ce and particularly with certain Boeing models.
That Airbus considered the 747 as a competitor to the A380 is also evident in the EADS Offering
Memorandum, a public document which states:
Since the development of the 747 in the 1960s, Boeing has had a
monopoly on the high end (in excess of 400 seats) of the large
aircraft sector. To counter this and to meet the expected growth in air
travel over the next 20 years, Airbus has studied a program for a
family of ultra-large four-engine aircraft, designated the
"A3XX"{
2640}, to establish its commercial, technical and industrial
feasibility. Such a program would allow Airbus not only to compete
head-to-head with the 747 but also to develop a new market for
aircraft larger than the 747.
2641
1227. At the oral hearing, the European Union pl aced emphasis on the final clause of the quoted
statement, which indicates that the A380 would allo w Airbus "to develop a new market for aircraft
larger than the 747". The Panel found that the A380 and the 747 competed with each other even if
"the A380 offered unique characteristics" to Emir ates Airlines, Qantas, and Singapore Airlines. 2642
Ultimately the European Union seems to be arguing that in th e absence of the A380 and the
unavailability of a larger 747 (such as the 747-X), Emirates would not have purchased any other LCA.
We find this to be a somewhat unrealistic propos ition in the light of Emirates Airlines' rapid
expansion and ambitious growth strategy. A more likely scenario would have been that Emirates
would have considered the 747, which was the largest LCA available, or smaller LCA manufactured
by Airbus and Boeing.2643 In the light of these considerations, we do not believe that the Panel failed
to make an objective assessment of the matter and we see no reason to interfere in the Panel's findings
and reasoning on this point.

2639The European Union accepted this in the Displ acement Annex to its appellant's submission.
(European Union's appellant's submi ssion, Annex III (Displacement Annex), para. 6) If the Boeing 747 and
Airbus A380 are in the same product market for purposes of the assessment of displacement, we fail to see why
they would not be in competition for purposes of an assessment of lost sales.
2640As noted supra, footnote 2377, the A3XX is an earlier denomination given to the A380.
2641EADS' Offering Memorandum, supra, footnote 163, p. 71.
2642Panel Report, para. 7.1832.
2643Although this has little evidentia ry weight because of its ex post nature, the record indicates that
Emirates leased Boeing 777 LCA after delivery of the A380s was delayed. (United States' and European Union's
response to questioning at the oral hearing)
BCI deleted, as indicated [***] WT/DS316/AB/R

1228. For these reasons, we are not persuaded by the European Union's allegation that the Panel
erred, under the first step of its two-step appro ach, in finding that the order of A380 by Emirates
constitutes lost sales. In our view, the Panel's fi ndings that there is competition between the Airbus
A380 and the Boeing 747 and that Airbus and Boei ng competed for the Emirates sale even though
formal offers may not have been requested or made , provided a sufficient basis for the Panel's finding
of lost sales. Therefore, we uphold the Panel's findi ng, under the first step of its two-step approach,
that Boeing lost the Emirates Airlines sale to Ai rbus and that the lost sale is "significant".
2644 We
examine the European Union's appeal of the Pane l's finding, under the second step of its two-step
approach, that the lost sales were the effect of the subsidies in subsection D.2(b) below.2645
D. Causation
1. Causation – Displacement
1229. We turn next to the European Union's claims of error in relation to the second step of the
Panel's two-step analysis, namely whether the subs idies provided to Airbus caused serious prejudice
to the United States' interest s within the meaning of Articles 5(c) and 6.3 of the SCM Agreement, in
the form of displacement of Boeing LCA and lost sales.
(a) Establishing a "causal link" between the subsidy and the market
situations described in Article 6.3 of the SCM Agreement
1230. We recall that Article 6.3 of the SCM Agreement, provides in relevant part:
6.3 Serious prejudice in the sense of paragraph (c) of Article 5
may arise in any case where one or several of the following apply:
(a) the effect of the subsidy is to displace or impede the imports
of a like product of another Memb er into the market of the
subsidizing Member;
(b) the effect of the subsidy is to displace or impede the exports
of a like product of another Member from a third country market;
(c) the effect of the subsidy is a significant price undercutting by
the subsidized product as compared with the price of a like product of
another Member in the same market or significant price suppression,
price depression or lost sales in the same market{.}

2644Panel Report, para. 7.1845. (footnote omitted)
2645The Panel's findings on lost sales involved in addition purchases by Air Asia, Air Berlin, Czech
Airlines, easyJet, Iberia, Qantas, Singapore Airlines, Sout h African Airways, and Thai Airways International.
The Panel's findings of lost sales in relation to these sales campaigns, under the first step of its two-step
approach, were not appealed.
WT/DS316/AB/R BCI deleted, as indicated [***]

1231. The Appellate Body has found that Article 6.3(c) requires the establishment of a causal link
between the subsidies and the particular market s ituations being claimed under that provision. The
Appellate Body explained:
... Article 6.3(c) does not use the wo rd "cause"; rather, it states that
"the effect of the subsidy is … significant price suppression".
However, the ordinary meaning of the noun "effect" is "{s}omething
… caused or produced; a result, a consequence". The "something" in
this context is significant price suppression, and thus the question is
whether significant price suppression is "caused" by or is a "result" or
"consequence" of the challenged s ubsidy. The Panel's conclusion
that "{t}he text of the treaty re quires the establishment of a causal
link between the subsidy and the significant price suppression" is
thus consistent with this ordinary meaning of the term "effect". This
is also confirmed by the context provided by Article 5(c) of the
SCM Agreement … .
2646 (footnote omitted)
1232. Moreover, the Appellate Body has observed th at to satisfy the causation requirement under
Articles 5(c) and 6.3(c), it must be shown that there is a "genuine and substantial relationship of cause
and effect" between the subsidies and the alleged market phenomenon. 2647 In addition, the Appellate
Body has stated that panels assessing claims under Articles 5(c) and 6.3(c) must ensure that the effects
of other factors are not improperly attributed to the challenged subsidies. 2648 The Appellate Body's
guidance concerning the assessment of causation was provided in the context of a dispute involving
Article 6.3(c) of the SCM Agreement. The language of subparagraphs (a ) and (b) of Article 6.3 of the
SCM Agreement expresses the causation requirement in very similar terms to those used in
subparagraph (c). Under s ubparagraphs (a) and (b), displacement or impedance must be shown to be
"the effect of the subsidy". We see no reason wh y the standard for causation and non-attribution
should be different under subparagra phs (a) and (b) than under subparagr aph (c), and the participants
and third participants have not suggested that a different standard applies.
1233. The Appellate Body has said furthermore th at it may be possible to assess whether the
particular market phenomena are the effect of the subsidies by recourse to a "but for" approach. 2649
Thus, one possible approach to the assessment of ca usation is an inquiry that seeks to identify what
would have occurred "but for" the subsidies. In so me circumstances, a determination that the market

2646Appellate Body Report, US – Upland Cotton, para. 435.
2647Appellate Body Report, US – Upland Cotton , para. 438; Appellate Body Report, US – Upland
Cotton (Article 21.5 – Brazil), para. 374.
2648Appellate Body Report, US – Upland Cotton, para. 437.
2649Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , paras. 374 and 375. The
Appellate Body explained that a "but for" test may be "too undemanding" if the subsidy is "necessary, but not
sufficient, to bring about" a market phenomenon, and "too rigorous if it required the subsidy to be the only
cause." Instead, the "but for" test should determine that there is a "genuine and substantial relationship of cause
and effect". (Ibid., para. 374)
BCI deleted, as indicated [***] WT/DS316/AB/R

phenomena captured by Article 6.3 of the SCM Agreement would not have occurred "but for" the
challenged subsidies will suffice to establish causation. This is because, in some circumstances, the
"but for" analysis will show that the subsidy is both a necessary cause of the market phenomenon and
a substantial cause. It is not required that the "but for" analysis establish that the challenged subsidies
are a sufficient cause of the market phenomenon pr ovided that it shows a genuine and substantial
relationship of cause and effect. However, there are circumstances in which a "but for" approach does
not suffice. For example, where a necessary cau se is too remote and other intervening causes
substantially account for the market phenomenon. This example underscores the importance of
carrying out a proper non-attribution analysis.
2650
1234. At the outset of its causation analysis, the Pane l described the task at hand as a determination
of whether "the particular market phenomena ob served over the period 2001 to 2006 were caused by
the specific subsidies we have found were provided to Airbus." 2651 Then the Panel appears to have
proceeded in its analysis on the basis of a "but for" test as evidenced by its frequent reference to this
test in the Panel Report. 2652 This may have been, in part, a reflection of the United States' argument
that "market distortion and adverse effects flow directly from Airbus' entry at a particular time with a
particular aircraft, which in the United States' view would not have been possible but for the
subsidies."2653 The Panel's extensive reference to a "but fo r" test would suggest that this was the test
that the Panel in fact applied in its analysis. As we noted above, a "but for" test is one possible
approach to the assessment of causation. Neverthe less, in applying a "but for" test, a panel must
ensure that the assessment demonstrates that the subsidies are a "genuine and substantial" cause of the
particular market situation that is alleged. Thus , the Panel in this case should have clearly indicated
that, in applying a "but for" standard, it would seek to establish whether there was a "genuine and
substantial relationship of cause and effect"2654 between the challenged subsidies and the displacement
and lost sales. Furthermore, it should have indicated that, in doing so, it would also ensure that the

2650At the oral hearing, Brazil referred to the situation where there are two concurring necessary causes,
each of which could on its own have caused a particular event. (Brazil's oral stat ement at the oral hearing
(referring to H.L.A Hart and T. Honoré, Causation in the Law (Oxford University Press, 1985))) We note that
the situation described by Brazil is not common, nor has is it been alleged that it is the situation before us in this
appeal.
2651Panel Report, para. 7.1876.
2652See Panel Report, paras. 7.1906, 7.1910, 7.1920, 7.1939, 7.1940, 7.1948, 7.1956, 7.1976, 7.1979,
7.1985, 7.1986, 7.1989, and 7.1993.
2653Panel Report, para. 7.1879. (emphasis added) The Panel observed that "{t}he United States makes
this central argument in a variety of ways throughout its submissions." ( Ibid., footnote 5533 to para. 7.1879
(referring to United States' first written submission to the Panel, paras. 78 and 810; United States' oral statement
at the first Panel meeting, para. 131; and United States' second written submission to the Panel, para. 571))
2654Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 374.
WT/DS316/AB/R BCI deleted, as indicated [***]

effects of other factors were not improperly attributed to the challenged subsidies.
2655 W e r e v i e w
below the Panel's assessment of whether displace ment and lost sales were the effects of the
challenged subsidies. Before doing so, we discuss the issue of the age of a subsidy.
(b) The age of a subsidy
1235. The European Communities argued before the Panel that several of the LA/MSF "subsidies in
this dispute are 'decades old' and cannot, for that reason, be causing present serious prejudice to the
United States' interests."
2656 In a section entitled "The Age of the LA/MSF Subsidies", the Panel
noted that:
{i}t is true that the first grant of LA/MSF, for the A300, was agreed
by the governments of Germany and France in 1969 and by Spain in
1970. However, this was but the first of a series of grants of
LA/MSF provided in respect of each subsequent model of Airbus
LCA. Thus, LA/MSF was provided by those same governments with
respect to the A310 in 1978. The governments of France, Germany,
Spain and the United Kingdom provided LA/MSF with respect to the
A320 in 1984, and with respect to the A330/A340 in 1987. LA/MSF
was again provided by the government of France for the A330-200 in
1995, and by the governments of France and Spain for the
A340-500/600 in 1997. The most recent grant of LA/MSF was in
2000, by the governments of France, Germany, Spain and the United
Kingdom, with respect to the A380.
2657
1236. In previous sections of this Report, we have found that a challenge to subsidies granted prior
to 1 January 1995 is not precluded. We have also found, however, that, in order properly to assess a
claim under Article 5 of the SCM Agreement, a panel must take into account in its ex ante analysis
how a subsidy is expected to materialize over time. A panel is also required to consider whether the
life of a subsidy has ended, for example, by reason of the amortization of the subsidy over the relevant
period or because the subsidy was removed from the r ecipient. Moreover, we have emphasized that
the effects of a subsidy will generally diminish and come to an end with the passage of time.

2655There is another aspect of the Panel's approach th at is difficult to understand. A "but for" test
generally reflects a "unitary" approach to causation, that is, it contemplates the simultaneous assessment of both
the existence of the particular market phenomenon—in this case, displacement or lost sales—and of whether the
market situation is "the effect" of the challenged subsidy. Yet, the Panel clearly indi cated at the outset of its
analysis that it was pursuing a tw o-step approach, in which it would first determine the existence of the
particular market phenomenon before proceeding to exam ine whether the market phenomenon was the effect of
the subsidy.
2656Panel Report, para. 7.1973.
2657Panel Report, para. 7.1973.
BCI deleted, as indicated [***] WT/DS316/AB/R

1237. Regarding the effects of subsidies over time, the Panel found that:
{w}hile the effect of a single subsidy may well dissipate over time, ...,
the fact that the subsidies at issu e in this dispute were repeatedly
granted over the entire history of Airbus' LCA development with
respect to that same product has had rather the opposite effect ,
through the learning and spillover effects, and production synergies
that are inherent in this industry, which spread the ef fect of LA/MSF
for the development of one model of LCA, and of other subsidies, to
both subsequent and earlier models.
2658
1238. We do not agree that it is only the effect of a "single subsidy" that would dissipate over time,
while multiple subsidies may have the "opposite effect ". To the contrary, in general, the effects of
any subsidy can be expected to diminish and eventually come to an end with the passage of time.
This is true for single as well as multiple acts of subsidization. The question of whether there are
residual effects is a fact-specific matter that may have to be considered.
1239. Regarding the effects of particular subsidies, we note that the A300 and A310 were launched
more than 30 years ago, that is, in 1969 and 1978 respectively. 2659 The first delivery of an A300 to a
customer took place in 1974, while the A310 was first delivered to a customer and put in service in
1985.2660 According to the European Union, Ge rman LA/MSF for these LCA models was fully
disbursed by the end of 1988 2661; LA/MSF provided by France was disbursed by 1986 2662; and
Spanish LA/MSF for the A300 and A310 was fully provided to CASA by the end of 1992.2663
1240. In its additional memorandum following the firs t session of the substantive oral hearing, the
European Union argued that, taking into account th e marketing life of LCA—which according to the
European Union is 17 years from the launch of th e aircraft, and "less for derivatives such as the
A310"—and applying amortization rules, no "continuing benefits" existed after 1 January 1995 for the
A300 and the A310.2664 In response, the United States recognized that "allocation is one tool that may

2658Panel Report, para. 7.1976.
2659Panel Report, paras. 7.1933 and 7.1935.
2660Panel Report, footnote 5146 to para. 7.1704.
2661European Union's appellant's submission, para. 62 (referring to Sondergutachten 18 der
Monopolkommission, Zusammenschlu βvorhaben der Daimler-Benz AG m it der Messerschmitt-Bölkow-Blohm
GmbH ("Special Opinion 18 of the Monopoly Comm ission, Merger Project of Daimler-Benz AG and
Messerschmitt-Bölkow-Blohm GmbH") (Panel Exhibit US-30), p. 71, table 11).
2662European Union's appellant's submission, para. 63 (referring to Rapport d'information 367
(1996/1997) du Sénat ("Senate Report 367 (1996/1997)") (Panel Exhibit US-18), p. 67).
Desarrollo Tecnológico Industrial) ("Centre for Industrial Technological Development") (prepared by the State
Secretariat of Industry, Ministry of Science and Technology), Report of July 1993, Section 8: Airbus (Panel
Exhibit US-54), p. 91, table entry "fondos recibidos del Estado" for the A300 and A310).
2664European Union's additional memorandum following the first session of the oral hearing, para. 10.
WT/DS316/AB/R BCI deleted, as indicated [***]

be used" but emphasized that allocation was not required to "analyze the benefit of a subsidy."
2665
The United States further noted that "it was not part of the U.S. demonstration of the existence of the
subsidies or the adverse effects they caused , or of the Panel's findings on these issues." 2666 T h e
United States added that the European Union "has d one nothing to show that allocation was required
in this dispute" and "had not demonstrated that a 17-year period, rather than the period during which
any financing is outstanding, was appropriate."2667
1241. The United States recognizes "allocation is one tool that may be used" in analyzing
benefit.2668 Although we neither endorse nor reject the specific amortization methodology proposed
by the European Union in this case, we see no reason to disagree with the notion that allocation of a
subsidy over the anticipated marketing life of an aircraft programme may be one way to assess the
duration of a subsidy over time. 2669 As a matter of logic, it thus follows that LA/MSF for the A300
and A310 are likely to cause minimal, if any, adverse effects during the reference period 2001-2006.
(c) The Panel's assessment of causation
1242. In order properly to assess the European Union's appeal, we find it helpful to lay out first the
key aspects of the Panel's analysis.
1243. The United States advanced two theories of cau sation, referred to by the Panel as the
"product" and "pricing" theories of causation. We are concerned in this appeal only with the
"product" theory of causation. 2670 Under this theory, the United States argued that the subsidies had
an impact on "Airbus' ability to launch and bring to the market models of LCA that the United States
submits would not otherwise have been possible at the time and in the way that it did without the
support of those subsidies".
2671 The Panel explained:

2665United States' comments on the European Union's additional memorandum following the first
session of the oral hearing, para. 6.
2666United States' comments on the European Union's additional memorandum following the first
session of the oral hearing, para. 6.
2667United States' comments on the European Union's additional memorandum following the first
session of the oral hearing, para. 6.
2668United States' comments on the European Union's additional memorandum following the first
session of the oral hearing, para. 6.
2669We further note in this regard that the 1992 Ag reement refers to a "reasonable expectation of
recoupment" of support for the development of a new LCA programme "within 17 years from the date of first
disbursement of such support, of all costs ..., includin g repayment of government su pports". (Article 4 of the
1992 Agreement (emphasis added))
2670The Panel rejected the United States' "pricing" theo ry of causation. (Panel Report, paras. 7.2010
and 7.2024) The United States has not appealed this aspect of the Panel's analysis.
2671Panel Report, para. 7.1877.
BCI deleted, as indicated [***] WT/DS316/AB/R

The United States does not consider that its arguments depend on
finding that, in the absence of LA/MSF, Airbus would not exist.
Rather, the United States argues th at in the absence of LA/MSF
Airbus would not have been in a position to develop the aircraft it did
when it did. For the United States, market distortion and adverse
effects flow directly from Airbus' entry at a particular time with a
particular aircraft, which in the United States' view would not have
been possible but for the subsidies.
2672
1244. The Panel further explained that the Unite d States relied on two types of evidence. 2673 First,
the United States relied on a series of public statements and one state aid decision of the
European Commission allegedly revealing the views held by various officials from Airbus and other
relevant public bodies on the impact of LA/MSF on the ability of Airbus to launch LCA.
2674 Second,
the United States submitted a report prepared by Dr. Gary Dorman, which purportedly demonstrated
the impact of LA/MSF-type measures on the decision to launch an LCA.2675
1245. Dr. Dorman's report was the first item examined by the Panel. The report "simulates cash-
flows generated by a hypothetical wide-body ai rplane programme under a variety of LA/MSF
contribution, price, produ ction and cost scenarios." 2676 Six different LA/MSF programmes were
modelled after actual LA/MSF packages, and each of the six programmes was examined under three
different repayment schedules. 2677 The impact of LA/MSF was assessed by calculating a base case
scenario in which the NPV of the programme was cal culated without LA/MSF. The Panel noted that
the Dorman Report showed "positive returns in the base case (i.e., a NPV of USD 1.35 billion)." 2678
Yet, the Panel went on to observe that "relatively small variations to the forecasts give rise to
uneconomic results". 2679 For the Panel, given the long-term na ture of an aircraft programme, such
variations in forecast parameters constituted "realistic scenarios" 2680 that a manufacturer would have
to consider when making a launch decision. Th e Panel noted that the "Dorman Report does not
explicitly conclude that each Airbus LCA model, or indeed any par ticular Airbus LCA model, would

2672Panel Report, para. 7.1879 (referring to United States' first written submission to the Panel,
paras. 78 and 810; United States' oral statement at the first Panel meeting, para. 131; and United States' second
written submission to the Panel, para. 571).
2673Panel Report, para. 7.1880.
2674Panel Report, para. 7.1880.
2675Dorman Report, supra, footnote 1042.
2676Panel Report, para. 7.1882.
2677Panel Report, para. 7.1882. The three scenarios are: (i) level repayment (equal per-aircraft
payments set on the basis of forecast deliveries); (ii) graduated repaymen t (increasing per-aircraft payment);
and (iii) delayed level repayment (equal per-aircraft payments starting with the 60th airplane delivery). ( Ibid.,
footnote 5536 to para. 7.1882 (referring to Dorman Report, supra, footnote 1042, p. 5))
2678Panel Report, para. 7.1883.
2679Panel Report, para. 7.1883.
2680Panel Report, para. 7.1887.
WT/DS316/AB/R BCI deleted, as indicated [***]

not have been launched in the absence of LA/MSF." Nevertheless, it considered this "to be a clear
implication of the conclusion it advances on the basis of the results it predicts."
2681
1246. The European Communities submitted a critique of the Dorman Report prepared by Dr. Paul
Wachtel (the "Wachtel Report")2682, which challenged the results of the Dorman Report simulation on
the following three grounds. First, Dr. Wachtel criticized the Dorman Report because it was premised
on Boeing retaining monopoly profits and market share in the absence of LA/MSF. Dr. Wachtel
argued, instead, that the LCA market was a "natural duopoly". 2683 Second, Dr. Wachtel questioned
some of the parameters used in the Dorman Report simulation, and assumptions of costs and
demand.
2684 Dr. Wachtel also questioned the specific parameter values and Dr. Dorman's NPVs
resulting from small variations of forecast paramete rs. Third, Dr. Wachtel criticized the Dorman
Report simulation for failing to take account of the effective size of the subsidy (the interest rate
differential) and the impact of the repayment structure of LA/MSF.2685
1247. The Panel disagreed with Dr. Wachtel's conten tion that the Dorman Report was premised on
the view that Boeing would hold a monopoly positi on in the absence of a competitor subsidized
through LA/MSF.2686 The Panel referred to the Dorman Report's conclusion that LA/MSF "allows the
recipient to undertake airplane development project s at a pace and scale that would be much more
difficult—perhaps impossible—for a competitor that does not have access to launch aid." 2687 The
Panel explained that "{w}hile a Boeing monopoly may be one way of understanding what the
Dorman Report states about the implications of LA/MSF on the operations of the incumbent LCA
manufacturer, it is also possible to understand those im plications in the context of a world where the
incumbent manufacturer would face competition from another player; a weaker entrant that entered
without the assistance of LA/MSF."
2688 Additionally, the Panel stated that "the real significance for us
of the simulation presented in the Dorman Report is not so much what it says about the impact of
LA/MSF on the operations of the incumbent manufacture r, but rather what it tells us about whether a
potential new entrant, or an existing manufacturer, will decide to launch a new model of LCA."2689

2681Panel Report, para. 7.1887.
2682P. Wachtel, "Critique of 'The Effect of Launch Aid on the Economics of Commercial Airplane
Programs' by Dr. Gary J. Dorman" (31 January 2007) (Panel Exhibit EC-12) and clarification (20 May 2007)
(Panel Exhibit EC-659).
2683Panel Report, para. 7.1894.
2684Panel Report, para. 7.1888.
2685Panel Report, para. 7.1899.
2686Panel Report, para. 7.1893.
2687Panel Report, para. 7.1893 (referring to Dorman Report, supra, footnote 1042).
2688Panel Report, para. 7.1893.
2689Panel Report, para. 7.1893.
BCI deleted, as indicated [***] WT/DS316/AB/R

1248. Next, the Panel addressed Dr. Wachtel's second criticism, namely, that the Dorman Report
derived "its conclusions about the effects of LA /MSF from sensitivity tests performed on a simulation
that is constructed with unrealistic paramete r values and assumptions of costs and demand".
2690 The
Panel rejected this criticism and instead agreed with the United States that the simulation in the
Dorman Report demonstrated that LA/MSF will ha ve a significant impact on the NPV of any given
aircraft project, irrespective of the specific parame ters used to model costs and income streams, by
increasing potential profits and limiting potential losses.2691 The Panel noted that by limiting potential
losses, LA/MSF transfers risk from Airbus to the governments supplying LA/MSF, thereby rendering
it more likely, in any given case, that an LCA programme will be undertaken.
2692
1249. The Panel then turned to Dr. Wachtel's third criticism, which concerned the Dorman Report's
alleged failure "to take into account the full econom ic implications of the structure of LA/MSF
repayments."2693 The Panel was not persuaded by Dr. W achtel's argument that LA/MSF repayments
will tend to increase the price at which Airbus sells its LCA because the repayments are tied to LCA
deliveries. The Panel observed, in this regard, that Dr. Wachtel did not consider that this alleged price
effect would be certain to result from LA/MSF's sales-dependent repayment terms.2694 The Panel also
rejected Dr. Wachtel's allegation that the Dorman Report simulation does not take into account the
amount of the subsidy associated with LA/MSF, as opposed to the principal amount actually
loaned.
2695 The Panel found that the simulation in the Do rman Report did, in effect, take into account
the amount of subsidization, as defined by the European Communities, but, unlike the
European Communities, used a 10% discount rate.
2696 The Panel further found that this discount rate
was within the range of market interest rates that it had concluded would be appropriate benchmarks
for the relevant LA/MSF contracts.2697

2690Panel Report, para. 7.1888 (referring to Wachtel Report and clarification, supra, footnote 2682).
2691Panel Report, para. 7.1898.
2692Panel Report, para. 7.1898.
2693Panel Report, para. 7.1888 (referring to Wachtel Report and clarification, supra, footnote 2682).
2694Panel Report, para. 7.1901.
2695Panel Report, para. 7.1902.
2696Panel Report, para. 7.1904.
2697Panel Report, para. 7.1905. The Panel noted that the 10% discount rate used in the Dorman Report
was below the market interest rates determined for the A320 package.
WT/DS316/AB/R BCI deleted, as indicated [***]

1250. Having reviewed Dr. Wachtel's criticisms of the Dorman Report, the Panel concluded:
All else being equal, we consider that the provision of LA/MSF,
which makes a project more profitable if successful and limits
downside risk if unsuccessful, makes it more likely that any given
aircraft will be launched. This does not, however, conclusively
establish that, but for the grant of LA/MSF, any particular Airbus
model would not have been launched when it actually was.
2698
1251. The Panel then noted that the United States' acceptance that Boeing would face competition
from at least some other entity in the absence of LA/MSF, and reasoned from this that:
If the United States concedes that Boeing would, in the absence of
LA/MSF, face some competition it must, presumably, concede that at
least some competing planes would have been launched (by Airbus
or some other entity) over the peri od since Airbus launched its first
LCA. The Dorman simulation does not provide a basis for assessing
the circumstances of any competitiv e launches in the absence of
LA/MSF. Insofar as its results suggest that there would be no entry,
and insofar as it does not distinguish between the type of entry which
is modelled and other forms of en try which might otherwise occur,
we consider that it is not possible to conclude on the basis of the
Dorman Report alone that, but for LA/MSF, any particular Airbus
aircraft model would not have been launched.
2699
1252. The Panel cautioned that this did not mean that "{it did} not consider that the Dorman Report
supports the United States' argument regardin g the impact of LA/MSF on Airbus' launch
decisions."2700 It then summarized the elem ents of the United States' ca se that were supported by the
Dorman Report:
{T}he Dorman Report does in our view demonstrate that LA/MSF
will have a significant impact on the NPV of any particular project,
and that irrespective of the specific parameters used to model costs
and income streams, LA/MSF will increase potential profits and act
to limit potential downside losses. It also demonstrates that in some
circumstances, the availability of LA/MSF makes the difference
between a positive or negative NPV, or alters the risk profile of a
project sufficiently to make an affirmative decision to launch a
particular aircraft more likely.
2701 (original boldface)
1253. Before completing its assessment of the Dorman Report, the Panel referred to "a putative
'Boeing 787 business case'" submitted by the Europ ean Communities and which showed a NPV and
IRR higher that those the European Communiti es asserted were generated by the Dorman

2698Panel Report, para. 7.1906.
2699Panel Report, para. 7.1910.
2700Panel Report, para. 7.1911.
2701Panel Report, para. 7.1911.
BCI deleted, as indicated [***] WT/DS316/AB/R

simulation.
2702 The Panel did not consider "that the results of an ex post facto business case for a
Boeing LCA constructed on the basis of public in formation for purposes of this dispute has any
relevance to our assessment of the effect of LA/MSF subsidies on Airbus". 2703 It explained that, even
assuming the correctness of the exercise, which the Panel considered to be "unclear", it did not see
how the conclusion that the NPV and IRR of this Boeing 787 business case are higher than those of
the Dorman Report simulation informed its assessment of the effect of LA/MSF on Airbus.
2704
1254. The Panel concluded:
Thus, we conclude that the Dorman Report demonstrates that the
provision of LA/MSF is likely to change the behaviour of the
recipient with respect to a decision to launch a LCA by increasing the
likelihood of an affirmative decision to go forward with the
launch.
2705
1255. Having completed its assessment of the Dorman Report, the Panel turned to other evidence
adduced by the United States. The Panel engaged in a detailed analysis of the business cases of
various Airbus LCA projects and the public statements relied upon by the United States.2706 Recalling
its earlier analysis of the Dorman Report, and rely ing also on certain public statements and its own
understanding of the history and risks associated w ith development of LCA in general, and of the
A300 in particular, the Panel said it was satisfied that "LA/MSF was necessary for Airbus to have
launched the A300 as originally designed and at the time that it did." 2707 As regards the A310, the
Panel considered that the Dorman Report simila rly provided persuasive support for the conclusion
that had Airbus not obtained LA/MSF for the A310 , it "would not have been able to launch it as
originally designed and at the time that it did." 2708 In respect of the A320, the Panel noted that "it
would have been extremely difficult, if not impossible, to launch the A320 in 1984 as originally
designed, without access to LA/MSF" and thus that LA/MSF was necessary for the launch of the
A320 "at the time it did and as originally designed."
2709 Similarly, the Panel found that Airbus could

2702Panel Report, para. 7.1912 and footnote 5587 thereto (referring to International Trade Resources,
787 Business Case (Panel Exhibit EC-662 (HSBI))). The Panel noted that the Dorman Report does not in fact
calculate an IRR for its hypothetical launch programme and that the estimate of 11.92% referred to by the
European Communities as generated by the Dorman Report simulation was actually inferred by Mr. Carballo, as
described in the "Carballo Declaration" (Panel Exhibit EC-665 (HSBI))). The Carballo Declaration is a written
statement by Francisco-Javier Riaza-Carballo, dated 25 May 2007. At the time he made the statement,
Mr. Carballo was Vice-President at Airbus SAS. He had formerly been with the A380 Programme Directorate.
2703Panel Report, para. 7.1912.
2704Panel Report, para. 7.1912.
2705Panel Report, para. 7.1912.
2706See Panel Report, paras. 7.1913-7.1949.
2707Panel Report, para. 7.1934.
2708Panel Report, para. 7.1936.
2709Panel Report, para. 7.1938. (footnote omitted)
WT/DS316/AB/R BCI deleted, as indicated [***]

not have launched the A330/A340 project in 1987 as originally designed without access to LA/MSF,
and concluded that LA/MSF was necessary for the la unch of the A330/A340 "at the time when it did
and as originally designed."
2710 With respect to the A330-200, the Panel observed that, "while the
particular grant of LA/MSF specific to the A330-20 0 may not have been necessary to its launch", it
concluded that on the whole LA/MSF was necessar y to the launch of the A330-200 because "without
the grant of LA/MSF for the development of the original model (and all models preceding that
model), the A330-200 could not have been la unched when it was without significantly higher
costs."2711 The Panel further considered that LA/MSF w as "essential to the development of the A340-
500/600" because it was derived from the A340, whose launch it had found depended upon the
provision of LA/MSF.2712
1256. As regards the A380, the Panel noted that the Airbus A380 business case "clearly
demonstrates that LA/MSF has a significant imp act on the economics of the programme", but also
recognized that the "A380 business case predicts a positive NPV for the programme even assuming
no LA/MSF is provided, as well as a positive NPV in circumstances where a Realistic Worst Case
scenario is contemplated in situations where the project is supported by LA/MSF."
2713 Ultimately, the
Panel concluded that the A380 business case "sugg ests, but by no means demonstrates, that as a
stand-alone proposition the project might have b een economically viable even without LA/MSF". 2714
The Panel went on, however, to point out that "Air bus' technical capabilities derived in part from its
experience in the development of its earlier model LCA funded in significant part by LA/MSF." 2715 It
added that, in the light of the "significant amount of debt that developing its previous models of LCA
would have generated", it considered that "Airbus would not have been in a position to obtain market
financing for the A380, had it not financed the development of its earlier model LCA in significant
part through LA/MSF."
2716 Therefore, the Panel found that "either directly or indirectly, LA/MSF was
a necessary precondition for Airbus' launch in 2000 of the A380."2717

2710Panel Report, paras. 7.1938 and 7.1939.
2711Panel Report, para. 7.1940.
2712Panel Report, para. 7.1941.
2713Panel Report, para. 7.1943.
2714Panel Report, para. 7.1948.
2715Panel Report, para. 7.1948.
2716Panel Report, para. 7.1948.
2717Panel Report, para. 7.1948.
BCI deleted, as indicated [***] WT/DS316/AB/R

1257. The Panel concluded:
In summary, we conclude that the United States has demonstrated
that LA/MSF shifts a significant portion of the risk of launching an
aircraft from the manufacturer to the governments supplying the
funding, which we recall is on non-commercial terms. Based on our
review of the development of successive models of Airbus LCA, we
conclude that Airbus' ability to launch, develop, and introduce to the
market, each of its LCA models was dependent on subsidized
LA/MSF.
2718
1258. Next, the Panel turned to the effect of the ot her subsidies challenged by the United States.
We discuss this issue in subsection 3 below. The Panel then discussed certain additional
considerations raised by the European Communities, such as the magnitude of the subsidies, the age
of the LA/MSF, and competition in the LCA industry in the absence of subsidies. 2719 The Panel's
conclusions concerning competition in the LCA indust ry in the absence of subsidies are particularly
relevant to the issues raised by the European Uni on's appeal and we consider it useful to reproduce
them in full:
Thus, our evaluation of the argumen ts and evidence the parties have
submitted leads us to conclude that there are multiple possibilities for
the LCA industry in the counterfactual world that would exist in the
absence of subsidies to Airbus. In one scenario, Airbus would not
have entered the LCA market at all and Boeing would be in a
monopoly position, holding 100 percent of the market. In this
scenario, the link between the subsidi es that enabled Airbus to enter
the LCA market and Boeing's loss of market share and sales is self-
evident. Any market displacement and lost sales actually suffered by
Boeing would be directly attributable to the subsidies granted to
Airbus, which enabled it to launch and develop its own family of
LCA. In a second plausible scenario, Airbus would not have entered
the market, but there would nevert heless have been two players,
which on the basis of the evidence before us, would most likely have
been Boeing and McDonnell Douglas, the latter having merged with
Boeing in 1997.{*} As both Boeing and McDonnell Douglas are (or
were) US LCA manufacturers, there would once again be no question
about the nexus between the subs idies which enabled the non-US
company, Airbus to enter the LCA market and serious prejudice to
the United States' interests (displacement of Boeing and/or
McDonnell Douglas LCA from the LCA markets and lost sales).
Finally, in a third and a fourth scenario, Airbus might have entered
the LCA market without subsidies, either in competition with Boeing
alone, or in competition with a United States' industry comprising
Boeing and another US producer. In either case, Airbus could not
conceivably have been present in the LCA market with the same
aircraft and at the same times as it actually was, given our

2718Panel Report, para. 7.1949.
2719See Panel Report, paras. 7.1962-7.1984.
WT/DS316/AB/R BCI deleted, as indicated [***]

conclusions concerning the cumulative effect of LA/MSF and the
other subsidies in dispute on Air bus' ability to launch successive
models of LCA as and when it did. In our view, it is simply not
feasible that, without LA/MSF and the other subsidies, relying
entirely on non-subsidized financing, Airbus could have undertaken
the pace of aircraft development th at would have enabled it to launch
the range of LCA that it has successfully launched to date, which has
resulted in its present position in the ma rket for LCA. It follows that
even in the unlikely even t that Airbus would have been able to enter
the LCA market as a non-subsidized competitor, we are confident
that it would not have achieved the market presence it did over the
period 2001 to 2006 and that we ha ve described in the previous
sections of this Report.
2720 (footnote omitted)
{*original footnote 5754} We note in this regard the United States' assertion
that competition from Airbus was a factor in McDonnell Douglas' exit from
the LCA industry. {United States' oral statement at the first Panel meeting
(BCI)}, para. 68. In addition, we note that Lockheed, the other competitor
in the market at an earlier date, had already exited the ma rket in 1981, and
neither party has suggested that any other pre-existing entity was or would
have been in a position to enter the LCA industry, or that any entity other
than Boeing sought to purchase McDonnell Douglas.
1259. Finally, the Panel addressed certain "non-attri bution" factors that had been raised by the
European Communities, including alleged misman agement of customer relations by Boeing,
geopolitical considerations, and the role of engine manufacturers in the sales campaigns. 2721 T h e
Panel's discussion here is also particularly relevant, and thus we reproduce the relevant parts below:
We noted that there are numerous factors involved in a customer's
decision as to which LCA to purchase. However, one factor which is
essential is the availability of a particular model or models of LCA
suitable for a particular customer's needs at the time of the sale. We
have concluded that, but for LA/MSF and the other subsidies in
dispute, Airbus would not have b een able to launch the particular
LCA it did at the time it did. Thus, the presence of these subsidized
LCA in the market is a fundamental cause of the lost sales observed.
But for the subsidies, Airbus would not have been competing for
these sales with the LCA it actually sold.{*} Similarly, Airbus'
market share is directly attributable to its ability to sell and deliver to
the European Communities and relevant third country markets, LCA
which it would not have had availa ble but for the subsidies which
supported the launch of every model of Airbus LCA.
2722
{*original footnote 5758} Whether it might have been competing at all for
those sales, for instance with a different LCA developed without subsidies,
is questionable, as the lost sales all involved aircraft we have concluded
would not have been developed by Airbus at the relevant times had earlier
models not benefited from subsidies.

2720Panel Report, para. 7.1984.
2721Panel Report, para. 7.1985.
2722Panel Report, para. 7.1985.
BCI deleted, as indicated [***] WT/DS316/AB/R

1260. The Panel brought its examination of the United States' "product" theory of causation to a
close as follows:
It is in our view clear that Airbus would have been unable to bring to
the market the LCA that it launched but for the specific subsidies it
received from the European Communities and the governments of
France, Germany, Spain and the United Kingdom. We reiterate that
we do not conclude that Airbus n ecessarily would not exist at all but
for the subsidies, but merely that it would, at a minimum, not have
been able to launch and develop the LCA models it has actually
succeeded in bringing to the ma rket. Had Airbus successfully
entered the LCA industry without subsidies, it would be a much
different, and we believe, a much weaker LCA manufacturer during
the period we examined, with at b est a more limited offering of LCA
models. Thus, under either scenario , Airbus would not have had the
market presence and ability to win orders for LCA that it did have
during the period 2001-2006, and the United States' LCA industry, at
a minimum, would not have lost sales to Airbus and would have had
a larger market share in the EC 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' LCA from
the EC and certain third country markets and lost sales we have
found during the period 2001-2006 are an effect of the specific
subsidies to Airbus that we have found.
2723
1261. Thus, the Panel contemplated four distinct scen arios as to what the LCA industry would have
looked like in the absence of the challenged subsidie s. In scenarios 1 and 2, Airbus would not have
entered the market without subsidies, and Boei ng would have been a monopolist (scenario 1) or
would have competed with another US LCA manufac turer (scenario 2). However, the Panel did not
rule out entry into the market by a non-subsidized Airbus, either in competition only with Boeing
(scenario 3) or with Boeing and another US LCA ma nufacturer (scenario 4). Yet, in order to fully
understand the Panel's assessment, it is important to recognize that the Panel ascribed different
probabilities to these scenarios. The Panel descr ibed the first two scenarios as "plausible".
2724 By
contrast, the Panel described the third and fourth scenarios as being "unlikely". 2725 The Panel further
explained that, in the unlikely event that Airbus w ould have entered the market without subsidies, it
would have been a significantly different LCA manuf acturer. According to the Panel, "Airbus could
not conceivably have been present in the LCA market with the same aircraft and at the same times as

2723Panel Report, para. 7.1993.
2724Panel Report, para. 7.1984. The Panel used the term "plausible" when setting out the second
scenario. However, we understand the Panel's reference to "a second plausible scen ario" as connoting that the
Panel also considered the first scenario to be plausible.
2725Panel Report, para. 7.1984.
WT/DS316/AB/R BCI deleted, as indicated [***]

it actually was, given {its earlier} conclusions c oncerning the cumulative effect of LA/MSF and the
other subsidies in dispute on Ai rbus' ability to launch successive models of LCA as and when it
did."
2726 The Panel added that "it {was} simply not feasible that, without LA/MSF and the other
subsidies, relying entirely on non-subsidized financ ing, Airbus could have undertaken the pace of
aircraft development that would have enabled it to launch the range of LCA that it has successfully
launched to date, which has resulted in its present position in the market for LCA".2727
1262. The European Union emphasizes that the Pa nel's "focus" was on the third and fourth
counterfactual scenarios in which a non-subsidized Ai rbus would have entered the market, albeit later
and with different LCA. 2728 In support, the European Union re fers to the Panel's statement that
"{w}hether it might have been competing at all for those sales, for instance with a different LCA
developed without subsidies, is questionable, as the lost sales all involved aircraft we have concluded
would not have been developed by Airbus at the relevant times had earlier models not benefited from
subsidies".2729 According to the European Union, the Pa nel "did not resolve the issue it considered
'questionable'", and thus "left open whether, in th e four single-aisle sales campaigns at issue, a non-
subsidised Airbus could have offered 'di fferent LCA developed without subsidies'." 2730 A s t h e
European Union sees it, the result of this is that the Panel was required to "complete the
counterfactual"2731 by conducing "a comparison of (i) Airbus' actual sales at issue in the 2001-2006
reference period with (ii) a non-subsidised Airbus ' ability to secure these sales in a counterfactual
scenario".2732 The European Union appeals the Panel's fa ilure to conduct this assessment and, more
particularly, its failure to respond to the following five questions: (i) what particular aircraft a
non-subsidized Airbus would have launched; (ii) wh at would have been their level of technology;
(iii) what would have been the prices at which Airbus could have offered those aircraft; (iv) whether
there would have been any commonality advantage or disadvantage; and (v) whether there were any
non-attribution factors that would have prevented Boeing from securing some of the sales.2733
1263. An initial point to make about the European Un ion's appeal of the alleged non-completion of
the counterfactual is that it is premised exclusively on scenarios 3 and 4, on which the
European Union claims the Panel "focused". We do not agree that this is a proper characterization of
the Panel's findings. In fact, the Panel found that scenarios 3 and 4, in which Airbus would have

2726Panel Report, para. 7.1984.
2727Panel Report, para. 7.1984.
2728European Union's appellant's submission, para. 453.
2729Panel Report, footnote 5758 to para. 7.1985.
2730European Union's appellant's submission, para. 455.
2731European Union's appellant's submission, para. 489.
2732European Union's appellant's submission, para. 453.
2733European Union's appellant's submission, para. 489.
BCI deleted, as indicated [***] WT/DS316/AB/R

entered the market without subsidies, were "unlikely" . Therefore, if one were to describe the Panel as
having "focused" on particular scenarios, it would have to be scenarios 1 and 2—scenarios the Panel
considered "plausible"—in which Airbus would no t have entered the market without subsidies.
Moreover, the issue is not one of "focus", but rather one of assigning probabilities to particular
scenarios.
1264. Under scenarios 1 and 2, there was no need for the Panel to proceed further in its
counterfactual analysis. Without the subsidies, Ai rbus would not have existed under these scenarios
and there would be no Airbus aircraft on the market . None of the sales that the subsidized Airbus
made would have occurred. As Boeing (or the othe r US manufacturer envisaged by the Panel) would
be the only supplier(s) of LCA, it (or they) would ha ve made the sales instead. Thus, the conclusion
under scenarios 1 and 2 satisfies, without more, the "g enuine and substantial relationship" standard
articulated by the Appellate Body in US – Upland Cotton. This chain of reasoning establishes that the
subsidies are a sufficient cause of the lost sales a nd the displacement. The additional questions that
the European Union asserts the Panel should have considered would be moot. It would be pointless to
attempt delineating the features of something that w ould not have existed without the subsidies. It
would be unnecessary to consider: (i) what particular aircraft Airbus would have launched; (ii) their
level of technology; (iii) prices; (iv) any co mmonality advantage or disadvantage; or (v) any
non-attribution factors.
1265. As regards the non-attribution factors in particular, we note that the effects of other factors
can be assessed as part of a properly designed coun terfactual that adjusts for the subsidies while
maintaining everything else equal. This was recognized by the Appellate Body in US – Upland
Cotton (Article 21.5 – Brazil) .
2734 Moreover, we agree with the Panel that in the particular
circumstances of this case the need to fully examine the particular non-attribution factors raised by the
European Communities depended on whether a non-subs idized Airbus would have had any aircraft
available to sell at the time the relevant sales were made. 2735 If Airbus had not existed without the
subsidies, the airlines involved in the relevant sales campaigns would have had a limited choice:
purchase aircraft from Boeing or possibly from the ot her US manufacturer envisaged in the Panel's
counterfactual scenario 2. We have difficulty unde rstanding how the non-attribution factors raised by
the European Communities could have led an airl ine in those circumstances not to purchase the
desired aircraft from Boeing or the other US ma nufacturer. For example, the European Union

2734Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 375.
2735Panel Report, para. 7.1985: "We noted that ther e are numerous factors invo lved in a customer's
decision as to which LCA to purchase. However, one factor which is essential is the availability of a particular
model or models of LCA suitable for a particular customer's needs at the time of the sale."
WT/DS316/AB/R BCI deleted, as indicated [***]

underscores that Boeing had mishandled its rela tionships with some customers and that one
government may have been unhappy with Boeing over a joint venture.
2736 However, the fact remains
that, in the absence of Airbus, these airlines would have had no choice but to purchase aircraft from
Boeing or the other US manufacturer. Thus, these non- attribution factors would not be relevant under
scenarios 1 and 2 referred to above (under which a non-subsidized Airbus would not have entered the
market). The European Communities also men tioned "the severe downturn in the market in
2001-2003" following the events of the 11 September 2001 attacks on the World Trade Center
("9/11"), and exacerbated by the start of the wa r in Iraq and the outbreak of SARS in Asia. 2737
Because Airbus LCA would not have been available in the absence of subsidies, those airlines that
purchased LCA during the "downturn" could only ha ve purchased them from Boeing or the other US
manufacturer under scenarios 1 and 2.
1266. In its appellant's submission, the European Union accepts that, "had there been a basis to find
that a non-subsidised Airbus would not exis t, and could not have launched any LCA, quod non, then
the Panel would have been correct to find that the specific sales at issue were lost by Boeing due to
the subsidies."2738 The fact is that the Panel found that scenarios 1 and 2, in which Airbus would not
have entered the market, were the most likely scenar ios in the absence of the challenged subsidies.
We cannot ignore this. On the contrary, in our vi ew, the Panel's findings that scenarios 1 and 2 were
plausible, whereas scenarios 3 and 4 were unlikely, are important considera tions in determining the
extent to which the Panel was required to further pursue the counterfactual analysis.
1267. Having said that, we agree with the European Union that the Panel could have provided a
fuller analysis under scenarios 3 and 4. In particular , the Panel could have more fully explored how a
non-subsidized Airbus would have developed during the more than 35 years that elapsed between
1969, when Airbus launched the A300 , and the end of the reference period. Nonetheless, looking at
the Panel's analysis as a whole, we understand the Panel to have concluded that, under scenarios 3
and 4, a non-subsidized Airbus would have been si gnificantly retarded in its efforts to develop LCA
that were capable of competing in the market and that it would not have been able to overcome this
competitive disadvantage by the end of the reference period.
1268. We recall that the Panel found, in this regard, that "Airbus could not conceivably have been
present in the LCA market with the same aircraft and at the same times as it actually was, given {its
earlier} conclusions concerning the cumulative effect of LA/MSF and the other subsidies in dispute

2736European Union's appellant's submission, paras. 493-496.
2737Panel Report, para. 7.1987.
2738European Union's appellant's submission, para. 488.
BCI deleted, as indicated [***] WT/DS316/AB/R

on Airbus' ability to launch successive models of LCA as and when it did."
2739 For the Panel, "it
{was} simply not feasible that, without LA/MSF and the other subsidies, relying entirely on non-
subsidized financing, Airbus coul d have undertaken the pace of aircraft development that would have
enabled it to launch the range of LCA that it has su ccessfully launched to date, which has resulted in
its present position in the market for LCA". 2740 The Panel concluded that "even in the unlikely event
that Airbus would have been able to enter the LCA market as a non-subsidized competitor, we are
confident that it would not have achieved the market presence it did over the period 2001 to 2006 and
that we have described in the previous sections of this Report." 2741 The Panel reiterated later in its
analysis that it did "not conclude that Airbus necessa rily would not exist at all but for the subsidies,
but merely that it would, at a minimum, not have been able to launch and de velop the LCA models it
has actually succeeded in br inging to the market." 2742 At this point, the Panel again referred to the
market presence of a non-subsidized Airbus during th e reference period. The Panel stated that, "at a
minimum", a non-subsidized Airbus "would not ha ve been able to launch and develop the LCA
models it has actually succeeded in bringing to the market" and that Airbus "would be a much
different, and we believe, a much weaker LCA manufacturer during the period we examined , with at
best a more limited offering of LCA models."
2743
1269. The Panel's findings that, duri ng the reference period, a non-s ubsidized Airbus would be a
"much weaker LCA manufacturer" and would have had "at best a more limited offering of LCA
models" are consistent with the Pa nel's findings concerning the considerable barriers to entry into the
LCA industry. 2744 The Panel found that entry into the LCA industry "requires huge up-front
investments".2745 It further observed that "{e}conomies of scale arising from the huge sunk
development cost give incumbent firms a considerable competitive advantage." 2746 The incumbents'
advantage is reinforced by learning effects, which induce dynamic economies of scale. 2747 Moreover,

2739Panel Report, para. 7.1984.
2740Panel Report, para. 7.1984.
2741Panel Report, para. 7.1984. (emphasis added; footnote omitted)
2742Panel Report, para. 7.1993.
2743Panel Report, para. 7.1993. (emphasis added)
2744The Panel noted that its findings on the conditions of competition of the LCA industry "establish the
background and context for {its} analysis of whether the subsidies {it had} found to exist cause{d}, or
threaten{ed} to cause, adverse effect s within the meaning of Articles 5( a) and (c) of the SCM Agreement."
(Panel Report, para. 7.1716)
2745Panel Report, para. 7.1717. The Panel discussed the following additional barriers to entry:
switching costs; airlines' preference for fleet commonality; the incentive for incumbent firms to adopt entry
deterring price strategies; the fact that few airplane pr ogrammes have been financial successes; and the costs of
exchange rate fluctuations to whic h non-United States manufacturers are ex posed because aircraft are typically
sold in United States dollars.
2746Panel Report, para. 7.1717.
2747Panel Report, para. 7.1717.
WT/DS316/AB/R BCI deleted, as indicated [***]

"{e}conomies of scope make it difficult to enter one market segment only."
2748 According to the
Panel, it is difficult to obtain financing on capital ma rkets to finance the "huge development costs" of
LCA development because "{u}ncertainty is considerable". 2749 The Panel referred back to these
considerations when it focused on the launch of the particular projects. When examining the launch
of the A300, the Panel recalled that "the parti es have described the development of LCA as an
endeavour that requires 'huge up-front investment s' and a commitment of 'tremendous resources'' in
the face of a business environment that is shaped by factors 'whose very foreseeability is impossible
by definition'." 2750 Then, looking at the launch of the A 310, the Panel recalled that "static and
dynamic ('learning curve') economies of scope and scale achieved in the context of one model of LCA
are an important part of the development and production of other LCA models has also been
recognized by economists."
2751 In this respect, the Panel found th at the evidence demonstrated that
the A310 benefited from the earlier launch of the A300. 2752 The Panel was also persuaded that "the
launch of the A320 in 1984, as originally designed, was to a very large degree made possible by
Airbus' successful launches of the A300 and A310 over the previous decade with the assistance of
LA/MSF."
2753 Likewise, as regards the A330/A340 proj ect, the Panel found that "LA/MSF provided
for the previous LCA models, the A300, A310 and A320, played a significant role in placing Airbus
in a position to be able to launch the A330/A340 project in 1987". 2754 As for the A330-200 and
A340-500/600, the Panel said that knowledge a nd experience acquired in the earlier projects has
particular significance since they were derivatives of existing models. 2755 Finally, the Panel explained
that the technical capabilities that made it possible for Airbus to embark on the A380 project were
"derived in part from its experience in the devel opment of its earlier model LCA funded in significant
part by LA/MSF".2756
1270. As we see it, the Panel's conclusion that a no n-subsidized Airbus would not have "achieved
the market presence it did over the period 2001 to 2006", which followed from its views that a
non-subsidized Airbus would be a "much weaker LC A manufacturer" with "at best a more limited

2748Panel Report, para. 7.1717.
2749Panel Report, para. 7.1717.
2750Panel Report, para. 7.1933 (quoting European Comm unities' first written submission, paras. 30, 31,
and 112).
2751Panel Report, para. 7.1936 (referring to D. Neven and P. Seabright, "European Industrial Policy:
The Airbus Case" (1995) (Panel Exhibit US-382); and Airbus A380 business case (Panel Exhibit EC-362
(HSBI)), p. 36).
2752Panel Report, para. 7.1936.
2753Panel Report, para. 7.1938.
2754Panel Report, para. 7.1939. (footnote omitted)
2755Panel Report, para. 7.1940.
2756Panel Report, para. 7.1948.
BCI deleted, as indicated [***] WT/DS316/AB/R

offering of LCA models", provided enough of a b asis to establish a "genuine and substantial
relationship of cause and effect"
2757 in this case.
1271. In the case of displacement, the Panel's conclusion clearly implies that the sales of a
non-subsidized Airbus would have been lower th an those actually made by Airbus during the
reference period. This is what th e Panel concluded when it stated that the subsidies "enabled Airbus
to bring to the market LCA that it would not othe rwise have been able to develop and launch as and
when it did, and thus caused displacement of Unite d States' imports of LCA from the EC market and
of United States' exports from the markets of cert ain third countries, as demonstrated in the data
concerning market share before us." 2758 The Panel could have be tter explained how it saw the
findings of displacement, in the first step of its analysis, and its findings on causation, in the second
step, coming together. However, given that the Pa nel was satisfied that the sales of a non-subsidized
Airbus would have been lower, we do not believe th at it was necessary for the Panel to have made a
precise quantification of the extent of the displacement caused by the LA/MSF subsidies.
1272. We reach a similar conclusion as regards lost sales. As noted earlier, the Panel found that
"{w}hether {Airbus} might have been competing at all for those sales, for instance with a different
LCA developed without subsidies, is questionable, as the lost sales all involved aircraft we have
concluded would not have been de veloped by Airbus at the releva nt times had earlier models not
benefited from subsidies."2759 The European Union understands the Panel's finding that Airbus would
be "different" without subsidies to mean only that Airbus would have a smaller range of LCA.2760 We
read the Panel to have found not only that a non-s ubsidized Airbus would have had a smaller range of
LCA, but also that any LCA that a non-subsidized Airbus could have offe red during the reference
period would be inferior to competing LCA. As a result, the Panel was not persuaded that a
non-subsidized Airbus would have won the sales campaigns that the Panel concluded had been "lost"
by Boeing. This reasoning is reflected in the Pane l's conclusion that the "subsidies caused lost sales
of United States' LCA because, but for the subsidi es, Airbus would not have had available the LCA
that it was able to sell to the customers at issu e in the sales we have found were lost by Boeing

2757Appellate Body Report, US – Upland Cotton, para. 438.
2758Panel Report, para. 7.2025. The Panel had earlier explained that, even if a non-subsidized Airbus
had been able to enter the market, "Airbus would not have had the market presence and ability to win orders for
LCA that it did have during the period 2001-2006, and the United States' LCA industry, at a minimum, would
not have lost sales to Airbus and would have had a larger market share in the EC and certain third country
markets than it actually did over that period." (Ibid., para. 7.1993)
2759Panel Report, footnote 5758 to para. 7.1985.
2760See, for example, European Union's appellant's submission, paras. 399 and 461.
WT/DS316/AB/R BCI deleted, as indicated [***]

between the years 2001 and 2006."
2761 In coming to our views as to the sufficiency of the Panel's
analysis, we have been mindful of the fact that the Panel found that scenarios 3 and 4 were "unlikely".
1273. We examine below whether a fuller considera tion of the counterfactual scenarios 3 and 4
along the lines of the five questions that the Eu ropean Union asserts the Panel was required to
examine to "complete the counterfactual" 2762 would lead to a different conclusion based on the
evidence on the record and in the light of the Panel's overall reasoning. Before doing so, we note that
the European Union "accepts the Panel's finding th at a non-subsidised Airbus would have had a
smaller 'market presence' in 2001-2006 compared to the market share and sales that Airbus actually
obtained."
2763 The European Union further accepts that a non-subsidized Airbus would not have been
able to launch the A300, A310, and A340 LC A projects by the 2001-2006 reference period. 2764
However, the European Union considers that "t here are significant findings by the Panel and
substantial evidence in the record supporting the co nclusion that a non-subsidised Airbus could have
launched, sold and delivered by 2001-2006, a singl e-aisle LCA and a 200-300 seat twin-aisle LCA,
and launched and sold a 500+ seat LCA by 2001". 2765 In the light of its position as to the LCA
projects that could have been developed by a non-s ubsidized Airbus, the European Union limits its
appeal to the Panel's causation findings with resp ect to seven lost sales involving the A320 and A380
and for the displacement the Panel observed. 2766 We address below the European Union's arguments
as to the completion of the counterfactual analysis w ith respect to the claim of lost sales relating to
four sales campaigns involving the A320 (Air Asia, Air Berlin, Czech Airlines, and easyJet) and to
the observed displacement. The European Union's arguments concerning the lost sales involving the
A380 are addressed in subsection 2 below.
1274. The first question that the European Union contends the Panel should have considered is
whether the non-subsidized Airbus envisioned in th e Panel's counterfactual scenarios 3 and 4 could
have launched "different" LCA at a later date and sold the LCA, during the 2001-2006 reference
period, to the relevant airlines and in the relevant country markets at issue. 2767 The European Union
maintains that the evidence befo re the Panel would have enable d the Panel to complete its
counterfactual analysis and find that, although a non- subsidized Airbus woul d not have launched the
A300 and A310 in 1969 and 1978, respectively, it could have launched a single-aisle LCA with

2761Panel Report, para. 7.2025.
2762European Union's appellant's submission, paras. 452 and 549.
2763European Union's appellant's submission, footnote 456 to para. 394.
2764European Union's appellant's submission, footnote 456 to para. 394.
2765European Union's appellant's submission, footnote 456 to para. 394.
2766European Union's appellant's submission, footnote 456 to para. 394.
2767European Union's appellant's submission, paras. 452, 530, and 549.
BCI deleted, as indicated [***] WT/DS316/AB/R

100-200 seats in or about 1987, and a twin-ais le LCA with 200-300 seats in or about 1991.
2768 In
other words, a non-subsidized Airbus could have launched an A320-type LCA and an A330-type
LCA, three years and four years after Airbus actua lly launched the A320 and A330, respectively. To
support this proposition, the European Union refers to: (i) the prior technological experience of the
Airbus companies in the regional aircraft sector; (ii) the growing demand for single-aisle LCA and
twin-aisle LCA with 200-300 seats; and (iii) Boeing's outdated product offerings.
2769
1275. We are not persuaded that the evidence on record should have led the Panel to conclude that a
non-subsidized Airbus could have launched a single-aisle LCA with 100-200 seats in or about 1987,
and a twin-aisle LCA with 200-300 seats in or abou t 1991. As noted earlier, the Panel found that
LCA development is "enormously complex an d expensive" and "requires huge up-front
investments".
2770 The Panel further described the important economies of scope and scale, as well as
learning effects, that are char acteristic of the LCA industry. 2771 Moreover, Panel also found that
LA/MSF covered 90-100% of the development costs of the A300 and A310 at zero interest, up to
90% of the development costs of the A320, and 60-90% of the development costs of the
A330/A340
2772, and that the cost of obtaining market financing for the A300 and A310 was significant
compared to LA/MSF. 2773 Thus, an important question would be how Airbus could have obtained
commercial financing to develop an A320-type LCA without subsidies.
1276. According to the European Union, the financ ial conditions for developing LCA would have
been favourable in the light of the increased de mand in the 1980s and 1990s and the "technological
obsolescence of existing" Boeing aircraft. 2774 The European Union further maintains that "Boeing's
contemporaneous massive investment in product launches and product development suggest that the
financial markets viewed these as profitable." 2775 We note, however, that Boeing, as the incumbent
producer, enjoyed many advantages that would not ha ve been available to a non-subsidized Airbus
attempting to enter the market in the 1980s. As the Panel found, "{e}conomies of scale arising from
the huge sunk development cost give incumbent firms a considerable competitive advantage" and

2768European Union's appellant's submission, paras. 499-504 and 542; and European Union's
appellant's submission, Annex I (Counterfactual Annex) (BCI), paras. 59-64.
2769European Union's appellant's submission, Annex I (Counterfactual Annex) (BCI), paras. 12-57.
2770Panel Report, para. 7.1717 (referring to T.L. Boeder and G.J. Dorman, "The Boeing/McDonnell
Douglas Merger: The Economics, Antitrust Law, and Politics of the Aerospace Industry" (Spring 2000)
Antitrust Bulletin (Panel Exhibit US-373), pp. 132-133).
2771See supra, para. 1269.
2772Panel Report, paras. 7.1933, 7.1935, 7.1937, and 7.1939.
2773Panel Report, para. 7.1938. The Panel also drew attention to the "interest rate benefit" it had found
in relation to LA/MSF provided for the A330/A340 project. (Ibid., para. 7.1939)
2774European Union's appellant's submission, Annex I (Counterfactual Annex) (BCI), para. 68.
2775European Union's appellant's submission, Annex I (Counterfactual Annex) (BCI), para. 68.
WT/DS316/AB/R BCI deleted, as indicated [***]

"{l}earning effects induce dynamic economies of sc ale which reinforce incumbents' advantage."
2776
In the scenario advanced by the European Union, the A320-type aircraft would have been the first
aircraft launched by a non-subsidi zed Airbus. As a new entrant to the market with less experience, it
is not very plausible that a non-subsidized Airbus could find similar financing conditions as those that
were available to Boeing as an incumbent LCA manuf acturer. The scenario is also difficult to
reconcile with the Panel's finding that "{u}ncerta inty is considerable, making it very difficult to
finance the huge development cost on capital markets."2777
1277. The European Union contends that, by the la te 1980s, "the principal Airbus consortium
members would have been well positioned to secure market financing" and that, "compared to the
actual situation, … the balance sheets of the cons ortium members would not have been burdened by
the losses incurred from the A300/A310 projects". 2778 However, we recall the Panel's finding that
LA/MSF covered 90 to 100% of the development costs of the A300 and A310 at zero interest.2779 The
European Union does not indicate in its appellant's submission to what extent the "losses incurred
from the A300/A310 projects" went beyond the development costs, which, as noted above, were
almost entirely covered by LA/MSF. Even assumi ng a non-subsidized Airbus would have suffered
lower losses, it would also have had lower revenues, as it would not have sold any A300 and A310
LCA. The impact of this loss of revenue is not addressed by the European Union.
1278. With respect to the launch of a hypothetical A330-type LCA in 1991, the European Union
maintains that a non-subsidized Airbus would have received significant "cash flow" generated by a
single-aisle, A320-type LCA in 1987 and would have benefited from the "large number of single-aisle
deliveries demanded by the market during the late 1980s and early 1990s".
2780 We note, first, that this
assertion depends on a non-subsidized Airbus havi ng launched an A320-type LCA in 1987. As
discussed above, this proposition is difficult to rec oncile with the Panel's findings on the complexities
of developing LCA, economies of scope and scale, and learning effects. Second, as the Panel found,
the majority of proceeds from the sale of an ai rcraft are received at the time of delivery 2781, and "{i}n
general, LCA are not purchased one at a time for imme diate delivery, but rather tend to be ordered in
large numbers with deliveries spread over a sub sequent period of sometimes several years." 2782 The
European Union does not explain how this would ha ve impacted Airbus' ability to finance the launch

2776Panel Report, para. 7.1717.
2777Panel Report, para. 7.1717.
2778European Union's appellant's submission, Annex I (Counterfactual Annex) (BCI), paras. 69 and 70.
2779Panel Report, paras. 7.1934 and 7.1935.
2780European Union's appellant's submission, Annex I (Counterfactual Annex) (BCI), para. 38.
2781Panel Report, paras. 7.1749 and 7.1750.
2782Panel Report, para. 7.1750.
BCI deleted, as indicated [***] WT/DS316/AB/R

in 1991 of an A330-type LCA from revenues genera ted from the A320-type LCA, which would have
been launched only four years earlier in 1987.
2783
1279. The second question raised by the European Uni on is whether the single-aisle and twin-aisle
LCA offered by a non-subsidized Airbus would nece ssarily be technologically inferior and could not
meet the size, range and operating performance re quirements of the relevant airlines at issue. 2784 The
European Union asserts that the Panel found that "LCA manufacturers generally will wait to launch
new LCA until they can offer technical advantages over existing LCA". 2785 In the European Union's
view, the Panel's finding means that more recen tly-launched LCA will incorporate technological
advances, and hence suggests that if a non-subsidis ed Airbus launched a single-aisle LCA sometime
after 1984, it was possible, and even likely, that the more recently launched LCA would have been
technically superior to both the original A320 family, as well as the competing Boeing 737 family.2786
1280. The European Union further maintains that "every year a manufacturer can afford to defer the
launch of an aircraft programme will allow it to integrate better and more cost-saving technologies,
improving the quality of the aircraft for consumers". 2787 The European Union notes that the risk of a
delayed launch is that a competitor is first to la unch an aircraft, but submits that, "between 1984
and 1987, Boeing did not launch a new single-ai sle LCA or significantly improve its existing
Boeing 737 which would have competed agai nst any Airbus A320-type LCA", and that,
"between 1987 and 1991, Boeing did not make any significant improvements to its twin-aisle 200-300
seat 767 that would have competed with a non-subsidised Airbus A330-type LCA." 2788 Therefore, it
argues, "the evidence would support a conclusion that a launch of an A320-type LCA delayed by
three years and the launch of an A330-type LCA delayed by four years would have permitted a non-
subsidised Airbus to make full use of the ongoing technological progress, and to improve the
technological characteristics and operating performan ce of the LCA that it eventually would have
launched."
2789
1281. The Panel stated that "{t}he launch of a new model with improved performance
characteristics can give an LCA manufacturer a competitive advantage". 2790 It does not automatically

2783The gap between the launch and the first delivery of Airbus' first two LCA, the A300 and A310,
was 5 and 7 years respectively. (Panel Report, footnote 5644 to para. 7.1936 and footnote 5650 to para. 7.1938)
2784European Union's appellant's submission, paras. 452, 530, and 549.
2785European Union's appellant's submission, para. 469 (referring to Panel Report, para. 7.1726).
(original emphasis)
2786European Union's appellant's submission, para. 469.
2787European Union's appellant's submission, Annex I (Counterfactual Annex) (BCI), para. 45.
2788European Union's appellant's submission, Annex I (Counterfactual Annex) (BCI), para. 45.
2789European Union's appellant's submission, Annex I (Counterfactual Annex) (BCI), para. 46.
2790Panel Report, para. 7.1726.
WT/DS316/AB/R BCI deleted, as indicated [***]

follow, however, that a single-aisle LCA launched sometime after 1984 by a non-subsidized Airbus
would necessarily have been technologically superior to the original A320, as well as the competing
Boeing 737 family. Rather, these factual statements of the Panel, as well as the
European Communities' arguments before the Panel, suggest otherwise. Specifically, the Panel found
that "{l}earning effects, both with respect to development, and in production, are significant"
2791, and
that "static and dynamic ('learning curve') economi es of scope and scale achieved in the context of
one model of LCA are an important part of the development and pr oduction of other LCA
models".2792 The European Communities also acknowle dged, before the Panel, the important
knowledge gained on each of its LCA programmes. 2793 Indeed, the European Communities submitted
before the Panel that "{t}he important role of R& D means that the learning curve is steep and even
incremental technological innovation can translat e into decisive competitive advantage in the
market."2794 Thus, without the "incremental technologi cal innovation" from the launch of the A300
and A310, it is not plausible that a non-subsidized Airbus would have made the same technological
progress, or would have had as much know-how as Airbus did in the early 1980s after having
launched two LCA models. We also fail to see evid ence on the record that should have led the Panel
to find that the same kind of technological progress and experience gained through Airbus'
development of two LCA models c ould have been gained by merely delaying the launch of an
A320-type LCA by three years. Thus, we are not persuaded that the evidence on the record would
have permitted the Panel to conclude that, had a non-subsidized Airbus been able to launch an aircraft
in the late 1980s and/or 1990s, it would likely be technologically superior to the A320 and A330.
1282. The third question raised by the European Union is whether a non-subsidised Airbus' inability
to offer LCA in all market segments would have r esulted in its inability to meet the "commonality"
requirement of the relevant airlines at issue. 2795 According to the Panel, "commonality" refers to the
idea that, "{o}nce an airline orders any particular LCA model from a given manufacturer, efficiencies
in operating a fleet of similar aircraft (including those related to spare parts, maintenance and training)
favour follow-on orders of the same models, as well as orders of other aircraft models from the same
manufacturer, in order to take advantage of commonalities across an LCA fleet." 2796 The Panel found

2791Panel Report, para. 7.1623.
2792Panel Report, para. 7.1936 (referring to Neven and Seabright, supra, footnote 2751; and Airbus
A380 business case (Panel Exhibit EC-362 (HSBI)), p. 36)
2793See, for example, UK Project Appraisal No. 1 (Panel Exhibit EC-98 (HSBI)), para. 1.2(f).
2794European Communities' first written submission to the Panel, para. 27.
2795European Union's appellant's submission, paras. 452, 530, and 549.
2796Panel Report, para. 7.1720.
BCI deleted, as indicated [***] WT/DS316/AB/R

that one of the "fundamental characteristics of the LCA market" is that most airlines prefer fleet
commonality so as to reduce operating costs.
2797
1283. The European Union alleges that undisputed ev idence before the Pane l demonstrated that
Air Asia, Air Berlin, Czech Airlines, and easyJet purchased only LCA in the single-aisle market
segment during 2001-2006, undermining any po ssibility that they were concerned about
commonality.2798 The European Union further contends that "the Panel failed to assess whether
'commonality'—i.e., the interest of an airlin e in securing all of its LCA from the same LCA
manufacturer—was an issue for the airlines taking deliv eries of Airbus LCA in the country markets at
issue."2799
1284. We note that, before the Panel, the European Communities referred to fleet commonality as
an important factor in an airline's decision to purchase aircraft. 2800 Indeed, the
European Communities' arguments before the Pane l argued that the ability of an LCA producer to
offer a full range of LCA is important in an airlin e's decision to purchase aircraft. For example, the
European Communities submitted that "the need to offer separate products whose commonality keep
operating costs down for customer airlines across the fleet but which can perform the various missions
dictated by an airline's route structure has historically meant that no manufacturer of a single product
… has survived in the LCA industry." 2801 Moreover, evidence on the Panel record indicates that
Airbus' business strategy focused on an integrated family of LCA:
To achieve its market success, Airbus has pursued a consistent
product strategy to offer competitive airliners across the market. The
family of aircraft concept has enabled a high degree of commonality
to be offered in all aspects of the aircraft operation from flight and
cabin crew training to maintenance and spares.2802

2797See Panel Report, paras. 7.1717 and 7.1981.
2798European Union's appellant's submission, para. 460 (referring to Airclaims CASE database, fleet
summary, data query, 14 May 2007 (Panel Exhibit EC-768)).
2799European Union's appellant's submission, para. 539.
2800Panel Report, para. 7.1819 (referring to European Communities' first written submission to the
Panel, para. 2096).
2801European Communities' first written submission to the Panel, para. 30.
2802Panel Report, para. 7.1665 (quoting BAE Systems, Annual Report 1999 (Panel Exhibit US-388),
p. 15). (emphasis added) The Panel Report also quotes the following testimony of an Airbus official:
Since Airbus was established for the precise purpose of becoming a viable,
profitable, long term enterprise, it was necessary to plan for a family of
aircraft. As early as 1973, Airbus I ndustrie proposed the development over
time of five related aircraft types. With the recent launch of the A330 and
A340 programs, these five types are now in place.
(Ibid. (quoting statement of Alan S. Boyd , Chairman of the Board, Airbus I ndustrie of North America, Inc. to
US House of Representatives Subcommittee on Comme rce, Consumer Protection, and Competitiveness
(23 June 1987) (Panel Exhibit US-386), p. 34))
WT/DS316/AB/R BCI deleted, as indicated [***]

1285. Furthermore, even accepting the European Un ion's contention that commonality would not
have influenced the purchasing decisions of Air Asia , Air Berlin, Czech Airlines, and easyJet, we still
do not see a basis to conclude that the evidence on th e record should have led the Panel to conclude
that Airbus could have developed a single-aisle LCA without subsidies, the aircraft purchased by
these airlines. Thus, whether these airlines were interested or not in commonality, does not
undermine the Panel's analysis. We recall, in this regard, that the Panel found that "Airbus' ability to
launch, develop, and introduce to the market, each of its LCA models was dependent on subsidized
LA/MSF".
2803 Thus, the Panel's analysis remains valid even if one were to agree with the
European Union on this issue.
1286. The fourth question raised by the European Union is whether a non-subsidised Airbus could
have offered its LCA at competitive prices. 2804 The European Union alleges that "{a} non-subsidised
Airbus would have sold LCA at prices as low, or lower, than Airbus actually charged during the
period 2001-2006". 2805 The European Union bases this asserti on on the Panel's inference that "the
resulting price levels", in the hypothetical scenario in which two US producers and a non-subsidized
Airbus compete in the market, "could … have been lo wer" than the price levels in the scenario where
a subsidized new entrant (such as Airbus) comp etes with an incumbent producer (such as Boeing). 2806
In addition, according to the European Union, "t he Panel found that a non-subsidised competitor's
incentive to offer low prices meant that Boeing would not necessarily secure more sales."2807
1287. We note that the Panel found that "there are multiple possibilities for the LCA industry in the
counterfactual world that would exist in the absence of subsidies to Airbus." 2808 Among these
possibilities is a hypothetical scenario in which a non-subsidized Airbus woul d not have entered the
market and the LCA industry only had two US produ cers (referred to above as scenario 2), or a
hypothetical scenario in which a non-subsidized Airbus might have been able to enter the market and
compete with a US industry comprising Boeing and another US producer (referred to above as
scenario 4). It is with respect to these two scenar ios that the Panel surmised that competition "could
very well have been even more fierce" than competition between Boeing and a subsidized Airbus.2809

2803Panel Report, para. 7.1949.
2804European Union's appellant's submission, paras. 452, 530, and 549.
2805European Union's appellant's submission, para. 471.
2806Panel Report, para. 7.1995.
2807European Union's appellant's submission, para. 540 (referring to Panel Report, para. 7.1979).
2808Panel Report, para. 7.1984.
2809Panel Report, para. 7.1995.
BCI deleted, as indicated [***] WT/DS316/AB/R

1288. The Panel had before it testimony regarding the effect of the subsidies on prices by Professors
Joseph Stiglitz and Bruce Greenwald (the "Stiglitz /Greenwald statement"), which the Panel said
"supports the view that prices in the aircraft mark et are lower than they would be in the Boeing
monopoly counterfactual".
2810 As the Panel noted, "the Stiglitz/Greenwald statement does not help
{the Panel} assess whether the prices that prevailed in 2001 to 2006 we re higher or lower than those
that would have resulted" had a non-subsidized Airbus entered the LCA market in the fourth
counterfactual scenario.2811 Thus, this statement does not support the assertion that a non-subsidized
Airbus could offer similar LCA at competitive prices. Therefore, we do not see how the record would
have allowed the Panel to concl ude that a non-subsidized Airbus could have offered LCA at more
competitive prices.
1289. The fifth question, according to the Europ ean Union, is whether there were any non-
attribution factors relevant to the sales at i ssue that would suggest the absence of causation. 2812 The
European Union maintains that "there are a variety of non-attribution factors that the Panel failed to
look at and that explain, in pa rt, why Airbus secured these orders". 2813 As regards the Panel's finding
of lost sales involving A320 LCA, the European Union specifically refers to two factors. First, in
relation to the sales to Air Asia, Air Berlin and easyJet, the European Union refers to the alleged
mismanagement of these customers by Boeing.2814 Second, with respect to the sale to Czech Airlines,
the European Union refers to an alleged "disput e between Boeing and the Czech government with
respect to a Boeing{} investment in a partially state-owned company". 2815 Our own review of the
Panel Report indicates that the Panel sufficiently addressed the two non-attribution factors that the
European Union now alleges the Panel failed to consider. The Panel did so in its analysis of lost sales
under the first-step of its two-step approach.2816
1290. With respect to the sale to easy Jet, the focus of the European Communities' argument before
the Panel was on certain "non-product related considerations" that supported Airbus' offer and that did
not involve issues of customer mishandling, as we ll as on the date by which easyJet had "committed"
to Airbus' offer. 2817 It was in this context that the European Communities initially referred to the

2810Panel Report, para. 7.1995.
2811Panel Report, para. 7.1995.
2812European Union's appellant's submission, paras. 452, 530, and 549.
2813European Union's appellant's submission, para. 497.
2814European Union's appellant's submission, paras. 493-495.
2815European Union's appellant's submission, para. 496. The European Union observes that the impact
of this alleged dispute was accentuated by the Czech Republic's entry into the European Union.
2816See Panel Report, paras. 7.1803 and 7.1817.
2817European Communities' first written submission to the Panel, paras. 1890-1893. These "non-
product related considerations" are HSBI.
WT/DS316/AB/R BCI deleted, as indicated [***]

statement by the former CEO of easyJet which it quotes in its appellant's submission.
2818 The Panel
addressed these "non-product related considerations", but concluded that pricing was the determinant
factor in the sale and that the prices offered by Ai rbus already reflected the non-price considerations
raised by the European Communities. 2819 The European Communities subsequently referred to the
statement by the former CEO of easyJet among its other examples of alleged customer mishandling
by Boeing.
2820 Although the Panel did not specifically refer to the allegation of customer
mismanagement in connection with the easyJet sale, we do not believe this undermines the Panel's
analysis. As we noted, the Panel addressed the European Communities' allegation concerning "non-
product related considerations", which was the focus of the Euro pean Communities' argumentation
and in which context it had first referred to the statement by the former CEO of easyJet. We note,
moreover, that the statement of the former CEO of easyJet is rather vague as to how the alleged
mismanagement of easyJet by Boeing contributed to Boeing losing the sale.
1291. As for the sales to Air Asia and Air Berlin, th e Panel Report shows that the Panel considered
the European Communities' allegations of customer mismanagement by Boeing. However, the Panel
concluded that customer relationship issues played a secondary role and that in both instances the
sales turned mainly on pricing.
2821 On appeal, the European Union repeats the public statements on
which it based its allegations befo re the Panel, but does not devel op reasons substantiating why the
Panel's assessment of the limited relevance of customer relationship issues in these sales campaigns
should be questioned.
1292. The Panel also addressed the alleged disput e between Boeing and the Czech government,
which allegedly played a role in the sales campaign involving Czech Airlines. The Panel
acknowledged that there was "evidence which suggest s that {Czech Airlines} was not well inclined
towards Boeing"
2822, yet it would appear that the Panel considered this factor to be less important than
pricing. On appeal, the European Union summa rizes some of background concerning the alleged
dispute between Boeing and the Czech government and asserts that the Panel should have made
"further findings" 2823 given its recognition that Czech Air lines was not "well inclined" towards

2818The European Union noted that former CEO of easyJet stated:
Before Christmas, the president of Boeing sat down and said "this is the deal
of the century". Rubbish! He undercut himself again and again. Why
should I believe them from now on?
(European Union's appellant's submission, para. 495 (quoting "EasyJet's Stelios Haji-Ioannou Comments on
Airbus Plane Order", Bloomberg News, 14 October 2002 (Panel Exhibit EC-439))
2819Panel Report, para. 7.1806. The Panel's discussion of these issues was rather concise, which may be
due to the fact that the European Communities had designated this evidence as HSBI.
2820European Communities' second written submission to the Panel, para. 1158.
2821Panel Report, paras. 7.1809 and 7.1817.
2822Panel Report, para. 7.1813.
2823European Union's appellant's submission, para. 496.
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Boeing. Nonetheless, the European Union's argument fails to account for the Panel's conclusion as to
the role of pricing in this sales campaign, nor does it explain what "further findings" the Panel should
have made once it had considered the alleged di spute between the Czech government and Boeing in
the light of other factors which were relevant in the sale, namely pricing.
 2824 In sum, with respect to
the A320 sales campaigns, we believe that the Pane l sufficiently addressed the non-attribution factors
raised by the European Communities. The Europ ean Union alleges that the Panel also failed to
address country-specific non-attribution factors rele vant to the question whether displacement in
particular countries was the effect of the challenged subsidies. 2825 We note that the European Union
does not mention any non-attribution factors with respect to the European Union market.
1293. As regards the Australian market, the European Union asserts that Boeing lost market share
because Boeing's major customer in Australia, Virgin Blue , decided to lease Boeing LCA, instead of
ordering new Boeing LCA.2826 It further explains that Boeing's post 9/11 deliveries to Australia were
exaggerated because Boeing's main customers Virgin Blue and Qantas urgently needed large numbers
of aircraft to take advantage of the post-9/ 11 bankruptcy of their domestic competitor Ansett
Australia.2827 The European Union adds that, following the exceptionally large deliveries in 2002,
Qantas' requirement for new LCA steadily decreased and Virgin Blue decided to lease used
Boeing 737s, instead of taking delivery of new Boeing LCA. 2828 Even assuming the validity of these
allegations, the two factors raised by the European Union focus exclusively on Boeing's absolute sales
volumes. However, the two factors would not explain Boeing's loss of market share to Airbus, which
was the basis of the finding of displacement. Indeed , the European Union's argument fails to consider
that Boeing also would have competed for the sales that were made by a subsidized Airbus.
1294. With respect to the Chinese market, the Europ ean Union alleges that "airlines order (and,
hence, take delivery) of LCA based on governmental political considerations". 2829 Even assuming
that political considerations play a role in sales to the Chinese market, this does not demonstrate that
political considerations were the cause of Boeing' s loss of market share to Airbus in China.
Furthermore, the basis for the European Union's allegation that Boeing lost market share due to

2824The European Union observes that the Panel found that "Airbus' succe ss in each of the four sales at
issue revolved, in considerable part, around low prices". (European Union's appellant's submission, para. 468)
2825European Union's appellant's submission, para. 567.
2826European Union's appellant's submission, para. 567.
2827European Union's appellant's submission, para. 567.
2828European Union's appellant's submission, Annex III (Displacement Annex), para. 107.
2829European Union's appellant's submission, para. 567.
WT/DS316/AB/R BCI deleted, as indicated [***]

political considerations consists of ex cerpts from a single newspaper article.
2830 Moreover, as the
European Union recognizes, Airbus made sales of A340 LCA in China during the reference
period.2831 The European Union has accepted that the A340 would not have been launched without
subsidies. It further accepts that no further anal ysis is required for purposes of establishing causation
with respect to the displacement involving sales of A340.2832
1295. As for the Korean market, the European Union submits that "Boeing lost market share in
Korea over 2001-2006 because Korean Air's LCA requirements decreased significantly". 2833 As with
the Australian market, even assuming the validity of the European Union's submission, it would only
explain the absolute decline in Boeing's sales. The European Union's argument, however, does not
account for the sales made by a subsidized Airbus that could have been made by Boeing in the
absence of the subsidies. Even if Airbus' deliveries in the Korean market remained stable, as the
European Union alleges 2834, those deliveries could have been made by Boeing had Airbus not been
subsidized, in which case Boeing's sales would not have declined.
1296. Given that we have reversed the Panel's findi ngs of displacement in the Brazilian, Mexican,
Singaporean and Chinese Taipei markets, and the fi nding of threat of displacement in the Indian
market, we need not address the non-attribution factor s raised by the European Union with respect to
those markets.
1297. Finally, we note that the Panel found that, irrespective of other factors, the presence of the
subsidized LCA in the market was a "fundamental cause" of the lost sales and displacement. 2835 The
Panel concluded in this respect:
We noted that there are numerous factors involved in a customer's
decision as to which LCA to purchase. However, one factor which is
essential is the availability of a particular model or models of LCA
suitable for a particular customer's needs at the time of the sale.2836
1298. In paragraph 1275 above, we have observed that we are not persuaded that the evidence on
record should have led the Panel to find that a non-subsidized Airbus coul d have launched an A320-

2830European Union's appellant's submission, Annex III (Displacem ent Annex), para. 116 (quoting
"Boeing stumbles in race for China", Seattle Times, 5 June 2005 (Exhibit EC-916)). The other evidence referred
to by the European Union generally describes the procedures that Chinese airlines allegedly must follow to
acquire aircraft.
2831The A340 sales represented 100% of Airbus' deliv eries of twin-aisle LCA in 2003 and 2004. (See
European Union's appellant's submission, Annex III (Displacement Annex), paras. 119-122)
2832European Union's appellant's submission, Annex III (Displacement Annex), para. 62.
2833European Union's appellant's submission, para. 567.
2834European Union's appellant's submission, Annex III (Displacement Annex), para. 130.
2835Panel Report, para. 7.1985.
2836Panel Report, para. 7.1985. (emphasis added)
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type LCA in 1987 and an A330-type LCA in 1991 . This undercuts the contention that the
non-attribution factors raised by the European Un ion could have diminished the effect of the
subsidies.
1299. In sum, we do not believe that the Panel woul d have reached a different conclusion had it
pursued its counterfactual analysis further along the lines of the five questions raised by the
European Union.
1300. Therefore, we reject the European Union's claims that the Panel "presumed causation" and
failed to establish the required "cha in of causation" in its assessment of whether the displacement and
lost sales were the effect of the LA/MSF subsidies within the meaning of Article 6.3(a), (b), and (c) of
the SCM Agreement. For similar reasons, we reject the European Union's allegations that the Panel
failed to make an objective assessment of the f acts under Article 11 of the DSU. Instead, we find that
the Panel's analysis sufficiently established a "g enuine and substantial" causal link between the
LA/MSF subsidies and the displacement and lost sales.
(d) The relevance of the 1992 Agreement
1301. The European Union also argues that the Panel erred by failing to consider the
1992 Agreement in evaluating the United States' claims of adverse effects. First, the European Union
contends that, through the 1992 Agreement, the United States "agreed in its bilateral relations with the
European Union to the acceptable level of gove rnment support that it now alleges constitute{s}
subsidies" and thus the United States cannot "subs equently allege that those same measures are
actionable, causing adverse effects to its interests."
2837
1302. As we have noted in section VI.B.3(b), the LA/MSF measures fall within the category of
government support to which Article 4 of the 1992 Agreement is addressed. The 1992 Agreement,
however, does not address the remedies that each party could pursue at the multilateral level. While
the 1992 Agreement provides that the parties "sha ll seek to avoid any trade conflict on matters
covered" by it2838, the Agreement does not say that either party could not challenge support provided
by the other party to its LCA industry if such support caused adverse effects. 2839 Indeed, the fifth
recital of the 1992 Agreement states that it was the pa rties' "intention to act without prejudice to their

2837European Union's appellant's submission, para. 689.
2838Article 10.1 of the 1992 Agreement.
2839By contrast, Article 10.2 provides that the partie s "will not self-initiate action under their national
trade laws with respect to government supports granted in conformity with this Agreement for as long as this
Agreement is in force."
WT/DS316/AB/R BCI deleted, as indicated [***]

rights and obligations under the GATT and under other multilateral agreemen ts negotiated under the
auspices of the GATT".
1303. At the other oral hearing, the European Un ion suggested that the 1992 Agreement delineated
the "interests" of the United States in the area of government measures relating to the LCA industry
and thereby limited the ability of the United States to assert claims of adverse effects to its interests
under the SCM Agreement . The European Union did not provide a basis for concluding that any
"interests" reflected in the 1992 Agreement exhaust the "interests" of the United States under Article 5
of the SCM Agreement. Nor do we see a basis for the argumen t that a bilateral agreement serves to
limit the interests of the parties under a subsequent multilateral agreement.
2840
1304. The European Union also asserts that "the circumstance that these {challenged} measures
were in conformity with an agreement between the pa rties is a fact that the Panel was required to take
into consideration in assessing whether adverse effects exist." 2841 The European Union claims, in this
regard, that "the Panel erred in its interpretation and application of Article 5(c) of the SCM Agreement
and Articles 12.7 and 11 of the DSU in failing to set out the basic rationale for its findings and in
failing to make an objective assessment of the law and the facts." 2842 The European Union does not
explain how the Panel was meant to have considered the allege d conformity of the challenged
measures with the 1992 Agreement as a "fact". Ev en assuming for the sake of argument that such a
"fact" was indeed relevant, the European Union do es not explain why such fact would preclude the
United States from making a claim of adverse effects under the SCM Agreement.
1305. In these circumstances, we do not consider that there is a basis for the European Union's
allegation that the Panel's failure to consider the 1992 Agreement in the context of the assessment of
adverse effects constitutes an error in the interp retation and application of Article 5(c) of the
SCM Agreement or a violation of the Panel's duties under Articles 12.7 and 11 of the DSU.

2840At the oral hearing, the European Union also raised the following three questions in connection with
the 1992 Agreement: (1) How could LA/MSF measures, to which the United States consented, plausibly cause
effects adverse to the interests of the United States in Brazil and Mexico when Boeing's share of those markets
actually rose during the reference period? (2) How could LA/MSF measures, to which the United States
consented, plausibly cause displacem ent effects in various other market s adverse to the interest of the
United States in the complete abse nce of any trend? and (3) How co uld LA/MSF measures, to which the
United States consented, relating to products between wh ich competition is "non-existent" or negligible, be
plausibly lumped together to generate findings, even in the complete absence of any sales of the relevant aircraft
(as, for example, in the case of Braz il)? We note that these questions turn on issues that go beyond the
1992 Agreement, such as, the existen ce of "trends", whether Boeing's mark et share increased or decreased, or
what is the relevant product market, all of which were addressed earlier. None, however, provides support for
the allegation that the United States is barred from raising a claim of adverse effects under Articles 5 and 6.3 of
the SCM Agreement.
2841European Union's appellant's submission, para. 690.
2842European Union's appellant's submission, para. 691.
BCI deleted, as indicated [***] WT/DS316/AB/R

2. Causation – A380 Lost Sales

1306. We turn next to the European Union's appeal of the Panel's finding that a non-subsidized
Airbus would not have been ab le to launch the A380 in 2000. 2843 In making this appeal, the
European Union seeks to invalidate the Panel's c onsequential finding that the challenged subsidies
caused Boeing to lose significant sal es in the Emirates Airlines, Qantas, and Singapore Airlines sales
campaigns. These sales campaigns were won by Airbus selling A380 aircraft. 2844 We begin our
analysis with a summary of the Panel's findings in subsection (a), followed by our analysis of the
European Union's claims of error in subsection (b), and our conclusions in subsection (c).
(a) The Panel's findings
1307. We recall that the Panel found that the Dorman Report demonstrated that the provision of
LA/MSF was "likely to change the behaviour of the recipient with respect to a decision to launch a
LCA by increasing the likelihood of an affirma tive decision to go forward with the launch." 2845 The
Panel then reviewed a series of statements by go vernment and Airbus officials, which allegedly
suggested that the subsidies "facilitated and accelerated the introduction" 2846 of every major Airbus
LCA model, including the A380. 2847 Although the Panel recognized that such statements might have
involved a certain "degree of self interest" 2848, it noted that they were uncontested by the
European Communities, and found that they "gen erally support the inference that, but for the

2843European Union's appellant's submission, para. 599 (referring to Panel Report, paras. 7.1947-
7.1949).
2844European Union's appellant's submission, para. 628 (referring to Panel Report, paras. 7.1993,
7.2025, and 8.2(d)).
2845Panel Report, para. 7.1912.
2846United States' first written submission to the Panel, para. 829.
2847Panel Report, paras. 7.1913, 7.1917 and 7.1918. The Panel noted that the UK Secretary of State for
Trade and Industry was quoted as stating that the launch of the A380 "would not have been possible if it had not
been for the commitment of the British Government". ( Ibid., para. 7.1917 (quoting answer of Patricia Hewitt,
Secretary of State for Trade and Industry, UK Parliament House of Commons Hansard Debates for 3 March
2005 (Panel Exhibit US-436), column 1088) In a similar vein, the UK Department of Trade and Industry
website explained that "{t}he fundamental rationale of launch aid is to address the apparent unwillingness of
capital markets to fund projects with such high product development costs, high technological and market risks
and such long pay back periods". ( Ibid. (quoting "Aerospace and Defense Industries Launch Investment", DTI
website (Panel Exhibit US-106))) According to a 1997 French Senate Report, even if Aérospatiale would have
been able to obtain outside financing to meet its requirements in respect of the A380, such financing would "add
excessively to the financial expenses incurred by the firms and would throw their balance sheets out of
equilibrium because of the low le vel of their equity capital". ( Ibid., para. 7.1918 (quoting Yvon Collin, Senator,
civile (Panel Exhibit US-18))
2848Panel Report, para. 7.1919.
WT/DS316/AB/R BCI deleted, as indicated [***]

provision of LA/MSF", Airbus would not have been able to launch its range of LCA, including the
A380, as and when it did.
2849
1308. The European Communities sought to rebut the Un ited States' assertion that Airbus would not
have been able to launch the A380 without LA/MSF by pointing to the Airbus A380 business case,
which in its view demonstrated that LA/MSF did not have any impact on the decision to launch the
A380.2850 The Panel acknowledged that the A380 busin ess case predicted a positive net present value
("NPV") both in the baseline scenario where ther e is no LA/MSF available, and in the baseline
scenario where LA/MSF amounts to 33% of development costs.2851 However, the Panel noted that the
five different sensitivity assessments contained in the A380 business case, including a "Realistic
Worst Case" scenario, were not tested against a base case in which Airbus did not receive
LA/MSF.
2852 The Panel further explained that, although the ex post sensitivity analysis submitted by
the European Communities applied the Realisti c Worst Case scenario to a base case where no
LA/MSF was provided, it did not undertake the sensitivity analysis with respect to all parameters used
in the original A380 business case. 2853 Therefore, the Panel said it did not know whether the use of
the same parameters contained in the business case would have resulted in a negative NPV in the
Realistic Worst Case scenario.2854
1309. The Panel noted further that a "critical elemen t of the credibility of the business case is the
reasonableness of the demand predictions on whic h the sales and delivery projections are based." 2855
According to the Panel, because the business case also served as one of the bases for the government
lenders to decide whether to support a progra mme, and given the "graduated levy-based and success-
dependent nature of LA/MSF repayments", Airbus had "an economic incentive to be optimistic" in its
sales forecasts. 2856 The Panel considered that the A380 business case reflected "consideration of a
rather limited range of possibilities in terms of failure to achieve sales targets, particularly in view of
the uncertainty of demand forecasts for the aircraft." 2857 For the Panel, actual delays in ramping up
production and relatively limited sales and deliveries i ndicated that the Realistic Worst Case scenario
did not capture what could reasonably have been e nvisioned to be the worst case scenario at the time
the business case was developed. 2858 For these reasons, the Panel was "not persuaded that the A380

2849Panel Report, para. 7.1920.
2850Airbus A380 business case (Panel Exhibit EC-362 (HSBI)).
2851Panel Report, para. 7.1922.
2852Panel Report, para. 7.1923.
2853Panel Report, para. 7.1925 (referring to the Carballo Declaration, supra, footnote 2702).
2854Panel Report, para. 7.1925.
2855Panel Report, para. 7.1927.
2856Panel Report, para. 7.1926.
2857Panel Report, para. 7.1927. (footnote omitted)
2858Panel Report, para. 7.1927.
BCI deleted, as indicated [***] WT/DS316/AB/R

business case alone demonstrates that Airbus woul d have launched the A380 even in the absence of
LA/MSF".
2859
1310. Furthermore, the Panel agreed with the Un ited States that a French Senate Report 2860 and a
statement made by the UK Secretary of State for Trade and Industry 2861 suggested that even if Airbus
had been confident that the A380 project would have been viable without LA/MSF, it would not have
been able to fund the project relying exclusively on its own resources and outside financing. The
Panel rejected the European Communities' argument that the creation of EADS increased Airbus'
financial flexibility. For the Panel, it was not clear how or to what degree the corporate restructuring
of Airbus Industrie GIE, Aérosp atiale, CASA, and Deut sche Airbus affected the ability of Airbus
France (or Airbus SAS) to raise the very large amounts of capital needed for the A380 project. 2862
Moreover, the Panel observed that the European Communities had "submitted no evidence to support
the contention that merely because, reportedly, Boei ng was able to finance a significant portion of the
non-recurring costs of development of the 787 th rough risk-sharing supplier arrangements, Airbus
would necessarily have been able to do the same with respect to the A380."2863
1311. Finally, the Panel considered that "but for LA/MSF provided with respect to Airbus' launches
of earlier models of LCA", it would not "have been possible for Airbus to be in a position to launch
the A380 in 2000". 2864 The Panel opined that Airbus would not have been in a position to obtain
market financing for the A380, had it not financed the development of its earlier models of LCA in
significant part through LA/MSF, because "the incr ease in the level of debt Airbus would have
accumulated over the years would have been massive". 2865 The Panel further noted that "Airbus'
technical capabilities derived in part from its experi ence in the development of its earlier model LCA
funded in significant part by LA/MSF". 2866 Thus, according to the Panel, "that Airbus could have

2859Panel Report, para. 7.1944.
2860Panel Report, para. 7.1945 (referring to Panel Exhibit US-18, supra, footnote 2847).
2861Panel Report, para. 7.1945 (referring to Panel Exhibit US-436, supra, footnote 2847).
2862Panel Report, para. 7.1947.
2863Panel Report, para. 7.1947. The Panel acknowledged that Airbus used risk-sharing supplier
arrangements, but said there was no indication that it could have increased its use of such arrangements so as to
replace the entire amount of financing provided by LA/MSF, which was up to 33% of the development costs of
the A380. Furthermore, the Panel did not consider th e availability of risk-sharing supplier arrangements in
respect of the A340-500/600 to be persuasive in this regard, because those were derivative aircraft which
entailed much smaller development costs and a much lo wer level of risk to Airbus' overall operations. The
willingness of suppliers to take on some of the risk of that much smalle r programme did not demonstrate that
any supplier or suppliers would be prepared to do so in respect of up to 33% of th e much greater costs of the
A380. Finally, the Panel noted that information in the Airbus A380 business case suggested that the risk-
sharing participants' involvement in the A380 project may not have been on strictly market terms for all
participants.
2864Panel Report, para. 7.1948.
2865Panel Report, para. 7.1948. (footnote omitted)
2866Panel Report, para. 7.1948.
WT/DS316/AB/R BCI deleted, as indicated [***]

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."
2867 Accordingly, the Panel concluded that "either directly
or indirectly, LA/MSF was a necessary pre-condition for Airbus' launch in 2000 of the A380."2868
(b) Analysis
1312. On appeal, the European Union claims that the Panel erred in its evaluation of various
elements which supported its finding that "either directly or indirectly, LA/MSF was a necessary
precondition for Airbus' launch in 2000 of the A380." 2869 In particular, the European Union argues
that the Panel erred: (i) in its assessment of the A380 business case; (ii) in its evaluation of Airbus'
ability to fund the A380 without access to LA/MSF; and (iii) in its analysis of Airbus' technological
capabilities in the absence of LA/MSF.
1313. For each aspect of the Panel's assessment that it challenges, the European Union makes a
claim under Articles 5(c) and 6.3(c) of the SCM Agreement, alleging an error of application, as well as
a claim under Article 11 of the DSU, alleging a failu re by the Panel to make an objective assessment
of the facts. 2870 At the oral hearing, the European Unio n suggested that an appellant was entitled to
make both claims and that it would be for the Ap pellate Body to determine which was the proper
characterization of those claims.
1314. As noted earlier, the Appellate Body has stated that "an appellant is free to determine how to
characterize its claims on appeal"2871, and it is often difficult to clearly distinguish between issues that
are purely legal, purely factual, or are mixed issues of law and fact. We also recall that the
characterization of a claim as one relating to the application of law to facts or as one relating to a
failure to make an objective assessment of the facts under Article 11 of the DSU has consequences for
the standard of review that the Appellate Body will apply because of the limitations on the scope of
appellate review. In most cases, however, an issue will either be one of application of the law to the
facts or an issue of the objective assessment of facts, and not both.

2867Panel Report, para. 7.1948.
2868Panel Report, para. 7.1948.
2869Panel Report, para. 7.1948.
2870European Union's appellant's submission, para. 627.
2871Appellate Body Report, Canada – Wheat Exports and Grain Imports , para. 177 (referring to
Appellate Body Report, Japan – Apples, para. 136).
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1315. In order to determine whether the issues rai sed by the European Union are more properly
characterized as relating to application of law to fact s or to an objective assessment of the facts, it is
first necessary to recall the requirements of Article 6.3(c) of the SCM Agreement, which establishes
that "serious prejudice" in the sense of Article 5(c) "may arise" where "the effect of the subsidy" is,
among others, "{significant} lost sales in the same market." In this part of its appeal, the
European Union is not alleging that the Panel app lied an incorrect legal standard in determining
whether the "effect of" the subsidies was "signi ficant lost sales" under Article 6.3(c) of the
SCM Agreement in relation to the sales of the A380 to Emirates Airlines, Qantas, and Singapore
Airlines. During the oral hearing, the European Union also clarified that it did not challenge the
Panel's interpretation of the phrase "lost sales in the same market" in Article 6.3(c).
2872
1316. The European Union's claim that the Panel erred in the application of Articles 5(c) and 6.3(c)
of the SCM Agreement is directed at three particular aspects of the Panel's analysis. First, the
European Union challenges the Panel's assessment of "the financial viability and credibility of Airbus'
business case for the A380". 2873 In our view, the financial viability of Airbus is essentially a factual
matter and the Appellate Body has held that the as sessment of the weight and credibility of evidence,
such as the A380 business case, falls in principle w ithin the discretion of panels as triers of fact. 2874
Second, the European Union asserts that "the Pane l erred in its assessment of the ability of a non-
subsidised Airbus to raise the fi nancing necessary to launch the A380". 2875 We do not see that this
raises a legal issue; rather, the assessment of a compan y's ability to raise financing is a factual matter.
Finally, the European Union argues that "the Panel erred in its assessment of a non-subsidised Airbus'
technological experience to develop and produce the A380" if prior models had been launched
without LA/MSF. 2876 We see the technological abilities of a company as being an issue that is
primarily factual in nature. Thus, in our view, the European Union's cha llenges against these three
aspects of the Panel's analysis are more properly ch aracterized as claims under Article 11 of the DSU
because they are directed at the alleged lack of obj ectivity of the Panel's assessment of the facts.
Consequently, we will examine them under Article 11 of the DSU.

2872European Union's response to questioning at the oral hearing.
2873European Union's appellant's submission, para. 600.
2874See Appellate Body Report, EC – Hormones, para. 132.
2875European Union's appellant's submission, para. 600.
2876European Union's appellant's submission, para. 600.
WT/DS316/AB/R BCI deleted, as indicated [***]

1317. The Appellate Body has repeatedly emphasized that Article 11 of the DSU requires a panel to
"consider all the evidence presented to it, assess its cr edibility, determine its weight, and ensure that
its factual findings have a proper basis in that evidence."
2877 Within these parameters, "it is generally
within the discretion of the Panel to decide which evidence it chooses to utilize in making
findings"2878, and panels "are not required to accord to factual evidence of the parties the same
meaning and weight as do the parties".2879 In this regard, the Appellate Body has stated that it will not
"interfere lightly" with a panel's fact-finding authority 2880, and has also emphasized that it "cannot
base a finding of inconsistency under Article 11 simply on the conclusion that {it} might have
reached a different factual finding from the one the panel reached". 2881 Instead, for a claim under
Article 11 to succeed, the Appellate Body must be sa tisfied that the panel has exceeded its authority
as the trier of facts. 2882 As an initial trier of facts, a pa nel must provide "reasoned and adequate
explanations and coherent reasoning". 2883 It has to base its findings on a sufficient evidentiary basis
on the record2884, may not apply a double standard of proof2885, and a panel's treatment of the evidence
must not "lack even-handedness".2886
1318. We note that not every error in the appreciation of a particular piece of evidence will rise to
the level of a failure by the Panel to comply with its duties under Article 11 of the DSU. In order for
us to reverse the Panel's finding in respect of the A380 on the basis of Article 11 of the DSU, we
would have to be satisfied that the Panel's errors , taken together or singly, undermine the objectivity
of the Panel's assessment of whether Airbus would have been able to launch the A380 in 2000 without
LA/MSF. Thus, the question before us is whethe r the Panel did commit the errors alleged by the
European Union and, if so, whether they demonstr ate that the Panel's conclusion that LA/MSF was a

2877Appellate Body Report, Brazil – Retreaded Tyres , para. 185 (referring to Appellate Body Report,
EC – Hormones , paras. 132 and 133). See also Appellate Body Report, Japan – Apples , para. 221; Appellate
Body Report, EC – Asbestos , para. 161; Appellate Body Report, Australia – Salmon , para. 266; Appellate
Body Report, EC – Bed Linen (Article 21.5 – India) , paras. 170, 177, and 181; Appellate Body Report, EC –
Sardines, para. 299; Appellate Body Report, EC – Tube or Pipe Fittings , para. 125; Appellate Body Report,
Japan – Agricultural Products II , paras. 141 and 142; Appellate Body Report, Korea – Dairy , para. 138;
Appellate Body Report, Korea – Alcoholic Beverages , paras. 161 and 162; Appellate Body Report, US – Oil
Country Tubular Goods Sunset Reviews , para. 313; Appellate Body Report, US – Gambling , para. 363;
Appellate Body Report, EC – Selected Customs Matters , para. 258; and Appellate Body Report, US – Carbon
Steel, para. 142.
2880See, for example, Appellate Body Report, US – Wheat Gluten , para. 151; Appellate Body Report,
EC – Sardines, para.. 299; and Appellate Body Report, US – Carbon Steel, para. 142.
2881Appellate Body Report, US – Wheat Gluten, para. 151.
2882Appellate Body Report, US – Wheat Gluten, para. 151.
2883See Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), footnote 618 to para. 293.
2884See Appellate Body Report, US – Carbon Steel, para. 338.
2885See Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 293.
2886See Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 292.
BCI deleted, as indicated [***] WT/DS316/AB/R

"necessary precondition"
2887 for the launch of the A380 in 2000, no longer had a sufficient evidentiary
and objective basis.
1319. The first error alleged by the European Union relates to the Panel's assessment of the A380
business case. Before the Panel, the A380 busin ess case was produced by the European Communities
in support of its allegation that LA/MSF did not ha ve any impact on the decision to launch the A380
in 2000.2888 According to the European Communities, the A380 business case demonstrated that the
project provided "robust returns" in the absence of LA/MSF.2889
1320. The Panel noted that the A380 business case is dated December 2000. As described by the
Panel, the A380 business case includes an NPV analysis of a "contemplated A380 family of aircraft"
comprising a core aircraft, a freighter, and extende d and stretch versions of the core aircraft. 2890 As
with the Dorman Report, the A380 business case made certain assumptions in respect of non-
recurring costs, recurring costs, the number of deliveries and pricing. The A380 business case
calculated the NPV of two "baseline" scenarios, one of which assumed no provision of LA/MSF, and
the other with LA/MSF covering 33% of developm ent costs. The Panel observed that the A380
business case anticipated a positiv e NPV in the absence of LA/MSF, but like the Dorman Report
simulation, it also indicated that LA/MSF positively impacted the NPV of the project.2891
1321. The Panel further noted that the A380 busin ess case contained five different sensitivity
assessments in respect of the baseline case, one of which is the Realistic Worst Case scenario, but
emphasized that such Realistic Worst Case scenario was not tested against the baseline case in which
Airbus would not receive LA/MSF. According to the Panel, this implied that Airbus never
contemplated launching the A380 without LA/MSF. 2892 The Panel then referred to an ex post facto
sensitivity analysis contained in the "Carballo Declaration" 2893, which was submitted by the
European Communities. The Panel expressed concerns about the analysis in the Carballo Declaration
of the Realistic Worst Case scen ario because it failed to conduct the sensitivity assessment with
respect to all the parameters origin ally used in the A380 business case. 2894 Thus, although the
sensitivity analysis of the Carballo Declaration still reflected a positive NPV in the absence of

2887Panel Report, para. 7.1948.
2888Airbus A380 business case (Panel Exhibit EC-362 (HSBI)).
2889Panel Report, para. 7.1921.
2890Panel Report, para. 7.1922.
2891Panel Report, para. 7.1922 (referring to Airbus A380 business case (Panel Exhibit EC-362 (HSBI)),
p. 29).
2892Panel Report, para. 7.1923.
2893Supra, footnote 2853.
2894Panel Report, paras. 7.1924 and 7.1925 (referring to Carballo Declaration supra, footnote 2702).
WT/DS316/AB/R BCI deleted, as indicated [***]

LA/MSF, the Panel could not conclude that th e project's NPV would remain positive in all
scenarios.
2895
1322. Nonetheless, the Panel acknowledged th at both the A380 business case and the ex post
sensitivity analysis contained in the Carballo Decl aration forecast that the A380 would have yielded
positive returns in the absence of LA/MSF. 2896 However, the Panel qualified this conclusion with the
following observation, which called into question the credibility of the forecasts used in the business
case:
While the business case may serve as the basis for Airbus' decision
whether the launch of a new LCA programme is a worthwhile
investment, it also serves as at least one of the bases for the
government lenders to decide wh ether to support a programme and
how that support will be structured. Because of the graduated levy-
based and success-dependent nature of LA/MSF repayments, Airbus
has an economic incentive to be optimistic in its forecasts of,
inter alia, the number of aircraft likely to be sold and the pace of
those sales, when preparing a business case in support of a
programme for which LA/MSF is sought. The greater the number of
sales over which principal repayments and royalties must be paid, the
less likely it is that Airbus will have to make those payments if the
business plan estimates prove to be optimistic.
2897 (emphasis added;
footnotes omitted)
1323. The Panel went on to observe that "the reas onableness of the demand predictions on which
the sales and delivery projections are based" were a "c ritical element of the credibility of the business
case."2898 The Panel opined that, while it was "in no positi on to judge at this time whether the sales
estimates in the A380 business case were, in fact, reasonable, we note that the A380 business case
reflects consideration of a rather limited range of possibilities in terms of failure to achieve sales
targets, particularly in view of the uncer tainty of demand forecasts for the aircraft." 2899 The Panel
added that:
{t}he A380 may yet succeed in reaching the sales levels predicted in
the business case. However, the actual delays in ramping up
production, and relatively limited sales and deliveries to date, make it
clear that such success will, if it occurs, likely take a good deal
longer than originally projected, thus delaying achievement of the
break-even point of the programme. The financial consequences of
the A380 production problems and r esulting programme delays have
been significant, with EADS reporting a consequent reduction in

2895Panel Report, para. 7.1925.
2896Panel Report, para. 7.1943.
2897Panel Report, para. 7.1926.
2898Panel Report, para. 7.1927.
2899Panel Report, para. 7.1927. (footnote omitted)
BCI deleted, as indicated [***] WT/DS316/AB/R

Airbus' earnings before interest and taxes of {€}2.5 billion as of
2006. Thus, it is by no means apparent that the Realistic Worst Case
Scenario actually captured what could reasonably have been
envisioned to be the worst case scenario at the time the business case
was developed.
2900 (footnotes omitted)
1324. For these reasons, although the Panel rec ognized that the A380 business case predicted
positive returns in the absence of the LA/MSF, th e Panel was not persuaded that the A380 business
case alone demonstrated that Airbus would have launched the A380 in the absence of LA/MSF.2901
1325. On appeal, the European Union argues that the Panel erred in its assessment of the delivery
forecasts in the Airbus A380 business case. 2902 First, the European Union asserts that the Panel
improperly relied on the ex post fact that delays occurred in the de velopment of the A380. According
to the European Union, Article 6.3(c) required the Panel to assess the delivery forecasts of the A380
business case on the basis of the information availa ble at the time of the launch of the A380 in
2000.2903 Second, in its assessment, the Panel did not address "considerable evidence" that
demonstrated that "sophisticated and well-inform ed" private investors based their investment
decisions on those forecasts.2904
1326. The United States responds that the Panel's findi ng that Airbus could not have launched the
A380 in the absence of LA/MSF was not based on its assessment of the credibility of the delivery
forecasts contained in the A380 business case. Instea d, the Panel specifically observed that the A380
business case did not examine the viability of a wo rst case scenario in the absence of LA/MSF, and
that the ex post sensitivity analysis submitted by the European Union for this purpose failed to
demonstrate that the launch would have been possible in the absence of LA/MSF. 2905 T h e
United States adds that the Appellate Body do es not need to consider this aspect of the
European Union's appeal because, despite the Pa nel's concerns regarding the completeness and
accuracy of the A380 business case, it assumed that "the {A380} business case ... demonstrate{s} a
positive NPV in a no-LA/MSF and Realistic Worst Case Scenario."2906
1327. As we understand it, the A380 business case provide d the main financial rationale for Airbus'
decision to launch the programme in 2000. It sought to evaluate the profitability of the programme
over the A380 life-cycle, by estimating the NPV of the cash flow generated from expected aircraft

2900Panel Report, para. 7.1927.
2901Panel Report, para. 7.1944.
2902Panel Report, para. 7.1926. (footnote omitted)
2903European Union's appellant's submission, para. 605.
2904European Union's appellant's submission, para. 609.
2905United States' appellee's submission, para. 652 (referring to Panel Report, paras. 7.1922-7.1927).
WT/DS316/AB/R BCI deleted, as indicated [***]

sales over that period.
2907 The A380 business case rested on a number of assumptions concerning,
inter alia, Airbus' anticipated development and production costs, the number of deliveries, and pricing
of the aircraft. The programme's estimated profitab ility depended, to a large extent, on the number of
sales and deliveries projected over the life of the programme. 2908 The business case also contained
five sensitivity assessments, one of which is the Realistic Worst Case scenario, which evaluates the
behaviour of the project's NPV in case of deviations from its major assumptions.2909
1328. The NPV estimates in the A380 business case were examined in the context of the Panel's
analysis of whether Airbus would have launched the A380 in 2000 but for LA/MSF. This type of
analysis necessarily requires an examination of Airbus ' decisions at the time of the launch. For this
reason, the analysis must be made on the basis of the information that was reasonably available to
Airbus at the time it made the launch decision. Th is would include forecasts of sales and deliveries.
It would be inappropriate to consider events that occurred after the launch decision was made and that
had not been forecast, as Airbus did not have the benefit of hindsight when it had to decide whether or
not to launch the A380 based on the information re asonably available at the time the decision was
made.
1329. Therefore, we agree with the European Union th at it was inappropriate for the Panel to have
evaluated Airbus' decision to launch the A380 in the li ght of events that occu rred after that decision
was made. In particular, two statements by the Pa nel in relation to the reasonableness of the sales and
delivery forecasts contained in the A380 business case reflect consideration of ex post events. First,
the Panel dismissed the European Union's allegati on that the delivery forecasts contained in Airbus'
business cases had been "often met, and indeed exceeded" 2910 stating that "experience to date suggests
that this may not be the case in respect of the A380." 2911 The Panel clarified in a footnote that it was
referring to the "difficulties Airbus experienced wi th the A380, resulting in substantial delays in
production and customer concerns". 2912 Second, the Panel called into question the reasonableness of
the sales forecast contained in the business case by stating that:

2907Airbus A380 business case (Panel Exhibit EC-362 (HSBI)).
2908The A380 business case makes assumptions in relation to both the minimum number of deliveries
necessary to reach the break-even poin t of the programme and the total number of deliveries over the product's
life-cycle. (Airbus A380 business case (Panel Exhibit EC-362 (HSBI)))
2909Panel Report, para. 7.1923.
2910Panel Report, para. 7.1926 (quoting European Communities' first written submission to the Panel
para. 467).
2911Panel Report, para. 7.1926 (referring to EADS press release, "EADS 2006 results dominated by
Airbus loss" (9 March 2007) (Panel Exhibit US-463).
2912Panel Report, footnote 5616 to para. 7.1926 (referring to Panel Exhibit US-463, supra,
footnote 2911).
BCI deleted, as indicated [***] WT/DS316/AB/R

{t}he A380 may yet succeed in reaching the sales levels predicted in
the business case. However, the actual delays in ramping up
production, and relatively limited sales and deliveries to date, make it
clear that such success will, if it occurs, likely take a good deal
longer than originally projected, thus delaying achievement of the
break-even point of the programme. The financial consequences of
the A380 production problems and r esulting programme delays have
been significant, with EADS reporting a consequent reduction in
Airbus' earnings before interest and taxes of {€}2.5 billion as of
2006.
2913 (footnotes omitted)
1330. In our view, the Panel's reference to " actual delays in ramping up production, and relatively
limited sales and deliveries to date"2914 shows that the Panel assessed the credibility of the sales and
delivery forecasts contained in the A380 business case on the basis of ex post considerations. The
relevant question before the Pane l was not whether subsequent events undermined the credibility of
the sales and deliveries forecasts contained in th e business case, but rather whether such forecasts
were credible on the basis of th e information reasonably available to Airbus at the time the launch
decision was made. While we do not suggest that the credibility of production and delivery forecasts
could not be reviewed by a Panel on the basis of information available at the time of the launch
decision, the above statements show th at the Panel failed to adopt such an ex ante approach. We
therefore agree with the European Un ion that the Panel's reference to ex post events was not
permissible.
1331. We further agree with the European Union th at the Panel's statement that Airbus had
"economic incentives"
2915 to overstate likely sales because th e A380 business case also served as one
of the bases for the lending governments' decisions to grant LA/MSF is somewhat speculative. We
have reservations about the logic of the Panel's reasoning, because the fact that governments based
their lending decisions on the business case does not fo r that reason alone undermine the credibility of
the A380 business case. As the Panel itself acknow ledged, the business case "may also have been
used by Airbus to attract other investors." 2916 Thus, to the extent that the business case also served as
a basis for the investment decisions of Airbus a nd its risk-sharing suppliers, it was unreasonable for
the Panel to assume that these actors would have acted against their best economic interests by
investing in a project whose economic viability depe nded on parameters which they did not consider
realistic.

2913Panel Report, para. 7.1927.
2914Panel Report, para. 7.1927. (emphasis added)
2915Panel Report, para. 7.1926.
2916Panel Report, footnote 5611 to para. 7.1926.
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1332. Despite our reservations about aspects of the Panel's reasoning, we note that the Panel did not
disregard the A380 business case. Indeed, the Pane l discussed and evaluated the various elements of
the business case, but added that concerns in relation to the credibility of the forecasts contained in the
business case "inform{ed} {its} consideration of th e European Communities' contention that the
A380 business case demonstrates that Airbus would have gone forward with the launch even in the
absence of LA/MSF".
2917 As pointed out by the United States, the Panel accepted that the business
case and the Carballo Declaration demonstrated a positive NPV in a non-LA/MSF scenario:
Assuming that the business case, or rather the numbers underlying
the business case as applied in the Carballo Declaration, demonstrate
a positive NPV in a no-LA/MSF and a Realistic Worst Case scenario,
the relevant question for us is whether the United States has
demonstrated that the A380 would not have been launched in the
absence of LA/MSF.2918 (footnote omitted)
1333. In the above passage, it is clear that th e Panel proceeded on the assumption that the A380
business case and the Carballo Declaration predic ted a positive NPV in a non-LA/MSF scenario. The
Panel, therefore, duly took into account the rebu ttal evidence adduced by the European Communities
in the A380 business case. The Panel, however, attributed to the A380 business case a probative
value that is different to that suggested by th e European Communities, in stating that "we have
concerns about the A380 business case ... and we ar e thus not persuaded that the A380 business case
alone demonstrates that Airbus would have launc hed the A380 even in the absence of LA/MSF." 2919
The Panel then proceeded to review other pieces of evidence.
1334. In addition to the reservations expressed in re lation to the demand forecasts contained in the
A380 business case, the Panel considered that the Realistic Worst Case scenario forecast in the
business case was not entirely credible, viewed fro m the perspective of the time when the launch
decision was made. Consistent with its earlier statement that "the A380 business case reflects
consideration of a rather limited range of possibilities in terms of failure to achieve sales targets", the
Panel stated that "{i}t is by no means apparent that the Realistic Wors t Case Scenario actually
captured what could reasonably have been envisioned to be the worst case scenario at the time the
business case was developed." 2920 Leaving aside its observation that the Realistic Worst Case
scenario had not been tested against a base case in which Airbus did not receive LA/MSF, the Panel
also considered that the Realistic Worst Case sc enario was not "the worst with respect to all

2917Panel Report, para. 7.1927.
2918Panel Report, para. 7.1943.
2919Panel Report, para. 7.1944. (emphasis added)
2920Panel Report, para. 7.1927. (emphasis added)
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parameters considered in the sensitivity testing."
2921 Thus, the Panel expressed concern that the
sensitivity analysis of the A380 business case did not contemplate what could reasonably have been
envisioned as the worst case scenario at the time the business case was developed.
1335. Therefore, despite the Panel's impermissibl e assessment of the A 380 business case with
reference to ex post events and its speculation concerning economic incentives to overstate likely
sales, we do not consider that this invalidates the Pa nel's overall analysis. We reach this conclusion
because the Panel did take into account the A380 business case, and proceeded on the basis that it
predicted a positive NPV for the project in a non- LA/MSF scenario. However, the Panel decided to
attribute to the A380 business case a probative weight that is different to that suggested by the
European Communities because of othe r factors such as the parameters considered in the sensitivity
analysis. In doing so, the Panel acted within the bo unds of its discretion as initial trier of facts, and
we do not see a basis for disturbing the Panel's factual finding.
1336. Second, the European Union argues that the Pa nel erred in its evaluation of the evidence
concerning Airbus' ability to finance the A380 rely ing exclusively on its own resources and outside
financing. Before the Panel, the United Stat es argued that even if the A380 business case was
understood to show that the A380 project would ha ve been economically viable without LA/MSF, it
did not follow that Airbus would have been able to fund the project from its own resources and
outside financing. In support of this argument , the United States submitted a Report produced by the
French Senate
2922, which considered the provision of LA/MSF to Aérospatiale for the development of
a very large LCA programme that later became the A380 project. The French Senate Report
concluded that in the unlikely event that Aérospatia le could find outside funding for its share of the
development costs of the A380, "such external fi nancing would apparently add excessively to the
financial expenses incurred by the firms and would throw their balance sheets out of equilibrium
because of the low level of their equity capital." 2923 The United States also produced a statement
made by the UK Secretary of State for Trade and Industry suggesting that the launch of the A380
"would not have been possible if it had not been for the commitment of the British government to
launch an extremely successful programme".2924

2921Panel Report, para. 7.1927 (referring to Airbus A380 business case (Panel Exhibit EC-362 (HSBI)),
pp. 34 and 36).
2922Panel Exhibit US-18, supra, footnote 2847.
 2923Panel Report, para. 7.1945 (quoting Panel Exhibit US-18, supra, footnote 2847, p. 72).
2924Panel Report, para. 7.1945 (quoting Panel Exhibit US-436, supra, footnote 2847).
WT/DS316/AB/R BCI deleted, as indicated [***]

1337. The European Communities sought to rebut th e United States' argument concerning Airbus'
ability to finance the A380 in the absence of LA /MSF by questioning the relevance of the French
Senate Report. The European Communities argued th at the Report addressed the role of Aérospatiale
only, and had been prepared in 1996-1997 prior to the creation of EADS, which, according to the
European Communities, "increased Airbus' financial flexibility."
2925
1338. The Panel responded to the European Communities' arguments as follows:
While the financial situation of Airbus France in 2000 would have
clearly been different from the position of Aérospatiale in 1997
(when the French Senate Report was released) the
European Communities has submitte d no persuasive evidence to
suggest that Airbus France was in a better position than Aérospatiale
to fund its part of the A380 project without LA/MSF. Although it is
evident from the EADS offering memorandum that the corporate
restructuring of Airbus Industrie GIE, Aérospatiale, CASA and
Deutsche Airbus was intended to improve the companies' operations
by rationalizing resources, eliminating duplication and consolidating
overall management under a more integrated corporate structure, it is
not so clear precisely how, or indeed if or to what degree, this move
affected the ability of Airbus France (or Airbus SAS) to raise the
very large amounts of capital needed for the A380 project.
2926
1339. On appeal, the European Union argues that the Panel erred in assessing the financial situation
of Airbus France in 2000 based on a French Senate Report concerning the financial situation of
Aérospatiale in 1997. The European Union adds that the Panel erroneously focused on the ability of
Airbus France and Airbus SAS to finance the A380, and ignored the totality of the evidence allegedly
demonstrating that Airbus SAS' parent compan ies, EADS and BAE Syst ems, had the financial
resources necessary to fund the project in the absence of LA/MSF. Such evidence consisted primarily
of EADS' Offering Memorandum 2927; a report filed by EADS before the French securities regulator,
Commission des opérations de bourse ("EADS' Reference Document") 2928; and BAE Systems'
Annual Report 1999.2929
1340. The United States responds that the Panel objectively assessed and correctly rejected evidence
concerning the availability of financing from EADS and BAE for the development of the A380. For
the United States, the Panel correctly found that EADS' Offering Memorandum did not demonstrate
how the corporate restructuring of EADS would have enabled the company to raise the funds that its

2925Panel Report, para. 7.1946.
2926Panel Report, para. 7.1947.
2927EADS' Offering Memorandum, supra, footnote 163.
2928EADS' Reference Document, supra, footnote 608.
2929BAE Systems, Annual Report 1999 (Panel Exhibit EC-28).
BCI deleted, as indicated [***] WT/DS316/AB/R

constituent companies were unable to raise a few years earlier.
2930 Similarly, the United States argues
that the European Union's reference to BAE Syst ems' 1999 annual balance sheet does not sufficiently
establish that the company would have committe d additional funds to the A380 project. The
United States adds that a statement by the UK's Department of Trade and Industry specifically
contradicts this assertion. The statement explains th at "the fundamental rationale of launch aid is to
address the apparent unwillingness of the capital mark ets to fund projects with such high product
development costs, high technological and market risks and such long pay back periods."2931
1341. In our view, a careful review of the Panel's analysis does not support the European Union's
argument that the Panel assessed "Airbus France's fi nancial condition at the time of the launch of the
A380 in 2000, based on Aérospatiale's financial position three years prior". 2932 On the contrary, the
Panel expressly recognized that "the financial situ ation of Airbus France in 2000 would have clearly
been different from the position of Aérospatiale in 1997 (when the French Senate Report was
released)".2933 However, the Panel made the additional point that the European Union had "submitted
no persuasive evidence to suggest that Airbus Fr ance was in a better position than Aérospatiale to
fund its part of the A380 project without LA/MSF."2934
1342. We are also not persuaded that the Panel failed to assess the totality of the evidence in relation
to the question of whether Airbus SAS' parent co mpanies, EADS and BAE Systems, had the financial
resources necessary to fund the A380 project in the absence of LA/MSF. Contrary to the
European Union's submission, the Panel did addr ess EADS' Offering Memorandum in evaluating the
European Communities' rebuttal that the creat ion of EADS "increased Airbus' financial
flexibility."2935 Indeed, the Panel expressly referred to EADS' Offering Memorandum in its analysis,
and recognized that it was "evident" from that piece of evidence that "the corporate restructuring of
Airbus Industrie GIE, Aérospatiale, CASA, a nd Deutsche Airbus was intended to improve the
companies' operations by rationalizing resources, eliminating duplication and consolidating overall
management under a more integrated corporate structure."2936 However, the Panel opined that EADS'
Offering Memorandum did not conclusively estab lish the European Communities' allegations
concerning the increased financial fl exibility of Airbus because it was "not so clear precisely how, or
indeed if or to what degree {the corporate restructuring of the Airbus companies and the creation of

2931United States' appellee's submission, para. 656 (quoting Panel Exhibit US-106, supra,
footnote 2847).
2932European Union's appellant's submission, para. 614.
2933Panel Report, para. 7.1947.
2934Panel Report, para. 7.1947.
2935Panel Report, para. 7.1946.
2936Panel Report, para. 7.1947.
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EADS} affected the ability of Airbus France (or Airbus SAS) to raise the very large amounts of
capital needed for the A380 project."
2937
1343. The evidence on which the European Uni on bases its claim—EADS' Offering Memorandum,
EADS' Reference Document, and the BAE Syst ems' Annual Report 1999—are documents that
describe the general financial situation of BAE Systems and of EADS after its creation. 2938 T h e
documents do not specifically address the issue of whether these companies had sufficient financial
resources to cover the financing gap for the A380 pr oject that would have resulted in the absence of
LA/MSF. Even if the documents show that EADS and BAE Systems had financial resources
available, it does not necessarily follow that those r esources would have been directed to the A380
project. Both EADS and BAE Systems were larg e companies with several business units beyond
aircraft production, all of which would have comp eted for internal financial resources. We are
reluctant to disturb the Panel's analysis on the basi s of general statements about the overall financial
situation of BAE Systems and EADS. In order for us to interfere with the Panel's assessment of the
facts, we would have to be satisfied that the European Communities had not only submitted
documents describing the overall financial situ ation of these companies but also provided
explanations as to why it was reasonable to expect that EADS and BAE Systems would have directed
substantial additional funds to the A380 to self-finance the project in the absence of LA/MSF.2939
1344. The European Union further argues that the Pa nel failed to address or adequately explain
evidence which in its view demons trated that risk-sharing supplie r arrangements provided a viable
alternative to finance the A380 in the absence of LA/MSF. Like the alleged financial flexibility
resulting from the creation of EADS, the availability of financing from risk-sharing suppliers was part
of the European Communities' rebuttal of the Unite d States' argument, based on the French Senate
Report, that Airbus could not have financed the A380 with its own resources and outside financing,
even if it were confident that the project was econo mically viable without LA/MSF. In particular, the

2937Panel Report, para. 7.1947.
2938See section IV.B of this Report for the evolution of EADS.
2939The European Union's submissions on appeal do not show that the European Communities provided
such explanations to the Panel, nor have we been able to ascertain, from our review of the Panel record, that the
European Communities provided such explanations. The only evidence that the European Union provides in
support of its contention that capital of EADS would be directed to the A380 project is the general statement, in
the "Use of Proceeds" section of EADS' Offering Memorandum, that "{ a} stronger financial position would
also enable EADS to timely adapt its development and investment programs, notably in new aircraft".
(European Union's appellant's submission, footnote 775 to para. 616 (quoting EADS' Offering Memorandum,
supra, footnote 163, p. 23)
The same section of the EADS Offering Memorandum mentions that "EADS expects this strengthened
capital structure will allow it to respond swiftly as gl obal acquisition and alliance opportunities arise in the
consolidating aerospace and defence indus tries" and that "{a} stronger fi nancial position would also enable
EADS to timely adapt … its manufacturing operations as market conditions dictate". (EADS' Offering
Memorandum, supra, footnote 163, p. 23)
BCI deleted, as indicated [***] WT/DS316/AB/R

European Communities argued that the French Senate Report only considered "on balance sheet debt
financing" and did not consider "off balance sheet financing" such as risk sharing arrangements with
suppliers.
2940 The European Communities argued that Air bus could have increased its use of risk-
sharing suppliers to secure the necessary financi ng for the A380, and sought to support this assertion
by noting that: the A380 business plan already included off-balance sheet financing through suppliers;
that Boeing has reportedly financed 60% of the non-recurring costs of the 787 through risk-sharing
suppliers; and that Alenia had provided risk-sha ring supplier financing in respect of the Deutsche
Airbus share of the development of the A340-500/600.2941
1345. The Panel addressed these arguments by the European Communities in the following passage:
Likewise, the European Communiti es has submitted no evidence to
support the contention that merely because, reportedly, Boeing was
able to finance a significant portion of the non-recurring costs of
development of the 787 through risk-sharing supplier arrangements,
Airbus would necessarily have been able to do the same with respect
to the A380. Airbus does use risk-sharing supplier arrangements, but
there is no indication that it could have increased its use of such
arrangements so as to replace the entire amount of financing provided
by LA/MSF, which, we recall, was up to 33 percent of the
development costs of the A380. We do not consider the availability
of risk-sharing supplier arrangements in respect of the A340-500/600
to be persuasive in this regard. Those were derivative aircraft which
entailed much smaller development costs and a much lower level of
risk to Airbus' overall operations. The willingness of suppliers to
take on some of the risk of that much smaller programme does not
demonstrate that any supplier or 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'
involvement in the A380 project may not have been on strictly
market terms for all participants.
2942 (footnote omitted)
1346. On appeal, the European Union argues that th e Panel "failed to adequately explain or
address"2943 three pieces of evidence demonstrating the potential for increased use of risk-sharing
supplier financing for the A380. First, the European Union refers to evidence allegedly demonstrating
that aerospace suppliers such as Honeywell, Rockwell Collins, Alenia Aeronáutica, SAAB, Ruag, and
GKN were convinced of the A380 business case and agreed to participate as risk-sharing suppliers.2944
Second, it points to evidence suggesting that some of these same companies, and other risk-sharing

2940Panel Report, para. 7.1946.
2941Panel Report, para. 7.1946.
2942Panel Report, para. 7.1947.
2943European Union's appellant's submission, para. 618.
2944European Union's appellant's submission, para. 619 (referring to Whitelaw Report, supra,
footnote 1881; and Morgan Stanley, "EADS, the A380 Debate" (5 September 2006) (Panel Exhibit EC-409)).
WT/DS316/AB/R BCI deleted, as indicated [***]

suppliers, were willing to cove r 60% of the development cost of the "technologically more
challenging, composite-based" Boeing 787 in 2004.
2945 Third, the European Union asserts that the
Panel ignored the fact that the consolidation of EADS and BAE Systems showed that Airbus had
access to forms and levels of finance similar to those of Boeing.2946
1347. The United States responds that the Pane l explicitly considered—and rejected—the
European Communities' argument that risk-shari ng suppliers would have been willing to put
additional capital into the development of the A380 b ecause they were also willing to fund part of the
development costs of the 787 a few years later. 2947 According to the United States, the fact that the
Panel reached a different conclusion than the Euro pean Communities in this respect does not provide
a basis for reversal of this finding.
1348. We are not persuaded that in its evaluation of the alleged availability of risk-sharing supplier
financing the Panel failed to ade quately address the totality of the evidence before it. The Panel
examined the A380 business case and was not persuade d that this evidence sufficiently demonstrated
that Airbus "could have increased its use of {risk-sharing supplier} arrangements so as to replace the
entire amount of financing provided by LA/MSF."
2948 The Panel reasoned that this was particularly
so because "the Airbus A380 business case suggests th at the risk-sharing participants' involvement in
the A380 project may not have been on stri ctly market terms for all participants." 2949 Nor was the
Panel persuaded that risk-sharing suppliers' participation in the funding of the A340-500/600 was
probative in this respect, considering the significant di stinctions in the funding needs and risk profiles
of the A340-500/600 and the A380 projects. 2950 For this reason, the Panel concluded that "{t}he
willingness of suppliers to take on some of the ri sk of that much smaller {A340-500/600} programme
does not demonstrate that any supplier or suppliers would be prepared to do so in respect of up to
33 percent of the much greater costs of the A380."2951
1349. The Panel also addressed evidence allegedly suggesting that Boeing financed 60% of the non-
recurring costs of its 787 through risk-sharing suppliers , but found that this evidence did not establish
that the risk-sharing suppliers of Airbus would ha ve been necessarily willing to finance a similarly

2945European Union's appellant's submission, para. 619 (referring to Deutsche Bank, "Is there Life after
Launch Aid?" (5 November 2004) (Panel Exhibit EC-7 6); "Airbus to Spend $12 Billion on New A350, People
Say (Update 1)", Bloomberg.com, 3 November 2006 (Panel Exhibit EC-511); and European Communities'
2946European Union's appellant's submission, para. 619.
2948Panel Report, para. 7.1947.
2949Panel Report, para. 7.1947 (referring to Airbus A380 business case (Panel Exhibit EC-362 (HSBI)),
p. 29).
2950Panel Report, para. 7.1947.
2951Panel Report, para. 7.1947.
BCI deleted, as indicated [***] WT/DS316/AB/R

large share of the development costs of the A380 in the absence of LA/MSF. Given the significant
distinctions between the A380 and 787 projects, and the potentially different risk profiles of Airbus
and Boeing, we see no reason to disturb the Panel's assessment of the probative value of the evidence
concerning Boeing's use of risk-sharing supplier funding.
1350. The European Union argues further that the Panel erred in finding that "because of the
significant amount of debt that developing its pr evious models of LCA would have generated"
2952,
Airbus would not have been able to launch the A380 but for LA/MSF provided in respect of its earlier
models of LCA. The European Union's challenge in this respect is directed at the following statement
by the Panel:
Given the amount of funding transferred to Airbus under the
individual LA/MSF contracts, and in the light of the formidable risks
associated with the LCA business and the learning curve effects that
are necessary to successfully participate in this sector, we have found
that it would not have been possibl e for Airbus to have launched all
of these models, as originally designed and at the times it did,
without LA/MSF. Even assuming this were a possibility, and that
Airbus had actually been able to launch these aircraft relying on only
market financing, the increase in the level of debt Airbus would have
accumulated over the years would have been massive. (...) {B}ecause
of the significant amount of debt that developing its previous models
of LCA would have generated, we consider Airbus would not have
been in a position to obtain market financing for the A380, had it not
financed the development of its earlier model LCA in significant part
through LA/MSF. It follows that the view that Airbus could have
launched the A380 as a stand-alone proposition is dependent upon
Airbus having received LA/MSF to develop all of its previous
models of LCA.
2953 (footnote omitted)
1351. According to the European Union, this statement is in error because the Panel ignored its own
counterfactual that a non-subsidized Airbus would ha ve launched fewer aircraft than it actually did,
which implies that a non-subsidized Airbus would have a significantly reduced debt. 2954 In addition,
the European Union maintains that the Panel erred by failing to consider evidence demonstrating that
a non-subsidized Airbus could have launched a si ngle-aisle LCA by 1987, and a twin-aisle 200-300
seat LCA in or around 1991. For the European Uni on, this evidence suggests that a non-subsidized
Airbus would have had nine years to recover portions of its investment and to build up a cash flow

2952Panel Report, para. 7.1948.
2953Panel Report, para. 7.1948.
2954European Union's appellant's submission, para. 623.
WT/DS316/AB/R BCI deleted, as indicated [***]

stream that could have supported the developmen t of the A380 by 2000, along with risk-sharing
suppliers and other market financing.
2955
1352. In our view, the Panel's conclusion that Airbus would not have been able to launch the A380
in 2000 relying exclusively on market financin g but for LA/MSF provided in relation to earlier
models of LCA would hold even in the counterfact ual scenario posited by the European Union, in
which Airbus would have been able to launch a single-aisle LCA in 1987 and a twin-aisle LCA
in 1991. While in this scenario Airbus' debt load would have been smaller in absolute terms, Airbus'
revenues would also be smaller as a result of a narro wer counterfactual product offering. As a result,
in the counterfactual scenario posited by the European Union, Airbus would not necessarily have been
in a stronger financial position to launch the A380 in 2000 relying exclusively on market financing.
Thus, even if the Panel would have accepted the co unterfactual posited by the European Union, this
would not have invalidated its ultimate conclusi on that but for LA/MSF provided with respect to
Airbus' earlier models of LCA, it would not have been possible for Airbus to launch the A380 in 2000
relying exclusively on market financing.
1353. Third and finally, the European Union argues that the Panel erred in finding that Airbus could
not have launched the A380 in the absence of LA /MSF because its "technical capabilities derived in
part from the experience in the development of its earlier model{s of} LCA funded in significant part
by LA/MSF." 2956 The European Union does not dispute that the launch of the A380 was in part
facilitated by knowledge gained from earlier product launches. 2957 However, the European Union
posits that, having accepted the counterfactual that a non-subsidized Airbus would be present in the
market, the Panel was required to determine whethe r a non-subsidized Airbus with a more limited
product offering could not have similarly accumulated the required technological experience.
1354. The United States responds that the Panel consid ered a counterfactual in which Airbus could
have achieved its market position and sales without th e subsidies to be "unlikely and ... contradicted
by other record evidence." 2958 The United States suggests that Airbus itself recognized the critical
importance of the technical experience gained from each of its LCA. 2959 For the United States, the
European Union's argument is erroneously prem ised on a "wholly speculative counterfactual under

2955European Union's appellant's submission, para. 624.
2956Panel Report, para. 7.1948.
2957European Union's appellant's submission, para. 625.
2958United States' appellee's submission, para. 660 (referring to Panel Report, paras. 7.1984 and
7.1993).
2959United States' appellee's submission, para. 660 (referring to UK Project Appraisal No. 1 (Panel
BCI deleted, as indicated [***] WT/DS316/AB/R

which an entirely unsubsidized Airbus could have launched fewer and different LCA at different
times" and still have been able to launch the A380 in 2000.
2960
1355. In our view, the counterfactual scenario posite d by the European Union does not invalidate
the Panel's ultimate conclusion that Airbus' techni cal capabilities were derived in large part from its
experience in the development of earlier models of LCA. Given the Panel's earlier factual finding
concerning the importance of learning curve effects in the LCA industry 2961, it can only follow that a
counterfactual Airbus with a narrower product offering would have accumulated less technical
experience than Airbus actually did in the development of its full range of LCA. Following this logic,
a non-subsidized Airbus that had developed fe wer LCA models would have accumulated less
technical experience than the subsidized Airbus act ually did, which in our view supports the Panel's
conclusion that the launch of the A380 would not have occurred in 2000 without LA/MSF.
(c) Conclusion
1356. Based on all of the above, we do not find that the Panel acted inconsistently with Article 11 of
the DSU in finding that "either directly or i ndirectly, LA/MSF was a necessary precondition for
Airbus' launch in 2000 of the A380." 2962 Although we consider the Pane l to have fallen into error in
speculating about an alleged "economic incentiv e" to overstate sales and in referring to ex post events
in its assessment of the Airbus A380 business case, we do not consider that these deficiencies
invalidate the Panel's conclusions in relation to Airbus' ability to launch the A380 in 2000 in the
absence of LA/MSF. The Panel's ultimate conclusion that LA/MSF was a "necessary
precondition"2963 for Airbus' launch of the A380 in 2000 was based on multiple considerations, such
as the A380 business case itself, evidence on Airbus ' ability to fund the A380 in the absence of
LA/MSF, and the financial and technological impact of LA/MSF provided in relation to previous
models of Airbus LCA. In assessing the credib ility and determining the probative value of the
evidence concerning each of these elements, the Panel acted within the bounds of its discretion as trier
of facts under Article 11 of the DSU, and did not act inconsistently with its duty to conduct an
objective assessment of the facts simply by accordi ng to that evidence a lesser weight than that
posited by the European Communities. Thus, based on these multiple considerations, the Panel had a
sufficiently objective basis for its ultimate fi nding that LA/MSF was a "necessary precondition" for

2961Panel Report, paras. 7.1623, 7.1717, and 7.1726.
2962Panel Report, para. 7.1948.
2963Panel Report, para. 7.1948.
WT/DS316/AB/R BCI deleted, as indicated [***]

the launch of the A380 in 2000. Accordingly, we uphold the Panel's finding that "either directly or
indirectly, LA/MSF was a necessary precondition for the launch of the A380 in 2000."
2964
3. Causation for non-LA/MSF Subsidies
1357. Finally, we turn to the European Union's appeal of the Panel's finding that the effect of non-
LA/MSF subsidies was to cause displacement of Boeing LCA from the EC and certain third country
markets within the meaning of subparagraphs (a) and (b), and significant lost sales within the meaning
of subparagraph (c), of Article 6.3 of the SCM Agreement. We begin our analysis with a summary of
the Panel's findings in subsection (a). We then anal yze in subsection (b) the sp ecific issues raised in
the European Union's appeal against the Panel's analysis of causation for non-LA/MSF subsidies.
Finally, in subsection (c), we set out our conclusions.
(a) The Panel's findings
1358. Having concluded that Airbus' ability to launch, develop, and introduce into the market each
of its LCA models was "dependent on"
2965 LA/MSF, the Panel sought to determine whether the other
subsidies challenged by the United States had similar effects. The United States argued that equity
infusions, infrastructure subsidies, and R&TD subs idies had economic effects similar to those of
LA/MSF, in that they reduced the costs and shifte d the risk of LCA development from Airbus to the
governments (thus making a launch more likely) and alleviated the financial strain of product
launches (thus affording pricing flexibility). Th e United States therefore maintained that these
measures should be considered together with LA/MSF for purposes of the causation analysis.2966
1359. The European Communities contended that the na ture of non-LA/MSF subsidies, in terms of
their structure, operation, and design, precluded an aggregate consideration of their effects. The
European Communities underscored that each instan ce of LA/MSF was tied to a specific LCA, and
that each was granted at a different time. In cont rast, the equity infusions, infrastructure subsidies,
and R&TD grants were non-recurring measures that were provided at different times than LA/MSF,
and were not tied to any particular model of Airbus LCA.2967
1360. The Panel found that differences in the structure, operation, and design of the subsidies did
not preclude an aggregated consideration of their effects for the purposes of examining the
United States' serious prejudice claims. Recalling its earlier conclusion that LA/MSF was necessary

2964Panel Report, para. 7.1948.
2965Panel Report, para. 7.1949.
2966Panel Report, para. 7.1954.
2967Panel Report, para. 7.1955.
BCI deleted, as indicated [***] WT/DS316/AB/R

to the launch of each successive model of Airbus LC A, the Panel reasoned that the "product" effect of
LA/MSF was "complemented and supplemented" by the other specific subsidies at issue in this
dispute.
2968 For the Panel, LA/MSF as well as non-LA/MSF measures were all provided in
connection with the subsidized product—Airbus LC A—and they all had the same effect on Airbus'
ability to launch the LCA it launched at the time that it did.2969
1361. More specifically, the Panel reasoned that th e equity infusions ensured the "continued
existence and financial stability" of the Airbus na tional entities, which were a "necessary element" for
Airbus to have developed, launched, and produced its full range of LCA. 2970 To the extent that equity
infusions by the French Government allowed Aérosp atiale to undertake investments in fixed assets,
inventory, and advances to suppliers in connectio n with the development of new aircraft, they
"supported the development of LCA in a manner that was as direct as LA/MSF."2971
1362. With respect to infrastructure measures, th e Panel reasoned that they provided "essential
support" to the development and production of Air bus LCA, relieving Airbus of significant expenses
in relation to the development of facilities for th e production of, most particularly, the A380, thus
enabling Airbus to continue the development of successive models of LCA. 2972 The Panel further
observed that the infrastructure that was provide d for the establishment of the final A380 assembly
line in Hamburg was necessary to enable Airbus to launch the A380.
1363. Turning to R&TD subsidies, the Panel opined th at such subsidies enabled Airbus to develop
"features and aspects" of its LCA on a schedule that it otherwise would not have been able to
accomplish.2973 Although the Panel recognized that the im pact of "pre-competitive" R&TD subsidies
on Airbus' market presence was "perhaps more attenu ated" in comparison with the other subsidies at
issue or with R&TD that funded technology actually used on Airbus LCA, the Panel concluded that
R&TD subsidies, combined with the other subsidi es at issue, "complemented and supplemented" the
impact of LA/MSF.2974
1364. Finally, referring to the panel report in US – Upland Cotton , the Panel found that the
subsidies at issue all had a "sufficient nexus {to} the subsidized pr oduct"—Airbus LCA—and a
sufficient nexus to "the particular effects-relate d variable{s} under examination", since all of the

2968Panel Report, para. 7.1956.
2969Panel Report, para. 7.1956.
2970Panel Report, para. 7.1957.
2971Panel Report, para. 7.1957.
2972Panel Report, para. 7.1958.
2973Panel Report, para. 7.1959.
2974Panel Report, para. 7.1959.
WT/DS316/AB/R BCI deleted, as indicated [***]

United States' serious prejudice claims depended on the presence of a given Airbus LCA on the
market at a particular time.
2975 On this basis, the Panel consid ered it "appropriate to undertake {its}
analysis of the effects of the subsidies on an aggregated basis in this dispute."2976
(b) Analysis
1365. On appeal, the European Union claims that the Panel erred in finding that the effect of non-
LA/MSF subsidies was the displacement of Boei ng LCA from the EC and certain third country
markets under subparagraphs (a) and (b), and si gnificant lost sales under subparagraph (c), of
Article 6.3 of the SCM Agreement. The European Union further claims that the Panel acted
inconsistently with Article 11 of the DSU in faili ng to provide a sufficient evidentiary basis and a
reasoned and adequate explanation for this finding.
1366. The European Union argues that the Panel e rred in aggregating non-LA/MSF subsidies under
its "product launch" theory of causation, despite an absence of factual findings that each of those
measures impacted the launch of particular models of Airbus LCA. 2977 According to the
European Union, the Panel's conclusion that the non-LA/MSF subsidies "complemented and
supplemented"2978 the product effect of LA/MSF does not provide a sufficient basis for establishing
causation under Article 6.3 of the SCM Agreement, because there was no eviden ce to suggest that the
launch of a particular Airbus LC A was contingent on the non-LA/MSF. 2979 In the context of the
United States' "product theory" of causation, the Eu ropean Union argues that the Panel did not have a
sufficient basis to conclude that non-LA/MSF subs idies had the same effect as LA/MSF, unless it
could be demonstrated that each of the non-LA/M SF subsidies was necessary to enable the launch of
particular models of Airbus LCA.2980
1367. The United States responds that the Panel corr ectly held that non-LA/MSF subsidies also
caused displacement and lost sales within the m eaning of Article 6.3(a), (b), and (c) of the
SCM Agreement. According to the United States, the Panel's aggregated causation analysis was based
on its finding that the nature and operation of each of the challenged subsidies enhanced Airbus'
ability to develop and bring to the market its LC A family, consequently allowing Airbus to gain
market share and significant sales at Boeing's expense. 2981 The European Union's argument that each

2975Panel Report, paras. 7.1960 (quoting Panel Report, US – Upland Cotton, para. 7.1192) and 7.1961.
2976Panel Report, para. 7.1961.
2977European Union's appellant's submission, para. 638.
2979European Union's appellant's submission, para. 643.
2980European Union's appellant's submission, paras. 646 and 648.
2981United States' appellee's submission, paras. 668 and 673.
BCI deleted, as indicated [***] WT/DS316/AB/R

of the non-LA/MSF subsidies had to be "necessary" to enable a particular product launch implies too
high of a standard for an aggregated analysis of causation, which would permit circumvention of the
disciplines of Article 6.3 in the case of smaller measures that individually would not have caused
adverse effects, but which collectively would aff ect competition in a manner inconsistent with
Articles 5 and 6.3.
2982 Thus, the United States maintains that the Panel's decision to assess
cumulatively the effects of subsidies that "complemented and supplemented" each other was sufficient
to establish causation, even if certain of these meas ures, individually, would not be of a sufficient
magnitude to cause adverse effects.2983
1368. In discerning the effect of the subsidies challe nged by the United States in this dispute, the
Panel first sought to determine separately the effect of LA/MSF, which, according to the
United States, was the "primary" subsidy benefiting Airbus LCA. 2984 The Panel came to the
conclusion that LA/MSF was "necessary to the laun ch of each successive model of Airbus LCA, and
that the individual and cumulative effect of tho se measures was fundamental to Airbus' ability to
launch the particular LCA models it launched at the time that it did." 2985 The Panel then turned to the
United States' argument that the non-LA/MSF measu res, namely equity infusions, infrastructure
measures, and R&TD subsidies, had effects similar to LA/MSF because they "shift{ed} costs of LCA
development from Airbus to the governments, givi ng Airbus an edge, and allowing it to enter the
LCA market with new LCA models at a pace that would otherwise not have been possible."2986
1369. The Panel opined that the equity infusions "e nsured the continued existence and financial
stability of the respective national entities engaged in the Airbus enterprise", without which "Airbus
would not have been able to continue to develop, launch and produce LCA in fulfilment of the goal of
developing a full range of LCA for the market." 2987 In relation to infrastructure measures, the Panel
found that they "provided essential support to th e development and production of Airbus LCA,
relieving Airbus of significant expenses in connec tion with the development of facilities for the
production of, most particularly, the A380 and thus enabling it to continue with the launch of
successive models of LCA." 2988 The Panel further found that R&TD subsidies "enabled Airbus to

2982United States' appellee's submission, para. 672 (referring to European Union's appellant's
submission, para. 646).
2984Panel Report, para. 7.1950 (referring to United States' first written submission to the Panel,
para. 819).
2985Panel Report, para. 7.1956.
2986Panel Report, para. 7.1950.
2987Panel Report, para. 7.1957.
2988Panel Report, para. 7.1958.
WT/DS316/AB/R BCI deleted, as indicated [***]

develop features and aspects of its LCA on a schedul e that it would otherwise have been unable to
accomplish."
2989
1370. On this basis, the Panel came to the conc lusion that non-LA/MSF subsidies "complemented
and supplemented" the "product effect" of LA/MSF a nd, therefore, "had the same effect on Airbus'
ability to launch the LCA it launched at the time that it did."2990
1371. We note that the Panel made the following st atement after coming to the conclusion that
non-LA/MSF subsidies "compl emented and supplemented" 2991 the "product effect" of LA/MSF
subsidies:
In our view, based on the facts a nd circumstances outlined above, the
subsidies at issue in this dispute all have a "sufficient nexus {to} the
subsidized product". Moreover, in asmuch as those subsidies enabled
Airbus to launch successive models of LCA when it did, they also
have a sufficient nexus {to} "the particular effects-related variable{s}
under examination", since the United States claims of serious
prejudice that we are examining are based, at least in part, on the
presence of a given Airbus LCA available on the market at a
particular time. Therefore, we c onclude that it is appropriate to
undertake our analysis of the effects of the subsidies on an
aggregated basis in this dispute.
2992
1372. Despite its statement that "it is appropriate to undertake our analysis of the effects of the
subsidies on an aggregated basis in this dispute"2993, in our view, the Panel did not actually conduct an
aggregated assessment of the effects of LA/MSF a nd non-LA/MSF subsidies. Had it done so, the
Panel would have sought to determine from the outset whether the collective effect of LA/MSF and
non-LA/MSF subsidies was to enable the launch of particular models of Airbus LCA.
1373. Instead, the Panel conducted a separate analysis of the effects of LA/MSF on Airbus' ability
to launch and bring to the market particular mode ls of LCA, and then sought to determine whether
non-LA/MSF subsidies had similar effects. On the basis of a separate —and more abbreviated—
assessment of the collective effect of meas ures comprised under each group of non-LA/MSF
subsidies, the Panel came to the conclusion that the "'product' effect of LA/MSF is ... complemented
and supplemented by the other specific subsidies we have found to exist in this dispute."2994

2989Panel Report, para. 7.1959.
2990Panel Report, para. 7.1956.
2991Panel Report, para. 7.1956.
2992Panel Report, para. 7.1961.
2993Panel Report, para. 7.1961.
2994Panel Report, para. 7.1956.
BCI deleted, as indicated [***] WT/DS316/AB/R

1374. Insofar as the Panel separately assessed the effect of LA/MSF, and then came to the
conclusion, on the basis of an individual ass essment, that each set of non-LA/MSF subsidies had
effects similar to LA/MSF, the Panel did not aggregate the challenged subsidies with a view to
discerning their effects under Article 6.3 of the SCM Agreement. Thus, the Panel's statement that it
was "appropriate to undertake {its} analysis of the e ffects of the subsidies on an aggregated basis in
this dispute"
2995 does not accurately reflect the approach actually taken by the Panel to establish
causation with respect to non-LA/MSF subsidies.
1375. This brings us to the question of whether it was appropriate for the Panel to do what it
actually did, namely to focus its causation anal ysis on whether the non-LA/MSF subsidies at issue
—equity infusions, infrastructure measures, and R&TD subsidies—"complemented and
supplemented"2996 the effects of LA/MSF.
1376. As noted earlier, the Appellate Body has interpreted Article 6.3 of the SCM Agreement as
requiring the establishment of a "genuine and substantial relationship of cause and effect" 2997 between
the subsidies and the alleged market phenomena under th at provision, and that such relationship is not
diluted by the effects of other factors.2998 The Appellate Body has further explained that the particular
market phenomena alleged under Article 6.3(c) must "result from a chain of causation that is linked to
the impugned subsidy" 2999 and the effects of other factors must not be attributed to the challenged
subsidies.3000 We have explained earlier in this Report that the interpretative guidance provided by
the Appellate Body under Article 6.3(c) is e qually relevant to the causation analysis under
subparagraphs (a) and (b) of that provision.3001 We also recall the Appellate Body's view that "a panel
has a certain degree of discretion in selecting an appropriate methodology for determining whether the
'effect' of a subsidy is significant price suppression under Article 6.3(c)."3002 The appropriateness of a
particular method may have to be determined on a case-specific basis, depending on a number of
factors and factual circumstances such as the nature, design, and operation of the subsidies at issue,
the alleged market phenomena, and the extent to which the subsidies are provided in relation to a
particular product or products, among others.
3003 However, a panel's methodological discretion does
not absolve it from having to establish a "genuine and substantial relationship of cause and effect"

2995Panel Report, para. 7.1961.
2996Panel Report, para. 7.1956.
2997Appellate Body Report, US – Upland Cotton, para. 438.
2998Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 375.
2999Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 372.
3000Appellate Body Report, US – Upland Cotton, para. 437.
3001See supra, para. 1232.
3002Appellate Body Report, US – Upland Cotton, para. 436.
3003See Panel Report, US – Upland Cotton , para. 7.1194; Panel Report, Korea – Commercial Vessels ,
para. 7.560.
WT/DS316/AB/R BCI deleted, as indicated [***]

between the impugned subsidies and the alleged market phenomena under Article 6.3, and from
ensuring that such causal link is not diluted by the effects of other factors.
3004
1377. In the particular circumstances of this dispute, the Panel chose first to discern the effects of
each of the LA/MSF measures, which according to the United States were the primary subsidies
benefiting Airbus.3005 The Panel came to the conclusion th at each of the LA/MSF measures enabled
Airbus to launch and bring to the market each of its models of LCA as and when it did, thus resulting
in the displacement and significant lost sales of Boeing LCA under Article 6.3(a), (b), and (c) of the
SCM Agreement.3006 In other words, a "genuine and substa ntial relationship of cause and effect" had
been established between the LA/MSF measures a nd the displacement and lost sales of Boeing LCA
during the reference period. The Panel then soug ht to determine whether the non-LA/MSF subsidies
at issue had similar effects by "shift{ing} costs of LCA development from Airbus to the governments,
giving Airbus an edge and allowing it to enter the LCA market with new LCA models at a pace that
would otherwise not have been possible." 3007 The Panel concluded that, insofar as the three sets of
non-LA/MSF subsidies "complemented and supplemen ted" the "product effect" of LA/MSF, these
subsidies "had the same effect on Airbus' ability to launch the LCA it launched at the time that it
did."3008
1378. We consider that the approach used by the Panel is permissible under Article 6.3 of the
SCM Agreement, provided that a genuine causal link between the non-LA/MSF subsidies and the
market phenomena alleged unde r Article 6.3 is established . Having determined that each of the
LA/MSF measures enabled launches of particular Airbus LCA models and therefore were a
substantial cause of the displacement and signifi cant lost sales of Boeing LCA, the Panel sought to
determine whether non-LA/MSF subsidies "complemented and supplemented" the effects of LA/MSF
measures, even if each of the non-LA/MSF subsidi es, taken individually, would not have enabled
launches of particular Airbus LCA models, and ther efore would not have been a substantial cause of
the displacement and significant lost sales. Once th e Panel determined that LA/MSF subsidies were a
substantial cause of the observed displacement a nd lost sales, it was not necessary to establish that
non-LA/MSF subsidies were also substantial causes of the same phenomena. Moreover, the fact that
LA/MSF subsidies were the substantial cause of ad verse effects does not exclude that non-LA/MSF
subsidies had similar effects. Rather, it was conceivable that non-LA/MSF subsidies complemented

3004See Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 375.
3005Panel Report, para. 7.1950 (referring to United States' first written submission to the Panel,
para. 819).
3006Panel Report, para. 7.1949.
3007Panel Report, para. 7.1950.
3008Panel Report, para. 7.1956.
BCI deleted, as indicated [***] WT/DS316/AB/R

or supplemented the effects of LA/MSF subsidies. For these reasons, we do not agree with the
European Union that Articles 5(c) and 6.3 of the SCM Agreement preclude an affirmative finding that
non-LA/MSF subsidies cause adverse effects where th ey "complement and supplement" the effects of
LA/MSF subsidies that have been found to be a substantial and genuine cause of adverse effects.
3009
Given that the Panel had determined that LA/MSF s ubsidies were a substantial cause of the alleged
market phenomena, it was permissible and sufficient for the Panel to assess whether a genuine causal
connection between non-LA/MSF subsidies and the sa me market phenomena existed such that these
non-LA/MSF subsidies complemented or supplemente d the effects of LA/MSF. Contrary to the
European Union's submission3010, the Panel was not required, in those circumstances, to establish that
non-LA/MSF subsidies were themselves a substantial cause or "necessary to enable a launch decision
at a particular point in time."3011
1379. As we observed above, the Panel's approach to the analysis of causation did not absolve it
from establishing a genuine causal link between th e different categories of non-LA/MSF subsidies
and Airbus' ability to launch and bring to the ma rket its LCA models, thereby similarly causing the
displacement and significant lost sales of Boeing LCA during the reference period. The fact that
LA/MSF measures enabled certain product launches, and therefore were a ge nuine and substantial
cause of displacement and lost sales during the reference period, does not in and of itself establish that
non-LA/MSF subsidies had similar effects. Inst ead, the Panel had to establish that non-LA/MSF
subsidies had a genuine causal connection with Airb us' ability to launch and bring to the market its
models of LCA, thus contributing to the adverse effects of LA/MSF measures.
1380. In the sections that follow, we examine wh ether the Panel had a sufficient basis for
concluding that each set of the non-LA/MSF subsidies at issue, namely equity infusions, infrastructure
subsidies, and R&TD subsidies, "complemented a nd supplemented" the "product effect" of LA/MSF,
in that they similarly contributed to Airbus' ability to bring to the market its models of LCA, thereby
causing displacement of Boeing LCA from the European Union and third country markets, and
significant lost sales, under Article 6.3(a), (b), and (c) of the SCM Agreement.
(i) Equity infusions
1381. We begin with the equity infusions by the Governments of France and Germany in
connection with the corporate restructuring of the national companies that at that time were part of the
Airbus consortium, namely Aérospatiale and De utsche Airbus. The Panel found that the capital

3009European Union's appellant's submission, para. 645.
3010See European Union's appellant's submission, paras. 646 and 648.
3011European Union's appellant's submission, para. 648.
WT/DS316/AB/R BCI deleted, as indicated [***]

contributions to Aérospatiale made by the Fren ch Government in 1987, 1988, and 1994, the capital
contribution to Aérospatiale made by Crédit Lyonnais in 1992
3012, the French Government's 1998
transfer of its 45.76% equity interest in Dassault Aviation to Aérospatiale3013, and the 1989 acquisition
by KfW of a 20% equity interest in Deutsche Airbus and the 1992 transfer of that equity interest to
MBB
3014, were specific subsidies that caused serious prejudice to the United States' interests under
Article 5(c) of the SCM Agreement.
1382. The Panel found that the equity infusions and share transfer measures "complemented and
supplemented" the "product effect" of LA/MSF and, th erefore, had "the same effect on Airbus' ability
to launch the LCA it launched at the time that it did"3015 for the following reasons:
The equity investments and share transfer measures of the French and
German governments ensured the c ontinued existence and financial
stability of the respective national entities engaged in the Airbus
enterprise. Those entities were a necessary element of the overall
Airbus effort, as it is clear to us th at without their participation in the
overall effort, Airbus would not have been able to continue to
develop, launch and produce LCA in fulfilment of the goal of
developing a full range of LCA for the market. Moreover, as noted
above, Aérospatiale required th e additional equity to fund
investments in fixed assets and inve ntory, and advances to suppliers,
in connection with the development of new aircraft. As the
European Communities acknowledges that Aérospatiale could not
have undertaken these investme nts without the government's
assistance through equity infusions, it seems clear to us that these
equity investments directly supported the development of LCA in a
manner that was as direct as LA/MSF.
3016 (footnote omitted)
1383. On appeal, the European Union argues that there are "simply no underlying factual findings to
support the Panel's ultimate conclusion that but fo r the equity investments and share transfers,
individual Airbus LCA would not have been launched." 3017 In particular, the European Union
maintains that the Panel failed to explain adequately how the transfer of KfW's 20% equity interest in
Deutsche Airbus to MBB enabled a product launch. 3018 The European Union argues that the Panel's

3012Panel Report, para. 7.1380.
3013Panel Report, para. 7.1414.
3014Panel Report, para. 7.1302.
3015Panel Report, para. 7.1956.
3016Panel Report, para. 7.1957.
3017European Union's appellant's submission, para. 652.
3018See European Union's appellant's submission, paras. 653 and 654. The European Union advances
similar arguments in relation to the transfer by the French Government of its 45.76% stake in Dassault Aviation
to Aérospatiale. We do not address this measure further because we have reversed above the Panel's finding
that this measure conferred a benefit within the meaning of Article 1.1(b) of the SCM Agreement.
BCI deleted, as indicated [***] WT/DS316/AB/R

failure to provide an evidentiary basis and a r easoned and adequate explanation for its causation
finding constitutes a violation of Article 11 of the DSU.
3019
1384. The United States responds that the Panel was co rrect in finding that the equity infusions
"complemented and supplemented" the "product e ffect" of LA/MSF, in that they ensured the
continued existence and financial stability of Ai rbus national entities, thus enabling Airbus to
continue to develop and launch a full range of LCA. 3020 The United States adds that an EC State Aid
Memorandum demonstrated that Airbus could not have undertaken investments in fixed assets and
inventory, and advances to suppliers , in connection with the developm ent of new aircraft without the
government's assistance through equity infusions.3021
1385. We recall that we have reversed the Panel's finding that the 1998 transfer by the French
Government of its 45.76% interest in Dassault Aviati on to Aérospatiale conferred a benefit within the
meaning of Article 1.1(b) of the SCM Agreement and that we were unable to complete the analysis.3022
Accordingly, because there is no b asis to assess the adverse effects of measures that have not been
found to constitute specific subsidies within the meaning of Articles 1 and 2 of the SCM Agreement,
we declare moot and of no legal effect the Panel' s causation finding, in paragraph 8.2 of the Panel
Report, to the extent that it relates to the 1998 share transfer.
1386. Turning to the other equity infusions at issue, we note that they were capital investments that
were not necessarily tied to the development of any particular model of Airbus LCA. However, the
equity infusions at issue were corporate restru cturing measures undertaken with the specific purpose

3019European Union's appellant's submission, paras. 661 to 664.
3020United States' appellee's submission, para. 668. The United States also referred to the
European Union's statement:
The United States challenged four capital contributions made by the French
State to Aérospatiale, a French company wholly-owned by the French State,
in the years 1987, 1988, 1992 and 1994. The purpose of the new capital was
to fund expansion in LCA product development, in light of robust prospects
for substantial future growth in the demand for LCA. From the mid-1980s,
among other projects and product lines, Aérospatiale began to ramp-up for
the manufacture of the A320, with the first delivery due in 1988. In
addition, the company was contemplating a new long-haul programme that
was eventually launched in 1987 as the A330/A340, with the first delivery
in 1993. This ambitious investment programme required additional equity
capital as a base for further borrowing capacity; in addition to the initial
design cost, the production of a new aircraft requires significant capital
investment in specialised facilities and equipment.
(Ibid., para. 669 (quoting European Union's appellant's submission, para. 1094, in turn referring to
European Communities' first written submission to the Panel, paras. 1134 and 1135))
3022See supra, para. 1026.
WT/DS316/AB/R BCI deleted, as indicated [***]

of addressing the undercapitalization of both Aérospatiale
3023 and Deutsche Airbus 3024, which, during
the 1990s, threatened the investment capacity—and indeed the very existence—of both companies.
As the Panel correctly noted, th ese equity infusions "ensured the continued existence and financial
stability"3025 of Aérospatiale and Deutsche Airbus. Give n the nature and structure of the Airbus

3023In respect of the capital contributions made between 1987 and 1994, the European Communities
argued that, in producing the A320 (which entered commercial service in March 1988), Aérospatiale had made
significant investments in capital, in addition to investin g in increasing levels of work-in-process inventory as
production ramped up. (Panel Report, para. 7.1345 (referring to European Communities' first written submission
to the Panel, para. 1134; European Communities' second written submission to the Panel, para. 524; and
Aérospatiale, Annual Report 1990 (Panel Exhibit EC-177), p. 4)) According to the European Communities,
"a strong order book in the late 1980s, and robust forecasts for the new A320 and for the A330/A340
programme then under development, meant that management and the company's shareholder had ample
evidence that the company's performan ce would improve significantly." ( Ibid., para. 7.1346 (quoting
European Communities' first written submission to the Panel, para. 1117)) The European Communities also
argued that the significant indebtedness of Aérospatiale during the late 1980s can be explained by reference to
the financial demands of developing and manufacturing the A320. ( Ibid. para. 7.1349 (referring to
European Communities' second written submission to th e Panel, para. 525)) The Panel noted that the
European Communities had explained that Aérospatiale required additional equity capital in 1987 and 1988 in
order to fund new investments, such as the ramp-up for manufacture of the A320 (with first delivery due in
1988) and the launch of the A330/A340 in 1987 (with first delivery due in 1993). ( Ibid., para. 7.1364 (referring
to European Communities' first written submission to the Pa nel, paras. 1134 and 1135)) The Panel also noted
the European Communities' reference to statements by a Crédit Lyonnais executive following the announcement
of the capital investment in August 1992 to the effect that the investment was justified by the good prospects for
the A330/A340 programme, which would start generating substantial revenue in 1994. ( Ibid., para. 7.1369
(referring to "Crédit Lyonnais to Buy 20% Stak e in Aérospatiale from French Government", Aviation Week &
Space Technology, 3 August 1992 (Panel Exhibit US-284))
3024Deutsche Airbus was the German partner in the Airbus GIE consortium, founded in 1967 to assume
work for the development of a European wide-body aircraft. By 1989, it had become the wholly owned
subsidiary of MBB, which was itself the largest aerospace company in West Germany, and which, together with
another German firm, Dornier, performed the German share of the Airbus Industrie consortium's development
and series production work. (Panel Report, para. 7.1246) Deutsche Airbus, however, had been undercapitalized
by MBB and was largely dependent on financial aid from the German Government. ( Ibid.) In the years prior to
1989, the German Government had been encouraging MBB to obtain additional private capital for Deutsche
Airbus, but attempts had been unsuccessful. The German Government itself had committed LA/MSF as well as
other financial aid for sales and series production. In addition, as the Panel noted, by 1989, "Deutsche Airbus
also anticipated that it would require additional financing for the A320 programme, and the start-up of the
A330/A340 programme". ( Ibid., para. 7.1247) Elsewhere, the Panel al so referred to a 1988 statement by the
German Ministry of Economics that the German Government, at that time, bore all of Deutsche Airbus' risk
through its provision of guarantees for the costs of the A300/A310 programmes. (Ibid., para. 7.1277 (referring to
Handelsblatt No. 212, 3 November 1988, p. 24 "Daimler-Benz-MBB / Statement of the German Federal
Ministry of Economics on the Restructuring of the Aviation Industry" (Panel Exhibit US-259))) Against this
background, the German Government undertook to restructure Deutsche Airbus and "gradually shift the risks
associated with the participation in Airbus GIE to the private sector". The restru cturing plan involved the
industrial group, Daimler-Benz, acquiring control of MBB (and therefore Deutsche Airbus) through a newly
created subsidiary "Dasa". One element of the restructuring plan was a 1989 acquisition by a German
development bank Kreditanstalt für Wiederaufbau (KfW) of a 20% equity interest in Deutsche Airbus, and the
1992 transfer of that 20% equity interest to MBB (the parent company of Deutsche Airbus). (See Panel Report,
para. 7.1248) With respect to the transfer of the 20% eq uity interest in Deutsche Airbus back to MBB in 1992,
the Panel noted that MBB was "inherently linked with De utsche Airbus' ability to continue to operate in LCA
business" and that, in the absence of proof to the co ntrary by the European Communities, MBB, along with
Deutsche Airbus, could be considered a producer of Airbus LCA for purposes of its subsidy analysis. ( Ibid.,
para. 7.1294)
3025Panel Report, para. 7.1957.
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consortium, it would have been unlikely that Airbus could have continued to develop and bring to the
market its successive models of LCA without the participation of each of the national companies
engaged in the Airbus enterprise. As the Panel noted:
The development and production of Airbus LCA was divided among
the national companies participating in the Airbus consortium. Thus
... the French company, Aérospatia le, was responsible for flight
control systems, cockpits, power plant integration, ground flight
testing, complex structural sections, equipped subassemblies and
technical publications. The German company, DASA, produced the
major fuselage sections containing hydraulic equipment, secondary
flight control systems, wing assemblies and commercial furnishing,
as well as equipping the wings furnished by BAE Systems. DASA
also carried out final assembly of A321 and A319 aircraft, as well as
some cabin outfitting and customization of the cabins of the
A300/A310 and the A320 family.
3026
1387. The above factual finding by the Panel, in our view, sufficiently demonstrates that
Aérospatiale and Dasa were responsible for fundamental portions of the assembly of certain models of
Airbus LCA, in particular the A300, A310, A319, A320, and A321. The Panel further observed that
the evidence suggested that "this division of labour continued with subseque nt models of Airbus
LCA."3027 This, in our view, supports the Panel's c onclusion that Aérospatiale and Dasa "were a
necessary element of the overall Airbus effort", and that without their participation "Airbus would not
have been able to continue to develop, launc h and produce LCA in fulfilment of the goal of
developing a full range of LCA for the market."3028
1388. Furthermore, by the European Communities' own admission, Aérospatiale "required
additional equity capital in 1987 and 1988 in order to fund new investments, such as the ramp-up for
manufacture of the A320 (with first delivery due in 1988) and the launch of the A330/A340 in 1987
(with first delivery due in 1993)." 3029 In this context, the European Communities further explained
that:
{i}n addition to the initial design cost, the production of a new
aircraft requires significant capital investment in specialized facilities
and equipment. Furthermore, as the number of planes produced
increases, so does the need to fi nance an increasing investment both
in work-in-process inventory and advances to suppliers. From 1986
to 1992, Aérospatiale increased its investment in net fixed assets
from FF 3.6 billion to FF 5.6 billion. In addition, its investment in

3028Panel Report, para. 7.1957.
3029Panel Report, para. 7.1364 (referring to Europ ean Communities' first written submission to the
Panel, paras. 1134 and 1135).
WT/DS316/AB/R BCI deleted, as indicated [***]

inventory increased, from FF 11.4 billion in 1986 to a peak of
FF 15.4 billion in 1990; similarly, advances to suppliers doubled,
from FF 2 billion in 1986 to FF 4 billion in 1992. It is not surprising
that Aérospatiale required additional equity capital to fund the new
investments. Internally generated cash flow was not sufficient, and a
prudent debt-to-equity ratio placed limits on the amount of new debt
that could be borne.
3030 (footnotes omitted)
1389. Therefore, we agree with the Panel that "Aér ospatiale required the additional equity to fund
investments in fixed assets and inventory, and advances to suppliers, in connection with the
development of new aircraft." 3031 The European Communities acknowledged that "{i}nternally
generated cash flow was not sufficient" and that "a prudent debt-to-equity ratio placed limits on the
amount of new debt that could be borne". 3032 Therefore, the Panel consid ered that Aérospatiale could
not have undertaken further investment in LCA de velopment had it not obtained the equity infusions
by the French Government. 3033 This, in our view, supports the Pa nel's conclusion that "these equity
investments directly supported the development of LCA in a manner as direct as LA/MSF."3034
1390. Based on the above, we consider that the Panel had a sufficient basis to conclude that the
French and German equity infusions into Aérospa tiale had a genuine connec tion to Airbus' ability to
develop and bring to the market particular m odels of LCA, both by guaranteeing the continued
existence and financial stability of Aérospatiale and Dasa, and by enhancing those companies'
borrowing capacity in the wake of further i nvestments in the production and development of
particular models of LA/MSF-financed Airbus LC A. We consider that these equity infusions
provided support to Airbus' efforts in developing and bringing to the market those models of Airbus
LCA, with corresponding effects on Boeing's LCA sales.
1391. Accordingly, we conclude that the Panel did not err in its application of Articles 5(c)
and 6.3(a), (b), and (c) of the SCM Agreement in finding that the equity infusions constituting specific
subsidies within the meaning of Articles 1 and 2 of the SCM Agreement "complemented and
supplemented" the effects of LA/MSF on Airbus' abil ity to launch and bring to the market its models
of LCA. We further conclude, for the reasons stat ed above, that the Panel had a sufficient evidentiary
basis and provided a sufficiently reasoned and adeq uate explanation for this finding, and therefore
acted consistently with its duty to conduct an objective assessment of the matter under Article 11 of
the DSU.

3030European Communities' first written submission to the Panel, para. 1135.
3031Panel Report, para. 7.1957.
3032European Communities' first written submission to the Panel, para. 1135).
3033Panel Report, para. 7.1957.
3034Panel Report, para. 7.1957.
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(ii) Infrastructure measures
1392. The Panel found that the provision of the Mühlenberger Loch industrial site, the provision of
the extended runway at the Bremen airport, the pr ovision of the Aéroconstella tion industrial site and
associated EIG facilities, as well as regional grants by German authorities in Nordenham and Spanish
authorities in Sevilla, La Rinconada, Toledo, Puerto de Santa Maria, and Puerto Real
3035, constituted
specific subsidies that caused serious prejudice to the United States' inte rests under Articles 5(c)
and 6.3(a), (b), and (c) of the SCM Agreement.
1393. In coming to the conclusion that the in frastructure measures "complemented and
supplemented" the "product effect" of LA/MSF inso far as they all had "the same effect on Airbus'
ability to launch the LCA it launched at the time that it did"3036, the Panel reasoned that:
{t}he infrastructure subsidies similarly provided essential support to
the development and production of Ai rbus LCA, relieving Airbus of
significant expenses in connection with the development of facilities
for the production of, most particularly, the A380, and thus enabling
it to continue with the launch of successive models of LCA. Even
assuming, as the European Communities contends, that the
establishment of an A380 final assembly line in Hamburg [***], the
establishment of that line was necess ary in order to ensure [***],
which we consider to have been nec essary to the ability of Airbus to
launch the A380.
3037 (footnote omitted)
1394. On appeal, the European Union argues that th e Panel provided no evidentiary support for its
conclusion that, but for the infrastructure subsidies, Airbus would not have been able to launch its
LCA and consequently would not have caused displacement and lost sales of Boeing LCA. 3038 The
European Union maintains that the Panel failed to take into account the nature and effect of the
infrastructure subsidies, particularly in the light of its recognition that the Mühlenberger Loch project
in Hamburg made it [***] to launch the A380. 3039 The European Union further notes that the Panel
ignored evidence that demonstrated that regional aid measures in Germany and Spain were designed
to offset the additional burden of investing in less-developed regions, a nd thus could not have
"reliev{ed} Airbus from significant expenses in conn ection with the development of facilities for the
production of" LCA.3040 The European Union argues that the Pa nel's failure to provide an evidentiary

3035Panel Report, paras. 7.1235, 7.1236, 7.1244, and 8.1(b)(iv).
3036Panel Report, para. 7.1956.
3037Panel Report, para. 7.1958.
3038European Union's appellant's submission, para. 655.
3039European Union's appellant's submission, para. 656.
WT/DS316/AB/R BCI deleted, as indicated [***]

basis and a reasoned and adequate explanation fo r its causation finding constitutes a violation of
Article 11 of the DSU.
3041
1395. The United States responds that the Panel correc tly held that infrastructure measures were
granted during the period when each succeeding m odel of Airbus LCA was being developed and
brought to the market. The United States further subm its that the Panel did not err in finding that the
infrastructure measures "complemented and suppl emented" the "product effect" of LA/MSF by
"relieving Airbus of significant expenses in conne ction with the development of facilities for the
production of, most particularly, the A380, and t hus enabling it to continue with the launch of
successive models of LCA".3042
1396. In section VII.B, we have reversed the Panel's finding regarding the financial contribution and
the benefit conferred by the provision of the Mühle nberger Loch industrial site. However, we have
completed the legal analysis and found that the l ease of the land at that site constituted a financial
contribution that conferred a be nefit on Airbus within the meaning of Article 1.1(b) of the
SCM Agreement.3043 We have also reversed the Panel's finding regarding the financial contribution
and the benefit conferred on Airbus by the provision of the lengthened Bremen airport runway, but
completed the legal analysis and found that the right to exclusive use of the extended runway at the
Bremen airport constituted a financial contri bution that conferred a benefit on Airbus. 3044 Similarly,
we have reversed the Panel's finding regarding th e Aéroconstellation industr ial site and associated
EIG facilities. However, we were unable to comp lete the analysis in relation to infrastructure
measures regarding the Aéroconstellation indu strial site and associated EIG facilities. 3045
Accordingly, because there is no b asis to assess the adverse effects of measures that have not been
found to constitute specific subsidies within the meaning of Articles 1 and 2 of the SCM Agreement,
we declare moot and of no legal effect the Panel' s causation finding, in pa ragraph 8.2 of the Panel
Report, to the extent that it relates to infr astructure measures regarding the Aéroconstellation
industrial site and associated EIG facilities.3046
1397. As regards the other infrastructure measures, we agree with the European Union that
differences in the nature and operation of LA/MSF and infrastructure measures may suggest that these
measures had distinct effects. While infrastructur e measures were grants aimed at expanding Airbus'

3041European Union's appellant's submission, paras. 661-664.
3043See supra, para. 990.
3044See supra, para. 992.
3045See supra, para. 993.
3046This applies as well to the special purpose facilities at the Mühlenberger Loch industrial site, for
which we were also unable to complete the analysis.
BCI deleted, as indicated [***] WT/DS316/AB/R

production facilities, LA/MSF were loans aimed at c overing the development costs of specific models
of Airbus LCA. However, the infrastructure meas ures at issue in this dispute all have a genuine
causal link with the creation or expansion of producti on facilities for various models of Airbus LCA.
Therefore, we consider that these infrastructur e measures complemented or supplemented LA/MSF in
contributing to Airbus' ability to introduce its models of LCA into the market.
1398. In particular, the provision of the lease of the land at the Mühlenberger Loch industrial site
adjacent to Airbus' facilities in Hamburg to Airbus had the specific purpose of facilitating the final
assembly of the A380 at that site.
3047 Similarly, the right to excl usive use of the Bremen airport
runway extension was granted to Airbus with th e specific purpose of enabling Airbus to transport
wings from Bremen that were connected with the launch and production of the A330/A340.3048
1399. The situation is less clear with respect to the regional grants that were used to expand Airbus'
or EADS' LCA-manufacturing facilities. As the Eu ropean Union correctly notes, the Panel did not
specifically refer to such regional grants3049 in its causation analysis, thus making it difficult to discern
on what basis it inferred that such regional gr ants complemented or supplemented LA/MSF and
contributed to Airbus' ability to launch and bring to the market its models of LCA. However, we
understand the Panel to have used the generic refere nce to infrastructure subsidies as a shorthand way
of referring to the entire class of infrastructure measur es that it had examined in previous parts of its
analysis of the United States' claims. Earlier in its analysis, the Panel found that "each of the
challenged regional grants" constituted subsidies "in connection with the production of LCA."3050 The
Panel also made several specific findings in respect of these grants. The Panel made a factual finding,
for instance, that a grant by the Ge rman Land of Lower Saxony to Airbus was used "for the extension
of Airbus Germany's existing ma nufacturing site in Nordenham." 3051 The Panel further made factual
findings that grants by the Spanish Government a nd regional government authorities benefited Airbus
Spain's facilities in Toledo and Puerto Real, a nd EADS-CASA's facilities in Sevilla, La Rinconada,

3047See Panel Report, paras. 7.1075-7.1080.
3048The United States referred to a 2001 judgment by the Bremen Administrative Court, which
confirmed that the use of the extended runway was limited to Airbus, and only for the transport of wings for the
A330/A340 or future models. (Panel Report, paras. 7.1105-7.1107, and footnotes 4058 and 4081 to
paras. 7.1118 and 7.1130 respectively)
3049The Panel's finding that the regional grants are specific subsidies within the meaning of Articles 1
and 2 of the SCM Agreement was not appealed.
3050Panel Report, para. 7.1218.
3051Panel Report, para. 7.1206 (referring to European Communities' first written submission to the
Panel, para. 881). We also note that the United States as serted that grants to this facility were for the specific
purpose of expanding its A380 com ponent production facility. (United States' first written submission to the
Panel, para. 488 (referring to Niedersächsischer Landtag, Drucksache 14/3447, Entschliessungsantrag der SPD
Fraktion (5 June 2002) (Panel Exhibit US-225)))
WT/DS316/AB/R BCI deleted, as indicated [***]

and Puerto Santa Maria.
3052 Finally, although the European Co mmunities contested that one of the
grants—an October 2004 grant to EADS-CASA's f acilities in Sevilla—did not confer a benefit on
LCA production, the Panel found that the grants benefited Airbus Spain's LCA-related activities. 3053
It would have been useful had the Panel elaborated in its analysis how these infrastructure measures
supplemented and complemented the effects of LA/MSF. However, in our view, these factual
findings by the Panel provide a sufficient basis for c oncluding that such regional grants were used to
expand Airbus' manufacturing sites or EADS-CAS A's LCA-related activities, thus supporting the
Panel's inference that such regional grants "provided essential support to the development and
production of Airbus LCA, relieving Airbus of significant expenses in connection with the
development of facilities for the production" and enab ling it to continue with the launch of successive
models of LCA.3054
1400. Therefore, we conclude that the Panel did not err in its application of Articles 5(c)
and 6.3(a), (b), and (c) of the SCM Agreement in finding that the infrastructure measures constituting
specific subsidies within the meaning of Articles 1 and 2 of the SCM Agreement "complemented and
supplemented" the "product effect" of LA/MSF by contributing to Airbus' ability to launch and bring
to the market its models of LCA as and when it di d. We further conclude, for the reasons stated
above, that the Panel had a sufficient evidentiary basis and provided a sufficiently reasoned and
adequate explanation for this finding consistently with its duty to conduct an objective assessment of
the matter, including an objective assessment of the facts, under Article 11 of the DSU.
(iii) R&TD subsidies
1401. Finally, we examine the Panel's finding relating to the R&TD subsidies at issue.
1402. The Panel found that the following R&TD measures constituted specific subsidies that caused
serious prejudice to the United States' interests unde r Articles 5(c) and 6.3(a), (b), and (c) of the
SCM Agreement: the grants to Airbus provided under the Second, Third, Fourth, Fifth, and Sixth
EC Framework Programmes; the loans to Airbus provided under the Spanish PROFIT programme;

3052Panel Report, paras. 7.1207 to 7.1211. The Panel considered that the United States' challenge
against certain grants to facilities in Sevilla or Sevilla/La Rinconada concerned grants the
European Communities had argued were granted to a facility in Sevilla, not La Rinconada. (Panel Report,
3053Panel Report, paras. 7.1214 to 7.1217. Although the European Communities asserted that this grant
was used for non-civil aircraft-related activities, the Panel concluded that both the Tablada and San Pablo
facilities in Sevilla were partly engaged in LCA-relate d activities. The Panel considered that information
contained in Panel Exhibit EC-139 (BCI) indicates that work at the Tablada plant is done for Airbus' A320 and
A380 models ( ibid., footnote 4250 to para. 7.1217), and that information contained in Panel Exhibit EC-138
(BCI) indicates that work at the San Pablo facility involves [***] (ibid., footnote 4253 to para. 7.1217).
3054Panel Report, para. 7.1958.
BCI deleted, as indicated [***] WT/DS316/AB/R

the grants to Airbus provided by the French Gove rnment; the grants to Airbus provided by the
German Federal Government; the grants to Ai rbus provided by certain German sub-federal
governments; the loans to Airbus provided under the Spanish PTA programme; and the grants to
Airbus provided under the UK CARAD programme.
3055
1403. The Panel found that R&TD subsidies "had th e same effect {as LA/MSF} on Airbus' ability
to launch the LCA it launched at the time that it did"3056 for the following reasons:
{T}he R&TD subsidies enabled Airbus to develop features and
aspects of its LCA on a schedule that it would otherwise have been
unable to accomplish. Even in the case of those R&TD subsidies
directed to pre-competitive research, the ability to fund such efforts
at a time when it would likely have been unable to do so in light of
other demands on its resources was, in our view, significant in
ensuring the launch of successive models of Airbus LCA. While we
recognize that the impact of pre-competitive R&TD subsidies on
Airbus' market presence was perhaps more attenuated, compared
with the other subsidies at issue, or with R&TD subsidies that funded
research and technology actually u sed on LCA that were launched,
we believe that combined with the others, the R&TD subsidies
complemented and supplemented the impact of LA/MSF.
3057
1404. On appeal, the European Union argues that th e Panel failed to establish that any of the
"features and aspects" of its LCA that were deve loped with funding from R&TD subsidies impacted
Airbus' product launch decisions.3058 The European Union further ch arges the Panel with establishing
"causation through association" 3059 with LA/MSF, despite its recognition that the impact of
"pre-competitive" R&TD subsidies on Airbus ' market presence was "more attenuated". 3060 T h e
European Union further argues that the Panel's failu re to provide an evidentiary basis and a reasoned
and adequate explanation for its causation finding constitutes a violation of Article 11 of the DSU.3061
1405. The United States counters that the Panel correctly found that R&TD subsidies
"complemented and supplemented" the "product effect" of LA/MSF, because they enabled Airbus to
"develop features and aspects of its LCA on a schedule that it would otherwise have been unable to
accomplish".
3062

3055Panel Report, para. 7.1608.
3056Panel Report, para. 7.1956.
3057Panel Report, para. 7.1959.
3058European Union's appellant's submission, para. 659.
3059European Union's appellant's submission, para. 660.
3060European Union's appellant's submission, para. 659 (referring to Panel Report, para. 7.1959).
3061European Union's appellant's submission, paras. 661-664.
WT/DS316/AB/R BCI deleted, as indicated [***]

1406. As we have reversed the Panel's finding th at loans under the Spanish PROFIT programme
were within the Panel's terms of reference under Article 6.2 of the DSU, we declare moot and of no
legal effect the Panel's causation finding, in paragr aph 8.2 of the Panel Report, to the extent that it
relates to loans under the Spanish PROFIT programme.
1407. With respect to the other R&TD subsidies, we agree with the European Union that a general
finding that they enabled Airbus to develop "features and aspects" of its LCA on a schedule that
otherwise it would have been unable to accomplish does not provide a sufficient basis to determine
that R&TD subsidies "complemented and supplemented" the "product effect" of LA/MSF in enabling
Airbus to launch particular models of LCA. As the Panel seemed to have recognized in relation to
"pre-competitive" R&TD subsidies, whose impact on Airbus' market presence it considered more
"attenuated"
3063, R&TD subsidies will not have any impact on Airbus' (and consequently on Boeing's)
sales unless they provide Airbus LCA with a competitiv e advantage in relation to Boeing LCA. Such
competitive advantage, in our view, must be reflected either in technologies incorporated in models of
LCA actually launched by Airbus, or in technologies that make the production process of those LCA
more efficient. Without specific findings that technology or production processes funded by R&TD
subsidies contributed to Airbus' ability to launch and bring to the market particular models of LCA,
the Panel did not have a sufficient basis to co nclude that those subs idies "complemented and
supplemented" the "product effect" of LA/MSF.
1408. For these reasons, we find that the Panel erred unde r Articles 5(c) and 6.3(a), (b), and (c) of
the SCM Agreement when it found that the R&TD subsidi es "complemented and supplemented" the
"product effect" of LA/MSF without establishing a genuine causal link between those R&TD
subsidies and Airbus' ability to launch and bring to the market its models of LCA. In failing to
provide a sufficient evidentiary basis for its findi ng that the effect of non-LA/MSF subsidies was the
displacement of Boeing LCA from the EC and relevant third country markets and significant lost sales
under Article 6.3(a), (b), and (c) of the SCM Agreement, the Panel failed to conduct an objective
assessment of the matter, including an objective assessment of the facts, as required by Article 11 of
the DSU.
1409. Accordingly, we reverse the Panel's finding that the effect of R&TD subsidies was the
displacement of Boeing LCA from the EC and releva nt third country markets, and significant lost
sales, within the meaning of Article 6.3(a), (b), and (c) of the SCM Agreement.

3063Panel Report, para. 7.1959.
BCI deleted, as indicated [***] WT/DS316/AB/R

(c) Conclusions
1410. Based on all of the foregoing, we agree with the Panel that the equity infusions and
infrastructure measures at issue, except for those that have not been found to constitute specific
subsidies within the meaning of Articles 1 and 2 of the SCM Agreement
 3064, "complemented and
supplemented" the "product effect" of LA/MSF in that they positively impacted Airbus' ability to
launch and bring to the market its models of LCA.3065
1411. However, we consider that the Panel erred under Articles 5(c) and 6.3(a), (b), and (c) of the
SCM Agreement when it found that R&TD subsidies "com plemented and supplemented" the "product
effect" of LA/MSF without establishing a genuine ca usal link between R&TD subsidies and Airbus'
ability to launch and bring to the market its models of LCA.3066
1412. Based on all of the foregoing, we uphold the Panel's finding, in paragraph 8.2 of the Panel
Report, that the effect of specific subsidies in the form of LA/MSF, as well as the equity infusions and
infrastructure measures identified above, was th e displacement of Boeing LCA from the EC and
relevant third country markets, and significant lost sales, within the meaning of Article 6.3(a), (b),
and (c), which constitutes serious prejudice to the United States' interests under Article 5(c), of the
SCM Agreement.
3067
1413. However, we reverse the Panel's finding, in paragraph 8.2 of the Panel Report, that the effect
of R&TD subsidies was the displacement of Bo eing LCA from the EC and relevant third country
markets, and significant lost sales, within the meani ng of Article 6.3(a), (b), and (c), which constitutes
serious prejudice to the United States' interests under Article 5(c), of the SCM Agreement.

3064We have declared moot and of no legal effect the Panel's finding, in paragraph 8.2 of the Panel
Report, to the extent that it relates to the equity infusion by the French Government of its 45.76% interest in
Dassault Aviation into Aérospatiale, and the infrastructu re measures regarding the Aéroconstellation industrial
site and associated EIG facilities.
3065Panel Report, paras. 7.1956-7.1958.
3066Panel Report, para. 8.2.
3067The European Union did not appeal the Panel's analysis of causation in relation to the lost sales
involving A340 sales to Iberia, South African Airways, an d Thai Airways International. Therefore, this aspect
of the Panel's analysis stands.
WT/DS316/AB/R BCI deleted, as indicated [***]

X. Findings and Conclusions
1414. For the reasons set out in this Report, in re lation to the issues rai sed on appeal by the
European Union, the Appellate Body:
(a) reverses
 the Panel's finding, in paragraph 7.1 422 of the Panel Report, that the R&TD
loans provided pursuant to the Spanish PROF IT programme were within the Panel's
terms of reference;
(b) upholds the Panel's finding, in paragraph 7.158 of the Panel Report, that the French
R&TD grants were within the Panel's terms of reference;
(c) modifies the Panel's interpretation of Article 5 of the SCM Agreement , but upholds
the Panel's conclusion, in paragraph 7.65 of the Panel Report, rejecting the European
Communities' request to exclude all alle ged prohibited and actionable subsidies
granted prior to 1 January 1995 from the temporal scope of the dispute;
(d) with respect to the Panel's interpretation of Articles 1, 4.7, 5, 6, and 7.8 of the
SCM Agreement and their application to transactions involving certain Airbus
companies:
(i) modifies the Panel's interpretation, but upholds the Panel's ultimate finding,
in paragraphs 7.222 and 7.287 of the Pa nel Report, that Articles 5 and 6 of
the SCM Agreement do not require that a complainant demonstrate that a
benefit "continues" or is "present" during the reference period for purposes of
an adverse effects analysis;
(ii) reverses the Panel's finding, in paragra phs 7.248, 7.255, and 7.288 of the
Panel Report, that the sales transactions at issue did not "extinguish" a
portion of past subsidies, because the Panel failed to assess whether the
partial privatizations and private-to-pri vate sales transactions were at arm's-
length terms and for fair market value, and to what extent they involved a
transfer in ownership and control to new owners; but finds
 that there are
insufficient factual findings by the Pane l or undisputed facts on the Panel
record to complete the legal anal ysis and determine whether these
transactions "extinguished" a portion of past subsidies;
BCI deleted, as indicated [***] WT/DS316/AB/R

(iii) does not a priori exclude the possibility that all or part of a subsidy may be
"extracted" by the removal of cash or cash equivalents; but upholds
 the
Panel's ultimate finding, in paragraphs 7.276 and 7.288 of the Panel Report,
that the "cash extractions" from Dasa and CASA did not remove a portion of
past subsidies;
(iv) upholds
 the Panel's ultimate finding, in paragraphs 7.283, 7.284, and 7.289 of
the Panel Report, that the "cash extractions" did not result in the "withdrawal"
of subsidies within the meaning of Articles 4.7 and 7.8 of the
SCM Agreement; and has no basis on which to make a finding that the sales
transactions at issue resulted in the "withdrawal" of subsidies within the
meaning of Articles 4.7 and 7.8 of the SCM Agreement;
(v) declines
 to make additional findings as to whether the Panel failed to make an
objective assessment of the matter and thereby acted inconsistently with
Article 11 of the DSU in its treatment of the European Communities'
arguments concerning the "extinction" , "extraction", and "withdrawal" of
subsidies; and
(vi) upholds
 the Panel's finding, in paragra phs 7.200 and 7.286 of the Panel
Report, that the United States was not required to demonstrate, as part of its
prima facie case under Article 5 of the SCM Agreement , that subsidies
provided to the Airbus Industrie cons ortium "passed through" to the current
producer of Airbus LCA, Airbus SAS;
(e) regarding the issue of whether the chal lenged LA/MSF measures conferred a benefit
within the meaning of Article 1.1(b) of the SCM Agreement:
(i) finds
 that Article 4 of the 1992 Agreement is not a relevant rule of
international law applicable in the rela tions between the parties, within the
meaning of Article 31(3)(c) of the Vienna Convention , that informs the
meaning of "benefit" under Article 1.1(b) of the SCM Agreement , and that
Article does not form "part of the facts to establish the relevant market
benchmark";
(ii) finds that the Panel's reasoning relating to its use of the project-specific risk
premium proposed by the United States wa s internally inconsistent, and that
WT/DS316/AB/R BCI deleted, as indicated [***]

the Panel thereby failed to comply with its duty to make an objective
assessment of the facts as required under Article 11 of the DSU; and
consequently reverses
 the Panel's findings, in para graphs 7.481 and 7.488 of
the Panel Report, that the United St ates' proposed project-risk premium
constituted the minimum project risk for the A300 and A310, the exterior
upper boundary of the range of project risk for the A320, A330/A340, A330-
200, and A340-500/600, and the intern al upper boundary of the range of
project risk for the A380;
(iii) finds that several aspects of the Panel's assessment of the project-specific risk
premium proposed by the European Communities were not consistent with
the requirement in Article 11 of the DS U to make an objective assessment of
the facts; but nevertheless upholds
 the Panel's conclusion, in paragraph 7.479
of the Panel Report, that the European Communities' proposed
project-specific risk premium underestimated the risk premium that a market
operator would have reasonably demand ed Airbus pay for financing on the
same or similar terms as the challenged LA/MSF;
(iv) because the uncontested ev idence indicates that, ev en leaving aside the
project-specific risk premium, the rates of return obtained by the member
States on all but two of the challenge d LA/MSF measures are below a market
benchmark that does not include a projec t-specific risk premium, and the rate
of return obtained by the member States under the other two LA/MSF
measures is below a market benchmark th at includes the project-specific risk
premium proposed by the European Communities, upholds
 the Panel's
findings, in paragraphs 7.489 and 7. 490 of the Panel Report, that the
challenged LA/MSF measures conferred a benefit within the meaning of
Article 1.1(b) of the SCM Agreement; and
(v) reverses the Panel's finding, in paragraph 7. 397 of the Panel Report, that "the
number of sales over which full repayment is expected says little, if anything,
about the appropriateness of the rate of return that will be achieved by the
lender";
(f) upholds the Panel's finding, in paragraph 7.1566 of the Panel Report, that the R&TD
subsidies granted to Airbus under each of the EC Framework Programmes were
"specific" within the meaning of Article 2.1(a) of the SCM Agreement;
BCI deleted, as indicated [***] WT/DS316/AB/R

(g) modifies
 the Panel's characterization, in paragraphs 7.1084, 7.1121, and 7.1179 of the
Panel Report, of the financial contributio n, under Article 1.1(a)(1)(iii) of the
SCM Agreement, provided by virtue of the infrastructure measures in Hamburg,
Bremen, and Toulouse; reverses the Panel's findings, in paragraphs 7.1096, 7.1133,
and 7.1190 of the Panel Report, that these fi nancial contributions conferred a benefit
within the meaning of Article 1.1(b) of the SCM Agreement; and finds , instead, that
the provision of the lease of the land at the Mühlenberger Loch industrial site in
Hamburg and the provision of the right to exclusive use of the extended runway at the
Bremen airport conferred a benefit on Airbus within the meaning of Article 1.1(b) of
the SCM Agreement; but finds that there are insufficient factual findings by the Panel
or undisputed facts on the Panel record to complete the legal analysis and determine
whether a benefit was conferred with respect to the Aéroconstellation industrial site
in Toulouse;
(h) upholds the Panel's findings, in paragraphs 7.1367, 7.1371, and 7.1375 of the Panel
Report, that the four challenged capital i nvestments in Aérospatiale conferred a
benefit on Aérospatiale within the meaning of Article 1.1(b) of the SCM Agreement;
(i) reverses the Panel's finding, in paragraph 7.1412 3068 of the Panel Report, that the
French Government's transfer of shares of Dassault Aviation to Aérospatiale
conferred a benefit on Aérospatiale within the meaning of Article 1.1(b) of the
SCM Agreement; but finds
 that there are insufficient fact ual findings by the Panel or
undisputed facts on the Panel record to co mplete the legal analysis and determine
whether a benefit was conferred;
(j) finds, as regards the alleged export subsidies granted under the German, Spanish, and
UK A380 contracts, that the Panel erred in the interpretation of Article 3.1(a) and
footnote 4 of the SCM Agreement , in paragraph 7.648 of the Panel Report, that, in
order to find that the granting of a subsidy is in fact tied to anticipated exportation,
a subsidy must be granted because of anticipated export performance; and
consequently reverses the Panel's finding, in paragraph 7.689 of the Panel Report, that
the United States had demonstrated that the German, Spanish, and UK A380
contracts amounted to prohibited export subsidies within the meaning of
Article 3.1(a) and footnote 4 of the SCM Agreement; finds
 that a subsidy is de facto
export contingent within the meaning of Article 3.1(a) and footnote 4 of the

3068See also Panel Report, para. 7.1414.
WT/DS316/AB/R BCI deleted, as indicated [***]

SCM Agreement if the granting of the subsidy is geared to induce the promotion of
future export performance by the recipient; but finds
 there are insufficient factual
findings by the Panel or undisputed facts on the Panel record to complete the legal
analysis;
(k) finds that, in analyzing "displacement" on the basis of a single subsidized product and
a single market for LCA determined by the complaining Member, the Panel erred in
its interpretation and applicati on of the term "market" in Ar ticle 6.3(a) and (b) of the
SCM Agreement, and acted inconsistently with its obligations under Article 11 of the
DSU by concluding that it was not required to "make an indepe ndent determination
of the 'subsidized product', as opposed to relying on the complaining Member's
identification of that product"; finds that, in the absence of an objective
determination of the relevant product market by the Panel, its conclusion that there is
a single subsidized product and a single lik e product cannot stand, and consequently
reverses the Panel's findings on displacement;
(l) completes the analysis on the basis of the uncontested evidence on the Panel record
and finds, in respect of the first step of the Panel's two-step approach to its assessment
under Article 6.3(a) of the SCM Agreement, that there was displacement during the
reference period 2001-2006 in the single-aisle and twin-aisle LCA product markets in
the European Communities;
(m) completes the analysis on the basis of the uncontested evidence on the Panel record
and finds, in respect of the first step of the Panel's two-step approach to its assessment
under Article 6.3(b) of the SCM Agreement, that there was displacement during the
reference period 2001-2006:
(i) in the single-aisle LCA product market in Australia;
(ii) in the single-aisle and twin-aisle LCA product markets in China; and
(iii) in the single-aisle and twin-aisle LCA product markets in Korea;
(n) completes the analysis and finds that the uncontested evid ence on the Panel record
does not establish displacement over the reference period in Brazil, Mexico,
Singapore, and Chinese Taipei, or threat of displacement in India;
BCI deleted, as indicated [***] WT/DS316/AB/R

(o) upholds
 the Panel's finding, in paragraph 7.18 45 of the Panel Report, under the first
step of its two-step approach to its assessment under Article 6.3(c) of the
SCM Agreement, that the sale to Emirates Airlines of A380 LCA constituted
"significant lost sales";
(p) upholds the Panel's ultimate finding under the second step of its two-step approach, in
paragraph 7.2025 of the Panel Report, that the displacement and lost sales were the
effect of the challenged LA/MSF measures, to the extent it refers to the displacement
in the single-aisle LCA product market in Australia and in the single-aisle and
twin-aisle LCA product markets in the Eu ropean Communities, China, and Korea,
and lost sales in the Air Asia, Air Berlin , Czech Airlines, easyJet, Emirates Airlines,
Qantas, and Singapore Airlines sales campaigns;
(q) upholds the Panel's finding, in paragraph 7.194 8 of the Panel Report, that "either
directly or indirectly, LA/MSF was a n ecessary precondition for Airbus' launch in
2000 of the A380";
(r) upholds the Panel's finding, in paragraphs 7. 1956, 7.1957, 7.1958, and 8.2 of the
Panel Report, that the "product effect" of the LA/MSF measures was "complemented
and supplemented" by the equity infusions, referred to in paragraph 1379 above, and
infrastructure measures, referred to in pa ragraph 1388 above, except those that have
been found not to constitute specific subsid ies within the meaning of Articles 1 and 2
of the SCM Agreement; and
(s) reverses the Panel's finding, in paragraphs 7.1956, 7.1959, and 8.2 of the Panel
Report, that the "product effect" of the LA/MSF was "complemented and
supplemented" by the R&TD subsidies at issue.
1415. For the reasons set out in this Report, in relation to the issues raised by the United States in its
other appeal, the Appellate Body:
(a) finds
 that the alleged LA/MSF "Programme" was not within the Panel's terms of
reference because it was not identified in the request for the establishment of a panel,
as required by Article 6.2 of the DSU;
(b) as a consequence of the Panel's errors in in terpreting and applying Article 3.1(a) and
footnote 4 of the SCM Agreement, reverses the Panel's finding, in paragraph 7.689 of
the Panel Report, that the United States had not shown that the granting of the French
WT/DS316/AB/R BCI deleted, as indicated [***]

LA/MSF for the A380 and A330-200, and the French and Spanish LA/MSF for the
A340-500/600, were contingent in fact upon anticipated exportation, within the
meaning of Article 3.1(a) and footnote 4 of the SCM Agreement; but finds
 that there
are insufficient factual findings by the Pane l or undisputed facts on the Panel record
to complete the legal analysis.
1416. The Appellate Body notes that, having reversed the Panel finding, in paragraph 7.689 of the
Panel Report, that certain A380 LA/MSF contract s amounted to prohibited export subsidies, the
Panel's recommendation pursuant to Article 4.7 of the SCM Agreement, in paragraph 8.6 of the Panel
Report, consequently must be reve rsed; however, to the extent we have upheld the Panel's findings
with respect to actionable subsidies that caused a dverse effects, as set out in paragraph 8.2 of the
Panel Report, or such findings have not been appealed, the Panel's recommendation pursuant to
Article 7.8 of the SCM Agreement, in paragraph 8.7 of the Panel Re port, that "the Member granting
each subsidy found to have resulted in such adverse effects, 'take appropriate steps to remove the
adverse effects or … withdraw the subsidy'", stands.
1417. We realize that, after five years of panel pr oceedings and almost ten months of appellate
review, there are a number of issues that remain unresolved in this dispute. Some may consider that
this is not an entirely satisfactory outcome. Our mandate under Article 17 of the DSU does not permit
us to engage in fact-finding. However, wherever we have found that there are sufficient factual
findings by the Panel or undisputed facts to complete the legal analysis, we have done so with a view
to achieving a "prompt settlement" of the dispute in accordance with Article 3.3 of the DSU.
1418. The Appellate Body recommends that the DSB request the Eu ropean Union to bring its
measures, found in this Report, and in the Panel Repor t as modified by this Report, to be inconsistent
with the SCM Agreement, into conformity with its obligations under that Agreement.
BCI deleted, as indicated [***] WT/DS316/AB/R

ANNEX I

17 August 2010
 (10-4353)
 Original: English

EUROPEAN COMMUNITIES AND CERTAIN MEMBER

Revision to the

Notification of an Appeal by the European Union
under Article 16.4 and Article 17 of the Understanding on Rules
and Procedures Governing the Settlement of Disputes (DSU),
and under Rule 20(1) of the Working Procedures for Appellate Review

Communication from the Appellate Body
to the Chairman of the Dispute Settlement Body

 The following communication, dated 12 August 2010, from the Chairman of the Appellate
Body addressed to the Chairman of the Dispute Settlement Body, is being circulated to Members.

 I am writing to advise you that, by letter of 5 August 2010, the European Union requested
authorization from the Appellate Body, pursuant to Rule 23 bis of the Working Procedures for
Appellate Review (the " Working Procedures "), to amend its Notice of A ppeal dated 21 July 2010.
The Division hearing the appeal provided the Un ited States and all third participants with an
opportunity to comment in writing on the request. No objections to the European Union's request
were received. On 11 August 2010, the Division au thorized the European Union to amend its Notice
of Appeal.

 The amended Notice of Appeal is attached.

Pursuant to Article 16.4 and Article 17.1 of the DSU the European Union hereby notifies to
the Dispute Settlement Body its decision to appeal to the Appellate Body certain issues of law
covered in the Panel Report and cer tain legal interpretations devel oped by the Panel in the dispute
European Union – Measures Affecting Trade in Large Civil Aircraft (WT/DS316). Pursuant to
Rule 20(1) of the Working Procedures for Appellate Review, the European Union simultaneously files
this Notice of Appeal with the Appellate Body Secretariat.
WT/DS316/AB/R BCI deleted, as indicated [***]

The European Union is restricting its appeal to those errors that it believes constitute serious
errors of law and legal interpretation that need to be corrected. Non-appeal of an issue does not
signify agreement therewith. The European Union also believes that it may not be necessary for the
Appellate Body to decide all the issues raised in this notice of appeal since some may become moot as
a result of decisions on other issues.
For the reasons to be further elaborated in its submissions to the Appellate Body, the
European Union appeals, and requests the Appellate Bo dy to reverse, modify or declare moot and of
no legal effect the findings, conclusions and reco mmendations of the Panel, with respect to the
following errors of law and legal interpretations contained in the Panel Report
1:
I. Preliminary Issues
A. Legal irrelevance of pre-1995 subsidies (Section VII.C.2 of the Report)
1. The Panel erred in its interpretati on and application of Article 5 of the SCM Agreement when
concluding that all alleged actionable subsidies gr anted by the European Union prior to 1 January
1995 were included in the temporal scope of these proceedings.2

B. Identity of recipient, pass through, extinc tion, extraction and withdrawal of subsidy
(Section VII E.1 of the Report)
2. The Panel erred in its interp retation and application of the SCM Agreement, in particular
Articles 1, 4.7, 7.8, 5 and 6.3, by failing to dis tinguish the recipients of the alleged subsidies over
time, and by failing to properly account for sales, transfers and changes in ownership of assets and
companies and the extinction, extraction, removal or withdrawal of the alleged subsidies.3

3. In this respect the Panel also failed to make an objective assessment of the law and facts
contrary to Article 11 of the DSU in a number of ways. In particular, the Panel failed to offer reasoned
and adequate explanations for its findings that the European Union "did not argue" that the
transactions were at arm's length,
4 that certain of the transactions were in fact not at arm's length, 5 that
the SEPI and Daimler extractions did not remove the funds from use for LCA development and
manufacture6 and that cash was not truly "withdrawn" from CASA. 7 The Panel also lacked a
sufficient evidentiary basis for these findings. The Panel's findings concerning the provision and
removal of money to a state-owned entity by it s government shareholder are also internally
inconsistent and incoherent.8

1Paragraph numbers provided in footnotes to the follo wing description of the errors of the Panel are
intended to indicate the primary instance of the errors. Of course these errors have consequences throughout the
report and the European Union also appeals all findings and conclusions deriving from or relying on the
appealed errors, and in particular the relevant findings and conclusions in Sections 8.1 and 8.2 of the Panel
Report, and also in particular all the recommendations of the Panel in Sections 8.6 and 8.7 of the Panel Report.
2Panel Report, para. 7.65 and the findings in paras. 7. 44 to 7.64; and para. 7.325 and the findings in
paras. 7.321 to 7.324.
3Panel Report, para. 7.200 and the findings in paras. 7.286 to 7.289 and 7.190 to 7.199 (pass-through);
para. 7.255 and the findings in paras. 7.286 to 7.289 and 7.214 to 7.254 (extinction); paras. 7.286 to 7.289 and
7.266 to 7.285 (extraction and withdrawal); paras. 7.726 to 7.729 (para. 7.729, in particular).
4Panel Report, para. 7.249.
5Panel Report, para. 7.249 and footnote 2175.
6Panel Report, paras. 7.275 to 7.276 and 7.283 to 7.285.
7Panel Report, paras. 7.284 to 7.285.
8Panel Report, paras. 7.1400 to 7.1403, 7.284 to 7.285 and 7.289.
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4. The Panel erred in its in terpretation and application of Articles 4.7 and 7.8 of the
SCM Agreement in recommending that the European Union "withdraw the subsidy" and "remove the
adverse effects or ... withdraw the subsidy", to the extent that the European Union had already done
so.
9

II. MSF Issues (Section VII E.2 of the Report)
5. The Panel erred in failing to take account of Article 4 of the 1992 Agreement in interpreting
and applying the notion of "benefit" under Article 1.1(b) of the SCM Agreement.
10

6. The Panel erred in its in terpretation and application of Article 1.1(b) of the SCM Agreement
and under Article 11 of the DSU in making findings regarding project-specific risk premia for various
Airbus LCA programmes that fail to apply the Panel' s own standard and are made without a sufficient
evidentiary basis for these findings and without adequately explaining these findings.
11

7. The Panel erred in its in terpretation and application of Article 1.1(b) of the SCM Agreement
and under Article 11 of the DSU in finding short-comings of the European Union's risk-sharing
supplier benchmark for LA/MSF without a sufficient evidentiary basis, without assessing the totality
of the evidence, and without adequate explanation.
12

8. To the extent that the Panel has made findings with respect to the relevance of the number of
sales over which full repayment is expected to th e appropriateness of the market rate of return,
13 the
Panel made an error under Article 1.1(b) of the SCM Agreement.

III. Export Subsidy Findings (Section VII E.4 of the Report)
9. The Panel erred in its interp retation and application of Article 3.1(a) and footnote 4 of the
SCM Agreement, including but not limited to the terms "s ubsidies", "contingent/condition", "tied-to",
"actual or anticipated" and "export performance".14

10. In reaching those findings the Panel also erred under Article 7.2 of the DSU in failing to
address the relevant provisions cited by the parties, Article 12.7 of the DSU in failing to set out or to
set out adequately the basic rationale behind its findings and recommendati ons and under Article 11
of the DSU in failing to make an objective assessment of the matter before it, including an objective
assessment of the law and the facts.

IV. EIB Measures (Section VII E.5 of the Report)
11. If the United States appeals the Panel's findings on the lack of specificity of the EIB
measures, then the European Union appeals the Pane l's findings that such measures confer a benefit
and requests the Appellate Body to rule that the Pa nel erred in its interpre tation and application of
Article 1.1(b) of the SCM Agreement and failed to make an objective assessment of the law and the

9Panel Report, paras. 8.6 and 8.7.
10Panel Report, paras. 7.388 to 7.389.
11Panel Report, paras. 7.469, 7.481 and 7.483 to 7.490, including Table 7, and para. 8.1(a).
12Panel Report, paras. 7.480 and 7.481.
13Panel Report, para. 7.397.
14Panel Report, para. 8.1(a)(ii) and the "findings" in light of which such conclusion is reached,
para. 7.683 (A380 United Kingdom), para. 7.678, and the other findings in paras. 7.612 to 7.716 of the Panel
Report.
WT/DS316/AB/R BCI deleted, as indicated [***]

facts as required by Article 11 of the DSU in its findings that the challenged EIB measures confer a
benefit.
15

V. Infrastructure (Section VII E.6 of the Report)
12. The Panel erred in its inte rpretation and application of Article 1.1(a)(1)(iii) of the
SCM Agreement in finding that the Mühlenberger Loch m easures, the Bremen runway extension and
the ZAC Aéroconstellation measures constitute financial contributions.16

13. The Panel erred in its in terpretation and application of Article 1.1(b) of the SCM Agreement
in finding that the Mühlenberger Loch measure s, the Bremen runway extension and the ZAC
Aéroconstellation measures confer a benefit on Airbus Deutschland and Airbus France.
17

VI. Aérospatiale Equity Contributions (Section VII E.9 of the Report)
14. The Panel erred in finding that a "benefit" wa s conferred by virtue of capital contributions
within the meaning of under Article 1.1(b) of the SCM Agreement by the French State to a state-
owned company, Aérospatiale18 and in its interpretation of the term "benefit" in Article 1.1(b).19

15. The Panel erred in its in terpretation and application of Article 1.1(b) of the SCM Agreement
and Article 11 of the DSU in making findings without a sufficient evidentiary basis concerning
reasonable market-based rates of return, and in the absence of coherent reasoning in its assessment of
evidence concerning the performance of Aérospatiale's peers.
20

16. The Panel erred in finding that a "benefit" within the meaning of Article 1.1(b) of the
SCM Agreement was conferred by virtue of the transfer by the French State to a state-owned
company, Aérospatiale, of the French State's shares in Dassault Aviation and erred under Article 11 of
the DSU in finding such a "benefit", without a sufficient evidentiary basis to support that finding.21

VII. RT&D Issues (Section VII E.10 of the Report)
17. The Panel erred in its interpretation an d application of Article 2.1(a) of the SCM Agreement
when concluding that R&TD support granted unde r each of the Framework Programmes constituted
specific subsidies.22

18. The Panel erred in its interpretation and application of Article 6.2 of the DSU in concluding
that the Spanish PROFIT programme 23 and French R&TD funding 24 had been properly identified in
the US panel request.

15Panel Report, para. 7.885 and the other findings in paras. 7.717 to 7.881 of the Panel Report on which
these findings are based or "in light of" which these findings are made.
16Panel Report, paras. 7.1084, 7.1121, 7.1179, and 8.1(b)(i) to (iii).
17Panel Report, paras. 7.1097, 7.1134, 7.1190 and 8.1(b)(i) to (iii).
18Panel Report, paras. 7.1367, 7.1371, 7.1375, 7.1380 and 8.1(d)(i).
19Panel Report, paras. 7.1364, 7.1366, 7.1370, 7.1374 and 8.1(d)(i).
20Panel Report, paras. 7.1360, 7.1367, 7.1371, 7.1375, 7.1380 and 8.1(d)(i).
21Panel Report, paras. 7.1409, 7.1411, 7.1412, 7.1414 and 8.1(d)(ii).
22Panel Report, paras. 7.1566 and paras. 7.1562 to 7.1565; para. 8.1(e).
23Panel Report, paras. 7.1422 and paras. 7.1420 to 7.1421; para. 8.1(e).
24Panel Report, paras. 7.150 and 7.148 to 7.149; para. 8.1(e).
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VIII. Adverse Effects (Section VII F of the Report)
19. The Panel erred in its interpre tation and application of Articles 5(c), 6.3(a), 6.3(b) and 6.3(c)
of the SCM Agreement in finding that the effect of the subsidies constitutes serious prejudice to the
interests of the United States, including displa cement of imports from the European Union,
displacement of exports from certain third country ma rkets or threat thereof and significant lost sales
in the same market.
25

20. In reaching those findings the Pane l also erred under Article 12.7 of the DSU in failing to set
out or to set out adequately the basic rationale behind its findings and recommendations and under
Article 11 of the DSU in failing to make an objective assessment of the matter before it, including an
objective assessment of the law and the facts.

A. 1992 Agreement
21. The Panel erred in its interpretation and application of Article 5(c) of the SCM Agreement and
Articles 12.7 and 11 of the DSU in failing to take account of the fact that the United States had
expressly consented to all subsidies covered by the 1992 Agreement and could therefore not suffer
serious prejudice as a result of such subsidies.
26

B. Subsidized product
22. The Panel erred in its interpre tation and application of Articles 5(c), 6.3(a), 6.3(b) and 6.3(c)
of the SCM Agreement and Articles 12.7 and 11 of the DSU when it found that it did not need to
independently and objectively make a determination regarding the subsidized product.27

C. Displacement or threat thereof
23. The Panel erred in its interpretation and appli cation of Articles 5(c), 6.3(a) and 6.3(b) of the
SCM Agreement and Articles 12.7 and 11 of the DSU when it found that there is only one, rather than
several distinct product markets, and by finding that it could therefore assess displacement, significant
price suppression and price depression on the basis of a single product market, thereby exaggerating
the extent of the displacement and price suppression and depression it found.28

24. The Panel erred in its inte rpretation and application of Articles 5(c) and 6.3(b) of the
SCM Agreement and Articles 12.7 and 11 of the DSU when it found that there was displacement in the
markets of Mexico and Brazil, although the United States did not lose market share in those markets.
29

25. The Panel erred in its inte rpretation and application of Articles 5(c) and 6.3(a) of the
SCM Agreement and Articles 12.7 and 11 of the DSU when it found that the subsidies caused
displacement in the EU market.
30

25Panel Report, paras. 8.2(a), (b), (c) and (d) and the "findings" in light of which such conclusions are
reached, including the findings set out in the following paragraphs of this notice of appeal and the other findings
in paras. 7.1610 to 7.2186 of the Panel Report.
26Panel Report, para. 8.2 and any findings that may be considered to support this conclusion.
27Panel Report, paras. 7.1650, 7.1652, 7.1653, 7.1654, 7.1656, 7.1662 and 8.2.
28Panel Report, paras. 7.1742, 7.1751, 7.1755, 7.1756, 7.1757, 7.1758, 7.1777, 7.1779, 7.1780, 7.1781,
7.1782, 7.1786, 7.1788 to 89 and 7.1790 to 7.1791 and 8.2( a), 8.2(b) and 8.2(c), as well as any other paragraphs
that rely on such finding.
29Panel Report, paras. 7.1785, 7.1786, 7.1791, 7.1993, 7.2025 and 8.2(b).
30Panel Report, paras. 7.1985, 7.1986, 7.1993, 7.2025 and 8.2(a).
WT/DS316/AB/R BCI deleted, as indicated [***]

26. The Panel erred in its inte rpretation and application of Articles 5(c) and 6.3(b) of the
SCM Agreement and Articles 12.7 and 11 of the DSU when it found that the subsidies caused
displacement in the third country markets of Aust ralia, Brazil, China, Chinese Taipei, Korea, Mexico
and Singapore.
31

27. The Panel erred in its inte rpretation and application of Articles 5(c) and 6.3(b) of the
SCM Agreement and Articles 12.7 and 11 of the DSU when it found, that the subsidies caused a threat
of displacement in the third country market of India.32

D. Lost sales
28. The Panel erred in its inte rpretation and application of Articles 5 and 6.3(c) of the
SCM Agreement and Articles 12.7 and 11 of the DSU, when it found that the A380 Emirates Airlines
order constituted a significant lost sale.33

29. The Panel erred in its inte rpretation and application of Articles 5 and 6.3(c) of the
SCM Agreement and Articles 12.7 and 11 of the DSU when it found that the subsidies caused
significant lost sales in the easyJet, Air Berlin, Czech Airlines, Air Asia, Singapore Airlines, Emirates
and Qantas sales campaigns.
34

E. Serious prejudice
30. The Panel erred in its interpretation a nd application of Articles 5 and 6.3 of the
SCM Agreement when it found that it need not make a further finding that the displacement, threat of
displacement and lost sales it found were caused by the subsidies each amount to serious prejudice to
the interests of the United States.35

F. Price suppression/depression
31. The Panel erred in its inte rpretation and application of Articles 5 and 6.3(c) of the
SCM Agreement and Articles 12.7 and 11 of the DSU in finding that it need not assess price
suppression on the basis of the individual product markets.36

32. The Panel erred in its inte rpretation and application of Articles 5 and 6.3(c) of the
SCM Agreement and Articles 12.7 and 11 of the DSU in finding that there exists price suppression and
price depression for the 777.
37

G. Causation with respect to subsidies other than MSF
33. The Panel erred in its interpre tation and application of Articles 5 and 6.3(a), 6.3(b) and 6.3(c)
of the SCM Agreement and Articles 12.7 and 11 of the DSU in failing to distinguish the effects of
non-MSF alleged subsidy measures from MSF measures in assessing adverse effects and in failing to
provide a reasoned and adequate explanation as to how the following measures could cause or
contribute to causing adverse effects:

31Panel Report, paras. 7.1985, 7.1986, 7.1993, 7.2025 and 8.2(b).
32Panel Report, paras. 7.1985, 7.1986, 7.1993, 7.2025 and 8.2(c).
33Panel Report, para. 7.1832, and 8.2(d).
34Panel Report, paras. 7.1985, 7.1986, 7.1993, 7.2025 and 8.2(d).
35Panel Report, paras. 7.1736 and 8.2.
36Panel Report, paras. 7.1854 to 7.1855 and 7.1860 to 7.1861.
37Panel Report, paras. 7.1854 to 7.1855 and 7.1860 to 7.1861.
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• the Mühlenberger Loch measures; the Bremen airport runway extension; the ZAC
Aéroconstellation measures; the grants provi ded by Germany and Spain for construction
of facilities in Nordenham, Germany, and Sev illa, La Rinconada, Toledo, Puerto de Santa
Maria and Puerto Real, Spain; and the grants provided by the governments of Andalusia
and Castilla-La Mancha in Puerto Real, Sevilla, and Illescas (Toledo);
38
• the capital contributions by the French State and Crédit Lyonnais to Aérospatiale and the
transfer by the French State of its shares in Dassault Aviation to Aérospatiale;39
• the acquisition by Kreditanstalt für Wideraufbau (KfW) of a 20 percent equity interest in
Deutsche Airbus in 1989, and the 1992 transfer by KfW of its 20 percent equity interest
in Deutsche Airbus to Messerschmitt-Bölkow-Blohm GmbH (MBB);40 and
• the provision of R&TD funding pursuant to: the Second, Third, Fourth, Fifth, and Sixth
EC Framework Programmes; the French government grants between 1994-2005; the
German Federal government grants under the LuFo I, II and III programmes; the German
sub-Federal government grants from the Bavarian authorities under the OZB and
Bayerisches Luftfahrtforschungsprogramm, from the Bremen authorities under the AMST
programmes, and from the Hamburg author ities under the Luftfahrtforschungsprogramm;
Spanish government loans from the PROFIT and PTA programmes; and UK government
grants under the CARAD and ARP programmes.
41

38Panel Report, paras. 7.1958, 8.1(b), and 8.2.
39Panel Report, paras. 7.1957, 8.1(d), and 8.2.
40Panel Report, paras. 7.1957, 8.1(c), and 8.2.
41Panel Report, paras. 7.1959, 8.1(e), and 8.2.
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ANNEX II

20 August 2010
 (10-4401)
 Original: English

EUROPEAN COMMUNITIES AND CERTAIN MEMBER

Notification of an Other Appeal by the United States

under Article 16.4 and Article 17 of the Understanding on Rules
and Procedures Governing the Settlement of Disputes (DSU),
and under Rule 23(1) of the Working Procedures for Appellate Review

 The following notification, dated 19 August 2010, from the Delegation of the United States, is
being circulated to Members.

Pursuant to Rule 23 of the Working Procedures for Appellate Review , the United States
hereby notifies its decision to appeal to the Appellate Body certain issues of law covered in the Report
of the Panel in European Communities and Certain Member (WT/DS316/R) ("Panel Report") and certain legal interpretations developed by
the Panel.

1. The United States seeks review by the Appellate Body of the Panel's legal conclusion that the
United States failed to establish that the French A380, French A340-500/600, Spanish A340-500/600,
and French A330-200 launch aid constituted prohibited export s ubsidies within the meaning
of Article 3.1(a) and footnote 4 of the Agreement on Subsidies and Countervailing Measures
("SCM Agreement").
1 These conclusions are in error and ar e based on erroneous findings on issues of
law and legal interpretations, incl uding an erroneous interpretation a nd application of Article 3.1(a)
and footnote 4 of the SCM Agreement.2 To the extent that the Panel's recommendation, pursuant to
Article 4.7 of the SCM Agreement, that the subsidies found to be prohibited be withdrawn within
90 days, does not include the French A380, French A340-500/600, Spanish A340-500/600, and
French A330-200 launch aid, the United States also requests that the Appellate Body review that
recommendation.
3

2. The United States seeks review by the Appellate Body of the Panel's legal conclusion that the
United States failed to demonstrate th e existence of the Launch Aid Program. 4 This conclusion is in

1See, e.g., Panel Report, paras. 7.689 and 8.3(a)(ii).
2See, e.g., Panel Report, paras. 7.675-7.688.
3See Panel Report, para. 8.6.
4See, e.g., Panel Report, paras. 7.579-7.580, 8.3(a)(iv).
WT/DS316/AB/R BCI deleted, as indicated [***]

error and is based on erroneous findings on issues of law and legal interpretations, including the
failure to examine properly whether the Launch Aid Program is a "measure" subject to challenge in
WTO dispute settlement proceedings.
5

5See, e.g., Panel Report, paras. 7.518-7.520, 7.531-7.532, 7.575, 7.580.
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ANNEX III

Procedural Ruling and Additional Procedures to Protect Sensitive Information

10 August 2010
European Communities and Certain Member
AB-2010-1

Procedural Ruling

1. On Wednesday, 21 July 2010, the Appellate B ody Division hearing this appeal received a
joint request from the European Union and the Unite d States to adopt additional procedures to protect
certain information that they consider to be sens itive. This includes information received as a result
of the information-gathering process under Annex V of the Agreement on Subsidies and
Countervailing Measures , during the Panel proceedings, and, to the extent relevant, during the
Appellate Body proceedings. The participants classify this information in two categories according to
its sensitivity. The first category is described as " business confidential information" or "BCI". The
second category is referred to as "highly sensitive business information" or "HSBI" and includes the
information that the participants consider to be mo st sensitive. The participants argue that disclosure
of this information could be "severely prejudicial" to the originators of the information, that is, to the
large civil aircraft manufacturers that are at the heart of this dispute, and possibly to the
manufacturers' customers and suppliers.

2. On Thursday, 22 July 2010, the Division invited the third participants to comment in writing
on the participants' request. In particular, we asked the third participants to provide their views on the
permissibility of additional protection for BCI and HSBI under the Understanding on Rules and
Procedures Governing the Settlement of Disputes (the "DSU") and the Working Procedures for
Appellate Review (the " Working Procedures"), and, if they so wished, on the specific arrangements
proposed in the request, including access by the third participants to the confidential version of the
Panel Report and to the written submissions to be filed by the participants and third participants in this
appeal, as well as the arrangements proposed by th e European Union and the United States relating to
the organization of the substantive oral hearing. Th e Division declined the participants' request that it
ask the Panel to delay the transmittal to the Appella te Body of any information classified as BCI or
HSBI on the Panel record.

3. Pending a final decision on the participants' re quest for the protection of BCI and HSBI, the
Division decided to provide additional protection to all BCI and HSBI on the Panel record transmitted
to the Appellate Body in this dispute on the terms set out below.

(a) Only Appellate Body Members, and Appellate Body Secretariat staff assigned to
work on this appeal, may have access to the BCI and HSBI contained on the Panel
record pending a final decision on the participants' request. Appellate Body Members
and Appellate Body Secretariat staff shall not disclose BCI or HSBI, or allow either
to be disclosed, to any person other than those identified in the preceding sentence.
(b) BCI shall be stored in locked cabinets when not in use. When in use by Appellate
Body Members and Appellate Body Secretariat staff assigned to work on this appeal,
all necessary precautions will be taken to protect the confidentiality of the BCI.
WT/DS316/AB/R BCI deleted, as indicated [***]

(c) All HSBI shall be stored in a combinati on safe in a designated secure location in the
offices of the Appellate Body Secretariat. Appellate Body Members and Appellate
Body Secretariat staff assigned to work on this appeal may view HSBI only in the
designated secure location in the offices of the Appellate Body Secretariat. HSBI
shall not be removed from this location.
(d) Pending a decision on the participants' request for the protection of BCI/HSBI in
these proceedings, neither BCI nor HSBI shall be transmitted electronically, whether
by e-mail, facsimile, or otherwise.
4. On Wednesday, 28 July 2010, we received wr itten comments from Australia, Brazil, Canada,
and Japan. These third participants expressed their ge neral support for the request of the participants.
Australia, Canada, and Japan argued that the adoption of additional procedures for the protection of
confidential information is not inconsistent with the DSU or the Working Procedures . Brazil also
considered additional protection of BCI and HS BI to be permissible under the DSU and the Working
Procedures provided that the rights of third participants are not unduly diminished as a result of such
procedures. Australia, Brazil, Canada, and Japan each suggested certain modifications to the
procedures proposed by the participants in order to ensure that the right of third participants to
participate meaningfully in these appellate proceedings is fully protected. The other third participants
in this dispute, China and Korea, did not submit written comments.

5. An oral hearing with the participants and all of the third participants was held on Tuesday,
3 August 2010, to explore the issues raised by the re quest of the participants and the comments of the
third participants.

6. We consider it necessary that a ruling is made by us on the request of the participants without
delay. Accordingly, we make the following ruling with concise reasons having carefully considered
the arguments made by the participants in suppor t of their request, the comments received from the
third participants, and the submissi ons and replies to our questions at the oral hearing. These reasons
may be further elaborated in the Appellate Body report in this appeal.

7. The first question that we must consider is wh ether we have the authority to adopt special
arrangements to provide additional pr otection for certain information in this case that the participants
deem to be particularly sensitive. The participan ts have referred both to the authority that derives
from our inherent jurisdiction and to Rule 16(1) of the Working Procedures . The analysis of this
question should begin with the DSU, which pr ovides the primary rules governing WTO dispute
settlement, and in particular with Article 17.1 of the DSU, which provides for the establishment of the
Appellate Body and confers jurisdiction upon it. Articl e 17.1 of the DSU states, in relevant part, that
"{t}he Appellate Body shall hear appeals from panel cases".
1 A necessary incident of this authority is
the power to determine procedures for the conduct of appeals. These procedures must, amongst other
things, guarantee that the participants and third participants can properly exercise their rights under
the DSU under conditions of fairness and impartiality. The Appellate Body's authority to draw up
procedures for the conduct of appeals is specifically reflected in Article 17.9 of the DSU, pursuant to
which the Appellate Body adopted its Working Procedures. Rule 16(1) of the Working Procedures
gives a Division hearing an appeal the authority to adopt an "appropriate procedure" in the "interests
of fairness and orderly procedure" where a proce dural question arises that is not covered by the
Working Procedures, provided that it is not inconsistent with the DSU, the other covered agreements,
and the Working Procedures themselves.

1This jurisdiction to hear appeals is further elaborated in Articles 17.6 and 17.13 of the DSU.
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8. Turning to the specific question before us, we note that the DSU provides for a regime of
confidentiality for appellate proceedings and for submissions of the participants and third participants.
Article 17.10 of the DSU states that "{t}he proceedings of the Appellate Body shall be confidential."
Article 18.2 of the DSU provides that "{w}ritten submissions to ... the Appellate Body shall be treated
as confidential".
2 Also paragraph VII:1 of the Rules of Conduct for the Understanding on Rules and
Procedures Governing the Settlement of Disputes (the " Rules of Conduct ")3 addresses the protection
of confidentiality. The confidentiality requirements set out in these provisions are stated at a high
level of generality that may need to be particular ized in situations in which the nature of the
information provided requires more detailed arrangements to protect ad equately the confidentiality of
that information. The adoption of such arrangement s falls within the authority of the Appellate Body
to hear the appeal and to regulate its procedures in a manner that ensures that the proceedings are
conducted with fairness and in an orderly manner. In particular, a regime to protect confidential
information may be necessary to allow a participan t to ventilate its case without undue risk of
detrimental disclosure. To the extent that the arrangements elaborate on the confidentiality
requirements of the DSU, the adoption of such arra ngements in an "appropriate procedure" needs to
conform to the requirement in Rule 16(1) of the Working Procedures, that any additional "appropriate
procedure" not be inconsistent with the DSU, the other covered agreements, and the Working
Procedures themselves.

9. The next step in our analysis is to consider the proper analytical framework within which to
determine whether any particular arrangements ar e required in this case. In our view, the
determination of whether particular arrangements are appropriate in a given case essentially involves
a balancing exercise: the risks associated with the disclosure of the information sought to be
protected must be weighed against the degree to which the particular arrangements affect the rights
and duties established in the DSU, th e other covered agreements, or the Working Procedures .
Furthermore, a relationship of proportionality must exist between the risks associated with disclosure
and the measures adopted. The measures should go no further than required to guard against a
determined risk of harm (actual or potential) that could result from disclosure.

10. As noted earlier, the DSU and the Rules of Conduct , which are part of the Working
Procedures, establish a general confidentiality regime that covers appellate proceedings. Participants
requesting particularized arrangements have the bu rden of justifying that such arrangements are
necessary in a given case adequately to protect certain information, taking into account the rights and
duties recognized in the DSU, the other covered agreements, and the Working Procedures . The
participants agreed, at the oral hearing, that the burden of justifying the need for particularized
protective arrangements falls on them. This burde n of justification will increase the more the
proposed arrangements affect the exercise by the Appellate Body of its adjudicative duties, the
exercise by the participants of their rights to due process and to have the dispute adjudicated, the
exercise by the third participants of their particip atory rights, and the rights and systemic interests of
the WTO membership at large.

2Article 18.2 of the DSU further provides that "{n}othing in this Understanding shall preclude a party
to a dispute from disclosing statements of its own positions to the public." Referring to Articles 17.10 and 18.2
of the DSU, the Appellate Body has previously held that it may authorize participants to forego confidentiality
protection for their submissions at the oral hearing. (See paragraph 4 of the Procedural Ruling of 10 July 2008
issued in Canada – Continued Suspension and United States – Continued Suspension.
3The Rules of Conduct, as adopted by the DSB on 3 December 1996 (WT/DSB/RC/1), are incorporated
into the Working Procedures for Appellate Review (WT/AB/WP/5), as Annex II thereto. (See WT/DSB/RC/2,
WT/AB/WP/W/2)
WT/DS316/AB/R BCI deleted, as indicated [***]

11. In setting out our analytical framework, we iden tify the rights and duties that are implicated
where additional protection is under consideration. First, there is the overarching authority of the
Appellate Body pursuant to Article 17 of the DS U to ensure proper adjudication of the dispute.
Secondly, there are the rights of the participants to ventilate their case, have their dispute adjudicated,
and to enjoy due process throughout the proceedings . Thirdly, there are the rights of the third
participants who, in accordance with Article 17.4 of the DSU, "may make written submissions to, and
be given an opportunity to be heard by, th e Appellate Body." As reflected in the Working
Procedures, in particular, in Rules 18, 24, and 27, the Appellate Body has fostered the active
participation of third participants in the appellate process. At the same time, the Appellate Body has
observed that the third participants are not the main parties to the dispute.
4 Theirs is a systemic
interest in the correct legal interpretation of the pr ovisions of the covered agreements that may be at
issue in an appeal. Finally, there are the rights and interests of the WTO membership at large.

12. As to the rights and interest of the WTO membership at large, Article 3.2 of the DSU
provides that the WTO dispute settlement system "ser ves to preserve the rights and obligations of
Members under the covered agreements, and to clarif y the existing provisions of those agreements".
To preserve the rights and obligations of Members, the WTO dispute settlement system must also be
available to adjudicate disputes that involve sensi tive information. In certain instances, WTO
Members may not be in a position to provide sen sitive information to panels unless adequate
arrangements are in place to protect the inform ation. The absence of such arrangements could
compromise a WTO Member's ability to pursue and defend its rights and interests in WTO dispute
settlement and could have an impact on a panel's ability to make a complete and objective assessment
of the matter. To continue to enjoy the confid ence of Members, the WTO dispute settlement system
must provide appropriate safeguards to ensure that sensitive information will be adequately protected
if it is submitted in the context of a dispute.

13. As set out above, Article 3.2 of the DSU also provides that the WTO dispute settlement
system serves to clarify the existing provisions of the covered agreements. WTO Members therefore
have the right to receive an Appellate Body report that clarifies the existing provisions of the covered
agreements in accordance with Article 3.2 of th e DSU. The Appellate Body would not assist the
membership if its report failed to set out reasoni ng and findings with sufficient detail to enable
Members to appreciate fully its content before they adopt the report and make it legally binding. As
the Appellate Body has explained, "WTO Member s attach significance to reasoning provided in
previous panel and Appellate Body reports".
5 The legal interpretations embodied in adopted panel
and Appellate Body reports clarify the exis ting WTO provisions and become part of the acquis of
WTO law. 6 A report that provides a full exposition of the Appellate Body's reasoning is also
important for the proper implementation of the recommendations and rulings of the WTO Dispute
Settlement Body (the "DSB"). As Article 21.1 of the DSU states, "{p}rompt compliance with
recommendations or rulings of the DSB is essential in order to ensure effective resolution of disputes
to the benefit of all Members." The Appellate Body has said that panels should make efforts to ensure
that the public version of their reports, which are circulated to all WTO Members, are
"understandable".
7 The same applies to Appellate Body reports.

14. Having determined that we have the authorit y to adopt particular procedures to protect
confidential information, the limitations under th e DSU, the other covered agreements, and the
Working Procedures , and the proper analytical framework , we turn now to assess the specific
arrangements that have been proposed by the participants in this case.

4See paragraph 9 of the Procedural Ruling issued in Canada – Continued Suspension and United States
– Continued Suspension, supra, footnote 2.
5Appellate Body Report, US – Stainless Steel (Mexico), para. 160.
6Ibid.
7Appellate Body Report, Japan – DRAMs (Korea), para. 279.
BCI deleted, as indicated [***] WT/DS316/AB/R

15. We recognize that the content of some of th e information submitted by the participants is
claimed to be such that disclosure could be signi ficantly prejudicial to the commercial interests of
Airbus and Boeing. Having said that, we are concer ned that there did not appear to have been a
meaningful effort during the Panel process to set out objective criteria as to the attributes of the
information that may require additional protection so as to guide the determination of whether the
particular information that was submitted deserved additional protection and th e particular degree of
such protection. Such objective criteria could in clude, for example: whether the information is
proprietary; whether it is in the public domain or protected; whether it has a high commercial value
for the originator of the information, its competitors , customers, or suppliers; the degree of potential
harm in the event of disclosure; the probability of such disclosure; the age of the information and the
duration of the industry's business cycle; and the st ructure of the market. As noted above, the DSU
and the Rules of Conduct already provide for confidentiality, and any additional protection must be
justified. It is not for the parties to determine whet her additional protection is called for. It is for the
panel, and now the Appellate Body, to do so. Indeed , it is for the adjudicator to decide whether the
information concerned calls for add itional protection. Likewise, it is for the adjudicator to decide
whether and to what extent specific arrangements are necessary, while safeguarding the various rights
and duties that are implicated in any decision to adopt additional protection.

16. While we express concern with regard to the manner in which the parties designated and the
Panel treated the sensitive information, we note th at neither participant has appealed the Panel's
decisions on the protection of this information. Ther e are also issues of practicality to consider. At
this stage of the dispute, given the decisions on th is matter adopted by the Panel and applied by the
participants to date, it would be difficult for us to review all of the information on record that was
given additional protectio n by the Panel. We will therefore proceed on the basis of how the
information was treated before the Panel. We do not exclude, however, revisiting whether a particular
piece of information meets the objective criteria jus tifying additional protection, or the particular
degree thereof, should a dispute on the classification of that information arise before us, or should we
consider that we need to refer to that information in our report if this is necessary to give a sufficient
exposition of our reasoning and findings.

17. In their proposed procedures, the participan ts have suggested cert ain limitations on how
Appellate Body Members access information that has been classified as requiring additional
protection. In our view, any additional arrange ments to protect sensitive information, beyond the
general confidentiality protection provided in the DSU and the Rules of Conduct, cannot interfere with
the adjudicative duties of the Appellate Body and the collegiality among its Members. Members of
the Appellate Body must have access to the entir ety of the Panel Report, the submissions, and the
record of the dispute. Access to information must be practical and unimpeded, and it must recognize
that Appellate Body Members carry out their duties in Geneva as well as at their places of domicile.
Appellate Body Members also must be able to ex change information between themselves and to refer
to sensitive information in their internal deliberations. The additional procedures that we adopt below
ensure that all Appellate Body Members have access to the entirety of the appellate record while they
are in Geneva. The additional procedures further provide that Members of the Division shall have
access to all but the most sensitive information from their places of residence outside of Geneva.
Members of the Appellate Body who are not on the Division shall have access to selected information
that they require to discharge their duties of collegiality under Rule 4 of the Working Procedures and
to participate meaningfully in any exchanges of views. For their part, Appellate Body Secretariat staff
will consult sensitive information only on the premises of the Appellate Body Secretariat and the most
sensitive information only in the designated secure loca tion. We recall, in this regard, that Appellate
Body Members and Appellate Body Secretariat staff are subject to the Rules of Conduct .
Paragraph VII:1 of the Rules of Conduct provides that "{e}ach covered person shall at all times
maintain the confidentiality of dispute settlement deliberations and proceedings together with any
information identified by a party as confidential." If participants were to have any concerns regarding
WT/DS316/AB/R BCI deleted, as indicated [***]

the protection of confidentiality by Appellate Body Members and Appellate Body Secretariat staff,
they may raise them under the Rules of Conduct and the Appellate Body will decide.
8 We do not
consider that more is required.

18. The arrangements proposed by the participants provide for the possibility that representatives
of the participants and certain outside legal adviso rs have access to the most sensitive information on
the premises of the Appellate Body Secretariat. In our view, this raises impor tant legal and practical
concerns. The adoption of such an arrangement could mean that representatives of the participants or
their outside legal advisors would be present on th e premises of the Appellate Body Secretariat while
Appellate Body Members are engaged in deliberati ons concerning this case. It would require the
implementation of additional security arrangement s while representatives are present and would
exclude simultaneous access to the information by Appellate Body Members and Appellate Body
Secretariat staff. Each participant has access to all of the sensitiv e information submitted by the other
participant at other secure locations. The participan ts' representatives and outside legal advisors thus
have alternative means of viewing this information. Therefore, we see no need to permit viewing of
the most sensitive information at the Appellate Body Secretariat's premises by representatives of the
participants and their outside legal advisors. To do so would unwarrantably trespass upon the privacy
with which the Appellate Body and its Secretariat do their work.

19. There are also certain arrangements that the pa rticipants have jointly imposed on themselves
and that do not appear to affect the Appellate Body's ability to adjudicate the dispute, the rights of the
third participants, or the rights and interests of th e WTO membership at large. This includes, for
example, the arrangements mentioned earlier allowi ng each participant to have access to the most
sensitive information provided by the other particip ant. Such arrangements, in principle, are not
exempt from our scrutiny to verify that they do not impair our adjudicative function and the rights and
interests of third participants and other Members. Nevertheless, at this stage of the proceedings, we
are disinclined to make an exhaustive review of these arrangements given that on their face they do
not seem to have adverse implications for the rights or interests of others that we identified earlier.
Furthermore, none of the third participants has raised concerns in relation to this aspect of the matter.

20. Some of the other arrangements proposed by the participants impinge, i.e., encroach, upon the
rights of the third participants that are guaranteed under Article 17.4 of the DSU and Rules 18, 24, and
27 of the Working Procedures. For instance, the participants' proposal provides for access to sensitive
information for a very limited number of representativ es of the third participants. In fact, the number
of approved persons proposed is smaller than it was before the Panel. Several of the third participants
have expressed concern over the limited number of their representatives that would be allowed access
to sensitive information. We share their concerns and thus have allowed in the additional procedures
for a higher number of third participant approved persons.

21. The third participants have also expressed con cern over the participants' proposal that third
participants access the sensitive in formation in a designated reading room located at the WTO. We
would have preferred that mechanisms be explor ed further that would ha ve permitted providing the
third participants with copies of the Panel Report containing sensitive information and of non-
redacted versions of the submissions to keep at their Geneva Missions and to share these with their
capital-based officials working on this appeal, wh ile safeguarding the participants' interest in
minimizing the risks of disclosure. Another option would have been to provide access to the sensitive
information at the diplomatic Missions of the particip ants in Geneva and/or in the capitals of the third
participants. However, it would have been quite ch allenging, for all of those involved, to design and
implement any such regime without delay and ther e is a need to proceed expeditiously with the
appellate process.

8See paragraph VIII:16 of the Rules of Conduct.
BCI deleted, as indicated [***] WT/DS316/AB/R

22. Thus, the additional procedures that we adopt belo w provide for third participants to view the
Panel Report version containing sensitive inform ation and the non-redacted versions of the
submissions in a designated reading room locat ed at the WTO. Approved persons of third
participants shall also be allowed to have access, in the reading room, to an individually watermarked,
colour copy of the redacted version of the Pa nel Report as circulated to Members and to an
individually watermarked, colour copy of each of the redacted submissions filed in the appellate
proceedings, and shall be allowed to use them to take handwritten notes. They may take these copies
with them, but may only share them with other a pproved persons. These copi es of the Panel Report
and the submissions, as well as any handwritten notes taken by the approved person in the designated
reading room, must be returned to the Appellate Body Secretariat after the final oral hearing in this
appeal. The content of any handwritten notes shall not be incorporated into any other copy of the
Panel Report or of the submissions. We consider that this regime offe rs the participants substantially
the same level of protection of their sensitive information as the regime provided in their proposal, but
is less burdensome on the third participants.

23. The participants have further proposed that third participants be excluded from having access
to the information that is treated as most sensitive, that is, the information that the participants have
labelled as "HSBI". We recall that, under Ar ticle 17.4 of the DSU and Rule 24 of the Working
Procedures, third participants may make written submissi ons to, and be given an opportunity to be
heard by, the Appellate Body. Rule 18(2) of the Working Procedures further provides that, "{e}xcept
as otherwise provided in these Rules, every document f iled by ... a participant ... or a third participant
shall be served on each of the ... third participants in the appeal". At the same time, the Appellate
Body has recognized that the rights of third part icipants are more limited than those of the
participants, and that the third participants' interests lie mainly in the correct legal interpretation of the
provisions of the WTO agreements.
9 We also note that participati on as a third participant is elective
and that, in the present case, none of the third part icipants have expressed specific concerns in their
written comments or at the special oral hearing about not having access to the most sensitive
information. On the contrary, several third participants did voice support, in principle, for the
limitation on access to the most sensitive information.

24. The arrangements proposed by the participants may also impinge on the rights of the WTO
membership at large. As discussed above, WTO Me mbers have a right to obtain an Appellate Body
report that gives a sufficient exposition of our reasoning and findings in a manner that is
understandable. Adopted Appellate Body reports clarify the provisions of the covered agreements, in
accordance with Article 3.2 of the DSU, and become part of the acquis of WTO law.
10 Moreover, the
DSB will be responsible for the surveillance of the implementation of its recommendations and
rulings should this be necessary. The participan ts have requested an opportunity to ask for the
removal of sensitive information that may, inadverten tly or not, be included in our report. We are
open to this request. We will make every effort to draft our report without including information that
the participants consider to be sensitive by limiting ourselves to making statements or drawing
conclusions that are based on the sensitive information. Yet, whether this is possible will only
become clear once we have drafted our report. The additional procedures that we adopt below
provide that, if we were to consider it necessary to include sensitive information in the reasoning in
our report, the participants shall be given an opportu nity to comment. In coming to a decision on the
need to include sensitive information to ensure that the report rendered is understandable, we will
strike an appropriate balance between the rights of the WTO membership at large to obtain a report
that gives a sufficient exposition of our reasoning and findings, on the one hand, and the legitimate
concerns of participants to protect sensitive in formation, on the other. The more prejudicial
disclosure is proven to be, the more we would be inclined to accept that the information is not
disclosed.

9See supra, footnote 4.
10See supra, para. 13.
WT/DS316/AB/R BCI deleted, as indicated [***]

25. The European Union has requested that we explic itly provide that the participants shall have
the option of withdrawing information that they consider most sensitive instead of seeing it included
in the Appellate Body report (should the Appella te Body decide it must be included). The
European Union explains that, since a party usuall y provides evidence that it considers supportive of
its case, it should be allowed to withdraw this ev idence. The Appellate Body could then draw an
inference that is adverse to the party withdrawing the evidence. While it is conceivable that a party
may choose not to rely on certain evidence on record, we believe that the issues raised by this request
are more complex than the European Union consid ers them to be and may have consequences not
only for the party that seeks withdr awal. Evidence on record may be probative of the case of a party
other than the party that seeks withdrawal. Moreover, the Appellate Body may have to decide claims
under Article 11 of the DSU on the basis of the entire record before the panel. Further, in situations in
which the Appellate Body is considering whether to complete the legal analysis, adverse inferences
may not necessarily be of assistance. The European Union's request raises a number of complex
questions that are difficult to resolve in the abstra ct and at this preliminary stage of the appellate
proceedings. We prefer to explore these questi ons at the appropriate time after hearing the
participants' views on specific issues, and only if the extreme situation on which they are premised
arises.

26. Finally, we recognize that, in Brazil – Aircraft and Canada – Aircraft, the Appellate Body did
not consider it necessary, in the circumstances of those appeals, to adopt additional procedures to
protect information deemed sensitive by the participants.
11 In doing so, however, the Appellate Body
did not suggest that the DSU, the other covered agreements, or the Working Procedures precluded the
adoption of procedures providing addi tional protection; rather, the A ppellate Body did not consider
that such additional protection was necessary in the particular circumstances of those appeals.

27. In deciding to adopt additional procedures in th is appeal, we make our determination in the
light of the particular circumstances of this dispute, as the Appellate Body did in the Brazil – Aircraft
and Canada – Aircraft disputes. While the Brazil – Aircraft and Canada – Aircraft disputes only
involved claims that certain measures were export subsidies, this dispute involves not only export
subsidy claims, but also numerous claims that cer tain measures are specific subsidies that have
various forms of adverse effects. This means that the evidentiary record in this dispute is more
extensive and includes more detailed information th at is company-specific, such as data concerning
productivity, cost efficiencies and inefficiencies, pr ices for specific aircraft currently in production
and marketed, recurring and non-recurring cost stru ctures per unit, price calculations and pricing
practices—in particular sales campaigns and more generally, arrangements with developers and
manufacturers of outsourced components, privileged advice by investment advisors on pricing and
other terms of financial instruments, as well as other information pertaining to customers and
suppliers that allegedly is not in the public domain. Furthermore, the particular market structure
within which these companies operate does not allow fo r the aggregation of data in a way that would
expose specific companies to a more limited risk of disclosure vis-à-vis potential competitors. Given
its nature, disclosure of the sensitive information on the record of this dispute may pose particular
risks and give rise to potential harm that justifies more detailed procedures for its protection. We are
also mindful that more than ten years have elapsed since the Appellate Body made its rulings in the
Brazil – Aircraft and Canada – Aircraft disputes, and since then several WTO panels have provided
for additional protection of sensitive information.
12

11Ruling of 11 June 1999 (quoted in relevant part in Appellate Body Report, Brazil – Aircraft ,
12Procedures governing the treatment of sensitive information were adopted by the panels in, for
example, the Brazil – Aircraft and Canada – Aircraft disputes, and by subsequent panels in Canada – Wheat
Exports and Grain Imports ; EC – Salmon (Norway) ; EC – Approval and Marketing of Biotech Products ;
Egypt – Steel Rebar; Korea – Commercial Vessels; Mexico – Steel Pipes and Tubes; and US – Wheat Gluten.
BCI deleted, as indicated [***] WT/DS316/AB/R

28. For the reasons set out above, we have d ecided to provide additional confidentiality
protection on the terms set out below. Accordingl y, we adopt the following additional procedures for
the purposes of this appeal:

Additional Procedures to Protect Sensitive Information

General

(i) These additional procedures shall apply to information that was treated as business
confidential information ("BCI") or as highly sensitive business information ("HSBI") in the
Panel proceedings and that is contained in docum ents or electronic media that are part of the
Panel record. The additional procedures apply to written and oral submissions made in the
appellate proceedings only to the extent that th ey incorporate information that was treated as
BCI or HSBI in the Panel proceedings.

(ii) To the extent that information on the record is submitted to the Appellate Body in a form that
differs from the way in which it was presented to the Panel, and there is a disagreement
between the participants on the proper treatment of this information, the Appellate Body shall
decide after hearing their views.
13

(iii) Each participant may at any time request that information that it has submitted and that was
previously treated as BCI or HSBI no longer be treated as such.

(iv) The participants and third participants shall f ile their written submissions with the Appellate
Body Secretariat in accordance with the Working Schedule drawn up by the Division for this
appeal. Where a written submission contains BCI or HSBI, a redacted version of the
submission (that is, a version w ithout BCI and HSBI) shall be filed simultaneously with the
Appellate Body Secretariat. The redacted vers ion shall be sufficient to permit a reasonable
understanding of its substance. The Division may take appropriate action to ensure that this
obligation is satisfied. The participants and thir d participants shall also provide the Appellate
Body Secretariat with an electronic version of all submissions, including the redacted
versions. The transmittal of participants' submissions to each other and to the third
participants, and the transmittal of third participants' submissions to the participants and to the
other third participants, are further regulated below.

Appellate Body Members and Appellate Body Secretariat Staff
(v) Only Appellate Body Members, and staff of th e Appellate Body Secretariat who have been
assigned by the Appellate Body to work on this appeal, may have access to the BCI and HSBI
on the Panel record and in the written and oral submissions made in these appellate
proceedings. Appellate Body Members and assigned Appellate Body Secretariat staff shall
not disclose BCI or HSBI, or allow either to be disclosed, to any person other than those
identified in the preceding sentence or to appr oved persons of the pa rticipants and third
participants in the context of the oral h earings. Appellate Body Members and assigned
Appellate Body Secretariat staff are covered by the Rules of Conduct. As provided for in the
Rules of Conduct, evidence of breach of these Rules may be submitted to the Appellate Body,
which will take appropriate action.

13See Appellate Body Report, Chile – Price Band System (Article 21.5 – Argentina), para. 13.
WT/DS316/AB/R BCI deleted, as indicated [***]

(vi) BCI shall be stored in locked cabinets when not in use. Except as provided in paragraphs
(vii) and (x) below, BCI shall not be removed from the premises of the Appellate Body
Secretariat.

(vii) Appellate Body Members who are serving on the Division hearing this appeal may maintain a
copy of all relevant documents containing BCI at their places of residence outside Geneva.
Appellate Body Members who are not serving on the Division may maintain at their places of
residence outside Geneva a copy of the BCI ve rsion of the Panel Report, a copy of the BCI
version of the written submissions made in thes e appellate proceedings, a BCI version of the
transcripts of any oral hearings, any inte rnal documents containing BCI, and, where
necessary, selected BCI exhibits from the Pa nel record. The documents and materials
containing BCI kept by Appellate Body Members at their places of residence outside of
Geneva shall be stored in locked cabinets when not in use. Documents and materials
containing BCI shall only be sent to Appellate Body Members by secure e-mail or courier.

(viii) Participants shall provide printed copies of th eir submissions and other documents containing
BCI that are intended for use by Appellate Body Members or assigned Appellate Body
Secretariat staff on coloured paper and indivi dually watermarked with "Appellate Body" and
numbered consecutively ("Appellate Body No. 1", "Appellate Body No. 2", etc.).

(ix) All HSBI shall be stored in a combination safe in a designated secure location on the premises
of the Appellate Body Secretariat. Any com puter in that room shall be a stand-alone
computer, that is, not connected to a netw ork. Appellate Body Members and assigned
Appellate Body Secretariat staff may view HSBI only in the designated secure location
referred to above. HSBI shall not be remove d from this location, except as provided in
paragraph (x) or in the form of handwritten notes that may be used only on the Appellate
Body Secretariat's premises and shall be destroyed once no longer in use.

(x) Subject to appropriate precautions, BCI and HSBI may be taken outside of the premises of the
Appellate Body Secretariat, in hard copy and electronic form, for purposes of any oral
hearings that may be held in connection with this appeal.

(xi) Except as provided in paragraph (xii), all docum ents and electronic files containing BCI and
HSBI shall be destroyed or deleted when the Ap pellate Body report in this dispute has been
adopted by the DSB.

(xii) The Appellate Body shall retain one hard copy and one electronic version of all documents
containing BCI and HSBI as part of the appella te record. Documents and electronic media
containing BCI shall be kept in sealed boxes within locked cabinets on the Appellate Body
Secretariat's premises. Documents and electronic media containing HSBI shall be placed in a
sealed container that will be kept in a combination safe on the premises referred to above.

Appellate Body Report
(xiii) The Division will make every effort to draft an Appellate Body report that does not disclose
BCI or HSBI by limiting itself to making statements or drawing conclusions that are based on
BCI and HSBI. A copy of the Appellate Body report intended for circulation to WTO
Members will be provided in advance to the par ticipants, at a date to be specified by the
Division. Participants will be provided with an opportunity to request the removal of any BCI
or HSBI that is inadvertently included in the report. The Division will also indicate to the
participants if it has found it necessary to incl ude in the Appellate Body report information
that was treated by the Panel as BCI or HS BI and will provide participants with an
opportunity to comment. Comments on the inclusion of information previously treated as
BCI deleted, as indicated [***] WT/DS316/AB/R

BCI or HSBI and requests for removal of BCI or HSBI inadvertently included in the report
shall be filed with the Appellate Body Secretar iat within a time period to be specified by the
Division. No other comments or submissions shall be accepted. In coming to a decision on
the need to include BCI or HSBI to ensure that a report is rendered that is understandable, the
Division will strike an appropriate balance between the rights of the WTO membership at
large to obtain a report that gives a sufficient exposition of its reasoning and findings, on the
one hand, and the legitimate concerns of the par ticipants to protect sensitive information, on
the other.

Participants
(xiv) The participants shall provide a list of persons that are "BCI-Approved Persons" and that are
"HSBI-Approved Persons". These lists shall be provided to the Appellate Body Secretariat by
12 August 2010 and shall be served on the other pa rticipant and the third participants. Any
objections to the designation of an outsid e advisor as a BCI-Approved Person or HSBI-
Approved Person must be filed with the Appella te Body Secretariat and served on the other
participant by 13 August 2010. The Division will only reject a request for designation of an
outside advisor as a BCI-Approved Person or an HSBI-Approved Person upon a showing of
compelling reasons, having regard to, inter alia, the relevant principles reflected in the Rules
of Conduct and the illustrative list in Annex 2 ther eto. BCI-Approved Persons and HSBI-
Approved Persons shall not disclose BCI or HSBI, or allow either to be disclosed, except to
the Appellate Body, assigned Appellate Body Secretariat staff, other BCI-Approved Persons
and HSBI-Approved Persons, and Third Participant BCI-Approved Persons.

(xv) Any participant referring in its written submissions to any BCI or HSBI shall clearly identify
the information as such in those submissions . Submissions containing BCI shall be
transmitted only to BCI-Approved Persons. If th e submissions contain HSBI, the HSBI shall
be included in an Appendix. In that case, th e version of the submission that includes the
HSBI Appendix shall be transmitted only to HSBI-Approved Persons. The HSBI Appendix
shall not be transmitted via e-mail. Each par ticipant shall simultaneously provide a redacted
version of its submissions to the other participan t, which shall have two days to object to the
inclusion of any BCI. If there are objections, the Division shall resolve the matter, and
transmit the correctly redacted version to the other participant and the third participants,
unless the participant making the submission ag rees to remove the information that was
subject to the objection. If there are no objections, the redacted version shall be transmitted
the following day to the third participants.

Third Participants
(xvi) Third participants may designate up to six individuals as "Third Participant BCI-Approved
Persons". For this purpose, each third partic ipant shall provide a list of Third Participant
BCI-Approved Persons to the Appellate Body S ecretariat by 12 August 2010. A copy of the
list of Third Participant BCI-A pproved Persons shall be serve d on each participant and on
each other third participant. The participants may object to the designation of an outside
advisor as a Third Participant BCI-Approved Pers on. Objections must be filed with the
Appellate Body Secretariat by 13 August 2010. The Division will only reject the designation
of an outside advisor as a Third Partic ipant BCI-Approved Person upon a showing of
compelling reasons, having regard to, inter alia , the relevant principles in the Rules of
Conduct and the illustrative list in Annex 2 thereto. Third Participants BCI-Approved
Persons shall not disclose BCI, or allow it to be disclosed, except to the Appellate Body,
assigned Appellate Body Secretariat staff, BCI-Approved Persons, and other Third Participant
BCI-Approved Persons.
WT/DS316/AB/R BCI deleted, as indicated [***]

(xvii) The BCI version of all participants' submissions shall be transmitted to the third participants
by providing a copy to the Appellate Body Secretariat for placement in the designated reading
room located on the premises of the WTO. Th ird Participant BCI-Approved Persons shall be
allowed to view in the designated reading room the BCI version of the Panel Report and the
BCI version of the submissions filed in these appellate proceedings. Third Participant BCI-
Approved Persons shall not bring into that room any electronic recording or transmitting
devices, nor shall they remove copies of the BCI version of the Panel Report or the BCI
version of the submissions from that room. Each third participant shall be provided with one
copy of the Panel Report as circulated to WT O Members and of the redacted version of the
submissions for use in the reading room. Th ird Participant BCI-Approved Persons may take
handwritten notes on the provided copies of the ci rculated Panel Report and redacted version
of the submissions and they may take these copies with them. These documents shall be
printed on coloured watermarked paper; shall bear the names of the Third Participant BCI-
Approved Persons; state that "This document is not to be copied"; and the cover page of
each of the documents shall state that any ha ndwritten BCI added to the document shall only
be discussed or shared with other Third Par ticipant BCI-Approved Persons. The content of
any handwritten notes shall not be incorporated , electronically or in handwritten form, into
any other copy of the Panel Report or of th e submissions. These documents and any other
handwritten notes taken by the Third Participan t BCI-Approved Persons in the reading room
shall be locked in a secure container wh en not in use. These documents and those
handwritten notes must be returned to the Appe llate Body Secretariat after the final oral
hearing held in this appeal.

(xviii) Each Third Participant BCI-Approved Person vi ewing the BCI version of the Panel Report
and submissions in the designated reading room shall complete and sign a log. The Appellate
Body Secretariat shall keep such log as part of the record of the appeal.

(xix) If a third participant wishes to refer in its th ird participant's submission to any BCI, it shall
clearly identify such information, and the subm ission shall be transmitted to the participants,
and to the other third participants by providing a copy to the Appellate Body Secretariat for
placement in the designated reading room referre d to in paragraph (xvii) above. The third
participant shall also simultaneously provide the participants with a redacted version of their
submissions. The participants shall have two days to object to the inclusion of any BCI in the
redacted version of the third participant's su bmission. If there are objections, the Division
shall resolve the matter, and transmit the correctly redacted version to the participants and the
other third participants, unless the third par ticipant making the submission agrees to remove
the information that was subject to the objecti on. If there are no objections, the redacted
submission shall be transmitted the following da y to the participants and the other third
participants.

Oral Hearing
(xx) Appropriate procedures shall be adopted to protect BCI and HSBI from unauthorized
disclosure at any oral hearing held in this appeal.
BCI deleted, as indicated [***] WT/DS316/AB/R

ANNEX IV

Procedural Ruling and Additional Procedures on the Conduct of the Oral Hearings

27 October 2010

European Communities and Certain Member

AB-2010-1

Procedural Ruling

Introduction
1. On 21 July 2010, the Appellate Body Division hearing the above appeal received a joint
request from the European Union and the United St ates to adopt additional procedures to protect
certain sensitive information submitted in this disput e. In their joint letter, the European Union and
the United States also requested that the oral hearings in this appe al be opened to public observation
to the extent that this is possible given the existence of sensitive information.

2. After receiving comments from the third participants and holding a special oral hearing on
this subject, the Division issued a Procedural Ruling on 10 August 2010 adopting additional
procedures to protect sensitive information on the r ecord of this appeal. Paragraph 28(xx) of the
Procedural Ruling on 10 August 2010 states that appr opriate procedures shall be adopted to protect
sensitive information from unauthorized disclosure during any oral hearings held in this appeal.

3. On 24 September 2010, the Division invited the European Union and the United States to
clarify the extent to which they request the oral hearings in this appeal to be open to public
observation, and to propose specific modalities in this respect. The third participants were also
invited to comment, if they so wished, on the Eu ropean Union's and the United States' request for
public observation and on the specific modalities proposed.
1

4. We received a joint letter from the European Union and the United States on 5 October 2010
with their clarifications and proposals concerning modalities for the oral hearings. In their joint letter,
the participants suggested that the Division adopt a further Procedural Ruling pursuant to Rule 16(1)
of the applicable Working Procedures for Appellate Review (the " Working Procedures")
2 to regulate
the conduct of the oral hearings in the light of th e request for public observation and the existence of
sensitive information. According to the participan ts, this "will involve striking a balance between the
systemic interest in protecting sensitive information and the systemic interest in transparency similar
to that struck in the Procedural Ruling dated 10 August 2010." 3 In particular, the participants
indicated that, with respect to the protection of business confidential information ("BCI"), "each of
them is precluded from disclosi ng information designated BCI by the other to non-BCI approved
persons" and that "{t}hird participants are pr ecluded from disclosing BCI to non-BCI approved
persons." As regards the protection of highl y sensitive business information ("HSBI"), the
participants proposed two options. Under the firs t option, "if, during the hearing, one of the

1At the request of the participants, the deadline for the submission of their clar ifications and proposals
concerning the oral hearings was extended by four days. The deadline for the third participants to file comments
was also extended by four days.
2WT/AB/WP/5, 4 January 2005.
3Joint letter from the European Union and the United States, dated 5 October 2010.
WT/DS316/AB/R BCI deleted, as indicated [***]

participants or a Member of the Division wishes to refer to HSBI, the hearing is temporarily
suspended and third participants, as well as member s of the participants' delegations who are not
HSBI approved, are asked to temporarily leave the room". Under the second option, the hearings
would be divided into two parts. The first part of the oral hearings "would deal with all matters to the
greatest extent possible, and without uttering HSBI." The second part of the oral hearings would be
devoted to discussing HSBI. The participants acknowle dge that "{n}either of these options is ideal in
all respects" and add that, "on balance", they would prefer the second option as it would limit
unnecessary disruption during the oral hearings.

5. As regards observation of the oral hearings by the public, the participants have some common
views and some differences of opinion as to the exte nt to which the oral hearings should be open to
observation. Both participants are of the view th at sensitive information should not be disclosed to
the public. The participants submit that, "in principle, it would be desirable that as much of the
hearing as possible should be open to the public", but "recognize that in light of the volume of BCI in
this dispute, and its centrality to many of the issu es, it may not be feasible to separate the Appellate
Body questions and participant answers into p ublic and BCI sessions". While the United States
indicates that it "remains open to any suggestions th at the Appellate Body may have to advance the
systemic interest in transparency in a manner consis tent with the systemic interest in protecting BCI",
the European Union "does not agree to open any pa rt of the question and answer session of the
hearing to the public." The participants propose to deliver opening statements that do not contain BCI
or HSBI. They further propose that the third par ticipants would also agree to exclude any BCI from
their opening statements. Furthermore, the par ticipants propose that the opening statements be
videotaped, reviewed if necessary by the participan ts for confirmation that neither BCI nor HSBI has
been uttered (with any disagreements to be settled by the Appellate Body), an d then be shown to the
public in a separate room soon thereafter. The partic ipants also propose that such an approach could
be used for the closing statements, or at least that part of them that does not refer to BCI or HSBI.
The participants attached to their joint letter dr aft additional procedures for the conduct of the oral
hearings.

6. Comments on the request of the participants were submitted by Australia, Brazil, Canada, and
Japan. Australia reiterates its support for the transp arency of WTO dispute settlement proceedings as
a means of enhancing the credibility of the dispute se ttlement system. Australia indicated that it "has
no objection to making a statement or answering questi ons in an open hearing as a third participant".
4
In addition, Australia suggests that the question and answer part of the oral hearings could be divided
in a way that would facilitate transparency. Au stralia notes that delayed transmission of the
proceedings to the public could ensure that sens itive information is not disclosed inadvertently.
Canada too reiterates its support for increased transp arency in the WTO dispute settlement process as
a means to reinforce the legitimacy of this proce ss. With respect to the protection of sensitive
information during the oral hearings, Canada requ ests that any procedures adopted by the Appellate
Body for the conduct of the oral hearings provide that a single copy of the BCI version of the
submissions filed in the appellate proceedings a nd a single copy of the BCI version of the Panel
Report be made available to the third participants during any BCI sessions of the oral hearings. For
its part, Brazil recalls that Article 17.10 of the DSU provides that the "proceedings of the Appellate
Body shall be confidential", and reiterates its view that these "proceedings" include the oral hearing
and thus the DSU does not allow for public observati on. Brazil agrees with Canada's proposal that
third participants be allowed to vi ew the BCI version of the submissions filed in this appeal and the
BCI version of the Panel Report during any BCI sessions of the oral hearings. Finally, Japan supports
the participants' request to allow public observation of the oral hearings. Japan indicates its readiness
to make its opening and closing statements, and to answer questions, in a public session. No
comments in writing were received from China and Korea.

4Australia's comments dated 8 October 2010.
BCI deleted, as indicated [***] WT/DS316/AB/R

7. Two issues are before us in relation to the c onduct of the oral hearings in this appeal.
5 First,
we need to consider the implications for the conduct of the oral hearings of our Procedural Ruling of
10 August 2010 concerning the protection of sensitive information. Second, we must decide whether
to authorize public observation of the oral hearings. In deciding this second is sue, we must keep in
mind any arrangements that we adopt to protect sensitive information during the oral hearings.

8. In our Procedural Ruling of 10 August 2010, we noted that the confidentiality requirements
set out in Articles 17.10 and 18.2 of the DSU, and in paragraph VII:1 of the Rules of Conduct for the
Understanding on Rules and Procedures Governing the Settlement of Disputes 6, are stated at a level
of generality that may need to be particularized in situations in which the nature of the information
provided requires more detailed arrangements to pr otect adequately the confidentiality of that
information. We further observed that the adoption of such arrangements falls within the authority of
the Appellate Body to hear the a ppeal and to regulate its procedures in a manner that ensures that the
proceedings are conducted with fairness and in an or derly manner. In addition, we stated that the
determination of whether particular arrangements are appropriate in a given case essentially involves
a balancing exercise: the risks associated with the disclosure of the information sought to be
protected must be weighed against the degree to which the particular arrangements affect the rights
and duties established in the DSU, th e other covered agreements, or the Working Procedures .
Participants requesting particularized arrangeme nts have the burden of justifying that such
arrangements are necessary in a given case to protect adequately certain information, taking into
account the rights and duties recognized in the DSU, the other covered agreements, and the Working
Procedures.

9. Our Procedural Ruling of 10 August 2010 also identified the rights and duties that are
implicated where additional protection is under consideration. First, there is the overarching authority
of the Appellate Body pursuant to Article 17 of the DSU to ensure proper adjudication of the dispute.
Second, there are the rights of the participants to present their case, have their dispute adjudicated, and
to enjoy due process throughout the proceedings. Third, there are the rights of the third participants
who, in accordance with Article 17.4 of the DSU, "m ay make written submissions to, and be given an
opportunity to be heard by, the Appellate Body." Fina lly, we referred to the rights and interests of the
WTO membership at large.

10. We believe that the considerations that we set out in our Procedural Ruling of 10 August 2010
also apply to our decision concerning the conduct of the oral hearings in this appeal.

Protection of Sensitive Information during the Oral Hearings

11. Given the amount of information that was treated as BCI or HSBI during the Panel
proceedings in this appeal, it is difficult to con ceive of how the oral hearings in these appellate
proceedings can be conducted without referring to su ch information. Even if the participants and
third participants abstain from referring to BCI or HSBI in their opening and closing statements, it
will be necessary to address BCI and HSBI in our questions and in the responses to these questions.
Thus, in carrying out our adjudicative function, it w ill be necessary to conduct the oral hearings in a
manner that allows us to explore issues that invol ve sensitive information, wh ile ensuring that this
sensitive information is not improperly disclosed.

5We recall that we anticipate holding two oral hearings in this appeal as was indicated in our letter to
the participants and third participants of 2 September 2010.
6The Rules of Conduct , as adopted by the DSB on 3 December 1996 (WT/DSB/RC/1), were directly
incorporated into the Working Procedures for Appellate Review (WT/AB/WP/5), as Annex II thereto. (See
WT/DSB/RC/2, WT/AB/WP/W/2)
WT/DS316/AB/R BCI deleted, as indicated [***]

12. Oral hearings in appellate proceedings are c onducted in the presence of the participants and
third participants in accordance with the Working Procedures. It has not been our practice to interfere
with the composition of the delegations of the partic ipants and third participants attending the oral
hearings. On the contrary, the Appellate Body has said that it could "find nothing in the Marrakesh
Agreement Establishing the World Trade Organization ..., the DSU or the Working Procedures, nor in
customary international law or the prevailing prac tice of international tribunals, which prevents a
WTO Member from determining the composition of its delegation in Appella te Body proceedings".
7
Nevertheless, some limits may be required in this appeal to protect sensitive information.

13. The participants have indicated that they do not intend to refer to BCI or HSBI in their
opening statements. None of the third participants h as indicated that it intends to refer to BCI in its
opening statement. Given that it is unlikely that sen sitive information will be uttered in this segment
of the oral hearings, we see no reason why all memb ers of delegations of the participants and third
participants could not attend this segment of the or al hearings. The participants have tentatively
suggested that they will not refer to sensitive info rmation in their closing statements, but are less
definitive in this respect. To the extent that it is confirmed by the participants—and also the third
participants indicate—that no sensitive information w ill be referred to in the closing statements, all
members of the participants' and third participants' de legations may attend this final stage of the oral
hearings.

14. We noted earlier that it will be necessary to address BCI and HSBI in our questions at the oral
hearings. Pursuant to paragraph 28(xiv) of our Procedural Ruling of 10 August 2010, the participants
have provided a list of persons who are authorized to have access to BCI and a list with a more
limited number of persons who are authorized to have access to HSBI.
8 These limitations on the
participants' representatives who would be author ized to discuss BCI and HSBI during the oral
hearings are incidental to the participants' request for additional protection for sensitive information.
Therefore, only members of the participants' delega tions who have been authorized to have access to
BCI are invited to attend the sessions of the oral hearings in which BCI will be discussed, and only
members of their delegations who are authorized to have access to HSBI are invited to attend
segments of the oral hearings where HSBI will be discussed.

15. Under paragraph 28(xvi) of the Procedural Ruli ng of 10 August 2010, the third participants
have been allowed to designate up to six indivi duals as "Third Participant BCI-Approved Persons".
This provides for a higher number of designated indi viduals compared to what was proposed by the
participants. We note that none of the third partic ipants has indicated that the number of individuals
who could be designated as Third Participant BCI-Approved Persons w as inadequate for them to be
represented properly at the oral hearings. In view of the need to provide additional protection to BCI,
only Third Participant BCI-Approved Persons are inv ited to attend segments of the oral hearings
where BCI may be discussed, including the question and answer sessions. For the reasons stated
above, we do not consider that this will unduly impinge upon the rights of the third participants in this
case.

7Ruling of 15 July 1997, quoted in Appellate Body Report, European Communities – Regime for the
Importation, Sale and Distribution of Bananas, WT/DS27/AB/R, adopted 25 September 1997, DSR 1997:II, 591,
para. 10.
8In a letter dated 27 October 2010, the Division authorized certain changes to the European Union's list
of BCI- and HSBI-Approved Persons, and a change to Canada's list of Third Participant BCI-Approved Persons.
BCI deleted, as indicated [***] WT/DS316/AB/R

16. Canada has requested that third participants have access to the BCI version of the submissions
filed in this appeal and the BCI version of the Pa nel Report during any segments of the oral hearings
in which BCI is discussed. Brazil has indicated it s support for Canada's request. Pursuant to our
Procedural Ruling of 10 August 2010, Third Participant BCI-Appr oved Persons have had access to
the BCI version of the submissions filed in this a ppeal and the BCI version of the Panel Report in a
designated reading room. We agree that access to th ese documents at the oral hearings will facilitate
the participation of the third participants during th e discussions involving BCI. At the same time, we
do not consider that giving Third Participant BCI-A pproved Persons' access to these documents at the
oral hearings will bring an increased risk of unauthorized disclosure. Hence, we will provide the third
participants the BCI version of the submissions file d in this appeal and the BCI version of the Panel
Report in the hearing room during the BCI sessions. Third participants will be provided with a single
copy of these documents, individua lly watermarked. Access to these documents will be limited to
Third Participant BCI-Approved Persons.

17. Third participants do not have access to HSBI under our Procedural Ruling of 10 August
2010.
9 We also observe that, in the present case, none of the third participants had expressed specific
concerns in their written comments or at the speci al oral hearing about not having access to the most
sensitive information. On the contrary, several thir d participants expressed support, in principle, for
the limitation on access to the most sensitive informa tion. None of the third participants has
expressed a different view concerning access to HSBI during the oral hearings. In the light of the
above, only HSBI-Approved Persons of the participan ts are invited to attend segments of the oral
hearings in which HSBI will be discussed.

18. The participants have proposed two options fo r addressing HSBI during the oral hearings.
The first involves interrupting the oral hearing each time reference will be made to HSBI, the second
option involves having dedicated sessions to discu ss HSBI. We think it is important that any
additional procedures to protect sensitive inform ation should interfere as little as possible with the
regular conduct of the oral hearings and allow th e Division to organize its questions logically by
topics. Therefore, to the extent possible, we pref er to focus on HSBI in dedicated sessions in order to
avoid interrupting the regular flow of the oral heari ngs. It may be, however, that the full exploration
of an issue will not allow for deferral of the discussi on of HSBI. If such circumstances arise, we do
not exclude the possibility of interrupting the oral hearings to discuss the HSBI with the persons
approved to have access to it.

9We recognized at the time that, under Article 17.4 of the DSU and Rule 24 of the Working
Procedures, third participants may make written submissions to, and be given an opportunity to be heard by, the
Appellate Body. Rule 18(2) of the Working Procedures furthermore provides that, "{e}xcept as otherwise
provided in these Rules, every document filed by ... a participant ... or a third participant shall be served on each
of the ... third participants in the ap peal". However, we noted that the rights of third participants are more
limited than those of the participants, and that the thir d participants' interests lie mainly in the correct legal
interpretation of the provisions of the WTO agreements. See paragraph 9 of the Pr ocedural Ruling issued in
United States – Continued Suspension of Obligations in the EC – Hormones Dispute and Canada – Continued
Suspension of Obligations in the EC – Hormones Dispute, attached as Annex IV to the Appellate Body Reports,
WT/DS320AB/R and WT/DS321/AB/R, respectively.
WT/DS316/AB/R BCI deleted, as indicated [***]

Request for Public Observation of the Oral Hearings

19. Turning to the participants' request to authorize observation of the oral hearings by the public,
we recall that requests to allow public observation of the oral hearing have been made, and have been
authorized, in six appellate proceedings. 10 In its rulings, the Appellate Body has held that it has the
power to authorize such requests by the partic ipants, provided that this does not affect the
confidentiality in the relationship between the third pa rticipants and the Appellate Body, or impair the
integrity of the appellate process.

20. The Appellate Body has also noted that public observation in previous cases operated
smoothly, and that the rights of third participants w ho did not wish to have their oral statements made
subject to public observation were fully protected.

21. Particular issues arise in this appeal in relati on to the public observation of the oral hearings
because of the need to provide additional prot ection to certain sensitive information. More
specifically, neither participant wishes to see a ny BCI or HSBI disclosed to the public. The
participants have proposed that the public be allo wed to observe the opening statements and, to the
extent that they do not include any sensitive information, the closing statements. The European Union
has asserted that it "does not agree to open any part of the question and answer session of the hearing
to the public." For its part, the United States has in dicated that it "remains open to any suggestions
that the Appellate Body may have to advance the systemic interest in transparency in a manner
consistent with the systemic interest in protecting BCI."

22. We note that the European Union's and the Unite d States' request for authorization of public
observation of the oral hearings is a joint request only with respect to the opening statements and,
with a caveat, the closing statements. Althou gh we have some reserv ations about an overly
segmented approach to public observation because it risks providing an incomplete picture of the
Appellate Body hearings, we also recall that the need to protect sensitive information in this case
raises particular concerns with respect to the obser vation of the oral hearings by the public. In the
light of the above, we authorize the public observa tion of only the opening statements. We will
authorize public observation of the closing statemen ts of participants upon indication from them that
they will not include any references to sensitive information in them.

23. Some of the third participants have stated that they do not intend to refer to sensitive
information in their opening statements and they have no objection to allowing public observation of
these statements. Accordingly, we authorize the ob servation by the public of the opening statements
of those third participants who have not indicated any objection to doing so. We will also authorize
public observation of the closing statements of a th ird participant provided that the third participant
indicates that it will not include any reference to sensitive information in such statements. The
confidentiality of closing statements by third particip ants who do not wish to make their statements
public will be preserved.

10These proceedings are: United States – Continued Suspension of Obligations in the EC – Hormones
Dispute (WT/DS320AB/R) and Canada – Continued Suspension of Obligations in the EC – Hormones Dispute
(WT/DS321/AB/R); European Communities – Regime for the Importation, Sale and Distribution of Bananas –
Second Recourse to Article 21.5 of the DSU by Ecuador (WT/DS27/AB/RW2/ECU) and European
Communities – Regime for the Importation, Sale and Distribution of Bananas – Recourse to Article 21.5 of the
DSU by the United States (WT/DS27/AB/RW/USA); United States – Continued Existence and Application of
Zeroing Methodology (WT/DS350/AB/R); United States – Laws, Regulations and Methodology for Calculating
Dumping Margins ("Zeroing") – Recourse to Article 21.5 of the DSU by the European Communities
(WT/DS294/AB/RW); United States – Measures Relating to Zeroing and Sunset Reviews – Recourse to
Article 21.5 of the DSU by Japan (WT/DS322/AB/RW); and Australia – Measures Affecting the Importation of
Apples from New Zealand {WT/DS367/AB/R}.
BCI deleted, as indicated [***] WT/DS316/AB/R

24. In previous appeals in which we have authorized public observation of the oral hearing, this
has been done by simultaneous transmission to the public in a separate room via closed-circuit
television broadcast. In this appeal, the participan ts have proposed that public observation take place
by making a videotape of the relevant segments of the oral hearings and showing it to the public soon
thereafter, after the participants have had an oppor tunity to check for any inadvertent utterance of
sensitive information. We agree with the particip ants that deferred transmission to the public by
videotape would minimize the risk of inadvertent di sclosure of sensitive information and we will give
the participants an opportunity to review the vide otape for this purpose before it is shown to the
public. In case of disagreement between the particip ants regarding the sensitive nature of certain
information referred to during the opening or closing statements, that information will not be subject
to public observation.

25. For the reasons set out above, we have d ecided to provide additional confidentiality
protection for certain sensitive information during the oral hearings to be held in this appeal on the
terms set out below. We also authorize the public observation of certain segments of the oral hearings
as further indicated below. Accordingly, we adopt the following additional procedures for the
purposes of this appeal:

Additional Procedures on the Conduct of the Oral Hearings

Protection of Sensitive Information During the Oral Hearings

(i) These additional procedures shall apply to the oral he arings to be held in this appeal and, in
particular, to any information that is referred to in the oral hearings that was treated as
business confidential information ("BCI") or as highly sensitive business information
("HSBI") in the Panel proceedings and that is contained in documents or electronic media that
are part of the Panel record. These add itional procedures complement the additional
procedures for the protection of sensitive info rmation that we adopted as part of our
Procedural Ruling of 10 August 2010.
(ii) To the extent that information on the record is presented at the oral hearings in a form that
differs from the way in which it was presented to the Panel, and there is a disagreement
between the participants on the proper treatment of the degree of confidentiality of this
information, the Appellate Body shall decide the matter after hearing the views of the
participants.
11

(iii) Appellate Body Members, Secretariat staff assi gned by the Appellate Body to work on this
appeal, and interpreters and court reporters retained for this appeal, may be present
throughout the oral hearings, including segments dedicated to the discussion of BCI and
HSBI.

(iv) In addition to the persons indicated in subpara graph (iii) above, BCI shall be disclosed during
the oral hearings only to BCI-Approved Persons of the participants and Third Participant
BCI-Approved Persons.
12

11See Appellate Body Report, Chile – Price Band System and Safeguard Measures Relating to Certain
Agricultural Products, WT/DS207/AB/R, adopted 23 October 2002, DSR 2002:VIII, 3045, para. 13.
12BCI-Approved Persons and Third Participant BCI-Approved Persons are those persons designated as
such under paragraphs 28(xiv) and 28(xvi) of our Procedural Ruling of 10 August 2010.
WT/DS316/AB/R BCI deleted, as indicated [***]

(v) In addition to the persons indicated in subpara graph (iii) above, HSBI shall be disclosed
during the oral hearings only to HSBI-Approved Persons of the participants.
13

(vi) The oral hearing session dedicated to the opening statements of the participants and third
participants shall be open to all members of the delegations of participants and third
participants. The participants and third par ticipants shall abstain from referring to BCI or
HSBI in their opening statements.

(vii) In order to protect BCI from unauthorized disclosure, only BCI-Approved Persons of the
participants and Third Participant BCI-Approve d Persons are invited to attend the question
and answer sessions.

(viii) Segments of the oral hearing may be reserve d for questioning on issues that may require
making reference to HSBI. In order to protect HSBI from unauthorized disclosure, only
HSBI-Approved Persons of the participants are invited to attend these sessions.

(ix) To the extent that any participant or third pa rticipant indicates that it will make reference to
BCI in its closing statement, only BCI-Approve d Persons of the participants and Third
Participant BCI-Approved Persons will be invited to attend the closing sessions.

(x) If necessary, the Division hearing this appeal may interrupt a BCI session and hold a session
dedicated to HSBI.

(xi) During the sessions of the oral hearings that address BCI, each third participant shall be
provided with a copy of the BCI version of the Panel Report and a BCI version of the
submissions filed in this appeal, which have been printed and individually watermarked
pursuant to paragraph 28(xvii) of our Proce dural Ruling of 10 August 2010. Only Third
Participant BCI-Approved Persons shall be a llowed to consult these documents. The
documents shall not be removed from the hearing room and shall be returned to the Appellate
Body Secretariat at the end of each session addressing BCI.

(xii) The version of the transcript of the oral heari ngs containing BCI and HSBI shall become part
of the appellate record and shall be kept in accordance with the add itional procedures for the
protection of sensitive information set out in s ubparagraphs 28(vi), (vii), and (ix)-(xii) of our
Procedural Ruling of 10 August 2010.

Public Observation of the Oral Hearings

(xiii) The first session of the oral hearings, whic h will consist of the opening statements by
participants and third participants, shall be open to public observation. The final session of
the oral hearings, which will be reserved for closing statements, shall be open to public
observation to the extent that the participants a nd third participants indicate that such closing
statements will not refer to any sensitive information on record.

(xiv) The sessions open to public observation shall be videotaped. The participants shall be
allowed to review the videotapes to verify that BCI or HSBI has not been included
inadvertently or otherwise. Staff of the Appella te Body Secretariat shall be present while the
participants review the videotape. If the vide otape contains BCI or HSBI, a redacted version
of the videotape shall be produced in which the BCI or HSBI has been deleted. In case of
disagreement between the participants regardi ng the sensitive nature of certain information

13HSBI-Approved Persons are those persons designated as such under paragraph 28(xiv) of our
Procedural Ruling of 10 August 2010.
BCI deleted, as indicated [***] WT/DS316/AB/R

referred to during the opening or closing statements, the relevant segment(s) will not be
subject to public observation.

(xv) The opening and closing statements of thir d participants wishing to maintain the
confidentiality of their submissions will not be subject to public observation. Any third
participant who has not already done so may request that its oral statements remain
confidential and not be subject to public observati on. Such requests must be received by the
Appellate Body Secretariat no later than 5 p.m. Geneva time on Monday, 8 November 2010

(xvi) Notice of the oral hearings will be provided to the general public through the WTO website.
Members of the general public wishing to obser ve the oral hearings will be required to
register in advance with the WTO Secretariat. Once the review process referred to in
subparagraph (xiv) above has been completed, th e redacted version of the videotape shall be
screened to WTO delegates and members of the public who have registered to observe the
oral hearings. The time and location of th e videotape screening shall be announced in due
course. WTO Delegates are invited to indicate to the Appellate Body Secretariat, no later
than 5 p.m. Geneva time on Monday, 8 November 2010, whether they wish to have a reserved
seat in the room where the videotape will be screened.